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As filed with the Securities and Exchange Commission on October 16, 1997
Registration No. 333-31149
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MAGNUM HUNTER RESOURCES, INC.
(Exact name of registrants as specified in their charters)
Nevada
1311
87-0462881
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)
File No.333-31149-1 File No.333-31149-2
MAGNUM HUNTER PRODUCTION, INC. HUNTER GAS GATHERING, INC.
(Exact name of registrants (Exact name of registrants
as specified in their charters) as specified in their charters)
Texas Texas
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
75-2589131 75-1222501
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
File No.333-31149-3 File No.333-31149-4
GRUY PETROLEUM MANAGEMENT, INC. CONMAG ENERGY CORPORATION
(Exact name of registrants (Exact name of registrants
as specified in their charters) as specified in their charters)
Texas Texas
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
75-1074365 75-2715164
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
File No.333-31149-5
RAMPART PETROLEUM, INC.
(Exact name of registrants
as specified in their charters)
Texas
(State or other jurisdiction
of incorporated or organization)
75-1896997
(I.R.S. Employer Identification No.)
600 East Las Colinas Blvd., Suite 1200,
Irving, Texas 75039
(972) 401-0752
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Morgan F. Johnston, Esq.
600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75039
(972) 401-0752
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
David E. Morrison, Esq.
Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
(214) 969-1700
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
The Co-Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Co-Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION OCTOBER __, 1997
PROSPECTUS
Magnum Hunter Resources, Inc.
Offer to Exchange its
10% Senior Notes due 2007, That Have
Been Registered under the Securities Act of 1933,
As Amended, for Any and All of its Outstanding
10% Senior Notes due 2007
The Exchange Offer and Withdrawal Rights Will Expire at 5:00 p.m., New York
City Time, on _______________, 1997, Unless Extended (the "Expiration Date")
Magnum Hunter Resources, Inc., a Nevada 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, this
"Prospectus") and in the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange up to $140,000,000 aggregate
principal amount of its 10% Senior Notes due 2007 (the "Exchange Notes") that
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement (as defined herein) of
which this Prospectus constitutes a part, for a like aggregate principal amount
of its outstanding 10% Senior Notes due 2007 (the "Outstanding Notes" and,
together with the Exchange Notes and the Private Exchange Notes (as defined), if
any, the "Notes"), of which $140,000,000 aggregate principal amount is
outstanding.
The terms of the Exchange Notes are identical in all material respects to
the terms of the Outstanding Notes, except that (i) the Exchange Notes have been
registered under the Securities Act and therefore will not be subject to certain
restrictions on transfer applicable to the Outstanding Notes and generally will
not be entitled to registration rights, and (ii) the Exchange Notes generally
will not provide for any increase in the interest rate thereon related to such
registration rights. See "Description of the Exchange Notes" and "Description of
the Outstanding Notes." The Outstanding Notes were sold by the Company on May
29, 1997 to BT Securities Corporation, First Union Capital Markets Corp.,
Paribas Corporation and PaineWebber Incorporated (collectively, the "Initial
Purchasers") pursuant to an offering exempt from registration under the
Securities Act (the "Offering").
The Exchange Notes are being offered for exchange in order to satisfy
certain obligations of the Company and the Subsidiary Guarantors (as defined)
under the Registration Rights Agreement dated May 29, 1997 (the "Registration
Agreement") among the Company, the Subsidiary Guarantors and the Initial
Purchasers. Upon request of certain holders of Outstanding Notes, the Company
shall exchange for certain Outstanding Notes other notes (the "Private Exchange
Notes") identical to the Exchange Notes in all material respects, except for the
placement of a legend on such Private Exchange Notes. See "Description of the
Exchange Notes-Registration Agreement." The Exchange Notes will be issued under
the same Indenture (as defined) as the Outstanding Notes, and the Exchange
Notes, the Private Exchange Notes, if any, and the Outstanding Notes will
constitute a single series of debt securities under the Indenture. In the event
that the Exchange Offer is consummated, any Outstanding Notes that remain
outstanding after consummation of the Exchange Offer, the Exchange Notes issued
in the Exchange Offer and the Private Exchange Notes, if any, will vote together
as a single class for purposes of determining whether holders of the requisite
percentage in outstanding principal amount of Notes have taken certain actions
or exercised certain rights under the Indenture.
Interest on the Notes will accrue from their date of original issuance
(the "Issue Date") and will be payable semi-annually in arrears on June 1 and
December 1 of each year, commencing on December 1, 1997, at the rate of 10% per
annum. The Notes will be redeemable, in whole or in part, at the option of the
Company on or after June 1, 2002, at the redemption prices set forth herein,
plus accrued interest to the date of redemption. In addition, at any time on or
prior to June 1, 2000, the Company may, at its option, redeem up to 35% of the
aggregate principal amount of the Notes originally issued with the net cash
proceeds of one or more Equity Offerings (as defined), at a redemption price
equal to 110% of the aggregate principal amount of the Notes to be redeemed plus
accrued interest to the date of redemption; provided, however, that after giving
effect to any such redemption, at least 65% of the aggregate principal amount of
the Notes originally issued remains outstanding. Upon a Change of Control (as
defined), each holder of the Notes will have the right to require the Company to
repurchase such holder's Notes at a price equal to 101% of the principal amount
thereof, plus accrued interest to the date of repurchase. In addition, the
Company will be obligated to offer to repurchase the Notes at 100% of the
principal amount thereof plus accrued interest to the date of repurchase in the
event of certain Asset Sales (as defined). See "Description of the Exchange
Notes" and "Description of the Outstanding Notes."
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The Outstanding Notes are and the Exchange Notes will be general unsecured
obligations of the Company, ranking pari passu with any unsubordinated
indebtedness of the Company and senior in right of payment to all subordinated
obligations of the Company. The Outstanding Notes are and the Exchange Notes
will be unconditionally guaranteed (the "Guarantees") on a senior basis by
certain of the Company's subsidiaries (the "Subsidiary Guarantors"). The
Guarantees are general unsecured obligations of the Subsidiary Guarantors and
rank pari passu with any unsubordinated indebtedness of the Subsidiary
Guarantors and senior in right of payment to all subordinated obligations of the
Subsidiary Guarantors. The Outstanding Notes are and the Exchange Notes will be
effectively subordinated to all secured indebtedness of the Company and the
Subsidiary Guarantors to the extent of the value of the assets securing such
indebtedness. As of September 30, 1997, the Company had approximately $48
million of secured indebtedness outstanding (excluding unused commitments of $12
million under the New Credit Facility (as defined)), all of which is guaranteed
by the Subsidiary Guarantors.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange 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. This Prospectus may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company has
agreed that it will make this Prospectus available to any broker-dealer for such
period of time as is necessary to comply with applicable law in connection with
any such resale, provided that such time period generally not exceed 180 days
after the Registration Statement is declared effective.
See "Risk Factors" beginning on page 20 for a discussion of certain
factors that should be considered in connection with 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 PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October ___, 1997.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission (the "Commission"). These securities may not
be sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
such State.
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THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
MORGAN F. JOHNSTON, SECRETARY, MAGNUM HUNTER RESOURCES, INC., 600 EAST LAS
COLINAS BLVD., IRVING, TEXAS 75039 TELEPHONE (972) 401-0752. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY _________, 1997.
The Company is making the Exchange Offer in reliance on a 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 three immediately following sentences, the Company believes that the
Exchange Notes issued pursuant to this Exchange Offer in exchange for
Outstanding 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 (i) such Exchange Notes are acquired in the
ordinary course of such holder's business and (ii) 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 Exchange Notes. However, any holder of the Outstanding Notes who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or any broker-dealer who purchased Outstanding 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 Outstanding 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
Outstanding Notes unless such sale or transfer is made pursuant to an exemption
from such requirements. In addition, any holder who tenders Outstanding Notes in
the Exchange Offer with the intention or for the purpose of participating in a
distribution of the Exchange Notes cannot rely on such interpretations of the
staff of the Division of Corporation Finance of the Commission referred to above
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction. A
broker-dealer who is not an "affiliate" of the Company may participate in the
Exchange Offer with respect to Outstanding Notes acquired for its own account as
a result of market-making activities or other trading activities, provided that
(i) in connection with any resales of Exchange Notes received by the
broker-dealer in exchange for such Outstanding Notes, the broker-dealer delivers
a prospectus meeting the requirements of the Securities Act, and (ii) the
broker-dealer has not entered into any arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of such Exchange Notes. In the event that applicable interpretations by the
staff of the Division of Corporation Finance of the Commission change or
otherwise do not permit resales of the Exchange Notes without compliance with
the registration and prospectus delivery requirements of the Securities Act,
holders of Exchange Notes who transfer Exchange Notes in violation of the
prospectus delivery provisions of the Securities Act or without an exemption
from registration thereunder may incur liability thereunder.
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Each holder of Outstanding Notes who wishes to exchange such Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to represent
that (i) it is not an "affiliate" of the Company, (ii) any Exchange Notes to be
received by it are being acquired in the ordinary course of its business, and
(iii) at the time of consummation of the Exchange Offer such holder will have no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Notes in violation
of the Securities Act. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Outstanding Notes pursuant to the Exchange Offer
must acknowledge that it acquired the Outstanding Notes for its own account as a
result of market-making activities or other trading activities (a "Participating
Broker-Dealer"), and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange 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
Participating Broker-Dealers may fulfill the prospectus delivery requirements
with respect to the Exchange Notes received upon exchange of such Outstanding
Notes (other than Outstanding Notes that represent an unsold allotment from the
original sale of the Outstanding Notes) with a prospectus meeting the
requirements of the Securities Act that 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 Exchange Notes. Accordingly, this Prospectus
may be used by a Participating Broker-Dealer during the period referred to below
in connection with resales of Exchange Notes received in exchange for
Outstanding Notes where such Outstanding 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 Agreement, the Company has agreed that this Prospectus may be used
by a Participating Broker-Dealer for such period of time as is necessary to
comply with applicable law in connection with resales of such Exchange Notes,
provided that such time period generally not exceed 180 days after the
Registration Statement is declared effective. 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 "Plan of
Distribution" and "The Exchange Offer - Resales of Exchange Notes."
Each Participating Broker-Dealer will be deemed to have agreed, by its
acquisition of the Outstanding Notes or Exchange Notes to be sold by such
Participating Broker-Dealer, that, upon receipt of notice from the Company of
the occurrence of any event or the discovery of any fact which makes 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 Agreement, such Participating Broker-Dealer will suspend the sale
of Exchange 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 each such
Participating Broker-Dealer or until the Company has given notice that the sale
of Exchange Notes may be resumed, as the case may be. If the Company gives such
notice to suspend the sale of the Exchange 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 Exchange 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 Exchange Notes, or to and including the date on which the
Company has given notice that the sale of Exchange Notes may be resumed, as the
case may be.
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Prior to the Exchange Offer, there has been only a limited secondary
market and no public market for the Outstanding Notes. The Exchange Notes will
be a new issue of securities for which there is currently no market. While the
Company does intend to apply for listing of the Exchange Notes on the American
Stock Exchange, there can be no assurance as to the development or liquidity of
any market for the Exchange Notes. Although the Initial Purchasers have informed
the Company that they each currently intend to make a market in the Exchange
Notes, they are 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 Exchange Notes.
Any Outstanding Notes not tendered or 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 that terminate upon the consummation of the Exchange Offer).
Following consummation of the Exchange Offer, the holders of Outstanding Notes
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such holders (other than
under certain limited circumstances primarily relating to holders who are not
eligible to participate in the Exchange Offer) to provide the registration under
the Securities Act of the Outstanding Notes held by them. If Outstanding Notes
are tendered and accepted in the Exchange Offer, the trading market for
untendered Outstanding Notes is likely to diminish; accordingly, holders who do
not tender their Outstanding Notes may encounter difficulties in selling such
notes following the Exchange Offer. See "Risk Factors - Consequences of a
Failure to Exchange Outstanding Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OUTSTANDING NOTES ARE URGED TO READ THIS PROSPECTUS AND
THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR OUTSTANDING NOTES PURSUANT TO THE EXCHANGE OFFER.
Outstanding Notes may be tendered for exchange on or prior to 5:00
p.m., New York City time, on _________________, 1997, unless the Exchange Offer
is extended by the Company (the "Expiration Date"). Tenders of Outstanding Notes
may be withdrawn at any time thereafter on or prior to the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange. Outstanding Notes may be tendered
in whole or in part in a principal amount of $1,000 and integral multiples
thereof.
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Each Exchange Note will bear interest from the most recent date to
which interest has been paid or duly provided for on the Outstanding Note
surrendered in exchange for such Exchange Note or, if no such interest has been
paid or duly provided for on such Outstanding Note, from May 29, 1997. Holders
of the Outstanding Notes whose Outstanding Notes are accepted for exchange will
not receive accrued interest on such Outstanding Notes for any period from and
after the last interest payment date to which interest has been paid or duly
provided for on such Outstanding Notes prior to the original issue date of the
Exchange Notes or, if no such interest has been paid or duly provided for, will
not receive any accrued interest on such Outstanding Notes, and will be deemed
to have waived the right to receive any interest on such Outstanding 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 29, 1997.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. See "Use of Proceeds." No dealer-manager is being
used in connection with this Exchange Offer. See "Plan of Distribution."
Solicitation of tenders of Outstanding Notes may be made in person or by mail,
telephone or telecopy, by directors, officers and regular employees of the
Company. Such persons will receive no additional compensation for any
solicitation activities. The Company may employ third-party agents to solicit
tenders of Outstanding Notes, for which services such agents would be paid their
usual and customary fee. The Company has agreed to pay the expenses of the
Exchange Offer.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY
OR ITS SUBSIDIARIES SINCE THE DATE HEREOF.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of the Outstanding Notes as of ____________________,
1997.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, financial statements, and other data appearing elsewhere or
incorporated by reference in this Prospectus. Unless the context otherwise
requires, all references herein to "Magnum Hunter" or the "Company" include
Magnum Hunter Resources, Inc., formerly known as Magnum Petroleum, Inc., and its
consolidated subsidiaries. Except as otherwise indicated herein, each reference
herein to on a "pro forma basis" shall mean that the results for the stated
period or other information has been adjusted to reflect the consummation of the
Transactions (as defined herein). Certain capitalized terms relating to the oil
and natural gas business are defined in the "Glossary." The Company maintains
its corporate headquarters at 600 East Las Colinas Blvd., Suite 1200, Irving,
Texas 75039 and its telephone number is (972) 401-0752.
The Company
Magnum Hunter is an independent energy company engaged in the
exploitation and development, acquisition, exploration and operation of oil and
natural gas properties with a focus on Texas, Oklahoma and New Mexico. In
December 1995, Magnum Petroleum, Inc. and Hunter Resources, Inc. ("Hunter")
combined their oil and natural gas reserves and other assets (the "Magnum Hunter
Combination"), whereby the management of Hunter assumed operating control of the
Company. The new management implemented a business strategy emphasizing
acquisitions of long-lived Proved Reserves with significant exploitation and
development opportunities where the Company generally can control operations of
the properties. As part of this strategy, in June 1996 the Company acquired from
a subsidiary of Burlington Resources, Inc. ("Burlington") property interests
located in the Texas Panhandle and western Oklahoma (the "Panoma Properties")
for $34.7 million. Additionally, in April 1997, the Company acquired from
Burlington property interests located in west Texas and southeast New Mexico
(the "Permian Basin Properties") for a net purchase price of $133.0 million.
While the Company is considering further acquisitions and, to a lesser extent,
plans to pursue selected exploratory drilling opportunities, the Company intends
to focus its efforts on the substantial inventory of exploitation and
development opportunities arising from the acquisitions.
The Company is a holding company that operates through three primary
subsidiaries: (i) Gruy Petroleum Management Co. ("Gruy"), which conducts the
Company's operations; (ii) Magnum Hunter Production, Inc., which owns the
Company's oil and natural gas assets; and (iii) Hunter Gas Gathering, Inc.,
which owns the Company's gas gathering and processing facilities.
On a pro forma basis at December 31, 1996, the Company had an interest
in 2,581 wells and had estimated Proved Reserves of 314.2 Bcfe with an SEC PV-10
of $408.0 million. As adjusted to use market prices in effect on March 31, 1997,
the Proved Reserves were 300.5 Bcfe with an SEC PV-10 of $224.8 million on a pro
forma basis at December 31, 1996. Approximately 68% of these reserves were
classified as Proved Developed Producing Reserves and 86% were attributable to
the Panoma Properties and the Permian Basin Properties. On a pro forma basis at
December 31, 1996, the Company's Proved Reserves had an estimated Reserve Life
of 14.6 years and were 61% natural gas. The Company serves as operator for
approximately 71% of its properties. Additionally, the Company owns over 500
miles of gas gathering systems and a 50% interest in a gas processing plant that
is connected to the gas gathering system purchased with the Panoma Properties.
In 1996, on a pro forma basis, the Company had revenues of $63.6 million and
EBITDA (as defined) of $38.3 million.
Beginning with the Magnum Hunter Combination in December 1995, the
Company has made nine acquisitions for an aggregate net purchase price of $185.4
million. This strategy has added approximately 305.6 Bcfe of reserves
(determined as of the respective times of their acquisition) at an average cost
of $0.61 per Mcfe, as well as a 427 mile gas gathering system and a 50% interest
in a gas processing plant. As a result of its acquisitions, the Company has
achieved substantial growth as described below (comparing 1996 pro forma data to
1995 historical data):
o Proved reserves increased to 314.2 Bcfe at year end 1996
(300.5 Bcfe as adjusted for March 31, 1997 market prices) from
36.7 Bcfe at year end 1995;
o Annual production increased to 20.4 Bcfe in 1996 from 0.3 Bcfe
in 1995;
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o SEC PV-10 increased to $408.0 million at year end 1996 ($224.8
million as adjusted for March 31, 1997 market prices) from
$37.2 million at year end 1995; and
o EBITDA increased to $38.3 million in 1996 from $(0.5) million
in 1995.
The Permian Basin Acquisition
On April 30, 1997, the Company acquired the Permian Basin Properties
from Burlington effective as of January 1, 1997 (the "Permian Basin
Acquisition"). The Permian Basin Properties consist of 47 field areas in west
Texas and southeast New Mexico. The net purchase price was $133.0 million after
adjustments of $10.5 million for production cash flow from January 1, 1997 to
the closing date and other minor adjustments.
The Permian Basin Properties include 1,852 producing oil and natural
gas wells on approximately 113,810 gross acres (82,175 net acres), which the
Company believes have significant additional exploitation, development and
exploration opportunities. Approximately 66% of the wells acquired are operated
by the Company. Among other opportunities, the Company has identified
approximately 250 drilling locations, including production and injection wells,
to further develop an existing waterflood in the Westbrook Field in Mitchell
County, Texas. The proposed waterflood project is estimated to cost
approximately $38.1 million over a four-year period. While the reserve report
for the Permian Basin Properties assumes approximately $6.6 million of
development expenditures during 1997 to enhance this waterflood project, the
Company is evaluating the timing of these development expenditures relative to
the Company's other capital expenditure requirements. The Company has initially
budgeted approximately $5.0 million for development expenditures on the Permian
Basin Properties for 1997.
According to Ryder Scott Co., independent petroleum engineers engaged
by the Company to evaluate the Permian Basin Properties ("Ryder Scott"), the
Proved Reserves attributable to the Permian Basin Properties as of December 31,
1996 aggregated 191.6 Bcfe with an SEC PV-10 of $243.3 million, including 60.4
Bcfe of Proved Undeveloped Reserves. At December 31, 1996, on a pro forma basis,
the Permian Basin Acquisition increased the Company's Proved Reserves to 314.2
Bcfe with an SEC PV-10 of $408.0 million as compared to Proved Reserves of 122.6
Bcfe with an SEC PV-10 of $164.8 on a historical basis at December 31, 1996. As
adjusted to use market prices in effect on March 31, 1997, the Proved Reserves
attributable to the Permian Basin Properties as of December 31, 1996 aggregated
181.6 Bcfe with an SEC PV-10 of $139.6 million, including 60.3 Bcfe of Proved
Undeveloped Reserves.
The Company financed the acquisition of the Permian Basin Properties
with a new $130.0 million credit facility (the "New Credit Facility") and a
senior subordinated credit facility of $60.0 million (the "Term Loan Facility").
Borrowings of $119.5 million under the New Credit Facility and $60.0 million
under the Term Loan Facility were used to pay the $123.0 million balance of the
$133.0 million net purchase price for the Permian Basin Properties, to repay the
$53.7 million in outstanding indebtedness as of April 30, 1997 under the
Company's previous $100.0 million credit facility (the "Previous Credit
Facility") and to pay the costs associated with the Permian Basin Acquisition
and the related financings. Upon the closing of the Offering, the Company used
the net proceeds from the Outstanding Notes to repay the outstanding
indebtedness under the Term Loan Facility and to reduce indebtedness under the
New Credit Facility by approximately $75.5 million.
The Panoma Acquisition
In June 1996, the Company purchased the Panoma Properties from
Burlington for $34.7 million (the "Panoma Acquisition") using borrowings under
the Previous Credit Facility. Assets acquired in the Panoma Acquisition included
interests in 520 natural gas wells in the Texas Panhandle and western Oklahoma
and an associated 427 mile gas gathering system. The Company now operates the
gas gathering system and approximately 90% of the acquired natural gas wells.
According to Gaffney, Cline & Associates, independent petroleum
engineers engaged by the Company to evaluate the Panoma Properties ("Gaffney,
Cline"), the Proved Reserves attributable to the Panoma Properties as of
-8-
<PAGE>
December 31, 1996 aggregated 77.3 Bcfe with an SEC PV-10 of $111.0 million. As
adjusted to use market prices in effect on March 31, 1997, the Proved Reserves
attributable to the Panoma Properties as of December 31, 1996 aggregated 74.2
Bcfe with an SEC PV-10 of $53.3 million.
The Company plans to drill over 80 in-fill wells on the Panoma Properties
based on the greater well density of nearby analogous fields. The Company has
budgeted approximately $5.0 million to drill 40 of these natural gas wells
during 1997. During the first nine months of 1997, the Company completed
approximately half of these wells. The Company has increased the natural gas
flow through the gas gathering system by installing new compressor units and
reconfiguring the compression system.
McLean Plant Acquisition
In January 1997, the Company acquired for $2.5 million a 50% ownership
interest in the McLean gas processing plant (the "McLean Gas Plant"), which
currently processes 100% of the natural gas produced from the Panoma Properties
(the "McLean Plant Acquisition"). The Company receives 100% of the net profits
from the McLean Gas Plant until it recoups the $2.5 million purchase price,
after which time it will receive 50% of the net profits. Management believes
that the McLean Plant Acquisition allows the Company to capture a portion of the
processing profits on natural gas produced at the Panoma Properties that would
otherwise go to third party processors.
Other Development and Exploration Activities
Apart from the Permian Basin and Panoma Properties, the Company has
identified a number of development opportunities on its other properties for
which it has budgeted approximately $7.0 million to be spent during 1997. The
Company believes it can enhance the value of selected west Texas fields through
in-fill drilling and enhanced recovery projects, and it also plans to
participate in the drilling of up to 16 new lateral extensions from existing
well bores in the Austin Chalk formation in Fayette County in central Texas. The
Company also plans to participate in drilling approximately seven exploratory
wells during 1997, for which it has budgeted approximately $3.0 million. The
Company has participated in a successful exploratory gas discovery in Oklahoma
and is presently testing another exploratory well drilled earlier this year. The
Company plans to drill additional exploratory wells in 1997 on properties near
the Texas Gulf Coast and in southwest Texas.
Company Strengths
o Quality of Reserves. The Company has a high quality reserve base. The
majority of the reserves are in the Permian Basin and Hugoton Embayment, both of
which are well-known, mature oil and natural gas producing regions. The fields
in which the properties are located generally have significant production
history and performance data. In addition, approximately 68% of the Company's
Proved Reserves were classified as Proved Developed Producing Reserves on a pro
forma basis at December 31, 1996. These attributes reduce the risks associated
with determining remaining reserves and forecasting future production from the
properties. The properties are also long-lived with an estimated Reserve Life on
a pro forma basis at December 31, 1996 of 14.6 years.
o Substantial Inventory of Exploitation and Development Projects. The
Company has identified over 400 development drilling locations on its
properties. The Company believes that the majority of these locations are
low-risk in-fill drilling opportunities which should add incremental reserves
and increase production rates. In addition to drilling opportunities, the
Company has identified several enhanced recovery projects which will include the
use of waterflood and tertiary recovery methods.
o Significant Operating Control. Through its Gruy subsidiary, the Company
operates approximately 71% of the properties in which it owns an interest. This
level of operating control benefits the Company in numerous ways by enabling the
Company to (i) control the timing and nature of capital expenditures, (ii)
identify and implement cost control programs, (iii) respond quickly to operating
problems and (iv) receive overhead reimbursements from other working interest
owners.
-9-
<PAGE>
o Experienced Management. The Company's three senior managers have over 82
combined years of direct oil and natural gas experience in the areas of drilling
and completions, production operations, acquisitions and divestitures and
reservoir engineering. Most members of the Company's technical staff, having
spent their entire careers specializing in these regions, have in-depth
knowledge of the Company's core operating regions.
o Balanced Reserve Mix. On a pro forma basis at December 31, 1996, the
Company's reserve mix was approximately 39% oil and 61% natural gas. This
balanced portfolio reduces the Company's exposure to a single product's price
volatility.
Business Strategy
The Company's objective is to aggressively grow its reserves,
production, cash flow and earnings utilizing a balanced program of (i)
exploitation and development of acquired properties, including development
drilling, workovers and cost reduction programs, (ii) strategic acquisitions,
and (iii) a selective exploration program. Since the Magnum Hunter Combination,
the Company has acquired long-lived properties with significant exploitation and
development potential where the Company can control operations on a high
percentage of the properties. The Company is now focusing its efforts on fully
developing the large inventory of properties arising from its acquisitions and,
to a lesser extent, is identifying and participating in selected exploratory
prospects. The Company is also evaluating several smaller strategic acquisitions
which fit the Company's objectives of having long-lived Proved Reserves with
exploitation and development potential and operating control.
The following are key elements of the Company's strategy:
o Exploitation and Development of Existing Properties. The Company has a
substantial inventory of exploitation projects including development drilling,
workovers and recompletions and cost reduction programs. As of December 31,
1996, on a pro forma basis, 32% (100.0 Bcfe) of the Company's total Proved
Reserves were classified as Proved Undeveloped Reserves. The Company seeks to
maximize the value of the properties through development activities including
in-fill drilling, waterflooding and other enhanced recovery techniques.
Management believes that the proximity of these Proved Undeveloped Reserves to
existing production makes development of these projects less risky and more cost
effective than other drilling opportunities available to the Company.
o Operating Cost Management. The Company emphasizes strict cost controls in
all aspects of its business, and seeks to operate its properties wherever
possible. By operating approximately 71% of its properties, the Company is
generally able to control direct operating and drilling costs as well as to
manage the timing of development and exploration activities. For example,
following the Panoma Acquisition, the Company increased operating margins by
restoring shut-in wells to production, reducing the number of field employees,
implementing compression and other improvements on the Panoma gas gathering
system and purchasing a 50% interest in the McLean Gas Plant. Management
believes it can also reduce operating costs on the Permian Basin Properties by
reducing the number of field employees, using contract pumpers and implementing
other efficiencies. Moreover, as a result of its acquisition of the Permian
Basin Properties, the Company expects only a moderate increase in its general
and administrative expenses in relation to the large number of properties
acquired. Therefore, the Company anticipates that such expenses will decline on
a per Mcfe basis.
o Strategic Acquisitions. Although the Company has an extensive inventory
of exploitation and development opportunities, it is continuing to pursue
smaller strategic acquisitions in its existing areas of operations which fit its
objectives of having long-lived Proved Reserves with development potential and
operating control.
-10-
<PAGE>
o Expansion of Gas Gathering and Marketing Operations. The Company has
implemented several programs to expand and increase the efficiency of its gas
gathering systems. The Company owns over 75% and markets 100% of the natural gas
that moves through its gas gathering systems and, therefore, directly benefits
from any cost and productivity improvements. Since the Company believes that its
gas gathering systems have significant underutilized throughput capacity, it is
actively pursuing several opportunities to add new Company and third party well
connections. The Company is also considering opportunities to acquire
complementary gas gathering systems and to form joint ventures with other
operators. In addition, the Company believes that its acquisition of a 50%
interest in the McLean Gas Plant allows the Company to capture a portion of the
processing profits on natural gas produced at the Panoma Properties that would
otherwise go to third party processors.
Recent Financing Activities
TCW Preferred Stock. In December 1996, the Company sold $10.0 million
of its 1996 Series A Convertible Preferred Stock (the "TCW Preferred Stock") in
a private placement to funds managed by Trust Company of the West (collectively,
"TCW"). The purpose of the private placement was to fund the capital costs
necessary to develop certain developmental drilling and secondary recovery
projects. The proceeds were initially used to reduce the Company's outstanding
indebtedness under the Previous Credit Facility.
New Credit Facility and Term Loan Facility. On April 30, 1997, the
Company entered into the New Credit Facility (which replaced the Previous Credit
Facility) and the Term Loan Facility. On such date, the Company borrowed $119.5
million and $60.0 million under the New Credit Facility and the Term Loan
Facility, respectively, to fund the balance due on the purchase price of the
Permian Basin Acquisition, to repay the outstanding indebtedness under the
Previous Credit Facility and to pay the costs associated with the Permian Basin
Acquisition and the related financings.
Offering of Senior Notes. On May 29, 1997, the Company completed an
offering of $140,000,000 aggregate principal amount of its Outstanding Notes
(the "Offering"). Interest on the Notes accrues from their date of original
issuance and is payable semi-annually in arrears on June 1 and December 1 of
each year, commencing on December 1, 1997, at the rate of 10% per annum. In
general, the Notes will be redeemable, in whole or in part, at the option of the
Company on or after June 1, 2002, at the redemption prices set forth herein,
plus accrued interest to the date of redemption. The Outstanding Notes are and
the Exchange Notes will be general unsecured obligations of the Company, ranking
pari passu with any unsubordinated indebtedness of the Company and senior in
right of payment to all subordinated obligations of the Company. The net
proceeds from the Offering were approximately $135.5 million after deducting
fees and expenses of $4.5 million payable by the Company. The Company utilized
the net proceeds to repay the $60.0 million of outstanding indebtedness under
the Term Loan Facility and to reduce indebtedness under the New Credit Facility
by approximately $75.5 million. As of September 30, 1997, the Company had
approximately $48 million of secured indebtedness outstanding (excluding unused
commitments of $12 million under the New Credit Facility).
The Transactions
The Offering and the application of the net proceeds thereof, the
Permian Basin Acquisition (including the incurrence of indebtedness under the
New Credit Facility and the Term Loan Facility and the use of proceeds
therefrom), the Panoma Acquisition, the McLean Plant Acquisition, the issuance
of the TCW Preferred Stock and the conversion or redemption of the Company's
Series B and Series C Preferred Stock into Common Stock, each as more fully
described in the "Unaudited Pro Forma Combined Financial Data" and the notes
thereto, are collectively referred to herein as the "Transactions."
-11-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Summary Description of the Exchange Offer and Exchange Notes
Exchange Offer................................ Up to $140,000,000 aggregate principal amount of Exchange
Notes are being offered in exchange for like aggregate
principal amount of Outstanding Notes. Outstanding Notes
may be tendered for exchange in whole or in part in a
principal amount of $1,000 and integral multiples thereof.
The Company is making the Exchange Offer in order to
satisfy its obligations under the Registration Agreement
relating to the Outstanding Notes. The Company will issue
the Exchange Notes to tendering holders of the Outstanding
Notes promptly following the Expiration Date.
Registration Agreement........................... The Outstanding Notes were sold by the Company on May 29,
1997 to BT Securities Corporation, First Union Capital
Markets Corp., Paribas Corporation and PaineWebber
Incorporated, which placed the Outstanding Notes in
the United States with Qualified Institutional Buyers
("QIBs") in reliance on Rule 144A under the Securities Act
and institutional accredited investors. In connection
therewith, the Company, the Subsidiary Guarantors
and the Initial Purchasers executed and delivered for the
benefit of the holders of the Outstanding Notes the
Registration Agreement providing for, among other things,
the Exchange Offer.
Expiration Date.................................. 5:00 p.m., New York City time, on ________________, 1997
unless the Exchange Offer is extended by the Company. See
"The Exchange Offer - Terms of the Exchange."
Procedures for Tendering Outstanding
Notes......................................... Each holder of Outstanding Notes wishing to accept the
Exchange Offer must either (i) complete, sign and date the
Letter of Transmittal, or a facsimile thereof,in accordance
with the instructions contained herein and therein, and
mail or otherwise deliver such Letter of Transmittal,
or such facsimile, together with either the certificates
for such Outstanding Notes or, if such procedure is
available, a Book-Entry Confirmation of such Outstanding
Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility, or (ii) deliver such a Book-Entry
Confirmation together with an Agent's Message (whereby the
holder acknowledges its receipt of and agrees to be
bound by the Letter of Transmittal), and any other required
documentation to the Exchange Agent at the address set
forth herein. By executing the Letter of Transmittal or
delivering an Agent's Message each holder of Outstanding
Notes will represent to the Company that, among other
things, (i) the Exchange Notes acquired pursuant to the
Exchange Offer by the holder and any beneficial owners of
such Outstanding Notes are being acquired in the ordinary
course of business of the person receiving such Exchange
Notes, (ii) at the time of the consummation of the Exchange
Offer such holder will have no arrangement or understanding
with any person to participate in the distribution of such
Exchange Notes in violation of the Securities Act and (iii)
neither the holder nor such beneficial owner is an
"affiliate," as defined in Rule 405 under the Securities
Act, of the Company.
-12-
<PAGE>
A Participating Broker-Dealer that receives Exchange Notes
for its own account in exchange for Outstanding Notes may
participate in the Exchange Offer but may be deemed an
"underwriter" under the Securities Act and, therefore, must
acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any
resale of such Exchange Notes. The Company has undertaken,
for a period of 180 days after its Registration Statement
of which this Prospectus is a part is declared effective,
to maintain the effectiveness of the Registration Statement
for use in satisfaction of such persons' obligations to
deliver a prospectus. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities
Act. See "The Exchange Offer-Resales of Exchange Notes" and
"Plan of Distribution."
Special Procedures for Beneficial
Owners........................................ Any beneficial owner whose Outstanding Notes are registered
in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender such
Outstanding Notes in the Exchange Offer should contact such
registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on its own behalf, such
owner must, prior to completing and executing the Letter of
Transmittal and delivering its Outstanding Notes, either
make appropriate arrangements to register ownership of the
Outstanding Notes in such owner's name or obtain a properly
completed bond power from the registered holder.The transfer
of registered ownership may take considerable time and may
not be able to be completed prior to the Expiration Date.
Guaranteed Delivery
Procedures.................................... Holders of Outstanding Notes who wish to tender their
Outstanding Notes and whose Outstanding Notes are not
immediately available or who cannot complete the procedures
for book-entry transfer of such Outstanding Notes or deliver
their Outstanding Notes, the Letter of Transmittal or any
other required documents to the Exchange Agent prior to the
Expiration Date must tender their Outstanding Notes
according to the guaranteed delivery procedures set forth
in "The Exchange Offer- Procedures for Tendering Outstanding
Notes - Guaranteed Delivery."
Withdrawal Rights................................ Tenders may be withdrawn at any time prior to the Expiration
Date. See "The Exchange Offer -Withdrawal Rights."
Certain Federal Income Tax
Considerations.............................. The exchange of the Outstanding Notes for Exchange Notes by
tendering holders should not be a taxable exchange for U.S.
federal income tax purposes, and such holders should not
recognize any taxable gain or loss for U.S. federal income
tax purposes as a result of such exchange. Holders of
Exchange Notes will continue to be required to include
interest received on such Exchange Notes in gross income in
accordance with their method of accounting for U.S. federal
income tax purposes. Holders should review the information
set forth under "Certain Federal Income Tax Considerations"
for a discussion of certain U.S. federal income tax
considerations relating to the Exchange Notes prior to
tendering the Outstanding Notes in the Exchange Offer.
Exchange Agent................................... First Union National Bank of North Carolina is serving as
Exchange Agent in connection with the Exchange Offer. See
"The Exchange Offer - Exchange Agent."
-13-
<PAGE>
The Exchange Notes............................... $140,000,000 in aggregate principal amount of 10% Senior
Notes due 2007. The form and terms of the Exchange Notes are
identical in all material respects to the terms of the
respective Outstanding Notes for which they may be exchanged
pursuant to the Exchange Offer, except for certain transfer
restrictions and registration rights relating to the
Outstanding Notes and except for certain interest provisions
relating to such registration rights. See "Description of
the Exchange Notes."
Maturity......................................... June 1, 2007.
Interest on the Exchange Notes................... The Exchange Notes will bear interest at the rate of 10% per
annum, payable semiannnually on June 1 and December 1 of
each year, commencing December 1, 1997. Each Exchange Note
will bear interest from the most recent date to which
interest has been paid or duly provided for on the
Outstanding Note surrendered in exchange for such Exchange
Note or, if no such interest has been paid or duly provided
for on such Outstanding Note, from May 29, 1997. Interest on
the Outstanding Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
Ranking.......................................... The Exchange Notes will be general unsecured obligations of
the Company and will rank pari passu with any unsubordinated
indebtedness of the Company and will rank senior in right of
payment to all subordinated obligations of the Company. The
Exchange Notes will be effectively subordinated to all
secured indebtedness of the Company to the extent of the
value of the assets securing such indebtedness. As of
September 30, 1997, the Company had approximately $48
million of secured indebtedness outstanding (excluding
unused commitments of $12 million under the New Credit
Facility), all of which is guaranteed by the Subsidiary
Guarantors.
Guarantees....................................... The Exchange Notes will be unconditionally guaranteed on
a senior basis by the Subsidiary Guarantors. The Guarantees
will be general unsecured obligations of the Subsidiary
Guarantors and will rank pari passu with any unsubordinated
indebtedness of the Subsidiary Guarantors and will rank
senior in right of payment to all subordinated obligations
of the Subsidiary Guarantors. The Guarantees will be
effectively subordinated to all secured indebtedness of the
Subsidiary Guarantors to the extent of the value of the
assets securing such indebtedness.
Optional Redemption.............................. The Exchange Notes will be redeemable, in whole or in part,
at the option of the Company on or after June 1, 2002 at
the redemption prices set forth herein, plus accrued interest
to the date of redemption. In addition, at any time on or
prior to June 1, 2000, the Company may, at its option, redeem
up to 35% of the aggregate principal amount of the Notes
originally issued with the net cash proceeds of one or
more Equity Offerings, at a redemption price equal to 110% of
the aggregate principal amount of the Notes to be redeemed
plus accrued interest to the date of redemption; provided,
however, that, after giving effect to any such redemption, at
least 65% of the aggregate principal amount of the Notes
originally issued remains outstanding.
Change of Control................................ Upon a Change of Control, each holder will have the right to
require the Company to repurchase such holder's Exchange Notes
at a price equal to 101% of the principal amount thereof plus
accrued interest to the date of repurchase.
-14-
<PAGE>
Certain Covenants................................ The Indenture governing the Exchange Notes (the "Indenture")
contains certain covenants that limit the ability of the Company
and its Restricted Subsidiaries (as defined) to, among other
things, incur additional indebtedness, pay dividends or make
certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, incur
liens, impose restrictions on the ability of a Restricted
Subsidiary to pay dividends or make certain payments to the
Company and its Restricted Subsidiaries, merge or consolidate
with any other person or sell, assign, transfer,lease, convey or
otherwise dispose of all or substantially all of the assets of
the Company. In addition, under certain circumstances, the
Company will be required to offer to purchase the Exchange Notes,
in whole or in part, at a purchase price equal to 100% of the
principal amount thereof plus accrued interest to the date of
repurchase, with the proceeds of certain Asset Sales (as defined).
Listing.......................................... The Company has applied for listing of the Exchange Notes on the
American Stock Exchange. See "Risk Factors - Lack of Public
Market."
Sinking Fund..................................... None.
For additional information regarding the Exchange Notes, see "Description of the Exchange Notes."
</TABLE>
Use of Proceeds
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby.
Risk Factors
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Exchange Notes.
-15-
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical consolidated financial
data of the Company as of and for the three years ended December 31, 1996, for
the six months ended June 30, 1996 and 1997 and as of June 30, 1997, which have
been derived from the Company's consolidated financial statements, and unaudited
summary pro forma data as of and for the six months ended June 30, 1997. The
historical financial data of the Company for the six months ended June 30, 1996
and 1997 and as of June 30, 1997 have been derived from the Company's unaudited
interim consolidated financial statements. The pro forma data give effect to the
consummation of the Transactions. The pro forma income statement data and other
data for the six months ended June 30, 1997 reflect such adjustments as if the
Transactions had occurred on January 1, 1997. The pro forma financial data do
not purport to represent what the Company's financial position or results of
operations would actually have been had the Transactions in fact occurred on the
assumed dates and are not necessarily indicative of future operating results or
financial position. The information contained in this table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Selected Consolidated Financial Data," the
Consolidated Financial Statements and the notes thereto and the "Unaudited Pro
Forma Combined Financial Data" and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Six Months
Year Ended December 31, Ended June 30,
------------------------------------ -----------------------------------------
Pro-forma
1994 1995 1996 1996 1997 1997
------------ ----------- ----------- ---------- ------------ -------------
(dollars in thousands)
Income Statement Data:
Operating revenues:
Oil and natural gas...................... $ 729 $ 617 $ 10,248 $ 2,821 $ 11,791 $ 24,418
Gas gathering, marketing and processing.. - - 5,768 1,528 5,283 5,283
Oil field services and international sales 16 32 396 201 3,606 3,606
----------- ----------- ----------- ----------- ----------- -------------
Total operating revenues.............. 745 649 16,412 4,550 20,680 33,307
Operating costs and expenses:
Oil and natural gas production........... 318 268 4,390 1,126 4,740 7,779
Gas gathering, marketing and processing.. - - 4,708 1,314 3,938 3,938
Oil field services and international sales 6 26 267 327 3,424 3,424
Depreciation and depletion............... 243 421 2,951 1,084 4,460 8,089
General and administrative............... 769 977 1,225 443 651 701
----------- ----------- ----------- ----------- ----------- -------------
Total operating costs and expenses.... 1,336 1,692 13,541 4,294 17,213 23,931
----------- ----------- ----------- ----------- ----------- -------------
Operating profit (loss)..................... (591) (1,043) 2,871 256 3,467 9,376
Other income............................. 52 77 344 186 155 155
Interest expense......................... (7) (2) (2,394) (499) (4,758) (9,258)
Provision for deferred income taxes...... - - (312) - 432 (97)
Minority interest in subsidiary earnings. - - - - (20) (20)
----------- ----------- ----------- ----------- ----------- -------------
Net income (loss) before extraordinary loss. (547) (968) 509 (57) (724) 156
Extraordinary Loss from Early
Extinguishment of Debt................. - - - - (1,384) -
--------- ---------- ---------- ---------- --------- -------------
Net Income (loss)........................... (547) (968) 509 (57) (2,108) 156
Dividends applicable to preferred shares. (579) (617) (406) (340) (438) (438)
--------- ---------- ---------- ----------- --------- -------------
Net income (loss) applicable to
common shares.......................... $ (1,126) $ (1,585) $ 103 $ (397) $(2,546) (282)
Other Data:
EBITDA(1)................................... $(297) $(545) $6,166 $ 1,526 $ 8,082 $ 17,620
Cash interest expense(2).................... 7 2 2,347 485 4,605 9,123
Capital expenditures(3)..................... 1,945 1,244 41,471 37,301 141,677 141,677
Ratio of EBITDA to cash interest expense and
preferred share dividends(4)............. - - 2.24x 1.85x 1.60x 1.84x
Ratio of earnings to fixed charges(5)....... - - 1.15x - - -
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31, June 30, 1997
---------------------------------- -------------
1994 1995 1996 Actual
------ ------- -------- --------
(dollars in thousands)
Balance Sheet Data:
Working capital...................................... $1,197 $ (916) $ 2,279 $ 4,170
Property, plant and equipment, net................... 7,255 36,405 73,648 210,397
Total assets......................................... 9,575 40,065 83,072 231,670
Total debt(6)........................................ 186 9,612 38,766 187,055
Stockholders' equity................................. 8,645 24,496 35,154 32,253
ACNTA(7)............................................. - - - 236,478
Ratio of ACNTA to total debt(6)...................... - - - 1.26x
- - -----------
</TABLE>
(1) EBITDA is defined as net income (loss) before income taxes and minority
interest, plus the sum of depletion and depreciation and interest expense.
EBITDA is not a measure of cash flow as determined by generally accepted
accounting principles. The Company has included information concerning EBITDA
because EBITDA is a measure used by certain investors in determining the
Company's historical ability to service its indebtedness. EBITDA should not be
considered as an alternative to, or more meaningful than, net income or cash
flows as determined in accordance with generally accepted accounting principles
or as an indicator of the Company's operating performance or liquidity.
(2) Cash interest expense consists of interest expense less amortization of
debt issuance costs.
(3) Capital expenditures include cash expended for acquisitions plus normal
additions to oil and natural gas properties and other fixed assets.
(4) For purposes of calculating the ratio of EBITDA to cash interest
expense and preferred share dividends, cash interest expense consists of
interest expense less amortization of debt issuance costs. EBITDA for the years
ended December 31, 1994 and 1995 would have been inadequate to cover cash
interest expense and preferred share dividends by approximately $883,000 and
$1,164,000 respectively.
(5) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income (loss) applicable to common shares plus extraordinary
loss, plus provision for income taxes, plus fixed charges. Fixed charges consist
of interest expense (which includes amortization of deferred debt issuance
costs), plus the portion of rental expense under operating leases which has been
deemed by the Company to be representative of an appropriate interest factor,
plus preferred share dividends. Earnings for the years ended December 31, 1994
and 1995 and the six months ended June 30, 1996 and 1977 would have been
inadequate to cover fixed charges by approximately $1,126,000, $1,585,000,
$397,000 and $1,593,000, respectively. EBITDA for the six months ended June 30,
1997 on a pro forma basis would have been inadequate to cover cash interest
expenses and preferred dividends by $185,000.
(6) Consists of long-term debt, including current maturities of long-term
debt, and excluding production payment liabilities of $288,000, $937,000 and
$831,000 as of December 31, 1995 and 1996 and June 30, 1997, respectively.
(7) Adjusted Consolidated Net Tangible Assets ("ACNTA"). ACNTA includes:
$221,771,000 of adjusted SEC PV-10, $4,170,000 of working capital, $10,577,000
of book value for other tangible assets and less $40,000 of book value for
minority interest.
-17-
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA OPERATING, RESERVE AND WELL DATA
The following table sets forth certain summary information with respect
to the Company's operations for the periods indicated and summary information
with respect to the Company's estimated proved oil and natural gas reserves. The
pro forma operating data for the year ended December 31, 1996 give effect to the
Transactions as if they had occurred on January 1, 1996, and the pro forma
reserve and well data at December 31, 1996 give effect to the Transactions as if
they had occurred on December 31, 1996. The information contained in this table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Consolidated Financial
Statements and the notes thereto, the "Unaudited Pro Forma Combined Financial
Data" and the notes thereto and "Business and Properties" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, Six Months
Ended
June 30,
------------------------------------------------- ---------------------
Pro Forma
1994 1995 1996 1996 1996 1997
---------- ---------- ----------- --------------- ---------- -------
(dollars in thousands)
Operating Data:
Production:
Oil (MBbl)................................ 42 30 191 1,105 90 240
Natural gas (MMcf)........................ 88 102 2,675 13,811 488 3,332
Natural Gas Equivalents (MMcfe)........... 340 282 3,821 20,442 1,027 4,771
Average sales price:
Oil (per Bbl)............................. $14.20 $15.60 $20.46 $20.15 $19.32 $18.33
Natural gas (per Mcf)..................... 1.53 1.46 2.37 2.22 2.23 2.22
Natural Gas Equivalents (Mcfe)............ 2.15 2.19 2.68 2.59 2.75 2.47
Average oil and natural gas production
expense (per Mcfe) (1).................... $0.94 $0.95 $1.15 $0.84 $ 1.10 $ .99
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
December 31, Pro Forma 1996
----------------------------------- ----------------------------------
Dec. 31, 1996 Mar. 31, 1997
1994 1995 1996 Prices Prices (2)
----------------------------------- ----------------------------------
Reserve and Well Data (3):
Proved Reserves:
Oil (MBbl)........................... 1,261 3,768 5,338 20,629 19,851
Natural gas (MMcf)................... 4,914 14,072 90,566 190,442 181,363
Natural Gas Equivalents (MMcfe)...... 12,477 36,678 122,596 314,218 300,470
Percent Proved Developed Reserves....... 15% 51% 68% 68% 67%
Percent natural gas reserves............ 39% 38% 74% 61% 60%
Reserve Life (years).................... 10.9 16.2 16.6 14.6 14.0
Estimated future net cash flows before tax
(thousands).......................... $12,209 $45,940 $353,542 $822,385 $447,932
SEC PV-10 (thousands)................... $7,775 $37,209 $164,766 $408,049 $224,831
Producing wells:
Gross................................ 51 462 729 2,581 2,581
Net.................................. 31 130 569 1,436 1,436
Average Working Interest............. 61% 28% 78% 56% 56%
Operated wells (4)...................... 27 130 609 1,833 1,833
- - -----------
</TABLE>
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(1) Includes lease operating expenses and production and ad valorem taxes, if
applicable. For the years ended December 31, 1996 on a historical basis and
December 31, 1996 on a pro forma basis and the six months ended June 30,
1997, includes internal transfer price expenses for gas gathering and
overhead costs of $0.23 per Mcfe, $0.04 per Mcfe and $0.19 per Mcfe,
respectively.
(2) Proved Reserves, future net cash flows before tax and SEC PV-10 have been
estimated as of December 31, 1996 using March 31, 1997 market prices of
$20.41 per Bbl of oil and $2.30 per Mcf of natural gas (with appropriate
adjustments for Btu content) and have not been adjusted for production for
the three-month period ended March 31, 1997.
(3) For limitations on the accuracy and reliability of reserves and future net
cash flow estimates, see "Risk Factors -- Uncertainty of Estimates of
Reserves and Future Net Cash Flows." For reserve pricing information, see
"Business and Properties -- Oil and Natural Gas Reserves."
(4) Includes wells operated for third parties.
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<PAGE>
RISK FACTORS
Information contained or incorporated by reference in this Prospectus may
contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "expect," "intend," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. The following matters and certain other factors noted
throughout this Prospectus constitute cautionary statements identifying
important factors with respect to any such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.
Prior to making an investment decision, prospective investors should
carefully consider, together with the other information contained in this
Prospectus, the following risk factors:
Substantial Leverage; Ability to Service Debt
The Company is highly leveraged, with outstanding long-term indebtedness of
approximately $187 million and stockholders' equity of $32.2 million as of June
30, 1997. The Company's level of indebtedness has several important effects on
its future operations, including (i) a substantial portion of the Company's cash
flow from operations is dedicated to the payment of interest on its indebtedness
and is not available for other purposes, (ii) the covenants contained in the New
Credit Facility require the Company to meet certain financial tests and limit
the Company's ability to borrow additional funds or to acquire or dispose of
assets, and (iii) the Company's ability to obtain additional financing in the
future may be impaired. Additionally, the senior (as opposed to subordinated)
status of the Notes, the Company's high debt to equity ratio, and the use of
substantially all of the Company's assets as collateral for the New Credit
Facility will for the present time make it difficult for the Company to obtain
financing on an unsecured basis or to obtain secured financing other than
certain "purchase money" indebtedness collateralized by the acquired assets.
Although the Company reported an operating profit for fiscal 1996, at
December 31, 1996 the Company had an accumulated deficit of $5.1 million due to
operating losses incurred in prior years. The Company's ability to meet its
financial covenants and to make scheduled payments of principal and interest to
repay its indebtedness, including the Notes, is dependent upon its operating
results and its ability to obtain financing. However, there can be no assurance
that the Company's business will generate sufficient cash flow from operations
or that future bank credit will be available in an amount sufficient to enable
the Company to service its indebtedness, including the Notes, or make necessary
capital expenditures. In such event, the Company would be required to obtain
such financing from the sale of equity securities or other debt financing. There
can be no assurance that any such financing will be available on terms
acceptable to the Company. Should sufficient capital not be available, the
Company may not be able to continue to implement its strategy.
The New Credit Facility limits the Company's borrowings to amounts
determined by the lenders, in their sole discretion, based upon a variety of
factors including the amount of indebtedness which can be adequately supported
by the value of oil and natural gas reserves and assets, contracts and
throughput attributable to the gas gathering systems and processing plant, and
assets owned by the Company (the "Borrowing Base"). As of September 30, 1997,
the Company had $12.0 million borrowing availability under the Borrowing Base of
the New Credit Facility. If oil or natural gas prices decline below their
current levels, the availability of funds under the New Credit Facility could be
materially adversely affected.
The New Credit Facility also requires the Company to satisfy certain
financial ratios in the future. One covenant requires the Company to maintain a
ratio of the Company's funded indebtedness divided by the sum of funded
indebtedness plus equity (the "Debt to Capitalization Ratio") of not more than
0.86 from the closing of the New Credit Facility until March 31, 1998, not more
than 0.75 from April 1, 1998 until September 30, 1998, and not more than 0.70
thereafter. At June 30, 1997, the Company had a debt to Capitalization Ratio of
0.86. Another covenant requires the Company to maintain a ratio of Consolidated
EBITDA to Interest Expense (as defined in the New Credit Facility) of not less
than 2.00 to 1 through June 30, 1998, not less than 2.50 to 1 from July 1, 1998
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<PAGE>
through December 31, 1998 and not less than 2.75 to 1 thereafter. The Company
had a ratio of Consolidated EBITDA to Interest Expense of 2.21 to 1 as of June
30, 1997. The failure to satisfy these covenants or any of the other covenants
in the New Credit Facility would constitute an event of default thereunder and,
subject to certain grace periods, may permit the lenders to accelerate the
indebtedness then outstanding under the New Credit Facility and demand immediate
repayment thereof. See "Description of New Credit Facility."
The agreement with TCW relating to the TCW Preferred Stock requires the
Company to raise an aggregate of $15.0 million in additional equity by December
31, 1997 or the Company will be required to redeem 333,333 shares of the TCW
Preferred Stock on June 30 of each of the years 2006, 2007 and 2008 for an
aggregate purchase price of $10.0 million plus any accrued and unpaid dividends
and interest thereon. Such a mandatory redemption obligation of the Company
could have negative implications under the Company's credit arrangements and
could negatively affect financial covenants under future credit facilities and
affect the Company's ability to raise debt or equity capital in the future.
Holding Company Structure; Effective Subordination of Exchange Notes
The Company is a holding company, the principal assets of which consist of
equity interests in its subsidiaries. The Outstanding Notes are and the Exchange
Notes will be a direct unsecured obligation of the Company, which derives all of
its revenues from the operations of its subsidiaries. As a result, the Company
will be dependent on the earnings and cash flow of, and dividends and
distributions or advances from, its subsidiaries to provide the funds necessary
to meet its debt service obligations, including the payment of principal of and
interest on the Notes. The payment of dividends from the subsidiaries to the
Company and the payment of any interest on or the repayment of any principal of
any loans or advances made by the Company to any of its subsidiaries may be
subject to statutory restrictions and are contingent upon the earnings of such
subsidiaries.
The Outstanding Notes are and the Exchange Notes will be general unsecured
obligations of the Company, ranking pari passu in right of payment to all
unsubordinated indebtedness of the Company and senior in right of payment to all
subordinated indebtedness of the Company. The Outstanding Notes are and the
Exchange Notes will be unconditionally guaranteed, jointly and severally, by
each of the Subsidiary Guarantors. The Guarantees are general unsecured
obligations of the Subsidiary Guarantors, ranking pari passu in right of payment
to all unsubordinated indebtedness of the Subsidiary Guarantors and senior in
right of payment to all subordinated indebtedness of the Subsidiary Guarantors.
However, the Notes are effectively subordinated to secured indebtedness of the
Company and the Subsidiary Guarantors to the extent of the value of the assets
securing such indebtedness. In the event of a default on such secured
indebtedness, or a bankruptcy, liquidation or reorganization of the Company and
its subsidiaries, such assets will be available to satisfy obligations with
respect to the secured indebtedness before any payment therefrom will be made on
the Notes. As of September 30, 1997, the Company had approximately $48 million
of secured indebtedness outstanding (excluding unused commitments of $12 million
under the New Credit Facility). The Company's subsidiaries are also guarantors
of the New Credit Facility. The Outstanding Notes are and the Exchange Notes
will not be secured by any of the assets of the Company or its subsidiaries. The
indebtedness incurred under the New Credit Facility is secured by liens against
substantially all of the Company's and its subsidiaries' assets.
Consequences of a Failure to Exchange Outstanding Notes
The Outstanding Notes have not been registered under the Securities Act or
any state securities laws, and therefore, 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. Outstanding Notes that remain outstanding after the 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
Outstanding Notes that remain outstanding will not be entitled to any rights to
have such Outstanding Notes registered under the Securities Act or to any
similar rights under the Registration Agreement (subject to certain limited
exceptions). The Company currently intends to register under the
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<PAGE>
Securities Act Outstanding Notes that remain outstanding after consummation
of the Exchange Offer only if such Outstanding Notes are held by Initial
Purchasers and persons ineligible to participate in the Exchange Offer (other
than due solely to the status of such person as an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act). See "Description of
the Exchange Notes - Registration Agreement". If Outstanding Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered
Outstanding Notes is likely to diminish; accordingly, holders who do not tender
their Outstanding Notes may encounter difficulties in selling such notes
following the Exchange Offer. The Exchange Notes, the Private Exchange Notes, if
any, and any Outstanding Notes that 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.
The Indenture provides that, with respect to the Outstanding Notes, if the
Company or the Subsidiary Guarantors fail to comply with certain provisions
concerning registration rights, specifically the timing of the Exchange Offer,
Additional Interest (as defined herein) will accrue and be payable until such
time as such registration defaults have been cured. Following consummation of
the Exchange Offer, neither the Outstanding Notes nor the Exchange Notes will be
entitled to any increase in the interest rate thereon (subject to certain
limited exceptions.) See "Description of the Outstanding Notes" and "Description
of the Exchange Notes - Registration Agreement."
Volatility of Oil and Natural Gas Prices
The Company's revenues, profitability and the carrying value of its oil
and natural gas properties are substantially dependent upon prevailing prices
of, and demand for, oil and natural gas and the costs of acquiring, finding,
developing and producing reserves. The Company's ability to maintain or increase
its borrowing capacity, to repay the Exchange Notes and outstanding indebtedness
under any current or future credit facility, and to obtain additional capital on
attractive terms is also substantially dependent upon oil and natural gas
prices. 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 fluctuations in response to: (i) relatively minor
changes in the supply of, and demand for, oil and natural gas; (ii) market
uncertainty; and (iii) a variety of additional factors, all of which are beyond
the Company's control. These factors include domestic and foreign political
conditions, the price and availability of domestic and imported oil and natural
gas, the level of consumer and industrial demand, weather, domestic and foreign
government relations, the price and availability of alternative fuels and
overall economic conditions. The Company's production is predominantly weighted
toward natural gas, making earnings and cash flow more sensitive to natural gas
price fluctuations. For 1996, the Company has estimated that a $0.10 per Mcf
change in natural gas prices would have resulted in a $250,000 difference in
EBITDA, and a $1.00 per Bbl change in oil prices would have resulted in a
$182,000 difference in EBITDA. On a pro forma basis for the Permian Basin
Acquisition for 1996, the Company has estimated that a $0.10 per Mcf change in
natural gas prices would have resulted in a $1,275,000 difference in EBITDA, and
a $1.00 per Bbl change in oil prices would have resulted in a $1,055,000
difference in EBITDA. Furthermore, the marketability of the Company's production
depends in part upon the availability, proximity and capacity of gathering
systems, pipelines and processing facilities. Volatility in oil and natural gas
prices could affect the Company's ability to market its production through such
systems, pipelines or facilities.
Under full cost accounting, the Company would be required to take a
non-cash charge against earnings to the extent capitalized costs of acquisition,
exploration and development (net of depletion and depreciation), less deferred
income taxes, exceed the SEC PV-10 of its Proved Reserves and the lower of cost
or fair value of unproved properties after income tax effects. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Background."
Uncertainty of Estimates of Reserves and Future Net Cash Flows
This Prospectus contains estimates of the Company's oil and natural gas
reserves and the future net cash flows from those reserves, which have been
prepared or audited by certain independent petroleum consultants. There are
numerous uncertainties inherent in estimating quantities of Proved Reserves of
oil and natural gas and in projecting
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<PAGE>
future rates of production and the timing of development expenditures, including
many factors beyond the Company's control. The estimates in this Prospectus are
based on various assumptions, including, for example, constant oil and natural
gas prices, operating expenses, capital expenditures and the availability of
funds, and, therefore, are inherently imprecise indications of future net cash
flows. Actual future production, cash flows, taxes, operating expenses,
development expenditures and quantities of recoverable oil and natural gas
reserves may vary substantially from those assumed in the estimates. Any
significant variance in these assumptions could materially affect the estimated
quantity and value of reserves set forth in this Prospectus. Additionally, the
Company's reserves may be subject to downward or upward revision based upon
actual production performance, results of future development and exploration,
prevailing oil and natural gas prices and other factors, many of which are
beyond the Company's control. See "Business and Properties -- Oil and Natural
Gas Reserves."
The SEC PV-10 of Proved Reserves referred to in this Prospectus should not
be construed as the current market value of the estimated Proved Reserves of oil
and natural gas attributable to the Company's properties. In accordance with
applicable requirements of the Commission, the estimated discounted future net
cash flows from Proved Reserves are generally based on prices and costs as of
the date of the estimate, whereas actual future prices and costs may be
materially higher or lower. The calculation of the SEC PV-10 of the Company's
oil and natural gas reserves on a pro forma basis at December 31, 1996 is based
on average prices at December 31, 1996 of $24.18 per Bbl of oil and $4.05 per
Mcf of natural gas. These prices were higher than the market prices of $20.41
per Bbl of oil and $2.30 per Mcf of natural gas (with appropriate adjustments
for Btu content) at March 31, 1997 and are higher than historical prices used in
recent years to estimate the SEC PV-10 of the Company's reserves. These numbers
compare to the Company's pro forma average product prices of $20.15 per Bbl of
oil and $2.22 per Mcf of natural gas, which are based on the average of the
actual prices received at the respective properties during 1996. Actual future
net cash flows also will be affected by (i) the timing of both production and
related expenses; (ii) changes in consumption levels and (iii) governmental
regulations or taxation. In addition, the calculation of the present value of
the future net cash flows using a 10% discount as required by the Commission is
not necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the Company's reserves or the
oil and gas industry in general. Furthermore, the Company's reserves may be
subject to downward or upward revision based upon actual production, results of
future development, supply and demand for oil and natural gas, prevailing oil
and natural gas prices and other factors. See "Business and Properties -- Oil
and Natural Gas Reserves."
Finding and Acquiring Additional Reserves; Depletion
The Company's future success depends upon its ability to find or acquire
additional oil and natural gas reserves that are economically recoverable.
Except to the extent the Company conducts successful exploration or development
activities or acquires properties containing Proved Reserves, the Proved
Reserves of the Company will generally decline as they are produced. The decline
rate varies depending upon reservoir characteristics and other factors. The
Company's future oil and natural gas reserves and production, and, therefore,
cash flow and income, are highly dependent upon the Company's level of success
in exploiting its current reserves and acquiring or finding additional reserves.
There can be no assurance that the Company's planned development projects and
acquisition activities will result in significant additional reserves or that
the Company will have success drilling productive wells at economic returns to
replace its current and future production.
Acquisition Risks
The Company has grown primarily through acquisitions and intends to
continue acquiring oil and natural gas properties. Although the Company performs
a review of the properties proposed to be acquired, such reviews are subject to
uncertainties. It generally is not feasible to review in detail every individual
property involved in an acquisition. Ordinarily, review efforts are focused on
the higher-valued properties. However, even a detailed review of all properties
and records may not reveal existing or potential problems; nor will it permit
the Company to become sufficiently familiar with the properties to assess fully
their deficiencies and capabilities. Inspections are not always performed on
every well, and potential problems, such as mechanical integrity of equipment
and environmental conditions that may require significant remedial expenditures,
are not necessarily observable even when an inspection is undertaken.
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<PAGE>
The Company has recently begun to focus its acquisition efforts on larger
packages of oil and natural gas properties, such as the properties involved in
the Panoma and Permian Basin Acquisitions. The acquisition of larger oil and gas
properties may involve substantially higher costs and may pose additional issues
regarding operations and management. There can be no assurance that oil and
natural gas properties acquired by the Company will be successfully integrated
into the Company's operations or will achieve desired profitability objectives.
See "Business and Properties -- Recent Acquisitions."
Exploration and Development Risks; Waterflood Projects
The Company intends to increase its development and exploration
activities. Exploration drilling and, to a lesser extent, development drilling
of oil and natural gas reserves involve a high degree of risk that no commercial
production will be obtained and/or that production will be insufficient to
recover drilling and completion costs. The cost of drilling, completing and
operating wells is often uncertain. The Company's drilling operations may be
curtailed, delayed or canceled as a result of numerous factors, including title
problems, weather conditions, compliance with governmental requirements and
shortages or delays in the delivery of equipment. Furthermore, completion of a
well does not assure a profit on the investment or a recovery of drilling,
completion and operating costs. See "Business and Properties -- Development and
Exploration Activities."
There are certain risks associated with secondary recovery operations,
especially the use of waterflooding techniques, and drilling activities in
general. Part of the Company's inventory of development prospects consists of
waterflood projects. With respect to the Permian Basin Properties, the Company
has identified significant potential expenditures related to further developing
an existing waterflood. The proposed waterflood project is estimated to cost an
aggregate of $38.1 million over a four-year period, which costs are reflected in
the Company's reserve reports. While the reserve report for the Permian Basin
Properties assumes approximately $6.6 million of development expenditures in
1997 to enhance this waterflood, the Company is evaluating the timing of these
development expenditures relative to the Company's other capital expenditure
requirements. The Company has initially budgeted approximately $5.0 million for
development expenditures on the Permian Basin Properties for 1997. Waterflooding
involves significant capital expenditures and uncertainty as to the total amount
of secondary reserves that can be recovered. In waterflood operations, there is
generally a delay between the initiation of water injection into a formation
containing hydrocarbons and any increase in production that may result. The
operating cost per unit of production of waterflood projects is generally higher
during the initial phases of such projects due to the purchase of injection
water and related costs, as well as during the later stages of the life of the
project as production declines. The degree of success, if any, of any secondary
recovery program depends on a large number of factors, including the porosity of
the formation, the technique used and the location of injector wells. See
"Business and Properties -- Development and Exploration Activities."
Operating Hazards and Uninsured Risks; Production Curtailments
The Company's oil and natural gas business involves a variety of operating
risks, including, but not limited to, unexpected formations or pressures,
uncontrollable flows of oil, gas, brine or well fluids into the environment
(including groundwater contamination), blowouts, fires, explosions, pollution
and other risks, any of which could result in personal injuries, loss of life,
damage to properties and substantial losses. Although the Company carries
insurance at levels which it believes are reasonable, it is not fully insured
against all risks. The Company does not carry business interruption insurance.
Losses and liabilities arising from uninsured or under-insured events could have
a material adverse effect on the financial condition and operations of the
Company.
From time to time, due primarily to contract terms, pipeline interruptions
or weather conditions, the producing wells in which the Company owns an interest
have been subject to production curtailments. The curtailments range from
production being partially restricted to wells being completely shut-in. The
duration of curtailments varies from a few days to several months. In most cases
the Company is provided only limited notice as to when production will be
curtailed and the duration of such curtailments. The Company is not currently
experiencing any material curtailment on its production.
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<PAGE>
Marketing Risks
For the year ended December 31, 1996, natural gas revenues comprised
approximately 62% of total oil and natural gas revenues on a historical basis
and approximately 58% on a pro forma basis. The types of natural gas contracts
under which production is sold vary, but generally can be grouped into three
categories: (i) life-of-well, (ii) long-term (one year or longer), and (iii)
short-term contracts. Short-term contracts are defined as contracts which may
have a primary term of less than one year, but which are cancelable at either
party's discretion in 30 to 120 days. Substantially all of the Company's natural
gas production is currently sold to gas marketing firms or end users either on
the spot market on a month-to-month basis at prevailing spot market prices or
under long-term contracts based on current spot market prices. For the year
ended December 31, 1996, one purchaser accounted for approximately 91% of the
Company's natural gas revenues. The Company does not believe that any
discontinuation of its sales arrangement with such firm would be disruptive to
the Company's natural gas marketing operations. See "Business and Properties --
Marketing of Production."
Approximately 5% of the estimated natural gas reserves in the Permian
Basin Properties are served by a single gas gathering system operated by
Burlington Resources Oil and Gas Company, a Burlington affiliate. Burlington has
agreed, however, that it will deliver the natural gas at a sufficient pressure
to enter at least one third party gas transmission system and that it will only
impose any natural gas curtailments in the same proportion as its own natural
gas. The Company is not otherwise protected from increased gas gathering charges
that would make it uneconomic to continue production in times of low natural gas
prices.
Hedging Risks
As of March 31, 1997 on an historical basis, the Company had hedged
approximately (i) 50% of its natural gas production through January 1998, and
(ii) 85% of its oil production through August 1997. As of June 30, 1997, the
Company had hedged approximately 16% of its oil production and 50% of its
natural gas production. These hedges have in the past involved fixed price
arrangements and other price arrangements at a variety of prices, floors and
caps. The Company is currently evaluating the use of hedges on the oil and
natural gas produced from the Permian Basin Properties. The Company has in the
past and may in the future enter into oil and natural gas futures contracts,
options and swaps. The Company's hedging activities, while intended to reduce
the Company's sensitivity to changes in market prices of oil and natural gas,
are subject to a number of risks including instances in which the Company or the
counterparties to its futures contracts could fail to purchase the contracted
quantities of oil or natural gas. Additionally, the fixed price sales and
hedging contracts limit the benefits the Company will realize if actual prices
rise above the contract prices. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital Resources
- -- Hedging Activity" and Note 14 to the Company's Consolidated Financial
Statements.
Laws and Regulations
The Company's operations are affected by extensive regulation pursuant to
various federal, state and local laws and regulations relating to the
exploration for and development, production, gathering and marketing of oil and
natural gas. Matters subject to regulation include discharge permits for
drilling operations, drilling and abandonment bonds or other financial
responsibility requirements, reports concerning operations, the spacing of
wells, unitization and pooling of properties, and taxation. From time to time,
regulatory agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and natural gas wells below actual
production capacity in order to conserve supplies of oil and natural gas.
Operations of the Company are also subject to numerous environmental laws,
including but not limited to, those governing management of waste, protection of
water, air quality, the discharge of materials into the environment, and
preservation of natural resources. Non-compliance with environmental laws and
the discharge of oil, natural gas, or other materials into the air, soil or
water may give rise to liabilities to the government and third parties,
including civil and criminal penalties, and may require the Company to incur
costs to remedy the discharge. Laws and regulations protecting the environment
have become more stringent in recent years, and may in certain circumstances
impose
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retroactive, strict, and joint and several liability rendering entities liable
for environmental damage without regard to negligence or fault. From time to
time the Company has agreed to indemnify sellers of producing properties from
whom the Company has acquired reserves against certain liabilities for
environmental claims associated with such properties. There can be no assurance
that new laws or regulations, or modifications of or new interpretations of
existing laws and regulations, will not increase substantially the cost of
compliance or otherwise adversely affect the Company's oil and natural gas
operations and financial condition or that material indemnity claims will not
arise against the Company with respect to properties acquired by the Company.
While the Company does not anticipate incurring material costs in connection
with environmental compliance and remediation, it cannot guarantee that material
costs will not be incurred. See "Business and Properties -- Regulation."
Competition
The Company encounters substantial competition in acquiring properties,
marketing oil and natural gas, securing trained personnel and operating its
properties. Many competitors have financial and other resources that
substantially exceed those of the Company. The Company's competitors in
acquisitions, development, exploration and production include major oil
companies, numerous independents, individual proprietors and others. Therefore,
competitors may be able to pay more for desirable leases and to evaluate, bid
for and purchase a greater number of properties or prospects than the financial
or personnel resources of the Company will permit. See "Business and Properties
- - -- Competition."
Dependence Upon Key Personnel
The Company is substantially dependent upon three key individuals within
its management, Gary C. Evans, Matthew C. Lutz and Richard R. Frazier, all of
whom were executives of Hunter prior to the Magnum Hunter Combination. The loss
of the services of any one of these individuals could have a material adverse
impact upon the Company. See "Management."
Change of Control
Upon the occurrence of a Change of Control, the Company will be required
to offer to repurchase all or a portion of the outstanding Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
repurchase. The source of funds for any such payment at maturity or earlier
repurchase will be the Company's available cash or cash generated from operating
or other sources, including, without limitation, borrowings or sales of assets
or equity securities of the Company. There can be no assurance that sufficient
funds will be available at the time of any such event to pay such principal or
to make any required repurchase. If an offer to repurchase is required to be
made and the Company does not have available funds sufficient to pay for Notes
tendered for repurchase, an event of default would occur under the Indenture.
The occurrence of an event of default could result in acceleration of maturity
of the Notes and all amounts due under the New Credit Facility. See "Description
of Exchange Notes."
Lack of Public Market
The Outstanding Notes were issued to, and the Company believes are
currently owned by, a relatively small number of beneficial owners. The
Outstanding Notes have not been registered under the Securities Act and will
continue to be subject to restrictions on transferability to the extent that
they are not exchanged for Exchange Notes. See "-- Consequences of a Failure to
Exchange Outstanding Notes." Although the Exchange Notes will generally be
permitted to be resold or otherwise transferred by the holders (who are not
affiliates of the Company or broker-dealers) without compliance with the
registration and prospectus delivery requirements under the Securities Act, they
will constitute a new issue of securities with no established trading market.
The Company has been advised by the Initial Purchasers that the Initial
Purchasers presently intend to make a market in the Exchange Notes. However, the
Initial Purchasers are not obligated to do so and any market making activity
with respect to the Exchange Notes may be discontinued at any time without
notice. In addition, such market making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act and may be limited during the
Exchange Offer. If the Exchange Notes are traded after their initial issuance,
they may trade at a discount from their initial offering price, depending upon
prevailing interest rates,
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the market for similar securities and other factors including general economic
conditions and the financial condition of the Company. While the Company does
intend to apply for a listing of the Exchange Notes on the American Stock
Exchange, there can be no assurance as to the development or liquidity of any
market for the Exchange Notes. The liquidity of, and trading market for, the
Notes also may be adversely affected by general declines in the market for
similar securities. Such a decline may adversely affect such liquidity and
trading markets independent of the financial performance of, and prospects for,
the Company.
Notwithstanding the registration of the Exchange Notes in the Exchange
Offer, holders who are "affiliates" (as defined in Rule 405 under the Securities
Act) of the Company may publicly offer for sale or resell the Exchange Notes
only in compliance with the provisions of Rule 144 under the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Outstanding Notes, where such Outstanding Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. Subject to certain provisions set forth in the Registration
Agreement, the Company has agreed that, for a period of up to 180 days after the
Registration Statement is declared effective, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale. However, under certain circumstances, the Company has the right to
require that Participating Broker-Dealers suspend the resale of Exchange Notes
pursuant to this Prospectus. See "The Exchange Offer -- Resales of Exchange
Notes."
Exchange Offer Procedures
Any holder of the Outstanding Notes who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act or any broker-dealer who
purchased Outstanding Notes from the Company to resell pursuant to Rule 144A or
any other available exemption under the Securities Act will not be permitted or
entitled to tender such Outstanding Notes in the Exchange Offer and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or other transfer of such Outstanding Notes unless
such sale or transfer is made pursuant to an exemption from such requirements.
See "The Exchange Offer -- Resales of Exchange Notes."
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company set forth in "The Exchange Offer -- Acceptance
for Exchange and Issuance of Exchange Notes."
Issuance of the Exchange Notes in exchange for the Outstanding Notes
pursuant to the Exchange Offer will be made only after timely receipt by the
Company of such Outstanding Notes, a properly completed and duly executed Letter
of Transmittal and all other required documents. Therefore, holders of the
Outstanding Notes desiring to tender such Outstanding Notes in exchange for
Exchange Notes should allow sufficient time to ensure timely delivery. The
Company is under no duty to give notification of defects or irregularities with
respect to tenders of Outstanding Notes for exchange. See "The Exchange
Offer -- Procedures for Tendering Outstanding Notes."
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Fraudulent Conveyance
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the Subsidiary Guarantors' issuance of the Guarantees. To the
extent that a court were to find that (x) a Guarantee was incurred by a
Subsidiary Guarantor with intent to hinder, delay or defraud any present or
future creditor or the Subsidiary Guarantor contemplated insolvency with a
design to prefer one or more creditors to the exclusion in whole or in part of
others or (y) a Subsidiary Guarantor did not receive fair consideration or
reasonably equivalent value for issuing its Guarantee and such Subsidiary
Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of the
issuance of such Guarantee, (iii) was engaged or about to engage in a business
or transaction for which the remaining assets of such Subsidiary Guarantor
constituted unreasonably small capital to carry on its business or (iv) intended
to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, the court could avoid or subordinate such Guarantee in
favor of the Subsidiary Guarantor's creditors. Among other things, a legal
challenge of a Guarantee on fraudulent conveyance grounds may focus on the
benefits, if realized by the Subsidiary Guarantor as a result of the issuance by
the Company of the Notes. The Indenture contains a savings clause, which
generally limits the obligations of each Subsidiary Guarantor under its
Guarantee to the maximum amount as will, after giving effect to all of the
liabilities of such Subsidiary Guarantor, result in such obligations not
constituting a fraudulent conveyance. To the extent a Guarantee of any
Subsidiary Guarantor was avoided as a fraudulent conveyance or held
unenforceable for any other reason, holders of the Notes would cease to have any
claim against such Subsidiary Guarantor and would be creditors solely of the
Company and any Subsidiary Guarantor whose Guarantee was not avoided or held
unenforceable. In such event, the claims of the holders of the Notes against the
issuer of an invalid Guarantee would be subject to the prior payment of all
liabilities of such Subsidiary Guarantor. There can be no assurance that, after
providing for all prior claims, there would be sufficient assets to satisfy the
claims of the holders of the Notes relating to any avoided portions of any of
the Guarantees.
The measure of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any such proceeding. Generally,
however, a Subsidiary Guarantor may be considered insolvent if the sum of its
debts, including contingent liabilities, was greater than the fair marketable
value of all of its assets at a fair valuation or if the present fair marketable
value of its assets was less than the amount that would be required to pay its
probable liability on its existing debts, including contingent liabilities, as
they become absolute and mature.
Based upon financial and other information, the Company and the Subsidiary
Guarantors believe that the Guarantees are being incurred for proper purposes
and in good faith and that the Company and each Subsidiary Guarantor is solvent
and will continue to be solvent, will have sufficient capital for carrying on
its business after such issuance and will be able to pay its debts as they
mature. There can be no assurance, however, that a court passing on such
standards would agree with the Company.
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USE OF PROCEEDS
At April 30, 1997, following the closing of the Permian Basin Acquisition,
the Company's outstanding indebtedness under the New Credit Facility was $119.5
million and under the Term Loan Facility was $60.0 million. The indebtedness
under the New Credit Facility and the Term Loan Facility was incurred to pay the
$123.0 million balance of the $133.0 million net purchase price in the Permian
Basin Acquisition, to repay the approximately $53.7 million outstanding
indebtedness under the Previous Credit Facility as of April 30, 1997, and to pay
the costs associated with the Permian Basin Acquisition and the related
financings. The New Credit Facility currently bears interest at 7.4375% per
annum and matures on April 30, 2002. See "Description of New Credit Facility."
On May 29, 1997, the Company completed an offering of $140.0 million
aggregate principal amount of its 10% Senior Notes due 2007. Interest on the
Notes will accrue from their date of original issuance and will be payable
semi-annually in arrears on June 1 and December 1 of each year, commencing on
December 1, 1997, at the rate of 10% per annum. In general, the Notes will be
redeemable, in whole or in part, at the option of the Company on or after June
1, 2002, at the redemption prices set forth herein, plus accrued interest to the
date of redemption. The Notes will be general unsecured obligations of the
Company and will rank pari passu with any unsubordinated indebtedness of the
Company and will rank senior in right of payment to all subordinated obligations
of the Company. The net proceeds from the Offering were approximately $135.5
million after deducting fees and expenses of approximately $4.5 million paid by
the Company. The Company utilized the net proceeds to repay the $60.0 million of
outstanding indebtedness under the Term Loan Facility and to reduce indebtedness
under the New Credit Facility by approximately $75.5 million. As of September
30, 1997, the Company had approximately $48.0 million of secured indebtedness
outstanding (excluding unused commitments of $12.0 million under the New Credit
Facility).
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Agreement. The Company will not receive any
cash proceeds from the issuance of the Exchange Notes in the Exchange Offer. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive Outstanding Notes in like principal amount. The form
and terms of the Exchange Notes are identical in all material respects to the
form and terms of the Outstanding Notes, except certain transfer restrictions
and registration rights relating to the Outstanding Notes and except for certain
interest provisions relating to such registration rights. See "Description of
the Exchange Notes." The Outstanding Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any increase in the
outstanding debt of the Company.
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
In connection with the sale of the Outstanding Notes, the Company and the
Subsidiary Guarantors entered into the Registration Agreement with the Initial
Purchasers, pursuant to which the Company and the Subsidiary Guarantors agreed
to file and to use their best efforts to cause to become effective with the
Commission a registration statement with respect to the exchange of the
Outstanding Notes for debt securities with terms identical in all material
respects (subject to certain exceptions) to the terms of the Outstanding Notes.
A copy of the Registration Agreement has been filed as an Exhibit to the
Registration Statement of which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Company and the Subsidiary Guarantors under the Registration Agreement. The
form and terms of the Exchange Notes are the same as the form and terms of the
Outstanding Notes except that: (i) the Exchange Notes have been registered under
the Securities Act and therefore will not be subject to certain restrictions on
transfer applicable to the Outstanding Notes and will not be entitled to resale
registration under the Registration Agreement (subject to certain exceptions),
although the Registration Agreement does provide for prospectus delivery
procedures to assist resales of Exchange Notes, and (ii) the Exchange Notes
generally will not provide for any increase in the interest rate thereon. In
that regard, the Outstanding Notes provide that if the Company or the Subsidiary
Guarantors fail to comply with certain provisions concerning registration
rights, specifically the timing of the Exchange Offer, Additional Interest will
accrue and be payable until such time as such registration defaults have been
cured. Additional Interest will accrue and be payable semi-annually until such
time as all Registration Defaults have been cured. See "Description of the
Outstanding Notes" and "Risk Factors -- Consequences of a Failure to Exchange
Outstanding Notes."
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Outstanding 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.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Outstanding Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Outstanding Notes are held of record by the Depository who desires to deliver
such Outstanding Notes by book-entry transfer at the Depository. Persons holding
Outstanding Notes through the Depository and wishing to accept the Exchange
Offer must do so pursuant to the Depository's Automated Tender Offer Program.
See "-- Procedures for Tendering Outstanding Notes -- Book Entry Transfer."
Terms of the Exchange Offer
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 $140 million aggregate principal amount of Exchange Notes for a
like aggregate principal amount of Outstanding Notes properly tendered on or
prior to the Expiration Date 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 $140 million of Exchange
Notes in exchange for a like principal amount of Outstanding Notes tendered and
accepted in connection with the Exchange Offer. The term "Expiration Date" means
5:00 p.m., New York City time, on _______________, 1997 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). Holders
may tender their Outstanding Notes in whole or in part in a principal amount of
$1,000 and integral multiples thereof. The Exchange Offer is not conditioned
upon any minimum number of Outstanding Notes being tendered. As of the date of
this Prospectus, $140 million aggregate principal amount of the Outstanding
Notes is outstanding.
Holders of Outstanding Notes do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Outstanding Notes that are not
tendered for 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 Agreement, except under limited circumstances. See "Risk Factors --
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<PAGE>
Consequences of a Failure to Exchange Outstanding Notes," "Description of the
Exchange Notes" and "Description of the Outstanding Notes."
If any tendered Outstanding 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 Outstanding Notes will be
returned, without expense, to the tendering holder thereof (or, in the case of
Outstanding Notes tendered pursuant to the procedures for book-entry transfer
described below, such Outstanding Notes will be credited to an account
maintained with the Depository for the Outstanding Notes) promptly after the
Expiration Date. Holders who tender Outstanding Notes in connection with the
Exchange Offer will not be required to pay brokerage commissions or fees or,
subject to the instructions herein and in the Letter of Transmittal, transfer
taxes with respect to the exchange of Outstanding 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 OUTSTANDING NOTES AS TO WHETHER TO TENDER OR
REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OUTSTANDING NOTES PURSUANT TO
THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF OUTSTANDING NOTES MUST MAKE THEIR OWN DECISION
WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE
AMOUNT OF OUTSTANDING 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.
Acceptance for Exchange and Issuance of Exchange Notes
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, Exchange Notes for
Outstanding 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 Exchange Notes in exchange for Outstanding Notes
tendered and accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of (i) Outstanding Notes or a
book-entry confirmation of a book-entry transfer (a "Book-Entry Confirmation")
of such Outstanding Notes into the Exchange Agent's account at the Depository's
book-entry transfer facility system (the "Book-Entry Transfer Facility"),
pursuant to the procedures for book-entry transfer described under "--
Procedures for Tendering Outstanding Notes -- Book-Entry Transfer," if
available, (ii) the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees, or an
Agent's Message and (iii) any other documents required by the Letter of
Transmittal. The term "Agent's Message" means a message, transmitted by the
Book-Entry Transfer Facility to, and received by, the Exchange Agent and forming
a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgment from the participant in the
Book-Entry Transfer Facility tendering Outstanding Notes which are the subject
of such Book-Entry Confirmation that such participant has received and agrees to
be bound by the terms of the Letter of Transmittal, and that the Company may
enforce such agreement against the participant.
Subject to the terms and conditions of the Exchange Offer, the Company
will be deemed to have accepted for exchange, and thereby exchanged, Outstanding
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
Outstanding 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
Outstanding Notes, Letters of Transmittal and related documents, and as agent
for tendering holders for the purpose of receiving Outstanding Notes, Letters of
Transmittal and related documents and transmitting Exchange 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 Outstanding Notes tendered pursuant to the Exchange Offer is delayed
(whether before or after the Company's acceptance for exchange of Outstanding
Notes) or the Company extends the Exchange Offer or is unable to accept for
exchange or exchange Outstanding 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 Outstanding Notes and such Outstanding
Notes may not be withdrawn except to the extent tendering holders are entitled
to withdrawal rights as described under "-- Withdrawal Rights."
A holder of Outstanding Notes will warrant and agree in the Letter of
Transmittal that (i) it has full power and authority to tender, exchange, sell,
assign and transfer Outstanding Notes and to acquire the Exchange Notes issuable
upon exchange thereof, (ii) that the Company will acquire good, marketable and
unencumbered title to the tendered Outstanding Notes, free and clear of all
liens, restrictions, charges and encumbrances, and (iii) the Outstanding Notes
tendered for exchange are not subject to any adverse claims or proxies.
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In addition, the holder will represent to the Company in the Letter of
Transmittal that (i) the Exchange Notes acquired pursuant to the Exchange Offer
by the holder of the tendered Outstanding Notes are being acquired in the
ordinary course of business of the person receiving such Exchange Notes, (ii)
the holder will have no arrangement or understanding with any person to
participate in a distribution of such Exchange Notes in violation of the
provisions of the Securities Act and (iii) the holder is not an "affiliate," as
defined in Rule 405 under the Securities Act of the Company. See "--Resales of
Exchange Notes." 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 Outstanding Notes tendered pursuant to the
Exchange Offer.
Procedures for Tendering Outstanding Notes
Valid Tender
In order for Outstanding Notes to be validly tendered pursuant to the
Exchange Offer, (a) the Exchange Agent must receive prior to the Expiration Date
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other required
documents, and either (i) the certificates for such Outstanding Notes or (ii) a
Book-Entry Confirmation of such Outstanding Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the procedures for
book-entry transfer described below, if available, or (b) the Exchange Agent
must receive prior to the Expiration Date a Book-Entry Confirmation of such
Outstanding Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility with an Agent's Message and any other required documents or (c) the
holder must comply with the guaranteed delivery procedures set forth below.
Delivery of all documents must be made to the Exchange Agent at its address set
forth herein. Holders may also request that their respective brokers, dealers,
commercial banks, trust companies or nominees effect such tender for such
holders.
If less than all of the Outstanding Notes are tendered, a tendering holder
should fill in the amount of Outstanding Notes being tendered in the appropriate
box on the Letter of Transmittal. The entire amount of Outstanding 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 ARE 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
Outstanding Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer Facility
may make a book-entry delivery of the Outstanding Notes by causing the
Depository to transfer such Outstanding Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility in accordance with the Depository's
procedures for transfers. However, although delivery of Outstanding Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility, the Letter of Transmittal or an Agent's Message
must in any case be delivered to and received by the Exchange Agent at one of
the Exchange Agent's addresses set forth under "-- Exchange Agent" on or prior
to the Expiration Date, or the guaranteed delivery procedure set forth below
must be complied with. The Depository's Automated Tender Offer Program ("ATOP")
is the only method of processing exchange offers through the Book-Entry Transfer
Facility. To accept the Exchange Offer through ATOP, participants in the
Book-Entry Transfer Facility must send electronic instructions to the Depository
through the Depository's communication system in place of sending a signed, hard
copy Letter of Transmittal. The Depository is obligated to communicate those
electronic instructions to the Exchange Agent. To tender Outstanding Notes
through ATOP, the electronic instructions sent to the Depository and transmitted
by the Depository to the Exchange Agent must contain the character (i.e., the
Agent's Message) by which the participant acknowledges its receipt of and agrees
to be bound by the Letter of Transmittal.
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DELIVERY OF DOCUMENTS TO THE DEPOSITORY IN ACCORDANCE WITH THE
DEPOSITORY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. THE
LETTER OF TRANSMITTAL MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO
_____________, 1997.
Signature Guarantees
Certificates for the Outstanding Notes need not be endorsed and signature
guarantees on the Letter of Transmittal are unnecessary unless (a) a certificate
for the Outstanding 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 Outstanding 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 (collectively, an "Eligible
Institution"), unless surrendered on behalf of such Eligible Institution. See
Instruction 5 to the Letter of Transmittal.
Guaranteed Delivery
If a holder desires to tender Outstanding Notes pursuant to the Exchange
Offer and (i) the certificates for such Outstanding Notes are not immediately
available, (ii) such holder cannot complete the procedures for book-entry
transfer of the Outstanding Notes on a timely basis or (iii) time will not
permit the Letter of Transmittal or other required documents to reach the
Exchange Agent on or before the Expiration Date, such Outstanding 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 representing all tendered Outstanding Notes, in
proper form for transfer, or a Book-Entry Confirmation with respect
to such Outstanding Notes, together with a properly completed and
duly executed Letter of Transmittal, or Agent's Message and any
other required documents, are received by the Exchange Agent within
five American Stock Exchange trading days after the date of
execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted by
facsimile, overnight courier 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 Exchange Notes
in exchange for Outstanding 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 (i) Outstanding Notes, or a Book-Entry Confirmation with
respect to such Outstanding Notes, (ii) a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) or an Agent's Message and (iii) any
other required documents. Accordingly, the delivery of Exchange Notes might not
be made to all tendering holders at the same time, and will depend upon when
Outstanding Notes, book-entry confirmations with respect to Outstanding Notes
and other required documents are received by the Exchange Agent. The Company's
acceptance for exchange of Outstanding 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.
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Determination of Validity
All questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any tendered
Outstanding 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.
No tender of Outstanding 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. The Company also reserves the absolute right, subject to
applicable law, to waive any condition or irregularity in any tender of
Outstanding Notes of any particular holder whether or not similar conditions or
irregularities are waived in the case of other holders.
A beneficial owner of Outstanding 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. If such beneficial owner wishes to
tender directly, such beneficial owner must, prior to completing and executing
the Letter of Transmittal and delivering its Outstanding Notes, either make
appropriate arrangements to register ownership of the Outstanding Notes in such
beneficial owner's name or obtain a properly completed bond power from the
registered holder. The transfer of record ownership may take considerable time.
If the Letter of Transmittal is signed by the record holder(s) of the
Outstanding Notes tendered thereby, the signature must correspond with the
name(s) written on the face of the Outstanding Notes without alteration,
enlargement or any change whatsoever. If the Letter of Transmittal is signed by
a participant in the Book-Entry Transfer Facility, the signature must correspond
with the name as it appears on the security position listing as the holder of
the Outstanding Notes. If any Letter of Transmittal, endorsement, bond power,
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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.
Resales of Exchange Notes
The Company is making the Exchange Offer in reliance on a 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 determination with respect to the Exchange Offer similar
to that made in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance, and subject
to the three immediately following sentences, the Company believes that Exchange
Notes issued pursuant to this Exchange Offer in exchange for Outstanding 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 (i) such Exchange Notes are acquired in the ordinary course of
such holder's business and (ii) 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 Exchange Notes. However, any
holder of Outstanding Notes who is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act, or any broker-dealer who purchased
Outstanding 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 Outstanding 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
Outstanding Notes unless such sale or transfer is made pursuant to an exemption
from such requirements. In addition, any holder who tenders Outstanding Notes in
the Exchange Offer with the intention or for the purpose of participating in a
distribution of the Exchange Notes cannot rely on such interpretations of the
staff of the Division of Corporation Finance of the Commission referred to above
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction. A
broker-dealer who is not an "affiliate" of the Company may participate in the
Exchange Offer with respect to Outstanding Notes acquired for its own account as
a result of market-making activities or other trading activities, provided that
(i) in connection with any resales of Exchange Notes received by the
broker-dealer in exchange for such Outstanding Notes, the broker-dealer delivers
a prospectus meeting the requirements of the Securities Act, and (ii) the
broker-dealer has not entered into any arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of such Exchange Notes. In the event that applicable interpretations by the
staff of the Division of Corporate Finance of the Commission change or otherwise
do not permit resales of the Exchange Notes without compliance with the
registration and prospectus delivery requirements of the Securities Act, holders
of Exchange Notes who transfer Exchange Notes in violation of the prospectus
delivery provisions of the Securities Act or without an exemption from
registration thereunder may incur liability thereunder.
-35-
<PAGE>
Each holder of Outstanding Notes who wishes to exchange such Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to represent
that (i) it is not an "affiliate" of the Company, (ii) any Exchange Notes to be
received by it are being acquired in the ordinary course of its business, and
(iii) at the time of consummation of the Exchange Offer such holder will have no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Notes in violation
of the Securities Act. Each Participating Broker-Dealer must acknowledge that it
acquired the Outstanding 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 Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a Participating
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 Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the Exchange
Notes received upon exchange of such Outstanding Notes (other than Outstanding
Notes which represent an unsold allotment from the original sale of the
Outstanding Notes) with a prospectus meeting the requirements of the Securities
Act that 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 Exchange Notes. Accordingly, this Prospectus may be used by a Participating
Broker-Dealer during the period referred to in the immediately following
sentence in connection with resales of Exchange Notes received in exchange for
Outstanding Notes where such Outstanding 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 Agreement, the Company has agreed that this Prospectus may be used
by a Participating Broker-Dealer for such period of time as is necessary to
comply with applicable law in connection with resales of such Exchange Notes,
provided that such time period not exceed 180 days after the Registration
Statement is declared effective. 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 "Plan of
Distribution."
Each Participating Broker-Dealer will be deemed to have agreed, by its
acquisition of the Outstanding Notes or Exchange Notes to be sold by such
Participating Broker-Dealer, 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 Agreement, such Participating Broker-Dealer will suspend the sale
of Exchange 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 Exchange
Notes may be resumed, as the case may be. If the Company gives such notice to
suspend the sale of the Exchange 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 Exchange 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 Exchange Notes or to and including the date on which the Company has given
notice that the sale of Exchange Notes may be resumed, as the case may be.
-36-
<PAGE>
Withdrawal Rights
Except as otherwise provided herein, tenders of Outstanding 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 or (for participants in the Book-Entry Transfer Facility)
electronic ATOP transmission of 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 Outstanding Notes to be withdrawn, the
aggregate principal amount of Outstanding Notes to be withdrawn, and (if
certificates for such Outstanding Notes have been tendered) the name of the
registered holder of the Outstanding Notes as set forth on the Outstanding
Notes, if different from that of the person who tendered such Outstanding Notes.
If Outstanding Notes have been delivered or otherwise identified to the Exchange
Agent, then prior to the physical release of such Outstanding Notes, the
tendering holder must submit the serial numbers shown on the particular
Outstanding Notes to be withdrawn and the signature on the notice of withdrawal
must be guaranteed by an Eligible Institution, except in the case of Outstanding
Notes tendered for the account of an Eligible Institution. If Outstanding Notes
have been tendered pursuant to the procedures for book-entry transfer set forth
in "-- Procedures for Tendering Outstanding Notes," the notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Outstanding Notes and otherwise
comply with the procedures of such facility. Withdrawals of tenders of
Outstanding Notes may not be rescinded. Outstanding 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 Outstanding 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 Outstanding Notes which have been
tendered but which are withdrawn will be returned to the holder thereof (or, in
the case of Outstanding Notes tendered pursuant to the procedures for book-entry
transfer described above, such Outstanding Notes will be credited to the
account, at the Book-Entry Transfer Facility specified in the notice of
withdrawal) promptly after withdrawal.
-37-
<PAGE>
Interest on the Exchange Notes
Each Exchange Note will bear interest at the rate of 10% per annum from
the most recent date to which interest has been paid or duly provided for on the
Outstanding Note surrendered in exchange for such Exchange Note or, if no
interest has been paid or duly provided for on such Outstanding Note, from May
29, 1997 (the date of original issuance of such Outstanding Notes). Interest on
the Exchange Notes will be payable semiannually on June 1 and December 1 of each
year, commencing on December 1, 1997.
Holders of Outstanding Notes whose Outstanding Notes are accepted for
exchange will not receive accrued interest on such Outstanding Notes for any
period from and after the last interest payment date to which interest has been
paid or duly provided for on such Outstanding Notes prior to the original issue
date of the Exchange Notes or, if no such interest has been paid or duly
provided for, will not receive any accrued interest on such Outstanding Notes,
and will be deemed to have waived the right to receive any interest on such
Outstanding 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 29, 1997.
Exchange Agent
First Union National Bank of North Carolina (the "Exchange Agent") 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:
First Union National Bank
1525 W.T. Harris Blvd.
C3C/NC 1179
Charlotte, North Carolina 28288
Attn: Mr. Mike Klotz -- Reorg
By Facsimile Transmission:
(for Eligible Institutions Only)
First Union National Bank
1525 W.T. Harris Blvd.
C3C/NC 1179
Charlotte, North Carolina 28288
Fax Number: (704) 590-2786
Confirm by Telephone:
(800) 665-9343
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
-38-
<PAGE>
Certain Conditions to the Exchange Offer
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any Exchange Notes for any
Outstanding Notes, and may terminate the Exchange Offer as provided herein
before the acceptance of any Outstanding Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by any governmental agency with respect to the Exchange Offer
which might materially impair the ability of the Company to
proceed with the Exchange Offer or a material adverse development
shall have occurred in any existing action or proceeding with
respect to the Company or the Subsidiary Guarantors; or
(b) any law, statute, rule or regulation is adopted or enacted, or
any existing law, statute, rule or regulation is interpreted by
the staff of the Commission which might materially impair the
ability of the Company to proceed with the Exchange Offer; or
(c) any governmental approval has not been obtained, which approval
the Company shall deem necessary for the consummation of the
Exchange Offer as contemplated hereby.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Outstanding Notes, by giving oral
or written notice of such extension to the holders thereof. During any such
extensions, all Outstanding Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company. Any Outstanding
Notes not accepted for exchange for any reason will be returned without expense
to the tendering holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Outstanding Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified above under "--Certain Conditions to the Exchange
Offer." The Company will give oral or written notice of any extensions,
amendment, non-acceptance or termination to the holders of the Outstanding Notes
as promptly as practicable, such notice in the case of any extension to be
issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended.
Fees and Expenses; Transfer Taxes
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopy, telephone, or in person by officers and regular
employees of the Company. No additional compensation will be paid to any such
officers and employees who engage in soliciting tenders.
\
-39-
<PAGE>
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, 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 expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent, accounting and legal fees and printing costs, among others.
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however,
Exchange Notes are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the Outstanding Notes tendered, or if
a transfer tax is imposed for any reason other than the exchange of Outstanding
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.
Certain Federal Income Tax Considerations
The exchange of the Outstanding Notes for Exchange Notes by tendering
holders should not be a taxable exchange for United States federal income tax
purposes, and such holders should not recognize any taxable gain or loss for
United States federal income tax purposes as a result of such exchange. Holders
of Exchange Notes will continue to be required to include interest on the
Exchange Notes in gross income in accordance with their method of accounting for
United States federal income tax purposes. HOLDERS SHOULD REVIEW THE INFORMATION
SET FORTH UNDER "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" FOR A DISCUSSION OF
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE EXCHANGE
NOTES PRIOR TO TENDERING THE OUTSTANDING NOTES IN THE EXCHANGE OFFER.
-40-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1997. This table should be read in conjunction with the Consolidated
Financial Statements and related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
<S> <C>
June 30, 1997
---------------
(dollars in thousands)
Long term debt, including current maturities:
Credit facility(1)......................................... $ 47,055
10% Senior Notes due 2007.................................. 140,000
----------
Total long-term debt.................................. 187,055
---------
Production payment liability.................................. 831
Stockholders' equity:
Preferred Stock, $.001 par value, 10,000,000 shares
authorized: 80,000 shares issued and outstanding of Series A
Preferred Stock (no liquidation preference) and
1,000,000 shares issued and outstanding of TCW Preferred
Stock(2) ($10 liquidation preference per share)......... 1
Common Stock, $.002 par value, 50,000,000 shares
authorized: 14,252,822 shares issued and 13,596,883 shares 29
outstanding.............................................
Additional paid-in capital................................. 39,782
Accumulated deficit........................................ (7,688)
Unrealized gain on investments............................. 130
Less treasury stock (655,939 shares of Common Stock)....... (1)
--------------
Total stockholders' equity............................ 32,253
------------
Total capitalization.................................. $ 231,670
------------
------------
- - -----------
</TABLE>
(1) For a discussion of the New Credit Facility, see "Description of New
Credit Facility."
(2) TCW Preferred Stock refers to the 1996 Series A Convertible Preferred
Stock issued to TCW.
-41-
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial data are derived from
the Consolidated Financial Statements of the Company set forth elsewhere in this
Prospectus and certain historical financial data in respect of various assets
acquired by the Company. The historical revenues and oil and gas production and
gas gathering and marketing expenses of the McLean Gas Plant, the Panoma
Properties and the Permian Basin Properties represent amounts recorded with
respect to such properties for the period indicated. The Unaudited Pro Forma
Income Statement for the year ended December 31, 1996 has been prepared assuming
the Panoma Acquisition, the issuance of the TCW Preferred Stock, the McLean
Plant Acquisition, the conversion of the Series B and Series C Preferred Stock
into Common Stock, the Permian Basin Acquisition (including the incurrence of
indebtedness under the New Credit Facility and the Term Loan Facility and the
use of proceeds therefrom) and the Offering and the application of the net
proceeds therefrom had been consummated as of January 1, 1996. The Unaudited Pro
Forma Income Statement for the six months ended June 30, 1997 has been prepared
assuming the Permian Basin Acquisition (including the incurrence of indebtedness
under the New Credit Facility and the Term Loan Facility and the use of proceeds
therefrom) and the Offering and the application of the net proceeds therefrom
had been consummated as of January 1, 1997. The pro forma adjustments set forth
on the attached Unaudited Pro Forma Income Statements reflect the following as
if they occurred on the dates hereinabove set forth:
(1) Recent Transactions. The Panoma Acquisition completed in July 1996; the
conversion or redemption of the Series B and Series C Preferred Stock in
1996; the issuance of the TCW Preferred Stock in December 1996; and the
McLean Plant Acquisition in January 1997.
(2) Permian Basin Acquisition. The Permian Basin Acquisition completed in
April 1997 (including the incurrence of indebtedness under the New Credit
Facility and the Term Loan Facility to finance the Permian Basin
Acquisition and repay the indebtedness under the Previous Credit
Facility).
(3) The Offering. The Offering and the application of the net proceeds
therefrom as described in "Use of Proceeds."
The unaudited pro forma combined financial data should be read in
conjunction with the notes thereto and with the Consolidated Financial
Statements of the Company and the notes thereto and the historical summaries of
revenues and direct operating expenses of the Permian Basin Properties, all of
which are included elsewhere in this Prospectus.
The unaudited pro forma combined financial data are not indicative of the
financial position or results of operations of the Company which would actually
have occurred if the transactions described above had occurred at the dates
presented or which may be obtained in the future. In addition, future results
may vary significantly from the results reflected in such statements due to
normal oil and natural gas production declines, changes in prices paid for oil
and natural gas, future acquisitions, drilling activity and other factors.
-42-
<PAGE>
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
Year Ended December 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Pro Forma Pro Forma Recent
Pro Forma Pro Forma Pro Forma Recent Adjustments Transactions,
Magnum Adjustments Adjustments for Transactions and for Offering Permian Basin
Hunter for Recent Permian Basin Permian Basin Acquisition and
Historical Transactions Acquisition Acquisition Offering
------------- -------------- ----------------- ------------------ -------------- -----------------
Operating Revenues:
Oil and gas sales........ $10,248 $3,267 (1) $39,433 (10) $52,948 $ - $52,948
Gas gathering, marketing
and processing....... 5,768 3,562 (2) - 10,304 - 10,304
974 (1)
Oil field services and
international sales.. 396 - - 396 - 396
---------- ------------- ----------------- ------------------ -------------- -----------------
Total operating
revenue......... 16,412 7,803 39,433 63,648 - 63,648
Operating Costs and
Expenses:
Oil and gas production... 4,390 1,049 (1) 11,646 (10) 17,085 - 17,085
Gas gathering, marketing
and processing....... 4,708 1,476 (2) - 6,879 - 6,879
695 (1)
Oil field services and
international sales.. 267 267 - 267
Depreciation and
depletion............ 2,951 1,203 (3) 12,961 (11) 17,282 - 17,282
167 (4)
General and
administrative....... 1,225 100 (5) 150 (12) 1,475 - 1,475
--------- ------------- ----------------- ------------------ ---------------- ---------------
Total operating costs
and expenses.... 13,541 4,690 24,757 42,988 - 42,988
---------- ------------- ----------------- ------------------ ---------------- ---------------
Operating profit.............. 2,871 3,113 14,676 20,660 - 20,660
Other income............. 344 - - 344 - 344
Interest expense......... (2,394) (1,555) (6) (14,059)(13) (18,008) 262 (14) (17,746)
---------- ------------- ----------------- ------------------ ---------------- ---------------
Income before tax,minority
interest and
extraordinary item....... 821 1,558 617 2,996 262 3,258
Provisions for deferred
income taxes......... (312) (584) (7) (231) (7) (1,127) (98)(7) (1,225)
---------- ------------- ----------------- ------------------ ---------------- --------------
Income before extraordinary
item................... 509 974 386 1,869 164 2,033
Dividends applicable to
preferred shares..... (406) 389 (8) - (875) - (875)
(858) (8)
---------- ------------- ----------------- ------------------ ---------------- --------------
Income applicable
to common shares
before extraordinary item $ 103 $ 505 $ 386 $ 994 $ 164 $ 1,158
========== ============= ================= ================== ================ =============
Income per share
before extraordinary item $ .01 $ .03 $ .03 $ .07 $ .01 $ .08
======== ========== ========= ========= ========= ==========
Other Data:
EBITDA(15)............... $6,166 $4,483 $ 27,637 $ 38,286 $ - $ 38,286
Cash interest expense(9) 2,347 1,512 13,794 17,653 (312) 17,341
Capital expenditures..... $41,471 $2,500 $133,000 $176,971 $ - $176,971
See accompanying notes to Unaudited Pro Forma Combined Financial Data.
</TABLE>
-43-
<PAGE>
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
Six Months Ended June 30, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Magnum Adjustments for Pro Forma Pro Forma Permian Basin
Hunter Permian Basin Permian Basin Adjustments Acquisition and
Historical Acquisition Acquisition For Offering Offering
----------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Oil and gas sales............... $11,791 $ 12,627 (10) $24,418 $ - $ 24,418
Gas gathering, marketing
and processing.................. 5,283 - 5,283 - 5,283
Oil field services and
international sales................. 3,606 - 3,606 - 3,606
------------- -------------- --------------- ----------------- ---------------
Total operating revenue................ 20,680 12,627 33,307 - 33,307
Operating Costs and Expenses:
Oil and gas production................. 4,740 3,039 (10) 7,779 - 7,779
Gas gathering, marketing and
processing.................... 3,938 - 3,938 - 3,938
Oil field services and international
sales......................... 3,424 - 3,424 - 3,424
Depreciation and depletion............. 4,460 3,629 (11) 8,089 - 8,089
General and administrative............. 651 50 (12) 701 - 701
------------- -------------- --------------- ------------------ ---------------
Total operating costs and expenses..... 17,213 6,718 23,931 - 23,931
------------- -------------- --------------- ------------------ ---------------
Operating profit....................... 3,467 5,909 9,376 - 9,376
Other income.................. 155 - 155 - 155
Interest expense.............. (4,758) (4,587) (13) (9,345) 87 (14) (9,258)
------------- -------------- --------------- ------------------- ---------------
Income before tax, minority interest and
extraordinary item.................. (1,136) 1,322 186 87 273
Income tax (expense) benefit.. 432 (497) (7) (65) (32) (7) (97)
Minority interest in
subsidiary earnings........... (20) - (20) - (20)
------------ ------------- --------------- ------------------ ---------------
Income before extraordinary item....... (724) 825 101 55 156
Dividends applicable to
preferred shares.............. (438) - (438) - (438)
------------ ------------- ---------------- ------------------- --------------
Income (loss) applicable to common
shares before extraordinary
item.......................... $(1,162) $ 825 $(337) $ 55 $ (282)
============ ============= ============== ================== ==============
Income (loss) per share
before extraordinary item..... $(0.09) $0.07 $(0.02) $ - $ (0.02)
============ ============== =============== =================== ==============
Other Data:
EBITDA (15) $8,082 $9,538 $17,620 $ - $ 17,620
See accompanying notes to Unaudited Pro Forma Combined Financial Data.
</TABLE>
-44-
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(dollars in thousands)
(1) To record the operating revenues and oil and natural gas production
expenses and gas gathering and marketing expenses for the first six
months of 1996 for the Panoma Properties that were acquired effective
July 1, 1996 as if the Panoma Acquisition had occurred on January 1,
1996.
(2) To record operating revenues and gas gathering and marketing expenses
related to the Company's 50% interest in the McLean Gas Plant,
which was acquired for $2,500 in January 1997, for the year ended
December 31, 1996 as if the McLean Gas Plant had been acquired on
January 1, 1996. The Company will receive 100% of the net profits
generated by the facility until the $2,500 purchase price is recovered,
after which it will receive 50% of the net profits. If the Company had
received 50% of the net profits generated by the McLean Gas Plant
during the pro forma period presented, its gross margin would have
been reduced by $1,043.
(3) To record the pro forma depletion adjustment to reflect the Company's
depletion expense as if the Panoma Properties that were acquired
effective July 1, 1996 had been acquired on January 1, 1996.
(4) To record one year of depreciation expense on the McLean Gas Plant
(depreciable life is 15 years) as if the McLean Gas Plant had been
acquired on January 1, 1996.
(5) To record estimated additional general and administrative expenses that
would have been incurred if the Panoma Properties that were acquired
effective July 1, 1996 had been acquired on January 1, 1996.
(6) To record interest expense as if the McLean Plant Acquisition and the
Panoma Acquisition had occurred on January 1, 1996 as set forth below.
These acquisitions were assumed to be financed by the Previous Credit
Facility with an average interest rate during 1996 of 7.625%.
McLean Gas Plant-interest...............................................$ 191
Panoma Properties-interest.............................................. 1,321
Panoma Properties-amortization of associated debt issuance costs........ 43
----------
$ 1,555
==========
(7) To record the effect of the pro forma adjustments on deferred and
current federal and state income taxes at an assumed tax rate of 37.5%
after consideration of available net operating losses and other
carryforwards.
(8) To remove the $389 of dividends applicable to Series B and Series C
Preferred Stock that was redeemed or converted to Common Stock in late
1996 as if the redemption or conversion had occurred on January 1,
1996, and to record dividends at a rate of 8.75% on the TCW Preferred
Stock issued in December 1996 as if it had been outstanding since
January 1, 1996.
(9) Cash interest expense consists of interest expense less amortization
of debt issuance costs, and excludes an extraordinary charge of $1,800
relating to debt issuance cost in connection with repayment of the
Term Loan Facility.
(10) To record the Permian Basin Properties operating revenues and oil and
gas production expenses as if the Permian Basin Acquisition had
occurred on January 1, 1996 for the December 31, 1996 pro forma income
statement and on January 1, 1997 for the Pro Forma June 30, 1997
income statement.
-45-
<PAGE>
(11) To record the pro forma depletion adjustment to reflect the Company's
depletion expense as if the Permian Basin Properties had been acquired
on January 1, 1996 for the December 31, 1996 pro forma income
statement and on January 1, 1997 for the Pro Forma June 30, 1997
income statement.
(12) To record the Company's estimates of general and administrative
expenses that would have been incurred if the Permian Basin Properties
had been acquired on January 1, 1996 for the December 31, 1996 pro
forma income statement and on January 1, 1997 for the June 30,
1997 income statement, net of estimated fees that would have been
earned by the Company from third parties on the properties it operates,
as follows:
1996 1997
---------- ----------
Additional general and administrative expenses...... $ 702 $ 235
Operating fees earned from third parties............ (552) (185)
---------- ----------
$ 150 $ 50
========== ==========
(13) To record the interest expense associated with the borrowing of
$119,500 under the New Credit Facility and $60,000 under the Term Loan
Facility to complete the Permian Basin Acquisition and to refinance the
Previous Credit Facility as if the acquisition and refinancing had
closed on the beginning of the respective periods.
The New Credit Facility and the Term Loan Facility are assumed to have
interest rates of 9.0% and 11.5%, respectively. The debt issuance costs
associated with the facilities are as follows:
New Credit Facility debt issuance costs.................. $ 700
Term Loan Facility debt issuance costs................... 1,800
----------
$2,500
==========
<TABLE>
<CAPTION>
The components of this interest expense adjustment are as follows:
<S> <C> <C>
1996 1997
---------- ---------
Elimination of pro forma interest adjustments for McLean Plant Acquisition and Panoma
Acquisition and amortization of associated debt issuance costs................................ $(1,555) $ -
Elimination of historical interest expense on Previous Credit Facility........................... (2,394) (1,415)
Interest on New Credit Facility.................................................................. 10,755 3,385
Amortization of debt issuance costs on New Credit Facility....................................... 133 44
Interest on Term Loan Facility................................................................... 6,900 2,300
Amortization of debt issuance costs on Term Loan Facility........................................ 220 73
---------- ----------
$14,059 $ 4,587
========== ==========
</TABLE>
-46-
<PAGE>
(14) To adjust interest expense to reflect the repayment of the Term Loan
Facility and repayment of $75,500 of indebtedness under the New Credit
Facility with the net proceeds of the Offering. The assumed interest
rate on the Notes is 10.0%. After repayment of the Term Loan Facility,
using the net proceeds of the Offering, the New Credit Facility will
bear interest on an assumed interest rate of 7.6% per annum. The $4,500
of estimated debt issuance costs are amortized using the effective
yield method over the life of the Notes. This adjustment excludes
an extraordinary charge to expense of $1,800 debt issuance costs
associated with repayment of the Term Loan Facility. The components of
the interest expense adjustment are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1997
--------- --------
Interest on the Notes............................................................................ $ 14,000 $ 4,667
Amortization of debt issuance costs on Notes..................................................... 270 90
Elimination of interest on $75,500 of debt under New Credit Facility and effect of reduction
of interest rate on New Credit Facility following repayment of Term Loan Facility............. (7,412) (2,471)
Elimination of interest and amortization of associated debt issuance costs on Term Loan
Facility...................................................................................... (7,120) (2,373)
---------- ----------
$ (262) $ (87)
========== ==========
</TABLE>
(15) EBITDA is defined as net income (loss) before income taxes and minority
interest, plus the sum of depletion and depreciation and interest
expense.EBITDA is not a measure of cash flow as determined by generally
accepted accounting principles. The Company has included information
concerning EBITDA because EBITDA is a measure used by certain investors
in determining the Company's historical ability to service its
indebtedness. EBITDA should not be considered as an alternative to, or
more meaningful than, net income or cash flows as determined in
accordance with generally accepted accounting principles or as an
indicator of the Company's operating performance or liquidity.
-47-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following historical selected consolidated financial data of the
Company are derived from, and qualified by reference to, the Company's
Consolidated Financial Statements and the notes thereto. The income statement
data for the six months ended June 30, 1997 are not necessarily indicative of
results for a full year. The historical selected financial data for the three
years ended December 31, 1996 were derived from the Company's audited
consolidated financial statements. The selected financial data for the six
months ended June 30, 1996 and 1997 have been derived from the Company's
unaudited interim consolidated financial statements and include, in the opinion
of the Company's management, all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the data for such periods.
The information contained in this table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Consolidated Financial Statements of the Company and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Six Months
Ended
Year Ended December 31, June 30,
------------------------------------- -------------------
1994 1995 1996 1996 1997
-----------------------------------------------------------
(dollars in thousands)
Income Statement Data:
Operating revenues:
Oil and natural gas..................................... $ 729 $ 617 $ 10,248 $ 2,821 $ 11,791
Gas gathering, marketing and processing................. - - 5,768 1,528 5,283
Oil field services and international sales.............. 16 32 396 201 3,606
---------- ---------- ---------- ---------- ---------
Total operating revenues............................. 745 649 16,412 4,550 20,680
---------- ---------- ---------- ---------- ---------
Operating costs and expenses:
Oil and natural gas production.......................... 318 268 4,390 1,126 4,740
Gas gathering, marketing and processing................. - - 4,708 1,314 3,938
Oil field services and international sales.............. 6 26 267 327 3,424
Depreciation and depletion.............................. 243 421 2,951 1,084 4,460
General and administrative.............................. 769 977 1,225 443 651
--------- ---------- ---------- ----------- ---------
Total operating costs and expenses................... 1,336 1,692 13,541 4,294 17,213
--------- ---------- ---------- ----------- ---------
Operating profit (loss).................................... (591) (1,043) 2,871 256 3,467
Other income............................................ 51 77 344 186 155
Interest expense........................................ (7) (2) (2,394) (499) (4,758)
--------- ---------- ---------- ----------- ---------
Net income (loss) before income tax and minority interest.. (547) (968) 821 (57) (1,136)
Provision for deferred income taxes..................... - - (312) - 432
--------- ---------- ---------- ----------- ---------
Net income (loss) before minority interest................. (547) (968) 509 (57) (704)
Minority interest in subsidiary earnings................ - - - - (20)
--------- ---------- ---------- ---------- ---------
Net income (loss) before extraordinary loss................ (547) (968) 509 (57) (724)
Extraordinary loss from early extinguishment of debt....... - - - - (1,384)
--------- ---------- ---------- ---------- ---------
Net Income (loss).......................................... (547) (968) 509 (57) (2,108)
Dividends applicable to preferred shares................ (579) (617) (406) (340) (438)
--------- ---------- ---------- ----------- ---------
Net income (loss) applicable to common shares.............. $ (1,126) $ (1,585) $ 103 $ (397) $(2,546)
Income (loss) per common share
Before extraordinary loss............................. $(0.27) $(0.28) $0.01 $(0.03) $(0.09)
Extraordinary loss.................................... - - - - (0.10)
--------- ---------- ---------- ---------- ---------
After Extraordinary loss............................. $(0.27) $(0.28) $0.01 $(0.03) $(0.19)
Common shares used in per share calculation (in thousands). 4,167 5,607 12,486 11,659 13,645
Other Data:
EBITDA(1).................................................. $ (297) $ (545) $ 6,166 $ 1,526 $ 8,082
Cash interest expense(2)................................... 7 2 2,347 485 4,605
Capital expenditures(3).................................... 1,945 1,244 41,471 37,301 141,667
</TABLE>
-48-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31,
------------------------------------ June 30,
1994 1995 1996 1997
------------------------------------- --------------
(dollars in thousands)
Balance Sheet Data:
Working capital............................................... $1,197 $(916) $2,279 $ 4,170
Property, plant and equipment, net............................ 7,255 36,405 73,648 210,397
Total assets.................................................. 9,575 40,065 83,072 231,670
Total debt(4)................................................. 186 9,612 38,766 187,055
Stockholders' equity.......................................... 8,645 24,496 35,154 32,253
- - -----------
</TABLE>
(1) EBITDA is defined as net income (loss) before income taxes and minority
interest, plus the sum of depletion and depreciation and interest expense.
EBITDA is not a measure of cash flow as determined by generally accepted
accounting principles. The Company has included information concerning EBITDA
because EBITDA is a measure used by certain investors in determining the
Company's historical ability to service its indebtedness. EBITDA should not be
considered as an alternative to, or more meaningful than, net income or cash
flows as determined in accordance with generally accepted accounting principles
or as an indicator of the Company's operating performance or liquidity.
(2) Cash interest expense consists of interest expense less amortization of
debt issuance costs.
(3) Capital expenditures include cash expended for acquisitions plus normal
additions to oil and natural gas properties and other fixed assets.
(4) Consists of long-term debt, including current maturities of long-term
debt, and excluding production payment liabilities of $288,000, $937,000 and
$831,000 as of December 31, 1995 and 1996 and June 30, 1997, respectively.
-49-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements, "Selected Consolidated Financial
Data" and respective notes thereto, included elsewhere herein. The information
below should not be construed to imply that the results discussed herein will
necessarily continue into the future or that any conclusion reached herein will
necessarily be indicative of actual operating results in the future. Such
discussion represents only the best present assessment of management of the
Company. Because of the size and scope of the Company's recent acquisitions and
the relatively small scale of the Company's operations prior to 1996, the
results of operations from period to period are not necessarily comparative.
Background
In December 1995, the Company entered into the Magnum Hunter
Combination pursuant to which the Company issued to Hunter 5,085,077 shares of
Common Stock and 111,825 shares of Series C Preferred Stock (which were
subsequently converted into 335,475 shares of Common Stock) and assumed certain
liabilities in exchange for all the capital stock of Hunter's subsidiaries (the
"Hunter Subsidiaries"). The acquired assets included developed and undeveloped
oil and natural gas properties, a gas gathering system, and an established oil
and gas consulting and operating company, and were valued at $12.5 million at
the time of acquisition based upon the then current stock price. In connection
with the Magnum Hunter Combination, the management of Hunter assumed operating
control of the Company.
The new management implemented a business strategy emphasizing
acquisition of long-lived, Proved Reserves with significant exploitation and
development opportunities that management considered to have a lower risk
profile than the Company's historic projects. The Company also participates to a
lesser extent in selected exploration projects on a controlled risk basis. Prior
to the Magnum Hunter Combination, the Company was primarily focused on
developing and selling higher risk, non-operated exploratory and development
projects and did not focus on acquisitions. In order to improve the economics of
the acquisitions, the Company emphasizes strict cost control in all aspects of
its business and seeks to operate its properties wherever possible.
-50-
<PAGE>
As a part of the Company's new strategy, in June 1996 the Company
acquired the Panoma Properties, which include interests in 520 natural gas wells
in the Texas Panhandle and western Oklahoma and an associated 427 mile gas
gathering system, from Burlington for $34.7 million. The Company assumed
operations of approximately 90% of the wells and of the gathering system and
began planning for increased density development drilling on the Panoma
Properties.
In January 1997, the Company purchased for $2.5 million a 50% interest
in a natural gas processing plant, the McLean Gas Plant, which currently
processes 100% of the natural gas from the Panoma Properties. The Company
receives 100% of the net profits of the plant until it recoups its investment,
after which time the Company will receive 50% of the net profits. Management
believes that the acquisition of the McLean Gas Plant allows the Company to
capture a portion of the processing profits on the natural gas produced at the
Panoma Properties that would otherwise go to third party processors.
In April 1997, the Company purchased the Permian Basin Properties from
Burlington for a net purchase price of $133.0 million, after purchase price
adjustments of $10.5 million to take into account production cash flow from
January 1, 1997 to the closing date and other minor adjustments. These
properties consist of approximately 1,852 producing oil and natural gas wells
and associated acreage in west Texas and southeast New Mexico. This acquisition
substantially increased the Company's cash flow and inventory of exploitation,
development and exploration opportunities.
On April 29, 1997, the Company received and accepted two new loan
commitments from Bankers Trust Company, as Agent, and Banque Paribas and First
Union National Bank of North Carolina for senior credit facilities for the
Company and several of its subsidiaries. The two new senior credit facilities
were structured as a $130 million revolving line of credit with a term of five
years and a $60 million one year senior subordinated bridge facility convertible
into a five year term loan. The new credit facilities were conditioned, among
other things, upon the closing of the Permian Basin Acquisition from Burlington,
which took place April 30, 1997. The revolving line of credit gives the Company
the flexibility of choosing a range of either "LIBOR" or "Prime" based interest
rate options. This new credit facility replaced the previously existing $100
million revolving credit facility.
On May 29, 1997, the Company placed, through a Rule 144A private placement
offering, $140 million in Senior Notes due 2007. Net proceeds from the sale of
the Senior Notes were used to completely repay the Company's outstanding bridge
loan facility in the principal amount of $60 million with the remaining proceeds
used to repay a substantial portion of the Company's outstanding revolving
credit facility. The Notes have a 10% coupon, with interest payable on June 1
and December 1, commencing on December 1, 1997.
While the Company is considering acquisitions and, to a lesser extent,
plans to pursue selected exploratory drilling, the Company intends to focus its
current efforts on the substantial inventory of exploitation and development
opportunities arising from its recent acquisitions. Prior to the Permian Basin
Acquisition, the Company approved a
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<PAGE>
$15.0 million capital budget to be spent during 1997, of which $12.0 million is
allocated for development drilling and $3.0 million is allocated for several
exploration projects. To facilitate its development drilling program, in
December 1996 the Company issued $10.0 million of TCW Preferred Stock.
Subsequent to the Permian Basin Acquisition, the Company has initially budgeted
approximately $5.0 million for development expenditures on the Permian Basin
Properties for 1997.
The Company uses the full cost method of accounting for its investment
in oil and natural gas properties. Under the full cost method of accounting, all
costs of acquisition, exploration and development of oil and natural gas
reserves are capitalized into a "full cost pool" as incurred, and properties in
the pool are depleted and charged to operations using the unit-of-production
method based on the ratio of current production to total proved oil and natural
gas reserves. To the extent that such capitalized costs (net of accumulated
depreciation, depletion and amortization) less deferred taxes exceed the SEC
PV-10 of estimated future net cash flow from Proved Reserves of oil and natural
gas, and the lower of cost or fair value of unproved properties after income tax
effects, such excess costs are charged to operations. Once incurred, a
write-down of oil and natural gas properties is not reversible at a later date
even if oil or natural gas prices increase. While the Company has never been
required to write-down its asset base, significant downward revisions of
quantity estimates or declines in oil and gas prices from those in effect on
December 31, 1996 which are not offset by other factors could result in a
write-down for impairment of oil and gas properties.
Comparison of Six Months Ended June 30, 1997 to Six Months Ended June 30,
1996
As discussed above, the Company acquired the Panoma Properties in June
1996, the McLean Gas Plant in January 1997, and the Permian Basin Properties in
April 1997. As such, the results of operations for the six month period ended
June 30, 1997, included six months of operations for Panoma and McLean and two
months for Permian Basin, while the corresponding period in 1996 contained no
results related to these properties. Unless otherwise stated, the increases in
the 1997 interim period over the 1996 period were a result of these
acquisitions.
Oil and natural gas sales were $11,791,000 in 1997, a 318% increase over
1996. The Company sold 239,752 barrels of oil, a 167% increase, and 3,332,349
Mcf of gas, a 583% increase, in 1997. The price received for oil was $18.33 per
barrel and for gas was $2.22 per Mcf in 1997, representing a 5% decrease in oil
price and a 1% decrease in gas price compared to 1996. Oil and natural gas
production costs increased 321% to $4,740,000 in 1997 over 1996. The gross
operating margin from oil and natural gas production was $7,051,000 in 1997, a
316% increase over 1996. On an equivalent unit basis, the gross margin was $1.48
per Mcfe in 1997 versus $1.65 in 1996, a 10% decrease. The sales price declined
10% to $2.47 per Mcfe while production costs also declined 10% to $0.99 per Mcfe
from 1996 to 1997. These production costs are inclusive of gathering and
overhead charges of $0.19 per Mcfe. The sales price decline was caused by lower
oil and gas prices in 1997, while the lower unit production costs were the
result of lower Permian Basin Properties unit costs, principally gas gathering
fees, compared to the unit costs of the Company's other properties. The overall
increase in the gross operating margin from 1996 to 1997 was principally due to
the 364% increase in Mcfe sold, from 1,027,182 Mcfe to 4,770,861 Mcfe.
-52-
<PAGE>
Gas gathering, marketing, and processing revenues were $5,283,000 in the
1997 period, a 246% increase over 1996, principally as a result of the
acquisition of the Panoma Gas Gathering System and the McLean Gas Plant. Costs
from these activities were $3,938,000 in 1997, a 200% increase over 1996. Gross
operating margin was $1,345,000 in 1997 versus $214,000 in 1996, a 529%
increase. As a result of the acquisition of the Panoma System, gathering system
throughput increased 385% to 21,057 Mcf per day in 1997 compared with 4,344 Mcf
per day in 1996. Due to the McLean Plant acquisition, natural gas plant
processing throughput was 15,303 Mcf per day in 1997 versus none reported in
1996. Gross operating margin from gathering operations was $787,000, or $0.22
per Mcf of throughput, in 1997 versus $214,000, or $0.27 per Mcf in 1996. The
gross operating margin from natural gas processing was $558,000, or $0.22 per
Mcf of throughput versus none reported in 1996.
Revenues from oil field services and international sales were $3,606,000 in
1997, a $3,405,000 increase over 1996, principally due to an increase in sales
of Hunter Butcher International, L.L.C. in the amount of $3,398,000. Operating
costs increased 947% to $3,424,000 in 1997 from 1996, also principally due to
Hunter Butcher in the amount of $3,338,000. The gross operating margin from
these activities was $182,000 in 1997 versus a loss of $126,000 in the 1996
period. The margin from Hunter Butcher operations was $60,000 in 1997 versus
$32,000 in 1996. Oil field services produced an operating margin of $122,000 in
1997 versus a loss of $158,000 in 1996.
Depreciation and depletion expense increased 311% to $4,460,000 in 1997 due
to the acquisitions. Depletion expense on oil and gas production was $4,080,000,
or $0.86 per Mcfe, in 1997 versus $975,000, or $0.95 per Mcfe in 1996. General
and administrative expense was $651,000 in 1997, a 47% increase over 1996, due
to increased staffing and other costs as a result of the acquisitions.
Operating profit increased to $3,467,000 in 1997 from $256,000 in 1996, a
1,245% increase. Interest expense increased to $4,758,000 in 1997 from $499,000
in 1996, an increase of 854%, due to increased levels of borrowing under the
Company's revolving credit lines with banks, the 10% Senior Notes, and bridge
financing used to fund the acquisitions previously mentioned. The Company
incurred a net loss before income tax and minority interest of $1,136,000 in
1997, versus a $57,000 loss in 1996, principally due to interest expense on the
acquisitions exceeding operating income and due to the higher charge for
depreciation and depletion. The Company provided for a deferred income tax
benefit of $432,000 on this loss in 1997. After recording a $20,000 minority
interest in Hunter Butcher, the Company reported a net loss before extraordinary
item of $724,000, or $0.09 per common share, in 1997 versus a $57,000 loss, or
$0.03 per common share, in 1996.
-53-
<PAGE>
The Company realized an extraordinary loss of $1,384,000 ($0.10 per common
share) as required under Accounting Principles Board ("APB") Statement No. 26
and Statement of Financial Accounting Standards ("SFAS") No. 4, from the early
extinguishment of bank debt. The early extinguishment was a result of the new
10% Senior Notes financing and amended revolving credit agreements with banks
arranged to facilitate the $133 million purchase of the Permian Basin Properties
from Burlington. The net loss, after the extraordinary charge, applicable to
common shares was $2,546,000 ($0.19 per share) in 1997 compared to a loss of
$397,000 ($0.03 per share) in 1996. The Company accrued $436,000 in dividends on
its preferred stock in 1997 versus $340,000 in 1996.
Results of Operations for the Three Month Periods ended June 30, 1997 and 1996
The results of operations for the three month period ended June 30, 1997,
included three months of operations for the Panoma Properties and the McLean Gas
Plant and two months for the Permian Basin Properties, while the corresponding
period in 1996 contained no results related to these properties. Unless
otherwise stated, the increases in the 1997 interim period over the 1996 period
were a result of these acquisitions.
Oil and natural gas sales were $8,528,000 in 1997, a 492% increase over
1996. The Company sold 193,735 barrels of oil, a 326% increase, and 2,359,969
Mcf of gas, a 915% increase, in 1997. The price received for oil was $17.76 per
barrel and for gas was $2.16 per Mcf in 1997, representing an 11% decrease in
oil price and a 5% decrease in gas price in 1997 compared to 1996. Oil and
natural gas production costs increased 460% to $3,143,000 in 1997 over 1996. The
gross operating margin from oil and natural gas production was $5,385,000 in
1997, a 512% increase over 1996. On an equivalent unit basis, the gross margin
was $1.53 per Mcfe in 1997 versus $1.74 in 1996, a 12% decrease. The sales price
for natural gas declined 15% to $2.42 per Mcfe while production costs also
declined 20% to $0.89 per Mcfe from 1996 to 1997. These production costs are
inclusive of gathering and overhead charges of $0.09 per Mcfe. The sales price
decline was caused by lower oil and gas prices in 1997, while the lower unit
production costs were the result of lower Permian Basin Properties unit costs,
principally gas gathering fees, compared to the unit costs of the Company's
other properties. The overall increase in the gross operating margin from 1996
to 1997 was principally due to the 597% increase in Mcfe sold, from 505,136 Mcfe
to 3,522,379 Mcfe.
Gas gathering, marketing, and processing revenues were $1,391,000 in the
1997 period, an 80% increase over 1996, principally as a result of the
acquisition of the Panoma gas gathering system and the McLean Gas Plant. Costs
from these activities were $978,000 in 1997, a 46% increase over 1996. Gross
operating margin was $413,000 in 1997 versus $101,000 in 1996, a 309% increase.
As a result of the acquisition of the Panoma system, gathering system throughput
increased 338% to 18,796 Mcf per day in 1997 compared with 4,287 Mcf per day in
1996. Due to the McLean Gas Plant acquisition, natural gas plant processing
throughput was 12,614 Mcf per day in 1997 versus none in 1996. Gross operating
margin from gathering operations was $179,414, or $0.10 per Mcf of throughput,
in 1997 versus $101,000, or $0.26 per Mcf in 1996. The gross operating margin
from natural gas processing was $234,000, or $0.20 per Mcf of throughput in 1997
versus none in 1996.
Revenues from oil field services and international sales were $135,000 in
1997, a 36% increase over 1996, principally due to increased operator fees on
oil and gas properties. Operating costs decreased 46% to $86,000 in 1997 from
1996 due to an increased allocation of operating costs to oil and gas production
costs. The gross operating margin from these activities was $49,000 in 1997
versus a loss of $61,000 in the 1996 period.
Depreciation and depletion expense increased 485% to $3,379,000 in 1997 due
to the acquisitions. Depletion expense on oil and gas production was $3,184,000,
or $0.90 per Mcfe, in 1997 versus $505,000, or $1.00 per Mcfe, in 1996. General
and administrative expense was $429,000 in 1997, a 94% increase over 1996, due
to increased staffing and other costs as a result of the acquisitions.
-54-
<PAGE>
Operating profit increased to $2,039,000 in 1997 from $121,000 in 1996, a
1,585% increase. Interest expense increased to $3,690,000 in 1997 from $245,000
in 1996, an increase of 1,406%, due to increased levels of borrowing under the
Company's revolving credit lines with banks, the 10% Senior Notes, and bridge
financing used to fund the acquisitions previously mentioned. The Company
incurred a net loss before income tax and minority interest of $1,568,000 in
1997, versus income of $36,000 in 1996, principally due to interest expense on
the acquisitions exceeding operating income (inclusive of depreciation and
depletion in the total amount of $3,379,000). The Company provided for a
deferred income tax benefit of $596,000 on this loss in 1997. The Company
reported a net loss before extraordinary item of $974,000, or $0.09 per common
share, in 1997 versus income of $36,000 in 1996.
The Company realized an extraordinary loss of $1,384,000 ($0.10 per common
share) as required under Accounting Principles Board ("APB") Statement No. 26
and Statement of Financial Accounting Standards ("SFAS") No. 4, from the early
extinguishment of bank debt. The early extinguishment was a result of the new
10% Senior Notes financing and amended revolving credit agreements with banks
arranged to facilitate the $133 million purchase of the Permian Basin Properties
from Burlington Resources Inc. The net loss, after the extraordinary charge,
applicable to common shares was $2,577,000 ($0.19 per share) in 1997 compared to
a loss of $132,000 ($0.03 per share) in 1996. The Company accrued $219,000 in
dividends on its preferred stock in 1997 versus $168,000 in 1996.
Comparison of Year Ended December 31, 1996 to Year End December 31, 1995
After deduction for preferred dividends, the Company reported net
income applicable to common shares for the year ended December 31, 1996 of $0.1
million, a $1.7 million increase as compared to the net loss of $1.6 million for
the year ended December 31, 1995. Prior to the preferred dividends in both
periods, the Company reported net income of $0.5 million in 1996, a $1.5 million
increase over 1995. Net income per common share was $0.01 for 1996, a $0.29 per
share increase over 1995. This increase was the result of higher production
volumes in 1996 from (i) acquisition activities, which included the Magnum
Hunter Combination in December 1995 and the Panoma Acquisition in July 1996,
(ii) increased prices received for oil and natural gas products, (iii) the
acquisition of gas gathering systems in the Panoma Acquisition, and (iv) natural
gas marketing activity. During 1996, oil and natural gas production volumes
increased significantly to 3.8 Bcfe, an average of 10,470 Mcfe/d, as compared to
0.3 Bcfe, an average of 773 Mcfe/d, in 1995. The increased revenues recognized
from production volumes were aided by a 22% increase in the average price
received per Mcfe of production to $2.68 during 1996. The average oil price
increased 31% to $20.46 per Bbl in 1996, as compared to $15.60 per Bbl in 1995,
while average natural gas prices increased 62% to $2.37 per Mcf in 1996 as
compared to $1.46 per Mcf in 1995.
As a result of the acquisition activity and higher prices, total revenues
in 1996 were $16.4 million, a $15.8 million increase over 1995. This increase
consisted of an increase in oil and natural gas sales of $9.6 million from 1995
to 1996 and an increase in gas gathering, marketing and services revenue of $6.1
million over the same period. After the Panoma Acquisition in July 1996, the
percentage of the Company's reserves attributable to natural gas was 74% as
compared to 38% at the end of 1995. Due to the Company's owning more properties
and larger volume of production, oil and natural gas production expenses
increased $4.1 million to $4.4 million in 1996 versus $0.3 million in 1995. The
average cost of oil and natural gas produced per Mcfe was $1.15 in 1996, an
increase of $0.20 per Mcfe, due to costs of startup of operations at the Panoma
Properties.
Gross margin from oil and natural gas production increased $5.5 million
to $5.9 million in 1996 from $0.4 million in 1995. Gross margins from gas
gathering, marketing, and services increased to $1.1 million in 1996, from $0.0
million in 1995.
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<PAGE>
Depreciation and depletion expense increased to $3.0 million in 1996, a
$2.5 million increase over 1995, as a result of the Panoma Acquisition and the
Magnum Hunter Combination. The Company-wide depreciation and depletion rate was
$0.77 per Mcfe in 1996 versus $1.49 per Mcfe in 1995. General and administrative
expense increased to $1.2 million in 1996, a $0.2 million increase over 1995,
due to higher operational staffing and associated costs as a result of expanded
operations, partially offset by a reduction in promotional and related expenses.
Other income increased to $0.3 million in 1996 due to a gain on sale of assets.
Interest expense increased to $2.4 million due to increased financing costs
incurred as a result of the Magnum Hunter Combination and the Panoma
Acquisition.
The Company made a provision for deferred income taxes of $0.3 million
in 1996. No income taxes were due for 1996 as a result of utilization of net
operating loss carryforwards. At December 31, 1996 the Company had $6.9 million
available in such carryforwards to offset against future income. Dividends
applicable to preferred stock were $0.4 million for 1996, a $0.2 million
decrease from 1995, due to the redemption of the Series B and Series C Preferred
Stock during 1996, offset by the effect of the issuance of the TCW Preferred
Stock at the end of 1996.
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994
After deduction for preferred dividends, the Company reported a net loss
applicable to common shares for the year ended December 31, 1995 of $1.6
million, an increased loss of $0.5 million as compared to 1994. Prior to the
preferred dividends in both periods, the Company reported a net loss for 1995 of
$1.0 million, a $0.4 million increase in net loss over 1994. On a per share
basis, the net loss was $0.28 and $0.27, respectively, for 1995 and 1994. The
increased loss in 1995 as compared to 1994 was primarily due to higher general
and administrative expenses in anticipation of the Magnum Hunter Combination and
a higher depletion rate on the Company's pre-existing properties after an
evaluation of such reserves by the new management at year end 1995.
Total revenues were $0.6 million in 1995, a $0.1 million decrease from
1994. This was the result of a decrease in oil and natural gas sales. The
Company's production in 1995 decreased to 282 MMcfe, a 58 MMcfe decrease from
1994, although the average price received per Mcfe increased in 1995 to $2.19, a
$0.04 per Mcfe increase from 1994. Gross margin from oil and natural gas
production was $0.3 million in 1995, a $0.1 million decrease from 1994. The
decline in oil and natural gas production and margin was largely attributable to
a decline in oil production volumes from the South Tonkawa prospect after
initial flush production in 1994. The average cost of oil and natural gas
produced per Mcfe in 1995 was $0.95, an increase of $0.01 per Mcfe over 1994.
Gross margin from services was essentially flat in 1995 compared to 1994.
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<PAGE>
Depreciation and depletion expense increased to $0.4 million in 1995, a
$0.2 million increase over 1994, as a result of an increase in depletable book
value of the Company's properties and a reduction of the estimated proved
undeveloped reserves of two of the Company's base properties after further
evaluation by the new Hunter management at year end 1995. General and
administrative expense increased to $1.0 million in 1995, a $0.2 million
increase over 1994, due to an increase in staffing levels in anticipation of the
Magnum Hunter Combination in December 1995. Other income and interest expense
were essentially unchanged in 1995 from 1994.
The Company made no provision for deferred income taxes in 1995. No
income taxes were due for 1995 as a result of net operating loss carryforwards.
Dividends applicable to preferred stock were $0.6 million, essentially unchanged
from 1994.
Liquidity and Capital Resources
The Company has three principal operating sources of operating cash: (i)
sales of oil and natural gas, (ii) revenues from gas gathering, processing, and
marketing, and (iii) revenues from petroleum management and consulting services.
The Company's cash flow is highly dependent upon oil and natural gas prices.
Decreases in the market price of oil and natural gas could result in reductions
of both cash flow and the Borrowing Base under the Company's New Credit
Facility, which would result in decreased funds available, including funds for
capital expenditures.
On April 30, 1997, the Company closed on the acquisition of the Permian
Basin Properties for a net purchase price of approximately $133 million. At the
same time, the Company's $100 million Previous Credit Facility was replaced by
two new credit facilities, a revolving New Credit Facility of $130 million and a
Term Loan Facility of $60 million, for a total of $190 million. The initial
advances under these new facilities totaled $179.5 million, including funds to
complete the Permian Basin Acquisition, to pay principal and accrued interest
remaining on the $100 million Previous Credit Facility, and to provide cash for
working capital purposes.
On May 29, 1997, the Company sold, through a Rule 144A private placement
offering, $140 million in Senior Notes due 2007. Net proceeds from the sale of
the Senior Notes were used to completely repay the Company's Term Loan Facility
in the principal amount of $60 million with the remaining proceeds used to repay
a substantial portion of the Company's outstanding New Credit Facility. The
Notes have a 10% coupon, with interest payable on June 1 and December 1,
commencing on December 1, 1997. After paydown, the New Credit Facility was
reduced from $130 million to $75 million, with a current borrowing base of $60
million. Total long-term debt under the New Credit Facility at June 30, 1997 was
$47 million, leaving $13 million available to draw at such time, prior to the
next borrowing base redetermination occurring during the third quarter. At June
30, 1997, the Company had $1.6 million in cash and cash equivalents and $4.2
million in net working capital, in addition to the funds available under the
revolving line of credit.
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For fiscal 1997, the Company is currently projecting that it will spend
approximately $20 million on development and exploration activities, of which $3
million is budgeted on exploration projects. In addition, with respect to the
recently closed Permian Basin Properties acquisition, the Company projects to
spend approximately $40 million in a development program to enhance an existing
waterflood project in the Westbrook Field located in Mitchell County, Texas.
This capital expenditure is budgeted over a four year period beginning in 1997.
Based upon the Company's anticipated level of operations, management believes
that cash flow from operations together with the availability under the New
Credit Facility will be adequate to meet its anticipated requirements for
working capital, capital expenditures and scheduled interest payments for the
foreseeable future. The Company may seek to increase it liquidity through the
sale of common equity and/or the exercise of its publicly traded warrants. A
depressed price for oil or natural gas would have a material adverse effect on
the Company's cash flow from operations and could cause the Company to alter its
planned capital expenditures.
For 1996, the Company had a net increase in cash of $143,000. The
Company's operating activities provided net cash of $3,028,000, principally from
operating income before depreciation, depletion and deferred taxes, reduced by a
net increase in accounts receivable over accounts payable. The Company used
$41,738,000 in investing activities, principally for additions to property and
equipment of $41,471,000, as well as increases in deposits and other assets.
Financing activities provided $38,853,000 of cash, principally from the
aggregate proceeds from the issuance of long-term debt of $56,512,000 and
production payments of $750,000, less payments on such debt and production
payments of $27,459,000, as well as proceeds from the issuance of preferred
stock of $9,796,000. The Company also paid $295,000 to redeem a portion of the
outstanding Series C Preferred Stock and $438,000 to pay dividends on preferred
stock.
For 1995, the Company had a net decrease in cash of $101,000 as the
proceeds received from the sale of preferred stock were principally used for oil
and natural gas acquisition and development activity and for the payment of
dividends and payables. The Company's operating activities used net cash of
$849,000, principally as a result of the net loss from operations and the payoff
of a substantial amount of accounts payable. Investing activities used net cash
of $2,007,000, largely from acquisition and development of oil and gas
properties. Financing activities accounted for net cash provided of $2,755,000,
principally from the proceeds received due to the issuance of preferred stock
mentioned above. Partially offsetting the proceeds from the stock issuances were
advances made to Magnum Hunter Production, Inc. for acquisition costs and
working capital of $1,034,000, prior to the Magnum Hunter Combination and the
ultimate consolidation, and the payment of preferred dividends of $583,000.
Capital Requirements
Prior to the Permian Basin Acquisition, the Company approved a $15.0
million capital budget to be spent during 1997, of which $12.0 million is
allocated for development drilling and $3.0 million is allocated for several
exploration projects. To facilitate its development drilling program, in
December 1996 the Company issued $10.0 million of TCW Preferred Stock.
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On April 30, 1997, the Company acquired from Burlington, effective as of
January 1, 1997, the Permian Basin Properties. The net purchase price was $133.0
million after adjustments of $10.5 million for production cash flow from January
1, 1997 to the closing date and other minor adjustments. The Company financed
the acquisition of the Permian Basin Properties with the $130.0 million New
Credit Facility and the $60.0 million Term Loan Facility. The New Credit
Facility and the Term Loan Facility were used to pay the $123.0 million balance
of the net purchase price, to repay the $53.7 million in outstanding
indebtedness under the Previous Credit Facility and to pay costs associated with
the Permian Basin Acquisition and the related financings. In addition to
providing the Company with significant new sources of earnings and operating
cash flow, management of the Company believes the Permian Basin Properties will
provide significant opportunities for exploitation and development of both oil
and natural gas reserves through a combination of enhanced recovery projects and
new drilling projects. The Company has initially budgeted approximately $5.0
million for development expenditures on the Permian Basin Properties for 1997.
The Company has adopted a "controlled risk" approach to its exploratory
drilling activity by concentrating in specific regions in the United States
(primarily Oklahoma and Texas) where the Company's technical staff has
considerable experience and near proved producing properties where the potential
for significant reserve additions exists. To the extent feasible, the Company
reduces its exploration risk by diversifying through investment in multiple
prospects, by farming out (promoting out) interests to industry partners and by
utilizing 3-D seismic surveys and other advanced technologies.
As the Company continues to increase its asset base, management plans to
expand the scope of its oil and natural gas activities, including the Company's
possible participation in foreign energy prospects. The Company believes that
Latin America offers significantly greater hydrocarbon reserve potential with
less competition than in the United States. The Company does not plan to invest
in any foreign prospects during 1997. However, the Company anticipates that,
should it decide in the future to expand into Mexico, Central America or South
America, any such investment would be made in an arrangement that shares the
risks with one or more additional partners.
Based upon the Company's anticipated level of operations, the Company
believes that cash flow from operations together with the availability under the
New Credit Facility (approximately $12.0 million as of September 30, 1997) will
be adequate to meet its anticipated requirements for working capital, capital
expenditures and scheduled interest payments for the foreseeable future. The
Company may seek to increase its liquidity through the sale of common equity
and/or the exercise of its publicly traded warrants. A depressed price for oil
or natural gas would have a material adverse effect on the Company's cash flow
from operations and could cause the Company to alter its planned capital
expenditures.
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Inflation and Changes in Prices
During the past several years, the Company has experienced some inflation
in oil and natural gas prices with moderate increases in property acquisition
and development costs. During 1996, the Company received somewhat higher
commodity prices for the natural resources produced from its properties. The
results of operations and cash flow of the Company have been, and will continue
to be, affected to a certain extent by the volatility in oil and natural gas
prices. Should the Company experience a significant increase in oil and natural
gas prices that is sustained over a prolonged period, it would expect that there
would also be a corresponding increase in oil and natural gas finding costs,
lease acquisition costs, and operating expenses. Periodically the Company enters
into futures, options, and swap contracts to reduce the effects of fluctuations
in crude oil and natural gas prices. It is policy of the Company not to enter
any such arrangements which exceed 50% of the Company's oil and natural gas
production during the next 12 months.
The Company markets natural gas for its own account, which exposes the
Company to the attendant commodities risk. Hunter Gas Gathering, Inc., a
subsidiary of the Company, currently sells the majority of its natural gas to
Crosstex Energy Services ("Crosstex"), a gas marketing firm located in Dallas,
Texas that was formed in January 1997 when Comstock Natural Gas, Inc.
("Comstock") sold its gas gathering, processing and marketing operations.
Although the Company sold approximately 91% of its natural gas to Comstock in
1996 and has sold a comparable percentage to Crosstex to date in 1997, the
Company does not believe that any discontinuation of such sales arrangement
would be disruptive to the Company's gas marketing operations. The Company
typically obtains letters of credit guaranteeing the payment of the purchase
price for its natural gas.
Hedging Activity
Periodically, the Company enters into futures, options, and swap contracts
to reduce the effects of fluctuations in crude oil and natural gas prices. As of
June 30, 1997, the Company had 16% of its oil production and 17% of its natural
gas production hedged. At June 30, 1997, the Company had open contracts for oil
price collars of 15,000 Bbls of oil per month (with cap and floor prices of
$25.10 and $20.00, respectively) through August 1997. At March 31, 1997, the
Company had open contracts for natural gas price swaps of 100,000 MMBtu of gas
per month at $1.905 per MMBtu through January 1998, and another 100,000 MMBtu of
natural gas per month at $1.770 per MMBtu through January 1998. These contracts
expire monthly. The Company has also entered into a hedge agreement to fix the
differential between the New York Mercantile Exchange ("NYMEX") price and the El
Paso Permian Basin Index at $0.20 per MMBtu for 100,000 MMBtu per month for the
six-month period commencing May 1, 1997. The gains or losses on the Company's
hedging transactions are determined as the difference between the contract price
and a reference price, generally closing prices on NYMEX. The resulting
transaction gains and losses are determined monthly and are included in the
period the hedged production or inventory is sold. Net gains or losses relating
to these derivatives for the years ended December 31, 1994, 1995, and 1996 were
$0.0, $0.0, and $(0.3) million, respectively.
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<PAGE>
BUSINESS AND PROPERTIES
The Company
Magnum Hunter is an independent energy company engaged in the exploitation
and development, acquisition, exploration and operation of oil and natural gas
properties with a focus on Texas, Oklahoma and New Mexico. In December 1995, the
Company consummated the Magnum Hunter Combination, whereby the management of
Hunter assumed operating control of the Company. The new management implemented
a business strategy emphasizing acquisitions of long-lived Proved Reserves with
significant exploitation and development opportunities where the Company
generally can control the operations of the properties. As part of this
strategy, in June 1996 the Company acquired the Panoma Properties from
Burlington for $34.7 million. Additionally, in April 1997, the Company acquired
the Permian Basin Properties from Burlington for a net purchase price of $133.0
million. While the Company is considering further acquisitions and, to a lesser
extent, plans to pursue selected exploratory drilling opportunities, the Company
intends to focus its efforts on the substantial inventory of exploitation and
development opportunities arising from the acquisitions.
The Company is a holding company that operates through three primary
subsidiaries: (i) Gruy, which conducts the Company's operations; (ii) Magnum
Hunter Production, Inc., which owns the Company's oil and natural gas assets;
and (iii) Hunter Gas Gathering, Inc., which owns the Company's gas gathering and
processing facilities.
On a pro forma basis at December 31, 1996, the Company had an interest in
2,581 wells and had estimated Proved Reserves of 314.2 Bcfe with a SEC PV-10 of
$408.0 million. As adjusted to use market prices in effect on March 31, 1997,
the Proved Reserves were 300.5 Bcfe with an SEC PV-10 of $224.8 million on a pro
forma basis at December 31, 1996. Approximately 68% of these reserves were
Proved Developed Producing Reserves and 86% were attributable to the Panoma
Properties and the Permian Basin Properties. On a pro forma basis at December
31, 1996, the Company's Proved Reserves had an estimated Reserve Life of 14.6
years and were 61% natural gas. The Company serves as operator for approximately
71% of its properties (based on the number of producing wells in which the
Company owns an interest). Additionally, the Company owns over 500 miles of gas
gathering systems and a 50% interest in a gas processing plant that is connected
to the gas gathering system purchased with the Panoma Properties. In 1996, on a
pro forma basis, the Company had revenues of $63.6 million and EBITDA of $38.3
million.
Beginning with the Magnum Hunter Combination in December 1995, the Company
has made nine acquisitions for an aggregate net purchase price of $185.4
million. This strategy has added approximately 305.6 Bcfe of reserves
(determined as of the respective times of their acquisition) at an average cost
of $0.61 per Mcfe, as well as a 427 mile gas gathering system and a 50% interest
in the McLean Gas Plant. As a result of its acquisitions, the Company has
achieved substantial growth as described below (comparing 1996 pro forma data to
1995 historical data):
o Proved Reserves increased to 314.2 Bcfe at year end 1996 (300.5 Bcfe as
adjusted for March 31, 1997 market prices) from 36.7 Bcfe at year end
1995;
o Annual production increased to 20.4 Bcfe in 1996 from 0.3 Bcfe in 1995;
o SEC PV-10 increased to $408.0 million at year end 1996 ($224.8 million
as adjusted for March 31, 1997 market prices) from $37.2 million at year
end 1995; and
o EBITDA increased to $38.3 million in 1996 from $(0.5) million in 1995.
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Company Strengths
o Quality of Reserves. The Company has a high quality reserve base. The
majority of the reserves are in the Permian Basin and Hugoton Embayment,
both of which are well-known, mature oil and natural gas producing
regions. The fields in which the properties are located generally have
significant production history and performance data. In addition,
approximately 68% of the Company's Proved Reserves were classified as
Proved Developed Producing Reserves on a pro forma basis at December 31,
1996. These attributes reduce the risks associated with determining
remaining reserves and forecasting future production from the properties
The properties are also long-lived with an estimated Reserve Life on a
pro forma basis at December 31, 1996 of 14.6 years.
o Substantial Inventory of Exploitation and Development Projects. The
Company has identified over 400 development drilling locations on its
properties. The Company believes the majority of these locations are
low-risk in-fill drilling opportunities which should add incremental
reserves and increase production rates. In addition to drilling
opportunities, the Company has identified several enhanced recovery
projects which will include the use of waterflood and tertiary recovery
methods.
o Significant Operating Control. Through its Gruy subsidiary, the Company
operates approximately 71% of the properties in which it owns an
interest. This level of operating control benefits the Company in
numerous ways by enabling the Company to: (i) control the timing and
nature of capital expenditures, (ii) identify and implement cost control
programs, (iii) respond quickly to operating problems and (iv) receive
overhead reimbursements from other working interest owners.
o Experienced Management. The Company's three senior managers have over 82
combined years of direct oil and natural gas experience in the areas of
drilling and completions, production operations, acquisitions and
divestitures and reservoir engineering. Most members of the Company's
technical staff, having spent their entire careers specializing in these
regions, have in-depth knowledge of the Company's core operating
regions.
o Balanced Reserve Mix. On a pro forma basis at December 31, 1996, the
Company's reserve mix was approximately 39% oil and 61% natural gas.
This balanced portfolio reduces the Company's exposure to a single
product's price volatility.
Business Strategy
The Company's objective is to aggressively grow its reserves, production,
cash flow and earnings utilizing a balanced program of (i) exploitation and
development of acquired properties, including development drilling, workovers
and cost reduction programs, (ii) strategic acquisitions and (iii) a selective
exploration program. Since the Magnum Hunter Combination, the Company has
acquired long-lived properties with significant exploitation and development
potential where the Company can control operations on a high percentage of the
properties. The Company is now focusing its efforts on fully developing the
large inventory of properties arising from its acquisitions and, to a lesser
extent, is identifying and participating in selected exploratory prospects. The
Company is also evaluating several smaller strategic acquisitions which fit the
Company's objectives of having long-lived Proved Reserves with exploitation and
development potential and operating control.
The following are key elements of the Company's strategy:
o Exploitation and Development of Existing Properties. The Company has a
substantial inventory of exploitation projects including development
drilling, workovers and recompletions and cost reduction programs. As of
December 31, 1996, on a pro forma basis, 32% (100.0 Bcfe) of the
Company's total Proved Reserves were classified as Proved Undeveloped
Reserves. The Company seeks to maximize the value of the properties
through development activities including in-fill drilling, waterflooding
and other enhanced recovery techniques. Management believes that the
proximity of these Proved Undeveloped Reserves to existing
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production makes development of these projects less risky and more cost
effective than other drilling opportunities available to the Company.
o Operating Cost Management. The Company emphasizes strict cost controls
in all aspects of its business, and seeks to operate its properties
wherever possible. By operating approximately 71% of its properties, the
Company is generally able to control direct operating and drilling costs
as well as to manage the timing of development and exploration
activities. For example, following the Panoma Acquisition, the Company
increased operating margins by restoring shut-in wells to production,
reducing the number of field employees, implementing compression and
other improvements on the Panoma gas gathering system and purchasing a
50% interest in the McLean Gas Plant. Management believes it can also
reduce operating costs on the Permian Basin Properties by reducing the
number of field employees, using contract pumpers and implementing other
efficiencies. Moreover, as a result of its acquisition of the Permian
Basin Properties, the Company expects only a moderate increase in its
general and administrative expenses in relation to the large number of
properties acquired. Therefore, the Company anticipates that such
expenses will decline on a per Mcfe basis.
o Strategic Acquisitions. Although the Company has an extensive inventory
of exploitation and development opportunities, it is continuing to
pursue smaller strategic acquisitions in its existing areas of
operations which fit its objectives of having long-lived Proved Reserves
with development potential and operating control.
o Expansion of Gas Gathering and Marketing Operations. The Company has
implemented several programs to expand and increase the efficiency of
its gas gathering systems. The Company owns over 75% and markets 100% of
the natural gas that moves through its gas gathering systems and,
therefore,directly benefits from any cost and productivity improvements.
Since the Company believes that its gas gathering systems have
significant underutilized throughput capacity, it is actively pursuing
several opportunities to add new Company and third party well
connections. The Company is also considering opportunities to acquire
complementary gas gathering systems and to form joint ventures with
other operators. In addition, the Company believes that its acquisition
of a 50% interest in the McLean Gas Plant allows the Company to capture
a portion of the processing profits on natural gas produced at the
Panoma Properties that would otherwise go to third party processors.
Recent Acquisitions
The most significant of the Company's completed acquisitions are the
Permian Basin Acquisition, the Panoma Acquisition, the Magnum Hunter Combination
and the McLean Plant Acquisition.
Permian Basin Acquisition
On April 30, 1997, the Company acquired from Burlington, effective as of
January 1, 1997, the Permian Basin Properties, consisting of 25 field areas in
west Texas and 22 field areas in southeast New Mexico, for a net purchase price
of $133.0 million after adjustments of $10.5 million for production cash flow
from January 1, 1997 to the closing date and other minor adjustments. The
primary producing formations include the Yates, Seven Rivers and Queen in Lea
and Eddy Counties, New Mexico; the Atoka in the Brunson Ranch Field in Loving
County, Texas; the Clearfork in the Westbrook Field in Mitchell County, Texas;
the San Andres in the Levelland/Slaughter Field in Cochran County, Texas; and
the Canyon Sand in Sutton County, Texas. The Permian Basin Properties include
1,852 producing oil and natural gas wells on approximately 113,810 gross acres
(82,175 net acres). One of the Company's subsidiaries, Gruy, serves as operator
on approximately 66% of the wells on the Permian Basin Properties. Management of
the Company believes the Permian Basin Properties provide significant
opportunities for exploitation and development of both oil and natural gas
through enhanced recovery projects and drilling.
During 1996, daily net production from the Permian Basin Properties was
25.8 MMcf per day of natural gas and over 2,500 Bbl/d of oil. According to Ryder
Scott, independent petroleum engineers engaged by the Company to evaluate the
Permian Basin Properties, as of December 31, 1996, the Permian Basin Properties
had Proved Reserves of 15.3 MMBbl of oil and 99.9 Bcf of natural gas, or on a
Natural Gas Equivalent Basis, 191.6 Bcfe. Ryder Scott
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further estimated the future net cash flows and the SEC PV-10 for the Permian
Basin Properties to be $468.8 million and $243.3 million, respectively, as of
December 31, 1996 based on prices of $23.61 per Bbl of oil and $4.12 per Mcf of
natural gas at December 31, 1996. Based on market prices of $20.41 per Bbl of
oil and $2.30 per Mcf of natural gas at March 31, 1997, future net cash flows
and the SEC PV-10 for the Permian Basin Properties would be $267.3 million and
$139.6 million, respectively, as of December 31, 1996. As of December 31, 1996,
approximately 68% of the Proved Reserves were classified as Proved Developed
Producing Reserves. See "-- Oil and Natural Gas Reserves." Based on the $143.5
million gross purchase price and Proved Reserves of 191.6 Bcfe as of December
31, 1996, the Company paid approximately $0.75 per Mcfe for the Permian Basin
Properties.
The major fields in the Permian Basin Properties are the Westbrook,
Levelland/Slaughter, Lea County Shallow Properties and the Brunson Ranch.
Westbrook. The Westbrook Field consists of 431 wells that cover approximately
45 square miles in Mitchell County, Texas and produce from the Clearfork
formation at a depth of approximately 3,200 feet. The interests acquired in
the Permian Basin Acquisition include the following three properties in the
Westbrook Field:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net Revenue Gross Oil Production
Property Operator Well Count Working Interest Interest (Bbl/d)
- - ------------------------ -------------- -------------- ----------------- ------------- ----------------------
Southwest Westbrook Unit Company 135 89.9% 77.1% 560
Morrison "G" Lease Company 2 83.8% 72.9% 10
North Westbrook Unit Third Party 294 2.0% 1.6% 1,560
</TABLE>
Most of the leases and units in the field had waterflood projects
initiated in the 1960's and those projects are still active. The
Company plans to initiate waterflood enhancement operations on the
Southwest Westbrook Unit and the Morrison "G" Lease.
Ryder Scott attributed approximately 10.0%, or $24.3 million, of the
SEC PV-10 at December 31, 1996 (9.9%, or $13.8 million, at such date
using March 31, 1997 market prices) to a four year enhancement program,
commencing in 1997, on an existing waterflood project on the Westbrook
Field in Mitchell County, Texas. The Company has identified
approximately 250 drilling locations, including production and
injection wells, to further develop the fields at a cost of
approximately $38.1 million. When completed, the properties will be
fully developed on a ten acre, line drive waterflood pattern, as
opposed to the current 28 acre, five-spot pattern. While the Ryder
Scott report assumes approximately $6.6 million of development
expenditures on this waterflood enhancement program in 1997, the
Company is evaluating the timing of these development expenditures
relative to its other capital expenditure requirements. The Company has
initially budgeted approximately $5.0 million for development
expenditures on the Permian Basin Properties for 1997.
Levelland/Slaughter. The Levelland and Slaughter Fields consist of 155
wells located in Cochran County, Texas that produce from the San Andres
formation at a depth of 5,000 feet. The interests acquired in the
Permian Basin Acquisition include the following three properties in the
Levelland and Slaughter Fields:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net Revenue Gross Oil Production
Property Operator Well Count Working Interest Interest (Bbl/d)
- - ------------------- ----------- ---------- ------------------ ------------ ---------------------
TLB Unit Company 52 100.0% 87.3% 90
Veal Lease Company 20 100.0% 87.1% 250
NW Slaughter Unit Company 83 74.9% 62.8% 310
</TABLE>
Discovered in the 1930's, all three properties have been actively
waterflooded since the 1970's. While the projects are mature,
additional drilling and waterflood enhancement is likely. No Proved
Undeveloped Reserves were assigned by Ryder Scott to either the Veal
Lease or the TLB Unit. Proved Undeveloped Reserves were assigned by
Ryder Scott to the NW Slaughter Unit in contemplation of a carbon
dioxide
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injection project which is anticipated for that property. The operator
of an adjacent property has been successfully injecting carbon dioxide
for several years to enhance production.
Lea County Shallow Properties. The Lea County Shallow Properties
consist of approximately 300 wells in Lea County, New Mexico which are
in the Rhodes, Jalmat, Monument, Langlia Mattix, Eumont and Eunice
Fields. The fields produce from the Yates, Seven Rivers, Queen and
other formations at depths generally shallower than 3,000 feet.
Production is generally high Btu gas, which produces into low pressure
gathering systems. No Proved Undeveloped Reserves have been assigned by
Ryder Scott to the properties, but the Company anticipates that
numerous recompletion, stimulation, workover or development drilling
opportunities will result from detailed geological and engineering
studies which are planned.
Brunson Ranch. The Brunson Ranch Field consists of three wells located
in Loving County, Texas in the deep Delaware Basin geological province
of the Permian Basin. Three wells are currently producing a total of
approximately 2.4 MMcf of natural gas per day from the Atoka formation
at a depth of approximately 16,000 feet. Undeveloped potential exists
on the properties through redrilling the Atoka formation and completing
such wells using technology designed for high bottom hole pressure
conditions.
Burlington has agreed to indemnify the Company for breaches by
Burlington of the purchase agreement as well as any claims attributable to or
arising out of acts or omissions of Burlington (including, but not limited to,
environmental claims) occurring before January 1, 1997. There are certain
limitations on the amount of, and time period for bringing, a claim for
indemnity made by the Company. Burlington is a defendant in two actions claiming
that Burlington underpaid royalty owners on properties in New Mexico and Texas,
including properties that are a part of the Permian Basin Properties. The
plaintiffs in the New Mexico action are seeking class certification while the
Texas action has been certified as a class action. Burlington's indemnity would
hold the Company harmless from any of these claims arising prior to January 1,
1997. The Company has also agreed, subject to certain limitations, to indemnify
Burlington for matters arising subsequent to January 1, 1997 as well as for
certain liabilities and obligations assumed by the Company as part of the
purchase transaction.
Panoma Acquisition
On June 28, 1996, the Company purchased interests in 520 natural gas
wells in the Texas Panhandle and western Oklahoma (469 of which are operated by
the Company) and the associated 427 mile gas gathering system from Burlington.
The net purchase price, after certain purchase price adjustments, was $34.7
million, funded by borrowings under the Company's Previous Credit Facility. Gruy
is the operator of the gas gathering system and the wells that were previously
operated by Burlington. According to Gaffney, Cline, independent petroleum
engineers engaged by the Company to evaluate the Panoma Properties, the Proved
Reserves attributable to the Panoma Properties as of December 31, 1996
aggregated 77.3 Bcfe with an SEC PV-10 of $111.0 million. As adjusted to use
market prices in effect on March 31, 1997, the Proved Reserves attributable to
the Panoma Properties as of December 31, 1996 aggregated 74.2 Bcfe with an SEC
PV-10 of $53.3 million.
The Panoma Properties consist of approximately 520 natural gas wells in
the West Panhandle, East Panhandle, and South Erick Fields along a corridor 65
miles long and 20 miles wide stretching from Beckham County, Oklahoma to Gray
County, Texas. All wells are less than 2,800 feet deep and produce dry natural
gas from the Granite Wash and/or Brown Dolomite formations. The easternmost
fields are developed on 160 acre spacing because the original spacing of 640
acres proved inadequate to drain reserves efficiently. In-fill development is
underway in the westernmost field with ten wells of a 40 well program having
been completed during the first six months of 1997. The success of, and
information obtained from, these first wells will determine the locations and
timing of the remaining wells for 1997.
Magnum Hunter Combination
The recent growth experienced by the Company commenced with the Magnum
Hunter Combination in December 1995. In that transaction, the Company assumed
certain liabilities and issued an aggregate value of
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<PAGE>
$12.5 million of stock consisting of 5,085,077 shares of Common Stock and
111,825 shares of the Company's Series C Preferred Stock, which were
subsequently converted into 335,475 shares of Common Stock. In connection with
the Magnum Hunter Combination, management of the Company was replaced by
Hunter's management team. The acquisition of the Hunter Subsidiaries
significantly increased the size and expanded the nature of the Company's
business. The Hunter Subsidiaries were engaged in: (i) the acquisition,
production and sale of crude oil; (ii) the gathering, transmission and marketing
of natural gas; (iii) the management and operation of producing oil and natural
gas properties for interest owners; and (iv) the provision of consulting and
U.S. export services to facilitate Latin American trade in energy products. The
acquisition of Gruy, a Hunter Subsidiary that specializes in the management of
producing properties, has enabled the Company to gain a higher level of
expertise in operating oil and natural gas properties. Estimated Proved Reserves
for the properties acquired in the Magnum Hunter Combination were 3.1 MMBbl of
oil and 11.0 Bcf of natural gas as of December 31, 1995.
McLean Plant Acquisition
On January 1, 1997, the Company complemented its Panoma Acquisition by
purchasing for $2.5 million a 50% ownership interest in the McLean Gas Plant,
which is connected to the Panoma gas gathering system, and a related products
pipeline. The Company receives 100% of the net profits from the McLean Gas Plant
until it recoups the $2.5 million purchase price, after which time it will
receive 50% of the net profits. See "Business and Properties - Gathering
and Processing of Natural Gas."
Development and Exploration Activities
Overview
While the Company is considering further acquisitions and, to a lesser
extent, plans to pursue exploratory drilling opportunities, the Company intends
to focus its current efforts on the substantial inventory of development
opportunities arising from its recent acquisitions.
The Company seeks to minimize its overhead and capital expenditures by
subcontracting the drilling, redrilling and workover of wells to independent
drilling contractors and by outsourcing other services. The Company typically
compensates its drilling subcontractors on a turnkey (fixed price), footage or
day rate basis depending on the Company's assessment of risk and cost
considerations.
Development Drilling
The Company's development strategy focuses on maximizing the value and
productivity of its oil and natural gas asset base through development drilling
and enhanced recovery techniques. The Company has identified over 400
development drilling locations on its properties. In particular, the Company
plans (i) to emphasize in-fill drilling on its Panoma Properties and several of
its west Texas properties, (ii) to initiate waterflood projects on selected west
Texas properties and (iii) to drill lateral re-entry wells in its Austin Chalk
properties. In-fill drilling is the process of drilling a well between producing
wells to better exploit the reservoir. In a waterflood, water is injected into a
producing formation to enhance recovery by forcing oil into the producing well
bores. Lateral re-entry wells are wells drilled horizontally from existing bore
holes into undrained areas of the reservoir. In exploiting its producing
properties, the Company relies upon its in-house technical staff of petroleum
engineering and geological professionals and utilizes the services of outside
consultants on a selective basis.
Panoma Properties. The Company believes that developmental drilling can
enhance the value of its recently acquired Panoma Properties, which
produce from the Brown Dolomite and Granite Wash formations in the
Texas Panhandle and western Oklahoma. The Company has identified over
80 in-fill drilling prospects on the Panoma Properties, and subject to
receiving density approvals from the Texas Railroad Commission (the
state oil and gas regulatory agency), the Company plans to drill 40
in-fill wells on the West Panhandle Field through the end of 1997. As
of September 30, 1997, the Company had completed approximately half of
these wells. Wells in the West
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<PAGE>
Panhandle Field are currently drilled on 640-acre spacing as compared
to 160-acre spacing for wells drilled in a neighboring field in the
same geologic trend.
West Texas. The Company believes it can enhance the value of selected
west Texas fields through in-fill drilling and enhanced recovery
projects, including several waterflood projects. While waterfloods
typically take considerable time to respond to fluid injection, the
west Texas properties have in-fill drilling potential that management
believes could result in a somewhat faster increase in production and
cash flow.
Austin Chalk. The Company believes that horizontal drilling can be
successfully used to augment the value of the Company's properties in
the Austin Chalk formation of central Texas, an area where wells
typically have high initial rates of production. The Company owns a 25%
working interest in 38 producing wells on approximately 12,000 lease
acres in Fayette and Gonzales Counties. The Company drilled one lateral
well in the Austin Chalk formation in 1996, which was successfully
completed as an oil well. Geological studies indicate the potential for
up to 16 new lateral locations to be drilled from existing bore holes
into undrained areas of the reservoir. Drilling laterally from existing
bore holes is advantageous, as the cost is approximately one-third of
the expenditure required for a new well.
Permian Basin Properties. In evaluating the Permian Basin Properties,
the Company believes there are many development opportunities. The
Company has identified approximately 275 drilling locations, including
production and injection wells, on the Permian Basin Properties.
Engineering and geological studies are being initiated to more
precisely identify specific development locations. In addition, in
evaluating the Permian Basin Properties, Ryder Scott attributed
approximately 10.0%, or $24.3 million, of their SEC PV-10 at December
31, 1996 (9.9%, or $13.8 million, at such date using March 31, 1997
prices) to a four-year enhancement program, commencing in 1997, on an
existing waterflood on the Westbrook Field in Mitchell County, Texas.
The proposed waterflood project is estimated to cost an aggregate of
$38.1 million. While the reserve report for the Permian Basin
Properties assumes approximately $6.6 million of development
expenditures during 1997 to enhance this waterflood project, the
Company is evaluating the timing of these development expenditures
relative to its other capital expenditure requirements.
Exploratory Drilling
The Company attempts to lessen the risks inherent in exploratory
drilling by (i) concentrating in specific areas in the United States where the
Company's technical staff has considerable experience and which are in known
onshore producing trends where the potential for significant reserves exists;
(ii) diversifying through investment in multiple prospects; (iii) utilizing 3-D
seismic surveys and other advanced technologies; and (iv) promoting out
interests to industry partners.
The Company was successful in completing four out of the eight
exploratory wells it drilled in 1996. The remaining four wells were not
commercially productive. The exploratory wells drilled by the Company have
ranged in cost from approximately $75,000 to $500,000 on a dry hole basis, with
an average of approximately $150,000 each. The Company plans to spend
approximately $3.0 million out of its $20.0 million 1997 capital budget on
exploratory drilling.
The Company participates in a successful exploratory gas discovery in the
Douglas formation in western Oklahoma where a confirmation well is scheduled to
commence in the fourth quarter of 1997. The Company is presently testing another
exploratory well drilled earlier this year in the Austin Chalk formation in
Fayette County, Texas. This potential oil well is the Company's first
exploratory horizontal well. The Company's interests in these two wells are 25%
and 20%, respectively. The Company also plans to drill four or five additional
exploratory wells in 1997, including a prospect identified by 3-D seismic
surveys in Victoria County on the Texas Gulf Coast and two or three other
potential oil and natural gas wells on the Texas Gulf Coast. The Company is also
reviewing other exploration opportunities, including potential prospects on the
Permian Basin Properties.
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<PAGE>
Gathering and Processing of Natural Gas
Hunter Gas Gathering, Inc., a wholly owned subsidiary of the Company,
owns four gas gathering systems located in Oklahoma, Texas and Louisiana, none
of which are subject to regulation by the Federal Energy Regulatory Commission
("FERC"), and a 50% interest in the McLean Gas Plant in the Texas Panhandle. Two
of the gas gathering systems, Panoma and North Appleby, account for more than
90% of the throughput from the Company's four systems. Gruy operates all four
gas gathering systems.
Generally, the gathering systems transport the natural gas to a common
point where it is dehydrated prior to redelivery to downstream pipelines. In
managing its gas gathering systems, the Company has emphasized operating
efficiency and overhead management and introduced a program which ties
throughput costs to volume transported rather than to compression capacity. The
Company believes that its focus on volume-based pricing reduces the potential
financial impact of a decline in actual throughput.
The Panoma system, the largest of the Company's four gas gathering
systems, consists of approximately 427 total miles of pipeline. The main
trunklines run east to west for approximately 66 miles with the east end
starting in Beckham County, Oklahoma and the west end starting in Gray County,
Texas. Natural gas throughput for the Panoma gas gathering system is
approximately 16.5 MMcf per day. The Panoma gas gathering system currently
delivers natural gas to El Paso Natural Gas Company for transport to markets in
western Oklahoma and the West Coast, although the Company is actively seeking
additional markets for such natural gas. The Company, which operates
approximately 489 of the approximately 540 wells connected to the Panoma system,
is also actively seeking to add new wells to such system through acquisition,
development or arrangements with third party producers.
The Company's North Appleby gas gathering system is located primarily
in Nacogdoches County in east Texas. Approximately 39 wells are connected to the
system, which delivers approximately 3.0 MMcf per day for third parties to
Natural Gas Pipeline Co. for transportation to other markets. The Company's
other two systems deliver an aggregate of 1.5 MMcf per day for third parties
from 66 wells into various markets. The Company is presently negotiating a
possible sale of one such system.
Effective January 1, 1997, the Company purchased for $2.5 million a 50%
interest in the McLean Gas Plant, the gas processing facility connected to the
Company's Panoma gas gathering system. The purchase also included a 23-mile
products pipeline between the McLean Gas Plant and the Koch Pipeline at Lefors,
Texas and all natural gas and product purchase and sales agreements related to
the plant. The McLean Gas Plant is a modern cryogenic gas processing plant with
a capacity of 23.0 MMcf per day with a current throughput of 16.5 MMcf per day.
The Company acquired its 50% interest in the plant from Carrera Gas Company,
L.L.C. ("Carrera") of Tulsa, Oklahoma, which owns the remaining 50% of the plant
and operates such facility. Under terms of the Company's operating agreement
with Carrera, the Company receives 100% of the net profits from the McLean Gas
Plant until it recoups the $2.5 million purchase price, at which point net
profits will be divided equally between the Company and Carrera.
Marketing of Production
General
The Company markets all of its natural gas production as well as
natural gas it purchases from third parties to gas marketing firms or end users
either on the spot market on a month-to-month basis at prevailing spot market
prices or at negotiated prices under long-term contracts. Marketing natural gas
for its own account exposes the Company to the attendant commodities risk. The
Company currently sells most of its natural gas to Crosstex, a gas marketing
firm in Dallas, Texas formed in January 1997 when Comstock sold its gas
gathering, processing and marketing operations. Although the Company sold
approximately 91% of its natural gas to Comstock in 1996 and has sold a
comparable percentage to Crosstex to date in 1997, the Company does not believe
that any discontinuation of such sales arrangement would be disruptive to the
Company's natural gas marketing operations. The Company typically obtains
letters of credit guaranteeing the payment of the purchase price for its natural
gas.
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<PAGE>
The Company normally sells its own oil under month-to-month contracts with
a variety of purchasers. Oil is usually sold for the Company's own account
through Enmark Services, a marketing agent in Dallas, Texas. While the Company
has historically been able to sell oil above posted prices, it is also exposed
to the commodities risk inherent in short-term contracts. For a discussion of
the Company's hedging activities, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital Resources
- -- Hedging Activity" and Note 14 to the Company's Consolidated Financial
Statements.
The market for oil and natural gas produced by the Company depends on
factors beyond its control, including the extent of domestic production and
imports of oil and natural gas, the proximity and capacity of natural gas
pipelines and other transportation facilities, weather, demand for oil and
natural gas, the marketing of competitive fuels and the effects of state and
federal regulation. The oil and natural gas industry also competes with other
industries in supplying the energy and fuel requirements of industrial,
commercial and individual consumers.
Petroleum Management and Consulting Services; Other Activities
Gruy
The Company acquired Gruy in the Magnum Hunter Combination in December
1995. Gruy, which conducts operations for both the Company and third parties,
has a 37-year history of managing properties for third parties, which include
banks, financial institutions, bankruptcy trustees, estates, individual
investors, trusts and independent oil and natural gas companies. Gruy provides
drilling, completion and other well-site services; advice regarding
environmental and other regulatory compliance; receipt and disbursement
functions and other managerial services; petroleum engineering services; and
consultation as an expert witness. Gruy manages, operates and provides
consulting services on oil and natural gas properties located in Texas,
Oklahoma, Mississippi, Louisiana, New Mexico and Kansas. Gruy is an important
component of the Company's acquisition program. As the operator of wells for
third parties and as a provider of consulting services for the energy industry,
Gruy is often able to identify attractive acquisition opportunities.
Hunter Butcher
The Company provides consulting services to Latin American energy
companies through Hunter Butcher. Hunter Butcher has primarily focused on
assisting energy-related Mexican companies in obtaining financing for their
purchases in the United States of products for export to Mexico. This is
accomplished through a commercial bank credit facility established to facilitate
short and medium term credit for Hunter Butcher to purchase these products and
resell them to its clients at a slight premium. The credit risk to Hunter
Butcher on such resales is lessened by partial guarantees of approximately 85%
to 90% of such borrowings by the Export Import Bank of the United States (the
"ExIm Bank"), by credit insurance and through deposits by Hunter Butcher's
clients to secure the unguaranteed portion of the indebtedness and certain
interest. Hunter Butcher could, however, incur a loss under such arrangement in
repaying indebtedness under the credit facility since the applicable ExIm Bank
guaranty and deposit would not be adequate to pay interest under the credit
facility at the default rate or cover other possible losses. In addition, the
Company itself may from time to time guarantee the indebtedness incurred under
the credit facility by Hunter Butcher for its clients, but the New Credit
Facility limits the Company to guaranteeing not more than $3.0 million of such
indebtedness at any time.
Possible Foreign Activities
As the Company continues to increase its asset base, management plans to
expand the scope of its oil and natural gas activities, including the Company's
acquisition of or possible participation in foreign prospects. The Company
believes that Latin America offers greater hydrocarbon reserve potential with
less competition than in North America. In expanding into Mexico, Central
America or South America, the Company anticipates that any investment would be
made in partnership with one or more partners with which it had previously
worked within the United States. The Company does not plan to invest in any
foreign prospects during 1997.
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<PAGE>
Oil and Natural Gas Reserves
General
All information set forth in this Prospectus regarding estimated proved
reserves, related estimated future net cash flows and SEC PV-10 of the Company's
oil and natural gas interests is taken from reports prepared (i) by Gaffney,
Cline and Glenn Harrison Petroleum Consultants, Inc. ("Glenn Harrison"), both
independent petroleum engineers in Dallas, Texas with respect to the Company's
interests at December 31, 1996 (using oil and natural gas prices at both
December 31, 1996 and March 31, 1997), (ii) by the engineers named in the
footnotes to the tables below with respect to the Company's interests at
December 31, 1994 and 1995 and (iii) by Ryder Scott with respect to the Permian
Basin Properties at December 31, 1996 (using oil and natural gas prices at both
December 31, 1996 and March 31, 1997). The estimates of these independent
petroleum engineers were based upon their review of production histories and
other geological, economic, ownership and engineering data provided by the
Company, and, in the case of Ryder Scott's report, by Burlington and the
Company.
In accordance with Commission guidelines (and except for the
alternative estimates of future net cash flows and SEC PV-10 as of December 31,
1996 using March 31, 1997 prices), the estimates of future net cash flows from
Proved Reserves and their SEC PV-10 are made using oil and natural gas sales
prices in effect as of the dates of such estimates and are held constant
throughout the life of the properties. The Company's estimates of Proved
Reserves, future net cash flows and SEC PV-10 were estimated using the following
weighted average prices (other than prices at March 31, 1997, which are market
prices as adjusted for Btu content), before deduction of production taxes:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Prices Used in Reserve Reports
At December 31,
----------------------------------------------------------------------------
Pro Forma 1996 (1)
--------------------------------------
December 31, 1996 March 31, 1997
1994 1995 1996 Prices (2) Prices (3)
------------ ----------- ----------- ----------------------- ----------------
Natural gas (per Mcf).............. $ 1.53 $ 1.46 $ 4.03 $ 4.05 $ 2.30
Oil (per Bbl)...................... $14.20 $15.60 $24.37 $24.18 $20.41
- - -----------
</TABLE>
(1) Gives effect to the Permian Basin Acquisition as if it had occurred on
December 31, 1996.
(2) Proved Reserves attributable to the Permian Basin Properties at
December 31, 1996 were estimated based upon weighted average prices
(before deduction of production taxes) of $4.12 per Mcf of natural gas
and $23.61 per Bbl of oil.
(3) Proved Reserves attributable to the Permian Basin Properties at
December 31, 1996 using prices at March 31, 1997 were based upon market
prices (before deduction of production taxes) of $2.30 per Mcf of
natural gas and $20.41 per Bbl of oil.
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<PAGE>
All reserves are evaluated at contract temperature and pressure which
can affect the measurement of natural gas reserves. Operating costs, development
costs and certain production-related and ad valorem taxes were deducted in
arriving at the estimated future net cash flows. No provision was made for
income taxes. The following estimates set forth reserves considered to be
economically recoverable under normal operating methods and existing conditions
at the prices and operating costs prevailing at the dates indicated above. The
estimates of the SEC PV-10 from future net cash flows differ from the
standardized measure of discounted future net cash flows set forth in the notes
to the Consolidated Financial Statements of the Company, which is calculated
after provision for future income taxes. There can be no assurance that these
estimates are accurate predictions of future net cash flows from oil and natural
gas reserves or their present value.
Proved Reserves are estimates of oil and natural gas to be recovered in the
future. Reservoir engineering is a subjective process of estimating the sizes of
underground accumulations of oil and natural gas that cannot be measured in an
exact way. The accuracy of any reserves estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Reserve reports of other engineers might differ from the reports contained
herein. Results of drilling, testing, and production subsequent to the date of
the estimate may justify revision of such estimate. Future prices received for
the sale of oil and natural gas may be different from those used in preparing
these reports. The amounts and timing of future operating and development costs
may also differ from those used. Accordingly, reserve estimates are often
different from the quantities of oil and natural gas that are ultimately
recovered. See "Risk Factors-Uncertainty of Estimates of Reserves and Future Net
Cash Flows."
Except for the effect of the decrease in oil and natural gas prices, no
major discovery or other favorable or adverse event is believed to have caused a
significant change in these estimates of the Company's proved reserves since
December 31, 1996.
No estimates of Proved Reserves of oil and natural gas have been filed
by the Company with, or included in any report to, any United States authority
or agency since January 1, 1996.
Company Reserves
The following tables set forth the estimated Proved Reserves of oil and
natural gas of the Company and the SEC PV-10 thereof on (i) an actual basis for
each year in the three-year period ended December 31, 1996 and (ii) a pro forma
basis giving effect to the Permian Basin Acquisition.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Estimated Proved Oil and Natural Gas Reserves(1)
At December 31,
-----------------------------------------------------------------------------------
Pro Forma 1996 (4)
---------------------------------------
December 31, 1996 March 31, 1997
1994 1995 (2) 1996(3) Prices Prices(5)
----------- ----------- --------- ---------------- ---------------
Net natural gas reserves (Mcf):
Proved Developed Producing
Reserves...................... 394,872 8,796,748 71,166,555 148,486,702 139,410,816
Proved Developed Non-Producing
Reserves...................... 0 0 108,586 161,546 160,960
Proved Undeveloped Reserves...... 4,519,335 5,275,168 19,290,856 41,793,954 41,791,208
------------ ---------- ------------ ----------------- ----------------
Total Proved Reserves of
natural gas................. 4,914,207 14,071,916 90,565,997 190,442,202 181,362,984
----------- ---------- ------------ ----------------- ----------------
Net oil reserves (Bbl):
Proved Developed Producing
Reserves...................... 239,795 1,681,841 1,849,846 10,804,735 10,050,370
Proved Developed Non-Producing
Reserves...................... 0 0 112,338 125,979 119,641
Proved Undeveloped Reserves...... 1,020,725 2,085,898 3,376,071 9,698,562 9,681,158
--------- ---------- ------------ ----------------- ----------------
Total Proved Reserves of oil.. 1,260,520 3,767,739 5,338,255 20,629,276 19,851,169
--------- ---------- ------------ ----------------- ----------------
Total Proved Reserves (Mcfe).. 12,477,327 36,678,350 122,595,527 314,217,858 300,469,998
========== =========== ============ ================= ===============
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<PAGE>
Estimated SEC PV-10 of Proved Reserves(1)
At December 31,
---------------------------------------------------------------------------------
Pro Forma 1996 (4)
---------------------------------------
December 31, 1996 March 31, 1997
1994 1995 (2) 1996(3) Prices Prices(5)
----------- ------------- --------------- ---------------------------------------
Estimated SEC PV-10(6):
Proved Developed Producing
Reserves...................... $5,337,427 $19,036,205 $115,858,134 $295,509,505 $161,683,897
Proved Developed Non-Producing
Reserves...................... 0 0 664,308 987,032 682,003
Proved Undeveloped Reserves...... 2,437,383 18,173,125 48,244,017 111,552,418 62,465,119
---------- ------------- -------------- -------------- ---------------
Total SEC PV-10 of Proved
Reserves...................... $7,774,810 $37,209,330 $164,766,459 $408,048,955 $224,831,019
========= =========== ============ ============ ==============
</TABLE>
(1) Based upon reserve reports at December 31, 1994 prepared by Hensley
Consultants, Inc., independent petroleum consultants in Tulsa, Oklahoma;
reserve reports at December 31, 1994 and 1995 prepared by James J.
Weisman, Jr.; and reserve reports at December 31, 1996 prepared by
Gaffney, Cline and Glenn Harrison. Reserve information relating to the
Permian Basin Properties is based upon reserve reports at December 31,
1996 prepared by Ryder Scott.
(2) Includes reserves acquired in the Magnum Hunter Combination. See "Business
and Properties -- Recent Acquisitions."
(3) Includes reserves acquired in the Panoma Acquisition. See "Business and
Properties -- Recent Acquisitions."
(4) Gives effect to the Permian Basin Acquisition as if it had occurred on
December 31, 1996.
(5) Proved Reserves and SEC PV-10 have been estimated as of December 31, 1996
using March 31, 1997 market prices of $20.41 per Bbl of oil and $2.30 per
Mcf of natural gas. Such Proved Reserves and SEC PV-10 have not been
adjusted for production for the three-month period ended March 31, 1997.
(6) SEC PV-10 differs from the standardized measure of discounted future net
cash flows set forth in the notes to the Consolidated Financial Statements
of the Company, which is calculated after provision for future income
taxes.
Significant Properties
On December 31, 1996, after giving pro forma effect to the Permian Basin
Acquisition, 86% of the Company's Proved Reserves on a Bcfe basis were located
in the Permian Basin Properties and the Panoma Properties. On such date the
Company's properties included, on a pro forma basis, working interests in 2,581
gross (1,436 net) productive oil and natural gas wells. The Company also held
interests in 10,992 gross (5,003 net) undeveloped acres on a pro forma basis at
December 31, 1996.
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<PAGE>
The following table sets forth summary information with respect to the
Company's estimated Proved Reserves of oil and natural gas on a pro forma basis
at December 31, 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SEC PV-10 (1)
---------------------------- Natural Gas
% of Oil Natural Gas Equivalent
Amount Total (Bbl) (Mcf) (Mcfe)
---------------- ---------- ------------ -------------- ------------------
Permian Basin Properties(2)(3)......... $243,282 59.6% 15,291,021 99,876,205 191,622,331
Panoma Properties(4)................... 111,030 27.2% 28,531 77,114,928 77,286,115
Other(5)............................... 53,736 13.2% 5,309,724 13,451,068 45,309,412
---------------- ---------- ------------ -------------- ------------------
Total(2)......................... $408,048 100.0% 20,629,276 190,442,202 314,217,858
================ ========== ============= ============== ==================
- - -----------
</TABLE>
(1) SEC PV-10 differs from the standardized measure of discounted future
net cash flows set forth in the Notes to the Consolidated Financial
Statements of the Company, which is calculated after provision for
future income taxes.
(2) Gives effect to the Permian Basin Acquisition as if it had occurred on
December 31, 1996.
(3) Based on a reserve report at December 31, 1996 prepared by Ryder Scott.
(4) Based on a reserve report at December 31, 1996 prepared by Gaffney,
Cline.
(5) Based on reserve reports at December 31, 1996 prepared by Gaffney,
Cline and by Glenn Harrison.
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<PAGE>
Permian Basin Reserves
The following tables set forth as of December 31, 1996 the estimated
Proved Reserves and the SEC PV-10 thereof for the Permian Basin Properties.
<TABLE>
<CAPTION>
<S> <C> <C>
Estimated Proved Oil and Natural Gas Reserves
of the Permian Basin Properties(1)
At December 31, 1996
-----------------------------------------
December 31, 1996 March 31, 1997
Prices Prices(2)
-----------------------------------------
Net natural gas reserves (Mcf):
Proved Developed Producing Reserves................... 77,320,147 71,319,816
Proved Developed Non-Producing Reserves............... 52,960 52,960
Proved Undeveloped Reserves........................... 22,503,098 22,503,098
------------------- ----------------
Total Proved Reserves of natural gas......... 99,876,205 93,875,874
------------------- ----------------
Net oil reserves (Bbl):
Proved Developed Producing Reserves................... 8,954,889 8,296,370
Proved Developed Non-Producing Reserves............... 13,641 13,641
Proved Undeveloped Reserves........................... 6,322,491 6,304,139
------------------- -----------------
Total Proved Reserves of oil................. 15,291,021 14,614,150
------------------- -----------------
Total Proved Reserves (Mcfe)................. 191,622,331 181,560,774
================== ================
</TABLE>
<TABLE>
<S> <C> <C>
Estimated SEC PV-10 of Proved Reserves
of the Permian Basin Properties(1)
At December 31, 1996
---------------------------------------------------
December 31, 1996 March 31, 1997
Prices Prices(2)
---------------------------------------------------
Estimated SEC PV-10(3):
Proved Developed Producing Reserves.................... $179,651,371 $103,553,897
Proved Developed Non-Producing Reserves................ 322,724 232,003
Proved Undeveloped Reserves............................ 63,308,400 35,782,169
--------------------------- ----------------------
Total SEC PV-10 of Proved Reserves............ $243,282,495 $139,568,069
=========================== ======================
</TABLE>
- -----------
(1) Based upon reserve reports at December 31,1996 prepared by Ryder Scott.
(2) Proved Reserves and SEC PV-10 have been estimated as of December 31,
1996 using March 31, 1997 market prices of $20.41 per Bbl of oil and
$2.30 per Mcf of natural gas at the Permian Basin Properties. Such
Proved Reserves and SEC PV-10 have not been adjusted for production for
the three-month period ended March 31, 1997.
(3) SEC PV-10 differs from the standardized measure of discounted future
net cash flows set forth in the notes to the Consolidated Financial
Statements of the Company, which is calculated after provision for
future income taxes.
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<PAGE>
Oil and Natural Gas Production, Prices and Costs
The following table shows the approximate net production attributable
to the Company's oil and natural gas interests, the average sales price and the
average production expense attributable to the Company's oil and natural gas
production for the periods indicated. Except for pro forma data, production and
sales information relating to properties acquired or disposed of is reflected in
this table only since or up to the closing date of their respective acquisition
or sale and may affect the comparability of the data between the periods
presented.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Six Months
Year Ended December 31, Ended June 30,
----------------------------------------------- ------------------
Pro Forma
1994 1995 1996 1996 (1) 1996 1997
----------- ---------- ----------- ------------ ---------- -------
Oil and natural gas production:
Oil (MBbl).............................. 42 30 191 1,105 90 240
Natural gas (MMcf)...................... 88 102 2,675 13,811 488 3,332
Natural Gas Equivalents (MMcfe)......... 340 282 3,821 20,442 1,027 4,771
Average sales price(2):
Oil (per Bbl)........................... $14.20 $15.60 $20.46 $20.15 $19.32 $18.33
Natural gas (per Mcf)................... 1.53 1.46 2.37 2.22 2.23 2.22
Natural Gas Equivalents (per Mcfe)...... 2.15 2.19 2.68 2.59 2.75 2.47
Oil and natural gas production expense
(per Mcfe)(3)........................... $0.94 $0.95 $1.15 $0.83 $1.10 $0.99
- - -----------
</TABLE>
(1) Gives effect to the Permian Basin Acquisition as if it had occurred on
January 1, 1996.
(2) Before deduction of production taxes and net of hedging results for the
three years ended December 31, 1996.
(3) Includes lease operating expenses and production and ad valorem taxes, if
applicable. For the years ended December 31, 1996 on a historical basis and
December 31, 1996 on a pro forma basis and the six months ended June 30,
1997, includes internal transfer price expenses for gas gathering and
overhead costs of $0.23 per Mcfe, $0.04 per Mcfe and $0.19 per Mcfe,
respectively.
Drilling Activity
The following table sets forth the results of the Company's drilling
activities during the three fiscal years ended December 31, 1996 and the period
from January 1, 1997 through June 30, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Gross Wells (1) Net Wells (2)
------------------------------------------ ---------------------------------------
Year Type of Well Producing (3) Dry (4) Total Producing (3) Dry (4) Total
- - ------------- --------------------- ------------------ ------------- --------- ------------------ ------------- -------
1994 Exploratory - - - - - -
Development 2 1 3 0.50 0.25 0.75
1995 Exploratory 2 - 2 0.55 - 0.55
Development - - - - - -
1996 Exploratory 4 4 8 2.63 2.60 5.23
Development 3 - 3 0.66 - 0.66
1997(5) Exploratory - - - - - -
Development 4 - 4 3.40 - 3.40
- - -----------
</TABLE>
(1) The number of gross wells is the total number of wells in which a
working interest is owned. Fluid injection wells for waterflood and
other enhanced recovery projects are not included as gross wells.
(2) The number of net wells is the sum of fractional working interests
owned in gross wells expressed as whole numbers and fractions thereof.
(3) A producing well is an exploratory or development well found to be
capable of producing either oil or natural gas in sufficient quantities
to justify completion as an oil or natural gas well.
(4) A dry well is an exploratory or development well that is not a
producing well.
(5) Based on wells completed through June 30, 1997.
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<PAGE>
Oil and Natural Gas Wells
The following table sets forth the number of productive oil and natural
gas wells in which the Company had a working interest at December 31, 1996.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Productive Wells
As of December 31, 1996
-------------------------------------------------------
Gross (1) Net (2)
-------------------------------------------------------
Oil Gas Total Oil Gas Total
-------------------------------------------------------
Texas......................................................... 113 447 560 53.35 381.72 435.07
Oklahoma...................................................... 26 117 143 21.85 103.09 124.94
Mississippi................................................... 4 - 4 2.98 - 2.98
New Mexico.................................................... 3 3 6 2.48 0.64 3.12
California.................................................... 14 - 14 1.05 - 1.05
Kansas........................................................ 2 - 2 1.90 - 1.90
------- ------- -------- -------- -------- --------
Total ................................... 162 567 729 83.61 485.45 569.06
======= ======= ======== ======== ======== ========
- - -----------
</TABLE>
(1) The number of gross wells is the total number of wells in which a
working interest is owned. Well counts include wells with multiple
completions, but do not include injector wells.
(2) The number of net wells is the sum of fractional working interests
owned in gross wells expressed as whole numbers and fractions thereof.
On a pro forma basis at December 31, 1996, the Company had a working
interest in 2,581 gross (1,436 net) productive oil and natural gas wells.
Oil and Natural Gas Acreage
The following table summarizes the Company's developed and undeveloped
leasehold acreage at December 31, 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Developed Undeveloped
----------------------------------------------------
Location Gross (1) Net (2) Gross (1) Net (2)
- - -------- ------------- ----------- ------------- ----------
Texas......................................................... 167,216 151,293 10,432 4,711
Oklahoma...................................................... 45,610 42,982 - -
Mississippi................................................... 528 452 - -
New Mexico.................................................... 840 702 - -
California.................................................... 509 38 - -
Kansas........................................................ 80 69 - -
------------- ------------ ------------ --------
Total................................................... 214,783 195,536 10,432 4,711
</TABLE>
- - -----------
(1) The number of gross acres is the total number of acres in which a
working interest is owned.
(2) The number of net acres is the sum of fractional working interests
owned in gross acres expressed as whole numbers and fractions thereof.
On a pro forma basis at December 31, 1996, the Company held interests
in 328,033 gross (277,419 net) developed acres and 10,992 gross (5,003 net)
undeveloped acres.
Substantially all of the Company's interests are leasehold working
interests or overriding royalty interests (as opposed to mineral or fee
interests) under standard onshore oil and natural gas leases. As is customary in
the industry, the Company generally acquires oil and natural gas acreage without
any warranty of title except as to claims made by, through or under the
transferor. Although the Company has title examined prior to acquisition of
developed acreage in those cases in which the economic significance of the
acreage justifies the cost, there can be no assurance
-76-
<PAGE>
that losses will not result from title defects or from defects in the assignment
of leasehold rights. In many instances, title opinions may not be obtained if in
the Company's judgment it would be uneconomical or impractical to do so.
Competition
The oil and gas industry is highly competitive. Competitors of the
Company include major oil companies, other independent oil and natural gas
concerns, and individual producers and operators, many of which have
substantially greater financial resources and larger staffs and facilities than
those of the Company. In addition, the Company frequently encounters competition
in the acquisition of oil and natural gas properties and gas gathering systems,
and in its management and consulting business. The principal means of such
competition are the amount and terms of the consideration offered. The principal
means of such competition with respect to the sale of oil and natural gas
production are product availability and price. The price at which the Company's
natural gas may be sold will continue to be affected by a number of factors,
including the price of alternate fuels such as oil and coal and competition
among various natural gas producers and marketers. See "Risk
Factors -- Competition."
Regulation
General Federal and State Regulation
The Company's oil and natural gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by federal
and state agencies. Failure to comply with such rules and regulations can result
in substantial penalties. The regulatory burden on the oil and natural gas
industry increases the Company's cost of doing business and affects its
profitability. Because such rules and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such laws.
The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of oil and natural gas.
Such states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and natural gas
properties, the establishment of maximum rates of production from wells, and the
regulation of spacing, plugging and abandonment of such wells. Many states
restrict production to the market demand for oil and natural gas. Some states
have enacted statutes prescribing ceiling prices for natural gas sold within
their states.
FERC regulates interstate natural gas transportation rates and service
conditions, which affect the marketing of natural gas produced by the Company,
as well as the revenues received by the Company for sales of such production.
Since the mid-1980s, FERC has issued a series of orders, culminating in Order
Nos. 636, 636-A and 636-B ("Order 636"), that have significantly altered the
marketing and transportation of natural gas. Order 636 mandates a fundamental
restructuring of interstate pipeline sales and transportation service, including
the unbundling by interstate pipelines of the sale, transportation, storage and
other components of the city-gate sales services such pipelines previously
performed. One of FERC's purposes in issuing the orders is to increase
competition within all phases of the natural gas industry. Order 636 and
subsequent FERC orders on rehearing have been appealed and are pending judicial
review. Because these orders may be modified as a result of the appeals, it is
difficult to predict the ultimate impact of the orders on the Company and its
natural gas marketing efforts. Generally, Order 636 has eliminated or
substantially reduced the interstate pipelines' traditional role as wholesalers
of natural gas, and has substantially increased competition and volatility in
natural gas markets.
-77-
<PAGE>
The price the Company receives from the sale of oil and natural gas liquids
is affected by the cost of transporting products to market. Effective January 1,
1995, FERC implemented regulations establishing an indexing system for
transportation rates for oil pipelines, which, generally, would index such rates
to inflation, subject to certain conditions and limitations. The Railroad
Commission of the State of Texas is considering adopting rules to prevent
discriminatory transportation practices by intrastate gas gatherers and
transporters by requiring the disclosure of rate information under varying
conditions of service. The Company is not able to predict with certainty the
effects, if any, of these regulations on its operations. However, the
regulations may increase transportation costs or reduce wellhead prices for oil
and natural gas liquids.
Finally, from time to time regulatory agencies have imposed price
controls and limitations on production by restricting the rate of flow of oil
and natural gas wells below natural production capacity in order to conserve
supplies of oil and natural gas. See "Risk Factors -- Laws and Regulations."
Environmental Regulation
The Company's exploration, development, and production of oil and
natural gas, including its operation of saltwater injection and disposal wells,
are subject to various federal, state and local environmental laws and
regulations. Such laws and regulations can increase the costs of planning,
designing, installing and operating oil and natural gas wells. The Company's
domestic activities are subject to a variety of environmental laws and
regulations, including but not limited to, the Oil Pollution Act of 1990
("OPA"), the Clean Water Act ("CWA"), the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the Resource Conservation and
Recovery Act ("RCRA"), the Clean Air Act ("CAA"), and the Safe Drinking Water
Act ("SDWA"), as well as state regulations promulgated under comparable state
statutes. The Company also is subject to regulations governing the handling,
transportation, storage, and disposal of naturally occurring radioactive
materials that are found in its oil and natural gas operations. Civil and
criminal fines and penalties may be imposed for non-compliance with these
environmental laws and regulations. Additionally, these laws and regulations
require the acquisition of permits or other governmental authorizations before
undertaking certain activities, limit or prohibit other activities because of
protected areas or species, and impose substantial liabilities for cleanup of
pollution.
Under the OPA, a release of oil into water or other areas designated by
the statute could result in the Company being held responsible for the costs of
remediating such a release, certain OPA specified damages, and natural resource
damages. The extent of that liability could be extensive, as set forth in the
statute, depending on the nature of the release. A release of oil in harmful
quantities or other materials into water or other specified areas could also
result in the Company being held responsible under the CWA for the costs of
remediation, and civil and criminal fines and penalties.
CERCLA and comparable state statutes, also known as "Superfund" laws,
can impose joint and several and retroactive liability, without regard to fault
or the legality of the original conduct, on certain classes of persons for the
release of a "hazardous substance" into the environment. In practice, cleanup
costs are usually allocated among various responsible parties. Potentially
liable parties include site owners or operators, past owners or operators under
certain conditions, and entities that arrange for the disposal or treatment of,
or transport hazardous substances found at the site. Although CERCLA, as
amended, currently exempts petroleum, including but not limited to, crude oil,
natural gas and natural gas liquids from the definition of hazardous substance,
the Company's operations may involve the use or handling of other materials that
may be classified as hazardous substances under CERCLA. Furthermore, there can
be no assurance that the exemption will be preserved in future amendments of the
act, if any.
-78-
<PAGE>
RCRA and comparable state and local requirements impose standards for
the management, including treatment, storage, and disposal of both hazardous and
nonhazardous solid wastes. The Company generates hazardous and nonhazardous
solid waste in connection with its routine operations. From time to time,
proposals have been made that would reclassify certain oil and natural gas
wastes, including wastes generated during pipeline, drilling, and production
operations, as "hazardous wastes" under RCRA which would make such solid wastes
subject to much more stringent handling, transportation, storage, disposal, and
clean-up requirements. This development could have a significant impact on the
Company's operating costs. While state laws vary on this issue, state
initiatives to further regulate oil and natural gas wastes could have a similar
impact.
Because oil and natural gas exploration and production, and possibly other
activities, have been conducted at some of the Company's properties by previous
owners and operators, materials from these operations remain on some of the
properties and in some instances require remediation. In addition, the Company
has agreed to indemnify sellers of producing properties from whom the Company
has acquired reserves against certain liabilities for environmental claims
associated with such properties. While the Company does not believe that costs
to be incurred by the Company for compliance and remediating previously or
currently owned or operated properties will be material, there can be no
guarantee that such costs will not result in material expenditures.
Additionally, in the course of the Company's routine oil and natural
gas operations, surface spills and leaks, including casing leaks, of oil or
other materials occur, and the Company incurs costs for waste handling and
environmental compliance. Moreover, the Company is able to control directly the
operations of only those wells for which it acts as the operator.
Notwithstanding the Company's lack of control over wells owned by the Company
but operated by others, the failure of the operator to comply with applicable
environmental regulations may, in certain circumstances, be attributable to the
Company. The Company currently expects to spend approximately $725,000 over the
next five years in connection with remediation and environmental compliance,
including $75,000 for the remainder of 1997, $200,000 in 1998 and $150,000 in
1999.
It is not anticipated that the Company will be required in the near
future to expend amounts that are material in relation to its total capital
expenditures program by reason of environmental laws and regulations, but
inasmuch as such laws and regulations are frequently changed, the Company is
unable to predict the ultimate cost of compliance. There can be no assurance
that more stringent laws and regulations protecting the environment will not be
adopted or that the Company will not otherwise incur material expenses in
connection with environmental laws and regulations in the future. See "Risk
Factors-Laws and Regulations."
Employees
At June 30, 1997, the Company had 50 full-time employees of which nine were
management, 15 were administrative and 26 were field employees. None of the
Company's employees are represented by a union. Management considers its
relations with employees to be good.
Facilities
The Company occupies approximately 11,590 square feet of office space at
600 East Las Colinas Boulevard, Suite 1200, Irving, Texas, under a lease that
expires in November 2001. The Company owns a field office and production yard in
Shamrock, Texas, consisting of approximately four acres of land.
Legal Proceedings
No legal proceedings are pending other than ordinary routine litigation
incidental to the Company's business, the outcome of which management believes
will not have a material adverse effect on the Company.
-79-
<PAGE>
MANAGEMENT
The following table sets forth the directors, executive officers and
other significant employees of the Company, their ages, and all offices and
positions with the Company. Each director is elected for a period of one year
and thereafter serves until his successor is duly elected by the stockholders of
the Company and qualifies.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Title
---- --- -----
Gary C. Evans............................ 40 Director, President and Chief Executive Officer
of the Company
Matthew C. Lutz.......................... 63 Chairman and Executive Vice President of Exploration and
Business Development of the Company
Chris Tong............................... 41 Senior Vice President and Chief Financial Officer of the Company
David S. Krueger......................... 47 Vice President and Chief Accounting Officer of the Company
Morgan F. Johnston....................... 36 Vice President, General Counsel and Secretary of the Company
Richard R. Frazier....................... 50 President and Chief Operating Officer of Magnum Hunter
Production, Inc. and Chief Operating Officer of Gruy
R. Renn Rothrock, Jr..................... 54 President of both Hunter Gas Gathering, Inc. and Gruy and
Executive Vice President of Magnum Hunter Production, Inc.
Gerald W. Bolfing........................ 68 Director of the Company
Oscar C. Lindemann....................... 74 Director of the Company
John H. Trescot, Jr...................... 72 Director of the Company
James E. Upfield......................... 75 Director of the Company
</TABLE>
Gary C. Evans has served as President, Chief Executive Officer and a
director of the Company since December 31, 1995 and Chairman and Chief Executive
Officer of all of the Hunter Subsidiaries since their formation or acquisition.
He served as Chief Financial Officer from January 1997 to September 1997. He
acted as Chairman, President and Chief Executive Officer of Hunter from
September 1992 until October 1996. Previously, he was President and Chief
Operating Officer of Hunter from December 1990 to September 1992. From 1985 to
1990, Mr. Evans was Chairman, President and Chief Executive Officer of Sunbelt
Energy, Inc. and its subsidiaries, which were merged with Hunter. From 1981 to
1985, Mr. Evans was associated with the Mercantile Bank of Canada where he held
various positions including Vice President and Manager of the Energy Division of
the Southwestern United States. From 1978 to 1981, he served in various
capacities with National Bank of Commerce (now BancTexas, N.A.) including Credit
Manager and Credit Officer. Mr. Evans serves on the Board of Directors of Karts
International Incorporated, an OTC traded company, and Digital Communications
Technology Corporation, an American Stock Exchange listed company.
Matthew C. Lutz became Chairman as of March 31, 1997 after having
served as Vice Chairman of the Company since December 31, 1995. Mr. Lutz has
also served as Executive Vice President of Exploration and Business Development
since December 31, 1995. Mr. Lutz held similar positions with Hunter from
September 1993 until October 1996. From 1984 through 1992, Mr. Lutz was Senior
Vice President of Exploration and on the Board of Directors of Enserch
Exploration, Inc. with responsibility for such company's worldwide oil and gas
exploration and development program. Prior to joining Enserch, Mr. Lutz spent 28
years with Getty Oil Company. He advanced through several technical, supervisory
and managerial positions which gave him various responsibilities including
exploration, production, lease acquisition, administration and financial
planning.
Chris Tong became Senior Vice President and Chief Financial Officer as of
August 18, 1997. Previously, Mr. Tong was Senior Vice President of Finance of
Tejas Acadian Holding Company and its subsidiaries including Tejas Gas Corp.,
Acadian Gas Corporation and Transok, Inc., all of which are wholly-owned
subsidiaries of Tejas Gas Corporation. Mr. Tong held these positions since
August 1996, and served in other treasury positions with Tejas beginning August
1989. He is also responsible for managing Tejas' property and liability
insurance. From 1980 to 1989, Mr. Tong served in various energy lending
capacities with Canadian Imperial Bank of Commerce, Post Oak Bank, and Bankers
Trust Company in Houston, Texas. Prior to his banking career, Mr. Tong also
served over a year with Superior Oil Company as a Reservoir Engineering
Assistant. Mr. Tong is a Summa Cum Laude graduate of the University of
Southwestern Louisiana with a Bachelor of Arts degree in Economics and a minor
in Mathematics.
David S. Krueger has served as Chief Accounting Officer of the Company
since January 1997. Mr. Krueger acted as Vice President-Finance of Cimarron Gas
Holding Co., a natural gas processing and natural gas liquids marketing company
in Tulsa, Oklahoma, from April 1992 until January 1997. He served as Vice
President/Controller of American Central Gas Companies, Inc., a natural gas
gathering, processing and marketing company from May 1988 until April 1992. From
1974 to 1986, Mr. Krueger served in various managerial capacities for Southland
Energy Corporation. From 1971 to 1973, Mr. Krueger was a staff accountant with
Arthur Andersen LLP. Mr. Krueger, a certified public accountant, graduated from
the University of Arkansas with a B.S./B.A. degree in Business Administration
and earned his M.B.A. from the University of Tulsa.
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<PAGE>
Morgan F. Johnston has served as Vice President and General Counsel
since April 1, 1997 and has served as the Company's Secretary since May 1, 1996.
Mr. Johnston was in private practice as a sole practitioner from May 1, 1996 to
April 1, 1997, specializing in corporate and securities law. From February 1994
to May 1996, Mr. Johnston served as general counsel for Millennia, Inc.
(formerly known as SOI Industries, Inc.) and Digital Communications Technology
Corporation, two American Stock Exchange listed companies. He also served as
general counsel to Halter Capital Corporation, a private consulting firm from
August 1991 to May 1996. For the two years prior to August 1, 1991 he was
securities counsel for Motel 6 L.P., a New York Stock Exchange listed company.
Mr. Johnston graduated cum laude from Texas Tech Law School in May 1986 and is
licensed to practice law in the State of Texas.
Richard R. Frazier has been President of Magnum Hunter Production, Inc. and
Chief Operating Officer of Magnum Hunter Production, Inc. and Gruy since January
1994. From 1977 to 1993, Mr. Frazier was with Edisto Resources Corporation in
Dallas, serving as Executive Vice President Exploration and Production from 1983
to 1993, where he had overall responsibility for its property acquisition,
exploration, drilling, production, gas marketing and engineering functions. From
1972 to 1976, Mr. Frazier served as District Production Superintendent and
Petroleum Engineer with HNG Oil Company (now Enron Oil & Gas Company) in
Midland, Texas. Mr. Frazier's initial employment, from 1968 to 1971, was with
Amerada Hess Corporation as a petroleum engineer involved in numerous projects
in Oklahoma and Texas. Mr. Frazier graduated in 1970 from the University of
Tulsa with a Bachelor of Science Degree in Petroleum Engineering. He is a
registered Professional Engineer in Texas and a member of the Society of
Petroleum Engineers and many other professional organizations.
R. Renn Rothrock, Jr. has been President of both Hunter Gas Gathering, Inc.
and Gruy and Executive Vice President of Magnum Hunter Production, Inc. since
January 1994. He served as Executive Vice President and Chief Operating Officer
of Gruy from May 1988 until January 1994. Mr. Rothrock was Executive Vice
President and General Manager of Gruy Engineering Corporation from 1986 until
May 1988. Over his 28-year career, Mr. Rothrock has also served as a reservoir
engineer and operations research engineer at Skelly Oil Company and as an area
engineer at Amerada Petroleum Corporation; the Engineering Editor of Petroleum
Engineer International Magazine; Vice President and Energy Manager of the First
National Bank of Mobile, Alabama; Executive Vice President of Energy Assets
International Corporation, a public company that financed oil and gas ventures;
and the producer and operator of his own gas gathering and transportation system
Mr. Rothrock earned a B.S. degree in Petroleum Engineering and an M.S. degree in
Engineering from the University of Oklahoma. He is a member of the Society of
Professional Engineers, the National Society of Professional Engineers, the
National Academy of Forensic Engineers and the Texas Society of Professional
Engineers. Mr. Rothrock is a registered Professional Engineer in Texas and
Oklahoma.
Gerald W. Bolfing has been a director of the Company since December 31,
1995. Mr. Bolfing was appointed a director of Hunter in August 1993. He is an
investor in the oil and gas business and a past officer of one of Hunter's
former subsidiaries. From 1962 to 1980, Mr. Bolfing was a partner in Bolfing
Food Stores in Waco, Texas. During this time, he also joined American Service
Company in Atlanta, Georgia from 1964 to 1965, and was active with Cable
Advertising Systems, Inc. of Kerrville, Texas from 1978 to 1981. He joined a
Hunter subsidiary in the well servicing business in 1981 where he remained
active until its divestiture in 1992. Mr. Bolfing is on the board of directors
of Capital Marketing Corporation of Hurst, Texas.
Oscar C. Lindemann has served as a director of the Company since December
31, 1995. Mr. Lindemann was previously a director of Hunter, having been
appointed in November 1995. Mr. Lindemann has over 40 years experience in the
financial industry. Mr. Lindemann began his banking career with the Texas Bank
and Trust in Dallas, Texas in 1951. He served the bank until 1977 in many
capacities, including Chief Executive Officer and Chairman of the Board. Since
leaving Texas Bank and Trust, he has served as Vice Chairman of both the United
National Bank and the National Bank of Commerce, also in Dallas. Mr. Lindemann
has also served as a consultant to the banking industry. He retired from
commercial banking in 1987. Mr. Lindemann is a former President of the Texas
Bankers Association, and a former state representative to the American Bankers
Association. He was a Founding Director and Board Member of VISA, and a member
of the Reserve City Bankers Association. He has served as an instructor at both
the Southwestern Graduate School of Banking at Southern Methodist University and
the School of Banking
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<PAGE>
of the South at Louisianna State University. He has also served as a
faculty member for four years in the College of Business Administration at the
University of Texas in Austin teaching various banking subjects.
John W. Trescot, Jr. has served as a director of the Company since June 5,
1997. For the last five years, Mr. Trescot has been a principal of AWA
Management Corporation, a professional consulting firm specializing in oil,
timber, pulp and paper, and financial management. Early in his career, Mr.
Trescot held various positions in woodlands, and pulp and paper, advancing to
the position of Senior Vice President, Southern Operations at Hudson Pulp &
Paper Corp. (now part of Georgia Pacific Corp.) Later Mr. Trescot became Vice
President of The Charter Company, a corporation with operations in oil,
communications and insurance. In 1979, Mr. Trescot became the Chief Executive
Officer of "Jari" Florestal e Agropecuaria, Ltda., a pulp, timber, rice and
kaolin operation in the Amazon Basin of Brazil owned by D.K. Ludwig. In 1981,
Mr. Trescot became the Chief Executive Officer of TOT Drilling Corp., a contract
drilling company drilling in west Texas and New Mexico.
James E. Upfield has served as a director of the Company since December
31, 1995. Mr. Upfield was appointed a director of Hunter in August 1992. Mr.
Upfield is Chairman of Temtex Industries, Inc. based in Dallas, Texas, a public
company that produces consumer hard goods and building materials. In 1969, Mr.
Upfield served on a select Presidential Committee serving postal operations of
the United States of America. He later accepted the responsibility for the
Dallas region, which encompassed Texas and Louisiana. From 1959 to 1967, Mr.
Upfield was President of Baifield Industries, Inc. ("Baifield") and its
predecessor, a company he founded in 1949 which merged with Baifield in 1963.
Baifield was engaged in prime government contracts for military systems and
sub-systems in the production of high-strength, light-weight metal products. In
1967, Baifield was acquired by Automatic Sprinkler Corporation of America, where
Mr. Upfield remained until resigning in 1968 to pursue other business
opportunities.
Significant Officers of Subsidiaries
R. Douglas Cronk, age 50, has been Vice President of Operations for
Magnum Hunter Production, Inc. since May 1996, at which time the Company had
acquired from Mr. Cronk 100% of the capital stock of Rampart Petroleum, Inc.,
based in Abilene, Texas. Rampart has been an active operating and exploration
company in the north central and west Texas region since 1983. Prior to the
formation of Rampart, Mr. Cronk was an independent oil and gas consultant in
Houston, Texas for approximately two years. From 1974 to 1981, Mr. Cronk held
various positions with subsidiaries of Deutsch Corporation of Tulsa, Oklahoma,
including Southland Drilling and Production where he became Vice President of
Drilling and Production. Mr. Cronk is a Chemical Engineer graduate from the
University of Tulsa.
Russell A. Talley, age 64, has been Executive Vice President and Drilling
Manager of Gruy Company since January 1991. From 1959 to 1970, Mr. Talley worked
for Diamond Shamrock Oil & Gas Company in Amarillo, Texas, where he had
substantial responsibilities in drilling, production and workover programs. From
1970 to 1985, Mr. Talley worked for Samedan Oil Corporation in Houston, Texas,
where he became the Manager of Offshore Drilling and Production. He managed all
domestic and Canadian drilling operations and supervised international
operations in Ecuador, the North Sea and Canada. From 1985 to 1987, Mr. Talley
was Vice President of Operations for Seagull Energy E & P, Inc. in Houston,
where he was responsible for all onshore and offshore drilling operations. In
1988 he established Texstar Energy Operators, Inc., which was acquired by Gruy
in 1991.
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<PAGE>
PRINCIPAL STOCKHOLDERS
AND SHARE OWNERSHIP OF MANAGEMENT
Security Ownership
The following table sets forth certain information as of June 30, 1997,
regarding the share ownership of the Company by (i) each person known to the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock of the Company, (ii) each director, (iii) the Company's Chief
Executive Officer and the two other most highly compensated executive officers
of the Company, and (iv) all directors and executive officers of the Company, as
a group. None of the directors or executive officers named below owned, as of
June 30, 1997, any shares of the Company's Series A Preferred Stock or its TCW
Preferred Stock. The business address of each officer and director listed below
is: c/o Magnum Hunter Resources, Inc., 600 East Las Colinas Blvd., Suite 1200,
Irving, Texas 75039.
<TABLE>
<CAPTION>
<S> <C> <C>
Common Stock
Beneficially Owned
Percent
Number of of
Shares Class (1)
----------- ----------
Directors and Executive Officers
Gary C. Evans..................................................................... 1,653,060 (2) 12.1%
Matthew C. Lutz................................................................... 145,460 1.1
Gerald W. Bolfing................................................................. 323,144 2.4
Oscar C. Lindemann................................................................ 1,185 *
John H. Trescot, Jr............................................................... 20,837 *
James E. Upfield.................................................................. 29,268 *
Richard R. Frazier................................................................ 47,745 *
------------ ----------
All directors and executive officers as a group (8 persons)....................... 2,220,699 16.3%
Beneficial owners of 5% or more (excluding persons named above)
TCW Group, Inc.
865 South Figueroa Street
Los Angeles, CA 90017............................................................. 1,702,127 (3) 11.1%
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* Less than 1%
(1) The number of shares outstanding was calculated in accordance with Rule
13d-3(d) promulgated under the Exchange Act.
(2) Includes 17,024 shares held in the name of Jacquelyn Evelyn Enterprises
Inc., a corporation whose sole shareholder is Mr. Evans'wife. Mr. Evans
disclaims any ownership in such securities other than those in which he
has an economic interest.
(3) Consists of shares attributable to shares of Common Stock issuable upon
conversion of 1,000,000 shares of the Company's TCW Preferred Stock.
CERTAIN TRANSACTIONS
During 1996, as part of the Company's overall compensation package, the
Company's officers and directors were granted rights to participate in certain
development and exploration projects of the Company on a promoted basis. As of
December 31, 1996, 11 of the Company's officers and directors as a group spent
an aggregate of $137,340 participating in six wells. The Company discontinued
this program as of January 1, 1997.
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DESCRIPTION OF NEW CREDIT FACILITY
On April 30, 1997, the Company entered into a $130.0 million revolving
credit facility (the "New Credit Facility") with Bankers Trust Company, as
Administrative Agent, Banque Paribas and First Union National Bank of North
Carolina (collectively, the "Lenders"). The purpose of the New Credit Facility
was to (i) repay the remaining $53.7 million of indebtedness under the Previous
Credit Facility, (ii) partially finance the Permian Basin Acquisition, and (iii)
provide funds for working capital support and general corporate purposes. A
$20.0 million letter of credit sub-facility is available as support for purposes
approved by the Lenders.
The New Credit Facility is subject to a Borrowing Base determination
established on October 1 and April 1 of each year by the Lenders. The current
Borrowing Base is $60.0 million. The Borrowing Base was reduced to this level on
May 29, 1997, due to the issuance of the Outstanding Notes. On such date the
Company applied approximately $75.5 million of the proceeds of the Offering of
the Outstanding Notes to reduce indebtedness under the New Credit Facility to
$44 million, with First Union National Bank of North Carolina's participation in
such loan being repaid and it ceasing to be a Lender.
Under the terms of the New Credit Facility, the Company must maintain a
Debt to Capitalization Ratio of not more than 0.86 until March 31, 1998, not
more than 0.75 from April 1, 1998 until September 30, 1998 and not more than
0.70 thereafter. Another covenant requires the Company to maintain a ratio of
Consolidated EBITDA to Interest Expense of not less than 2.00 to 1 through June
30, 1998, not less than 2.50 to 1 from July 1, 1998 until December 31, 1998 and
not less than 2.75 to 1 thereafter.
The Company may select an interest rate equal to the Base Rate (defined
in the New Credit Facility as the higher of (i) the prime rate of Bankers Trust
Company or (ii) the sum of the overnight rate on federal funds transactions plus
0.50%) or a LIBOR-based rate, which varies depending upon the Company's usage of
its Borrowing Base. The LIBOR-based interest rate will range from LIBOR plus
1.00% if less than 25% of the Borrowing Base is used to LIBOR plus 1.75% if at
least 75% of the Borrowing Base is used. The New Credit Facility currently bears
interest at 7.4375% per annum.
The New Credit Facility has a maturity of five years with no required
principal payments until maturity, provided that the outstanding principal
balance does not exceed the Borrowing Base determinations established from time
to time by the Lenders. Indebtedness under the New Credit Facility constitutes
Senior Indebtedness. Outstanding indebtedness is secured by a first priority
security interest taken by the Lenders in substantially all assets owned now or
in the future by the Company (including its subsidiaries). All of the capital
stock of all wholly owned material subsidiaries of the Company is pledged
pursuant to the New Credit Facility. Each of the Company's wholly owned
subsidiaries has guaranteed the New Credit Facility.
The representations and warranties, conditions to extensions of credit,
events of default and indemnifications are substantially the same as under the
Previous Credit Facility. The New Credit Facility also contains certain
financial and other covenants, which include a minimum tangible net worth test,
a minimum current ratio and other covenants in addition to the Debt to
Capitalization Ratio and the ratio of Consolidated EBITDA to Interest Expense.
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DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued under an indenture (the "Indenture")
dated as of May 29, 1997 by and among the Company, the Subsidiary Guarantors and
First Union National Bank of North Carolina, as Trustee (the "Trustee"). Upon
the issuance of the Exchange Notes, the Indenture will be subject to and
governed by the provisions of the Trust Indenture Act of 1939, as amended (the
"TIA").
The Exchange Notes will be issued under the same Indenture as the
Outstanding Notes, and the Exchange Notes, the Private Exchange Notes (if any)
and the Outstanding Notes will constitute a single series of debt securities
under the Indenture. In the event that the Exchange Offer is consummated, any
Outstanding Notes that remain outstanding after consummation of the Exchange
Offer, the Private Exchange Notes and the Exchange 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
have taken certain actions or exercised certain rights under the Indenture. The
Exchange Notes, the Private Exchange Notes and the Outstanding Notes are
sometimes collectively referred to herein as the "Notes."
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the TIA and all of the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA as in effect on the date of the Indenture. A
copy of the form of Indenture may be obtained from the Company. The definitions
of certain capitalized terms used in the following summary are set forth below
under "-- Certain Definitions." Capitalized terms used in this summary and not
otherwise defined below have the meaning assigned to them in the Indenture. For
purposes of this "Description of the Exchange Notes" section, references to the
"Company" include only Magnum Hunter Resources, Inc. and not its Subsidiaries.
The Outstanding Notes are and the Exchange Notes will be general unsecured
obligations of the Company ranking pari passu in right of payment to all
unsubordinated indebtedness of the Company and will rank senior in right of
payment to all subordinated indebtedness of the Company. The Guarantees will be
general unsecured obligations of the Subsidiary Guarantors and will rank pari
passu in right of payment to all unsubordinated indebtedness of the Subsidiary
Guarantors and will rank senior in right of payment to all subordinated
indebtedness of the Subsidiary Guarantors. However, the Notes will be
effectively subordinated to secured indebtedness of the Company and the
Subsidiary Guarantors to the extent of the value of the assets securing such
indebtedness. As of September 30, 1997, the Company had approximately $48
million of secured indebtedness outstanding.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as paying agent and registrar for the Exchange Notes. The
Exchange Notes may be presented for registration of transfer and exchange at the
offices of the registrar, which initially will be the Trustee's corporate trust
office. The Company may change any paying agent and registrar without notice to
holders of the Notes (the "Holders"). The Company will pay principal (and
premium, if any) on the Exchange Notes at the Trustee's corporate office in New
York, New York. At the Company's option, interest may be paid at the Trustee's
corporate trust office or by check mailed to the registered addresses of the
Holders. Any Outstanding Notes that remain outstanding after the completion of
the Exchange Offer, together with the Exchange Notes and the Private Exchange
Notes issued in connection with the Exchange Offer, will be treated as a single
class of securities under the Indenture. See "The Exchange Offer."
Principal, Maturity and Interest
The Notes are limited in aggregate principal amount to $140 million and
will mature on June 1, 2007. Interest on the Notes generally will accrue at the
rate of 10% per annum and will be payable semi-annually in cash on each June 1
and December 1, commencing on December 1, 1997, to the Persons who are
registered Holders at the close of business on the May 15 and November 15,
respectively, immediately preceding the applicable interest payment date.
Interest on the Notes will accrue from and including the most recent date to
which interest has been paid or, if no interest has been paid, from and
including the date of issuance. Interest generally will be computed on the basis
of a 365 day year.
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The Exchange Notes will not be entitled to the benefit of any mandatory
sinking fund.
Redemption
Optional Redemption. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after June 1,
2002, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the 12-month period commencing on June 1 of the years set forth
below, plus, in each case, accrued interest, if any, thereon to the date of
redemption:
Year Percentage
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2002.................................................... 105.000%
2003.................................................... 103.333%
2004.................................................... 101.667%
2005 and thereafter..................................... 100.000%
Optional Redemption upon Equity Offerings. At any time, or from time
to time, on or prior to June 1, 2000, the Company may, at its option, use all or
a portion of the net cash proceeds of one or more Equity Offerings (as defined)
to redeem up to 35% of the aggregate principal amount of the Notes originally
issued at a redemption price equal to 110% of the aggregate principal amount of
the Notes to be redeemed, plus accrued interest, if any, thereon to the date of
redemption; provided, however, that at least 65% of the aggregate principal
amount of Notes originally issued remains outstanding immediately after giving
effect to any such redemption. In order to effect the foregoing redemption with
the proceeds of any Equity Offering, the Company shall make such redemption not
more than 60 days after the consummation of any such Equity Offering.
Selection and Notice of Redemption
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes, or portions thereof, for redemption will be made
by the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes are
not then listed on a national securities exchange, on a pro rata basis, by lot
or by such other method as the Trustee shall deem fair and appropriate;
provided, however, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part; and provided, further, that if a partial redemption is made
with the proceeds of an Equity Offering, selection of the Notes or portions
thereof for redemption shall be made by the Trustee only on a pro rata basis or
on as nearly a pro rata basis as is practicable (subject to the procedures of
DTC), unless such method is otherwise prohibited. Notice of redemption shall be
mailed by first-class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the applicable redemption date,
interest will cease to accrue on Notes or portions thereof called for redemption
as long as the Company has deposited with the paying agent for the Notes funds
in satisfaction of the applicable redemption price pursuant to the Indenture.
Guarantees
Each Subsidiary Guarantor will unconditionally guarantee, on a senior
basis, jointly and severally, to each Holder and the Trustee, the full and
prompt performance of the Company's obligations under the Indenture and the
Notes, including the payment of principal of and interest on the Notes.
The obligations of each Subsidiary Guarantor will be limited to the
maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Guarantee or pursuant to its contribution obligations under the Indenture,
will result
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in the obligations of such Subsidiary Guarantor under its Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Subsidiary Guarantor that makes a payment or distribution under
its Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in an amount pro rata, based on the net assets of each Subsidiary
Guarantor, determined in accordance with GAAP.
Each Subsidiary Guarantor may consolidate with or merge into or sell
its assets to the Company or another Subsidiary Guarantor that is a Wholly Owned
Restricted Subsidiary without limitation, or with or to other Persons upon the
terms and conditions set forth in the Indenture. See "-Certain Covenants-Merger,
Consolidation and Sale of Assets." In the event all of the Capital Stock of a
Subsidiary Guarantor is sold by the Company and/or one or more of its Restricted
Subsidiaries and the sale complies with the provisions set forth in "-Certain
Covenants-Limitation on Asset Sales," such Subsidiary Guarantor's Guarantee will
be released.
Separate financial statements of the Subsidiary Guarantors are not
included herein because such Subsidiary Guarantors are jointly and severally
liable with respect to the Company's obligations under the Indenture and the
Notes, and the aggregate net assets, earnings and equity of the Subsidiary
Guarantors and the Company are substantially equivalent to the net assets,
earnings and equity of the Company on a consolidated basis.
Holding Company Structure
The Company is a holding company for its Subsidiaries, with no material
operations of its own. Accordingly, the Company is dependent upon the
distribution of the earnings of its Subsidiaries, whether in the form of
dividends, advances or payments on account of intercompany obligations, to
service its debt obligations. In addition, the claims of the Holders of Notes
are subject to the prior payment of all secured indebtedness of the Guarantors.
There can be no assurance that, after providing for all such secured claims,
there would be sufficient assets available from the Company and its Subsidiaries
to satisfy the claims of the Holders of Notes. See "Risk Factors-Holding Company
Structure; Effective Subordination of Notes."
Change of Control
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof, plus accrued interest, if any, thereon to the date of purchase.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). A Change of Control Offer shall remain open for a period of 20
Business Days or such longer period as may be required by law. Holders electing
to have a Note purchased pursuant to a Change of Control Offer will be required
to surrender the Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note completed, to the paying agent for the
Notes at the address specified in the notice prior to the close of business on
the third Business Day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that
the Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing. Additionally,
the occurrence of a Change of Control would constitute an event of default under
the Senior Credit Facility which would permit the lenders thereunder to
accelerate all indebtedness under the Senior Credit Facility.
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Neither the Board of Directors of the Company nor the Trustee may waive
the covenant relating to the Company's obligation to make a Change of Control
Offer. Restrictions in the Indenture described herein on the ability of the
Company and its Restricted Subsidiaries to incur additional Indebtedness, to
grant liens on their property, to make Restricted Payments and to make Asset
Sales may also make more difficult or discourage a takeover of the Company,
whether favored or opposed by the management of the Company. Consummation of any
such transaction in certain circumstances may require repurchase of the Notes,
and there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such repurchase. Such restrictions and
the restrictions on transactions with Affiliates may, in certain circumstances,
make more difficult or discourage any leveraged buyout of the Company by the
management of the Company. While such restrictions cover a wide variety of
arrangements which have traditionally been used to effect highly leveraged
transactions, the Indenture may not afford the Holders of Notes protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
Certain Covenants
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. Other than
Permitted Indebtedness, the Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume, guarantee, acquire, become liable, contingently or otherwise, with
respect to, or otherwise become responsible for payment of (collectively,
"incur") any Indebtedness (including, without limitation, Acquired
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company and the Restricted Subsidiaries
or any of them may incur Indebtedness, in each case, if on the date of the
incurrence of such Indebtedness, after giving pro forma effect to the incurrence
thereof and the receipt and application of the proceeds therefrom, both (a) the
Company's Consolidated EBITDA Coverage Ratio would have been greater than 2.25
to 1.0 if such proposed incurrence is on or prior to June 30, 1998 and at least
equal to 2.5 to 1.0 if such proposed incurrence is thereafter and (b) the
Company's Adjusted Consolidated Net Tangible Assets are equal to or greater than
150% of the aggregate consolidated Indebtedness of the Company and its
Restricted Subsidiaries.
For purposes of determining any particular amount of Indebtedness under
this covenant, guarantees of Indebtedness otherwise included in the
determination of such amount shall not also be included.
Indebtedness of a Person existing at the time such Person becomes a
Restricted Subsidiary (whether by merger, consolidation, acquisition of Capital
Stock or otherwise) or is merged with or into the Company or any Restricted
Subsidiary or which is secured by a Lien on an asset acquired by the Company or
a Restricted Subsidiary (whether or not such Indebtedness is assumed by the
acquiring Person) shall be deemed incurred at the time the Person becomes a
Restricted Subsidiary or at the time of the asset acquisition, as the case may
be.
The Company will not, and will not permit any Subsidiary Guarantor to,
incur any Indebtedness which by its terms (or by the terms of any agreement
governing such Indebtedness) is subordinated in right of payment to any
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be,
other than the Notes and the Guarantees unless such Indebtedness is also by its
terms (or by the terms of any agreement governing such Indebtedness) made
expressly subordinate in right of payment to the Notes or the Guarantee of such
Subsidiary Guarantor, as the case may be, pursuant to subordination provisions
that are substantially identical to the subordination
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provisions of such Indebtedness (or agreement) that are most favorable to the
holders of such other Indebtedness of the Company or such Subsidiary Guarantor,
as the case may be.
Limitation on Restricted Payments. The Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
(a) declare or pay any dividend or make any distribution (other than dividends
or distributions made to the Company or any Wholly Owned Restricted Subsidiary
and other than any dividends or distributions payable solely in Qualified
Capital Stock of the Company or warrants, rights or options to purchase or
acquire shares of Qualified Capital Stock of the Company) on or in respect of
shares of the Capital Stock of the Company or any Restricted Subsidiary to
holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or
retire for value any Capital Stock of the Company or any Restricted Subsidiary
or any warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock other than through the exchange therefor solely of Qualified
Capital Stock of the Company or warrants, rights or options to purchase or
acquire shares of Qualified Capital Stock of the Company, (c) make any principal
payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or
retire for value, prior to any scheduled final maturity, scheduled repayment or
scheduled sinking fund payment, any Indebtedness of the Company or a Subsidiary
Guarantor that is subordinate or junior in right of payment to the Notes or such
Subsidiary Guarantor's Guarantee, as the case may be, or (d) make any Investment
(other than a Permitted Investment) (each of the foregoing actions set forth in
clauses (a), (b), (c) and (d) being referred to as a "Restricted Payment"), if
at the time of such Restricted Payment or immediately after giving effect
thereto, (i) a Default or an Event of Default shall have occurred and be
continuing or (ii) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with "-Limitation
on Incurrence of Additional Indebtedness" above or (iii) the aggregate amount of
Restricted Payments (including such proposed Restricted Payment) made subsequent
to the Issue Date (the amount expended for such purposes, if other than in cash,
being the fair market value of such property as determined reasonably and in
good faith by the Board of Directors of the Company) shall exceed the sum of:
(A) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated
Net Income shall be a loss, minus 100% of such loss) of the Company earned
subsequent to the Issue Date and on or prior to the last date of the Company's
fiscal quarter immediately preceding such Restricted Payment (the "Reference
Date") (treating such period as a single accounting period); plus (B) 100% of
the aggregate net cash proceeds received by the Company from any Person (other
than a Restricted Subsidiary of the Company) from the issuance and sale
subsequent to the Issue Date and on or prior to the Reference Date of Qualified
Capital Stock of the Company; plus (C) without duplication of any amounts
included in clause (iii)(B) above, 100% of the aggregate net cash proceeds of
any equity contribution received by the Company from a holder of the Company's
Capital Stock (excluding, in the case of clauses (iii)(B) and (C), any net cash
proceeds from an Equity Offering to the extent used to redeem the Notes); plus
(D) an amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from dividends, interest payments, repayments of loans or
advances, or other transfers of cash, in each case to the Company or to any
Restricted Subsidiary of the Company from Unrestricted Subsidiaries (but without
duplication of any such amount included in calculating cumulative Consolidated
Net Income of the Company), or from redesignations of Unrestricted Subsidiaries
as Restricted Subsidiaries (in each case valued as provided in "-Limitation on
Designation of Unrestricted Subsidiaries" below), not to exceed, in the case of
any Unrestricted Subsidiary, the amount of Investments previously made by the
Company or any Restricted Subsidiary in such Unrestricted Subsidiary and which
was treated as a Restricted Payment under the Indenture; plus (E) without
duplication of the immediately preceding subclause (D), an amount equal to the
lesser of the cost or net cash proceeds received upon the sale or other
disposition of any Investment made after the Issue Date which had been treated
as a Restricted Payment (but without duplication of any such amount included in
calculating cumulative Consolidated Net Income of the Company).
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph shall not prohibit: (1) the payment of any
dividend or redemption payment within 60 days after the date of declaration of
such dividend or the applicable redemption if the dividend or redemption
payment, as the case may be, would have been permitted on the date of
declaration; (2) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any shares of Capital Stock of the Company,
through the application of net proceeds of a substantially concurrent sale for
cash (other than to a Restricted Subsidiary of the Company) of shares of
Qualified Capital Stock of the Company; (3) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any Indebtedness of
the Company or Subsidiary Guarantor that is subordinate or junior in right of
payment to the Notes
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or such Subsidiary Guarantor's Guarantee, as the case may be, either (A) solely
in exchange for shares of Qualified Capital Stock of the Company or warrants,
rights or options to purchase or acquire shares of Qualified Capital Stock of
the Company, or (B) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Restricted Subsidiary of the Company)
of (I) shares of Qualified Capital Stock of the Company or (II) Refinancing
Indebtedness; (4) if no Default or Event of Default shall have occurred and be
continuing, the redemption of the TCW Preferred Stock to the extent required
pursuant to the terms thereof as a result of the Company not having received at
least $15 million of net cash proceeds from the issuance and sale by the Company
of Common Stock; (5) if no Default or Event of Default shall have occurred and
be continuing, the payment of dividends on the TCW Preferred Stock; and (6) the
initial designation of Hunter Butcher International Limited Liability Company as
an Unrestricted Subsidiary. In determining the aggregate amount of Restricted
Payments made subsequent to the Issue Date in accordance with clause (iii) of
the immediately preceding paragraph, amounts expended pursuant to clauses (1),
(2), (4), (5) and (6) shall be included in such calculation.
Limitation on Asset Sales. The Company will not, and will not cause or
permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless
(a) the Company or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the fair
market value of the assets sold or otherwise disposed of (as determined in good
faith by the Company's Board of Directors or senior management of the Company);
(b) (i) at least 85% of the consideration received by the Company or such
Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the
form of cash or Cash Equivalents and is received at the time of such
disposition; and (c) upon the consummation of an Asset Sale, the Company shall
apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 270 days of receipt thereof either (i) to
repay or prepay Indebtedness outstanding under the Senior Credit Facility,
including, without limitation, a permanent reduction in the related commitment,
(ii) to repay or prepay any Indebtedness of the Company that is secured by a
Lien permitted to be incurred pursuant to "-Limitation on Liens" below, (iii) to
make an investment in properties or assets that replace the properties or assets
that were the subject of such Asset Sale or in properties or assets that will be
used in the business of the Company and its Restricted Subsidiaries as existing
on the Issue Date or in businesses reasonably related thereto ("Replacement
Assets"), (iv) to an investment in Crude Oil and Natural Gas Related Assets or
(v) a combination of prepayment and investment permitted by the foregoing
clauses (c)(i) through (c)(iv). On the 271st day after an Asset Sale or such
earlier date, if any, as the Board of Directors of the Company determines not to
apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses
(c)(i) through (c)(iv) of the next preceding sentence (each a "Net Proceeds
Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have been
received by the Company or such Restricted Subsidiary but which have not been
applied on or before such Net Proceeds Offer Trigger Date as permitted in
clauses (c)(i) through (c)(iv) of the next preceding sentence (each a "Net
Proceeds Offer Amount") shall be applied by the Company or such Restricted
Subsidiary, as the case may be, to make an offer to purchase (a "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor
more than 45 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a pro rata basis, that principal amount of Notes purchasable with
the Net Proceeds Offer Amount at a price equal to 100% of the principal amount
of the Notes to be purchased, plus accrued and unpaid interest, if any, thereon
to the date of purchase; provided, however, that if at any time any non-cash
consideration received by the Company or any Restricted Subsidiary, as the case
may be, in connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash (other than interest received with respect to any such
non-cash consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant. The Company may defer the Net Proceeds
Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to
or in excess of $5 million resulting from one or more Asset Sales (at which
time, the entire unutilized Net Proceeds Offer Amount, and not just the amount
in excess of $5 million, shall be applied as required pursuant to this
paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such
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properties and assets of the Company or its Restricted Subsidiaries deemed to be
sold shall be deemed to be Net Cash Proceeds for purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company
and its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (a) the consideration for
such Asset Sale constitutes Replacement Assets and/or Crude Oil and Natural Gas
Related Assets and (b) such Asset Sale is for fair market value; provided,
however, that any consideration not constituting Replacement Assets and Crude
Oil and Natural Gas Related Assets received by the Company or any of its
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Cash Proceeds subject to
the provisions of the two immediately preceding paragraphs.
Notice of each Net Proceeds Offer will be mailed to the record Holders
as shown on the register of Holders within 30 days following the Net Proceeds
Offer Trigger Date, with a copy to the Trustee, and shall comply with the
procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds
Offer, Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Notes with an aggregate principal amount exceeding the Net Proceeds Offer
Amount, Notes of tendering Holders will be purchased on a pro rata basis (based
on principal amounts tendered). A Net Proceeds Offer shall remain open for a
period of 20 Business Days or such longer period as may be required by law.
The Company's ability to repurchase Notes in a Net Proceeds Offer is
restricted by the terms of the Senior Credit Facility and may be prohibited or
otherwise limited by the terms of any then existing borrowing arrangements and
the Company's financial resources.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or permit to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances,
or to pay any Indebtedness or other obligation owed, to the Company or any other
Restricted Subsidiary; (c) guarantee any Indebtedness or any other obligation of
the Company or any Restricted Subsidiary; or (d) transfer any of its property or
assets to the Company or any other Restricted Subsidiary (each such encumbrance
or restriction, a "Payment Restriction"), except for such encumbrances or
restrictions existing under or by reason of: (i) applicable law; (ii) the
Indenture; (iii) the Senior Credit Facility; (iv) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary; (v) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to such Restricted Subsidiary, or
the properties or assets of such Restricted Subsidiary, other than the Person or
the properties or assets of the Person so acquired; (vi) agreements existing on
the Issue Date to the extent and in the manner such agreements are in effect on
the Issue Date; (vii) customary restrictions with respect to a Restricted
Subsidiary of the Company pursuant to an agreement that has been entered into
for the sale or disposition of Capital Stock or assets of such Restricted
Subsidiary to be consummated in accordance with the terms of the Indenture
solely in respect of the assets or Capital Stock to be sold or disposed of;
(viii) any instrument governing a Permitted Lien, to the extent and only to the
extent such instrument restricts the transfer or other disposition of assets
subject to such Permitted Lien; or (ix) an agreement governing Refinancing
Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clause (ii), (iii), (v) or (vi) above;
provided, however, that the provisions relating to such encumbrance or
restriction contained in any such Refinancing Indebtedness are no less favorable
to the Holders in any material respect as determined by the Board of Directors
of the Company in their reasonable and good faith judgment than the
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provisions relating to such encumbrance or restriction contained in the
applicable agreement referred to in such clause (ii), (iii), (v) or (vi).
Limitation on Preferred Stock of Restricted Subsidiaries. The Company
will not cause or permit any of its Restricted Subsidiaries to issue any
Preferred Stock (other than to the Company or to a Wholly Owned Restricted
Subsidiary) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary.
Limitation on Liens. Other than Permitted Liens, the Company will not,
and will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or permit or suffer to exist any Liens of any
kind against or upon any property or assets of the Company or any of its
Restricted Subsidiaries (whether owned on the Issue Date or acquired after the
Issue Date) or any proceeds therefrom, or assign or otherwise convey any right
to receive income or profits therefrom unless (a) in the case of Liens securing
Indebtedness that is expressly subordinate or junior in right of payment to the
Notes or any Guarantee, the Notes or such Guarantee, as the case may be, are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens at least to the same extent as the Notes are senior in
priority to such Indebtedness and (b) in all other cases, the Notes and the
Guarantees are equally and ratably secured.
Merger, Consolidation and Sale of Assets. The Company will not, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of (or cause or permit any Restricted Subsidiary to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and its
Restricted Subsidiaries), whether as an entirety or substantially as an entirety
to any Person unless: (a) either (i) the Company shall be the surviving or
continuing corporation or (ii) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of the Company and its Restricted Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a corporation
organized and validly existing under the laws of the United States or any state
thereof or the District of Columbia and (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed; (b)
immediately after giving effect to such transaction and the assumption
contemplated by clause (a)(ii)(y) above (including giving effect to any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction), the Company or such Surviving Entity, as the case
may be, (i) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction and
(ii) shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to "-Limitation on Incurrence of
Additional Indebtedness" above; (c) immediately before and immediately after
giving effect to such transaction and the assumption contemplated by clause
(a)(ii)(y) above (including, without limitation, giving effect to any
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; and (d) the Company or the
Surviving Entity, as the case may be, shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with the applicable provisions
of the Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied; provided, however, that such counsel may
rely, as to matters of fact, on a certificate or certificates of officers of the
Company.
For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
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Upon any consolidation, combination or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the foregoing,
in which the Company is not the continuing corporation, the successor Person
formed by such consolidation or into which the Company is merged or to which
such conveyance, lease or transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under the Indenture
and the Notes with the same effect as if such surviving entity had been named as
such.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of the Guarantee and
the Indenture in connection with any transaction complying with the provisions
of the Indenture described under "-Limitation on Asset Sales") will not, and the
Company will not cause or permit any Subsidiary Guarantor to, consolidate with
or merge with or into any Person other than the Company or another Subsidiary
Guarantor that is a Wholly Owned Restricted Subsidiary unless: (a) the entity
formed by or surviving any such consolidation or merger (if other than the
Subsidiary Guarantor) or to which such sale, lease, conveyance or other
disposition shall have been made is a corporation organized and existing under
the laws of the United States or any state thereof or the District of Columbia;
(b) such entity assumes by execution of a supplemental indenture all of the
obligations of the Subsidiary Guarantor under its Guarantee; (c) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; and (d) immediately after giving effect to such
transaction and the use of any net proceeds therefrom on a pro forma basis, the
Company could satisfy the provisions of clause (b) of the first paragraph of
this covenant. Any merger or consolidation of a Subsidiary Guarantor with and
into the Company (with the Company being the surviving entity) or another
Subsidiary Guarantor that is a Wholly Owned Restricted Subsidiary need only
comply with clause (d) of the first paragraph of this covenant.
Limitations on Transactions with Affiliates. (a) The Company will not,
and will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into, amend or permit or suffer to exist any transaction or
series of related transactions (including, without limitation, the purchase,
sale, lease or exchange of any property, the guaranteeing of any Indebtedness or
the rendering of any service) with, or for the benefit of, any of their
respective Affiliates (each an "Affiliate Transaction"), other than (i)
Affiliate Transactions permitted under paragraph (b) of this covenant and (ii)
Affiliate Transactions that are on terms that are fair and reasonable to the
Company or the applicable Restricted Subsidiary and are no less favorable to the
Company or the applicable Restricted Subsidiary than those that might reasonably
have been obtained in a comparable transaction at such time on an arm's-length
basis from a Person that is not an Affiliate of the Company or such Restricted
Subsidiary. All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $1 million
shall be approved by the Board of Directors of the Company, such approval to be
evidenced by a Board Resolution stating that such Board of Directors has
determined that such transaction complies with the foregoing provisions. If the
Company or any Restricted Subsidiary enters into an Affiliate Transaction (or a
series of related Affiliate Transactions related to a common plan) that involves
an aggregate fair market value of more than $10 million, the Company shall,
prior to the consummation thereof, obtain a favorable opinion as to the fairness
of such transaction or series of related transactions to the Company or the
relevant Restricted Subsidiary, as the case may be, from a financial point of
view, from an Independent Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary as determined in good faith by the Board of Directors or senior
management of the Company or such Restricted Subsidiary, as the case may be;
(ii) transactions exclusively between or among the Company and any of its
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries; provided, however, that such transactions are not otherwise
prohibited by the Indenture; and (iii) Restricted Payments permitted by the
Indenture.
Limitation on Restricted and Unrestricted Subsidiaries. The Board of
Directors of the Company may, if no Default or Event of Default shall have
occurred and be continuing or would arise therefrom, designate an Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that (i) any such
redesignation shall be deemed to be an incurrence as of the date of such
redesignation by the Company and its Restricted Subsidiaries of the Indebtedness
(if any) of such redesignated Subsidiary for purposes of "--Limitation on
Incurrence of Additional Indebtedness" above,
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(ii) unless such redesignated Subsidiary shall not have any Indebtedness
outstanding, other than Indebtedness which would be Permitted Indebtedness, no
such designation shall be permitted if immediately after giving effect to such
redesignation and the incurrence of any such additional Indebtedness the Company
could not incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to "-Limitation on Incurrence of Additional Indebtedness"
above and (iii) such Subsidiary assumes by execution of a supplemental indenture
all of the obligations of a Subsidiary Guarantor under a Guarantee.
The Board of Directors of the Company also may, if no Default or Event
of Default shall have occurred and be continuing or would arise therefrom,
designate any Restricted Subsidiary to be an Unrestricted Subsidiary if (i) such
designation is at that time permitted under "-Limitation on Restricted Payments"
above and (ii) immediately after giving effect to such designation, the Company
could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to "-Limitation on Incurrence of Additional Indebtedness" above. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
the filing with the Trustee of a certified copy of the resolution of the Board
of Directors giving effect to such designation or redesignation and an Officers'
Certificate certifying that such designation or redesignation complied with the
foregoing conditions and setting forth in reasonable detail the underlying
calculations. In the event that any Restricted Subsidiary is designated an
Unrestricted Subsidiary in accordance with this covenant, such Restricted
Subsidiary's Guarantee will be released.
For purposes of the covenant described under "-Limitation on Restricted
Payments" above, (i) an "Investment" shall be deemed to have been made at the
time any Restricted Subsidiary is designated as an Unrestricted Subsidiary in an
amount (proportionate to the Company's equity interest in such Subsidiary) equal
to the net worth of such Restricted Subsidiary at the time that such Restricted
Subsidiary is designated as an Unrestricted Subsidiary; (ii) at any date the
aggregate amount of all Restricted Payments made as Investments since the Issue
Date shall exclude and be reduced by an amount (proportionate to the Company's
equity interest in such Subsidiary) equal to the net worth of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary, not to exceed, in the case of any such redesignation of
an Unrestricted Subsidiary as a Restricted Subsidiary, the amount of Investments
previously made by the Company and its Restricted Subsidiaries in such
Unrestricted Subsidiary (in each case (i) and (ii) "net worth" to be calculated
based upon the fair market value of the assets of such Subsidiary as of any such
date of designation); and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
Notwithstanding the foregoing, the Board of Directors may not designate
any Subsidiary of the Company to be an Unrestricted Subsidiary if, after such
designation, (a) the Company or any Restricted Subsidiary (i) provides credit
support for, or a guarantee of, any Indebtedness of such Subsidiary (including
any undertaking, agreement or instrument evidencing such Indebtedness) or (ii)
is directly or indirectly liable for any Indebtedness of such Subsidiary or (b)
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, any Restricted Subsidiary which is not a Subsidiary of the
Subsidiary to be so designated.
Subsidiaries of the Company that are not designated by the Board of
Directors as Restricted or Unrestricted Subsidiaries will be deemed to be
Restricted Subsidiaries. Notwithstanding any provisions of this covenant, all
Subsidiaries of an Unrestricted Subsidiary will be Unrestricted Subsidiaries.
Additional Subsidiary Guarantees. If the Company or any of its
Restricted Subsidiaries transfers or causes to be transferred, in one
transaction or a series of related transactions, any property to any Restricted
Subsidiary that is not a Subsidiary Guarantor, or if the Company or any of its
Restricted Subsidiaries shall organize, acquire or otherwise invest in or hold
an Investment in another Restricted Subsidiary that causes the total
consolidated assets owned by all Restricted Subsidiaries that are not Subsidiary
Guarantors to exceed in the aggregate 1% of the total consolidated assets of the
Company, then the Company shall cause one or more of such transferees or
acquired or other Restricted Subsidiaries to become Subsidiary Guarantors to the
extent necessary to cause the total consolidated assets owned by all Restricted
Subsidiaries that are not Subsidiary Guarantors not to exceed in the aggregate
1% of the total consolidated assets of the Company. If required to become a
Subsidiary Guarantor pursuant to the immediately preceding sentence, such
transferee or acquired or other Restricted Subsidiary shall (a) execute and
deliver to the Trustee a supplemental indenture in form reasonably satisfactory
to the Trustee pursuant to which such
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Restricted Subsidiary shall unconditionally guarantee all of the Company's
obligations under the Notes and the Indenture on the terms set forth in the
Indenture and (b) deliver to the Trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary
shall be a Subsidiary Guarantor for all purposes of the Indenture.
Limitation on Conduct of Business. The Company will not, and will not
permit any of its Restricted Subsidiaries to, engage in the conduct of any
business other than the Crude Oil and Natural Gas Business.
Reports to Holders. The Company will deliver to the Trustee within 15
days after the filing of the same with the Commission, copies of the quarterly
and annual reports and of the information, documents and other reports, if any,
which the Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of 314(a) of the
TIA.
Events of Default
The following events are defined in the Indenture as "Events of
Default":
(a) the failure to pay interest (including any Additional
Interest) on any Notes when the same becomes due and payable and the
default continues for a period of 30 days;
(b) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds
Offer);
(c) a default in the observance or performance of any other
covenant or agreement contained in the Indenture which default
continues for a period of 45 days after the Company receives written
notice specifying the default (and demanding that such default be
remedied) from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the Notes (except in the case of a
default with respect to observance or performance of any of the terms
or provisions of "-Change of Control" or "Certain Covenants - Merger,
Consolidation and Sale of Assets" or "-Limitation on Asset Sales" which
will constitute an Event of Default with such notice requirement but
without such passage of time requirement);
(d) a default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness of the Company or of any Restricted
Subsidiary (or the payment of which is guaranteed by the Company or any
Restricted Subsidiary), whether such Indebtedness now exists or is
created after the Issue Date, which default (i) is caused by a failure
to pay principal of or premium, if any, or interest on such
Indebtedness after any applicable grace period provided in such
Indebtedness on the date of such default (a "payment default") or (ii)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a payment default or the
maturity of which has been so accelerated, aggregates at least $5
million;
(e) one or more judgments in an aggregate amount in excess of
$5 million (unless covered by insurance by a reputable insurer as to
which the insurer has not disclaimed coverage) shall have been rendered
against the Company or any of its Restricted Subsidiaries and such
judgments remain undischarged, unpaid or unstayed for a period of 60
days after such judgment or judgments become final and non-appealable;
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(f) certain events of bankruptcy affecting the Company or
any of its Significant Subsidiaries; or
(g) any of the Guarantees cease to be in full force and effect
or any of the Guarantees are declared to be null and void or invalid
and unenforceable or any of the Subsidiary Guarantors denies or
disaffirms its liability under its Guarantees (other than by reason of
release of a Subsidiary Guarantor in accordance with the terms of the
Indenture).
The Indenture provides that, if an Event of Default (other than an
Event of Default specified in clause (f) above relating to the Company) shall
occur and be continuing, the Trustee or the Holders of at least 25% in principal
amount of outstanding Notes may declare the principal of, premium, if any, and
accrued and unpaid interest on all the Notes to be due and payable by notice in
writing to the Company and the Trustee specifying the Event of Default and that
it is a "notice of acceleration", and the same shall become immediately due and
payable. If an Event of Default specified in clause (f) above relating to the
Company occurs and is continuing, then all unpaid principal of, and premium, if
any, and accrued and unpaid interest on all of the outstanding Notes shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (a) if the rescission would not
conflict with any judgment or decree, (b) if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of such acceleration, (c) to the extent the payment of such
interest is lawful, interest on overdue installments of interest and overdue
principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (d) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (e) in the event of the cure or waiver of an
Event of Default of the type described in clause (f) of the description of
Events of Default above, the Trustee shall have received an officers'
certificate and an opinion of counsel that such Event of Default has been cured
or waived; provided, however, that such counsel may rely, as to matters of fact,
on a certificate or certificates of officers of the Company. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
The Indenture provides that, at any time prior to the declaration of
acceleration of the Notes, the Holders of a majority in principal amount of the
Notes may waive any existing Default or Event of Default under the Indenture,
and its consequences, except a default in the payment of the principal of or
interest on any Notes.
The Indenture provides that, Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture and under the TIA.
During the existence of an Event of Default, the Trustee is required to exercise
such rights and powers vested in it under the Indenture and use the same degree
of care and skill in its exercise thereof as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs. Subject to the
provisions of the Indenture relating to the duties of the Trustee, whether or
not an Event of Default shall occur and be continuing, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
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Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have its
obligations and the corresponding obligations of the Subsidiary Guarantors
discharged with respect to the outstanding Notes ("Legal Defeasance"). Such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Notes, and
satisfied all of its obligations with respect to the Notes, except for (a) the
rights of Holders to receive payments in respect of the principal of, premium,
if any, and interest on the Notes when such payments are due, (b) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (c) the rights, powers, trust,
duties and immunities of the Trustee and the Company's obligations in connection
therewith and (d) the Legal Defeasance provisions of the Indenture. In addition,
the Company may, at its option and at any time, elect to have the obligations of
the Company released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Notes. In the event Covenant Defeasance occurs, certain events (other
than non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "-Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(a) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders cash in United States dollars, non-callable United States
government obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the Notes
on the stated date for payment thereof or on the applicable redemption date, as
the case may be; (b) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (i) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (ii) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred, (c) in the case of Covenant Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (d) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (e) such
Legal Defeasance or Covenant Defeasance shall 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 or any of its Restricted Subsidiaries is a
party or by which the Company or any of its Restricted Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an officers' certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company or others; (g) the Company shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance, as the case may be, have been complied with; provided,
however, that such counsel may rely, as to matters of fact, on a certificate or
certificates of officers of the Company; (h) the Company shall have delivered to
the Trustee an opinion of counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; provided, however, that such counsel may rely, as
to matters of fact, on a certificate or certificates of officers of the Company;
and (i) certain other customary conditions precedent are satisfied.
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Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (a) either (i) all the Notes, theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (b)
the Company has paid all other sums payable under the Indenture by the Company;
and (c) the Company has delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with; provided, however, that such counsel may rely, as to matters of fact, on a
certificate or certificates of officers of the Company.
Modification of the Indenture
From time to time, the Company, the Subsidiary Guarantors and the
Trustee, without the consent of the Holders, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies, to
comply with any requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the TIA or to make any change that
would provide any additional benefit or rights to the Holders or that does not
adversely affect the rights of any Holder. In formulating its opinion on such
matters, the Trustee will be entitled to rely on such evidence as it deems
appropriate, including, without limitation, solely on an opinion of counsel;
provided, however, that in delivering such opinion of counsel, such counsel may
rely, as to matters of fact, on a certificate or certificates of officers of the
Company. Other modifications and amendments of the Indenture may be made with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes issued under the Indenture, except that, without the consent
of each Holder affected thereby, no amendment may: (a) reduce the amount of
Notes whose Holders must consent to an amendment; (b) reduce the rate of or
change or have the effect of changing the time for payment of interest,
including defaulted interest, on any Notes; (c) reduce the principal of or
change or have the effect of changing the fixed maturity of any Notes, or change
the date on which any Notes may be subject to redemption or repurchase, or
reduce the redemption or repurchase price therefor; (d) make any Notes payable
in money other than that stated in the Notes; (e) make any change in provisions
of the Indenture protecting the right of each Holder to receive payment of
principal of and interest on such Note on or after the due date thereof or to
bring suit to enforce such payment, or permitting Holders of a majority in
principal amount of Notes to waive Defaults or Events of Default; (f) amend,
change or modify in any material respect the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of Control or
make and consummate a Net Proceeds Offer with respect to any Asset Sale that has
been consummated or modify any of the provisions or definitions with respect
thereto; (g) modify or change any provision of the Indenture or the related
definitions affecting the ranking of the Notes or any Guarantee in a manner
which adversely affects the Holders; or (h) release any Subsidiary Guarantor
from any of its obligations under its Guarantee or the Indenture otherwise than
in accordance with the terms of the Indenture.
Governing Law
The Indenture provides that the Indenture, the Notes and the Guarantees
will be governed by, and construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the law of another jurisdiction would be
required thereby.
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The Trustee
First Union National Bank is the Trustee under the Indenture and has been
appointed Exchange Agent for the Exchange Offer.
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 by the Indenture, and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations
on the rights of the Trustee, should it become a creditor of the Company or a
Subsidiary Guarantor, to obtain payments of claims in certain cases or to
realize on certain property received in respect of any such claim as security or
otherwise. Subject to the TIA, the Trustee will be permitted to engage in other
transactions; provided, however, that if the Trustee acquires any conflicting
interest as described in the TIA, it must eliminate such conflict or resign.
Registration Agreement
The Company, the Subsidiary Guarantors and the Initial Purchasers entered
into the Registration Agreement on May 29, 1997, which required the Company and
the Subsidiary Guarantors, among other things, to commence the Exchange Offer
and maintain the effectiveness of the Registration Statement on the terms set
forth herein. In addition to their obligations in connection with the Exchange
Offer (and assuming the Exchange Offer is consummated by December 10, 1997), the
Company and the Subsidiary Guarantors will have a continuing obligation to
register Notes for resale under a Form S-3 Registration Statement (the "Shelf
Registration Statement") if either (i) any Holder of Private Exchange Notes so
requests in writing to the Company within 60 days after the consummation of the
Exchange Offer or (ii) in the case of any Holder that participates in the
Exchange Offer, such Holder does not receive Exchange Notes on the date of the
exchange that may be sold without restriction under state and federal securities
laws (other than due solely to the status of such Holder as an affiliate of the
Company within the meaning of the Securities Act). If the Company and the
Subsidiary Guarantors are required to file the Shelf Registration Statement,
they must keep the Shelf Registration Statement effective under the Securities
Act, subject to certain exceptions, until May 29, 1999 or such shorter period
ending when all of the Notes covered by such Shelf Registration Statement have
been sold. The Company and the Subsidiary Guarantors are required to pay certain
additional interest (the "Additional Interest") on the Notes if a required Shelf
Registration Statement is not filed with, or declared effective by, the
Commission within the prescribed time periods.
In the event of the filing of a Shelf Registration Statement or if this
Prospectus is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the 180-day
period following the effectiveness of the Registration Statement of which this
Prospectus is a part, the Company will provide to each Holder of the Notes or
such Participating Broker-Dealer copies of, respectively, this Prospectus or the
prospectus which is part of the Shelf Registration Statement. A Holder of Notes
that sells such Notes pursuant to the Shelf Registration Statement generally
will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions of the Securities Act in connection with such
sales and will be bound by the provisions of the Registration Agreement which
are applicable to such Holder (including certain indemnification obligations).
In addition, each Holder of Notes to be covered by the Shelf Registration
Statement will be required to furnish to the Company such information regarding
such Holder and the proposed distribution of its Notes as the Company may
reasonably request in order for such Holder to have its Notes included in the
Shelf Registration Statement.
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Pursuant to the Registration Agreement, each Holder of Notes to be covered
by the Shelf Registration Statement and each Participating Broker-Dealer agrees
by its acquisition of such Notes that, upon actual receipt of any notice from
the Company of (i) the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement of which this Prospectus is a
part or the Shelf Registration Statement, as appropriate, (ii) the receipt by
the Company of any notification of the suspension of the qualification or the
exemption from qualification of such Registration Statement or the Shelf
Registration Statement, as appropriate, or the Notes in any jurisdiction,
(iii) the occurrence of an event, the existence of any condition or any
information becoming known which causes this Prospectus or the prospectus in the
Shelf Registration Statement to contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or (iv) the Company's determination
that a post-effective amendment is appropriate, each Holder (or Participating
Broker-Dealer, as the case may be) will discontinue its sale of Notes until the
Company has amended or supplemented the applicable prospectus or advised such
Holder (or Participating Broker-Dealer) that the use of the applicable
prospectus may be resumed, as the case may be. If the Company suspends the sale
of Notes under such circumstances, the relevant period during which this
Registration Statement or the Shelf Registration Statement, as the case may be,
must remain effective shall be correspondingly extended.
This summary of certain provisions of the Registration Agreement is not
complete and is subject to, and is qualified in its entirety by, the provisions
of the Registration Agreement, a copy of which has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
Certain Definitions
Set forth below is a summary of certain of the defined terms to be used
in the Indenture. Reference is made to the form of Indenture for the full
definition of all such terms, as well as any other terms used herein for which
no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries (i) existing at the time such Person becomes a Restricted
Subsidiary or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or (ii) which becomes Indebtedness of the Company or
a Restricted Subsidiary in connection with the acquisition of assets from such
Person, in each case not incurred in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition, merger or consolidation.
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"Adjusted Consolidated Net Tangible Assets" means (without
duplication), as of the date of determination, (a) the sum of (i) discounted
future net revenues from proved oil and gas reserves of the Company and its
consolidated Subsidiaries, calculated in accordance with Commission guidelines
(before any state or federal income tax), as estimated by a nationally
recognized firm of independent petroleum engineers as of a date no earlier than
the date of the Company's latest annual consolidated financial statements, as
increased by, as of the date of determination, the estimated discounted future
net revenues from (A) estimated proved oil and natural gas reserves acquired
since the date of such year-end reserve report, and (B) estimated oil and
natural gas reserves attributable to upward revisions of estimates of proved oil
and gas reserves since the date of such year-end reserve report due to
exploration, development or exploitation activities, in each case calculated in
accordance with Commission guidelines (utilizing the prices utilized in such
year-end reserve report), and decreased by, as of the date of determination, the
estimated discounted future net revenues from (C) estimated proved oil and gas
reserves produced or disposed of since the date of such year-end reserve report
and (D) estimated oil and natural gas reserves attributable to downward
revisions of estimates of proved oil and natural gas reserves since the date of
such year-end reserve report due to changes in geological conditions or other
factors which would, in accordance with standard industry practice, cause such
revisions, in each case calculated in accordance with Commission guidelines
(utilizing the prices utilized in such year-end reserve report); provided,
however, that, in the case of each of the determinations made pursuant to
clauses (A) through (D), such increases and decreases shall be as estimated by
the Company's petroleum engineers, unless in the event that there is a Material
Change as a result of such acquisitions, dispositions or revisions, then the
discounted future net revenues utilized for purposes of this clause (a)(i) shall
be confirmed in writing, by a nationally recognized firm of independent
petroleum engineers (which may be the Company's independent petroleum engineers
who prepare the Company's annual reserve report) plus (ii) the capitalized costs
that are attributable to oil and natural gas properties of the Company and its
Subsidiaries to which no proved oil and gas reserves are attributable, based on
the Company's books and records as of a date no earlier than the date of the
Company's latest annual or quarterly financial statements, plus (iii) the Net
Working Capital on a date no earlier than the date of the Company's latest
consolidated annual or quarterly financial statements plus (iv) with respect to
each other tangible asset of the Company or its consolidated Restricted
Subsidiaries specifically including, but not to the exclusion of any other
qualifying tangible assets, the Company's or its consolidated Restricted
Subsidiaries' gas gathering and processing facilities and unproved oil and
natural gas properties (less any remaining deferred income taxes which have been
allocated to such
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gas gathering and processing facilities in connection with the acquisition
thereof), land, equipment, leasehold improvements, investments carried on the
equity method, restricted cash and the carrying value of marketable securities,
the greater of (A) the net book value of such other tangible asset on a date no
earlier than the date of the Company's latest consolidated annual or quarterly
financial statements or (B) the appraised value, as estimated by a qualified
Independent Advisor, of such other tangible assets of the Company and its
Restricted Subsidiaries, as of a date no earlier than the date of the Company's
latest audited financial statements minus (b) minority interests and, to the
extent not otherwise taken into account in determining Adjusted Consolidated Net
Tangible Assets, any natural gas balancing liabilities of the Company and its
consolidated Restricted Subsidiaries reflected in the Company's latest audited
financial statements. In addition to, but without duplication of, the foregoing,
for purposes of this definition, "Adjusted Consolidated Net Tangible Assets"
shall be calculated after giving effect, on a pro forma basis, to (1) any
Investment not prohibited by the Indenture, to and including the date of the
transaction giving rise to the need to calculate Adjusted Consolidated Net
Tangible Assets (the "Assets Transaction Date"), in any other Person that, as a
result of such Investment, becomes a Restricted Subsidiary of the Company, (2)
the acquisition, to and including the Assets Transaction Date (by merger,
consolidation or purchase of stock or assets), of any business or assets,
including, without limitation, Permitted Industry Investments, and (3) any sales
or other dispositions of assets permitted by the Indenture (other than sales of
Hydrocarbons or other mineral products in the ordinary course of business)
occurring on or prior to the Assets Transaction Date.
"Affiliate" means, with respect to any specified Person, (a) any other
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or under common control with, such specified Person and (b)
any Related Person of such Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth under "Certain
Covenants-Limitation on Transactions with Affiliates."
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary, or shall be merged with or into the Company or
any Restricted Subsidiary, or (b) the acquisition by the Company or any
Restricted Subsidiary of the assets of any Person (other than a Restricted
Subsidiary) which constitute all or substantially all of the assets of such
Person or comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, exchange, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Restricted Subsidiary of
(a) any Capital Stock of any Restricted Subsidiary; or (b) any other property or
assets (including any interests therein) of the Company or any Restricted
Subsidiary, including any disposition by means of a merger, consolidation or
similar transaction; provided, however, that Asset Sales shall not include (i)
the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company in a transaction which is made in
compliance with the provisions of "-Certain Covenants-Merger, Consolidation and
Sale of Assets," (ii) any Investment in an Unrestricted Subsidiary which is made
in compliance with the provisions of "-Certain Covenants-Limitation on
Restricted Payments" above, (iii) disposals or replacements of obsolete
equipment in the ordinary course of business, (iv) the sale, lease, conveyance,
disposition or other transfer (each, a "Transfer") by the Company or any
Restricted Subsidiary of assets or property to the Company or one or more
Restricted Subsidiaries, (v) any disposition of Hydrocarbons or other mineral
products for value in the ordinary course of business and (vi) the Transfer by
the Company or any Restricted Subsidiary of assets or property in the ordinary
course of business; provided, however, that the aggregate amount (valued at the
fair market value of such assets or property at the time of such Transfer) of
all such assets and property Transferred since the Issue Date pursuant to this
clause (vi) shall not exceed $1 million in any one year.
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"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any other
day on which banking institutions in the City of New York are required or
authorized by law or other governmental action to be closed.
"Capital Stock" means (a) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and including any
warrants, options or rights to acquire any of the foregoing and instruments
convertible into any of the foregoing and (b) with respect to any Person that is
not a corporation, any and all partnership or other equity interests of such
Person.
"Capitalized Lease Obligation" means, as to any Person, the discounted
present value of the rental obligations of such Person under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation at such date, determined in accordance with GAAP.
"Cash Equivalents" means (a) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (b)
marketable direct obligations issued by any state of the United States or any
political subdivision of any such state or any public instrumentality thereof
maturing within one year from the date of acquisition thereof and, at the time
of acquisition, having one of the two highest ratings obtainable from either
Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"); (c) commercial paper maturing no more than one year from the date
of creation thereof and, at the time of acquisition, having a rating of at least
A-1 from S&P or at least P-1 from Moody's; (d) certificates of deposit or
bankers' acceptances maturing within one year from the date of acquisition
thereof issued by any bank organized under the laws of the United States or any
state thereof or the District of Columbia or any United States branch of a
foreign bank having at the date of acquisition thereof combined capital and
surplus of not less than $250 million; (e) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (a) above entered into with any bank meeting the qualifications specified
in clause (d) above and (f) money market mutual or similar funds having assets
in excess of $100 million.
"Change of Control" means the occurrence of one or more of the
following events: (a) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in
compliance with the provisions of the Indenture); (b) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (c) any Person or Group shall
become the owner, directly or indirectly, beneficially or of record, of shares
representing more than 40% of the aggregate ordinary voting power represented by
the issued and outstanding Capital Stock of the Company; or (d) the replacement
of a majority of the Board of Directors of the Company over a two-year period
from the directors who constituted the Board of Directors of the Company at the
beginning of such period with directors whose replacement shall not have been
approved (by recommendation, nomination or election, as the case may be) by a
vote of at least a majority of the Board of Directors of the Company then still
in office who either were members of such Board of Directors at the beginning of
such period or whose election as a member of such Board of Directors was
previously so approved.
"Change of Control Offer" has the meaning set forth under "-Change of
Control."
"Change of Control Payment Date" has the meaning set forth under
"-Change of Control."
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"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Commission" means the Securities and Exchange Commission.
"Company Properties" means all Properties, and equity, partnership or
other ownership interests therein, that are related or incidental to, or used or
useful in connection with, the conduct or operation of any business activities
of the Company or the Subsidiaries, which business activities are not prohibited
by the terms of the Indenture.
"Consolidated EBITDA" means, for any period, the sum (without
duplication) of (a) Consolidated Net Income and (b) to the extent Consolidated
Net Income has been reduced thereby, (i) all income taxes of the Company and its
Restricted Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary, unusual or nonrecurring
gains or losses or taxes attributable to sales or dispositions outside the
ordinary course of business), (ii) Consolidated Interest Expense, (iii) the
amount of any Preferred Stock dividends paid by the Company and its Restricted
Subsidiaries and (iv) Consolidated Non-cash Charges, less any non-cash items
increasing Consolidated Net Income for such period, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in accordance
with GAAP.
"Consolidated EBITDA Coverage Ratio" means, with respect to the
Company, the ratio of (a) Consolidated EBITDA of the Company during the four
full fiscal quarters for which financial information in respect thereof is
available (the "Four Quarter Period") ending on or prior to the date of the
transaction giving rise to the need to calculate the Consolidated EBITDA
Coverage Ratio (the "Transaction Date") to (b) Consolidated Fixed Charges of the
Company for the Four Quarter Period. In addition to and without limitation of
the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect (without
duplication) on a pro forma basis for the period of such calculation to (a) the
incurrence or repayment of any Indebtedness of the Company or any of its
Restricted Subsidiaries (and the application of the proceeds thereof) giving
rise to the need to make such calculation and any incurrence or repayment of
other Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (b) any Asset
Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of its Restricted Subsidiaries (including any Person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness, and also
including, without limitation, any Consolidated EBITDA attributable to the
assets which are the subject of the Asset Acquisition or Asset Sale during the
Four Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness) occurred
on the first day of the Four Quarter Period. If the Company or any of its
Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the incurrence of such
guaranteed Indebtedness as if the Company or the Restricted Subsidiary, as the
case may be, had directly incurred or otherwise assumed such guaranteed
Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated EBITDA Coverage Ratio," (i) interest on outstanding Indebtedness
determined on a fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter shall be deemed to have accrued at a
fixed rate per annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; (ii) if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four Quarter
Period; (iii) notwithstanding clauses (i) and (ii) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap
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Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of (a) Consolidated Interest Expense
(including any premium or penalty paid in connection with redeeming or retiring
Indebtedness of the Company and its Restricted Subsidiaries prior to the stated
maturity thereof pursuant to the agreements governing such Indebtedness), plus
(b) the product of (i) the amount of all dividend payments on any series of
Preferred Stock of the Company (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(ii) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local
income tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for
any period, the sum of, without duplication: (a) the aggregate of the interest
expense of the Company and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (i) any amortization of original issue discount, (ii) the net costs
under Interest Swap Obligations, (iii) all capitalized interest and (iv) the
interest portion of any deferred payment obligation; and (b) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by the Company and its Restricted Subsidiaries during such
period, as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company 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, however, that there shall be excluded therefrom (a)
after-tax gains from Asset Sales or abandonments or reserves relating thereto,
(b) after-tax items classified as extraordinary or nonrecurring gains, (c) the
net income of any Person acquired in a "pooling of interests" transaction
accrued prior to the date it becomes a Restricted Subsidiary or is merged or
consolidated with the Company or any Restricted Subsidiary, (d) the net income
(but not loss) of any Restricted Subsidiary to the extent that the declaration
of dividends or similar distributions by that Restricted Subsidiary of that
income is restricted by charter, contract, operation of law or otherwise, (e)
the net income of any Person in which the Company has an interest, other than a
Restricted Subsidiary, except to the extent of cash dividends or distributions
actually paid to the Company or to a Restricted Subsidiary by such Person, (f)
income or loss attributable to discontinued operations (including, without
limitation, operations disposed of during such period whether or not such
operations were classified as discontinued) and (g) in the case of a successor
to the Company by consolidation or merger or as a transferee of the Company's
assets, any net income (or loss) of the successor corporation prior to such
consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person as of any date means the
consolidated stockholders' equity of such Person, determined on a consolidated
basis in accordance with GAAP, less (without duplication) amounts attributable
to Disqualified Capital Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to the Company, for
any period, the aggregate depreciation, depletion, amortization and other
non-cash expenses of the Company and its Restricted Subsidiaries reducing
Consolidated Net Income of the Company for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation of
the accounts of the Restricted Subsidiaries of such Person with those of such
Person, all in accordance with GAAP; provided, however, that "consolidation"
will not include consolidation of the accounts of any Unrestricted Subsidiary of
such Person with the accounts of such Person. The term "consolidated" has a
correlative meaning to the foregoing.
"Covenant Defeasance" has the meaning set forth under "-Legal Defeasance
and Covenant Defeasance."
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"Crude Oil and Natural Gas Business" means (i) the acquisition,
exploration, development, operation and disposition of interests in oil, natural
gas and other Hydrocarbon properties located in the Western Hemisphere, (ii) the
gathering, marketing, treating, processing, storage, selling and transporting of
any production from such interests or properties of the Company or of others and
(iii) activities incidental to the foregoing.
"Crude Oil and Natural Gas Hedge Agreements" means, with respect to any
Person, any oil and gas agreements and other agreements or arrangements or any
combination thereof entered into by such Person in the ordinary course of
business and that are designed to provide protection against oil and natural gas
price fluctuations.
"Crude Oil and Natural Gas Properties" means all Properties, including
equity or other ownership interests therein, owned by any Person which have been
assigned "proved oil and gas reserves" as defined in Rule 4-10 of Regulation S-X
of the Securities Act as in effect on the Issue Date.
"Crude Oil and Natural Gas Related Assets" means any Investment or
capital expenditure (but not including additions to working capital or
repayments of any revolving credit or working capital borrowings) by the Company
or any Subsidiary of the Company which is related to the business of the Company
and its Subsidiaries as it is conducted on the date of the Asset Sale giving
rise to the Net Cash Proceeds to be reinvested.
"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 of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Disqualified Capital Stock" means that portion of 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 mandatorily redeemable at the sole option of the
holder thereof, in whole or in part, in either case, on or prior to the final
maturity of the Notes.
"Equity Offering" means an offering of Qualified Capital Stock of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between an informed and willing seller and an informed and willing buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors of
the Company acting reasonably and in good faith and shall be evidenced by a
Board Resolution of the Company delivered to the Trustee; provided, however,
that (A) if the aggregate non-cash consideration to be received by the Company
or any Restricted Subsidiary from any Asset Sale shall reasonably be expected to
exceed $5 million or (B) if the net worth of any Restricted Subsidiary to be
designated as an Unrestricted Subsidiary shall reasonably be expected to exceed
$10 million, then fair market value shall be determined by an Independent
Advisor.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board as of any date of determination.
"Holder" means any Person holding a Note.
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"Hydrocarbons" means oil, natural gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all constituents, elements or compounds thereof and products
processed therefrom.
"Incur" has the meaning set forth under "-Certain Covenants- Limitation
on Incurrence of Additional Indebtedness."
"Indebtedness" means with respect to any Person, without duplication,
(a) all Obligations of such Person for borrowed money, (b) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(c) all Capitalized Lease Obligations of such Person, (d) all Obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable), (e) all Obligations for the
reimbursement of any obligor on a letter of credit, banker's acceptance or
similar credit transaction, (f) guarantees and other contingent obligations in
respect of Indebtedness referred to in clauses (a) through (e) above and clause
(h) below, (g) all Obligations of any other Person of the type referred to in
clauses (a) through (f) above which are secured by any Lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
Obligation so secured, (h) all Obligations under Crude Oil and Natural Gas Hedge
Agreements, Currency Agreements and Interest Swap Obligations and (i) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed redemption
price or repurchase price. For purposes hereof, the "maximum fixed repurchase
price" of any Disqualified Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Disqualified
Capital Stock as if such Disqualified Capital Stock were purchased on any date
on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the
Company. The "amount" or "principal amount" of Indebtedness at any time of
determination as used herein represented by (a) any Indebtedness issued at a
price that is less than the principal amount at maturity thereof shall be the
face amount of the liability in respect thereof, (b) any Capitalized Lease
Obligation shall be the amount determined in accordance with the definition
thereof, (c) any Interest Swap Obligations included in the definition of
Permitted Indebtedness shall be zero, (d) all other unconditional obligations
shall be the amount of the liability thereof determined in accordance with GAAP
and (e) all other contingent obligations shall be the maximum liability at such
date of such Person.
"Independent Advisor" means a reputable accounting, appraisal or
nationally recognized investment banking, engineering or consulting firm (a)
which does not, and whose directors, officers and employees or Affiliates do
not, have a direct or indirect material financial interest in the Company and
(b) which, in the judgment of the Board of Directors of the Company, is
otherwise disinterested, independent and qualified to perform the task for which
it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect
(i) loan, advance or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or other
property (valued at the fair market value thereof as of the date of transfer)
others or any payment for property or services for the account or use of
others), (ii) purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person (whether by merger, consolidation, amalgamation or otherwise and
whether or not purchased directly from the issuer of such securities or
evidences of Indebtedness), (iii) guarantee or assumption of the Indebtedness of
any other Person (other than the guarantee or assumption of Indebtedness of such
Person or a Restricted Subsidiary of such Person which guarantee
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or assumption is made in compliance with the provisions of "-Certain
Covenants-Limitation on Incurrence of Additional Indebtedness" above), and (iv)
other items that would be classified as investments on a balance sheet of such
Person prepared in accordance with GAAP. Notwithstanding the foregoing,
"Investment" shall exclude extensions of trade credit by the Company and its
Restricted Subsidiaries on commercially reasonable terms in accordance with
normal trade practices of the Company or such Restricted Subsidiary, as the case
may be. The amount of any Investment shall not be adjusted for increases or
decreases in value, or write- ups, write-downs or write-offs with respect to
such Investment. If the Company or any Restricted Subsidiary sells or otherwise
disposes of any Capital Stock of any Restricted Subsidiary such that, after
giving effect to any such sale or disposition, it ceases to be a Subsidiary of
the Company, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Capital
Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Legal Defeasance" has the meaning set forth under " -Legal Defeasance
and Covenant Defeasance."
"Lien" means any lien, mortgage, deed of trust, pledge, 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 Change" means an increase or decrease of more than 10% during
a fiscal quarter in the discounted future net cash flows (excluding changes that
result solely from changes in prices) from proved oil and natural gas reserves
of the Company and consolidated Subsidiaries (before any state or federal income
tax); provided, however, that the following will be excluded from the Material
Change calculation: (i) any acquisitions during the quarter of oil and natural
gas reserves that have been estimated by independent petroleum engineers and on
which a report or reports exist, (ii) any disposition of properties existing at
the beginning of such quarter that have been disposed of as provided in
"Limitation on Asset Sales" and (iii) any reserves added during the quarter
attributable to the drilling or recompletion of wells not included in previous
reserve estimates, but which will be included in future quarters.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable after
taking into account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts (determined by the Chief Financial Officer of the
Company) to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any post closing
adjustments or 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 (but excluding
any payments which, by the terms of the indemnities will not be made during the
term of the Notes).
"Net Proceeds Offer" has the meaning set forth under "-Certain
Covenants-Limitation on Asset Sales."
"Net Proceeds Offer Amount" has the meaning set forth under "-Certain
Covenants-Limitation on Asset Sales."
"Net Proceeds Offer Payment Date" has the meaning set forth under
"-Certain Covenants--Limitation on Asset Sales."
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"Net Proceeds Offer Trigger Date" has the meaning set forth under
"-Certain Covenants-Limitation on Asset Sales."
"Net Working Capital" means (i) all current assets of the Company and
its consolidated Subsidiaries, minus (ii) all current liabilities of the Company
and its consolidated Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with GAAP.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Payment Restriction" has the meaning set forth under "-Certain
Covenants-Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries."
"Permitted Indebtedness" means, without duplication, each of the
following:
(a) the Exchange Notes, the Private Exchange Notes, if any,
and the Guarantees;
(b) Indebtedness incurred pursuant to the Senior Credit
Facility in an aggregate principal amount at any time outstanding not
to exceed $60.0 million reduced by any required permanent repayments
(which are accompanied by a corresponding permanent commitment
reduction) thereunder (it being recognized that a reduction in the
borrowing base in and of itself shall not be deemed a required
permanent repayment);
(c) Interest Swap Obligations of the Company or a Restricted
Subsidiary covering Indebtedness of the Company or any of its
Restricted Subsidiaries; provided, however, that such Interest Swap
Obligations are entered into to protect the Company and its Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the notional
principal amount of such Interest Swap Obligations does not exceed the
principal amount of the Indebtedness to which such Interest Swap
Obligation relates;
(d) Indebtedness of a Restricted Subsidiary to the Company or
to a Wholly Owned Restricted Subsidiary for so long as such
Indebtedness is held by the Company or a Wholly Owned Restricted
Subsidiary, in each case subject to no Lien held by a Person other than
the Company or a Wholly Owned Restricted Subsidiary; provided, however,
that if as of any date any Person other than the Company or a Wholly
Owned Restricted Subsidiary owns or holds any such Indebtedness or
holds a Lien in respect of such Indebtedness, such date shall be deemed
the incurrence of Indebtedness not constituting Permitted Indebtedness
by the issuer of such Indebtedness;
(e) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary for so long as such Indebtedness is held by a Wholly Owned
Restricted Subsidiary, in each case subject to no Lien; provided,
however, that (i) any Indebtedness of the Company to any Wholly Owned
Restricted Subsidiary that is not a Subsidiary Guarantor is unsecured
and subordinated, pursuant to a written agreement, to the Company's
obligations under the Indenture and the Notes and (ii) if as of any
date any Person other than a Wholly Owned Restricted Subsidiary owns or
holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness by the Company;
(f) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; provided,
however, that such Indebtedness is extinguished within two Business
Days of incurrence;
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(g) Indebtedness of the Company or any of its Restricted
Subsidiaries represented by letters of credit for the account of the
Company or such Restricted Subsidiary, as the case may be, in order to
provide security for workers' compensation claims, payment obligations
in connection with self-insurance, bid, performance on surety bonds or
completion guarantees or similar requirements in the ordinary course of
business;
(h) Refinancing Indebtedness;
(i) Capitalized Lease Obligations and Purchase Money
Indebtedness of the Company or any of its Restricted Subsidiaries not
to exceed $5 million at any one time outstanding;
(j) Obligations arising in connection with Crude Oil and
Natural Gas Hedge Agreements of the Company or a Restricted Subsidiary;
(k) Indebtedness under Currency Agreements; provided, however,
that in the case of Currency Agreements which relate to Indebtedness,
such Currency Agreements do not increase the Indebtedness of the
Company and its Restricted Subsidiaries outstanding other than as a
result of fluctuations in foreign currency exchange rates or by reason
of fees, indemnities and compensation payable thereunder;
(l) additional Indebtedness of the Company or any of its
Restricted Subsidiaries in an aggregate principal amount at any time
outstanding not to exceed the greater of (i) $10.0 million or (ii) 5.0%
of Adjusted Consolidated Net Tangible Assets of the Company; and
(m) Indebtedness owed by the Company in connection with its
guaranty of the obligations of Hunter Butcher International Limited
Liability Company to Wells Fargo HSBC Trade Bank N.A., provided that
the amount guaranteed by the Company does not exceed $3.0 million.
"Permitted Industry Investments" means (i) capital expenditures,
including, without limitation, acquisitions of Company Properties and interests
therein; (ii) (a) entry into operating agreements, joint ventures, working
interests, royalty interests, mineral leases, unitization agreements, pooling
arrangements or other similar or customary agreements, transactions, properties,
interests or arrangements, and Investments and expenditures in connection
therewith or pursuant thereto, in each case made or entered into in the ordinary
course of the oil and natural gas business, and (b) exchanges of Company
Properties for other Company Properties of at least equivalent value as
determined in good faith by the Board of Directors of the Company; and (iii)
Investments of operating funds on behalf of co-owners of Crude Oil and Natural
Gas Properties of the Company or the Subsidiaries pursuant to joint operating
agreements.
"Permitted Investments" means (a) Investments by the Company or any
Restricted Subsidiary in any Person that is or will become immediately after
such Investment a Restricted Subsidiary or that will merge or consolidate into
the Company or a Restricted Subsidiary that is not subject to any Payment
Restriction; (b) Investments in the Company by any Restricted Subsidiary;
provided, however, that any Indebtedness evidencing any such Investment held by
a Restricted Subsidiary that is not a Subsidiary Guarantor is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Notes and the Indenture; (c) Investments in cash and Cash Equivalents;
(d) Investments made by the Company or its Restricted Subsidiaries as a result
of consideration received in connection with an Asset Sale made in compliance
with "-Certain Covenants-Limitation on Asset Sales" above; (e) Permitted
Industry Investments; and (f) additional Investments in Unrestricted
Subsidiaries in an aggregate amount not to exceed $5 million at any one time.
"Permitted Junior Securities" means any securities of the Company or
any other Person that are (i) equity securities without special covenants or
(ii) subordinated in right of payment to all Senior Indebtedness that may at the
time be outstanding, to substantially the same extent as, or to a greater extent
than, the Notes are subordinated as provided in the Indenture, in any event
pursuant to a court order so providing and as to which (a) the rate of interest
on such securities shall not exceed the effective rate of interest on the Notes
on the date of the Indenture, (b) such
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securities shall not be entitled to the benefits of covenants or defaults
materially more beneficial to the holders of such securities than those in
effect with respect to the Notes on the date of the Indenture and (c) such
securities shall not provide for amortization (including sinking fund and
mandatory prepayment provisions) commencing prior to the date six months
following the final scheduled maturity date of the Senior Indebtedness (as
modified by the plan of reorganization of readjustment pursuant to which such
securities are issued).
"Permitted Liens" means each of the following types of Liens:
(a) Liens existing as of the Issue Date to the extent and in
the manner such Liens are in effect on the Issue Date (and any
extensions, replacements or renewals thereof covering property or
assets secured by such Liens on the Issue Date);
(b) Liens securing Indebtedness outstanding under the
Senior Credit Facility;
(c) Liens securing the Notes and the Guarantees;
(d) Liens of the Company or a Restricted Subsidiary
on assets of any Restricted Subsidiary;
(e) Liens securing Refinancing Indebtedness which is incurred
to Refinance any Indebtedness which has been secured by a Lien
permitted under the Indenture and which has been incurred in accordance
with the provisions of the Indenture; provided, however, that such
Liens (x) are no less favorable to the Holders and are not more
favorable to the lienholders with respect to such Liens than the Liens
in respect of the Indebtedness being Refinanced and (y) do not extend
to or cover any property or assets of the Company or any of its
Restricted Subsidiaries not securing the Indebtedness so Refinanced;
(f) Liens for taxes, assessments or governmental charges or
claims either (i) not delinquent or (ii) contested in good faith by
appropriate proceedings and as to which the Company or a Restricted
Subsidiary, as the case may be, shall have set aside on its books such
reserves as may be required pursuant to GAAP;
(g) statutory and contractual Liens of landlords to secure
rent arising in the ordinary course of business to the extent such
Liens relate only to the tangible property of the lessee which is
located on such property and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by
law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have
been made in respect thereof;
(h) Liens incurred or deposits made in the ordinary course of
business (i) in connection with workers' compensation, unemployment
insurance and other types of social security, including any Lien
securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or (ii) to
secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(i) judgment and attachment Liens not giving rise to an Event
of Default;
(j) easements, rights-of-way, zoning restrictions, restrictive
covenants, minor imperfections in title and other similar charges or
encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the
Company or any of its Restricted Subsidiaries;
(k) any interest or title of a lessor under any Capitalized
Lease Obligation; provided that such Liens do not extend to any
property or assets which are not leased property subject to such
Capitalized Lease Obligation;
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(l) Liens securing Purchase Money Indebtedness of the Company
or any Restricted Subsidiary; provided, however, that (i) the Purchase
Money Indebtedness shall not be secured by any property or assets of
the Company or any Restricted Subsidiary other than the property and
assets so acquired or constructed (except for proceeds, improvements,
rents and similar items relating to the property or assets so acquired)
and (ii) the Lien securing such Indebtedness shall be created within 90
days of such acquisition or construction;
(m) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other
property relating to such letters of credit and products and proceeds
thereof;
(n) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual, or warranty
requirements of the Company or any of its Restricted Subsidiaries,
including rights of offset and set-off;
(o) Liens securing Interest Swap Obligations which Interest
Swap Obligations relate to Indebtedness that is otherwise permitted
under the Indenture and Liens securing Crude Oil and Natural Gas Hedge
Agreements;
(p) Liens securing Acquired Indebtedness incurred in
accordance with "--Certain Covenants-Limitation on Incurrence of
Additional Indebtedness" above; provided, however, that (i) such Liens
secured such Acquired Indebtedness at the time of and prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary and were not granted in connection with, or in anticipation
of, the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary and (ii) such Liens do not extend to or cover any
property or assets of the Company or of any of its Restricted
Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or a Restricted Subsidiary (except
for proceeds, improvements, rents and similar items relating to the
property or assets so secured) and are no more favorable to the
lienholders than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary;
(q) Liens on, or related to, properties and assets of the
Company and its Subsidiaries to secure all or a part of the costs
incurred in the ordinary course of business of exploration, drilling,
development, production, processing, gas gathering, transportation,
marketing or storage, or operation thereof;
(r) Liens on pipeline or pipeline facilities, Hydrocarbons or
properties and assets of the Company and its Subsidiaries which arise
out of operation of law;
(s) royalties, overriding royalties, revenue interests, net
revenue interests, net profit interests, reversionary interests,
production payments, production sales contracts, preferential rights of
purchase, operating agreements, working interests and other similar
interests, properties, arrangements and agreements, all as ordinarily
exist with respect to Properties and assets of the Company and its
Subsidiaries or otherwise as are customary in the oil and gas business;
(t) with respect to any Properties and assets of the Company
and its Subsidiaries, Liens arising under, or in connection with, or
related to, farm-out, farm-in, joint operation, area of mutual interest
agreements and/or other similar or customary arrangements, agreements
or interests that the Company or any Subsidiary determines in good
faith to be necessary for the economic development of such Property;
(u) any (a) interest or title of a lessor or sublessor under
any lease, (b) restriction or encumbrance that the interest or title of
such lessor or sublessor may be subject to (including, without
limitation, ground leases or other prior leases of the demised
premises, mortgages, mechanics' liens, tax liens, and easements), or
(c) subordination of the interest of the lessee or sublessee under such
lease to any restrictions or encumbrance referred to in the preceding
clause (b);
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(v) Liens in favor of collecting or payor banks having a right
of setoff, revocation, refund or chargeback with respect to money or
instruments of the Company or any Restricted Subsidiary on deposit with
or in possession of such bank; and
(w) Liens incurred in the ordinary course of business and
not exceeding $2.0 million in the aggregate at any one time.
"Person" means an individual, partnership, corporation, unincorporated
organization, limited liability company, trust, estate, or joint venture, or a
governmental agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Property" means, with respect to any Person, any interests of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock,
partnership interests and other equity or ownership interests in any other
Person.
"Private Exchange Notes" means senior notes of the Company, guaranteed
by the Subsidiary Guarantors, issued in exchange for the Notes and identical in
all material respects to the Exchange Notes, except for the placement of a
restrictive legend on such Private Exchange Notes.
"Purchase Money Indebtedness" means Indebtedness the net proceeds of
which are used to finance the cost (including the cost of construction) of
property or assets acquired in the normal course of business by the Person
incurring such Indebtedness.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Reference Date" has the meaning set forth under "- Certain Covenants -
Limitation on Restricted Payments."
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
"- Certain Covenants - Limitation on Incurrence of Additional Indebtedness"
above (other than pursuant to clause (b), (c), (d), (e), (f), (g), (i), (j),
(k), (l) or (m) of the definition of Permitted Indebtedness), in each case that
does not (i) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable expenses incurred
by the Company and its Restricted Subsidiaries in connection with such
Refinancing) or (ii) create Indebtedness with (x) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (y) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided, however, that (1) if
such Indebtedness being Refinanced is Indebtedness of the Company or a
Subsidiary Guarantor, then such Refinancing Indebtedness shall be Indebtedness
solely of the Company and/or such Subsidiary Guarantor and (2) if such
Indebtedness being Refinanced is subordinate or junior to the Notes or a
Guarantee, then such Refinancing Indebtedness shall be subordinate to the Notes
or such Guarantee, as the case may be, at least to the same extent and in the
same manner as the Indebtedness being Refinanced.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the Issue Date among the Company, the Subsidiary Guarantors and the
Initial Purchasers.
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"Related Person" of any Person means any other Person directly or
indirectly owning 10% or more of the outstanding voting Common Stock of such
Person (or, in the case of a Person that is not a corporation, 10% or more of
the equity interest in such Person).
"Replacement Assets" has the meaning set forth under "-Certain
Covenants - Limitation on Asset Sales."
"Restricted Payment" has the meaning set forth under "- Certain
Covenants - Limitation on Restricted Payments."
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated by the Board of Directors of the Company, by a Board
Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to
and in compliance with "- Certain Covenants - Limitation on Restricted and
Unrestricted Subsidiaries" above. Any such designation may be revoked by a Board
Resolution of the Company delivered to the Trustee, subject to the provisions of
such covenant.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any Property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"Senior Credit Facility" means the Amended and Restated Credit
Agreement dated as of April 30, 1997, by and among the Company, Bankers Trust
Company, as Administrative Agent and as Issuing Bank, First Union National Bank
of North Carolina, as Syndication Agent and Collateral Agent, Banque Paribas, as
Documentation Agent, and each of the Lenders named therein, or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreements extending the maturity of, refinancing, replacing, increasing or
otherwise restructuring all or any portion of the Indebtedness under such
agreements.
"Significant Subsidiary" shall have the meaning set forth in Rule
1.02(w) of Regulation S-X under the Securities Act.
"Subsidiary", with respect to any Person, means (a) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (b) any
other Person of which at least a majority of the voting interests under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantor" means (a) each of the Company's Restricted
Subsidiaries as of the Issue Date and (b) each of the Company's Restricted
Subsidiaries that in the future executes a supplemental indenture in which such
Restricted Subsidiary agrees to be bound by the terms of the Indenture as a
Subsidiary Guarantor; provided, however, that any Person constituting a
Subsidiary Guarantor as described above shall cease to constitute a Subsidiary
Guarantor when its Guarantee is released in accordance with the terms of the
Indenture.
"Surviving Entity" has the meaning set forth under "- Certain Covenants
- Merger, Consolidation and Sale of Assets."
"TCW Preferred Stock" means the one million shares of the Company's
1996 Series A Convertible Preferred Stock, $0.001 par value per share and a
$10.00 stated value per share with a quarterly dividend rate of $0.21875 per
share.
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"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with " - Certain Covenants -
Limitation on Restricted and Unrestricted Subsidiaries" above; provided,
however, the Unrestricted Subsidiaries shall initially include Hunter Butcher
International Limited Liability Company. Any such designation may be revoked by
a Board Resolution of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which all the outstanding voting securities normally entitled to vote in the
election of directors are owned by the Company or another Wholly Owned
Restricted Subsidiary.
DESCRIPTION OF THE OUTSTANDING NOTES
The terms of the Outstanding Notes are identical in all material respects
to the Exchange Notes, except that the Outstanding Notes have not been
registered under the Securities Act, are subject to certain restrictions on
transfer and are entitled to certain registration rights under the Registration
Agreement (which rights terminate upon the consummation of the Exchange Offer,
except under limited circumstances) (see "Description of the Exchange
Notes-Registration Agreement"). In addition, the Outstanding Notes provide that
if the Company or the Subsidiary Guarantors fail to comply with certain
provisions concerning registration rights, primarily the timing of the Exchange
Offer, Additional Interest will accrue and be payable until such time as such
registration defaults have been cured. The Exchange Notes generally are not
entitled to any such Additional Interest. The Outstanding Notes and the Exchange
Notes will constitute a single series of debt securities under the Indenture.
See "Description of the Exchange Notes."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
consequences generally applicable to a holder that exchanges Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer, but does not purport to be a
complete analysis of all the potential tax considerations relating thereto. This
summary is based on the Internal Revenue Code of 1986, as amended (the "Code"),
existing, temporary and proposed Treasury Regulations, Internal Revenue Service
("IRS") rulings and judicial decisions now in effect, all of which are subject
to change (possibly with retroactive effect) or different interpretations. This
summary deals (i) only with holders ("Holders") that hold Outstanding Notes and
will hold Exchange Notes received therefor as "capital assets" (within the
meaning of Section 1221 of the Code) and (ii) primarily with Holders that are
citizens or residents of the United States, or any state thereof, or a
corporation or other entity created or organized under the laws of the United
States, or any political subdivision thereof, an estate the income of which is
subject to United States federal income tax regardless of source or that is
otherwise subject to United States federal income tax on a net income basis in
respect of the Notes, or a trust whose administration is subject to the primary
supervision of a United States court and which has one or more United States
fiduciaries who have the authority to control all substantial decisions of the
trust ("U.S. Holders"). This summary does not address tax considerations arising
under the laws of any foreign, state or local jurisdiction or applicable to
investors that may be subject to special tax rules, such as banks, tax-exempt
organizations, insurance companies, dealers in securities or currencies or
persons that will hold Outstanding Notes and Exchange Notes as a position in a
hedging transaction, "straddle" or "conversion transaction" or other integrated
investment transaction for tax purposes. The Company has not sought any ruling
from the IRS with respect to the statements made and the conclusions reached in
the following summary, and there can be no assurance that the IRS will agree
with such statements and conclusions.
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INVESTORS CONSIDERING THE EXCHANGE OF OUTSTANDING NOTES FOR EXCHANGE
NOTES PURSUANT TO THE EXCHANGE OFFER SHOULD CONSULT THEIR OWN TAX ADVISERS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR
PARTICIPATION IN THE EXCHANGE OFFER AND THEIR OWNERSHIP AND DISPOSITION OF THE
EXCHANGE NOTES, AND THE EFFECT THAT THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON
SUCH TAX CONSEQUENCES.
The Exchange Offer
Pursuant to recently issued Treasury Regulations, the exchange of
Outstanding Notes for Exchange Notes pursuant to the Exchange Offer should not
constitute a significant modification of the terms of the Outstanding Notes and,
accordingly, such exchange should not be treated as a taxable event for federal
income tax purposes. Therefore, such exchange should have no federal income tax
consequences to U.S. Holders of Outstanding Notes, and each U.S. Holder of
Exchange Notes will continue to be required to include interest on the Exchange
Notes in its gross income in accordance with its method of accounting for
federal income tax purposes.
Payment of Interest and Additional Interest
Interest on an Outstanding Note or Exchange Note generally will be
includable in the income of a U.S. Holder as ordinary income at the time such
interest is received or accrued, in accordance with such U.S. Holder's method of
accounting for United States federal income tax purposes. The Outstanding Notes
were treated by the Company as issued without original issue discount ("OID")
within the meaning of the Code. Had the Company failed to effect the Exchange
Offer on a timely basis, Additional Interest would have accrued on the
Outstanding Notes. Because the Company determined that, when the Outstanding
Notes were issued, there was only a remote possibility that events would occur
which would cause the Additional Interest to accrue on the Outstanding Notes,
the Company determined that the Additional Interest should not be taken into
account in concluding that the Outstanding Notes were issued without OID.
Sale, Exchange or Redemption of the Notes
Subject to the discussion of the Exchange Offer above, upon the sale,
exchange or redemption of an Outstanding Note or Exchange Note, a U.S. Holder
generally will recognize capital gain or loss equal to the difference between
(i) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption (except to the extent such amount
is attributable to accrued interest income or market discount not previously
included in income which is taxable as ordinary income) and (ii) such U.S.
Holder's adjusted tax basis in the Outstanding Note or Exchange Note. A U.S.
Holder's adjusted tax basis in an Outstanding Note or Exchange Note generally
will equal the cost of the Outstanding Note or Exchange Note to such U.S. Holder
increased by the amount of interest income on the Outstanding Note or Exchange
Note previously taken into income by the U.S. Holder but not yet received by the
U.S. Holder and by the amount of any market discount previously taken into
income by the U.S. Holder, and reduced by the amount of any bond premium
amortized by the U.S. Holder with respect to the Outstanding Notes or Exchange
Notes and by any principal payments on the Outstanding Notes or Exchange Notes.
Except to the extent that an intention to call the Outstanding Notes or Exchange
Notes prior to their maturity existed at the time of their original issue as an
agreement or understanding between the Company and the original holders of a
substantial amount of the Outstanding Notes or Exchange Notes (which is
unlikely), gain or loss realized by a U.S. Holder on the sale, exchange,
redemption or other disposition of an Outstanding Note or an Exchange Note
generally will be long-term capital gain or loss if the U.S. Holder's holding
period in the Outstanding Note or Exchange Note is more than one year at the
time of disposition (subject to the market discount rules discussed below).
Amortizable Bond Premium
Generally, the excess of a U.S. Holder's tax basis in an Outstanding
Note or Exchange Note over the amount payable at maturity is bond premium that
the U.S. Holder may elect to amortize under Section 171 of the Code on a yield
to maturity basis over the period from the U.S. Holder's acquisition date to the
maturity date of the Outstanding Note or Exchange Note. The amortizable bond
premium is treated as an offset to interest income on the Outstanding Note or
Exchange Note for United States federal income tax purposes. A U.S. Holder who
elects to
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amortize bond premium must reduce its tax basis in the Outstanding Note or
Exchange Note by the deductions allowable for amortizable bond premium. An
election to amortize bond premium is revocable only with the consent of the IRS
and applies to all obligations owned or acquired by the U.S. Holder on or after
the first day of the taxable year to which the election applies.
An Outstanding Note or Exchange Note may be called or submitted for
redemption at a premium prior to maturity. See "Description of the Exchange
Notes--Optional Redemption." An earlier call date is treated as the maturity
date of the Outstanding Note or Exchange Note and the amount of bond premium is
determined by treating the amount payable on such call date as the amount
payable at maturity, if such a calculation produces a smaller bond premium than
the method described in the preceding paragraph. If a U.S. Holder is required to
amortize and deduct the bond premium by reference to a certain call date, the
Outstanding Note or Exchange Note will be treated as maturing on that date for
the amount then payable. If the Outstanding Note or Exchange Note is not
redeemed on that call date, the Outstanding Note or Exchange Note will be
treated as reissued on that date for the amount of the call price on that date.
If an Outstanding Note or Exchange Note purchased at a premium is redeemed prior
to its maturity, a U.S. Holder who has elected to deduct the bond premium may be
permitted to deduct any remaining unamortized bond premium as an ordinary loss
in the taxable year of the redemption.
Market Discount
The resale of Outstanding Notes or Exchange Notes may be affected by
the market discount provisions of the Code. A U.S. Holder has market discount if
an Outstanding Note or Exchange Note is purchased (other than at original issue)
at an amount below the stated redemption price at maturity of the Outstanding
Note or Exchange Note. A de minimis amount of market discount is ignored. A U.S.
Holder of an Outstanding Note or Exchange Note with market discount must either
elect to include market discount in income as it accrues or treat a portion of
the gain recognized on the disposition or retirement of the Outstanding Note or
Exchange Note as ordinary income. The amount of gain treated as ordinary income
would equal the lesser of (i) the gain recognized (or the appreciation, in the
case of a nontaxable transaction such as a gift) or (ii) the portion of the
market discount that accrued on a ratable basis (or, if elected, on a constant
interest rate basis) while the Outstanding Note or Exchange Note was held by the
U.S. Holder.
A U.S. Holder who acquires an Outstanding Note or Exchange Note at a
market discount also may be required to defer a portion of any interest expense
that otherwise may be deductible on any indebtedness incurred or maintained to
purchase or carry such Outstanding Note or Exchange Note until the U.S. Holder
disposes of the Outstanding Note or Exchange Note in a taxable transaction.
Moreover, to the extent of any accrued market discount on such Outstanding Note
or Exchange Note, any partial principal payment with respect to an Outstanding
Note or Exchange Note will be includable as ordinary income upon receipt, as
will the fair market value of the Outstanding Note or Exchange Note on certain
otherwise non-taxable transfers (such as gifts).
A U.S. Holder of Outstanding Notes or Exchange Notes acquired at a
market discount may elect for United States federal income tax purposes to
include market discount in gross income as the discount accrues, either on a
straight-line basis or on a constant interest rate basis. This current inclusion
election, once made, applies to all market discount obligations acquired by the
U.S. Holder on or after the first day of the first taxable year to which the
election applies, and may not be revoked without the consent of the IRS. If a
U.S. Holder of Outstanding Notes or Exchange Notes makes such an election, the
foregoing rules with respect to the recognition of ordinary income on sales and
other dispositions of such debt instruments and on any partial principal payment
with respect to the Outstanding Notes or Exchange Notes, and the deferral of
interest deductions on indebtedness incurred or maintained to purchase or carry
such debt instruments, would not apply.
Non-U.S. Holders
Under present United States federal income and estate tax law and
subject to the discussion of backup withholding below:
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(a) Payments of interest on the Outstanding Notes or the
Exchange Notes by the Company or any agent of the Company to any holder
of an Outstanding Note or an Exchange Note that is not a U.S. Holder (a
"Non-U.S. Holder") will not be subject to United States federal
withholding tax, provided that such interest income is not effectively
connected with a United States trade or business of the Non-U.S. Holder
and provided that (i) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote; (ii) the Non-U.S.
Holder is not a controlled foreign corporation that is related to the
Company through stock ownership; (iii) either (A) the beneficial owner
of the Outstanding Notes or the Exchange Notes certifies (by submitting
to the Company or its agent a Form W-8 (or a suitable substitute form))
in compliance with applicable laws and regulations to the Company or
its agent, under penalties of perjury, that it is not a "United States
person" as defined in the Code and provides its name and address or (B)
a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business (a "financial institution"), that holds the Outstanding Notes
on behalf of the beneficial owner, and that provides a statement to the
Company or its agent in which it certifies that a Form W-8 (or a
suitable substitute form) has been received from the beneficial owner
by it or by a financial institution between it and the beneficial owner
and furnishes the payor with a copy thereof; and (iv) the Non-U.S.
Holder is not a bank which acquired the Outstanding Notes or Exchange
Notes in consideration for an extension of credit made pursuant to a
loan agreement entered into in the ordinary course of business. A Non
-U.S. Holder that is not exempt from tax under these rules generally
will be subject to United States federal income tax withholding at
a rate of 30% unless the interest is effectively connected with the
conduct of a United States trade or business, in which case the
interest will be subject to the United States federal income tax on
net income that applies to United States persons generally. Non-
U.S. Holders should consult applicable income tax treaties, which
may include different rules.
(b) A Non-U.S. Holder generally will not be subject to United
States federal withholding tax on gain realized on the sale, exchange
or redemption of an Outstanding Note or an Exchange Note unless (i) the
gain is effectively connected with a United States trade or business of
the Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an
individual, such Holder is present in the United States for a period or
periods aggregating 183 days or more during the taxable year of the
disposition or (iii) the Holder is subject to tax pursuant to the
provisions of the Code applicable to certain United States expatriates.
If the Company is a "United States real property holding corporation"
within the meaning of the Code, a Non-U.S. Holder may be subject to
United States federal income tax with respect to gain realized on the
disposition, which tax may be required to be withheld. The amount
withheld in accordance with these rules will be creditable against the
Non-U.S. Holder's United States federal income tax liability and may
entitle the Non-U.S. Holder to a refund upon furnishing the required
information to the IRS. Non-U.S. Holders should consult applicable
income tax treaties, which may provide different rules.
(c) An Outstanding Note or an Exchange Note held by an
individual who at the time of death is not a citizen or resident of the
United States will not be subject to United States federal estate tax
as a result of such individual's death if, at the time of such death,
the individual did not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of the Company
entitled to vote and the income on the Outstanding Notes or the
Exchange Notes would not have been effectively connected with the
conduct of a trade or business by the individual in the United States
had such income been received by the decedent at the time of his death.
<PAGE>
Recently proposed Treasury regulations that would be effective January
1, 1998, provide for several alternative methods for Non-U.S. Holders or
"qualified intermediaries" who hold the Outstanding Notes or the Exchange Notes
on behalf of Non-U.S. Holders to obtain an exemption from withholding on
interest payments. The proposed Treasury regulations also would require, in the
case of Outstanding Notes or Exchange Notes held by a foreign partnership, that
(i) the certification described in clause (a) (iii) of the preceding paragraph
be provided by the partners rather than by the foreign partnership and (ii) the
partnership provide certain information to the payor, including a United States
taxpayer identification number. A look-through rule would apply in the case of
tiered partnerships. There can be no assurance as to whether the proposed
Treasury regulations will be adopted or as to the provisions that they will
include if and when adopted in temporary or final form.
Except to the extent that an applicable treaty otherwise provides, a
Non-U.S. Holder generally will be taxed in the same manner as a U.S. Holder with
respect to interest if the interest income is effectively connected with a
United States trade or business of the Non-U.S. Holder. Effectively connected
interest received by a corporate Non-U.S. Holder may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
(or, if applicable, a lower treaty rate). Even through such effectively
connected interest is subject to income tax, and may be subject to the branch
profits tax, it is not subject to withholding tax if the Non-U.S. Holder
delivers a properly executed IRS Form 4224 to the payor.
Information Reporting and Backup Withholding Tax
In general, information reporting requirements may apply to principal
and interest payments on an Outstanding Note or Exchange Note and to payments of
the proceeds of the sale of an Outstanding Note or Exchange Note. A 31% backup
withholding tax may apply to such payments unless the Holder (i) is a
corporation, Non-U.S. Holder or comes within certain other exempt categories
and, when required, demonstrates its exemption, or (ii) 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 an Outstanding Note or Exchange Note who does not
provide the Company with the Holder's correct taxpayer identification number may
be subject to penalties imposed by the IRS. Any amounts withheld under the
backup withholding rules from a payment to a Holder will be allowed as a credit
against such Holder's United States federal income tax, provided that the
required information is furnished to the IRS.
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BOOK-ENTRY; DELIVERY AND FORM
The Outstanding Notes and the related guarantees are and the Exchange Notes
(and related guarantees) initially will be represented by one or more permanent
global certificates in definitive, fully registered form (the "Global Notes").
The Global Notes will be deposited on the Issue Date with, or on behalf of, The
Depository Trust Company, New York, New York (the "Depository") and registered
in the name of a nominee of the Depository.
The Global Notes. The Company expects that pursuant to procedures
established by the Depository (i) upon the issuance of the Global Notes, the
Depository or its custodian will credit, on its internal system, the principal
amount of Notes of the individual beneficial interests represented by such
Global Notes to the respective accounts of persons who have accounts with such
depositary and (ii) ownership of beneficial interests in the Global Notes will
be shown on, and the transfer of such ownership will be effected only through,
records maintained by the Depository or its nominee (with respect to interests
of participants) and the records of participants (with respect to interests of
persons other than participants). Such accounts initially will be designated by
or on behalf of the Initial Purchasers and ownership of beneficial interests in
the Global Notes will be limited to persons who have accounts with the
Depository ("participants") or persons who hold interests through participants.
QIBs and institutional Accredited Investors who are not QIBs may hold their
interests in the Global Notes directly through the Depository if they are
participants in such system, or indirectly through organizations which are
participants in such system.
So long as the Depository, or its nominee, is the registered owner or
holder of the Notes, the Depository or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such Global
Notes for all purposes under the Indenture. No beneficial owner of an interest
in the Global Notes will be able to transfer that interest except in accordance
with the Depository's procedures, in addition to those provided for under the
Indenture with respect to the Notes.
Payments of the principal of, premium (if any), interest (including
Additional Interest) on, the Global Notes will be made to the Depository 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
interest.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal, premium, if any, interest (including Additional Interest)
on the Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of the Depository or its nominee.
The Company also expects that payments by participants to owners of beneficial
interests in the Global Notes held through such participants will be governed by
standing instructions and customary practice, as is now the case with securities
held for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in the Depository will be effected in the
ordinary way through the Depository's same-day funds system in accordance with
the Depository rules and will be settled in same day funds. If a holder requires
physical delivery of
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a Certificated Security for any reason, including to sell Notes to persons
in states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in a Global Note, in
accordance with the normal procedures of the Depository and with the procedures
set forth in the Indenture.
The Depository 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 account the the Depository interests in the Global Notes
are 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 under the Indenture,
the Depository will exchange the Global Notes for Certificated Securities, which
it will distribute to its participants.
The Depository has advised the Company as follows: the Depository is a
limited purpose trust company organized under the laws of the State of New York,
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 Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Depository 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 the Depository 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 the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of the
Depository, it is under no obligation 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 the Depository or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
Certificated Securities. If (i) the Depository is at any time unwilling or
unable to continue as a depositary for the Global Note and a successor
depositary is not appointed by the Company within 90 days or (ii) an Event of
Default has occurred and is continuing and the Registrar (as defined in the
Indenture) has received a written request from the Depository to issue
certificated securities, permanent certificated securities will be issued in
exchange for the Global Notes.
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PLAN OF DISTRIBUTION
Based on interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in no-action letters issued to third
parties, the Company believes that, except as described below, Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by the respective holders thereof without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that (i) such Exchange Notes are acquired in the
ordinary course of such holder's business and (ii) such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution of the Exchange Notes. A holder of Outstanding
Notes that is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act or that is a broker-dealer that purchased Outstanding Notes
from the Company to resell pursuant to an exemption from registration under the
Securities Act (a) cannot rely on such interpretations by the staff of the
Division of Corporation Finance of the Commission, (b) will not be permitted or
entitled to tender such Outstanding 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 Outstanding
Notes unless such sale or transfer is made pursuant to an exemption from such
requirements. In addition, any holder who tenders Outstanding Notes in the
Exchange Offer with the intention or for the purpose of participating in a
distribution of the Exchange Notes cannot rely on such interpretation by the
staff of the Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Unless an exemption from registration is otherwise
available, any such resale transaction should be covered by an effective
registration statement containing selling security holders information required
by Item 507 of Regulation S-K under the Securities Act. To date, the staff of
the Commission has taken the position that a broker-dealer that has acquired
securities in exchange for securities that were acquired by such broker-dealer
as a result of market-making activities or other trading activities may fulfill
its prospectus delivery requirements with the prospectus contained in an
exchange offer registration statement.
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company set forth in "The Exchange Offer - Acceptance for
Exchange and Issuance of Exchange Notes."
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. This Prospectus may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, starting on
the date the Registration Statement is declared effective and generally ending
on the close of business on the 180th day following such date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "The Exchange Offer - Resales of Exchange Notes."
-121
<PAGE>
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to 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 Exchange 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 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 Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit from any
such resale of Exchange 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.
In general, for a period of 180 days after the date the Registration
Statement is declared effective, the Company will promptly send additional
copies of this Prospectus and any amendment or supplement to this Prospectus to
any Participating Broker-Dealer that requests such documents in the Letter of
Transmittal. The Company and the Subsidiary Guarantors has agreed to pay the
expenses incident to the Exchange Offer, other than any discounts or commissions
incurred upon the sale of the Notes. The Company and the Subsidiary Guarantors
will indemnify the holders of the Outstanding Notes and each Participating
Broker-Dealer selling Exchange Notes during a period generally not to exceed 180
days after the effective date of the Registration Statement against certain
liabilities, including liabilities under the Securities Act.
-122-
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes issued in the Exchange Offer will be
passed upon for the Company by Thompson & Knight, P.C., Dallas, Texas.
EXPERTS
The consolidated balance sheet of Magnum Hunter Resources, Inc. as of
December 31, 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended, included elsewhere
and incorporated by reference in this Prospectus, have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report which is included
and incorporated by reference herein and have been so included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of the Company as of December 31, 1995 and for the
year then ended have been audited by Hein + Associates LLP, independent
certified public accountants, as stated in their report which is included and
incorporated by reference herein and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing. The change in accountants from Hein + Associates LLP to Deloitte &
Touche LLP was effective for fiscal 1996 and was not due to any disagreements
between the Company and Hein + Associates LLP.
The historical summaries of revenues and direct operating expenses of the
Permian Basin Properties for the years ended December 31, 1996, 1995 and 1994
and the Properties Acquired June 28, 1996 have been audited by Hein + Associates
LLP, independent certified public accountants, as stated in their reports, the
first of which is included and incorporated by reference herein and the second
of which is incorporated by reference herein and have been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The reference to the report of Ryder Scott Co., independent petroleum
consultants, contained herein estimating the Proved Reserves, future net cash
flows from such Proved Reserves and the SEC PV-10 of such estimated future net
cash flows for the Permian Basin Properties as of December 31, 1996 is made in
reliance upon the authority of such firm as an expert with respect to such
matters.
The reference to the report of Gaffney, Cline & Associates Inc.,
independent petroleum consultants, contained herein estimating the Proved
Reserves, future net cash flows from such Proved Reserves and the SEC PV-10 of
such estimated future net cash flows for the Company's properties (other than
certain west Texas properties) as of December 31, 1996 is made in reliance upon
the authority of such firm as experts with respect to such matters.
The reference to the report of Glenn Harrison Petroleum Consultants,
Inc., independent petroleum consultants, contained herein estimating the
Company's Proved Reserves, future net cash flows from such Proved Reserves and
the SEC PV-10 of such estimated future net cash flows for certain west Texas
properties as of December 31, 1996 is made in reliance upon the authority of
such firm as experts with respect to such matters.
The reference to the reports of James J. Weisman, Jr., an independent
petroleum engineer, contained herein auditing the Company's estimates of its
Proved Reserves, the estimated future net cash flows from such Proved Reserves,
and the SEC PV-10 of such estimated future net cash flows as of December 31,
1995 and estimating Hunter's Proved Reserves, the estimated net cash flows from
such Proved Reserves, and the SEC PV-10 of such
-123-
<PAGE>
future net cash flows as of December 31, 1994 is made in reliance upon the
authority of such individual as an expert with respect to such matters.
The reference to the report of Hensley Consultants, Inc., independent
petroleum consultants, contained herein estimating the Company's Proved
Reserves, the estimated future net cash flows from such Proved Reserves, and the
SEC PV-10 of such estimated future net cash flows as of December 31, 1994 is
made in reliance upon the authority of such firm as experts with respect to such
matters.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the office of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as the regional offices of the Commission at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such information can be obtained by
mail from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Additionally,
the Commission maintains a web site that contains reports, proxy statements and
other information regarding registrants that file electronically with the
Commission. The address of the Commission's web site is http://www.sec.gov. The
Company's Common Stock is listed on the American Stock Exchange and copies of
reports, proxy statements and other information concerning the Company also can
be inspected at the offices of the American Stock Exchange, 86 Trinity Place,
New York, New York 10006-1881.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K (or, if
permitted, Forms 10-QSB and 10-KSB) if the Company were required to file such
Forms, including for each a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, a report thereof by the Company's independent certified public accountants
and (ii) all reports that would be required to be filed on Form 8-K if it were
required to file such reports. In addition, for so long as any of the Notes
remain outstanding, the Company has agreed to make available to any prospective
purchaser of the Notes or beneficial owner of the Notes, in connection with any
sale thereof, the information required by Rule 144A(d)(4) under the Securities
Act. Any such request should be directed to the Company at the address and phone
number set forth below.
This Prospectus constitutes a part of a registration statement on Form
S-4 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act. This Prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, and reference is
hereby made to the Registration Statement and to the exhibits relating thereto
for further information with respect to the Company and the Notes. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is made to a copy of such
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission. Each such statement is qualified in its entirety by such
reference.
The Company, a corporation organized under the laws of Nevada, has its
principal executive offices located at 600 East Las Colinas Blvd., Suite 1200,
Irving, Texas 75039; its telephone number is (972) 401-0752.
-124-
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents and information heretofore filed with the
Commission by the Company are hereby incorporated by reference into this
Prospectus:
1. The Company's Annual Report on Form 10-KSB for the year ended December
31, 1996, as amended by Form 10-KSB/A filed June 27, 1997;
2. An amendment to the Company's Quarterly Report on Form 10-QSB/A for the
quarter ended September 30, 1996, filed on March 18, 1997;
3. The Company's Quarterly Report on Form 10-QSB for the quarters ended
March 31, 1997, as amended by Form 10-QSB/A filed on May 21, 1997, and
June 30, 1997; and
4. The Company's Current Reports on Form 8-K dated June 28, 1996 (as
amended by Forms 8-K/A filed on August 13, 1996 and August 16, 1996),
December 23, 1996, January 20, 1997 (as amended by Form 8-K/A filed on
February 5, 1997), February 28, 1997, May 20, 1997 and May 29, 1997.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), prior to the termination of the Offering shall be deemed
to be incorporated by reference into this Prospectus and to be a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained 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 so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any and all of the documents incorporated
by reference herein (other than exhibits to such documents which are not
specifically incorporated by reference in such documents). Written requests for
such copies should be directed to the Company, 600 East Las Colinas Blvd., Suite
1200, Irving, Texas 75039, Attention: Morgan F. Johnston, Vice President,
General Counsel and Secretary. Telephone requests may be directed to Mr.
Johnston at (972) 401-0752.
-125-
<PAGE>
GLOSSARY
The terms defined in this glossary are used throughout this Prospectus.
Bbl. One stock tank barrel, or 42 U.S. gallons
liquid volume, used herein in reference to
oil or other liquid hydrocarbons.
Bbl/d. One billion cubic feet of natural gas per
day.
Bcf. One billion cubic feet of natural gas.
Bcfe. One billion cubic feet of natural gas
equivalents converting one Bbl of oil to six
Mcf of natural gas.
Btu. British Thermal Unit, the quantity of heat
required to raise one pound of water by one
degree Fahrenheit.
Developed Acreage. The number of acres which are allocated or
assignable to producing wells or wells
capable of production.
Development Well. A well drilled within the proved area of an
oil or gas reservoir to the depth of a
stratigraphic horizon known to be productive
Dry Hole. A well found to be incapable of producing
either oil or natural gas in sufficient
quantities to justify completion as an oil
or natural gas well.
Exploratory Well. A well drilled to find and produce oil or
gas in an unproved area, to find a new
reservoir in a field previously found to be
productive of oil or gas in another
reservoir, or to extend a known reservoir.
Gross acres or gross wells. The total acres or wells, as the case may
be, in which a working interest is owned.
In-fill Well. A well drilled between known producing
wells to better exploit the reservoir.
MBbl. One thousand barrels of oil or other liquid
hydrocarbons.
Mcf. One thousand cubic feet of natural gas.
Mcfe. One thousand cubic feet of natural gas
equivalents converting one Bbl of oil to six
Mcf of natural gas.
Mcfe/d. Mcfe per day.
MMBbl. One million barrels of oil or other liquid
hydrocarbons.
MMBtu. One million Btu.
MMcf. One million cubic feet of natural gas.
MMcfe. One million cubic feet of natural gas
equivalents converting one Bbl of oil to six
Mcf of natural gas.
-126-
<PAGE>
MMcf/d. One million cubic feet of natural gas per
day.
Natural Gas Equivalent. The amount of natural gas having the same
Btu content as a given quantity of oil,
with one Bbl of oil being converted to six
Mcf of natural gas.
Net Acres or Net Wells. The sum of the fractional working interests
owned in gross acres or gross wells.
Net Oil and Gas Sales. Oil and natural gas sales less oil and
natural gas production expenses.
Net Revenue Interest. A share of the Working Interest that does
not bear any portion of the expense of
drilling and completing a well and that
represents the holder's share of production
after satisfaction of all royalty,overriding
royalty, oil payments and other nonoperating
interests.
Productive Well. A well that is producing oil or natural gas
or that is capable of production in
paying quantities.
Proved Developed
Non-Producing Reserves. Reserves that consist of (i) proved reserves
from wells which have been completed and
tested but are not producing due to lack of
market or minor completion problems which
are expected to be corrected and (ii) proved
reserves currently behind the pipe in
existing wells and which are expected to be
productive due to both the well log
characteristics and analogous production in
the immediate vicinity of the wells.
Proved Developed
Producing Reserves. Reserves that can be expected to be
recovered from currently producing zones
under the continuation of present operating
methods.
Proved Developed Reserves. Reserves that can be expected to be
recovered through existing wells with
existing equipment and operating methods.
Proved Reserves. The estimated quantities of oil,
natural gas and natural gas liquids which
geological and engineering data demonstrate
with reasonable certainty to be recoverable
in future years from known reservoirs under
existing economic and operating conditions.
Proved Undeveloped Reserves. Proved reserves that are expected to be
recovered from new wells on undrilled
acreage, or from existing wells
where a relatively major expenditure is
required for recompletion.
-127-
<PAGE>
Recompletion. The completion for production of an existing
wellbore in a different formation or
producing horizon from that in which the
well was previously completed.
Reserve Life. The estimated productive life of a
proved reservoir based upon the economic
limit of such reservoir producing
hydrocarbons in paying quantities assuming
certain price and cost parameters. For
purposes of this Prospectus, reserve life is
calculated by dividing the Proved Reserves
(on an Mcfe basis) at the end of the period
by projected production volumes for the next
12 months.
Royalty Interest. An interest in an oil and natural gas
property entitling the owner to a share of
oil and natural gas production free of cost
of production.
SEC PV-10. The present value of proved reserves is an
estimate of the discounted future net cash
flows from each of the properties at
December 31, 1996, or as otherwise
indicated. Net cash flow is defined as net
revenues less, after deducting production
and ad valorem taxes, future capital costs
and operating expenses, but before deducting
federal income taxes. As required by rules
of the Commission, the future net cash flows
have been discounted at an annual rate of
10% to determine their "present value." The
present value is shown to indicate the
effect of time on the value of the revenue
stream and should not be construed as being
the fair market value of the properties. In
accordance with Commission rules, estimates
have been made using constant oil and gas
prices and operating costs, at December 31,
1996, or as otherwise indicated.
Undeveloped Acreage. Lease acreage on which wells have
not been drilled or completed to a point
that would permit the production of
commercial quantities of oil and natural gas
regardless of whether such acreage contains
proved reserves.
Working Interest. The operating interest that gives
the owner the right to drill, produce and
conduct operating activities on the property
and a share of production, subject to all
royalties, overriding royalties and other
burdens and to all costs of exploration,
development and operations and all risks in
connection therewith.
-128-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Audited Financial Statements
Independent Auditors' Report-Deloitte & Touche LLP..................................................... F-2
Independent Auditors' Report-Hein + Associates LLP..................................................... F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995........................................... F-4
Consolidated Statements of Operations for the years ended December 31, 1996 and 1995................... F-6
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996 and 1995......... F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995................... F-9
Notes to Consolidated Financial Statements............................................................. F-10
Supplemental Information on Oil and Gas Producing Activities (Unaudited)............................... F-27
Unaudited Consolidated Financial Statements
Consolidated Balance Sheet as of June 30, 1997 (Unaudited) ........................................... F-30
Consolidated Statements of Operations for the three months ended June 30, 1997 and 1996
and the six months ended June 30, 1997 and 1996 (Unaudited)......................................... F-31
Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1996
(Unaudited)......................................................................................... F-32
Notes to Consolidated Financial Statements (Unaudited)................................................. F-33
Financial Statements of Permian Basin Properties
Independent Auditors' Report-Hein + Associates LLP..................................................... F-35
Historical Summaries of Revenues and Direct Operating Expenses of the Permian Basin Properties
for the years ended December 31, 1996, 1995 and 1994 and for the four month periods ended April 30,
1997 and 1996....................................................................................... F-36
Notes to Historical Summaries of Revenues and Direct Operating Expenses for the years ended
December 31, 1996, 1995 and 1994 and for the four month periods ended April 30, 1997 and 1996....... F-37
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Magnum Hunter Resources, Inc.
We have audited the accompanying consolidated balance sheet of Magnum Hunter
Resources, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Magnum Hunter Resources, Inc.
and Subsidiaries as of December 31, 1996, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Dallas, Texas
March 14, 1997 (April 30, 1997 as to Note 16)
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Magnum Hunter Resources, Inc.
We have audited the accompanying consolidated balance sheet of Magnum Hunter
Resources, Inc. (formerly Magnum Petroleum, Inc.) and Subsidiaries as of
December 31, 1995, and the related consolidated statements of operations, cash
flows, and stockholders' equity for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Magnum Hunter Resources, Inc.
and Subsidiaries as of December 31, 1995, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for oil and gas producing operations from the successful
efforts method to the full cost method.
HEIN + ASSOCIATES LLP
Dallas, Texas
April 3, 1996
F-3
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
-----------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,687 $ 1,544
Securities available for sale 233 101
Accounts receivable:
Trade, net of allowance of $132 and $134 4,372 1,247
Due from affiliates 241 116
Notes receivable from affiliate 264 121
Current portion of long-term note receivable 198 201
Prepaid and other 52 22
-----------------------------------------
TOTAL CURRENT ASSETS 7,047 3,352
-----------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties, full cost method:
Unproved 459 843
Proved 70,575 36,257
Pipelines 7,102 1,087
Other property 381 146
---------------------------------------
TOTAL PROPERTY, PLANT AND EQUIPMENT 78,517 38,333
Accumulated depreciation, depletion and impairment (4,869) (1,928)
---------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 73,648 36,405
---------------------------------------
OTHER ASSETS
Deposits and other assets 645 118
Long-term notes receivable, net of imputed interest 1,732 190
---------------------------------------
TOTAL ASSETS $ 83,072 $ 40,065
================= ==============
The accompanying notes are an integral part of these consolidated financial statements.
F-4
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable and accrued liabilities $ 3,698 $ 1,283
Gas imbalance payable 242
Dividends payable 22 177
Suspended revenue payable 784 794
Current maturities of long-term debt 22 2,014
----------------------------------------
TOTAL CURRENT LIABILITIES 4,768 4,268
----------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current maturities 38,744 7,598
Production payment liability 937 288
Other - 290
Deferred income taxes 3,469 3,125
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 10,000,000 shares authorized
216,000 designated as Series A; 80,000 and 80,000 issued and outstanding, respectively,
liquidation amount $0 - -
925,000 designated as Series B; none and 62,050 issued and outstanding, respectively - -
625,000 designated as Series C; none and 625,000 shares issued and outstanding,
respectively - 1
1,000,000 designated as 1996 Series A Convertible ; 1,000,000 and none issued and
outstanding, respectively, liquidation amount $10,000,000 1 -
Common stock - $.002 par value; 50,000,000 shares authorized;
14,252,822 issued and 11,598,183 shares issued and outstanding, respectively 29 23
Additional paid-in capital 40,216 29,660
Accumulated deficit (5,142) (5,245)
Unrealized gain on investments 51 57
----------------------------------------
35,155 24,496
Treasury stock (544,495 shares of common stock) (1) -
-----------------------------------------
TOTAL STOCKHOLDERS' EQUITY 35,154 24,496
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 83,072 $ 40,065
================= ==============
The accompanying notes are an integral part of these consolidated financial statements.
F-5
</TABLE>
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------
1996 1995
---------------------------
<S> <C> <C>
OPERATING REVENUE
Oil and gas sales $ 10,248 $ 617
Gas gathering and marketing 5,768 -
Oil field services and commissions 396 32
---------------------------
TOTAL OPERATING REVENUE 16,412 649
---------------------------
OPERATING COSTS AND EXPENSES
Oil and gas production 4,390 268
Gas gathering and marketing 4,708 -
Costs related to other services 267 26
Depreciation and depletion 2,951 421
General and administrative 1,225 977
---------------------------
TOTAL OPERATING COSTS AND EXPENSES 13,541 1,692
---------------------------
OPERATING PROFIT (LOSS) 2,871 (1,043)
OTHER INCOME 344 77
INTEREST EXPENSE (2,394) (2)
---------------------------
NET INCOME (LOSS) BEFORE INCOME TAXES 821 (968)
Provision for deferred income taxes (312) -
---------------------------
NET INCOME (LOSS) 509 (968)
DIVIDENDS APPLICABLE TO PREFERRED SHARES (406) (617)
---------------------------
INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 103 $ (1,585)
============= ===========
INCOME (LOSS) PER COMMON SHARE $ 0.01 $ (0.28)
============= ===========
COMMON SHARES USED IN PER SHARE CALCULATION 12,485,893 5,606,669
============= ===========
The accompanying notes are an integral part of these consolidated financial statements
F-6
</TABLE>
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(in thousands of dollars)
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Treasury Stock Paid-In
Shares Amount Shares Amount Shares Amount Capital
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 645,775 $ 1 4,537,045 $9 $12,606
-----------------------------------------------------------------------------
Conversion of preferred stock to common stock (11,300) - 28,900 -
Issuance and costs from exercise of warrants 20,750 - 833,324 2 2,841
Issuance of Series C preferred stock 249
Issuance of common stock to acquire oil and gas
properties 386,615 1 1,378
Issuance of common stock for services 602,222 1 1,370
Issued to directors for collateral 125,000 -
Sale of investment shares
Payments received on receivable from stockholders
Acquisition of Hunter Resources, Inc. for Series C
preferred stock and common stock 111,825 - 5,085,077 10 11,216
Dividends declared on preferred stock
Net loss from operations
Unrealized gain on investments
-----------------------------------------------------------------------------
Balance at December 31, 1995 767,050 $ 1 11,598,183 $23 - - $29,660
-----------------------------------------------------------------------------
Conversion of preferred stock to common stock (658,934) (1) 1,821,638 4 (3)
Redemption of 28,116 shares of Series C preferred stock (28,116) (294)
Issuance of 1996 Series A convertible preferred stock,
net of offering costs 1,000,000 1 9,785
Shares issued as collateral, returned and held
as treasury stock 610,170 1 (610,170) (1) (1)
Exercise of employees' common stock options - - 12,258 - 9
Issuance of common stock to acquire oil and gas properties 188,410 1 51,300 - 938
Sale of investment shares
Dividends declared on preferred stock 34,421 - 2,117 - 122
Net income from operations
Unrealized gain on investments
-----------------------------------------------------------------------------
Balance at December 31, 1996 1,080,000 $ 1 14,252,822 $ 29 (544,495) $(1) $40,216
========= ====== ========== ======= ========= ===== ========
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
F-7
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (continued)
(in thousands of dollars)
<TABLE>
<CAPTION>
Unrealized Gain
Deferred Costs Receivable (Loss) On
of Warrant Accumulated from Investments
Offerings Deficit Stockholder
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $(240) $(3,659) $(63) $ (9)
-------------------------------------------------------------
Conversion preferred stock to common stock
Issuance and costs from exercise of warrants 240
Issuance of Series C preferred stock
Issuance of common stock for services and
to acquire oil and gas properties
Issued to directors for collateral
Sale of investment shares 9
Payments received on receivable from stockholders 63
Acquisition of Hunter Resources, Inc. for Series C
preferred stock and common stock
Dividends declared on preferred stock (618)
Net income from operations (968)
Unrealized gain on investments 57
--------------------------------------------------------------
Balance at December 31, 1995 $ - $(5,245) $ - $ 57
--------------------------------------------------------------
Conversion of preferred stock to common stock
Redemption of 28,116 shares of Series C preferred stock
Issuance of 1996 Series A convertible preferred stock,
net of offering costs
Shares issued as collateral, returned and held
as treasury stock
Exercise of employees' common stock options
Issuance of common stock to acquire oil and gas
properties
Sale of investment shares (57)
Dividends declared on preferred stock (406)
Net income from operations 509
Unrealized gain on investments 51
--------------------------------------------------------------
Balance at December 31, 1996 $ - $(5,142) $ - $ 51
========= ======= ========= =====
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
F-8
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------------
1996 1995
------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 509 $ (968)
Adjustments to reconcile net income (loss) to cash provided by (used for)
operating activities:
Depreciation and depletion 2,951 421
Deferred income taxes 312 -
Common stock issued for services - 102
(Gain) Loss on sale of assets (143) 76
Other 32 15
Changes in certain assets and liabilities:
Accounts receivable (3,250) (37)
Costs in excess of billings on uncompleted drilling contracts - 55
Deposits and other assets (30) -
Accounts payable and accrued liabilities 2,647 (513)
------------------------------
Net Cash Provided By (Used By) Operating Activities $ 3,028 $ (849)
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 318 88
Additions to property and equipment (41,471) (1,244)
Increase in deposits and other assets (527) -
Loan made for promissory note receivable (58) (121)
Payments received on promissory notes receivable - 334
Purchase of securities available for sale - (30)
Obligations and property acquisitions funded in Hunter acquisition - (1,034)
------------------------------
Net Cash Used By Investing Activities (41,738) (2,007)
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt and production payment 57,262 -
Payments of principal on long-term debt and production payment (27,459) (186)
Payments on other liabilities (290) -
Proceeds from issuance of common and preferred stock,
net of offering costs 9,796 3,332
Redemption of preferred stock (295) -
Payments received on notes receivable 277 62
Increase in segregated funds for payments of notes payable - 130
Dividends paid (438) (583)
-------------------------------
Net Cash Provided By Financing Activities 38,853 2,755
-------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 143 (101)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,544 1,645
------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,687 $ 1,544
============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-9
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Magnum Hunter Resources, Inc. (the "Company"), formerly Magnum
Petroleum, Inc., is incorporated under the laws of the state of Nevada. The
Company is engaged in the acquisition, operation and development of oil and gas
properties, the gathering, transmission and marketing of natural gas, providing
management and advisory consulting services on oil and gas properties for third
parties, and providing consulting and U.S. export services to facilitate Latin
American trade in energy products. In conjunction with the above activities, the
Company owns and operates oil and gas properties in six states, predominantly in
the Southwest region of the United States. In addition, the Company owns and
operates four gathering systems located in Texas, Louisiana and Oklahoma.
Merger and Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its existing wholly-owned subsidiaries, Gruy Petroleum
Management Company, Hunter Gas Gathering, Inc., Inesco Corporation, Magnum
Hunter Production, Inc., Midland Hunter Petroleum Limited Liability Company, and
SPL Gas Marketing, Inc. and its 51% owned subsidiary, Hunter Butcher
International Limited Liability Company. As more fully discussed in Note 3, the
Company entered into an amended definitive agreement on December 19, 1995 to
acquire all of the assets, subject to the existing liabilities, of Hunter
Resources, Inc. ("Hunter"). The purchase was accounted for by the purchase
method effective December 31, 1995. As such, the accompanying consolidated
financial statements for 1995 include the balance sheet accounts of Hunter.
However, the Statement of Operations for 1995 does not include the operations of
Hunter for that fiscal year. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to the consolidated financial statements of the prior year to
conform with the current presentation.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents. The Company has cash
deposits in excess of federally insured limits.
Investments
In 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Under this standard, the equity securities held by the Company that
have readily determinable fair values are classified as current assets
available-for-sale and are measured at fair value. Unrealized gains and losses
for these investments are reported as a separate component of stockholders'
equity. In 1994, investments in equity securities for which sale within one year
was restricted by governmental securities regulations were classified as
non-current assets.
At December 31, 1996, the Company's available for sale securities had
an amortized cost basis of $150,000, gross unrealized gains reported in equity
of $51,150 and a fair market value of $232,500. During 1996, securities were
sold for gross proceeds of $187,312 and the Company realized a gain of $142,872.
F-10
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 1995, the Company's available for sale securities had
an amortized cost basis of $44,440, gross unrealized gains reported in equity of
$57,200 and a fair market value of $101,640. During 1995, securities were sold
for gross proceeds of $73,083 and the Company realized a gain of $19,370.
Suspended Revenues
Suspended revenue interests represent oil and gas sales payable to
third parties largely on properties operated by the Company. The Company
distributes such amounts to third parties upon receipt of signed division orders
or resolution of other legal matters.
Oil and Gas Producing Operations
The Company follows the full-cost method of accounting for oil and gas
properties, as prescribed by the Securities and Exchange Commission ("SEC").
Accordingly, all costs associated with acquisition, exploration and development
of oil and gas reserves, including directly related overhead costs, are
capitalized.
All capitalized costs of oil and gas properties, including the
estimated future costs to develop proved reserves, are amortized on the
unit-of-production method using estimates of proved reserves. Cost directly
associated with the acquisition and evaluation of unproved properties are
excluded from the amortization base until the related properties are evaluated.
Such unproved properties are assessed periodically and any provision for
impairment is transferred to the full-cost amortization base. Sales of oil and
gas properties are credited to the full-cost pool unless the sale would have a
significant effect on the amortization rate. Abandonments of properties are
accounted for as adjustments to capitalized costs with no loss recognized. The
Company's unproved properties excluded from the amortization base were $459,000,
$843,000, and $700,000 at December 31, 1996, 1995, and 1994, respectively. These
costs arose in 1995 and 1994 and are expected to be evaluated and transferred
into the amortization base over the next twelve months.
The net capitalized costs are subject to a "ceiling test," which
generally limits such costs to the aggregate of the estimated present value of
future net revenues from proved reserves discounted at ten percent based on
current economic and operating conditions.
Drilling Operations
Fees from fixed-price contracts with other working interest owners to
drill, complete and place oil and gas wells into production, less related costs,
are accounted for as adjustments to oil and gas properties.
Pipelines
Pipelines are carried at cost. Depreciation is provided using the
straight-line method over an estimated useful life of 15 years. Gain or loss on
retirement or sale or other disposition of assets is included in results of
operations in the period of disposition.
F-11
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Property
Other property and equipment are carried at cost. Depreciation is
provided using the straight-line method over estimated useful lives ranging from
five to ten years. Gain or loss on retirement or sale or other disposition of
assets is included in results of operations in the period of disposition.
Other Oil and Gas Related Services
Other oil and gas related services consist largely of fees earned from
the Company's salt water disposal facility. Such fees are recognized in the
month the disposal service is provided.
Impact of Recently Issued Pronouncements
The Financial Accounting Standards Board has issued Statement No. 121,
("SFAS No. 121") "Accounting for Impairments of Long-Lived Assets and Assets to
be Disposed of", and Statement No. 123,"Accounting For Stock-Based Compensation"
("SFAS No. 123"). The Company adopted the provisions of SFAS No.121 in 1996 but
it did not have any effect on the Company's consolidated financial statements,
and it adopted the disclosures only portion of SFAS No. 123 as it continued to
follow the provisions of APB No. 25 which is the intrinsic value method of
accounting for stock-based compensation. See Note 15 which follows for the
effect of stock based compensation on a pro forma basis.
Income Taxes
The Company files a consolidated federal income tax return. Income
taxes are provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due, if any, plus net deferred taxes
related primarily to differences between the basis of assets and liabilities for
financial and income tax reporting. Deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled. Deferred tax assets include recognition of operating losses that are
available to offset future taxable income and tax credits that are available to
offset future income taxes. Valuation allowances are recognized to limit
recognition of deferred tax assets where appropriate. Such allowances may be
reversed when circumstances provide evidence that the deferred tax assets will
more likely than not be realized.
Income or Loss Per Common Share
Income or loss per common share is based on the weighted average number
of shares of common stock outstanding. Convertible securities and warrants were
anti-dilutive at December 31, 1996, 1995, and 1994 and were not included in the
calculation of income or loss per common share.
Deferred Cost of Warrant Exercise Offering
The Company incurred costs to update its registration statement
relating to Series C preferred stock that is convertible into common stock and
relating to common stock purchase warrants. The Company made an offer to the
warrant holders allowing them to exercise their warrants at a discount through
February 16, 1995. As presented in Note 9, certain of the common stock purchase
warrants were exercised prior to the expiration of the discount period. The
Company had deferred direct costs as of December 31, 1994 of $240,281 related to
the discounted warrant
F-12
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
exercise offering. Such costs and $250,488 incurred in 1995 were offset against
the proceeds received in 1995 from the exercise of the warrants. There were no
warrants exercised during 1996.
Use of Estimates and Certain Significant Estimates
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ from
those estimates. Significant assumptions are required in the valuation of proved
oil and gas reserves, which as described above may affect the amount at which
oil and gas properties are recorded. It is at least reasonably possible those
estimates could be revised in the near term and those revisions could be
material.
NOTE 2-CHANGE IN ACCOUNTING METHOD
The Company accounted for its oil and gas producing activities using
the successful efforts method from inception through June 30, 1995. However, the
full cost method has subsequently been adopted. The Company is of the opinion
that the full cost method of accounting is preferable to the successful efforts
method of accounting for its oil and gas activities for the following reasons:
(1) The Company recently acquired the subsidiaries of Hunter (See note
3),which comprise corporations engaged in oil and gas related activities and
which utilize the full cost method of accounting for these activities. For both
legal and accounting purposes, the Company is the acquiring entity; however, the
subsidiaries are increasing their oil and gas activities and have more proved
oil and gas reserves than the Company. Furthermore, management of Hunter became
the management of the Company upon completion of the acquisition. One of the
Hunter subsidiaries specializes in the management of oil and gas properties and
all accounting functions and financial reporting have been undertaken by the
subsidiary's personnel. The individuals employed by the subsidiaries have
comprised the vast majority of the Company's employees and the Company believes
that by allowing these employees and Hunter's management to continue to use the
full cost method, it would greatly benefit in accurately reporting on its oil
and gas operations.
(2) The subsidiaries have established relationships with lending sources
which the Company intends to continue to utilize and expand upon. These sources
are accustomed to evaluating the subsidiaries' financial statements on the full
cost method of accounting. The Company intends to request additional borrowing
arrangements from these lenders and believes that it is desirable for these
lending sources to review financial statements prepared on a consistent basis.
The accompanying financial statements have been restated to apply the
full cost method retroactively. This change in accounting principle has no
significant effect on income taxes. The effect of the accounting change on net
loss and accumulated deficit as previously reported for the respective periods
is:
<TABLE>
<CAPTION>
<S> <C>
Year Ended
December 31, 1994
---------------------
Statement of Operations:
Net Loss as Previously Recorded............................................................ $(1,258,808)
Adjustment for Effect of Change in Accounting Principle that is Applied Retroactively...... $712,426
Net Loss as Adjusted....................................................................... $(546,382)
Per Share Amounts:
Net Loss as Previously Reported............................................................ $(.44)
Adjustment for Effect of Change in Accounting Principle that is Applied Retroactively...... $(.17)
Net Loss as Adjusted....................................................................... $(.27)
Common Shares Used in Per Share Calculation................................................ 4,166,822
</TABLE>
F-13
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31,
-----------------------
1995 1994
---- ----
Statement of Accumulated Deficit:
Balance at Beginning of Period as Previously Reported........................... $(4,166,058) $(2,327,925)
Add Adjustment for the Cumulative Effect on Prior Years of Applying
Retroactively the Full Cost Method............................................ 506,651 (205,775)
----------------- -------------
Balance at Beginning of Period, as Adjusted..................................... (3,659,407) (2,533,700)
Net Loss........................................................................ (968,272) (546,382)
Preferred Dividends............................................................. (617,220) (579,325)
----------------- --------------
Balance at End of Year.......................................................... $(5,244,899) $(3,659,407)
================= ==============
</TABLE>
The effect on 1995 operations of changing the accounting method was to
increase net loss and net loss per share by $307,000 and $.05, respectively.
NOTE 3-ACQUISITIONS AND DISPOSITIONS
During the year ended December 31, 1994, the Company acquired three
properties through the issuance of both cash and common stock. One property was
acquired for $888,000, for which the Company paid $200,000 cash and issued
343,000 shares of its common stock, based on a value of $2.00 per share or
$686,000. Two other properties were acquired for a total of $692,500. In one
transaction, 150,000 shares were issued at $1.25 per share for $187,500 and in
the other transaction, 120,000 shares were issued at $3.00 per share for
$360,000. In the latter transaction, the Company committed to file a
registration statement relating to 40,000 shares, and has agreed to pay all
costs relating to the registration of these shares.
During 1994, the Company sold a 20% working interest in unproved oil
and gas mineral leases in which the Company has acquired an interest. The
Company received cash and 22,220 shares of common stock of a publicly traded
corporation.
During March 1995, the Company acquired an additional fifty percent
(50%) working interest (for a total of 100% working interest) in a proved
undeveloped oil and gas property on which one well is located. The acquisition
cost of this additional interest was $410,000, of which $130,000 was paid in
cash and 80,000 shares of the Company's restricted common stock, valued at $3.50
per share, were issued. During April 1995, the Company also acquired an
additional 40 percent (40%) working interest (for a total of ninety percent
(90%) working interest) in a proved undeveloped property on which one well is
located. The acquisition cost of this additional interest was $480,000, of which
$20,000 was paid in cash and 125,000 shares of the Company's restricted common
stock were issued, valued at $3.50 per share, and the transfer of securities
held by the Company as an investment in equity securities at December 31, 1994.
In October 1995, the Company issued 85,131 shares of restricted common
stock, valued at $3.52 per share, in an acquisition completed by a Hunter
subsidiary for the remaining stock ownership interest in a limited liability
company. Also, in October 1995, the Company issued 64,176 shares of restricted
common stock, valued at $4.00 per share, in an acquisition of oil and gas
properties completed by a Hunter subsidiary. In December 1995, the Company
issued 32,308 shares of restricted common stock, valued at $3.25 per share, in
an acquisition of a proven undeveloped property by a Hunter subsidiary.
F-14
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company executed a definitive agreement on July 21, 1995 to acquire
all of the assets, subject to the existing liabilities of Hunter Resources, Inc.
("Hunter"). Pursuant to the agreement, the Company issued, subject to
shareholder approval, 2,750,000 shares of its restricted common stock to Hunter
in exchange for the assets acquired. In addition, 575,000 shares of restricted
common stock were issued to a third party as an additional cost of the
acquisition. The third party distributed a total of 250,000 of the shares to a
former director and a former officer of the Company for their assistance in
completing the acquisition.
On December 19, 1995 to be effective December 22, 1995, the Company and
Hunter entered into an amended agreement. Under the terms of the amendment,
which was executed by Hunter shareholders representing over fifty percent (50%)
of the common stock of Hunter, an additional 2,335,077 shares of restricted
common stock and 111,825 shares of Series C preferred stock were issued to
Hunter. The acquisition was recorded under the "purchase method" of accounting,
based upon the estimated value of the shares issued of $12,495,005. The
operations of Hunter have been consolidated with those of the Company beginning
on December 31, 1995.
On June 28, 1996, the Company purchased 469 natural gas wells and
approximately 427 miles of a gas gathering pipeline system for a net purchase
price of $34,652,395. The properties are located in the Panhandle of Texas and
Western Oklahoma and are referred to as the "Panoma Properties." As the purchase
was not completed until the end of the second quarter of 1996, the consolidated
financial statements for 1996 include the operating results of the Panoma
Properties for only the last six months of the year.
On November 4, 1996, the Company entered into an agreement to sell
certain oil and gas properties for $1,850,000, including $150,000 of restricted
securities of an American Stock Exchange listed company and a $1,700,000
promissory note payable out of 100% of the net oil and gas income of the
properties. The agreement calls for the Company's subsidiary to continue to
operate the properties for a monthly management fee.
The following summary, prepared on a pro forma basis, presents the
results of operations for the years ended December 31, 1996 and 1995, as if the
acquisitions occurred as of the beginning of the respective years. The pro forma
information includes the effects of adjustments for increased general and
administrative expense, interest expense, depreciation, depletion and income
taxes:
1996 1995
---- ----
(Unaudited)
Revenue......................................... $20,653,000 $12,515,000
Net Income (Loss) Applicable to Common Stock.... (304,000) (4,403,000)
Net Income (Loss) Per Common Share.............. $(.02) $(.79)
Average shares outstanding...................... 12,485,893 5,606,669
NOTE 4-NOTES RECEIVABLE
During July of 1994, the Company received an interest bearing note due
on May 1, 1995, in exchange for $319,206 paid by the Company. Interest in the
amount of $3,000 per month accrued through February 28, 1995 and was paid in
March 1995. For the remaining two months, interest in the amount of $4,500 per
month was accrued which, along with the principal amount, was paid during May
1995. The note was collateralized by securities, the fair market value of which
was less than the amount of the note.
On July 28, 1995, the Company received a non-interest bearing note
receivable in the amount of $223,500 in exchange for its interest in an oil and
gas property. Interest at 10 percent was imputed on the note resulting in a
discount of $28,366. The note provides for payments of $7,000 per month which
were received timely in 1996. As of December 31, 1996, the unpaid balance, net
of discount, is $112,288.
F-15
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On November 4, 1996, the Company received an interest bearing note due
on November 1, 1999, in exchange for its interest in oil and gas properties.
Interest is at the rate of 12% per annum. The note is collateralized by stock in
an American Stock Exchange listed company and the oil and gas properties sold.
As of December 31, 1996, the unpaid balance is $1,627,534.
NOTE 5-RELATED PARTY TRANSACTIONS
During June of 1993, the Company sold 250,000 shares of its common
stock at $2.00 per share for a total of $500,000. The purchasers made a 10% down
payment of $50,000 and executed notes for $450,000, payable in one year and
bearing interest at 6% per annum. During June of 1994, the Company renegotiated
the notes and entered into a verbal agreement with another individual whereby
$27,000 of interest due on the previous notes was accrued and a new principal
amount of $289,500, being a reduction of $160,500 from the original notes, was
agreed upon as the amount due to the Company. Additionally, the Company sold
this individual 40,000 shares of the Company's common stock at $1.25 per share
for net proceeds of $50,000. The full amount of the reduced purchase price was
paid during the third quarter of 1994; however, no interest was paid. The
Company does not intend to pursue the collection of the unpaid interest from any
of the parties involved. The net effect of the above transactions was that the
Company sold 300,000 shares of its common stock for $350,000, or approximately
$1.17 per share.
During June of 1994, the Company also issued 110,000 shares of its
common stock pursuant to an agreement to pay the Company within one year of the
issuance of the shares, $137,500 and interest at the rate of 5% per annum, which
is equivalent to $1.25 per share. Prior to December 31, 1994, the Company had
collected $75,000 and subsequently the balance of the note was paid. The Company
did not collect any interest due on the Note and does not intend to pursue the
collection thereof.
In conjunction with the acquisition of Hunter, the Company assumed a
note receivable with a balance of $178,527 and $120,758 at December 31, 1996 and
1995 respectively, from an owner in an affiliated limited liability company. The
note provides for interest at ten percent and has a due date of January 31,
1997.
In connection with the acquisition of Hunter, the Company assumed a
note receivable from a company affiliated with the President of the Company in
the amount of $54,615 at December 31, 1996 and 1995. This note bears interest at
ten percent and is due on demand. Additionally, trade accounts receivable from
this affiliated company were $30,761 and $51,346 at December 31, 1996 and 1995,
respectively.
In connection with the acquisition of Hunter, the Company assumed
unsecured accounts receivable from the President personally in the amount of
$10,000 as of December 31, 1995, which amount has been subsequently repaid.
A company owned by two former directors of the Company previously
operated several of the wells in which the Company owned an interest. Operating
fees paid this company were $35,519 in 1995. The operations of these wells were
transferred to a subsidiary of Hunter during 1995. In addition, the related
company received a commission of $25,000 from the sale of an oil and gas
property to the Company in 1995.
During 1996, as part of the Company's overall compensation package, the
Company's officers and directors were granted the right to participate in
certain development and exploration projects of the Company on a promoted basis.
As of December 31, 1996, eleven (11) of the Company's officers and directors as
a group spent an aggregate of $137,340 participating in 6 wells. The Company
discontinued this program as of January 1, 1997.
NOTE 6-LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consisted of the
following:
F-16
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
--------------- ---------------- ---
Banks
Revolving promissory note, collateralized by pipeline and oil and gas
properties, due June 30, 2001, interest at LIBOR + 2.25% (total of
7.625% at December 31, 1996)(1)....................................... $38,700,000 $ -
Promissory note, collateralized by pipelines and oil and gas properties,
payable in monthly installments for 1996 of $174,000 through October 1, 1996,
then $171,000 thereafter plus interest at prime plus one percent (total of
9.75% at December 31, 1995), assumed in
Hunter acquisition(2)................................................. - 9,555,000
Note payable, payable in monthly installments of $498 through
July 1996 plus interest at 7.25 percent, collateralized by truck...... - 3,000
Note payable to bank collateralized by vehicle payable in monthly
installments of $1,031 including interest at 8.5% through
February 1999......................................................... 24,000 -
Other
Notes payable, non-interest bearing and uncollateralized, payable in monthly
installments of $1,000 through July 1, 2000, assumed in
Hunter acquisition.................................................... 42,000 54,000
---------------- ----------------
Total Long-Term Debt..................................................... 38,766,000 9,612,000
Less Current Portion..................................................... 22,000 2,014,000
---------------- ----------------
Long-Term Debt........................................................... $38,744,000 $7,598,000
================ ===============
</TABLE>
NOTE 6-LONG-TERM DEBT
Maturities of long-term debt based on contractual requirements for the
years ending December 31, are as follows:
1997........................................................... $ 22,000
1998........................................................... 24,000
1999........................................................... 14,000
2000........................................................... 6,000
2001........................................................... 38,700,000
----------------
$ 38,766,000
================
- - -----------
(1) The revolving promissory note to the banks is a borrowing under a
$100,000,000 line of credit on which there existed a borrowing base of
$55,000,000 at December 31, 1996. The level of the borrowing base is
dependent on the valuation of the assets pledged, primarily oil and gas
reserve values. The line of credit includes covenants, the most
restrictive of which require maintenance of a current ratio, interest
coverage ratio, and tangible net worth, as specified in the loan
agreement. The bank group must approve all dividends paid on common
stock.
(2) The promissory note to bank was a borrowing under a $20,000,000 line of
credit on which there existed a borrowing base of approximately $8.7
million at December 31, 1995. The balance at December 31, 1995 included
$1,125,000 due to the seller of certain oil and gas properties which
was refinanced in February,
F-17
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1996 under the line of credit. The final principal payments under the
line of credit were due June 1, 2000. The amount that could be borrowed
under the line of credit was based upon a designated percentage of oil
and gas reserve values. The line of credit included covenants, the most
restrictive of which require maintenance of a current ratio and
tangible net worth, as specifically defined in the loan agreement.
NOTE 7-PRODUCTION PAYMENT LIABILITY
As a result of the merger with Hunter in 1995, the Company assumed an
obligation under a production payment conveyance. The conveyance provides for a
royalty payment equal to 50% of the monthly net revenue proceeds received by the
Company in certain oil and gas properties. The balance owed under the conveyance
bears interest at 15% per annum and is non-recourse to the Company. The balance
owed under this conveyance was $210,000 and $288,000 at December 31, 1996 and
1995, respectively.
In November, 1996, the Company entered into a second production payment
conveyance with the same party. The Company received a production payment amount
of $750,000 and agreed to make royalty payments of up to 50% of the monthly net
revenue proceeds received from certain oil and gas properties. The balance owed
under the conveyance was $726,000 at December 31, 1996. The production payment
bears interest at the rate of 13.5% per annum and is non-recourse to the
Company.
NOTE 8-INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
requires the recognition of a liability or asset, net of a valuation allowance,
for the deferred tax consequences of all temporary differences between the tax
bases and the reported amounts of assets and liabilities, and for the future
benefit of operating loss carryforwards. The following is a reconciliation of
income tax expense reported in the statement of operations:
1996
------------
Tax expense at statutory rates............................ $279,000
State taxes............................................... 24,000
Other..................................................... 9,000
------------
Total............................................... $312,000
============
The tax effects of significant temporary differences and carryforwards
are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Property and equipment, including intangible
drilling costs................................... $(6,381,000) $(5,890,000) $(218,000)
Annualized gain on investment....................... (32,000) - -
------------------ ------------------ ------------------
Total deferred tax liability........................ (6,413,000) (5,890,000) (218,000)
----------------- ------------------ ------------------
Allowance for doubtful accounts..................... 49,000 50,000 -
Depletion carryforwards............................. 361,000 365,000 -
Operating loss carryforwards........................ 2,534,000 2,350,000 1,135,000
----------------- ------------------ ------------------
Total deferred tax assets........................... 2,944,000 2,765,000 1,135,000
----------------- ------------------ ------------------
Valuation allowance................................. - - (917,000)
----------------- ------------------ ------------------
Net Deferred Tax Liability.......................... $(3,469,000) $(3,125,000) $ -
================= ================== ===================
</TABLE>
F-18
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company and its subsidiaries have net operating loss carryforwards
(NOL) of approximately $6,900,000 that expire, if unused, in years through 2011,
none in 1997. Approximately $1,700,000 of the NOL carries a limitation of
approximately $200,000 per year. In addition, the Company has depletion
carryforwards of approximately $1,000,000.
NOTE 9-STOCKHOLDERS' EQUITY
Shares of preferred stock may be issued in such series, with such
designations, preferences, stated values, rights, qualifications or limitations
as determined solely by the Board of Directors. Of the 10,000,000 shares of
$.001 par value preferred stock the Company is authorized to issue, 216,000
shares have been designated as Series A Preferred Stock, 925,000 shares have
been designated as Series B Preferred Stock, 625,000 shares have been designated
as Series C Preferred Stock and 1,000,000 shares have been designated as 1996
Series A Convertible Preferred Stock. Thus, 7,234,000 preferred shares have been
authorized for issuance but have not been issued nor have the rights of these
preferred shares been designated. No dividends can be paid on the common stock
until the dividend requirements of the preferred shares have been satisfied.
Holders of the Series A Preferred Stock are entitled to receive
dividends only to the extent that funds are available from the West Dilley
Prospect. Such dividends are limited to $7.50 per share, in the aggregate.
Dividend payments to Series A preferred shareholders will be based on fifty
percent (50%) of the net operating revenue received by the working interest
owners of the West Dilley Prospect. Due to a decline in production from the well
located on this prospect, the Company has shut this well in and is no longer
producing the property. The Series A dividends are not cumulative except for
unpaid amounts due from this calculation. No dividends have been paid on the
Series A preferred stock. There is no aggregate annual dividend requirement for
the Series A preferred stock.
The Series B Preferred Stock was issued as a unit, comprised of 1,000
shares of Series B Preferred Stock and two production certificates. The Series B
preferred stockholders are entitled to receive cumulative dividends of $0.35
annually per share, payable quarterly. The holders of the units are entitled to
receive $10,000 per unit in dividends and in production payments. The production
payments were derived from 50% of the Company's net revenue from production of
oil and gas. The Board of Directors declared dividends on the Series B preferred
stock of $21,893 and $25,172 for the years ended December 31, 1995 and 1994
respectively. Beginning June 15, 1994, the Company offered to exchange (the
"Exchange Offer") 1,250 shares of common stock for each Series B production
certificate. During 1994, 141.1 production certificates were exchanged for
176,375 shares of common stock and the Series B preferred shareholders agreed to
convert their Series B preferred shares into common stock at December 31, 1995
if all dividends were paid through that date. All of the shares were converted
to common stock during 1996.
Separate and apart from the Exchange Offer, two of the Company's
officers and directors (the "Officers") set aside 125,000 shares (the "Stock")
of their own common stock of the Company for a single individual (the
"Individual") who owned approximately 55% of the Series B Production
certificates that were exchanged. The Stock was being held by an independent
party to this transaction until fair market value of the Exchange Shares, when
the Exchange Shares become eligible for sale pursuant to Rule 144 of the
Securities Act of 1933, is determined. The Company issued 125,000 shares of its
common stock to the Officers in exchange for their assignment to the Company of
all of the Officers' rights, title and interest in the Stock. The Company has
recorded the new shares issued at par value. The value of the exchange shares
were determined in 1996, and the Company issued 5,000 shares of its common stock
to the Individual. Subsequent to year-end, the 125,000 shares being held were
returned to the Company and are being held as treasury stock.
The Series C preferred stock was convertible at the option of the
holder at any time into three shares of common stock and, after November 12,
1994, would automatically convert into common stock anytime the closing bid
price of the common stock equals or exceeds $5.00 per share for twenty
consecutive trading days. The Series C
F-19
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
preferred stock was redeemable by the Company beginning November 12, 1995, at
$10.50 per share plus accrued and unpaid dividends. If declared by the Board of
Directors, dividends accrue at the annual rate of $1.10 per share, are
cumulative from the date of first issuance and are paid quarterly in arrears.
The Board of Directors declared dividends on the Series C preferred stock of
$554,153, $595,327, and $339,827 for the years ended December 31, 1994, 1995,
and 1996, respectively. During 1994, 40,025 Series C preferred shares were
converted into 120,075 shares of common stock and 24,250 shares of Series C
preferred stock were issued upon exercise of representatives' warrants. The
aggregate annual dividend requirements for the 625,000 shares of Series C
preferred stock outstanding at December 31, 1995 and 1996 amounts to $687,500
and none, respectively. As of December 31, 1996, all Series C preferred stock
had been redeemed or converted to common stock.
On December 6, 1996, the Company entered into an agreement to issue
1,000,000 shares of new Series A preferred stock, known as the 1996 Series A
Convertible Preferred Stock, in a private placement. The shares have a stated
and liquidation value of $10 per share and pay a fixed annual cumulative
dividend of eight and three quarters percent (8.75%) payable quarterly in
arrears beginning December 31, 1996. The shares are convertible into shares of
common stock at a conversion price of $5.875 per share. Beginning in December
1998, the Company has an option to exchange the stock into convertible
subordinated debentures of equivalent value. The purpose of the private
placement was to fund the capital cost necessary to drill certain development
projects and to fund the capital costs of several West Texas waterflood
projects. Proceeds from the offering were initially used to reduce the Company's
existing bank indebtedness. Certain capital expenditure requirements for
developmental drilling and waterflood projects are required under the agreement
whereby this stock was issued. In addition, under the terms of the preferred
stock, the Company is required to raise an aggregate of $15 million of
additional equity by March 31, 1998 or the Company is required to redeem on June
30 of each of the years 2006, 2007, and 2008, 333,333 shares of preferred stock.
On December 23, 1996, the 1996 Series A Convertible Preferred Stock was issued,
resulting in net proceeds to the Company after offering costs of $9,787,000.
Dividends of $22,000 were declared in 1996 and paid subsequent to year end.
The preferred shareholders are not entitled to vote except on those
matters in which the consent of the holders of preferred stock is specifically
required by Nevada law. If the Company were to liquidate prior to payment of the
full dividend requirements on the preferred stock, the preferred stock would
receive a liquidation preference from the liquidation proceeds. The Series A
preferred shareholders would receive an amount equal to the lesser of the
proceeds from the liquidation of the West Dilley Prospect or the remaining
unpaid dividend. The 1996 Series A Convertible Preferred Stock would receive an
amount of $10 per share. On liquidation, holders of all series of the preferred
stock would be entitled to receive the par value, $.001 per share, in preference
to the common stock shareholders.
The Series C preferred stock was originally issued as a unit comprised
of one share of Series C preferred stock and warrants to purchase three (3)
shares of common stock. A total of 1,687,500 warrants were issued and are
exercisable at $5.50 per share through November 12, 1998. The Company offered
the holders of the warrants a discount period commencing November 15, 1994 and
ending February 16, 1995 during which time the warrants could be exercised at
$4.00. During this time, warrants were exercised for 833,324 shares of common
stock. The exercise of these warrants resulted in cash proceeds of $3,333,298 to
the Company. The warrants are redeemable by the Company at $0.02 per warrant
upon 30 day notice at any time after November 12, 1995 or earlier if the closing
bid price of the common stock equals or exceeds $6.75 for five consecutive
trading days. At December 31, 1995, 854,176 of the warrants remained
outstanding.
The Company granted an unrelated company the right to acquire 100,000
shares of common stock under the terms of a consulting agreement. The rights
became exercisable at the rate of 3,325 shares in November 1994, 8,335 shares
per month from December 1994 through October 1995 and 4,990 shares in November
1995. The rights are exercisable at $4.125 per share. The rights expire in June
1997.
F-20
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In October 1995, in connection with an acquisition of oil and gas
properties, the Company issued 25,000 warrants with an exercise price of $4.00
per share, and 25,000 warrants with an exercise price of $4.50 per share with
each such warrant expiring in October 1997. In December 1995 the Company issued
37,500 warrants at an exercise price of $3.00 per share to an unaffiliated third
party for services rendered. The warrants expire in December 1997.
During 1995, 20,750 representatives' warrants were exercised at $12.00
per warrant resulting in $249,000 of proceeds to the Company. Each warrant
entitles the holder to receive one share of Series C preferred stock and three
(3) common stock warrants exercisable at $4.00 per share through February 1995
and $5.50 thereafter. 9,300 shares of Series C preferred stock and 2,000 shares
of Series B preferred stock have also been converted into 28,900 shares of
common stock. The Company issued 5,000 shares of common stock, valued at $3.50
per share to its directors, which resulted in $17,500 of compensation expense in
1995. Also, 22,222 shares of common stock with a value of $3.80 per share were
issued for services rendered in 1995.
In January, 1996, 60,000 warrants were issued at an exercise price of
$3.375 per share and expiring in January 1999. At December 31, 1996, 45,000 of
these warrants had been earned. In connection with the receipt of a production
payment, in October 1996 the Company issued 25,000 warrants with an exercise
price of $5.18 expiring October 1999, 25,000 warrants with an exercise price of
$5.65 expiring October 2000 and 25,000 warrants with an exercise price of $6.13
expiring October 2001. No warrants were exercised in 1996.
At December 31, 1996, the Company had 1,176,676 total warrants issued,
including the publicly traded warrants. Additionally, in 1996, 610,170 shares of
the Company's common stock that had been held as collateral were returned and
held in the treasury, 12,258 shares of common stock were issued upon exercise of
employees stock options, 239,710 shares of common stock, valued at $939,000,
were issued to acquire oil and gas properties, and 36,538 shares of common stock
were issued as dividends on the Company's Series C Preferred Stock.
NOTE 10-SUPPLEMENTAL CASH FLOW INFORMATION
During 1994, the Company purchased oil and gas properties by issuing
613,000 shares of common stock valued at $1,233,500 along with cash in the
amount of $200,000. The Company issued 176,375 shares of its common stock,
valued at $584,016, in exchange for the production payment interests held by
production certificate holders. Shareholders converted 10,500 shares of Series B
preferred stock and 40,250 shares of Series C preferred stock into 5,250 and
120,075 shares of common stock, respectively. A vehicle with a carrying value of
$10,923 was sold to an officer of the Company with the officer assuming a
related note payable in the amount of $10,923. The Company received equity
securities with a fair value of $66,660 as partial payment for the sale of
property interests. The Company granted shareholders a $187,500 adjustment to
the price of common stock previously sold by reducing notes receivable from the
shareholders by that amount. Also in 1994, the Company issued 150,000 shares of
common stock in exchange for notes receivable from the purchasing shareholders
in the amount of $187,500.
During 1995, as more fully described in Note 3, the Company issued
common stock and preferred stock valued at $12,495,005 in the acquisition of the
assets from Hunter Resources, Inc. Oil and gas properties were acquired by
issuing $1,379,204 of common stock and $22,220 of marketable securities;
preferred stock was converted to common stock; and common stock was issued,
creating a receivable from a shareholder of $250. In addition $17,500 of common
stock was issued as compensation to directors and $84,444 of common stock was
issued for services rendered in 1995.
During 1996, the Company purchased oil and gas properties by issuing
239,710 shares of its common stock, valued at $938,444. The Company converted
658,934 shares of Series B and Series C preferred stock into 1,821,638 shares of
common stock. 36,538 shares of common stock valued at $121,700 were issued in
lieu of cash dividends
F-21
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
on preferred stock. The Company received equity securities with a fair value of
$150,000 as partial payment for the sale of property interests. Interest paid in
1996 was $2,344,308.
NOTE 11-ENVIRONMENTAL ISSUES
Being engaged in the oil and gas exploration and development business,
the Company may become subject to certain liabilities as they relate to
environmental clean up of well sites or other environmental restoration
procedures as they relate to the drilling of oil and gas wells and the operation
thereof. In the Company's acquisition of existing or previously drilled well
bores, the Company may not be aware of what environmental safeguards were taken
at the time such wells were drilled or during the time that such wells were
operated. Should it be determined that a liability exists with respect to any
environmental clean up or restoration, the liability to cure such a violation
would most likely fall upon the Company. In certain acquisitions, the Company
has received contractual warranties that no such violations exist, while in
other acquisitions the Company has waived its rights to pursue a claim for such
violations from the selling party. No claim has been made nor has a claim been
asserted, nor is the Company aware of the existence of any material liability
which the Company may have, as it relates to any environmental clean up,
restoration or the violation of any rules or regulations relating thereto.
NOTE 12-COMMITMENTS AND CONTINGENCIES
The Company assumed in the Hunter acquisition lease agreements for the
use of office space and office equipment. The office space lease extends through
November 2001 with an option to renew the lease for a three year term. The
various office equipment leases extend until 1999. The leases have been
classified as operating leases. The following is a schedule by years of future
minimum lease payments required under the operating lease agreements:
Year Ended December 31:
1997............................................................ $183,046
1998............................................................ 173,168
1999............................................................ 169,815
2000............................................................ 173,711
2001............................................................ 159,235
Thereafter...................................................... 0
------------
Total Minimum Payments Required................................. $858,975
============
Rental expense was $129,169, $61,191 and $21,283 for 1996, 1995, and
1994 respectively.
At December 31, 1996, the Company is involved in litigation proceedings
arising in the normal course of business. The Company has accrued $87,750 as of
December 31, 1996 for potential expenses to be incurred in settlement of the
litigation. In the opinion of management, any additional liabilities resulting
from such litigation would not have a material effect on the Company's financial
condition, cash flows or results of operations.
NOTE 13-FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to credit risk consist
principally of accounts and notes receivable. The receivables are primarily from
companies in the oil and gas business or from individual oil and gas investors.
These parties are primarily located in the Southwestern regions of the United
States. No single receivable is considered to be sufficiently material as to
constitute a concentration. The Company does not ordinarily require collateral,
but in the case of receivables for joint operations, the Company often has the
ability to offset amounts due
F-22
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
against the participant's share of production from the related property. The
Company believes the allowance for doubtful accounts at December 31, 1996, 1995,
and 1994 is adequate.
Management estimates the market values of notes receivable and payable
based on expected cash flows and believes those market values approximate
carrying values at December 31, 1996, 1995, and 1994. The market values of
equity investments are based upon quoted prices (see Note 1).
NOTE 14-COMMODITY DERIVATIVES AND HEDGING ACTIVITIES
Periodically, the Company enters into futures, options, and swap
contracts to reduce the effects of fluctuations in crude oil and natural gas
prices. At December 31, 1996, the Company had open contracts for oil price
collars on 12,000 barrels of oil per month (with cap and floor prices of $22.20
and $18.00, respectively) through February 1997 and 15,000 barrels of oil per
month (with cap and floor prices of $25.10 and $20.00, respectively) from March
1997 through August, 1997. At December 31, 1996, the Company had open contracts
for gas prices swaps of 302,000 Mmbtu of gas per month at $2.16 per Mmbtu during
January 1997, 100,000 Mmbtu of gas per month at $1.905 per Mmbtu from February
1997 through January 1998 and another 100,000 Mmbtu of gas per month at $1.77
per Mmbtu from February 1997 through January 1998. These contracts expire
monthly as indicated above. The gains or losses on the Company's hedging
transactions are determined as the difference between the contract price and a
reference price, generally closing prices on the NYMEX. The resulting
transaction gains and losses are determined monthly and are included in the
period the hedged production or inventory is sold. Net losses relating to these
derivatives for the years ended December 31, 1996, 1995, and 1994 were $272,000,
none, and none, respectively.
NOTE 15-STOCK COMPENSATION PLAN
The Company adopted in 1996 two stock compensation plans for its
employees and directors, (i) the Magnum Hunter Resources Employee Stock
Ownership Plan, (the "ESOP"), and (ii) the Magnum Hunter Resources, Inc. 1996
Incentive Stock Option Plan. In addition, the Company authorized the issuance of
its common stock to participants in the Magnum Hunter Resources, Inc. 401(k)
plan in an amount that matched employee contributions up to one hundred percent
(100%). The cost of this matching contribution was $59,000 in 1996.
ESOP
The Company established an ESOP and a related trust as a long-term
benefit for its employees. Under terms of the plan, eligible participants may
elect to make elective deferred contributions of not less than 1% of more than
15% of their annual compensation, limited in combination with the 401(k) plan to
the maximum allowable per year by the Internal Revenue Code. The plan also
allows for the Company to make Discretionary Contributions to the ESOP, but it
is not the intent of the Company to do so. It is also the Company's intent to
invest all contributions in Employer Stock. In this regard, on October 11, 1996,
the Plan purchased 22,556 shares of the Company's common stock for $3.75 per
share from a third party. To fund this purchase, the Plan borrowed $84,585 from
a bank. Participant contributions will be used to acquire shares at the price
stated above by retiring the principal and interest of this debt. As of December
31, 1996, no Participant contributions had been made to the ESOP.
F-23
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1996 Incentive Stock Option Plan
The Company established this plan effective April 1, 1996, and is
governed by Section 422 of the Internal Revenue Code, and Section 16(b) of the
Securities Exchange Act of 1934. The Plan covers 1,200,000 shares of the
Company's Common Stock. Eligibility is limited to employees and directors of the
Company and its subsidiaries. The actual selection of grantees is made by the
Board of Directors. The term of the plan is 10 years, and the term of the
options is at the discretion of the Board, with a term of 5 years. All options
are fully vested and exercisable when granted. The exercise price is fair market
value at the date of grant, except for individuals who own 10% or more of the
Company's stock.
Prior to 1995, Hunter had granted certain of its employees and
directors options to purchase its common shares. In connection with the merger,
the Company has substituted the Hunter options with 264,558 options under the
Plan, 239,022 of which have an exercise price of $.73425 per share and 25,536 of
which have an exercise price of $1.65 per share. During 1996, 12,258 of these
options were exercised. In addition, during 1996, the Board granted the
remaining 935,442 options to employees and directors at an exercise price of
$4.50 per share.
The following is a summary of stock option activity under the Plan:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
--------------- -------------------- ------------ -----------------
Outstanding-Beginning of Year......... 264,558 $0.82 264,558 $0.82
Granted............................... 935,442 4.50 - -
Exercised............................. (12,258) .73 - -
Cancelled............................. - - - -
--------------- -------------------- ------------ -----------------
Outstanding-End of Year............... 1,187,742 $3.72 264,558 $0.82
=============== ==================== ============ =================
</TABLE>
The following is a summary of plan stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number of
Options Weighted Average Remaining
Exercise Price Outstanding Contractual Life (Years) Number of Exercisable Options
-------------- ---------------- --------------------------- ---------------------------
$ .73 226,764 1.0 35,242
1.65 25,536 3.0 -
4.50 935,442 4.3 935,442
---------------- ---------------------------
1,187,742 970,684
================ ===========================
</TABLE>
The Company adopted the disclosures only portion of SFAS No. 123 as it
continued to follow the provisions of APB No. 25, which is the intrinsic value
method of accounting for stock-based compensation.
On a pro forma basis, the effect of stock based compensation had the
Company adopted Statement No. 123 is as follows:
1996
---------
Net Income (Loss): As reported $103,000
Pro Forma (1,540,000)
Primary Earnings per Share: As reported .01
Pro Forma (.12)
Fully Diluted Earnings per Share: As reported .01
Pro Forma (.12)
F-24
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The weighted average grant date fair value of options granted was $2.56
and of warrants granted was $1.09 during 1996. Fair value of options and
warrants was calculated by using the Black-Scholes options pricing model using
the following weighted average assumptions for 1996 activity: risk free interest
rate of 5.74%, expected life of 4.28 years, expected volatility of 60.8% and no
dividend yield.
NOTE 16-SUBSEQUENT EVENTS
In January, 1997, the Company purchased a fifty percent (50%) interest
in the McLean Gas Plant, the gas processing facility connected to the Company's
Panoma gas gathering system for $2.5 million. Under the terms of the purchase
agreement, the Company will receive 100% of the net profits of the plant until
it receives the $2.5 million purchase price, at which point its net profits
interest will revert to fifty percent (50%), the Company's ownership position.
The acquisition was funded through the Company's revolving credit agreement with
certain banks.
On April 30, 1997, the Company acquired from a subsidiary of Burlington
Resources, Inc., effective as of January 1, 1997, the Permian Basin Properties,
consisting of 25 field areas in west Texas and 22 field areas in southeast New
Mexico, for a net purchase price of $133.0 million after adjustments of $10.5
million for production cash flow from January 1, 1997 to the closing date and
other minor adjustments.
The Company financed the acquisition of the Permian Basin Properties
with a new $130.0 million credit facility (the "New Credit Facility") and a
senior subordinated credit facility of $60.0 million (the "Term Loan Facility").
Borrowings of $119.5 million under the New Credit Facility and $60.0 million
under the Term Loan Facility were used to pay the $123.0 million balance of the
$133.0 million net purchase price for the Permian Basin Properties, to repay the
$53.7 million in outstanding indebtedness as of April 30, 1997 under the
Company's previous $100.0 million credit facility (the "Previous Credit
Facility") and to pay the costs associated with the Permian Basin Acquisition
and the related financings. The New Credit Facility currently bears interest at
9.0% per annum. After repayment of the Term Loan Facility using the proceeds of
a $125 million offering of Senior Subordinated Notes due 2007, the New Credit
Facility will initially bear interest at LIBOR plus 1.75% per annum, which would
be 7.6% based on the LIBOR rate at April 30, 1997. The unpaid principal amount
under the New Credit Facility matures on April 30, 2002. At April 30, 1997, the
interest rate on the Term Loan Facility was 11.5% per annum. The Term Loan
Facility initially matures on April 30, 1998, at which time the Company has the
option to extend such facility for an additional five years.
In the event that the borrowings under the New Credit Facility are not
less than $75.0 million on July 15, 1997, the Company is obligated to pay the
lenders an additional fee. In addition, if borrowings under the Term Loan
Facility have not been repaid beginning August 28, 1997, the Company, at various
dates thereafter within the initial one-year term, will incur an increase in
interest rates and be obligated to pay the lenders additional fees and/or
warrants to purchase common stock of the Company. More specifically, the
interest rate under the Term Loan Facility increases by 1.0% on each of three
specified dates with a maximum interest rate of 15.5%. The Company may also be
obligated to issue equity securities up to a maximum of 5.0% of the fully
diluted common equity of the Company.
In April 1997, the terms of the Company's 1996 Series A Convertible
Preferred Stock were amended to require the Company to raise $15 million of
additional equity by December 31, 1997 rather than March 31, 1998 as described
in Note 9.
NOTE 17-EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
Mr. Gary C. Evans and Mr. Matthew C. Lutz have employment agreements with
Magnum Hunter Resources, Inc. Mr. Evans' agreement terminates December 31, 1997
and continues thereafter on a year to year basis
F-25
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and provides for a base salary of $200,000 per annum. Mr. Lutz's agreement
terminates September 30, 1997 and continues thereafter on a year to year basis
and provides for a base salary of $100,000 per annum. Both agreements provide
that the same benefits supplied to other Company employees shall be available to
the employee. The employment agreements also contain, among other things,
covenants by the employee that in the event of termination, he will not
associate with a business that competes with the Company for a period of one
year after cessation of employment. The Company also has key man life insurance
on Mr. Evans in the amount of $1,000,000.
F-26
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
Proved oil and gas reserves consist of those estimated quantities of
crude oil, natural gas, and natural gas liquids that geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions. Proved
developed oil and gas reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
Estimates of petroleum reserves have been made by independent engineers
and Company employees. These estimates include reserves in which the Company
holds an economic interest under production-sharing and other types of operating
agreements. These estimates do not include probable or possible reserves. The
estimated net interests in proved reserves are based upon subjective engineering
judgments and may be affected by the limitations inherent in such estimation.
The process of estimating reserves is subject to continual revision as
additional information becomes available as a result of drilling, testing,
reservoir studies and production history. There can be no assurance that such
estimates will not be materially revised in subsequent periods.
Estimated quantities of proved oil and gas reserves of the Company were
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Natural Gas
(Thousand
Oil (Barrels) Cubic Feet)
--------------- --------------
December 31, 1996
Proved reserves........................................................... 5,338,255 90,565,997
Proved developed reserves................................................. 1,962,184 71,275,141
December 31, 1995
Proved reserves........................................................... 3,767,739 14,071,916
Proved developed reserves................................................. 1,681,841 8,796,748
December 31, 1994
Proved reserves........................................................... 1,260,520 4,914,207
Proved developed reserves................................................. 239,795 394,872
The changes in proved reserves for the years ended December 31, 1996
and 1995 were as follows:
Natural Gas
(Thousand
Oil (Barrels) Cubic Feet)
--------------- ----------------
Reserves at December 31, 1994.................................................. 1,260,520 4,914,207
Purchase of minerals-in-place.................................................. 3,122,382 10,973,298
Extensions and discoveries..................................................... 38,498 564,247
Production..................................................................... (29,972) (102,056)
Revisions of estimates......................................................... (623,689) (2,277,780)
--------------- ----------------
Reserves at December 31, 1995.................................................. 3,767,739 14,071,916
Purchase of minerals-in-place.................................................. 2,678,579 81,943,557
Sale of minerals-in-place...................................................... (214,381) (1,318,164)
Extensions and discoveries..................................................... 151,606
Production..................................................................... (191,203) (2,674,793)
Revisions of estimates......................................................... (702,479) (1,608,125)
--------------- ----------------
Reserves at December 31, 1996.................................................. 5,338,255 90,565,997
=============== ================
</TABLE>
F-27
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
The aggregate amounts of capitalized costs relating to oil and gas producing
activities and the related accumulated depreciation, depletion and impairment as
of December 31, 1996, 1995, and 1994 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Unproved oil and gas properties....................... $ 459,254 $842,889 $700,344
Proved properties..................................... 70,574,890 36,256,428 7,932,496
---------------- ---------------- ------------------
Gross Capitalized Costs............................... 71,034,144 37,099,317 8,632,840
Accumulated depreciation, depletion and
impairment......................................... (4,513,541) (1,914,602) (1,499,095)
---------------- ---------------- ------------------
Net Capitalized Costs................................. $66,520,603 $35,184,715 $7,133,745
================ ================ ==================
</TABLE>
Costs incurred in oil and gas producing activities, both capitalized
and expensed, during the years ended December 31, 1996, 1995, and 1994 were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Property acquisition costs
Proved properties..................................... $31,982,821 $27,983,521 $1,737,543
Unproved properties................................... - 142,545 -
Exploration costs........................................ 1,114,733 340,411 -
Development costs........................................ 837,273 - 791,144
--------------- ------------- ---------------
Total Costs Incurred..................................... $33,934,827 $28,466,477 $2,528,687
=============== ============= ===============
</TABLE>
Results of operations from oil and gas producing activities for the
years ended December 31, 1996, 1995, and 1994 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Oil and gas production revenue............................ $10,247,688 $616,596 $729,478
Disposal services revenue................................. 20,487 31,978 15,704
Production costs.......................................... (4,389,465) (267,647) (324,392)
Depreciation and depletion................................ (2,598,939) (421,101) (243,180)
---------------- --------------- ---------------
Results of Operations for Producing
Activities................................................ $3,279,771 $ (40,174) $177,610
================ =============== ===============
</TABLE>
The standardized measure of discounted estimated future net cash flows
related to proved oil and gas reserves at December 31, 1996, 1995, and 1994 were
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Future cash inflows........................... $492,157,062 $95,068,694 $25,900,669
Future development and production costs....... (138,614,804) (37,746,877) (10,011,434)
--------------------- ------------------- -------------------
Future net cash flows, before income tax...... 353,542,258 57,321,817 15,889,235
Future income taxes........................... (102,341,098) (11,381,779) (3,679,963)
--------------------- ------------------- -------------------
Future Net Cash Flows......................... 251,201,160 45,940,038 12,209,272
10% annual discount........................... (134,116,299) (16,120,359) (5,974,156)
--------------------- ------------------- -------------------
Standardized Measure of Discounted Future
Net Cash Flows............................. $117,084,861 $29,819,679 $6,235,116
===================== ================== ====================
</TABLE>
F-28
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
The primary changes in the standardized measure of discounted estimated
future net cash flows for the years ended December 31, 1996, 1995, and 1994 were
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Purchases of minerals-in-place....................... $129,544,769 $30,507,745 $2,736,310
Sales of minerals-in-place........................... (2,195,780) - -
Extensions, discoveries and improved recovery,
less related costs................................ 302,785 582,001 162,944
Sales of oil and gas produced, net of production
costs............................................. (5,858,223) (350,083) (300,517)
Development costs incurred during the period......... - - 467,192
Revision of prior estimates:
Net change in prices and costs.................... 14,993,539 4,864,688 (1,074,222)
Change in quantity estimates...................... (10,107,737) (7,637,000) (2,981,078)
Accretion of discount................................ 2,981,968 623,512 1,289,466
Net change in income taxes........................... (42,396,139) (5,006,300) (594,905)
------------------ ---------------- ------------------
Net Change........................................... $87,265,182 $23,584,563 $(294,810)
=================== ================= ==================
</TABLE>
Estimated future cash inflows are computed by applying year-end prices
of oil and gas to year-end quantities of proved reserves. Estimated future
development and production costs are determined by estimating the expenditures
to be incurred in developing and producing the proved oil and gas reserves at
the end of the year, based on year-end costs and assuming continuation of
existing economic conditions. Estimated future income tax expense is calculated
by applying year-end statutory tax rates to estimated future pre-tax net cash
flows related to proved oil and gas reserves, less the tax basis of the
properties involved.
The assumption used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and as such, do not
necessarily reflect the Company's expectations of actual revenues to be derived
from those reserves nor their present worth. The limitations inherent in the
reserve quantity estimation process are equally applicable to the standardized
measure computations since these estimates are the basis for the valuation
process.
F-29
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
June 30,
1997
----------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,571
Securities available for sale 360
Accounts receivable
Trade, net of allowance of $134,158 10,541
Due from affiliates 101
Notes receivable from affiliate 382
Current portion of long-term note receivable 129
Prepaid and other 384
----------------------
TOTAL CURRENT ASSETS 13,468
----------------------
PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties, full cost method
Unproved 460
Proved 208,871
Pipelines 9,824
Other property 571
---------------------
TOTAL PROPERTY, PLANT AND EQUIPMENT 219,726
Accumulated depreciation, depletion and impairment (9,329)
---------------------
NET PROPERTY, PLANT AND EQUIPMENT 210,397
---------------------
OTHER ASSETS
Deposits and other assets 6,140
Long-term notes receivable, net of imputed interest 1,665
---------------------
TOTAL ASSETS $ 231,670
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables and accrued liabilities $ 5,524
Dividends payable 219
Suspended revenue payable 834
Current maturities of long-term debt 22
Notes payable 2,699
---------------------
TOTAL CURRENT LIABILITIES 9,298
---------------------
LONG-TERM LIABILITIES
Long-term debt, less current maturities 187,033
Production payment liability 831
Deferred income taxes 2,215
Minority interest 40
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 10,000,000 shares authorized,
216,000 designated as Series A; 80,000 shares issued and outstanding,
liquidation amount $0 -
1,000,000 shares designated as 1996 Series A Convertible;
1,000,000 issued and outstanding, liquidation amount $10,000,000 1
Common stock - $.002 par value; 50,000,000 shares authorized,
14,263,037 shares issued and outstanding 29
Additional paid-in capital 39,782
Accumulated deficit (7,688)
Unrealized gain (loss) on investments 130
--------------------
32,254
Treasury stock (654,939 shares of common stock) (1)
--------------------
TOTAL STOCKHOLDERS' EQUITY 32,253
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 231,670
====================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-30
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands of dollars, except for per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------------------
1997 1996 1997 1996
--------------------------------------------------------------
Operating Revenues:
Oil and gas sales $ 8,528 $ 1,441 $ 11,791 $ 2,821
Gas gathering, marketing and processing 1,391 771 5,283 1,528
Oil field services and international sales 135 99 3,606 201
--------------------------------------------------------------
Total Operating Revenues 10,054 2,311 20,680 4,550
--------------------------------------------------------------
Operating Costs and Expenses
Oil and gas production 3,143 561 4,740 1,126
Gas gathering, marketing and processing 978 670 3,938 1,314
Oil field services and international sales 86 160 3,424 327
Depreciation and depletion 3,379 578 4,460 1,084
General and administrative 429 221 651 443
--------------------------------------------------------------
Total Operating Costs and Expenses 8,015 2,190 17,213 4,294
--------------------------------------------------------------
Operating Profit (Loss) 2,039 121 3,467 256
Other income 83 160 155 186
Interest expense (3,690) (245) (4,758) (499)
--------------------------------------------------------------
Net Income (Loss) before income tax and minority interest (1,568) 36 (1,136) (57)
Benefit (Provision) for deferred income tax 596 - 432 -
--------------------------------------------------------------
Net Income (Loss) before minority interest (972) 36 (704) (57)
Minority interest in subsidiary earnings (2) - (20) -
--------------------------------------------------------------
Net Income (Loss) Before Extraordinary Loss (974) 36 (724) (57)
Extraordinary Loss From Early Extinguishment of Debt (1,384) - (1,384) -
--------------------------------------------------------------
Net Income (Loss) (2,358) 36 (2,108) (57)
Dividends Applicable to Preferred Stock (219) (168) (438) (340)
--------------------------------------------------------------
Loss Applicable to Common Shares $ (2,577) $ (132) $ (2,546) $ (397)
==============================================================
Loss Before Extraordinary Loss per Common Share $ (0.09) $ (0.01) $ (0.09) $ (0.03)
Extraordinary Loss per Common Share $ (0.10) $ - $ (0.10) $ -
--------------------------------------------------------------
Loss per Common Share $ (0.19) $ (0.01) $ (0.19) $ (0.03)
==============================================================
Common Shares Used In Per Share Calculation 13,602,940 11,710,065 13,644,884 11,658,958
==============================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-31
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended
June 30,
----------------------------------
1997 1996
----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (2,108) $ (57)
Adjustments to reconcile net income (loss) to cash provided by
(used for) operating activities:
Extraordinary loss 1,384 -
Depreciation and depletion 4,460 1,084
Amortization of financing fees 153 -
Deferred income taxes (432) -
Minority interest 20 -
(Gain) Loss on sale of assets - (143)
Other 51 -
Change in certain assets and liabilities
Accounts and notes receivables (6,029) (479)
Other current assets (332) (82)
Deposits and other assets - (401)
Accounts payable and accrued liabilities 1,634 351
----------------------------------
NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES $ (1,198) $ 273
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 463 188
Additions to property and equipment (141,667) (37,301)
Loan made for promissory note receivable (145) -
Payments received on promissory note receivable 164 -
----------------------------------
NET CASH USED BY INVESTING ACTIVITIES (141,185) (37,113)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt and production payment 335,000 54,313
Fees paid related to financing activities (7,881) -
Proceeds from short-term notes payable 2,699 -
Payments of principal on long-term debt and production payment (186,817) (15,890)
Payment of fees on issuance of preferred stock (505) -
Proceeds from issuance of common and preferred stock,
net of offering costs 12 -
Dividends paid (241) (349)
----------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 142,267 38,074
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (116) 1,234
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,687 1,544
---------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,571 $ 2,778
=================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-32
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
NOTE 1 - MANAGEMENT'S REPRESENTATION
The consolidated balance sheet as of June 30, 1997, the consolidated
statements of operations for the six months ended June 30, 1997 and 1996, and
the consolidated statements of cash flows for the six month periods then ended
are unaudited. In the opinion of management, all necessary adjustments (which
include only normal recurring adjustments) have been made to present fairly the
financial position, results of operations and changes in cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the December 31, 1996 annual report on Form 10-KSB for the
Company. The results of operations for the six month period ended June 30, 1997,
are not necessarily indicative of the operating results for the full year.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. Certain items
have been reclassified to conform with the current presentation.
NOTE 2 - RECENT EVENTS
In February, 1997, the Company entered into a definitive agreement with
Burlington Resources, Inc. to acquire for $143.5 million, subject to certain
purchase price adjustments, effective January 1, 1997, the Permian Basin
Properties consisting of 25 field areas in West Texas and 22 field areas in
Southeast New Mexico containing 1,852 producing oil and natural gas wells. In
accordance with the definitive acquisition agreement, the Company made a
performance deposit of $10 million against the purchase price.
On April 30, 1997, the Company closed on the purchase of the Permian Basin
Properties for a net purchase price of approximately $133 million, including,
but not limited to, certain adjustments for a January 1, 1997 effective date.
The Company financed the acquisition of the Permian Basin Properties with a
new $130.0 million credit facility (the "New Credit Facility") and a senior
subordinated credit facility of $60.0 million (the "Bridge Loan Facility").
Borrowings of $119.5 million under the New Credit Facility and $60.0 million
under the Bridge Loan Facility were used to pay the $123.0 million balance of
the $133.0 million net purchase price for the Permian Basin Properties, to repay
the $53.7 million in outstanding indebtedness as of April 30, 1997 under the
Company's previous $100.0 million credit facility and to pay the costs
associated with the Permian Basin acquisition and the
F-33
<PAGE>
related financings.
On May 28, 1997, the Company completed an offering of $140,000,000
aggregate principal amount of its 10% Senior Notes due 2007 (the "Notes").
Interest on the Notes will accrue from their date of original issuance and will
be payable semi-annually in arrears on June 1 and December 1 of each year,
commencing on December 1, 1997, at the rate of 10% per annum. The Notes will be
redeemable, in whole or in part, at the option of the Company on or after June
1, 2002, at the redemption prices set forth herein, plus accrued interest to the
date of redemption. The Notes will be general unsecured obligations of the
Company and will rank pari passu with any unsubordinated indebtedness of the
Company and will rank senior in right of payment to all subordinated obligations
of the Company. The net proceeds from the offering were approximately $135.5
million after deducting estimated fees and expenses of $4.5 million payable by
the Company. The Company utilized the net proceeds to repay the $60.0 million of
outstanding indebtedness under the Bridge Loan Facility and to reduce
indebtedness under the New Credit Facility by approximately $75.5 million. As of
June 30, 1997, the Company had approximately $47 million of secured indebtedness
outstanding (excluding unused commitments of $13 million under the New Credit
Facility).
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Magnum Hunter Resources, Inc.
Irving, Texas
We have audited the accompanying historical summaries of revenue and
direct operating expenses of properties to be acquired April 30, 1997 (the
"Permian Basin Properties"), for the years ended December 31, 1996, 1995 and
1994. The historical summaries are the responsibility of the Company's
management. Our responsibility is to express an opinion on the historical
summaries based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical summaries are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall historical summary presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying historical summaries were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the Form S-4 of Magnum Hunter Resources, Inc.) as
described in Note 1 and are not intended to be a complete presentation of the
properties' revenues and expenses.
In our opinion, the historical summaries referred to above present
fairly, in all material respects, the revenue and direct operating expenses of
the properties to be acquired April 30, 1997, in conformity with generally
accepted accounting principles.
HEIN + ASSOCIATES LLP
April 23, 1997
Dallas, Texas
F-35
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
PERMIAN BASIN PROPERTIES
HISTORICAL SUMMARIES OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND FOR THE FOUR MONTH PERIODS ENDED APRIL 30, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended 1996 Year Ended 1995 Year Ended 1994
--------------- --------------- ---------------
OIL AND GAS SALES....................................... $39,433,000 $30,098,000 $33,605,000
DIRECT OPERATING EXPENSES............................... (11,646,000) (11,711,000) (12,314,000)
------------------ ------------------ -------------------
NET REVENUE............................................. $27,787,000 $18,387,000 $21,291,000
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Four Months ended Four Months Ended
April 30, 1997 April 30, 1996
(Unaudited) (Unaudited)
------------------ ------------------
OIL AND GAS SALES................................... $12,627,000 $12,323,000
DIRECT OPERATING EXPENSES (3,039,000) (3,891,000)
------------------ ------------------
NET REVENUE $ 9,588,000 $ 8,432,000
================== ==================
</TABLE>
See Notes to Historical Summaries of Revenues and Direct Operating Expenses for
the Years Ended December 31, 1996, 1995 and 1994 and for the Four Month Periods
Ended April 30, 1997 and 1996.
F-36
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
PERMIAN BASIN PROPERTIES
NOTES TO HISTORICAL SUMMARIES OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND FOR THE FOUR MONTH PERIODS ENDED APRIL 30, 1997 AND 1996
NOTE 1-BASIS OF PREPARATION
The accompanying historical summaries of revenues and direct operating
expenses relate to the operations of the oil and gas properties to be acquired
by Magnum Hunter Resources, Inc. (the "Company") on April 30, 1997 from
Burlington Resources Oil and Gas Company (Burlington). The properties are to be
acquired for approximately $133,000,000, net of purchase adjustments.
Revenues are recorded when the Company's share of oil or natural gas
and related liquids are sold. Direct operating expenses are recorded when the
related liability is incurred. Direct operating expenses include lease operating
expenses, ad valorem taxes and production taxes. Depreciation and amortization
of oil and gas properties, general and administrative expenses and income taxes
have been excluded from operating expenses in the accompanying historical
summaries because the amounts would not be comparable to those resulting from
proposed future operations. Sales of natural gas and oil (until August 1996)
have generally been made to an affiliated entity of Burlington.
The historical summaries presented herein were prepared for the purposes of
complying with the financial statement requirements of a business acquisition to
be filed on Form S-4 as promulgated by Regulation S-B Item 3-10 of the
Securities Exchange Act of 1934.
Unaudited Information
The historical summaries for the four month periods ended April 30, 1997
and 1996 were taken from Burlington's books and records without audit. However,
in the opinion of management, such information includes all adjustments
(consisting only of normal recurring accruals) which are necessary to properly
reflect the historical summaries of the Permian Basin Properties for the four
month periods ended April 30, 1997 and 1996.
NOTE 2-CONTINGENCIES
The properties to be acquired are subject to several lawsuits against
Burlington that have arisen from the ordinary course of operations. Burlington
has indemnified the Company in the Purchase and Sale Agreement against any
liability from those claims.
In the Purchase and Sale Agreement, Burlington agreed to indemnify the
Company against environmental claims relating to the acquired properties and
arising prior to January 1, 1997 provided that the Company notifies Burlington
of such claims by December 31, 1997. Burlington will provide indemnification
against such claims up to $10,762,500 and share the next $21,525,000 of claims
with the Company on an equal basis. Burlington represented in the Purchase and
Sale Agreement that no material environmental claims have been asserted; however
certain of these properties require remediation which, in the Company's opinion,
will not result in material costs.
NOTE 3-SUPPLEMENTAL INFORMATION ON OIL AND GAS RESERVES (UNAUDITED)
Proved oil and gas reserves consist of those estimated quantities of
crude oil, natural gas, and natural gas liquids that geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions. Proved
developed oil and gas reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
The following estimates of proved reserves have been made by
independent engineers. The estimated net interests in proved reserves are based
upon subjective engineering judgments and may be affected by the limitations
inherent in such estimation. The process of estimating reserves is subject to
continual revision as additional information becomes available as a result of
drilling, testing, reservoir studies and production history. There can be no
assurance that such estimates will not be materially revised in subsequent
periods.
F-37
<PAGE>
Estimated quantities of proved oil and gas reserves of the properties
to be acquired April 30, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Natural Gas (Thousand
Oil (Barrels) Cubic Feet)
December 31, 1996
Proved reserves............................................... 15,291,000 99,876,000
============= =============
Proved developed reserves..................................... 8,968,000 77,373,000
============= =============
December 31, 1995
Proved reserves............................................... 16,176,000 108,476,000
============= ==============
Proved developed reserves..................................... 9,853,000 85,973,000
============= ==============
December 31, 1994
Proved reserves............................................... 17,121,000 118,076,000
============= ==============
Proved developed reserves..................................... 10,798,000 95,573,000
============= ==============
</TABLE>
The changes in proved reserves for the years ended December 31, 1996,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Natural Gas (Thousand
Oil (Barrels) Cubic Feet)
Reserves at January 1, 1994...................................... 18,120,000 128,066,000
Revisions and other.............................................. 55,000 1,417,000
Production....................................................... (1,054,000) (11,407,000)
--------------------- ---------------------
Reserves at December 31, 1994.................................... 17,121,000 118,076,000
Revisions and other.............................................. 73,000 730,000
Production....................................................... (1,018,000) (10,330,000)
--------------------- ---------------------
Reserves at December 31, 1995.................................... 16,176,000 108,476,000
Revisions and other.............................................. 29,000 808,000
Production....................................................... (914,000) (9,408,000)
--------------------- ---------------------
Reserves at December 31, 1996.................................... 15,291,000 99,876,000
====================== =====================
</TABLE>
F-38
<PAGE>
The standardized measure of discounted estimated future net cash flows
related to proved oil and gas reserves at December 31, 1996, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995 1994
---- ---- ----
Future cash inflows........................ $769,681,000 $410,721,000 $423,775,000
Future development and production costs.... (300,868,000) (275,252,000) (285,124,000)
--------------------- --------------------- ---------------------
Future net cash flows, before income tax... 468,813,000 135,469,000 138,651,000
Future income taxes........................ (116,660,000) - (1,103,000)
--------------------- --------------------- ---------------------
Future Net Cash Flows...................... 352,153,000 135,469,000 137,548,000
10% annual discount........................ (169,385,000) (60,181,000) (59,395,000)
--------------------- --------------------- ---------------------
Standardized Measure of Discounted
Future
Net Cash Flows............................. $182,768,000 $75,288,000 $78,153,000
====================== ====================== ====================
</TABLE>
The primary changes in the standardized measure of discounted estimated
future net cash flows for the years ended December 31, 1996, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Beginning of year............................... $75,288,000 $78,153,000 $95,678,000
Sales of oil and gas produced, net of
production costs............................. (27,787,000) (18,387,000) (21,291,000)
Net change in price and costs................... 182,919,000 6,800,000 (13,600,000)
Change in quantity estimates and other.......... 933,000 432,000 611,000
Accretion of discount........................... 7,528,000 7,800,000 9,568,000
Net change in income taxes...................... (56,113,000) 490,000 7,187,000
----------------- ------------------- ------------------
End of year..................................... $182,768,000 $75,288,000 $78,153,000
================= =================== ==================
</TABLE>
Estimated future cash inflows are computed by applying year-end prices
of oil and gas to year-end quantities of proved reserves. Estimated future
development and production costs are determined by estimating the expenditures
to be incurred in developing and producing the proved oil and gas reserves at
the end of the year, based on year-end costs and assuming continuation of
existing economic conditions. Estimated future income tax expense is calculated
by applying year-end statutory tax rates to estimated future pre-tax net cash
flow related to proved oil and gas reserves, less the tax basis of the
properties involved.
The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and as such, do not
necessarily reflect the Company's expectations of actual revenues to be derived
from those reserves nor their present worth. The limitations inherent in the
reserve quantity estimation process are equally applicable to the standardized
measure computations since these estimates are the basis for the valuation
process.
F-39
<PAGE>
No dealer, salesperson, or other person has been authorized to give any
information or to make any representations in connection with the offer
contained herein other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Initial Purchasers. This Prospectus does not
constitute an offer to sell or the solicitation of any offer to buy any security
other than those to which it relates, nor does it constitute an offer to sell,
or the solicitation of an offer to buy, to any person in any jurisdiction in
which such offer or solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof nor that the information contained herein is
correct as of any time subsequent to the date hereof.
---------
TABLE OF CONTENTS
Page
Prospectus Summary.......................................................... 7
Risk Factors................................................................ 20
Use of Proceeds............................................................. 29
The Exchange Offer.......................................................... 30
Capitalization.............................................................. 41
Unaudited Pro Forma Combined
Financial Data............................................................ 42
Selected Consolidated Financial Data........................................ 48
Management's Discussion and Analysis of
Financial Condition and Results
of Operations............................................................. 50
Business and Properties..................................................... 61
Management.................................................................. 80
Principal Stockholders and Share
Ownership of Management................................................... 83
Certain Transactions........................................................ 83
Description of New Credit Facility.......................................... 84
Description of the Exchange Notes........................................... 85
Description of the Outstanding Notes........................................115
Certain Federal Income Tax Considerations...................................115
Book-Entry; Delivery and Form...............................................119
Plan of Distribution........................................................121
Legal Matters...............................................................123
Experts.....................................................................123
Available Information.......................................................124
Incorporation of Certain Documents
by Reference.............................................................125
Glossary....................................................................126
Index to Consolidated Financial Statements..................................F-1
<PAGE>
-------------------------------
PROSPECTUS
-------------------------------
$140,000,000
[LOGO]
MAGNUM HUNTER RESOURCES,
INC.
10% Senior Notes due 2007
October __, 1997
<PAGE>
P A R T II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The General Corporation Law of Nevada permits provisions in the
articles, by-laws or resolutions approved by shareholders which limit liability
of directors for breach of fiduciary duty in certain specified circumstances.
The Articles of Incorporation, with certain exceptions, eliminate any personal
liability of a director to the Company or its shareholders for monetary damages
for the breach of a director's fiduciary duty, and therefore a director cannot
be held liable for damages to the Company or its shareholders for gross
negligence or lack of due care in carrying out his fiduciary duties as a
director. Nevada law permits indemnification if a director or officer acts in
good faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation. A director or officer must be indemnified as to
any matter in which he successfully defends himself. Indemnification is
prohibited as to any matter in which the director or officer is adjudged liable
to the corporation.
Item 21(a). Exhibits.
The information required by this Item 21(a) is set forth in the Index
to Exhibits accompanying this Registration Statement and is incorporated herein
by reference.
Item 22. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in the documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Irving, Texas, on the 16th day of October, 1997.
MAGNUM HUNTER RESOURCES, INC.
/s/ Gary C. Evans
By:-----------------------------------
Gary C. Evans
President and Chief Executive Officer
MAGNUM HUNTER PRODUCTION, INC.
/s/ Gary C. Evans
By:-----------------------------------
Gary C. Evans
Chief Executive Officer
HUNTER GAS GATHERING, INC.
/s/ Gary C. Evans
By:-----------------------------------
Gary C. Evans
Chief Executive Officer
GRUY PETROLEUM MANAGEMENT CO.
/s/ Gary C. Evans
By:---------------------------------
Gary C. Evans
Chief Executive Officer
CONMAG ENERGY CORPORATION
/s/ Gary C. Evans
By:--------------------------------
Gary C. Evans
Chief Executive Officer
RAMPART PETROLEUM, INC.
/s/ Gary C. Evans
By:--------------------------------
Gary C. Evans
Chief Executive Officer
II-2
<PAGE>
MAGNUM HUNTER RESOURCES, INC.
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title Date
/s/ Gary C. Evans
- ------------------------- Director, President and Chief October 16, 1997
Gary C. Evans Executive Officer
Matthew C. Lutz *
- -------------------------- Director, Chairman of the Board October 16, 1997
Matthew C. Lutz and Executive Vice President of
Exploration and Business
Development
/s/ Chris Tong
- -------------------------- Senior Vice President and October 16, 1997
Chris Tong Chief Financial Officer
David S. Krueger *
- -------------------------- Vice President and Chief
David S. Krueger Accounting Officer (principal October 16, 1997
accounting officer)
Gerald W. Bolfing *
- -------------------------- Director October 16, 1997
Gerald W. Bolfing
Oscar C. Lindemann *
- ------------------------- Director October 16, 1997
Oscar C. Lindemann
John H. Trescot, Jr. *
- ------------------------- Director October 16, 1997
John H. Trescot, Jr.
James E. Upfield *
- -------------------------- Director October 16, 1997
James E. Upfield
*By: /s/ Gary C. Evans
- --------------------------
Attorney-in-fact
II-3
<PAGE>
MAGNUM HUNTER PRODUCTION, INC.
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title Date
Richard R. Frazier *
- - ------------------------- Director, President and Chief October 16, 1997
Richard R. Frazier Operating Officer
/s/ Gary C. Evans
- - ------------------------- Director and Chief Executive October 16, 1997
Gary C. Evans Officer(principal
executive officer)
/s/ Chris Tong
- -------------------------- Senior Vice President and October 16, 1997
Chris Tong Chief Financial Officer
David S. Krueger *
- - ------------------------- Vice President and Chief October 16, 1997
David S. Krueger Accounting Officer
Matthew C. Lutz *
- - ------------------------- Director October 16, 1997
Matthew C. Lutz
*By: /s/ Gary C. Evans
- --------------------------
Attorney-in-fact
II-4
<PAGE>
HUNTER GAS GATHERING, INC.
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title Date
R. Renn Rothrock, Jr. *
- --------------------------- Director and President October 16, 1997
R. Renn Rothrock, Jr.
?s/ Gary C. Evans
- --------------------------- Director and Chief Executive October 16, 1997
Gary C. Evans Officer (principal executive
officer)
/s/ Chris Tong
- -------------------------- Senior Vice President and October 16, 1997
Chris Tong Chief Financial Officer
David S. Krueger *
- --------------------------- Vice President and Chief October 16, 1997
David S. Krueger Accounting Officer
Matthew C. Lutz *
- --------------------------- Director October 16, 1997
Matthew C. Lutz
*By: /s/ Gary C. Evans
- --------------------------
Attorney-in-fact
II-5
<PAGE>
GRUY PETROLEUM MANAGEMENT CO.
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title Date
Richard R. Frazier *
- ------------------------ Director and Chief Operating October 16, 1997
Richard R. Frazier Officer
/s/ Gary C. Evans
- ------------------------- Director and Chief Executive October 16, 1997
Gary C. Evans Officer (principal executive
officer)
R. Renn Rothrock, Jr. *
- ------------------------- Director and President October 16, 1997
R. Renn Rothrock, Jr.
/s/ Chris Tong
- -------------------------- Senior Vice President and October 16, 1997
Chris Tong Chief Financial Officer
David S. Krueger *
- ------------------------- Vice President and Chief October 16, 1997
David S. Krueger Accounting Officer
Matthew C. Lutz *
- ------------------------- Director October 16, 1997
Matthew C. Lutz
*By: /s/ Gary C. Evans
- --------------------------
Attorney-in-fact
II-6
<PAGE>
CONMAG ENERGY, INC.
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title Date
/s/ Richard R. Frazier
- --------------------------- Director, President and Chief October 16, 1997
Richard R. Frazier Operating Officer
Gary C. Evans *
- --------------------------- Director and Chief Executive October 16, 1997
Gary C. Evans Officer (principal executive
officer)
David S. Krueger *
- -------------------------- Vice President and Chief October 16, 1997
David S. Krueger Accounting Officer
/s/ Chris Tong
- -------------------------- Senior Vice President and October 16, 1997
Chris Tong Chief Financial Officer
Matthew C. Lutz *
- -------------------------- Director October 16, 1997
Matthew C. Lutz
*By: /s/ Gary C. Evans
- --------------------------
Attorney-in-fact
II-7
<PAGE>
RAMPART PETROLEUM, INC.
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title Date
/s/ Richard R. Frazier
- ------------------------ Director, President and Chief October 16, 1997
Richard R. Frazier Operating Officer
Gary C. Evans *
- ------------------------- Director and Chief Executive October 16, 1997
Gary C. Evans Officer (principal executive
officer)
/s/ Chris Tong
- ------------------------- Senior Vice President and October 16, 1997
Chris Tong Chief Financial Officer
David S. Krueger *
- ------------------------ Vice President and Chief October 16, 1997
David S. Krueger Accounting Officer
Matthew C. Lutz *
- ------------------------ Director October 16, 1997
Matthew C. Lutz
*By: /s/ Gary C. Evans
- --------------------------
Attorney-in-fact
II-8
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
3.1 & 4.1 Articles of Incorporation (Incorporated by reference
to Registration Statement on Form S-18, File No.
33-30298-D)
3.2 & 4.2 Articles of Amendment to Articles of Incorporation
(Incorporated by reference to Form 10-K for the year
ended December 31, 1990)
3.3 & 4.3 Articles of Amendment to Articles of Incorporation
(Incorporated by reference to Registration Statement
on Form SB-2, File No. 33-66190)
3.4 & 4.4 Articles of Amendment to Articles of Incorporation
(Incorporated by reference to Registration Statement
on Form S-3, File No. 333-30453)
3.5 & 4.5 By-Laws, as Amended (Incorporated by reference to
Registration Statement on Form SB-2File No. 33-66190)
3.6 & 4.6 Certificate of Designation of 1996 Series A Preferred
Stock (Incorporated by reference to Form 8-K dated
December 26, 1996, filed January 3, 1997)
3.7 & 4.7 Amendment to Certificate of Designations for 1996
Series A Convertible Preferred Stock (Incorporated by
reference to Registration Statement on Form S-3, File
No. 333-30453)
4.8** Indenture dated May 29, 1997 between Magnum Hunter
Resources, the subsidiary guarantors named therein
and First Union National Bank of North Carolina, as
Trustee
4.9** Form of 10% Senior Note due 2007
5** Opinion of Thompson & Knight, a Professional
Corporation
10.1** Amended and Restated Credit Agreement,dated April 30,
1997, between Magnum Hunter Resources, Inc. and
Bankers Trust Company, et al.
10.2** First Amendment to Amended and Restated Credit
Agreement, dated April 30, 1997,between Magnum Hunter
Resources, Inc. and Bankers Trust Company, et al.
10.3 Employment Agreement for Gary C. Evans (Incorporated
by reference to Registration
Statement on Form S-4, File No. 333-2290)
10.4 Employment Agreement for Matthew C. Lutz Incorporated
by reference to Registration Statement on Form S-4,
File No. 333-2290)
10.5 Stock Purchase Agreement among Magnum Hunter
Resources, Inc. and Trust Company of the West and TCW
Asset Management Company, in the capacities described
herein,TCW Debt and Royalty Fund IVB and TCW Debt and
Royalty Fund IVC, dated as of December 6, 1996
(Incorporated by reference to Form 8-K dated December
26, 1996, filed January 3, 1997)
10.6** Registration Rights Agreement, dated May 29, 1997,
between Magnum Hunter Resources, Inc. and Bankers
Trust Company, et al.
10.7 Purchase and Sale Agreement, dated May 17, 1996
between Meridian Oil, Inc. and ConMag Energy
Corporation (Incorporated by reference to Form 8-K,
dated June 28, 1996, filed July 12, 1996)
10.8 Purchase and Sale Agreement, dated February 27, 1997
among Burlington Resources Oil and Gas Company,
Glacier Park Company and Magnum Hunter Production,Inc
(Incorporated by reference to Form 8-K, dated April
30, 1997, filed May 12, 1997)
21** Subsidiaries of the Registrant
23.1** Consent of Thompson & Knight, a Professional
Corporation (contained in its opinion filed as
Exhibit 5)
23.2** Consent of Deloitte & Touche LLP
23.3** Consent of Hein + Associates LLP
23.4** Consent of Ryder Scott Co. (Incorporated by Reference
to Registration Statement on Form S-4 File No. 333-
31199
23.5** Consent of Gaffney, Cline & Associates Inc.
23.6** Consent of Glenn Harrison Petroleum Consultants, Inc.
23.7** Consent of James J. Weisman, Jr.
23.8** Consent of Hensley Consultants, Inc.
25 ** Statement of Eligibility of First Union National Bank
of North Carolina, as Trustee
** Filed herewith.
EXHIBIT 4.8
MAGNUM HUNTER RESOURCES, INC.,
as Issuer
and
THE SUBSIDIARY GUARANTORS named herein
and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
as Trustee
-------------------------
INDENTURE
Dated as of May 29, 1997
----------------------
$140,000,000
10% Senior Notes due 2007, Series A
10% Senior Notes due 2007, Series B
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
310(a)(1).... ....................................... 7.10
(a)(2)......................................... 7.10
(a)(3)......................................... N.A.
(a)(4) ........................................ N.A.
(a)(5)......................................... 7.08; 7.10
(b)............................................ 7.08; 7.10; 11.02
(c)............................................ N.A.
311(a)............................................... 7.11
(b)............................................ 7.11
(c)............................................ N.A.
312(a)............................................... 2.05
(b)........................................... 11.03
(c)........................................... 11.03
313(a)............................................... 7.06
(b)(1)......................................... N.A.
(b)(2)......................................... 7.06
(c)............................................ 7.06; 11.02
(d)............................................ 7.06
314(a)............................................... 4.07; 4.08
(b)............................................ N.A.
(c)(1)........................................ 11.04
(c)(2)........................................ 11.04
(c)(3).................................... .... N.A.
(d)............................................ N.A.
(e)........................................... 11.05
(f)............................................ N.A.
315(a)............................................... 7.01(b)
(b)............................................ 7.05
(c)............................................ 7.01(a)
(d)............................................ 7.01(c)
(e)............................................ 6.11
316(a)(last sentence)................................ 2.09
(a)(1)(A)...................................... 6.05
(a)(1)(B)...................................... 6.04
(a)(2)......................................... N.A.
(b)............................................ 6.07
(c)............................................ 9.04
317(a)(1)............................................ 6.08
(a)(2)......................................... 6.09
(b)............................................ 2.04
318(a)............................................... N.A.
(c)........................................... 11.01
- ----------------------
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions....................................................1
SECTION 1.02. Incorporation by Reference of TIA.............................31
SECTION 1.03. Rules of Construction.........................................31
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating...............................................32
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount......33
SECTION 2.03. Registrar and Paying Agent....................................34
SECTION 2.04. Paying Agent To Hold Assets in Trust..........................35
SECTION 2.05. Holder Lists..................................................35
SECTION 2.06. Transfer and Exchange.........................................35
SECTION 2.07. Replacement Notes.............................................36
SECTION 2.08. Outstanding Notes.............................................37
SECTION 2.09. Treasury Notes................................................37
SECTION 2.10. Temporary Notes...............................................38
SECTION 2.11. Cancellation..................................................38
SECTION 2.12. Defaulted Interest............................................38
SECTION 2.13. CUSIP Number..................................................39
SECTION 2.14. Deposit of Monies.............................................40
SECTION 2.15. Restrictive Legends...........................................40
SECTION 2.16. Book-Entry Provisions for Global Security.....................42
SECTION 2.17. Special Transfer Provisions...................................44
SECTION 2.18. Liquidated Damages Under Registration Rights Agreement........47
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee............................................47
SECTION 3.02. Selection of Notes To Be Redeemed.............................48
SECTION 3.03. Optional Redemption...........................................48
SECTION 3.04. Notice of Redemption..........................................49
SECTION 3.05. Effect of Notice of Redemption................................50
SECTION 3.06. Deposit of Redemption Price...................................51
SECTION 3.07. Notes Redeemed in Part........................................51
ii
<PAGE>
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes..............................................51
SECTION 4.02. Maintenance of Office or Agency...............................52
SECTION 4.03. Corporate Existence...........................................52
SECTION 4.04. Payment of Taxes and Other Claims.............................52
SECTION 4.05. Maintenance of Properties and Insurance.......................53
SECTION 4.06. Compliance Certificate; Notice of Default.....................53
SECTION 4.07. Compliance with Laws..........................................54
SECTION 4.08. Reports to Holders............................................55
SECTION 4.09. Waiver of Stay, Extension or Usury Laws.......................55
SECTION 4.10. Limitation on Restricted Payments.............................55
SECTION 4.11. Limitation on Transactions with Affiliates....................59
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness...........60
SECTION 4.13. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.................61
SECTION 4.14. Limitation on Restricted and Unrestricted Subsidiaries........62
SECTION 4.15. Change of Control.............................................63
SECTION 4.16. Limitation on Asset Sales.....................................66
SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries......70
SECTION 4.18. Limitation on Liens...........................................70
SECTION 4.19. Limitation on Conduct of Business.............................70
SECTION 4.20. Additional Subsidiary Guarantees..............................70
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets......................71
SECTION 5.02. Successor Corporation Substituted.............................73
iii
<PAGE>
ARTICLE SIX
REMEDIES
SECTION 6.01. Events of Default.............................................73
SECTION 6.02. Acceleration..................................................75
SECTION 6.03. Other Remedies................................................76
SECTION 6.04. Waiver of Past Defaults.......................................77
SECTION 6.05. Control by Majority...........................................77
SECTION 6.06. Limitation on Suits...........................................78
SECTION 6.07. Right of Holders To Receive Payment...........................78
SECTION 6.08. Collection Suit by Trustee....................................78
SECTION 6.09. Trustee May File Proofs of Claim..............................79
SECTION 6.10. Priorities. 79
SECTION 6.11. Undertaking for Costs.........................................80
SECTION 6.12. Restoration of Rights and Remedies............................80
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.............................................80
SECTION 7.02. Rights of Trustee.............................................82
SECTION 7.03. Individual Rights of Trustee..................................83
SECTION 7.04. Trustee's Disclaimer..........................................83
SECTION 7.05. Notice of Default.............................................84
SECTION 7.06. Reports by Trustee to Holders.................................84
SECTION 7.07. Compensation and Indemnity....................................84
SECTION 7.08. Replacement of Trustee........................................86
SECTION 7.09. Successor Trustee by Merger, Etc..............................87
SECTION 7.10. Eligibility; Disqualification.................................87
SECTION 7.11. Preferential Collection of Claims Against the Company.........87
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of Company's Obligations..........................88
SECTION 8.02. Application of Trust Money....................................91
SECTION 8.03. Repayment to the Company......................................91
SECTION 8.04. Reinstatement.................................................91
SECTION 8.05. Acknowledgment of Discharge by Trustee........................92
iv
<PAGE>
ARTICLE NINE
MODIFICATION OF THE INDENTURE
SECTION 9.01. Without Consent of Holders....................................92
SECTION 9.02. With Consent of Holders.......................................93
SECTION 9.03. Compliance with TIA...........................................93
SECTION 9.04. Revocation and Effect of Consents.............................94
SECTION 9.05. Notation on or Exchange of Notes..............................94
SECTION 9.06. Trustee To Sign Amendments, Etc...............................95
ARTICLE TEN
[INTENTIONALLY OMITTED]
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA Controls..................................................95
SECTION 11.02. Notices.......................................................96
SECTION 11.03. Communications by Holders with Other Holders..................97
SECTION 11.04. Certificate and Opinion as to Conditions Precedent............97
SECTION 11.05. Statements Required in Certificate or Opinion.................97
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar.....................98
SECTION 11.07. Legal Holidays................................................98
SECTION 11.08. Governing Law.................................................98
SECTION 11.09. No Adverse Interpretation of Other Agreements.................98
SECTION 11.10. No Personal Liability.........................................99
SECTION 11.11. Successors....................................................99
SECTION 11.12. Duplicate Originals...........................................99
SECTION 11.13. Severability..................................................99
SECTION 11.14. Independence of Covenants.....................................99
ARTICLE TWELVE
GUARANTEE OF NOTES
SECTION 12.01. Unconditional Guarantee......................................100
SECTION 12.02. Limitations on Guarantees....................................102
SECTION 12.03. Execution and Delivery of Guarantee..........................102
SECTION 12.04. Release of a Subsidiary Guarantor............................103
SECTION 12.05. Waiver of Subrogation........................................104
v
<PAGE>
SECTION 12.06. Immediate Payment............................................104
SECTION 12.07. No Set-Off. 105
SECTION 12.08. Obligations Absolute.........................................105
SECTION 12.09. Obligations Continuing.......................................105
SECTION 12.10. Obligations Not Reduced......................................105
SECTION 12.11. Obligations Reinstated.......................................106
SECTION 12.12. Obligations Not Affected.....................................106
SECTION 12.13. Waiver.......................................................107
SECTION 12.14. No Obligation To Take Action Against the Company.............108
SECTION 12.15. Dealing with the Company and Others..........................108
SECTION 12.16. Default and Enforcement......................................109
SECTION 12.17. Amendment, Etc...............................................109
SECTION 12.18. Acknowledgment...............................................109
SECTION 12.19. Costs and Expenses...........................................109
SECTION 12.20. No Merger or Waiver; Cumulative Remedies.....................109
SECTION 12.21. Survival of Obligations......................................110
SECTION 12.22. Guarantee in Addition to Other Obligations...................110
SECTION 12.23. Severability.................................................110
SECTION 12.24. Successors and Assigns.......................................109
ARTICLE THIRTEEN
[INTENTIONALLY OMITTED]
vi
<PAGE>
INDENTURE, dated as of May 29, 1997, among Magnum Hunter
Resources, Inc., a Nevada corporation (the "Company"), and First Union National
Bank of North Carolina, as Trustee (the "Trustee").
The Company has duly authorized the creation of an issue of
10% Senior Notes due 2007, Series A (the "Initial Notes") and 10% Senior Notes
due 2007, Series B to be issued in exchange for the Initial Notes pursuant to
the Registration Rights Agreement (as defined herein) (the "Exchange Notes" and,
together with the Initial Notes, the "Notes") and, to provide therefor, the
Company has duly authorized the execution and delivery of this Indenture. The
Notes will be guaranteed on a senior basis by each of the Company's Restricted
Subsidiaries (as defined herein) (collectively, the "Subsidiary Guarantors").
All things necessary to make the Notes, when duly issued and executed by the
Company, and authenticated and delivered hereunder, the valid obligations of the
Company, and to make this Indenture a valid and binding agreement of the
Company, have been done.
Each party hereto agrees as follows for the benefit of the
other parties and for the equal and ratable benefit of the Holders of the Notes.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries (i) existing at the time such Person becomes a Restricted
Subsidiary or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or (ii) which becomes Indebtedness of the Company or
a Restricted Subsidiary in connection with the acquisition of assets from such
Person, in each case not incurred in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition, merger or consolidation.
"Additional Interest" shall have the meaning set forth in the Registration
Rights Agreement.
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"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination, (a) the sum of (i) discounted future net revenues
from proved oil and gas reserves of the Company and its consolidated
Subsidiaries, calculated in accordance with Commission guidelines (before any
state or federal income tax), as estimated by a nationally recognized firm of
independent petroleum engineers as of a date no earlier than the date of the
Company's latest annual consolidated financial statements, as increased by, as
of the date of determination, the estimated discounted future net revenues from
(A) estimated proved oil and gas reserves acquired since the date of such
year-end reserve report, and (B) estimated oil and gas reserves attributable to
upward revisions of estimates of proved oil and gas reserves since the date of
such year-end reserve report due to exploration, development or exploitation
activities, in each case calculated in accordance with Commission guidelines
(utilizing the prices utilized in such year-end reserve report), and decreased
by, as of the date of determination, the estimated discounted future net
revenues from (C) estimated proved oil and gas reserves produced or disposed of
since the date of such year-end reserve report and (D) estimated oil and gas
reserves attributable to downward revisions of estimates of proved oil and gas
reserves since the date of such year-end reserve report due to changes in
geological conditions or other factors which would, in accordance with standard
industry practice, cause such revisions, in each case calculated in accordance
with Commission guidelines (utilizing the prices utilized in such year-end
reserve report); provided, however, that, in the case of each of the
determinations made pursuant to clauses (A) through (D), such increases and
decreases shall be as estimated by the Company's petroleum engineers, unless in
the event that there is a Material Change as a result of such acquisitions,
dispositions or revisions, then the discounted future net revenues utilized for
purposes of this clause (a)(i) shall be confirmed in writing, by a nationally
recognized firm of independent petroleum engineers (which may be the Company's
independent petroleum engineers who prepare the Company's annual reserve report)
plus (ii) the capitalized costs that are attributable to oil and gas properties
of the Company and its Subsidiaries to which no proved oil and gas reserves are
attributable, based on the Company's books and records as of a date no earlier
than the date of the Company's latest annual or quarterly financial statements,
plus (iii) the Net Working Capital on a date no earlier than the date of the
Company's latest consolidated annual or quarterly financial statements plus (iv)
with respect to each other tangible asset of the Company or its consolidated
Restricted Subsidiaries, specifically including, but not to the exclusion of any
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other qualifying tangible assets, the Company's or its consolidated Restricted
Subsidiaries, gas producing facilities and unproved oil and gas properties (less
any remaining deferred income taxes which have been allocated to such gas
processing facilities in connection with the acquisition thereof), land,
equipment, leasehold improvements, investments carried on the equity method,
restricted cash and the carrying value of marketable securities, the greater of
(A) the net book value of such other tangible asset on a date no earlier than
the date of the Company's latest consolidated annual or quarterly financial
statements or (B) the appraised value, as estimated by a qualified Independent
Advisor, of such other tangible assets of the Company and its Restricted
Subsidiaries, as of a date no earlier than the date of the Company's latest
audited financial statements minus (b) minority interests and, to the extent not
otherwise taken into account in determining Adjusted Consolidated Net Tangible
Assets, any gas balancing liabilities of the Company and its consolidated
Restricted Subsidiaries reflected in the Company's latest audited financial
statements. In addition to, but without duplication of, the foregoing, for
purposes of this definition, "Adjusted Consolidated Net Tangible Assets" shall
be calculated after giving effect, on a pro forma basis, to (1) any Investment
not prohibited by this Indenture, to and including the date of the transaction
giving rise to the need to calculate Adjusted Consolidated Net Tangible Assets
(the "Assets Transaction Date"), in any other Person that, as a result of such
Investment, becomes a Restricted Subsidiary of the Company, (2) the acquisition,
to and including the Assets Transaction Date (by merger, consolidation or
purchase of stock or assets), of any business or assets, including, without
limitation, Permitted Industry Investments, and (3) any sales or other
dispositions of assets permitted by this Indenture (other than sales of
Hydrocarbons or other mineral products in the ordinary course of business)
occurring on or prior to the Assets Transaction Date.
"Affiliate" means, with respect to any specified Person, (a) any other
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or under common control with, such specified Person and (b)
any Related Person of such Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
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"Affiliate Transaction" has the meaning provided in Section 4.11.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Agent Members" has the meaning provided in Section 2.16.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary, or shall be merged with or into the Company or
any Restricted Subsidiary, or (b) the acquisition by the Company or any
Restricted Subsidiary of the assets of any Person (other than a Restricted
Subsidiary) which constitute all or substantially all of the assets of such
Person or comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, exchange, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Restricted Subsidiary of
(a) any Capital Stock of any Restricted Subsidiary; or (b) any other property or
assets (including any interests therein) of the Company or any Restricted
Subsidiary, including any disposition by means of a merger, consolidation or
similar transaction; provided, however, that Asset Sales shall not include (i)
the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company in a transaction which is made in
compliance with the provisions of Section 5.01, (ii) any Investment in an
Unrestricted Subsidiary which is made in compliance with the provisions of
Section 4.10, (iii) disposals or replacements of obsolete equipment in the
ordinary course of business, (iv) the sale, lease, conveyance, disposition or
other transfer (each, a "Transfer") by the Company or any Restricted Subsidiary
of assets or property to the Company or one or more Restricted Subsidiaries, (v)
any disposition of Hydrocarbons or other mineral products for value in the
ordinary course of business and (vi) the Transfer by the Company or any
Restricted Subsidiary of assets or property in the ordinary course of business;
provided, however, that the aggregate amount (valued at the fair market value of
such assets or property at the time of such Transfer) of all such assets and
property Transferred since the Issue Date pursuant to this clause (vi) shall not
exceed $1,000,000 in any one year.
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"Authenticating Agent" has the meaning provided in Section 2.02.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.
"Board of Directors" means, as for any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to be in full force and effect on the date of such certification, and delivered
to the Trustee.
"Business Day" means any day other than a Saturday, Sunday or any other day
on which banking institutions in the cities of New York or Charlotte, North
Carolina are required or authorized by law or other governmental action to be
closed.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether voting or non-voting) of corporate stock, including each
class of Common Stock and Preferred Stock of such Person and including any
warrants, options or rights to acquire any of the forgoing and instruments
convertible into any of the foregoing and (ii) with respect to any Person that
is not a corporation, any and all partnership or other equity interests of such
Person.
"Capitalized Lease Obligation" means, as to any Person, the discounted
present value of the rental obligations of such Person under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation at such date, determined in accordance with GAAP.
"Cash Equivalents" means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (b)
<PAGE>
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (c) commercial paper maturing no more than
one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (d)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any United States branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $250,000,000; (e)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (a) above entered into with any bank
meeting the qualifications specified in clause (d) above; and (f) money market
mutual or similar funds having assets in excess of $100,000,000.
"Change of Control" means the occurrence of one or more of the following
events: (a) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group") (whether or not otherwise in compliance with the
provisions of this Indenture); (b) the approval by the holders of Capital Stock
of the Company of any plan or proposal for the liquidation or dissolution of the
Company (whether or not otherwise in compliance with the provisions of this
Indenture); (c) any Person or Group shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 40% of
the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; or (d) the replacement of a majority of the Board
of Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period with directors whose replacement shall not have been approved (by
recommendation, nomination or election, as the case may be) by a vote of at
least a majority of the Board of Directors of the Company then still in office
who either were members of such Board of Directors at the beginning of such
period or whose election as a member of such Board of Directors was previously
so approved.
<PAGE>
"Change of Control Offer" has the meaning provided in Section 4.15.
"Change of Control Payment Date" has the meaning provided in Section 4.15.
"Commission" means the SEC.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company Properties" means all Properties, and equity, partnership or other
ownership interests therein, that are related or incidental to, or used or
useful in connection with, the conduct or operation of any business activities
of the Company or the Subsidiaries, which business activities are not prohibited
by the terms of this Indenture.
"Consolidated EBITDA" means, for any period, the sum (without duplication)
of (a) Consolidated Net Income and (b) to the extent Consolidated Net Income has
been reduced thereby, (i) all income taxes of the Company and its Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring gains or
losses or taxes attributable to sales or dispositions outside the ordinary
course of business), (ii) Consolidated Interest Expense, (iii) the amount of any
Preferred Stock dividends paid by the Company and its Restricted Subsidiaries
and (iv) Consolidated Non-cash Charges, less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for the Company and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated EBITDA Coverage Ratio" means, with respect to the Company,
the ratio of (a) Consolidated EBITDA of the Company during the four full fiscal
quarters for which financial information in respect thereof is available (the
"Four Quarter Period") ending on or prior to the date of the transaction giving
rise to the need to calculate the Consolidated EBITDA Coverage Ratio (the
"Transaction Date") to (b) Consolidated Fixed Charges of the Company for the
<PAGE>
Four Quarter Period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect (without duplication) on a pro
forma basis for the period of such calculation to (a) the incurrence or
repayment of any Indebtedness of the Company or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (b) any Asset
Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of its Restricted Subsidiaries (including any Person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness, and also
including, without limitation, any Consolidated EBITDA attributable to the
assets which are the subject of the Asset Acquisition or Asset Sale during the
Four Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness) occurred
on the first day of the Four Quarter Period. If the Company or any of its
Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the incurrence of such
guaranteed Indebtedness as if the Company or the Restricted Subsidiary, as the
case may be, had directly incurred or otherwise assumed such guaranteed
Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated EBITDA Coverage Ratio," (i) interest on outstanding Indebtedness
determined on a fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter shall be deemed to have accrued at a
fixed rate per annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; (ii) if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four Quarter
Period; (iii) notwithstanding clauses (i) and (ii) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
<PAGE>
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of (a) Consolidated Interest Expense
(including any premium or penalty paid in connection with redeeming or retiring
Indebtedness of the Company and its Restricted Subsidiaries prior to the stated
maturity thereof pursuant to the agreements governing such Indebtedness), plus
(b) the product of (i) the amount of all dividend payments on any series of
Preferred Stock of the Company (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(ii) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local
income tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for any
period, the sum of, without duplication: (a) the aggregate of the interest
expense of the Company and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (i) any amortization of original issue discount, (ii) the net costs
under Interest Swap Obligations, (iii) all capitalized interest and (iv) the
interest portion of any deferred payment obligation; and (b) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by the Company and its Restricted Subsidiaries during such
period, as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company 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, however, that there shall be excluded therefrom (a)
after-tax gains from Asset Sales or abandonments or reserves relating thereto,
(b) after-tax items classified as extraordinary or nonrecurring gains, (c) the
net income of any Person acquired in a "pooling of interests" transaction
accrued prior to the date it becomes a Restricted Subsidiary or is merged or
consolidated with the Company or any Restricted Subsidiary, (d) the net income
(but not loss) of any Restricted Subsidiary to the extent that the declaration
of dividends or similar distributions by that Restricted Subsidiary of that
income is restricted by charter, contract, operation of law or otherwise, (e)
the net income of any Person in which the Company has an interest, other than a
Restricted Subsidiary, except to the extent of cash dividends or distributions
<PAGE>
actually paid to the Company or to a Restricted Subsidiary by such Person, (f)
income or loss attributable to discontinued operations (including, without
limitation, operations disposed of during such period whether or not such
operations were classified as discontinued) and (g) in the case of a successor
to the Company by consolidation or merger or as a transferee of the Company's
assets, any net income (or loss) of the successor corporation prior to such
consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person as of any date means the
consolidated stockholders' equity of such Person, determined on a consolidated
basis in accordance with GAAP, less (without duplication) amounts attributable
to Disqualified Capital Stock of such Person.
"Consolidated Non-Cash Charges" means, with respect to the Company, for any
period, the aggregate depreciation, depletion, amortization and other non-cash
expenses of the Company and its Restricted Subsidiaries reducing Consolidated
Net Income of the Company for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which requires an accrual of or a reserve for
cash charges for any future period).
"consolidation" means, with respect to any Person, the consolidation of the
accounts of the Restricted Subsidiaries of such Person with those of such
Person, all in accordance with GAAP; provided, however, that "consolidation"
will not include consolidation of the accounts of any Unrestricted Subsidiary of
such Person with the accounts of such Person. The term "consolidated" has a
correlative meaning to the foregoing.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of execution of this Indenture is located at Charlotte,
North Carolina.
"Covenant Defeasance" has the meaning set forth in Section 8.01.
<PAGE>
"Crude Oil and Natural Gas Business" means (i) the acquisition,
exploration, development, operation and disposition of interests in oil, gas and
other hydrocarbon properties located in the Western Hemisphere, (ii) the
gathering, marketing, treating, processing, storage, selling and transporting of
any production from such interests or properties of the Company or of others and
(iii) activities incidental to the foregoing.
"Crude Oil and Natural Gas Hedge Agreements" means, with respect to any
Person, any oil and gas agreements and other agreements or arrangements or any
combination thereof entered into by such Person in the ordinary course of
business and that are designed to provide protection against oil and natural gas
price fluctuations.
"Crude Oil and Natural Gas Properties" means all Properties, including
equity or other ownership interests therein, owned by any Person which have been
assigned "proved oil and gas reserves" as defined in Rule 4-10 of Regulation S-X
of the Securities Act as in effect on the Issue Date.
"Crude Oil and Natural Gas Related Assets" means any Investment or capital
expenditure (but not including additions to working capital or repayments of any
revolving credit or working capital borrowings) by the Company or any Subsidiary
of the Company which is related to the business of the Company and its
Subsidiaries as it is conducted on the date of the Asset Sale giving rise to the
Net Cash Proceeds to be reinvested.
"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 of the Company against fluctuations in
currency values.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Defeasance Payment" means any distribution from any defeasance trust
described under Section 8.01.
"Depository" means The Depository Trust Company, its nominees and
successors.
<PAGE>
"Disqualified Capital Stock" means that portion of 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 mandatorily redeemable at the sole option of the holder thereof, in whole or
in part, in either case, on or prior to the final maturity of the Notes.
"Equity Offering" means an offering of Qualified Capital Stock of the
Company.
"Event of Default" has the meaning provided in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"Exchange Notes" has the meaning provided in the preamble to this
Indenture.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between an informed and willing seller and an informed and willing buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors of
the Company acting reasonably and in good faith and shall be evidenced by a
Board Resolution of the Company delivered to the Trustee; provided, however,
that (A) if the aggregate non-cash consideration to be received by the Company
or any Restricted Subsidiary from any Asset Sale shall reasonably be expected to
exceed $5,000,000 or (B) if the net worth of any Restricted Subsidiary to be
designated as an Unrestricted Subsidiary shall reasonably be expected to exceed
$10,000,000, then fair market value shall be determined by an Independent
Advisor.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board as of any date of determination.
"Global Note" has the meaning provided in Section 2.01.
<PAGE>
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part) (but if in part, only to the extent thereof); provided,
however, that the term "guarantee" shall not include (A) endorsements for
collection or deposit in the ordinary course of business and (B) guarantees
(other than guarantees of Indebtedness) by the Company in respect of assisting
one or more Subsidiaries in the ordinary course of their respective businesses,
including without limitation guarantees of trade obligations and operating
leases, on ordinary business terms. The term "guarantee" used as a verb has a
corresponding meaning.
"Guarantee" means the guarantee of the obligations under this Indenture and
the Notes by each of the Subsidiary Guarantors as set forth in Article Twelve
hereof.
"Holder" means any Person holding a Note.
"Hydrocarbons" means oil, gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and
all constituents, elements or compounds thereof and products processed
therefrom.
"incur" has the meaning set forth in Section 4.12.
"Indebtedness" means with respect to any Person, without duplication, (a)
all Obligations of such Person for borrowed money, (b) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all Capitalized Lease Obligations of such Person, (d) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable), (e) all Obligations for the
reimbursement of any obligor on a letter of credit, banker's acceptance or
<PAGE>
similar credit transaction, (f) guarantees and other contingent obligations in
respect of Indebtedness referred to in clauses (a) through (e) above and clause
(h) below, (g) all Obligations of any other Person of the type referred to in
clauses (a) through (f) above which are secured by any Lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
Obligation so secured, (h) all Obligations under Currency Agreements, Interest
Swap Obligations and Crude Oil and Natural Gas Hedge Agreements and (i) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed Redemption
Price or repurchase price. For purposes hereof, the "maximum fixed repurchase
price" of any Disqualified Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Disqualified
Capital Stock as if such Disqualified Capital Stock were purchased on any date
on which Indebtedness shall be required to be determined pursuant to this
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the
Company. The "amount" or "principal amount" of Indebtedness at any time of
determination as used herein represented by (a) any Indebtedness issued at a
price that is less than the principal amount at maturity thereof shall be the
face amount of the liability in respect thereof, (b) any Capitalized Lease
Obligation shall be the amount determined in accordance with the definition
thereof, (c) any Interest Swap Obligations included in the definition of
Permitted Indebtedness shall be zero, (d) all other unconditional obligations
shall be the amount of the liability thereof determined in accordance with GAAP
and (e) all other contingent obligations shall be the maximum liability at such
date of such Person.
"Indenture" means this Indenture, as amended or supplemented from time to
time in accordance with the terms hereof.
"Independent Advisor" means a reputable accounting, appraisal or nationally
recognized investment banking, engineering or consulting firm (a) which does
not, and whose directors, officers and employees or Affiliates do not, have a
direct or indirect material financial interest in the Company and (b) which, in
the judgment of the Board of Directors of the Company, is otherwise
disinterested, independent and qualified to perform the task for which it is to
be engaged.
<PAGE>
"Initial Notes" has the meaning provided in the preamble to this Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"interest," when used with respect to any Note means the amount of all
interest accruing on such Note, including any applicable defaulted interest
pursuant to Section 2.12 and any Additional Interest pursuant to the
Registration Rights Agreement.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Notes.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
to the date hereof and from time to time hereafter.
"Investment" means, with respect to any Person, any direct or indirect (i)
loan, advance or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or other
property (valued at the fair market value thereof as of the date of transfer)
others or any payment for property or services for the account or use of
others), (ii) purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person (whether by merger, consolidation, amalgamation or otherwise and
whether or not purchased directly from the issuer of such securities or
evidences of Indebtedness), (iii) guarantee or assumption of the Indebtedness of
any other Person (other than the guarantee or assumption of Indebtedness of such
<PAGE>
Person or a Restricted Subsidiary of such Person which guarantee or assumption
is made in compliance with the provisions of Section 4.12), and (iv) other items
that would be classified as investments on a balance sheet of such Person
prepared in accordance with GAAP. Notwithstanding the foregoing, "Investment"
shall exclude extensions of trade credit by the Company and its Restricted
Subsidiaries on commercially reasonable terms in accordance with normal trade
practices of the Company or such Restricted Subsidiary, as the case may be. The
amount of any Investment shall not be adjusted for increases or decreases in
value, or write-ups, write-downs or write-offs with respect to such Investment.
If the Company or any Restricted Subsidiary sells or otherwise disposes of any
Capital Stock of any Restricted Subsidiary such that, after giving effect to any
such sale or disposition, it ceases to be a Subsidiary of the Company, the
Company shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the Capital Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Legal Defeasance" has the meaning set forth in Section 8.01.
"Legal Holiday" has the meaning provided in Section 11.07.
"Lien" means any lien, mortgage, deed of trust, pledge, 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 Change" means an increase or decrease of more than 10% during a
fiscal quarter in the discounted future net cash flows (excluding changes that
result solely from changes in prices) from proved oil and gas reserves of the
Company and consolidated Subsidiaries (before any state or federal income tax);
provided, however, that the following will be excluded from the Material Change
calculation: (i) any acquisitions during the quarter of oil and gas reserves
that have been estimated by independent petroleum engineers and on which a
report or reports exist, (ii) any disposition of properties existing at the
beginning of such quarter that have been disposed of as provided in Section 4.16
and (iii) any reserves added during the quarter attributable to the drilling or
recompletion of wells not included in previous reserve estimates, but which will
be included in future quarters.
<PAGE>
"Maturity Date" means June 1, 2007.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (b) taxes paid or payable after taking into
account any reduction in consolidated tax liability due to available tax credits
or deductions and any tax sharing arrangements, (c) repayment of Indebtedness
that is required to be repaid in connection with such Asset Sale and (d)
appropriate amounts (determined by the Chief Financial Officer of the Company)
to be provided by the Company or any Restricted Subsidiary, as the case may be,
as a reserve, in accordance with GAAP, against any post-closing adjustments or
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 (but excluding any
payments which, by the terms of the indemnities, will not, be made during the
term of the Notes).
"Net Proceeds Offer" has the meaning set forth in Section 4.16.
"Net Proceeds Offer Amount" has the meaning set forth in Section 4.16.
"Net Proceeds Offer Payment Date" has the meaning set forth in Section
4.16.
"Net Proceeds Offer Trigger Date" has the meaning set forth in Section
4.16.
"Net Working Capital" means (i) all current assets of the Company and its
consolidated Subsidiaries, minus (ii) all current liabilities of the Company and
its consolidated Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with GAAP.
<PAGE>
"Non-U.S. Person" means a person who is not a U.S. person, as defined in
Regulation S.
"Notes" means the Initial Notes and the Exchange Notes treated as a single
class of securities, as amended or supplemented from time to time in accordance
with the terms hereof, that are issued pursuant to this Indenture.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the Board of
Directors, the Chief Executive Officer, the President, any Vice President, the
Chief Financial Officer, the Treasurer, the Controller, or the Secretary of such
Person, or any other officer designated by the Board of Directors serving in a
similar capacity and with respect to the Trustee or any agent of the Trustee, a
"Trust Officer."
"Officers' Certificate" means a certificate signed by two Officers of the
Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee complying with the requirements of Sections
11.04 and 11.05, as they relate to the giving of an Opinion of Counsel.
"Paying Agent" has the meaning provided in Section 2.03.
"Payment Restriction" shall have the meaning set forth in Section 4.13.
"Permitted Indebtedness" means, without duplication, each of the following:
(a) the Exchange Notes, the Private Exchange Notes, if any, and the
Guarantees;
(b) Indebtedness incurred pursuant to the Senior Credit Facility in an
aggregate principal amount at any time outstanding not to exceed $60,000,000
<PAGE>
reduced by any required permanent repayments (which are accompanied by a
corresponding permanent commitment reduction) thereunder (it being recognized
that a reduction in the borrowing base in and of itself shall not be deemed a
required permanent repayment);
(c) Interest Swap Obligations of the Company or a Restricted Subsidiary
covering Indebtedness of the Company or any of its Restricted Subsidiaries;
provided, however, that such Interest Swap Obligations are entered into to
protect the Company and its Restricted Subsidiaries from fluctuations in
interest rates on Indebtedness incurred in accordance with this Indenture to the
extent the notional principal amount of such Interest Swap Obligations does not
exceed the principal amount of the Indebtedness to which such Interest Swap
Obligation relates;
(d) Indebtedness of a Restricted Subsidiary to the Company or to a Wholly
Owned Restricted Subsidiary for so long as such Indebtedness is held by the
Company or a Wholly Owned Restricted Subsidiary, in each case subject to no Lien
held by a Person other than the Company or a Wholly Owned Restricted Subsidiary;
provided, however, that if as of any date any Person other than the Company or a
Wholly Owned Restricted Subsidiary owns or holds any such Indebtedness or holds
a Lien in respect of such Indebtedness, such date shall be deemed the incurrence
of Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(e) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary for
so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary, in
each case subject to no Lien; provided, however, that (i) any Indebtedness of
the Company to any Wholly Owned Restricted Subsidiary that is not a Subsidiary
Guarantor is unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under this Indenture and the Notes and (ii) if as of any
date any Person other than a Wholly Owned Restricted Subsidiary owns or holds
any such Indebtedness or holds a Lien in respect of such Indebtedness, such date
shall be deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the Company;
(f) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in the
case of daylight overdrafts) drawn against insufficient funds in the ordinary
course of business; provided, however, that such Indebtedness is extinguished
within two Business Days of incurrence;
<PAGE>
(g) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(h) Refinancing Indebtedness;
(i) Capitalized Lease Obligations and Purchase Money Indebtedness of the
Company or any of its Restricted Subsidiaries not to exceed $5,000,000 at any
one time outstanding;
(j) Obligations arising in connection with Crude Oil and Natural Gas Hedge
Agreements of the Company or a Restricted Subsidiary;
(k) Indebtedness under Currency Agreements; provided, however, that in the
case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(l) additional Indebtedness of the Company or any of its
Restricted Subsidiaries in an aggregate principal amount at any time
outstanding not to exceed the greater of (i) $10,000,000 or (ii) 5.0%
of Adjusted Consolidated Net Tangible Assets of the Company; and
(m) Indebtedness owed by the Company in connection with its
guaranty of the obligations of Hunter Butcher International Limited
Liability Company to Wells Fargo HSBC Trade Bank N.A., provided that
the amount guaranteed by the Company does not exceed $3,000,000.
"Permitted Industry Investments" means (i) capital expenditures, including,
without limitation, acquisitions of Company Properties and interests therein;
<PAGE>
(ii) (a) entry into operating agreements, joint ventures, working interests,
royalty interests, mineral leases, unitization agreements, pooling arrangements
or other similar or customary agreements, transactions, properties, interests or
arrangements, and Investments and expenditures in connection therewith or
pursuant thereto, in each case made or entered into in the ordinary course of
the oil and natural gas business, and (b) exchanges of Company Properties for
other Company Properties of at least equivalent value as determined in good
faith by the Board of Directors of the Company; and (iii) Investments of
operating funds on behalf of co-owners of Crude Oil and Natural Gas Properties
of the Company or the Subsidiaries pursuant to joint operating agreements.
"Permitted Investments" means (a) Investments by the Company or any
Restricted Subsidiary in any Person that is or will become immediately after
such Investment a Restricted Subsidiary or that will merge or consolidate into
the Company or a Restricted Subsidiary that is not subject to any Payment
Restriction; (b) Investments in the Company by any Restricted Subsidiary;
provided, however, that any Indebtedness evidencing any such Investment held by
a Restricted Subsidiary that is not a Subsidiary Guarantor is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Notes and this Indenture; (c) Investments in cash and Cash
Equivalents; (d) Investments made by the Company or its Restricted Subsidiaries
as a result of consideration received in connection with an Asset Sale made in
compliance with Section 4.16;(e) Permitted Industry Investments; and (f)
additional Investments in Unrestricted Subsidiaries in an aggregate amount not
to exceed $5,000,000 at any one time.
"Permitted Junior Securities" means any securities of the Company or any
other Person that are (i) equity securities without special covenants or (ii)
subordinated in right of payment to all Senior Indebtedness that may at the time
be outstanding, to substantially the same extent as, or to a greater extent
than, the notes are subordinated as provided in this Indenture, in any event
pursuant to a court order so providing and as to which (a) the rate of interest
on such securities shall not exceed the effective rate of interest on the Notes
on the date of this Indenture, (b) such securities shall not be entitled to the
benefits of covenants or defaults materially more beneficial to the holders of
such securities than those in effect with respect to the Notes on the date of
this Indenture and (c) such securities shall not provide for amortization
(including sinking fund and mandatory prepayment provisions) commencing prior to
the date six months following the final scheduled maturity date of the Senior
Indebtedness (as modified by the plan of reorganization of readjustment pursuant
to which such securities are issued).
<PAGE>
"Permitted Liens" means each of the following types of Liens:
(a) Liens existing as of the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date (and any extensions, replacements or
renewals thereof covering property or assets secured by such Liens on the Issue
Date);
(b) Liens securing Indebtedness outstanding under the Senior Credit
Facility;
(c) Liens securing the Notes and the Guarantees;
(d) Liens of the Company or a Restricted Subsidiary on assets of any
Restricted Subsidiary;
(e) Liens securing Refinancing Indebtedness which is incurred to Refinance
any Indebtedness which has been secured by a Lien permitted under this Indenture
and which has been incurred in accordance with the provisions of this Indenture;
provided, however, that such Liens (x) are no less favorable to the Holders and
are not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (y) do not extend to
or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced;
(f) Liens for taxes, assessments or governmental charges or claims either
(i) not delinquent or (ii) contested in good faith by appropriate proceedings
and as to which the Company or a Restricted Subsidiary, as the case may be,
shall have set aside on its books such reserves as may be required pursuant to
GAAP;
(g) statutory and contractual Liens of landlords to secure rent arising in
the ordinary course of business to the extent such Liens relate only to the
tangible property of the lessee which is located on such property and Liens of
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for sums not
yet delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been made
in respect thereof;
<PAGE>
(h) Liens incurred or deposits made in the ordinary course of business (i)
in connection with workers' compensation, unemployment insurance and other types
of social security, including any Lien securing letters of credit issued in the
ordinary course of business consistent with past practice in connection
therewith, or (ii) to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money);
(i) judgment and attachment Liens not giving rise to an Event of Default;
(j) easements, rights-of-way, zoning restrictions, restrictive covenants,
minor imperfections in title and other similar charges or encumbrances in
respect of real property not interfering in any material respect with the
ordinary conduct of the business of the Company or any of its Restricted
Subsidiaries;
(k) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or assets
which is not leased property subject to such Capitalized Lease Obligation;
(l) Liens securing Purchase Money Indebtedness of the Company or any
Restricted Subsidiary; provided, however, that (i) the Purchase Money
Indebtedness shall not be secured by any property or assets of the Company or
any Restricted Subsidiary other than the property and assets so acquired or
constructed and (ii) the Lien securing such Indebtedness shall be created within
90 days of such acquisition or construction;
(m) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof;
(n) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company or
any of its Restricted Subsidiaries, including rights of offset and set-off;
<PAGE>
(o) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under this
Indenture and Liens securing Crude Oil and Natural Gas Hedge Agreements;
(p) Liens securing Acquired Indebtedness incurred in accordance with
Section 4.12; provided, however, that (i) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and (ii) such Liens do
not extend to or cover any property or assets of the Company or of any of its
Restricted Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Restricted Subsidiary (except for proceeds,
improvements, rents and similar items relating to the property or assets so
secured) and are no more favorable to the lienholders than those securing the
Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by
the Company or a Restricted Subsidiary;
(q) Liens on, or related to, properties and assets of the Company and its
Subsidiaries to secure all or a part of the costs incurred in the ordinary
course of business of exploration, drilling, development, production,
processing, gas gatherings, transportation, marketing or storage, or operation
thereof;
(r) Liens on pipeline or pipeline facilities, Hydrocarbons or properties
and assets of the Company and its Subsidiaries which arise out of operation of
law;
(s) royalties, overriding royalties, revenue interests, net revenue
interests, net profit interests, revisionary interests, production payments,
production sales contracts, preferential rights of purchase, operating
agreements, working interests and other similar interests, properties,
arrangements and agreements, all as ordinarily exist with respect to Properties
and assets of the Company and its Subsidiaries or otherwise as are customary in
the oil and gas business;
<PAGE>
(t) with respect to any Properties and assets of the Company and its
Subsidiaries, Liens arising under, or in connection with, or related to,
farm-out, farm-in, joint operation, area of mutual interest agreements and/or
other similar or customary arrangements, agreements or interests that the
Company or any Subsidiary determines in good faith to be necessary for the
economic development of such Property;
(u) any (a) interest or title of a lessor or sublessor under any lease, (b)
restriction or encumbrance that the interest or title of such lessor or
sublessor may be subject to (including, without limitation, ground leases or
other prior leases of the demised premises, mortgages, mechanics' liens, tax
liens, and easements), or (c) subordination of the interest of the lessee or
sublessee under such lease to any restrictions or encumbrance referred to in the
preceding clause (b);
(v) Liens in favor of collecting or payor banks having a right of setoff,
revocation, refund or chargeback with respect to money or instruments of the
Company or any Restricted Subsidiary on deposit with or in possession of such
bank; and
(w) Liens incurred in the ordinary course of business and not exceeding
$2,000,000 in the aggregate at any one time.
"Person" means an individual, partnership, corporation, unincorporated
organization, limited liability company, trust, estate or joint venture, or a
governmental agency or political subdivision thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"Plan of Liquidation" means, with respect to any Person, a plan (including
by operation of law) that provides for, contemplates or the effectuation of
which is preceded or accompanied by (whether or not substantially
contemporaneously) (i) the sale, lease, conveyance or other disposition of all
or substantially all of the assets of such Person otherwise than as an entirety
or substantially as an entirety and (ii) the distribution of all or
substantially all of the proceeds of such sale, lease, conveyance or other
disposition and all or substantially all of the remaining assets of such Person
to holders of Capital Stock of such Person.
<PAGE>
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"principal" of any Indebtedness (including the Notes) means the principal
amount of such Indebtedness plus the premium, if any, on such Indebtedness.
"Private Exchange Notes" means senior subordinated notes of the Company,
guaranteed by the Subsidiary Guarantors, issued in exchange for the Notes and
identical in all material respects to the Exchange Notes, except for the
placement of a restrictive legend on such Private Exchange Notes.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.15.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of this Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act, as determined by the
Board of Directors of the Company in consultation with its independent public
accountants.
"Property" means, with respect to any Person, any interests of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, Capital Stock, partnership
interests and other equity or ownership interests in any other Person.
"Purchase Money Indebtedness" means Indebtedness the net proceeds of which
are used to finance the cost (including the cost of construction) of property or
assets acquired in the normal course of business by the Person incurring such
Indebtedness.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the meaning specified
in Rule 144A under the Securities Act.
"Record Date" means the Record Dates specified in the Notes.
<PAGE>
"Redemption Date," when used with respect to any Note to be redeemed, means
the date fixed for such redemption pursuant to this Indenture and the Notes.
"Redemption Price," when used with respect to any Note to be redeemed,
means the price fixed for such redemption, including principal and premium, if
any, pursuant to this Indenture and the Notes.
"Reference Date" has the meaning set forth in Section 4.10.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part; "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
Section 4.12 (other than pursuant to clause (b), (c), (d), (e), (f), (g), (i),
(j), (k), (l) or (m) of the definition of Permitted Indebtedness), in each case
that does not (i) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable expenses incurred
by the Company and its Restricted Subsidiaries in connection with such
Refinancing) or (ii) create Indebtedness with (x) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (y) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided, however, that (1) if
such Indebtedness being Refinanced is Indebtedness of the Company or a
Subsidiary Guarantor, then such Refinancing Indebtedness shall be Indebtedness
solely of the Company and/or such Subsidiary Guarantor and (2) if such
Indebtedness being Refinanced is subordinate or junior to the Notes or a
Guarantee, then such Refinancing Indebtedness shall be subordinate to the Notes
or such Guarantee, as the case may be, at least to the same extent and in the
same manner as the Indebtedness being Refinanced.
"Registrar" has the meaning provided in Section 2.03.
<PAGE>
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the Issue Date among the Company, the Subsidiary Guarantors and the
Initial Purchasers.
"Regulation S" means Regulation S under the Securities Act.
"Related Person" of any Person means any other Person directly or
indirectly owning 10% or more of the outstanding voting Common Stock of such
Person (or, in the case of a Person that is not a corporation, 10% or more of
the equity interest in such Person).
"Replacement Assets" shall have the meaning set forth in Section 4.16.
"Restricted Payment" shall have the meaning set forth in Section 4.10.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided, however, that the Trustee shall be
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether any Note constitutes a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Board Resolution
delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with Section 4.14. Any such designation may be revoked by a Board
Resolution of the Company delivered to the Trustee, subject to the provisions of
such covenant.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Rating Services, a division of The McGraw
Hill Companies, Inc., and its successors.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party providing for the leasing
to the Company or a Restricted Subsidiary of any property, whether owned by the
Company or any Restricted Subsidiary at the Issue Date or later acquired, which
has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Senior Credit Facility" means the Amended and Restated Credit Agreement
dated as of April 30, 1997, by and among the Company, Bankers Trust Company, as
Administrative Agent and as Issuing Bank, First Union National Bank of North
Carolina, as Syndication Agent and Collateral Agent, Banque Paribas, as
Documentation Agent, and each of the lenders named therein, or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreements extending the maturity of, refinancing, replacing, increasing or
otherwise restructuring all or any portion of the Indebtedness under such
agreements.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w)
of Regulation S-X under the Securities Act.
"Subsidiary," with respect to any Person, means (a) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (b) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantor" means (a) each of the Company's Restricted
Subsidiaries as of the Issue Date and (b) each of the Company's Restricted
Subsidiaries that in the future executes a supplemental indenture in which such
Restricted Subsidiary agrees to be bound by the terms of this Indenture as a
Subsidiary Guarantor; provided, however, that any Person constituting a
Subsidiary Guarantor as described above shall cease to constitute a Subsidiary
Guarantor when its Guarantee is released in accordance with the terms of this
Indenture.
"Surviving Entity" shall have the meaning set forth in Section 5.01.
<PAGE>
"TCW Preferred Stock" means the one million shares of the Company's 1996
Series A Convertible Preferred Stock, $0.001 par value per share and a $10.00
stated value per share with a quarterly dividend rate of $0.21875 per share.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as
otherwise provided in Section 9.03.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer this Indenture, or in the case of a
successor trustee, an officer assigned to the department, division or group
performing the corporation trust work of such successor and assigned to
administer this Indenture.
"Trustee" means the party named as such in this Indenture until a successor
replaces it in accordance with the provisions of this Indenture and thereafter
means such successor.
"U.S. Government Obligations" mean direct obligations of, and obligations
guaranteed by, the United States of America for the payment of which the full
faith and credit of the United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with Section 4.14; provided, however, the
Unrestricted Subsidiaries shall initially include Hunter Butcher International
Limited Liability Company. Any such designation may be revoked by a Board
Resolution of the Company delivered to the Trustee, subject to the provisions of
such Section 4.14.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
<PAGE>
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which all the outstanding voting securities normally entitled to vote in the
election of directors are owned by the Company or another Wholly Owned
Restricted Subsidiary.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other
obligor on the Notes.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by Commission
rule and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to it
in accordance with GAAP of any date of determination;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
<PAGE>
(5) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(6) any reference to a statute, law or regulation means that statute, law
or regulation as amended and in effect from time to time and includes any
successor statute, law or regulation; provided, however, that any reference to
the Bankruptcy Law shall mean the Bankruptcy Law as applicable to the relevant
case.
ARTICLE TWO
THE NOTES SECTION 2.01. Form and Dating.
The Initial Notes and the Trustee's certificate of
authentication relating thereto shall be substantially in the form of Exhibit A
hereto. The Exchange Notes and the Trustee's certificate of authentication
relating thereto shall be substantially in the form of Exhibit B hereto. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or depository rule or usage. The Company and the Trustee shall
approve the form of the Notes and any notation, legend or endorsement on them.
Each Note shall be dated the date of its issuance and shall show the date of its
authentication. Each Note shall have an executed Guarantee endorsed thereon
substantially in the form of Exhibit E hereto.
The terms and provisions contained in the Notes, annexed
hereto as Exhibits A and B, shall constitute, and are hereby expressly made, a
part of this Indenture and, to the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A, Notes offered
and sold to institutional "accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) and Notes offered and sold in reliance
on Regulation S shall be issued initially in the form of one or more permanent
global Notes in registered form, substantially in the form set forth in Exhibit
A (the "Global Note"), deposited with the Trustee, as custodian for the
Depository, duly executed by the Company (and having an executed Guarantee
endorsed thereon) and authenticated by the Trustee as hereinafter provided and
shall bear the legend set forth in Section 2.15. The aggregate principal amount
of the Global Note may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depository,
as hereinafter provided.
<PAGE>
Notes issued in exchange for interests in a Global Note
pursuant to Section 2.16 may be issued in the form of permanent certificated
Notes in registered form in substantially the form set forth in Exhibit A (the
"Physical Notes").
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount.
Two Officers, or an Officer and an Assistant Secretary of the
Company and each Subsidiary Guarantor, shall sign, or one Officer shall sign and
one Officer or an Assistant Secretary (each of whom shall, in each case, have
been duly authorized by all requisite corporate actions) shall attest to, the
Notes for the Company and the Guarantees for the Subsidiary Guarantors by manual
or facsimile signature.
If an Officer or Assistant Secretary whose signature is on a
Note or a Guarantee was an Officer or Assistant Secretary at the time of such
execution but no longer holds that office or position at the time the Trustee
authenticates the Note, the Note shall nevertheless be valid.
A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Initial Notes for original
issue in the aggregate principal amount not to exceed $140,000,000 and (ii)
Exchange Notes from time to time for issue only in exchange for a like principal
amount of Initial Notes, in each case upon a written order of the Company in the
form of an Officers' Certificate of the Company. Each such written order shall
specify the amount of Notes to be authenticated and the date on which the Notes
are to be authenticated, whether the Notes are to be Initial Notes or Exchange
Notes and whether the Notes are to be issued as Physical Notes or Global Notes
or such other information as the Trustee may reasonably request. In addition,
with respect to authentication pursuant to clauses (ii) of the first sentence of
this paragraph, the first such written order from the Company shall be
accompanied by an Opinion of Counsel of the Company in a form reasonably
satisfactory to the Trustee stating that the issuance of the Exchange Notes does
not give rise to an event of default, complies with this Indenture and has been
duly authorized by the Company. The aggregate principal amount of Notes
outstanding at any time may not exceed $140,000,000, except as provided in
Sections 2.07 and 2.08.
<PAGE>
The Trustee may appoint an authenticating agent (the
"Authenticating Agent") reasonably acceptable to the Company to authenticate
Notes. Unless otherwise provided in the appointment, an Authenticating Agent may
authenticate Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
Authenticating Agent. An Authenticating Agent has the same rights as an Agent to
deal with the Company or with any Affiliate of the Company.
The Notes shall be issuable in fully registered form only,
without coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in the City of New York, State of New York)
where (a) Notes may be presented or surrendered for registration of transfer or
for exchange ("Registrar"), (b) Notes may be presented or surrendered for
payment ("Paying Agent") and (c) notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Registrar shall keep
a register of the Notes and of their transfer and exchange. The Company, upon
prior written notice to the Trustee, may have one or more co-Registrars and one
or more additional paying agents reasonably acceptable to the Trustee. The term
"Paying Agent" includes any additional Paying Agent. The Company may act as
their own Paying Agent, except that for the purposes of payments on the Notes
pursuant to Sections 4.15 and 4.16, neither the Company nor any Affiliate of the
Company may act as Paying Agent.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which agreement shall incorporate
the provisions of the TIA and implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee, in advance, of the
name and address of any such Agent. If the Company fail to maintain a Registrar
or Paying Agent, or fail to give the foregoing notice, the Trustee shall act as
such.
<PAGE>
The Company initially appoint the Trustee as Registrar, Paying
Agent and agent for service of demands and notices in connection with the Notes,
until such time as the Trustee has resigned or a successor has been appointed.
Any of the Registrar, the Paying Agent or any other agent may resign upon 30
days' notice to the Company.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that such Paying Agent shall hold in trust for the
benefit of the Holders or the Trustee all assets held by the Paying Agent for
the payment of principal of, premium, if any, or interest on, the Notes (whether
such assets have been distributed to it by the Company or any other obligor on
the Notes), and the Company and the Paying Agent shall notify the Trustee of any
Default by the Company (or any other obligor on the Notes) in making any such
payment. The Company at any time may require a Paying Agent to distribute all
assets held by it to the Trustee and account for any assets disbursed and the
Trustee may at any time during the continuance of any payment Default, upon
written request to a Paying Agent, require such Paying Agent to distribute all
assets held by it to the Trustee and to account for any assets distributed. Upon
distribution to the Trustee of all assets that shall have been delivered by the
Company to the Paying Agent, the Paying Agent shall have no further liability
for such assets.
SECTION 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of the Holders. If the Trustee is not the Registrar, the Company shall
furnish or cause the Registrar to furnish to the Trustee before each Record Date
and at such other times as the Trustee may request in writing a list as of such
date and in such form as the Trustee may reasonably require of the names and
addresses of the Holders, which list may be conclusively relied upon by the
Trustee.
<PAGE>
SECTION 2.06. Transfer and Exchange.
When Notes are presented to the Registrar or a co-Registrar
with a request to register the transfer of such Notes or to exchange such Notes
for an equal principal amount of Notes or other authorized denominations, the
Registrar or co-Registrar shall register the transfer or make the exchange as
requested if its requirements for such transaction are met; provided, however,
that the Notes presented or surrendered for registration of transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company, the Trustee and the Registrar or co-Registrar,
duly executed by the Holder thereof or his attorney duly authorized in writing.
To permit registration of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Notes and the Subsidiary Guarantors shall execute
Guarantees thereon at the Registrar's or co-Registrar's request. No service
charge shall be made for any registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any transfer tax, fee
or similar governmental charge payable in connection therewith (other than any
such transfer taxes or similar governmental charge payable upon exchanges or
transfers pursuant to Sections 2.10, 3.04, 4.15, 4.16 or 9.05, in which event
the Company shall be responsible for the payment of such taxes).
The Registrar or co-Registrar shall not be required to
register the transfer of or exchange of any Note (i) during a period beginning
at the opening of business 15 days before the mailing of a notice of redemption
of Notes and ending at the close of business on the day of such mailing and (ii)
selected for redemption in whole or in part pursuant to Article Three, except
the unredeemed portion of any Note being redeemed in part.
Any Holder of a beneficial interest in a Global Note shall, by
acceptance of such Global Note, agree that transfers of beneficial interests in
such Global Notes may be effected only through a book entry system maintained by
the Holder of such Global Note (or its agent), and that ownership of a
beneficial interest in the Note shall be required to be reflected in a book
entry system.
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the
Holder of a Note claims that the Note has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Note and the Subsidiary Guarantors shall execute a Guarantee thereon if the
Trustee's requirements are met. If required by the Trustee or the Company, such
Holder must provide an indemnity bond or other indemnity of reasonable tenor,
sufficient in the reasonable judgment of the Company, the Subsidiary Guarantors
and the Trustee, to protect the Company, the Subsidiary Guarantors, the Trustee
or any Agent from any loss which any of them may suffer if a Note is replaced.
Every replacement Note shall constitute an additional obligation of the Company
and the Subsidiary Guarantors.
<PAGE>
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those canceled by it, those delivered to it
for cancellation and those described in this Section as not outstanding. Subject
to the provisions of Section 2.09, a Note does not cease to be outstanding
because the Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date or the Maturity Date the Paying Agent
holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of
the principal, premium, if any, and interest due on the Notes payable on that
date and is not prohibited from paying such money to the Holders thereof
pursuant to the terms of this Indenture, then on and after that date such Notes
shall be deemed not to be outstanding and interest on them shall cease to
accrue.
SECTION 2.09. Treasury Notes.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver, consent or notice,
Notes owned by the Company or an Affiliate of the Company shall be considered as
though they are not outstanding, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Notes which a Trust Officer of the Trustee actually knows are
so owned shall be so considered. The Company shall notify the Trustee, in
writing, when either of them or, to their knowledge, any of their Affiliates
repurchases or otherwise acquires Notes, of the aggregate principal amount of
such Notes so repurchased or otherwise acquired and such other information as
the Trustee may reasonably request and the Trustee shall be entitled to rely
thereon.
<PAGE>
SECTION 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon receipt of a
written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Notes to be
authenticated and the date on which the temporary Notes are to be authenticated.
Temporary Notes shall be substantially in the form of definitive Notes but may
have variations that the Company consider appropriate for temporary Notes and so
indicate in the Officers' Certificate. Without unreasonable delay, the Company
shall prepare, the Trustee shall authenticate and the Subsidiary Guarantors
shall execute Guarantees on, upon receipt of a written order of the Company
pursuant to Section 2.02, definitive Notes in exchange for temporary Notes.
SECTION 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent, and no one
else, shall cancel and, at the written direction of the Company, shall dispose,
in its customary manner, of all Notes surrendered for transfer, exchange,
payment or cancellation. Subject to Section 2.07, the Company may not issue new
Notes to replace Notes that they have paid or delivered to the Trustee for
cancellation. If the Company shall acquire any of the Notes, such acquisition
shall not operate as a redemption or satisfaction of the Indebtedness
represented by such Notes unless and until the same are surrendered to the
Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
The Company will pay interest on overdue principal from time
to time on demand at the rate of interest then borne by the Notes. The Company
shall, to the extent lawful, pay interest on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the rate of interest then borne by the Notes. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months, and, in the case of a
partial month, the actual number of days elapsed.
<PAGE>
If the Company defaults in a payment of interest on the Notes,
they shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, which special record date shall be the fifteenth
day next preceding the date fixed by the Company for the payment of defaulted
interest or the next succeeding Business Day if such date is not a Business Day.
The Company shall notify the Trustee in writing of the amount of defaulted
interest proposed to be paid on each Note and the date of the proposed payment
(a "Default Interest Payment Date"), and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such defaulted interest or shall make
arrangements satisfactory to the Trustee for such deposit on or prior to the
date of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such defaulted interest as provided in
this Section; provided, however, that in no event shall the Company deposit
monies proposed to be paid in respect of defaulted interest later than 11:00
a.m. New York City time of the proposed Default Interest Payment Date. At least
15 days before the subsequent special record date, the Company shall mail (or
cause to be mailed) to each Holder, as of a recent date selected by the Company,
with a copy to the Trustee, a notice that states the subsequent special record
date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid. Notwithstanding the
foregoing, any interest which is paid prior to the expiration of the 30-day
period set forth in Section 6.01(a) shall be paid to Holders as of the regular
record date for the Interest Payment Date for which interest has not been paid.
Notwithstanding the foregoing, the Company may make payment of any defaulted
interest in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange.
SECTION 2.13. CUSIP Number.
The Company in issuing the Notes may use a "CUSIP" number,
and, if so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided, however, that no representation
is hereby deemed to be made by the Trustee as to the correctness or accuracy of
the CUSIP number printed in the notice or on the Notes, and that reliance may be
placed only on the other identification numbers printed on the Notes. The
Company shall promptly notify the Trustee of any change in the CUSIP number.
<PAGE>
SECTION 2.14. Deposit of Monies.
Prior to 11:00 a.m. New York City time on each Interest
Payment Date, Maturity Date, Redemption Date, Change of Control Payment Date and
Net Proceeds Offer Payment Date, the Company shall have deposited with the
Paying Agent in immediately available funds money sufficient to make cash
payments, if any, due on such Interest Payment Date, Maturity Date, Redemption
Date, Change of Control Payment Date and Net Proceeds Offer Payment Date, as the
case may be, in a timely manner which permits the Paying Agent to remit payment
to the Holders on such Interest Payment Date, Maturity Date, Redemption Date,
Change of Control Payment Date and Net Proceeds Offer Payment Date, as the case
may be.
SECTION 2.15. Restrictive Legends.
Each Global Note and Physical Note that constitutes a
Restricted Security shall bear the following legend (the "Private Placement
Legend") on the face thereof until after the third anniversary of the later of
the Issue Date and the last date on which the Company or any Affiliate of the
Company was the owner of such Note (or any predecessor security) (or such
shorter period of time as permitted by Rule 144(k) under the Securities Act or
any successor provision thereunder) (or such longer period of time as may be
required under the Securities Act or applicable state securities laws in the
opinion of counsel for the Company, unless otherwise agreed by the Company and
the Holder thereof):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3), OR (7) UNDER THE SECURITIES ACT), (AN "ACCREDITED INVESTOR")
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL
<PAGE>
ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE COMPANY THEREOF OR ANY SUBSIDIARY THEREOF, (B) INSIDE
THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT (PROVIDED THAT ANY SUCH SALE OR
TRANSFER IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT MUST
BE EFFECTED PURSUANT TO AN EXEMPTION FROM THE PROSPECTUS AND
REGISTRATION REQUIREMENTS UNDER APPLICABLE CANADIAN SECURITIES LAWS),
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER
THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS
AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE
TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Each Global Note shall also bear the following legend on the
face thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE
BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH
<PAGE>
NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE INDENTURE.
SECTION 2.16. Book-Entry Provisions for Global Security.
(a) The Global Notes initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set forth
in Section 2.15.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depository, or the Trustee as its custodian, or
under the Global Notes, and the Depository may be treated by the Company, the
Trustee and any Agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any Agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Note.
<PAGE>
(b) Transfers of a Global Note shall be limited to transfers
in whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in a Global Note may be transferred or
exchanged for Physical Notes in accordance with the rules and procedures of the
Depository and the provisions of Section 2.17. In addition, Physical Notes shall
be transferred to all beneficial owners in exchange for their beneficial
interests in a Global Note if (i) the Depository notifies the Company that it is
unwilling or unable to continue as Depository for the Global Notes and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a written request from the Depository to issue Physical
Notes.
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in a Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of such Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute, the Subsidiary Guarantors shall execute Guarantees on, and the
Trustee shall authenticate and deliver, one or more Physical Notes of like tenor
and amount.
(d) In connection with the transfer of an entire Global Note
to beneficial owners pursuant to paragraph (b), such Global Note shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, the Subsidiary Guarantors shall execute Guarantees on and the Trustee
shall authenticate and deliver, to each beneficial owner identified by the
Depository in exchange for its beneficial interest in the Global Note, an equal
aggregate principal amount of Physical Notes of authorized denominations.
(e) Any Physical Note constituting a Restricted Security
delivered in exchange for an interest in a Global Note pursuant to paragraph (b)
or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of
Section 2.17, bear the legend regarding transfer restrictions applicable to the
Physical Notes set forth in Section 2.15.
<PAGE>
(f) The Holder of a Global Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 2.17. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors and Non-U.S.
Persons. The following provisions shall apply with respect to the registration
of any proposed transfer of a Note constituting a Restricted Security to any
Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Note
constituting a Restricted Security, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after the
second anniversary of the Issue Date (provided, however, that neither
the Company nor any Affiliate of the Company has held any beneficial
interest in such Note, or portion thereof, at any time on or prior to
the third anniversary of the Issue Date) or (y) (1) in the case of a
transfer to an Institutional Accredited Investor which is not a QIB
(excluding Non-U.S. Persons), the proposed transferee has delivered to
the Registrar a certificate substantially in the form of Exhibit C
hereto or (2) in the case of a transfer to a Non-U.S. Person, the
proposed transferor has delivered to the Registrar a certificate
substantially in the form of Exhibit D hereto; and
(ii) if the proposed transferee is an Agent Member and the
Notes to be transferred consist of Physical Notes which after transfer
are to be evidenced by an interest in the IAI Global Note or Regulation
S Global Note, as the case may be, upon receipt by the Registrar of (x)
written instructions given in accordance with the Depository's and the
Registrar's procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, the Registrar shall
register the transfer and reflect on its books and records the date and
an increase in the principal amount of the IAI Global Note or
Regulation S Global Note, as to case may be, in an amount equal to the
principal amount of Physical Notes to be transferred, and the Trustee
shall cancel the Physical Notes so transferred; and
<PAGE>
(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Note, upon receipt by the Registrar of
(x) written instructions given in accordance with the Depository's and
the Registrar's procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, the Registrar shall
register the transfer and reflect on its books and records the date and
(A) a decrease in the principal amount of the Global Note from which
such interests are to be transferred in an amount equal to the
principal amount of the Notes to be transferred and (B) an increase in
the principal amount of the IAI Global Note or the Regulation S Global
Note, as the case may be, in an amount equal to the principal amount of
the Notes to be transferred.
(b) Transfers to QIBs. The following provisions shall apply with respect to
the registration of any proposed transfer of a Note constituting a Restricted
Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such transfer
is being made by a proposed transferor who has checked the box provided
for on the form of Note stating, or has otherwise advised the Company
and the Registrar in writing, that the sale has been made in compliance
with the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Note stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Note for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such
account is a QIB within the meaning of Rule 144A, and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Notes to be transferred consist of Physical Notes which after transfer
are to be evidenced by an interest in a Global Note, upon receipt by
the Registrar of written instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount of such Global Note in an amount equal to the
principal amount of the Physical Notes to be transferred, and the
Trustee shall cancel the Physical Notes so transferred; and
<PAGE>
(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in the IAI Global Note or the Regulation S Global
Note, upon receipt by the Registrar of written instructions given in
accordance with the Depository's and the Registrar's procedures, the
Registrar shall register the transfer and reflect on its books and
records the date and (A) a decrease in the principal amount of the IAI
Global Note or the Regulation S Global Note, as the case may be, in an
amount equal to the principal amount of the Notes to be transferred and
(B) an increase in the principal amount of the 144A Global Note in an
amount equal to the principal amount of the Notes to be transferred.
(c) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provisions of this Indenture, a Global Note may not be
transferred as a whole except by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(d) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless (i) the requested transfer is after the second anniversary of the Issue
Date (provided, however, that neither the Company nor any Affiliate of the
Company has held any beneficial interest in such Note, or portion thereof, at
any time prior to or on the third anniversary of the Issue Date), or (ii) there
is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to
the Company and the Trustee to the effect that neither such legend nor the
related restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act.
(e) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
<PAGE>
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.16 or this Section
2.17. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time during
the Registrar's normal business hours upon the giving of reasonable written
notice to the Registrar.
(f) Transfers of Notes Held by Affiliates. Any certificate (i)
evidencing a Note that has been transferred to an Affiliate of the Company
within two years after the Issue Date, as evidenced by a notation on the
Assignment Form for such transfer or in the representation letter delivered in
respect thereof or (ii) evidencing a Note that has been acquired from an
Affiliate (other than by an Affiliate) in a transaction or a chain of
transactions not involving any public offering, shall, until two years after the
last date on which the Company or any Affiliate of the Company was an owner of
such Note, in each case, bear a legend in substantially the form set forth in
Section 2.15 hereof, unless otherwise agreed by the Company (with written notice
thereof to the Trustee).
SECTION 2.18. Liquidated Damages Under Registration Rights Agreement.
Under certain circumstances, the Company shall be obligated to
pay certain liquidated damages to the Holders, all as set forth in Section 5 of
the Registration Rights Agreement. The terms thereof are hereby incorporated
herein by reference.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to Paragraph 6
of the Notes, it shall notify the Trustee and the Paying Agent in writing of the
Redemption Date and the principal amount of the Notes to be redeemed.
The Company shall give each notice provided for in this
Section 3.01 60 days before the Redemption Date (unless a shorter notice period
shall be satisfactory to the Trustee, as evidenced in a writing signed on behalf
of the Trustee), together with an Officers' Certificate stating that such
redemption shall comply with the conditions contained herein and in the Notes.
<PAGE>
SECTION 3.02. Selection of Notes To Be Redeemed.
In the event that less than all of the Notes are to be
redeemed at any time, selection of such Notes, or portions thereof, for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not then listed on a national securities exchange,
on a pro rata basis, by lot or by such other method as the Trustee shall deem
fair and appropriate; provided, however, that no Notes of a principal amount of
$1,000 or less shall be redeemed in part; and provided, further, that if a
partial redemption is made with the proceeds of an Equity Offering, selection of
the Notes or portions thereof for redemption shall be made by the Trustee only
on a pro rata basis or on as nearly a pro rata basis as is practicable (subject
to the procedures of DTC), unless such method is otherwise prohibited. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than 60
days before the Redemption Date to each Holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the applicable Redemption Date,
interest will cease to accrue on Notes or portions thereof called for redemption
as long as the Company has deposited with the Paying Agent for the Notes funds
in satisfaction of the applicable Redemption Price.
SECTION 3.03. Optional Redemption.
The Notes will be redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after June 1, 2002, upon
not less than 30 nor more than 60 days' notice, at the following Redemption
Prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on June 1 of the years set forth
below, plus, in each case, accrued and unpaid interest, if any, thereon to the
date of redemption:
<PAGE>
Year Percentage
2002............................ 105.000%
2003............................ 103.333%
2004............................ 101.667%
2005 and thereafter............. 100.000%
At any time, or from time to time, on or prior to June 1,
2000, the Company may, at its option, use all or a portion of the net cash
proceeds of one or more Equity Offerings (as defined) to redeem up to 35% of the
aggregate principal amount of the Notes originally issued at a redemption price
equal to 110% of the aggregate principal amount of the Notes to be redeemed,
plus accrued interest, if any, thereon to the date of redemption; provided,
however, that at least 65% of the aggregate principal amount of Notes originally
issued remains outstanding immediately after giving effect to any such
redemption. In order to effect the foregoing redemption with the proceeds of any
Equity Offering, the Company shall make such redemption not more than 60 days
after the consummation of any such Equity Offering.
SECTION 3.04. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail or cause to be mailed a notice of redemption by
first class mail to each Holder of Notes to be redeemed at its registered
address, with a copy to the Trustee and any Paying Agent. At the Company's
request, the Trustee shall give the notice of redemption in the Company's name
and at the Company's expense. The Company shall provide such notices of
redemption to the Trustee at least five days before the intended mailing date.
Each notice of redemption shall identify (including the CUSIP
number) the Notes to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest, if any, to be
paid;
(3) the name and address of the Paying Agent;
(4) the subparagraph of the Notes pursuant to which such redemption is
being made;
<PAGE>
(5) that Notes called for redemption must be surrendered to the Paying
Agent to collect the Redemption Price plus accrued interest, if any;
(6) that, unless the Company defaults in making the redemption payment,
interest on Notes or applicable portions thereof called for redemption ceases to
accrue on and after the Redemption Date, and the only remaining right of the
Holders of such Notes is to receive payment of the Redemption Price plus accrued
interest as of the Redemption Date, if any, upon surrender to the Paying Agent
of the Notes redeemed;
(7) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the Redemption Date, and upon
surrender of such Note, a new Note or Notes in the aggregate principal amount
equal to the unredeemed portion thereof will be issued; and
(8) if fewer than all the Notes are to be redeemed, the identification of
the particular Notes (or portion thereof) to be redeemed, as well as the
aggregate principal amount of Notes to be redeemed and the aggregate principal
amount of Notes to be outstanding after such partial redemption.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Notes.
SECTION 3.05. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.04, such
notice of redemption shall be irrevocable and Notes called for redemption become
due and payable on the Redemption Date and at the Redemption Price plus accrued
interest as of such date, if any. Upon surrender to the Trustee or Paying Agent,
such Notes called for redemption shall be paid at the Redemption Price plus
accrued interest thereon to the Redemption Date, but installments of interest,
the maturity of which is on or prior to the Redemption Date, shall be payable to
Holders of record at the close of business on the relevant record dates referred
to in the Notes. Interest shall accrue on or after the Redemption Date and shall
be payable only if the Company defaults in payment of the Redemption Price.
<PAGE>
SECTION 3.06. Deposit of Redemption Price.
On or before the Redemption Date and in accordance with Section 2.14, the
Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay
the Redemption Price plus accrued interest, if any, of all Notes to be redeemed
on that date. The Paying Agent shall promptly return to the Company any U.S.
Legal Tender so deposited which is not required for that purpose, except with
respect to monies owed as obligations to the Trustee pursuant to Article Seven.
Unless the Company fails to comply with the preceding paragraph and default
in the payment of such Redemption Price plus accrued interest, if any, interest
on the Notes to be redeemed will cease to accrue on and after the applicable
Redemption Date, whether or not such Notes are presented for payment.
SECTION 3.07. Notes Redeemed in Part.
Upon surrender of a Note that is to be redeemed in part, the Trustee shall
authenticate for the Holder a new Note or Notes equal in principal amount to the
unredeemed portion of the Note surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
(a) The Company shall pay the principal of, premium, if any,
and interest on the Notes on the dates and in the manner provided in the Notes
and in this Indenture.
(b) An installment of principal of or interest on the Notes
shall be considered paid on the date it is due if the Trustee or Paying Agent
(other than the Company or any of its Affiliates) holds, prior to 11:00 a.m. New
York City time on that date, U.S. Legal Tender designated for and sufficient to
pay the installment in full and is not prohibited from paying such money to the
Holders pursuant to the terms of this Indenture or the Notes.
(c) Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent they are required to do so by law,
deduct or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
<PAGE>
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain the office or agency required under
Section 2.03. The Company shall give prior written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 11.02.
SECTION 4.03. Corporate Existence.
Except as otherwise permitted by Article Five, the Company
shall do or cause to be done, at their own cost and expense, all things
necessary to preserve and keep in full force and effect their respective
corporate existence and the corporate existence of each of their Restricted
Subsidiaries in accordance with the respective organizational documents of each
such Restricted Subsidiary and the material rights (charter and statutory) and
franchises of the Company and each such Restricted Subsidiary; provided,
however, that the Company shall not be required to preserve, with respect to
themselves, any material right or franchise and, with respect to any of their
Restricted Subsidiaries, any such existence, material right or franchise, if the
Board of Directors of the Company shall determine in good faith that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and their Subsidiaries, taken as a whole.
SECTION 4.04. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon either of
them or any of their Subsidiaries or properties of either of them or any of
their Subsidiaries and (ii) all material lawful claims for labor, materials and
supplies that, if unpaid, might by law become a Lien upon the property of the
Company or any of their Subsidiaries; provided, however, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate negotiations or proceedings
properly instituted and diligently conducted for which adequate reserves, to the
extent required under GAAP, have been taken.
<PAGE>
SECTION 4.05. Maintenance of Properties and Insurance.
(a) The Company shall, and shall cause each of the Restricted
Subsidiaries to, maintain all properties used or useful in the conduct of its
business in good working order and condition (subject to ordinary wear and tear)
and make all necessary repairs, renewals, replacements, additions, betterments
and improvements thereto and actively conduct and carry on its business;
provided, however, that nothing in this Section 4.05 shall prevent the Company
or any of the Restricted Subsidiaries from discontinuing the operation and
maintenance of any of its properties, if such discontinuance is (i) in the
ordinary course of business pursuant to customary business terms or (ii) in the
good faith judgment of the respective Boards of Directors or other governing
body of the Company or Restricted Subsidiary, as the case may be, desirable in
the conduct of their respective businesses and is not disadvantageous in any
material respect to the Holders.
(b) The Company shall provide or cause to be provided, for
themselves and each of the Restricted Subsidiaries, insurance (including
appropriate self-insurance) against loss or damage of the kinds that, in the
good faith judgment of the Company, are adequate and appropriate for the conduct
of the business of the Company and its Restricted Subsidiaries in a prudent
manner, with reputable insurers or with the government of the United States of
America, Canada or an agency or instrumentality thereof, in such amounts, with
such deductibles, and by such methods as shall be customary, in the good faith
judgment of the Company, for companies similarly situated in the industry.
SECTION 4.06. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee, within 105 days
after the end of their respective fiscal quarters and fiscal years, an Officers'
Certificate of the Company (provided, however, that one of the signatories to
each such Officers' Certificate shall be the Company's principal executive
officer, principal financial officer or principal accounting officer), as to
such Officers' knowledge, without independent investigation, of the Company's
compliance with all conditions and covenants under this Indenture (without
regard to any period of grace or requirement of notice provided hereunder) and
in the event any Default of the Company's exists, such Officers shall specify
the nature of such Default. Each such Officers' Certificate shall also notify
the Trustee should the Company elect to change the manner in which it fixes its
fiscal year end.
<PAGE>
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
annual financial statements delivered pursuant to Section 4.08 shall be
accompanied by a written report of the Company's independent certified public
accountants (who shall be a firm of established national reputation) stating (A)
that their audit examination has included a review of the terms of this
Indenture and the form of the Notes as they relate to accounting matters, and
(B) whether, in connection with their audit examination, any Default or Event of
Default has come to their attention and if such a Default or Event of Default
has come to their attention, specifying the nature and period of existence
thereof; provided, however, that, without any restriction as to the scope of the
audit examination, such independent certified public accountants shall not be
liable by reason of any failure to obtain knowledge of any such Default or Event
of Default that would not be disclosed in the course of an audit examination
conducted in accordance with generally accepted auditing standards.
(c) (i) If any Default or Event of Default has occurred and is
continuing or (ii) if any Holder seeks to exercise any remedy hereunder with
respect to a claimed Default under this Indenture or the Notes, the Company
shall deliver to the Trustee, at its address set forth in Section 11.02 hereof,
by registered or certified mail or by facsimile transmission followed by hard
copy by registered or certified mail an Officers' Certificate specifying such
event, notice or other action within 10 days of its becoming aware of such
occurrence.
SECTION 4.07. Compliance with Laws.
The Company shall comply, and shall cause each of their
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as could not singly or in the
aggregate reasonably be expected to have a material adverse effect on the
financial condition or results of operations of the Company and its Subsidiaries
taken as a whole.
<PAGE>
SECTION 4.08. Reports to Holders.
The Company will deliver to the Trustee within 15 days after
filing of the same with the Commission, copies of the quarterly and annual
reports and of the information, documents and other reports, if any, which the
Company is required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will
also comply with the other provisions of Section 314(a) of the TIA.
SECTION 4.09. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that they may lawfully do
so) that they will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
or any usury law or other law that would prohibit or forgive the Company from
paying all or any portion of the principal of or interest on the Notes as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that they may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.10. Limitation on Restricted Payments.
The Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly,
(i) declare or pay any dividend or make any distribution
(other than dividends or distributions made to the Company or any
Wholly-Owned Restricted Subsidiary and other than any dividends or
distributions payable solely in Qualified Capital Stock of the Company
or warrants, rights or options to purchase or acquire shares of
Qualified Capital Stock of the Company) on or in respect of shares of
the Capital Stock of the Company or any Restricted Subsidiary to
holders of such Capital Stock;
<PAGE>
(ii) purchase, redeem or otherwise acquire or retire for value
any Capital Stock of the Company or any Restricted Subsidiary or any
warrants, rights or options to purchase or acquire shares of any class
of such Capital Stock other than through the exchange therefor solely
of Qualified Capital Stock of the Company or warrants, rights or
options to purchase or acquire shares of Qualified Capital Stock of the
Company;
(iii) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund
payment, any Indebtedness of the Company or a Subsidiary Guarantor that
is subordinate or junior in right of payment to the Notes or such
Subsidiary Guarantor's Guarantee, as the case may be; or
(iv) make any Investment (other than a Permitted Investment)
(each of the foregoing actions set forth in clauses (i), (ii), (iii) and (iv)
being referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto, (a) a Default or an Event of
Default shall have occurred and be continuing, or (b) the Company is not able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with Section 4.12, or (c) the aggregate amount of
Restricted Payments (including such proposed Restricted Payment) made subsequent
to the Issue Date (the amount expended for such purposes, if other than in cash,
being the fair market value of such property as determined reasonably and in
good faith by the Board of Directors of the Company) shall exceed the sum of:
(A) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss) of the Company earned subsequent to the Issue Date and on or
prior to the last date of the Company's fiscal quarter immediately
preceding such Restricted Payment (the "Reference Date") (treating such
period as a single accounting period); plus
<PAGE>
(B) 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Restricted Subsidiary of the
Company) from the issuance and sale subsequent to the Issue Date and on
or prior to the Reference Date of Qualified Capital Stock of the
Company, plus
(C) without duplication of any amounts included in the
immediately preceding subclause (B), 100% of the aggregate net cash
proceeds of any equity contribution received by the Company from a
holder of the Company's Capital Stock (excluding in the case of the
immediately preceding clause (B) and this clause (C), any net cash
proceeds from an Equity Offering to the extent used to redeem the
Notes); plus
(D) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, interest payments,
repayments of loans or advances, or other transfers of cash, in each
case to the Company or to any Restricted Subsidiary of the Company from
Unrestricted Subsidiaries (but without duplication of any such amount
included in calculating cumulative Consolidated Net Income of the
Company), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (in each case valued as provided in Section
4.14), not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary and which was treated as a
Restricted Payment hereunder; plus
(E) without duplication of the immediately preceding subclause
(D), an amount equal to the lesser of the cost or net cash proceeds
received upon the sale or other disposition of any Investment made
after the Issue Date which had been treated as a Restricted Payment
(but without duplication of any such amount included in calculating
cumulative Consolidated Net Income of the Company).
Notwithstanding the foregoing, the provisions set forth above will not prohibit:
(1) The payment of any dividend or redemption payment within
60 days after the date of declaration of such dividend or the
applicable redemption if the dividend or redemption payment, as the
case may be, would have been permitted on the date of declaration;
<PAGE>
(2) If no Default or Event of Default shall have occurred
and be continuing, the acquisition of any shares of Capital Stock of
the Company, through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Restricted Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company;
(3) If no Default or Event of Default shall have occurred
and be continuing, the acquisition of any Indebtedness of the Company
or Subsidiary Guarantor that is subordinate or junior in right of
payment to the Notes or such Subsidiary Guarantor's Guarantee, as the
case may be, either (a) solely in exchange for shares of Qualified
Capital Stock of the Company or warrants, rights or options to purchase
or acquire shares of Qualified Capital Stock of the Company, or (b)
through the application of net proceeds of a substantially concurrent
sale for cash (other than to a Restricted Subsidiary of the Company) of
(i) shares of Qualified Capital Stock of the Company or (ii)
Refinancing Indebtedness;
(4) If no Default or Event of Default shall have occurred
and be continuing, the redemption of the TCW Preferred Stock to the
extent required pursuant to the terms thereof as a result of the
Company not having received at least $15 million of net cash proceeds
from the issuance and sale by the Company of Common Stock; and
(5) If no Default or Event of Default shall have occurred
and be continuing, the payment of dividends on the TCW Preferred Stock;
and
(6) The initial designation of Hunter Butcher International
Limited Liability Company as an Unrestricted Subsidiary.
In determining the aggregate amount of Restricted Payments
made subsequent to the Issue Date in accordance with clause (c) of this Section
4.10, amounts expended pursuant to clauses (1), (2), (4), (5) and (6) shall be
included in such calculation.
<PAGE>
SECTION 4.11. Limitation on Transactions with Affiliates.
(i) The Company will not, and will not cause or permit any of
its Restricted Subsidiaries to, directly or indirectly, enter into, amend or
permit or suffer to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property, the guaranteeing of any Indebtedness or the rendering of any service)
with or for the benefit of any of their respective Affiliates (each an
"Affiliate Transaction"), other than (a) Affiliate Transactions permitted under
paragraph (ii) of this Section 4.11 and (b) Affiliate Transactions that are on
terms that are fair and reasonable to the Company or the applicable Restricted
Subsidiary and are no less favorable to the Company or the applicable Restricted
Subsidiary than those that might reasonably have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person that is not an
Affiliate of the Company or such Restricted Subsidiary. All Affiliate
Transactions (and each series of related Affiliate Transactions which are
similar or part of a common plan) involving aggregate payments or other property
with a fair market value in excess of $1,000,000 shall be approved by the Board
of Directors of the Company, such approval to be evidenced by a Board Resolution
stating that such Board of Directors has determined that such transaction
complies with the foregoing provisions. If the Company or any Restricted
Subsidiary enters into an Affiliate Transaction (or a series of related
Affiliate Transactions related to a common plan) that involves an aggregate fair
market value of more than $10,000,000, the Company shall, prior to the
consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to the Company or the relevant
Restricted Subsidiary, as the case may be, from a financial point of view, from
an Independent Advisor and file the same with the Trustee.
(ii) The restrictions set forth in clause (i) shall not apply
to (a) reasonable fees and compensation paid to and indemnity provided on behalf
of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary as determined in good faith by the Board of Directors or
senior management of the Company or such Restricted Subsidiary, as the case may
be; (b) transactions exclusively between or among the Company and any of its
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries; provided, however, that such transactions are not otherwise
prohibited hereunder; and (c) Restricted Payments permitted hereunder.
<PAGE>
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness.
Other than Permitted Indebtedness, the Company will not, and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (including, without
limitation, Acquired Indebtedness); provided, however, that if no Default or
Event of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company and the
Restricted Subsidiaries or any of them may incur Indebtedness, in each case, if
on the date of the incurrence of such Indebtedness, after giving pro forma
effect to the incurrence thereof and the receipt and application of the proceeds
therefrom, both (a) the Company's Consolidated EBITDA Coverage Ratio would have
been greater than 2.25 to 1.0 if such proposed incurrence is on or prior to June
30, 1998 and at least equal to 2.5 to 1.0 if such proposed incurrence is
thereafter and (b) the Company's Adjusted Consolidated Net Tangible Assets are
equal to or greater than 150% of the aggregate consolidated Indebtedness of the
Company and its Restricted Subsidiaries.
For purposes of determining any particular amount of
Indebtedness under this Section 4.12, guarantees of Indebtedness otherwise
included in the determination of such amount shall not also be included.
Indebtedness of a Person existing at the time such Person
becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition
of Capital Stock or otherwise) or is merged with or into the Company or any
Restricted Subsidiary or which is secured by a Lien on an asset acquired by the
Company or a Restricted Subsidiary (whether or not such Indebtedness is assumed
by the acquiring Person) shall be deemed incurred at the time the Person becomes
a Restricted Subsidiary or at the time of the asset acquisition, as the case may
be.
The Company will not, and will not permit any Subsidiary
Guarantor to, incur any Indebtedness which by its terms (or by the terms of any
agreement governing such Indebtedness) is subordinated in right of payment to
any Indebtedness of the Company or such Subsidiary Guarantor, as the case may
be, other than the Notes and the Guarantees unless such Indebtedness is also by
its terms (or by the terms of any agreement governing such Indebtedness) made
expressly subordinate in right of payment to the Notes or the Guarantee of such
Subsidiary Guarantor, as the case may be, pursuant to subordination provisions
that are substantially identical to the subordination provisions of such
Indebtedness (or agreement) that are most favorable to the holders of such
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be.
<PAGE>
SECTION 4.13. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to: (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances,
or pay any Indebtedness or other obligation owed, to the Company or any other
Restricted Subsidiary; (c) guarantee any Indebtedness or any other obligation of
the Company or any Restricted Subsidiary; or (d) transfer any of its property or
assets to the Company or any other Restricted Subsidiary (each such encumbrance
or restriction, a "Payment Restriction"), except for such encumbrances or
restrictions existing under or by reason of: (1) applicable law; (2) this
Indenture; (3) the Senior Credit Facility; (4) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary; (5) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to such Restricted Subsidiary, or
the properties or assets of such Restricted Subsidiary, other than the Person or
the property or assets of the Person so acquired; (6) agreements existing on the
Issue Date to the extent and in the manner such agreements are in effect on the
Issue Date; (7) customary restrictions with respect to a Restricted Subsidiary
of the Company pursuant to an agreement that has been entered into for the sale
or disposition of Capital Stock or assets of such Restricted Subsidiary to be
consummated in accordance with the terms of this Indenture solely in respect of
the assets or Capital Stock to be sold or disposed of; (8) any instrument
governing a Permitted Lien, to the extent and only to the extent such instrument
restricts the transfer or other disposition of assets subject to such Permitted
Lien; or (9) an agreement governing Refinancing Indebtedness incurred to
Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clause (2), (3), (5) or (6) above; provided, however, that the
provisions relating to such encumbrance or restriction contained in any such
Refinancing Indebtedness are no less favorable to the Holders in any material
respect as determined by the Board of Directors of the Company in their
reasonable and good faith judgment than the provisions relating to such
encumbrance or restriction contained in the applicable agreement referred to in
such clause (2), (3), (5), or (6).
<PAGE>
SECTION 4.14. Limitation on Restricted and Unrestricted Subsidiaries.
The Board of Directors of the Company may, if no Default or
Event of Default shall have occurred and be continuing or would arise therefrom,
designate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that (i) any such redesignation shall be deemed to be an incurrence as
of the date of such redesignation by the Company and its Restricted Subsidiaries
of the Indebtedness (if any) of such redesignated Subsidiary for purposes of
Section 4.12, (ii) unless such redesignated Subsidiary shall not have any
Indebtedness outstanding, other than Indebtedness which would be Permitted
Indebtedness, no such designation shall be permitted if immediately after giving
effect to such redesignation and the incurrence of any such additional
Indebtedness the Company could not incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to Section 4.12 and (iii) such Subsidiary
assumes by execution of a supplemental indenture all of the obligations of a
Subsidiary Guarantor under a Guarantee.
The Board of Directors of the Company also may, if no Default
or Event of Default shall have occurred and be continuing or would arise
therefrom, designate any Restricted Subsidiary to be an Unrestricted Subsidiary
if (i) such designation is at that time permitted under Section 4.10 and (ii)
immediately after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
Section 4.12. Any such designation by the Board of Directors shall be evidenced
to the Trustee by the filing with the Trustee of a certified copy of the
resolution of the Board of Directors giving effect to such designation or
redesignation and an Officers' Certificate certifying that such designation or
redesignation complied with the foregoing conditions and setting forth in
reasonable detail the underlying calculations. In the event that any Restricted
Subsidiary is designated an Unrestricted Subsidiary in accordance with this
Section 4.14, such Restricted Subsidiary's Guarantee will be released.
<PAGE>
For purposes of Section 4.10, (i) an "Investment" shall be
deemed to have been made at the time any Restricted Subsidiary is designated as
an Unrestricted Subsidiary in an amount (proportionate to the Company's equity
interest in such Subsidiary) equal to the net worth of such Restricted
Subsidiary at the time that such Restricted Subsidiary is designated as an
Unrestricted Subsidiary; (ii) at any date the aggregate amount of all Restricted
Payments made as Investments since the Issue Date shall exclude and be reduced
by an amount (proportionate to the Company's equity interest in such Subsidiary)
equal to the net worth of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary, not to exceed, in
the case of any such redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary, the amount of Investments previously made by the Company and its
Restricted Subsidiaries in such Unrestricted Subsidiary (in each case (i) and
(ii) "net worth" to be calculated based upon the fair market value of the assets
of such Subsidiary as of any such date of designation); and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer.
Notwithstanding the foregoing, the Board of Directors may not
designate any Subsidiary of the Company to be an Unrestricted Subsidiary if,
after such designation, (a) the Company or any Restricted Subsidiary (i)
provides credit support for, or a guarantee of, any Indebtedness of such
Subsidiary (including any undertaking, agreement or instrument evidencing such
Indebtedness) or (ii) is directly or indirectly liable for any Indebtedness of
such Subsidiary or (b) such Subsidiary owns any Capital Stock of, or owns or
holds any Lien on any property of, any Restricted Subsidiary which is not a
Subsidiary of the Subsidiary to be so designated.
Subsidiaries of the Company that are not designated by the
Board of Directors as Restricted or Unrestricted Subsidiaries will be deemed to
be Restricted Subsidiaries. Notwithstanding any provisions of this Section 4.14,
all Subsidiaries of an Unrestricted Subsidiary will be Unrestricted
Subsidiaries.
SECTION 4.15. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder
will have the right to require that the Company purchase all or a portion of
such Holder's Notes pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to 101% of the principal amount
thereof plus accrued interest, if any, thereon to the date of purchase.
<PAGE>
(b) Within 30 days following the date upon which the Change of
Control occurred, the Company must send, by first class mail, a notice to each
Holder at such Holder's last registered address, with a copy to the Trustee,
which notice shall govern the terms of the Change of Control Offer. The notice
to the Holders shall contain all instructions and materials necessary to enable
such Holders to tender Notes pursuant to the Change of Control Offer. Such
notice shall state:
(i) that the Change of Control Offer is being made pursuant to
this Section 4.15, that all Notes tendered and not withdrawn will be
accepted for payment and that the Change of Control Offer shall remain
open for a period of 20 Business Days or such longer period as may be
required by law;
(ii) the purchase price (including the amount of accrued
interest) and the purchase date (which shall be no earlier than 30 days
nor later than 45 days from the date such notice is mailed, other than
as may be required by law) (the "Change of Control Payment Date");
(iii) that any Note not tendered will continue to accrue
interest;
(iv) that, unless the Company defaults in making payment
therefor, any Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
<PAGE>
(v) that Holders electing to have a Note purchased pursuant to
a Change of Control Offer will be required to surrender the Note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the third Business Day
prior to the Change of Control Payment Date;
(vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the second Business Day
prior to the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Notes the Holder delivered for purchase and
a statement that such Holder is withdrawing his election to have such
Notes purchased;
(vii) that Holders whose Notes are purchased only in part will
be issued new Notes in a principal amount equal to the unpurchased
portion of the Notes surrendered; provided, however, that each Note
purchased and each new Note issued shall be in an original principal
amount of $1,000 or integral multiples thereof; and
(viii) the circumstances and relevant facts regarding such Change
of Control.
On or before the Change of Control Payment Date, the Commpany
shall (i) accept for payment Notes or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent in accordance with
Section 2.14 U.S. Legal Tender sufficient to pay the purchase price plus accrued
interest, if any, of all Notes so tendered and (iii) deliver to the Trustee
Notes so accepted together with an Officers' Certificate stating the Notes or
portions thereof being purchased by the Company. Upon receipt by the Paying
Agent of the monies specified in clause (ii) above and a copy of the Officers'
Certificate specified in clause (iii) above, the Paying Agent shall promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
purchase price plus accrued interest, if any, and the Trustee shall promptly
authenticate and mail to such Holders new Notes equal in principal amount to any
unpurchased portion of the Notes surrendered. Any Notes not so accepted shall be
promptly mailed by the Company to the Holder thereof. For purposes of this
Section 4.15, the Trustee shall act as the Paying Agent.
Neither the Board of Directors of the Company nor the Trustee
may waive the provisions of this Section 4.15 relating to the Company's
obligation to make a Change of Control Offer.
The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of this Section 4.15, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached their
obligations under the provisions of this Section 4.15 by virtue thereof.
<PAGE>
SECTION 4.16. Limitation on Asset Sales.
(a) The Company will not, and will not cause or permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless:
(i) the Company or the applicable Restricted Subsidiary, as
the case may be, receives consideration at the time of such Asset Sale
at least equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by the Company's Board of
Directors or senior management of the Company);
(ii) at least 85% of the consideration received by the Company
or the Restricted Subsidiary, as the case may be, from such Asset Sale
shall be in the form of cash or Cash Equivalents and is received at the
time of such disposition; and
(iii) upon the consummation of an Asset Sale, the Company shall
apply, or cause such Restricted Subsidiary to apply, the Net Cash
Proceeds relating to such Asset Sale within 270 days of receipt thereof
either (a) to repay or prepay Indebtedness outstanding under the Senior
Credit Facility, including, without limitation, a permanent reduction
in the related commitment, (b) to repay or prepay any Indebtedness of
the Company that is secured by a Lien permitted to be incurred pursuant
to Section 4.18, (c) to make an investment in properties or assets that
replace the properties or assets that were the subject of such Asset
Sale or in properties or assets that will be used in the business of
the Company and its Restricted Subsidiaries as existing on the Issue
Date or in businesses reasonably related thereto ("Replacement
Assets"), (d) to an investment in Crude Oil and Natural Gas Related
Assets or (e) a combination of prepayment and investment permitted by
the foregoing clauses (iii)(a) through (iii)(d). On the 271st day after
an Asset Sale or such earlier date, if any, as the Board of Directors
of the Company determines not to apply the Net Cash Proceeds relating
to such Asset Sale as set forth in clauses (iii)(a) through (iii)(d) of
the next preceding sentence (each a "Net Proceeds Offer Trigger Date"),
such aggregate amount of Net Cash Proceeds which have been received by
the Company or such Restricted Subsidiary but which have not been
applied on or before such Net Proceeds Offer Trigger Date as permitted
in clauses (iii)(a) through (iii)(d) of the next preceding sentence
(each a "Net Proceeds Offer Amount") shall be applied by the Company or
<PAGE>
such Restricted Subsidiary, as the case may be, to make an offer to
purchase (a "Net Proceeds Offer") on a date (the "Net Proceeds Offer
Payment Date") not less than 30 nor more than 45 days following the
applicable Net Proceeds Offer Trigger Date, from all Holders on a pro
rata basis, that principal amount of Notes purchasable with the Net
Proceeds Offer Amount at a price equal to 100% of the principal amount
of the Notes to be purchased, plus accrued and unpaid interest, if any,
thereon to the date of purchase; provided, however, that if at any time
any non-cash consideration received by the Company or any Restricted
Subsidiary, as the case may be, in connection with any Asset Sale is
converted into or sold or otherwise disposed of for cash (other than
interest received with respect to any such non-cash consideration),
then such conversion or disposition shall be deemed to constitute an
Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied
in accordance with this Section 4.16. The Company may defer the Net
Proceeds Offer until there is an aggregate unutilized Net Proceeds
Offer Amount equal to or in excess of $5,000,000 resulting from one or
more Asset Sales (at which time, the entire unutilized Net Proceeds
Offer Amount, and not just the amount in excess of $5,000,000, shall be
applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not
all) of the property and assets of the Company and its Restricted Subsidiaries
as an entirety to a Person in a transaction permitted under Section 5.01, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and its Restricted Subsidiaries not so transferred for purposes of
this Section 4.16, and shall comply with the provisions of this Section 4.16
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this Section 4.16.
Notwithstanding the two immediately preceding paragraphs, the
Company and its Restricted Subsidiaries will be permitted to consummate an Asset
Sale without complying with such paragraphs to the extent (a) the consideration
for such Asset Sale constitutes Replacement Assets and/or Crude Oil and Natural
Gas Related Assets and (b) such Asset Sale is for fair market value; provided,
however, that any consideration not constituting Replacement Assets and Crude
Oil and Natural Gas Related Assets received by the Company or any of its
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Cash Proceeds subject to
the provisions of the two immediately preceding paragraphs.
<PAGE>
(b) Subject to the deferral of the Net Proceeds Offer
contained in clause (a)(iii) above, each notice of a Net Proceeds Offer pursuant
to this Section 4.16 shall be mailed or caused to be mailed, by first class
mail, by the Company not more than 30 days after the Net Proceeds Offer Trigger
Date to all Holders at their last registered addresses, with a copy to the
Trustee. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Notes pursuant to the Net Proceeds Offer and shall
state the following terms:
(i) that the Net Proceeds Offer is being made pursuant to
Section 4.16, that all Notes tendered will be accepted for payment;
provided, however, that if the aggregate principal amount of Notes
tendered in a Net Proceeds Offer plus accrued interest at the
expiration of such offer exceeds the aggregate amount of the Net
Proceeds Offer, the Company shall select the Notes to be purchased on a
pro rata basis (with such adjustments as may be deemed appropriate by
the Company so that only Notes in denominations of $1,000 or multiples
thereof shall be purchased) and that the Net Proceeds Offer shall
remain open for a period of 20 Business Days or such longer period as
may be required by law;
(ii) the purchase price (including the amount of accrued
interest) and the Net Proceeds Offer Payment Date (which shall be not
less than 30 nor more than 45 days following the applicable Net
Proceeds Offer Trigger Date and which shall be at least five business
days after the Trustee receives notice thereof from the Company);
(iii) that any Note not tendered will continue to accrue
interest;
(iv) that, unless the Company defaults in making payment
therefor, any Note accepted for payment pursuant to the Net Proceeds
Offer shall cease to accrue interest after the Net Proceeds Offer
Payment Date;
(v) that Holders electing to have a Note purchased pursuant to
a Net Proceeds Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the third Business Day prior
to the Net Proceeds Offer Payment Date;
<PAGE>
(vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the second Business Day
prior to the Net Proceeds Offer Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Notes the Holder delivered for purchase and
a statement that such Holder is withdrawing his election to have such
Note purchased; and
(vii) that Holders whose Notes are purchased only in part will
be issued new Notes in a principal amount equal to the unpurchased
portion of the Notes surrendered; provided, however, that each Note
purchased and each new Note issued shall be in an original principal
amount of $1,000 or integral multiples thereof;
On or before the Net Proceeds Offer Payment Date, the Company
shall (i) accept for payment Notes or portions thereof tendered pursuant to the
Net Proceeds Offer which are to be purchased in accordance with item (b)(i)
above, (ii) deposit with the Paying Agent in accordance with Section 2.14 U.S.
Legal Tender sufficient to pay the purchase price plus accrued interest, if any,
of all Notes to be purchased and (iii) deliver to the Trustee Notes so accepted
together with an Officers' Certificate stating the Notes or portions thereof
being purchased by the Company. The Paying Agent shall promptly mail to the
Holders of Notes so accepted payment in an amount equal to the purchase price
plus accrued interest, if any. For purposes of this Section 4.16, the Trustee
shall act as the Paying Agent.
The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Section 4.16, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached their obligations under
the provisions of this Section 4.16 by virtue thereof.
<PAGE>
SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries.
The Company will not cause or permit any of its Restricted
Subsidiaries to issue any Preferred Stock (other than to the Company or to a
Wholly Owned Restricted Subsidiary) or permit any Person (other than the Company
or a Wholly Owned Restricted Subsidiary) to own any Preferred Stock of any
Restricted Subsidiary.
SECTION 4.18. Limitation on Liens.
Other than Permitted Liens, the Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or permit or suffer to exist any Liens of any kind against
or upon any property or assets of the Company or any of its Restricted
Subsidiaries (whether owned on the Issue Date or acquired after the Issue Date)
or any proceeds therefrom, or assign or otherwise convey any right to receive
income or profits therefrom unless (a) in the case of Liens securing
Indebtedness that is expressly subordinate or junior in right of payment to the
Notes or any Guarantee, the Notes or such Guarantee, as the case may be, are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens at least to the same extent as the Notes are senior in
priority to such Indebtedness and (b) in all other cases, the Notes and the
Guarantees are equally and ratably secured.
SECTION 4.19. Limitation on Conduct of Business.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, engage in the conduct of any business other than the
Crude Oil and Natural Gas Business.
SECTION 4.20. Additional Subsidiary Guarantees.
If the Company or any of its Restricted Subsidiaries transfers
or causes to be transferred, in one transaction or a series of related
transactions, any property to any Restricted Subsidiary that is not a Subsidiary
Guarantor, or if the Company or any of its Restricted Subsidiaries shall
organize, acquire or otherwise invest in or hold an Investment in another
Restricted Subsidiary that causes the total consolidated assets owned by all
Restricted Subsidiaries that are not Subsidiary Guarantors to exceed in the
aggregate 1% of the total consolidated assets of the Company, then the Company
shall cause one or more of such transferees or acquired or other Restricted
<PAGE>
Subsidiaries to become Subsidiary Guarantors to the extent necessary to cause
the total consolidated assets owned by all Restricted Subsidiaries that are not
Subsidiary Guarantors not to exceed in the aggregate 1% of the total
consolidated assets of the Company. If required to become a Subsidiary Guarantor
pursuant to the immediately preceding sentence, such transferee or acquired or
other Restricted Subsidiary shall (a) execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee all of the
Company's obligations under the Notes and this Indenture on the terms set forth
in this Indenture and (b) deliver to the Trustee an Opinion of Counsel stating
that such supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Subsidiary Guarantor for all purposes of the
Indenture.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets.
The Company will not, in a single transaction or series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of the Company's assets (determined on a
consolidated basis for the Company and its Restricted Subsidiaries), whether as
an entirety or substantially as an entirety to any Person unless: (a) either (i)
the Company shall be the surviving or continuing corporation or (ii) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, transfer,
lease, conveyance or other disposition the properties and assets of the Company
and its Restricted Subsidiaries substantially as an entirety (the "Surviving
Entity") (x) shall be a corporation organized and validly existing under the
laws of the United States or any state thereof or the District of Columbia and
<PAGE>
(y) shall expressly assume, by supplemental indenture (in form and substance
satisfactory to the Trustee), executed and delivered to the Trustee, the due and
punctual payment of the principal of, premium, if any, and interest on all of
the Notes and the performance of every covenant of the Notes, this Indenture and
the Registration Rights Agreement on the part of the Company to be performed or
observed; (b) immediately after giving effect to such transaction and the
assumption contemplated by clause (a)(ii)(y) above (including giving effect to
any Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction), the Company or such Surviving Entity, as the case
may be, (i) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction and
(ii) shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to Section 4.12 hereof; (c) immediately
before and immediately after giving effect to such transaction and the
assumption contemplated by clause (a)(ii)(y) above (including, without
limitation, giving effect to any Indebtedness incurred or anticipated to be
incurred and any Lien granted in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred or be
continuing; and (d) the Company or the Surviving Entity, as the case may be,
shall have delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture comply with the applicable provisions hereof and that all conditions
precedent in this Indenture relating to such transaction have been satisfied;
provided, however, that such counsel may rely, as to matters of fact, on a
certificate or certificates of officers of the Company.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor
whose Guarantee is to be released in accordance with the terms of the Guarantee
and this Indenture in connection with any transaction complying with the
provisions of the Indenture described under Article Five) will not, and the
Company will not cause or permit any Subsidiary Guarantor to, consolidate with
<PAGE>
or merge with or into any Person other than the Company or another Subsidiary
Guarantor that is a Wholly Owned Restricted Subsidiary unless: (a) the entity
formed by or surviving any such consolidation or merger (if other than the
Subsidiary Guarantor) or to which such sale, lease, conveyance or other
disposition shall have been made is a corporation organized and existing under
the laws of the United States or any state thereof or the District of Columbia;
(b) such entity assumes by execution of a supplemental indenture all of the
obligations of the Subsidiary Guarantor under its Guarantee; (c) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; and (d) immediately after giving effect to such
transaction and the use of any net proceeds therefrom on a pro forma basis, the
Company could satisfy the provisions of clause (b) of the first paragraph of
this covenant. Any merger or consolidation of a Subsidiary Guarantor with and
into the Company (with the Company being the surviving entity) or another
Subsidiary Guarantor that is a Wholly Owned Restricted Subsidiary need only
comply with clause (d) of the first paragraph of this Section 5.01.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation, merger, conveyance, lease or transfer
in accordance with Section 5.01, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
lease or transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor had been named as the Company herein and
thereafter (except in the case of a lease) the predecessor corporation will be
relieved of all further obligations and covenants under this Indenture and the
Notes.
ARTICLE SIX
REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" means any of the following events:
(a) the failure to pay interest (including any Additional
Interest) on any Notes when the same becomes due and payable and such
default continues for a period of 30 days;
<PAGE>
(b) the failure to pay the principal of any Notes when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds
Offer);
(c) a default in the observance or performance of any other
covenant or agreement contained in this Indenture which default
continues for a period of 45 days after the Company receives written
notice specifying the default (and demanding that such default be
remedied) from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the Notes (except in the case of a
default with respect to observance or performance of any of the terms
or provisions of Section 4.15, 4.16 or 5.01 which will constitute an
Event of Default with such notice requirement but without such passage
of time requirement);
(d) a default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness of the Company or any Restricted Subsidiary
(or the payment of which is guaranteed by the Company or any Restricted
Subsidiary), whether such Indebtedness now exists, or is created after
the Issue Date, which default (i) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness after
any applicable grace period provided in such Indebtedness (a "Payment
Default") or (ii) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount
of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or
the maturity of which has been so accelerated, aggregates $5,000,000 or
more;
(e) one or more judgments in an aggregate amount in excess of
$5,000,000 (unless covered by insurance by a reputable insurer as to
which the insurer has acknowledged coverage) shall have been rendered
against the Company or any of its Restricted Subsidiaries and such
judgments remain undischarged, unvacated, unpaid or unstayed for a
period of 60 days after such judgment or judgments become final and
non-appealable;
<PAGE>
(f) the Company or any of its Significant Subsidiaries
pursuant to or under or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case or proceeding;
(ii) consents to the entry of an order for relief against
it in an involuntary case or proceeding;
(iii) consents to the appointment of a Custodian of it or for
all or substantially all of its property;
(iv) makes a general assignment for the benefit of its
creditors; or
(v) shall generally not pay its debts when such debts become
due or shall admit in writing its inability to pay its debts generally;
(g) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any Significant
Subsidiary of the Company in an involuntary case or proceeding,
(ii) appoints a Custodian of the Company or any Significant
Subsidiary of the Company for all or substantially all of its
Properties, or
(iii) orders the liquidation of the Company or any Significant
Subsidiary of the Company, and in each case the order or decree remains
unstayed and in effect for 60 days; or
(h) any of the Guarantees cease to be in full force and effect
or any of the Guarantees are declared to be null and void or invalid
and unenforceable or any of the Subsidiary Guarantors denies or
disaffirms its liability under its Guarantees (other than by reason of
release of a Subsidiary Guarantor in accordance with the terms of this
Indenture).
<PAGE>
SECTION 6.02. Acceleration.
Upon the happening of an Event of Default specified in Section
6.01 (other than an Event of Default specified in clause (f) of Section 6.01)
the Trustee may, or the holders of at least 25% in principal amount of
outstanding Notes may, declare the principal of, premium, if any, and accrued
interest on all the Notes to be due and payable by notice in writing to the
Company and the Trustee specifying the respective Event of Default and that it
is a "notice of acceleration" and the same shall become immediately due and
payable. If an Event of Default of the type described in clause (f) or (g) above
occurs and is continuing, then such amount will ipso facto 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 a declaration of acceleration with respect
to the Notes as described in the preceding paragraph, the Holders of a majority
in aggregate principal amount of the Notes then outstanding by written notice to
the Company and the Trustee may rescind and cancel such declaration and its
consequences (a) if the rescission would not conflict with any judgment or
decree, (b) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of such
acceleration, (c) to the extent the payment of such interest is lawful, interest
on overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid, (d) if the
Company has paid the Trustee its reasonable compensation and reimbursed the
Trustee for its expenses, disbursements and advances and (e) in the event of the
cure or waiver of an Event of Default of the type described in clause (f) of the
description of Events of Default above, the Trustee shall have received an
Officers' Certificate and an Opinion of Counsel that such Event of Default has
been cured or waived; provided, however, that such counsel may rely, as to
matters of fact, on a certificate or certificates of officers of the Company. No
such rescission shall affect any subsequent Default or impair any right
consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of the principal of, premium, if any, or interest on the Notes or to
enforce the performance of any provision of the Notes or this Indenture.
All rights of action and claims under this Indenture or the
Notes may be enforced by the Trustee even if it does not possess any of the
Notes or does not produce any of them in the proceeding. A delay or omission by
the Trustee or any Holder in exercising any right or remedy accruing upon an
Event of Default shall not impair the right or remedy or constitute a waiver of
or acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative to the extent permitted by law.
<PAGE>
SECTION 6.04. Waiver of Past Defaults.
Prior to the declaration of acceleration of the Notes, the
Holders of not less than a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may, on behalf of the Holders of all
the Notes, waive any existing Default or Event of Default and its consequences
under this Indenture, except a Default or Event of Default specified in Section
6.01(a) or (b) or in respect of any provision hereof which cannot be modified or
amended without the consent of the Holder so affected pursuant to Section 9.02.
When a Default or Event of Default is so waived, it shall be deemed cured and
shall cease to exist. This Section 6.04 shall be in lieu of ss. 316(a)(1)(B) of
the TIA and such ss. 316(a)(1)(B) of the TIA is hereby expressly excluded from
this Indenture and the Notes, as permitted by the TIA.
SECTION 6.05. Control by Majority.
Holders of the Notes may not enforce this Indenture or the
Notes except as provided in this Article Six and under the TIA. The Holders of
not less than a majority in aggregate principal amount of the outstanding Notes
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee, provided, however, that the Trustee may refuse
to follow any direction (a) that conflicts with any rule of law or this
Indenture, (b) that the Trustee determines may be unduly prejudicial to the
rights of another Holder, or (c) that may expose the Trustee to personal
liability for which reasonable indemnity provided to the Trustee against such
liability shall be inadequate; provided, further, however, that the Trustee may
take any other action deemed proper by the Trustee that is not inconsistent with
such direction or this Indenture. This Section 6.05 shall be in lieu of ss.
316(a)(1)(A) of the TIA, and such ss. 316(a)(1)(A) of the TIA is hereby
expressly excluded from this Indenture and the Notes, as permitted by the TIA.
<PAGE>
SECTION 6.06. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding with respect to this Indenture or the Notes or any remedy hereunder,
unless the Holders of at least 25% in aggregate principal amount of the
outstanding Notes have made written request, and offered reasonable indemnity,
to the Trustee to institute such proceeding as Trustee under the Notes and this
Indenture, the Trustee has failed to institute such proceeding within 30 days
after receipt of such notice, request and offer of indemnity and the Trustee,
within such 30-day period, has not received directions inconsistent with such
written request by Holders of not less than a majority in aggregate principal
amount of the outstanding Notes.
The foregoing limitations shall not apply to a suit instituted
by a Holder of a Note for the enforcement of the payment of the principal of,
premium, if any, or interest on, such Note on or after the respective due dates
expressed or provided for in such Note.
A Holder may not use this Indenture to prejudice the rights of
any other Holders or to obtain priority or preference over such other Holders.
SECTION 6.07. Right of Holders To Receive Payment.
Notwithstanding any other provision in this Indenture, the
right of any Holder of a Note to receive payment of the principal of, premium,
if any, and interest on such Note, on or after the respective due dates
expressed or provided for in such Note, or to bring suit for the enforcement of
any such payment on or after the respective due dates, is absolute and
unconditional and shall not be impaired or affected without the consent of the
Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default specified in clause (a) or (b) of
Section 6.01 occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company, or any other
obligor on the Notes for the whole amount of the principal of, premium, if any,
and accrued interest remaining unpaid, together with interest on overdue
principal and, to the extent that payment of such interest is lawful, interest
on overdue installments of interest, in each case at the rate per annum provided
for by the Notes and such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
<PAGE>
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents, counsel, accountants and
experts) and the Holders allowed in any judicial proceedings relative to the
Company or Restricted Subsidiaries (or any other obligor upon the Notes), their
creditors or their property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Holder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.07. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six
it shall pay out such money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for interest accrued on the Notes, ratably,
without preference or priority of any kind, according to the amounts
due and payable on the Notes for interest;
Third: to Holders for the principal amounts (including any
premium) owing under the Notes, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Notes for
the principal (including any premium); and
<PAGE>
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to Holders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court may in its discretion require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to any suit by the Trustee, any suit
by a Holder pursuant to Section 6.06, or a suit by a Holder or Holders of more
than 10% in aggregate principal amount of the outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Note and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such case the
Company, the Trustee and the Holders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
<PAGE>
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee may exercise such of the rights and powers vested in it by this
Indenture and shall use the same degree of care and skill in its exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are adverse to the
Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or
opinions that by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained,
the Trustee may not be relieved from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph
(b) of this Section 7.01.
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.02, 6.04 or 6.05.
(d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
<PAGE>
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section
7.01 and Section 7.02.
(f) The Trustee shall not be liable for interest on any money
or assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in
acting or refraining from acting upon any document believed by it to be
genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel of its selection and may require an Officers'
Certificate or an Opinion of Counsel, which shall conform to Sections
11.04 and 11.05. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action that it
takes or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers.
(e) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, notice, request, direction, consent,
order, bond, debenture, or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled, upon reasonable notice to the Company, to examine the books,
records, and premises of the Company, personally or by agent or
attorney and to consult with the officers and representatives of the
Company, including the Company's accountants and attorneys.
<PAGE>
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Holders pursuant to the provisions of
this Indenture, unless such Holders shall have offered to the Trustee
security or indemnity reasonably satisfactory to the Trustee against
the costs, expenses and liabilities which may be incurred by it in
compliance with such request, order or direction.
(g) The Trustee shall not be required to give any bond or
surety in respect of the performance of its powers and duties
hereunder.
(h) Delivery of reports, information and documents to the
Trustee under Section 4.08 is for informational purposes only and the
Trustee's receipt of the foregoing shall not constitute constructive
notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with
any of their covenants hereunder (as to which the Trustee is entitled
to rely exclusively on Officers' Certificates).
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company, any of
their Subsidiaries, or their respective Affiliates with the same rights it would
have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Notes, and it shall not be accountable for the
Company's use of the proceeds from the Notes, and it shall not be responsible
for any statement of the Company in this Indenture or the Notes other than the
Trustee's certificate of authentication.
<PAGE>
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing
and if it is known to a Trust Officer, the Trustee shall mail to each Holder
notice of the uncured Default or Event of Default within 90 days after obtaining
knowledge thereof. Except in the case of a Default or an Event of Default in
payment of principal of, or interest on, any Note, including an accelerated
payment, a Default in payment on the Change of Control Payment Date pursuant to
a Change of Control Offer or on the Net Proceeds Offer Payment Date pursuant to
a Net Proceeds Offer and a Default in compliance with Article Five hereof, the
Trustee may withhold the notice if and so long as its Board of Directors, the
executive committee of its Board of Directors or a committee of its directors
and/or Trust Officers in good faith determines that withholding the notice is in
the interest of the Holders. The foregoing sentence of this Section 7.05 shall
be in lieu of the proviso to ss. 315(b) of the TIA and such proviso to ss.
315(b) of the TIA is hereby expressly excluded from this Indenture and the
Notes, as permitted by the TIA.
<PAGE>
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after November 1 of each year beginning with
1997, the Trustee shall, to the extent that any of the events described in TIA
ss. 313(a) occurred within the previous twelve months, but not otherwise, mail
to each Holder a brief report dated as of such date that complies with TIA ss.
313(a). The Trustee also shall comply with TIA ss.ss. 313(b), (c) and (d).
A copy of each report at the time of its mailing to Holders
shall be mailed to the Company and filed with the Commission and each stock
exchange, if any, on which the Notes are listed.
The Company shall promptly notify the Trustee if the Notes
become listed on any stock exchange and the Trustee shall comply with TIA ss.
313(d).
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation for its services as has been agreed to in writing signed by the
Company and the Trustee. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred or made by it in connection with the performance of its duties under
this Indenture. Such expenses shall include the reasonable fees and expenses of
the Trustee's agents, counsel, accountants and experts.
The Company shall indemnify each of the Trustee (or any
predecessor Trustee) and its agents, employees, stockholders, Affiliates and
directors and officers for, and hold them each harmless against, any and all
loss, liability, damage, claim or expense (including reasonable fees and
expenses of counsel), including taxes (other than taxes based on the income of
the Trustee) incurred by them except for such actions to the extent caused by
any negligence, bad faith or willful misconduct on their part, arising out of or
in connection with the acceptance or administration of this trust including the
reasonable costs and expenses of defending themselves against any claim or
liability in connection with the exercise or performance of any of their rights,
powers or duties hereunder. The Trustee shall notify the Company promptly of any
claim asserted against the Trustee for which it may seek indemnity. At the
Trustee's sole discretion, the Company shall defend the claim and the Trustee
shall cooperate and may participate in the defense; provided, however, that any
settlement of a claim shall be approved in writing by the Trustee if such
settlement would result in an admission of liability by the Trustee or if such
settlement would not be accompanied by a full release of the Trustee for all
liability arising out of the events giving rise to such claim. Alternatively,
the Trustee may at its option have separate counsel of its own choosing and the
Company shall pay the reasonable fees and expenses of such counsel.
To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a lien prior to the Notes on all assets or money
held or collected by the Trustee, in its capacity as Trustee, except assets or
money held in trust to pay principal of or premium, if any, or interest on
particular Notes.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(f) or (g) occurs, such expenses and
the compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
The provisions of this Section 7.07 shall survive the
termination of this Indenture.
<PAGE>
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the
Company. The Holders of a majority in principal amount of the outstanding Notes
may remove the Trustee and appoint a successor Trustee with the Company's
consent, by so notifying the Company and the Trustee. The Company may remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of
the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall notify each Holder of
such event and shall promptly appoint a successor Trustee. Within one year after
the successor Trustee takes office, the Holders of a majority in aggregate
principal amount of the outstanding Notes may appoint a successor Trustee to
replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The Company shall mail notice of such successor Trustee's appointment
to each Holder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in aggregate principal amount of the
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
<PAGE>
Notwithstanding any resignation or replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
shall continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; provided, however, that
such corporation shall be otherwise qualified and eligible under this Article
Seven.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA ss.ss. 310(a)(1), (2) and (5). The Trustee (or, in the case
of a Trustee that is a corporation included in a bank holding company system,
the related bank holding company) shall have a combined capital and surplus of
at least $150 million as set forth in its most recent published annual report of
condition, and have a Corporate Trust Office in the City of New York. In
addition, if the Trustee is a corporation included in a bank holding company
system, the Trustee, independently of such bank holding company, shall meet the
capital requirements of TIA ss. 310(a)(2). The Trustee shall comply with TIA ss.
310(b); provided, however, that there shall be excluded from the operation of
TIA ss. 310(b)(1) any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the Company
are outstanding, if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met. The provisions of TIA ss. 310 shall apply to the Company, as
obligors of the Notes.
SECTION 7.11. Preferential Collection of Claims Against the Company.
The Trustee shall comply with TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
The provisions of TIA ss. 311 shall apply to the Company, as obligor on the
Notes.
<PAGE>
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of Company's Obligations.
This Indenture will be discharged and will cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of the Notes, as expressly provided for in this Indenture) as to all
outstanding Notes when (a) either (i) all Notes, theretofore authenticated and
delivered (except lost, stolen or destroyed Notes which have been replaced or
paid and Notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (b)
the Company has paid all other sums payable under this Indenture by the Company;
and (c) the Company has delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under this Indenture
relating to the satisfaction and discharge of this Indenture have been complied
with; provided, however, that such counsel may rely, as to matters of fact, on a
certificate or certificates of officers of the Company.
The Company may, at its option and at any time, elect to have
its obligations and the corresponding obligations of the Subsidiary Guarantors
discharged with respect to the outstanding Notes ("Legal Defeasance"). Such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Notes, and
satisfied all of its obligations with respect to the Notes, except for (a) the
rights of Holders to receive payments in respect of the principal of, premium,
if any, and interest on the Notes when such payments are due, (b) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (c) the rights, powers, trust,
<PAGE>
duties and immunities of the Trustee and the Company's obligations in connection
therewith and (d) the Legal Defeasance provisions of this Section 8.01. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and the Subsidiary Guarantors, if any, released with
respect to covenants contained in Sections 4.04, 4.08 and 4.10 through 4.20 and
Article Five ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Notes. In the event of Covenant Defeasance, those events described under
Section 6.01 (except those events described in Section 6.01(a),(b),(f) and (g))
will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders cash in United States dollars,
non-callable U.S. Government Obligations, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal
of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable Redemption Date, as the case may
be;
(b) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling or (ii) since the date of this Indenture, there has
been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will
not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
<PAGE>
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default
under Section 6.01(f) or (g) from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under this
Indenture or any other agreement or instrument to which the Company or
any of its Restricted Subsidiaries is a party or by which the Company
or any of its Restricted Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance, as the case may be, have been complied
with; provided, however, that such counsel may rely, as to matters of
fact, on a certificate or certificates of officers of the Company;
(h) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; provided, however, that such counsel may
rely, as to matters of fact, on a certificate or certificates of
officers of the Company; and
(i) certain other customary conditions precedent are satisfied.
<PAGE>
SECTION 8.02. Application of Trust Money.
The Trustee or Paying Agent shall hold in trust U.S. Legal
Tender or U.S. Government Obligations deposited with it pursuant to Section
8.01, and shall apply the deposited U.S. Legal Tender and the money from U.S.
Government Obligations in accordance with this Indenture to the payment of the
principal of and interest on the Notes. The Trustee shall be under no obligation
to invest said U.S. Legal Tender or U.S. Government Obligations except as it may
agree in writing with the Company.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the Legal Tender or U.S.
Government Obligations deposited pursuant to Section 8.01 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of outstanding Notes.
SECTION 8.03. Repayment to the Company.
Subject to Section 8.01, the Trustee and the Paying Agent
shall promptly pay to the Company upon request any excess U.S. Legal Tender or
U.S. Government Obligations held by them at any time and thereupon shall be
relieved from all liability with respect to such money. The Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for one year;
provided, however, that the Trustee or such Paying Agent, before being required
to make any payment, may at the expense of the Company cause to be published
once in a newspaper of general circulation in the City of New York or mail to
each Holder entitled to such money notice that such money remains unclaimed and
that after a date specified therein which shall be at least 30 days from the
date of such publication or mailing any unclaimed balance of such money then
remaining will be repaid to the Company. After payment to the Company, Holders
entitled to such money must look to the Company for payment as general creditors
unless an applicable law designates another Person.
SECTION 8.04. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S.
Legal Tender or U.S. Government Obligations in accordance with Section 8.01 by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the Notes
<PAGE>
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.01 until such time as the Trustee or Paying Agent is permitted to
apply all such U.S. Legal Tender or U.S. Government Obligations in accordance
with Section 8.01; provided, however, that if the Company has made any payment
of interest on or principal of any Notes because of the reinstatement of their
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the U.S. Legal Tender or U.S. Government
Obligations held by the Trustee or Paying Agent.
SECTION 8.05. Acknowledgment of Discharge by Trustee.
After (i) the conditions of Section 8.01 have been satisfied,
(ii) the Company has paid or caused to be paid all other sums payable hereunder
by the Company and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (i) above relating to the satisfaction and
discharge of this Indenture have been complied with, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified in Section 8.01,
provided the legal counsel delivering such Opinion of Counsel may rely as to
matters of fact on one or more Officers' Certificates of the Company.
ARTICLE NINE
MODIFICATION OF THE INDENTURE
SECTION 9.01. Without Consent of Holders.
Subject to the provisions of Section 9.02, the Company, the
Subsidiary Guarantors and the Trustee may amend, waive or supplement this
Indenture without notice to or consent of any Holder: (a) to cure any ambiguity,
defect or inconsistency; (b) to comply with Section 5.01 of this Indenture; (c)
to provide for uncertificated Notes in addition to certificated Notes; (d) to
comply with any requirements of the Commission in order to effect or maintain
the qualification of this Indenture under the TIA; or (e) to make any change
that would provide any additional benefit or rights to the Holders or that does
not adversely affect the rights of any Holder. Notwithstanding the foregoing,
the Trustee and the Company may not make any change that adversely affects the
rights of any Holder under this Indenture without the consent of such Holder. In
<PAGE>
formulating its opinion on such matters, the Trustee will be entitled to rely on
such evidence as it deems appropriate, including, without limitation, solely on
an Opinion of Counsel; provided, however, that in delivering such Opinion of
Counsel, such counsel may rely as to matters of fact, on a certificate or
certificates of officers of the Company.
SECTION 9.02. With Consent of Holders.
All other modifications and amendments of this Indenture may
be made with the consent of the Holders of a majority in the then outstanding
principal amount of the then outstanding Notes, except that, without the consent
of each Holder of the Notes affected thereby, no amendment may, directly or
indirectly: (i) reduce the amount of Notes whose Holders must consent to any
amendment; (ii) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes; (iii)
reduce the principal of or change or have the effect of changing the fixed
maturity of any Notes, or change the date on which any Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price therefor;
(iv) make any Notes payable in money other than that stated in the Notes; (v)
make any change in provisions of this Indenture protecting the right of each
Holder of a Note to receive payment of principal of and interest on such Note on
or after the due date thereof or to bring suit to enforce such payment or
permitting Holders of a majority in principal amount of Notes to waive Defaults
or Events of Default; (vi) amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control Offer in
the event of a Change of Control or make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto; (vii) modify or change any
provision of this Indenture or Section 1.01 affecting the ranking of the Notes
or any Guarantee in a manner which adversely affects the Holders; or (viii)
release any Subsidiary Guarantor from any of its obligations under its Guarantee
or this Indenture otherwise than in accordance with the terms of this Indenture.
SECTION 9.03. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the
Notes shall comply with the TIA as then in effect; provided, however, that this
Section 9.03 shall not of itself require that this Indenture or the Trustee be
qualified under the TIA or constitute any admission or acknowledgment by any
party hereto that any such qualification is required prior to the time this
Indenture and the Trustee are required by the TIA to be so qualified.
<PAGE>
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. Subject to the following paragraph, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of such Note by
notice to the Trustee or the Company received before the date on which the
Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Notes have consented (and not theretofore revoked
such consent) to the amendment, supplement or waiver. An amendment, supplement
or waiver becomes effective upon receipt by the Trustee of such Officers'
Certificate and evidence of consent by the Holders of the requisite percentage
in principal amount of outstanding Notes.
The Company may, but shall not be obligated to, fix a Record
Date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver, which Record Date shall be at least 30 days
prior to the first solicitation of such consent. If a Record Date is fixed, then
notwithstanding the second sentence of the immediately preceding paragraph,
those Persons who were Holders at such Record Date (or their duly designated
proxies), and only those Persons, shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
Record Date. No such consent shall be valid or effective for more than 90 days
after such Record Date unless consents from Holders of the requisite percentage
in principal amount of outstanding Notes required hereunder for the
effectiveness of such consents shall have also been given and not revoked within
such 90 day period.
SECTION 9.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a
Note, the Trustee may require the Holder of such Note to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Note about the
changed terms and return it to the Holder. Alternatively, if the Company or the
Trustee so determine, the Company in exchange for the Note shall issue and the
Trustee shall authenticate a new Note that reflects the changed terms.
<PAGE>
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided, however, that the Trustee
may, but shall not be obligated to, execute any such amendment, supplement or
waiver which affects the Trustee's own rights, duties or immunities under this
Indenture. In executing such supplement or waiver the Trustee shall be entitled
to receive indemnity reasonably satisfactory to it, and shall be fully protected
in relying upon an Opinion of Counsel and an Officers' Certificate of the
Company, stating that no event of default shall occur as a result of such
amendment, supplement or waiver and that the execution of any amendment,
supplement or waiver authorized pursuant to this Article Nine is authorized or
permitted by this Indenture, provided the legal counsel delivering such Opinion
of Counsel may rely as to matters of fact on one or more Officers' Certificates
of the Company. Such Opinion of Counsel shall not be an expense of the Trustee.
ARTICLE TEN
[INTENTIONALLY OMITTED]
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or
conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control; provided, however,
that this Section 11.01 shall not of itself require that this Indenture or the
Trustee be qualified under the TIA or constitute any admission or acknowledgment
by any party hereto that any such qualification is required prior to the time
this Indenture and the Trustee are required by the TIA to be so qualified.
<PAGE>
SECTION 11.02. Notices.
Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by telex, by telecopier or registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
if to the Company:
c/o Magnum Hunter Resources, Inc.
600 East Las Colinas Blvd.
Suite 1200
Irving, Texas 75039
Telecopier Number: (972) 401-0752
Attn: Chief Executive Officer
if to the Trustee:
First Union National Bank of North Carolina
230 South Tryon Street, 9th Floor
Charlotte, N.C. 28288
Telecopier Number: (704) 383-7316
Attention: Shawn Bednasik
Each of the Company and the Trustee by written notice to the
other may designate additional or different addresses for notices to such
Person. Any notice or communication to the Company or the Trustee shall be
deemed to have been given or made as of the date so delivered if hand delivered;
when answered back, if telexed; when receipt is acknowledged, if faxed; and five
(5) calendar days after mailing if sent by registered or certified mail, postage
prepaid (except that a notice of change of address shall not be deemed to have
been given until actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar ten (10) days prior to such
mailing and shall be sufficiently given to him if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
<PAGE>
SECTION 11.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and any other Person shall have the
protection of TIA ss. 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate, in form and substance
satisfactory to the Trustee, stating that, in the opinion of the
signers, all conditions precedent to be performed by the Company, if
any, provided for in this Indenture relating to the proposed action
have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent to be performed by the
Company, if any, provided for in this Indenture relating to the
proposed action have been complied with (which counsel, as to factual
matters, may rely on an Officers' Certificate).
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.06, shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
<PAGE>
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is reasonably necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each
such Person, such condition or covenant has been complied with.
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules in accordance with the
Trustee's customary practices for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 11.07. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of
payment is a Saturday, a Sunday or a day on which banking institutions in New
York, New York or at such place of payment are not required to be open. If a
payment date is a Legal Holiday at such place, payment may be made at such place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
SECTION 11.08. Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Indenture.
SECTION 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
<PAGE>
SECTION 11.10. No Personal Liability.
No director, officer, employee or stockholder, as such, of the
Company or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the Notes, this
Indenture, the Guarantees or the Registration Rights Agreement or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for the issuance of the
Notes.
SECTION 11.11. Successors.
All agreements of the Company in this Indenture and the Notes
shall bind their successors. All agreements of the Trustee in this Indenture
shall bind its successors.
SECTION 11.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together shall represent
the same agreement.
SECTION 11.13. Severability.
In case any one or more of the provisions in this Indenture or
in the Notes shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 11.14. Independence of Covenants.
All covenants and agreements in this Indenture and the Notes
shall be given independent effect so that if any particular action or condition
is not permitted by any of such covenants, the fact that it would be permitted
by an exception to, or otherwise be within the limitations of, another covenant
shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or condition exists.
<PAGE>
ARTICLE TWELVE
GUARANTEE OF NOTES
SECTION 12.01. Unconditional Guarantee.
Subject to the provisions of this Article Twelve, each
Subsidiary Guarantor, if any, hereby, jointly and severally, unconditionally and
irrevocably guarantees, on a senior basis (such guarantee to be referred to
herein as a "Guarantee") to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective of
the validity and enforceability of this Indenture, the Notes or the obligations
of the Company or any other Subsidiary Guarantors to the Holders or the Trustee
hereunder or thereunder, that: (a) the principal of, premium, if any, and
interest on the Notes (and any Additional Interest payable thereon) shall be
duly and punctually paid in full when due, whether at maturity, upon redemption
at the option of Holders pursuant to the provisions of the Notes relating
thereto, by acceleration or otherwise, and interest on the overdue principal and
(to the extent permitted by law) interest, if any, on the Notes and all other
obligations of the Company or the Subsidiary Guarantors to the Holders or the
Trustee hereunder or thereunder (including amounts due the Trustee under Section
7.07 hereof) and all other obligations shall be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; and (b) in case
of any extension of time of payment or renewal of any Notes or any of such other
obligations, the same shall be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at maturity, by
acceleration or otherwise. Failing payment when due of any amount so guaranteed,
or failing performance of any other obligation of the Company to the Holders
under this Indenture or under the Notes, for whatever reason, each Subsidiary
Guarantor shall be obligated to pay, or to perform or cause the performance of,
the same immediately. An Event of Default under this Indenture or the Notes
shall constitute an event of default under this Guarantee, and shall entitle the
Holders of Notes to accelerate the obligations of the Guarantors hereunder in
the same manner and to the same extent as the obligations of the Company.
Each of the Subsidiary Guarantors hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Notes or this Indenture, the absence of any
action to enforce the same, any waiver or consent by any Holder of the Notes
with respect to any provisions hereof or thereof, any release of any other
<PAGE>
Subsidiary Guarantor, the recovery of any judgment against the Company, any
action to enforce the same, whether or not a Guarantee is affixed to any
particular Note, or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. Each of the Subsidiary
Guarantors hereby waives the benefit of diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest, notice and all demands whatsoever and covenants that its Guarantee
shall not be discharged except by complete performance of the obligations
contained in the Notes, this Indenture and this Guarantee. This Guarantee is a
guarantee of payment and not of collection. If any Holder or the Trustee is
required by any court or otherwise to return to the Company or to any Subsidiary
Guarantor, or any custodian, trustee, liquidator or other similar official
acting in relation to the Company or such Subsidiary Guarantor, any amount paid
by the Company or such Subsidiary Guarantor to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Subsidiary Guarantor further agrees that, as between it,
on the one hand, and the Holders of Notes and the Trustee, on the other hand,
(a) subject to this Article Eleven, the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article Six hereof for the purposes of
this Guarantee, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the obligations guaranteed hereby,
and (b) in the event of any acceleration of such obligations as provided in
Article Six hereof, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Subsidiary Guarantors for the purpose of
this Guarantee.
No stockholder, officer, director, employee or incorporator,
past, present or future, or any Subsidiary Guarantor, as such, shall have any
personal liability under this Guarantee by reason of his, her or its status as
such stockholder, officer, director, employee or incorporator.
Each Subsidiary Guarantor that makes a payment or distribution
under its Guarantee shall be entitled to a contribution from each other
Subsidiary Guarantor, determined in accordance with GAAP.
<PAGE>
SECTION 12.02. Limitations on Guarantees.
The obligations of each Subsidiary Guarantor under its
Guarantee will be limited to the maximum amount which, after giving effect to
all other contingent and fixed liabilities of such Subsidiary Guarantor and
after giving effect to any collections from or payments made by or on behalf of
any other Subsidiary Guarantor in respect of the obligations of such other
Subsidiary Guarantor under its Guarantee or pursuant to its contribution
obligations under the Indenture, will result in the obligations of such
Subsidiary Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law.
SECTION 12.03. Execution and Delivery of Guarantee.
To further evidence the Guarantee set forth in Section 12.01,
each Subsidiary Guarantor hereby agrees that a notation of such Guarantee,
substantially in the form of Exhibit E herein, shall be endorsed on each Note
authenticated and delivered by the Trustee. Such Guarantee shall be executed on
behalf of each Subsidiary Guarantor by either manual or facsimile signature of
two Officers of each Subsidiary Guarantor, each of whom, in each case, shall
have been duly authorized to so execute by all requisite corporate action. The
validity and enforceability of any Guarantee shall not be affected by the fact
that it is not affixed to any particular Note.
Each of the Subsidiary Guarantors hereby agrees that its
Guarantee set forth in Section 12.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such
Guarantee.
If an Officer of a Subsidiary Guarantor whose signature is on
this Indenture or a Guarantee no longer holds that office at the time the
Trustee authenticates the Note on which such Guarantee is endorsed or at any
time thereafter, such Subsidiary Guarantor's Guarantee of such Note shall be
valid nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any Guarantee
set forth in this Indenture on behalf of each Subsidiary Guarantor.
<PAGE>
SECTION 12.04. Release of a Subsidiary Guarantor.
(a) If no Default exists or would exist under this Indenture,
upon the sale or disposition of all of the Capital Stock of a Subsidiary
Guarantor by the Company or a Restricted Subsidiary of the Company in a
transaction constituting an Asset Sale the Net Cash Proceeds of which are
applied in accordance with Section 4.16, or upon the consolidation or merger of
a Subsidiary Guarantor with or into any Person in compliance with Article Five
(in each case, other than to the Company or an Affiliate of the Company or a
Restricted Subsidiary), such Subsidiary Guarantor and each Subsidiary of such
Subsidiary Guarantor that is also a Subsidiary Guarantor shall be deemed
released from all obligations under this Article Twelve without any further
action required on the part of the Trustee or any Holder; provided, however,
that each such Subsidiary Guarantor is sold or disposed of in accordance with
this Indenture. Any Subsidiary Guarantor not so released or the entity surviving
such Subsidiary Guarantor, as applicable, shall remain or be liable under its
Guarantee as provided in this Article Twelve.
(b) The Trustee shall deliver an appropriate instrument
evidencing the release of a Subsidiary Guarantor upon receipt of a request by
the Company or such Subsidiary Guarantor accompanied by an Officers' Certificate
and an Opinion of Counsel certifying as to the compliance with this Section
12.04, provided the legal counsel delivering such Opinion of Counsel may rely as
to matters of fact on one or more Officers Certificates of the Company.
The Trustee shall execute any documents reasonably requested
by the Company or a Subsidiary Guarantor in order to evidence the release of
such Subsidiary Guarantor from its obligations under its Guarantee endorsed on
the Notes and under this Article Twelve.
Except as set forth in Articles Four and Five and this Section
12.04, nothing contained in this Indenture or in any of the Notes shall prevent
any consolidation or merger of a Subsidiary Guarantor with or into the Company
or another Subsidiary Guarantor or shall prevent any sale or conveyance of the
property of a Subsidiary Guarantor as an entirety or substantially as an
entirety to the Company or another Subsidiary Guarantor.
<PAGE>
SECTION 12.05. Waiver of Subrogation.
Until this Indenture is discharged and all of the Notes are
discharged and paid in full, each Subsidiary Guarantor hereby irrevocably waives
and agrees not to exercise any claim or other rights which it may now or
hereafter acquire against the Company that arise from the existence, payment,
performance or enforcement of the Company's obligations under the Notes or this
Indenture and such Subsidiary Guarantor's obligations under this Guarantee and
this Indenture, in any such instance including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, indemnification, and any
right to participate in any claim or remedy of the Holders against the Company,
whether or not such claim, remedy or right arises in equity, or under contract,
statute or common law, including, without limitation, the right to take or
receive from the Company, directly or indirectly, in cash or other property or
by set-off or in any other manner, payment or security on account of such claim
or other rights. If any amount shall be paid to any Subsidiary Guarantor in
violation of the preceding sentence and any amounts owing to the Trustee or the
Holders of Notes under the Notes, this Indenture, or any other document or
instrument delivered under or in connection with such agreements or instruments,
shall not have been paid in full, such amount shall have been deemed to have
been paid to such Subsidiary Guarantor for the benefit of, and held in trust for
the benefit of, the Trustee or the Holders and shall forthwith be paid to the
Trustee for the benefit of itself or such Holders to be credited and applied to
the obligations in favor of the Trustee or the Holders, as the case may be,
whether matured or unmatured, in accordance with the terms of this Indenture.
Each Subsidiary Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by this Indenture and that
the waiver set forth in this Section 12.05 is knowingly made in contemplation of
such benefits.
SECTION 12.06. Immediate Payment.
Each Subsidiary Guarantor agrees to make immediate payment to
the Trustee on behalf of the Holders of all Obligations owing or payable to the
respective Holders upon receipt of a demand for payment therefor by the Trustee
to such Subsidiary Guarantor in writing.
<PAGE>
SECTION 12.07. No Set-Off.
Each payment to be made by a Subsidiary Guarantor hereunder in
respect of the Obligations shall be payable in the currency or currencies in
which such Obligations are denominated, and shall be made without set-off,
counterclaim, reduction or diminution of any kind or nature.
SECTION 12.08. Obligations Absolute.
The obligations of each Subsidiary Guarantor hereunder are and
shall be absolute and unconditional and any monies or amounts expressed to be
owing or payable by each Subsidiary Guarantor hereunder which may not be
recoverable from such Subsidiary Guarantor on the basis of a Guarantee shall be
recoverable from such Subsidiary Guarantor as a primary obligor and principal
debtor in respect thereof.
SECTION 12.09. Obligations Continuing.
The obligations of each Subsidiary Guarantor hereunder shall
be continuing and shall remain in full force and effect until all the
obligations have been paid and satisfied in full. Each Subsidiary Guarantor
agrees with the Trustee that it will from time to time deliver to the Trustee
suitable acknowledgments of this continued liability hereunder and under any
other instrument or instruments in such form as counsel to the Trustee may
advise and as will prevent any action brought against it in respect of any
default hereunder being barred by any statute of limitations now or hereafter in
force and, in the event of the failure of a Subsidiary Guarantor so to do, it
hereby irrevocably appoints the Trustee the attorney and agent of such
Subsidiary Guarantor to make, execute and deliver such written acknowledgment or
acknowledgments or other instruments as may from time to time become necessary
or advisable, in the judgment of the Trustee on the advice of counsel, to fully
maintain and keep in force the liability of such Subsidiary Guarantor hereunder.
SECTION 12.10. Obligations Not Reduced.
The obligations of each Subsidiary Guarantor hereunder shall
not be satisfied, reduced or discharged solely by the payment of such principal,
premium, if any, interest, fees and other monies or amounts as may at any time
prior to discharge of this Indenture pursuant to Article 8 be or become owing or
payable under or by virtue of or otherwise in connection with the Notes or this
Indenture.
<PAGE>
SECTION 12.11. Obligations Reinstated.
The obligations of each Subsidiary Guarantor hereunder shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any payment which would otherwise have reduced the obligations of any
Subsidiary Guarantor hereunder (whether such payment shall have been made by or
on behalf of the Company or by or on behalf of a Subsidiary Guarantor) is
rescinded or reclaimed from any of the Holders upon the insolvency, bankruptcy,
liquidation or reorganization of the Company or any Subsidiary Guarantor or
otherwise, all as though such payment had not been made. If demand for, or
acceleration of the time for, payment by the Company is stayed upon the
insolvency, bankruptcy, liquidation or reorganization of the Company, all such
Indebtedness otherwise subject to demand for payment or acceleration shall
nonetheless be payable by each Subsidiary Guarantor as provided herein.
SECTION 12.12. Obligations Not Affected.
The obligations of each Subsidiary Guarantor hereunder shall
not be affected, impaired or diminished in any way by any act, omission, matter
or thing whatsoever, occurring before, upon or after any demand for payment
hereunder (and whether or not known or consented to by any Subsidiary Guarantor
or any of the Holders) which, but for this provision, might constitute a whole
or partial defense to a claim against any Subsidiary Guarantor hereunder or
might operate to release or otherwise exonerate any Subsidiary Guarantor from
any of its obligations hereunder or otherwise affect such obligations, whether
occasioned by default of any of the Holders or otherwise, including, without
limitation:
(a) any limitation of status or power, disability, incapacity
or other circumstance relating to the Company or any other person,
including any insolvency, bankruptcy, liquidation, reorganization,
readjustment, composition, dissolution, winding up or other proceeding
involving or affecting the Company or any other person;
(b) any irregularity, defect, unenforceability or invalidity
in respect of any indebtedness or other obligation of the Company or
any other person under this Indenture, the Notes or any other document
or instrument;
(c) any failure of the Company, whether or not without fault
on their part, to perform or comply with any of the provisions of this
Indenture or the Notes, or to give notice thereof to a Subsidiary
Guarantor;
<PAGE>
(d) the taking or enforcing or exercising or the refusal or
neglect to take or enforce or exercise any right or remedy from or
against the Company or any other person or their respective assets or
the release or discharge of any such right or remedy;
(e) the granting of time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the
Company or any other Person;
(f) any change in the time, manner or place of payment of, or
in any other term of, any of the Notes, or any other amendment,
variation, supplement, replacement or waiver of, or any consent to
departure from, any of the Notes or this Indenture, including, without
limitation, any increase or decrease in the principal amount of or
premium, if any, or interest on any of the Notes;
(g) any change in the ownership, control, name, objects,
businesses, assets, capital structure or constitution of the Company or
a Subsidiary Guarantor;
(h) any merger or amalgamation of the Company or a Subsidiary
Guarantor with any Person or Persons;
(i) the occurrence of any change in the laws, rules,
regulations or ordinances of any jurisdiction by any present or future
action of any governmental authority or court amending, varying,
reducing or otherwise affecting, or purporting to amend, vary, reduce
or otherwise affect, any of the Obligations or the obligations of a
Subsidiary Guarantor under its Guarantee; and
(j) any other circumstance, including release of the
Subsidiary Guarantor pursuant to Section 12.04 (other than by complete,
irrevocable payment) that might otherwise constitute a legal or
equitable discharge or defense of the Company under this Indenture or
the Notes or of a Subsidiary Guarantor in respect of its Guarantee
hereunder.
<PAGE>
SECTION 12.13. Waiver.
Without in any way limiting the provisions of Section 11.01
hereof, each Subsidiary Guarantor hereby waives notice of acceptance hereof,
notice of any liability of any Subsidiary Guarantor hereunder, notice or proof
of reliance by the Holders upon the obligations of any Subsidiary Guarantor
hereunder, and diligence, presentment, demand for payment on the Company,
protest, notice of dishonor or non-payment of any of the Obligations, or other
notice or formalities to the Company or any Subsidiary Guarantor of any kind
whatsoever.
SECTION 12.14. No Obligation To Take Action Against the Company.
Neither the Trustee nor any other Person shall have any
obligation to enforce or exhaust any rights or remedies or to take any other
steps under any security for the Obligations or against the Company or any other
Person or any Property of the Company or any other Person before the Trustee is
entitled to demand payment and performance by any or all Subsidiary Guarantors
of their liabilities and obligations under their Guarantees or under this
Indenture.
SECTION 12.15. Dealing with the Company and Others.
The Holders, without releasing, discharging, limiting or
otherwise affecting in whole or in part the obligations and liabilities of any
Subsidiary Guarantor hereunder and without the consent of or notice to any
Subsidiary Guarantor, may
(a) grant time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the
Company or any other Person;
(b) take or abstain from taking security or collateral from
the Company or from perfecting security or collateral of the Company;
(c) release, discharge, compromise, realize, enforce or
otherwise deal with or do any act or thing in respect of (with or
without consideration) any and all collateral, mortgages or other
security given by the Company or any third party with respect to the
obligations or matters contemplated by this Indenture or the Notes;
(d) accept compromises or arrangements from the Company;
(e) apply all monies at any time received from the Company or
from any security upon such part of the Obligations as the Holders may
see fit or change any such application in whole or in part from time to
time as the Holders may see fit; and
<PAGE>
(f) otherwise deal with, or waive or modify their right to
deal with, the Company and all other Persons and any security as the
Holders or the Trustee may see fit.
SECTION 12.16. Default and Enforcement.
If any Subsidiary Guarantor fails to pay in accordance with
Section 12.06 hereof, the Trustee may proceed in its name as trustee hereunder
in the enforcement of the Guarantee of any such Subsidiary Guarantor and such
Subsidiary Guarantor's obligations thereunder and hereunder by any remedy
provided by law, whether by legal proceedings or otherwise, and to recover from
such Subsidiary Guarantor the obligations.
SECTION 12.17. Amendment, Etc.
No amendment, modification or waiver of any provision of this
Indenture relating to any Subsidiary Guarantor or consent to any departure by
any Subsidiary Guarantor or any other Person from any such provision will in any
event be effective unless it is signed by such Subsidiary Guarantor and the
Trustee.
SECTION 12.18. Acknowledgment.
Each Subsidiary Guarantor hereby acknowledges communication of
the terms of this Indenture and the Notes and consents to and approves of the
same.
SECTION 12.19. Costs and Expenses.
Each Subsidiary Guarantor shall pay on demand by the Trustee
any and all costs, fees and expenses (including, without limitation, legal fees
on a solicitor and client basis) incurred by the Trustee, its agents, advisors
and counsel or any of the Holders in enforcing any of their rights under any
Guarantee.
SECTION 12.20. No Merger or Waiver; Cumulative Remedies.
No Guarantee shall operate by way of merger of any of the
obligations of a Subsidiary Guarantor under any other agreement, including,
without limitation, this Indenture. No failure to exercise and no delay in
exercising, on the part of the Trustee or the Holders, any right, remedy, power
<PAGE>
or privilege hereunder or under the Indenture or the Notes, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder or under this Indenture or the Notes preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges in the Guarantee
and under this Indenture, the Notes and any other document or instrument between
a Subsidiary Guarantor and/or the Company and the Trustee are cumulative and not
exclusive of any rights, remedies, powers and privilege provided by law.
SECTION 12.21. Survival of Obligations.
Without prejudice to the survival of any of the other
obligations of each Subsidiary Guarantor hereunder, the obligations of each
Subsidiary Guarantor under Section 12.01 shall survive the payment in full of
the Obligations and shall be enforceable against such Subsidiary Guarantor
without regard to and without giving effect to any defense, right of offset or
counterclaim available to or which may be asserted by the Company or any
Subsidiary Guarantor.
SECTION 12.22. Guarantee in Addition to Other Obligations.
The obligations of each Subsidiary Guarantor under its
Guarantee and this Indenture are in addition to and not in substitution for any
other obligations to the Trustee or to any of the Holders in relation to this
Indenture or the Notes and any guarantees or security at any time held by or for
the benefit of any of them.
SECTION 12.23. Severability.
Any provision of this Article Twelve which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction
unless its removal would substantially defeat the basic intent, spirit and
purpose of this Indenture and this Article Twelve.
SECTION 12.24. Successors and Assigns.
Each Guarantee shall be binding upon and inure to the benefit
of each Subsidiary Guarantor and the Trustee and the other Holders and their
respective successors and permitted assigns, except that no Subsidiary Guarantor
may assign any of its obligations hereunder or thereunder.
ARTICLE THIRTEEN
[INTENTIONALLY OMITTED]
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the date first written above.
MAGNUM HUNTER RESOURCES, INC.
By:____________________________
Name:
Title:
MAGNUM HUNTER PRODUCTION, INC.,
as Guarantor
By:____________________________
Name:
Title:
GRUY PETROLEUM MANAGEMENT COMPANY,
as Guarantor
By:____________________________
Name:
Title:
HUNTER GAS GATHERING, INC.,
as Guarantor
By:____________________________
Name:
Title:
RAMPART PETROLEUM, INC., as
Guarantor
By:____________________________
Name:
Title:
<PAGE>
CONMAG ENERGY CORPORATION,
as Guarantor
By:____________________________
Name:
Title:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Trustee
By:____________________________
Name:
Title:
<PAGE>
EXHIBIT A
CUSIP No.: [ ]
MAGNUM HUNTER RESOURCES, INC.
10% SENIOR NOTE DUE 2007, SERIES A
No. [ ] $[ ]
MAGNUM HUNTER RESOURCES, INC., a Nevada corporation (the "Company," which
term includes any successor entities), for value received promises to pay to
CEDE & CO. or registered assigns the principal sum of [ ] Dollars on June 1,
2007.
Interest Payment Dates: June 1 and December 1, commencing December 1, 1997
Record Dates: May 15 and November 15
Reference is made to the further provisions of this Note contained herein,
which will for all purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers and a facsimile of its corporate
seal to be affixed hereto or imprinted hereon.
MAGNUM HUNTER RESOURCES, INC.
By:____________________________
Name:
Title:
Dated:
Certificate of Authentication
This is one of the 10% Senior Notes due 2007, Series A referred to in the
within-mentioned Indenture.
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Trustee
By:_____________________________
Authorized Signatory
Date of Authentication:
<PAGE>
(REVERSE OF SECURITY)
10% Senior Note due 2007, Series A
(1) Interest. MAGNUM HUNTER RESOURCES, INC., a Nevada corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from May 29, 1997. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing December 1, 1997. Interest will be
computed on the basis of a 360-day year of twelve 30-day months and, in the case
of a partial month, the actual number of days elapsed.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes and on overdue installments of interest (without regard to any applicable
grace periods) to the extent lawful.
(2) Method of Payment. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are cancelled on registration of transfer or registration of
exchange (including pursuant to an Exchange Offer (as defined in the
Registration Rights Agreement)) after such Record Date. Holders must surrender
Notes to a Paying Agent to collect principal payments. The Company shall pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal and interest by their check payable in
such U.S. Legal Tender. The Company may deliver any such interest payment to the
Paying Agent or to a Holder at the Holder's registered address.
(3) Paying Agent and Registrar. Initially, First Union National Bank of
North Carolina (the "Trustee") will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice to
the Holders.
(4) Indenture. The Company issued the Notes under an Indenture, dated as of
May 29, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors and
the Trustee. This Note is one of a duly authorized issue of Initial Notes of the
Company designated as its 10% Senior Notes due 2007, Series A (the "Initial
Notes"). The Notes are limited in aggregate principal amount to $140,000,000.
The Notes include the Initial Notes and the Exchange Notes, as defined below,
issued in exchange for the Initial Notes pursuant to the Registration Rights
<PAGE>
Agreement. The Initial Notes and the Exchange Notes are treated as a single
class of securities under the Indenture. Capitalized terms herein are used as
defined in the Indenture unless otherwise defined herein. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb)
(the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything
to the contrary herein, the Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and said Act for a statement of them. The
Notes are general unsecured obligations of the Company. Payment on each Note is
guaranteed on a senior basis by the Subsidiary Guarantors pursuant to Article 12
of the Indenture. Each Holder, by accepting a Note, agrees to be bound by all of
the terms and provisions of the Indenture, as the same may be amended from time
to time in accordance with its terms.
(5) Redemption. The Notes will be redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after June 1, 2002, upon
not less than 30 nor more than 60 days' notice, at the following Redemption
Prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on June 1 of the years set forth
below, plus, in each case, accrued interest, if any, thereon to the date of
redemption:
Year Percentage
2002.................... 105.000%
2003.................... 103.333%
2004.................... 101.667%
2005 and thereafter..... 100.000%
At any time, or from time to time, on or prior to June 1, 2000, the Company
may, at its option, use all or a portion of the net cash proceeds of one or more
Equity Offerings to redeem up to 35% of the aggregate principal amount of the
Notes originally issued at a redemption price equal to 110% of the aggregate
principal amount of the Notes to be redeemed, plus accrued interest, if any,
thereon to the date of redemption; provided, however, that at least 65% of the
aggregate principal amount of Notes originally issued remains outstanding
immediately after giving effect to any such redemption. In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Company shall
make such redemption not more than 60 days after the consummation of any such
Equity Offering.
<PAGE>
(6) Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of the
Notes called for redemption shall have been deposited with the Paying Agent for
redemption on such Redemption Date, then, unless the Company defaults in the
payment of such Redemption Price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest from and after such Redemption Date
and the only right of the Holders of such Notes will be to receive payment of
the Redemption Price plus accrued interest, if any.
(7) Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide
that, after certain Asset Sales (as defined in the Indenture) and upon the
occurrence of a Change of Control (as defined in the Indenture), and subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
(8) Registration Rights. Pursuant to the Registration Rights Agreement
among the Company, the Subsidiary Guarantors and the Initial Purchasers, the
Company and the Subsidiary Guarantors will be obligated to consummate an
exchange offer pursuant to which the Holder of this Note shall have the right to
exchange this Note for the Company's 10% Senior Notes due 2007, Series B (the
"Exchange Notes"), which have been registered under the Securities Act, in like
principal amount and having terms identical in all material respects as the
Initial Notes. The Holders of the Initial Notes shall be entitled to receive
certain additional interest payments in the event such exchange offer is not
consummated and upon certain other conditions, all pursuant to and in accordance
with the terms of the Registration Rights Agreement.
(9) Denominations; Transfer; Exchange. The Notes are in registered form,
without coupons, and (except Notes issued as payment of Interest) in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or similar
governmental charges payable in connection therewith as permitted by the
Indenture. The Registrar need not register the transfer of or exchange of any
Notes or portions thereof selected for redemption.
<PAGE>
(10) Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
(11) Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Company. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
(12) Discharge Prior to Redemption or Maturity. If the Company at any time
deposit with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and comply with the other provisions of the Indenture relating thereto,
the Company will be discharged from certain provisions of the Indenture and the
Notes (including certain covenants, but including, under certain circumstances,
their obligation to pay the principal of and interest on the Notes but without
affecting the rights of the Holders to receive such amounts from such deposits).
(13) Amendment; Supplement; Waiver. Subject to certain exceptions set forth
in the Indenture, the Indenture or the Notes may be amended or supplemented with
the written consent of the Holders of not less than a majority in aggregate
principal amount of the Notes then outstanding, and any past Default or Event of
Default or noncompliance with any provision may be waived with the written
consent of the Holders of not less than a majority in aggregate principal amount
of the Notes then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, comply
with any requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the TIA or comply with Article Five of the
Indenture or make any other change that does not adversely affect the rights of
any Holder of a Note.
(14) Restrictive Covenants. The Indenture imposes certain limitations on
the ability of the Company and the Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of their Capital
Stock or certain Indebtedness, make certain Investments, create or incur liens,
enter into transactions with Affiliates, create dividend or other payment
restrictions affecting Restricted Subsidiaries, issue Preferred Stock of their
Restricted Subsidiaries, and on the ability of the Company and their Restricted
Subsidiaries to merge or consolidate with any other Person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
Company's and their Restricted Subsidiaries' assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the
Company must annually report to the Trustee on compliance with such limitations.
<PAGE>
(15) Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
(16) Defaults and Remedies. Except as set forth in the Indenture, if an
Event of Default occurs and is continuing, the Trustee or the Holders of not
less than 25% in principal amount of Notes then outstanding may declare all the
Notes to be due and payable in the manner, at the time and with the effect
provided in the Indenture. Holders of Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Notes unless it has received indemnity reasonably
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Notes then outstanding to direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of Notes notice of any continuing
Default or Event of Default (except a Default in payment of principal or
interest when due, for any reason or a Default in compliance with Article Five
of the Indenture) if it determines that withholding notice is in their interest.
(17) Trustee Dealings with Company. The Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company, their Subsidiaries or their respective
Affiliates as if it were not the Trustee.
(18) No Recourse Against Others. No partner, director, officer, employee or
stockholder, as such, of the Company or any Subsidiary Guarantor, as such, shall
have any liability for any obligations of the Company or any Subsidiary
Guarantor under the Notes, the Indenture, the Guarantees or the Registration
Rights Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
(19) Guarantees. This Note will be entitled to the benefits of certain
Guarantees, if any, made for the benefit of the Holders. Reference is hereby
made to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Subsidiary Guarantors, the
Trustee and the Holders.
<PAGE>
(20) Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
(21) Governing Law. This Note and the Indenture shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflict of laws. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Note.
(22) Abbreviations and Defined Terms. Customary abbreviations may be used
in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
(23) CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture, which has the text of this Note.
Requests may be made to: Magnum Hunter Resources, Inc., 600 East Las Colinas
Blvd., Suite 1200, Irving, Texas 75039.
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to:
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
(Print or type name, address and zip code and social security or tax ID
number of assignee) and irrevocably appoint ______________________________,
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________ Signed:___________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:___________________________________________
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Note
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) [ ], the undersigned confirms that it has not utilized
any general solicitation or general advertising in connection with the transfer:
<PAGE>
[Check One]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the Securities
Act of 1933, as amended; or
(3) __ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as
amended) that has furnished to the Trustee a signed letter
containing certain representations and agreements (the form of
which letter can be obtained from the Trustee); or
(4) __ outside the United states to a "foreign person" in compliance with
Rule 904 of Regulation S under the Securities Act of 1933, as
amended; or
(5) __ pursuant to the exemption from registration provided by Rule 144
under the Securities Act of 1933, as amended; or
(6) __ pursuant to an effective registration statement under the Securities
Act of 1933, as amended; or
(7) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
o The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered Holder thereof; provided, however, that if item (3), (4), (5) or (7)
is checked, the Company or the Trustee may require, prior to registering any
such transfer of the Notes, in their sole discretion, such written legal
opinions, certifications (including an investment letter in the case of box (3)
or (4)) and other information as the Trustee or the Company have reasonably
requested to confirm that such transfer is being made pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act of 1933, as amended.
<PAGE>
If none of the foregoing items are checked, the Trustee or
Registrar shall not be obligated to register this Note in the name of any person
other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 2.17 of the Indenture
shall have been satisfied.
Dated: _____________________ Signed:___________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:___________________________________________
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: __________________ _______________________________
NOTICE: To be executed by an executive officer
<PAGE>
EXHIBIT B
CUSIP No.: [ ]
MAGNUM HUNTER RESOURCES, INC.
10% SENIOR NOTE DUE 2007, SERIES B
No. [ ] $[ ]
MAGNUM HUNTER RESOURCES, INC., a Nevada corporation (the "Company," which
term includes any successor entities), for value received promises to pay to [ ]
or registered assigns the principal sum of [ ] Dollars on June 1, 2007.
Interest Payment Dates: June 1 and December 1, commencing December 1, 1997
Record Dates: May 15 and November 15
Reference is made to the further provisions of this Note contained herein,
which will for all purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers and a facsimile of its corporate
seal to be affixed hereto or imprinted hereon.
MAGNUM HUNTER RESOURCES, INC.
By: ____________________________
Name:
Title:
Dated:
Certificate of Authentication
This is one of the 10% Senior Notes due 2007, Series B referred to in the
within-mentioned Indenture.
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Trustee
By:______________________________
Authorized Signatory
Date of Authentication:
<PAGE>
(REVERSE OF SECURITY)
10% Senior Note due 2007, Series B
(1) Interest. MAGNUM HUNTER RESOURCES, INC., a Nevada corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from May 29, 1997. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing December 1, 1997. Interest will be
computed on the basis of a 360-day year of twelve 30-day months and, in the case
of a partial month, the actual number of days elapsed.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes and on overdue installments of interest (without regard to any applicable
grace periods) to the extent lawful.
(2) Method of Payment. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are cancelled on registration of transfer or registration of
exchange after such Record Date. Holders must surrender Notes to a Paying Agent
to collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by their check payable in such U.S. Legal Tender.
The Company may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address.
(3) Paying Agent and Registrar. Initially, First Union National Bank of
North Carolina (the "Trustee") will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice to
the Holders.
(4) Indenture. The Company issued the Notes under an Indenture, dated as of
May 29, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors and
the Trustee. This Note is one of a duly authorized issue of Exchange Notes of
the Company designated as its 10% Senior Notes due 2007, Series B (the "Exchange
Notes"). The Notes are limited in aggregate principal amount to $140,000,000.
The Notes include the 10% Notes due 2007 (the "Initial Notes") and the Exchange
<PAGE>
Notes, issued in exchange for the Initial Notes pursuant to the Registration
Rights Agreement. The Initial Notes and the Exchange Notes are treated as a
single class of securities under the Indenture. Capitalized terms herein are
used as defined in the Indenture unless otherwise defined herein. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and said Act for
a statement of them. The Notes are general unsecured obligations of the Company.
Payment on each Note is guaranteed on a senior basis by the Subsidiary
Guarantors pursuant to Article 12 of the Indenture. Each Holder, by accepting a
Note, agrees to be bound by all of the terms and provisions of the Indenture, as
the same may be amended from time to time in accordance with its terms.
(5) Redemption. The Notes will be redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after June 1, 2002, upon
not less than 30 nor more than 60 days' notice, at the following Redemption
Prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on June 1 of the years set forth
below, plus, in each case, accrued interest, if any, thereon to the date of
redemption:
Year Percentage
2002............................ 105.000%
2003............................ 103.333%
2004............................ 101.667%
2005 and thereafter............. 100.000%
At any time, or from time to time, on or prior to June 1,
2000, the Company may, at its option, use all or a portion of the net cash
proceeds of one or more Equity Offerings to redeem up to 35% of the aggregate
principal amount of the Notes originally issued at a redemption price equal to
110% of the aggregate principal amount of the Notes to be redeemed, plus accrued
interest, if any, thereon to the date of redemption; provided, however, that at
least 65% of the aggregate principal amount of Notes originally issued remains
outstanding immediately after giving effect to any such redemption. In order to
effect the foregoing redemption with the proceeds of any Equity Offering, the
Company shall make such redemption not more than 60 days after the consummation
of any such Equity Offering.
(6) Notice of Redemption. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the Redemption Date to each
Holder of Notes to be redeemed at such Holder's registered address. Notes in
denominations larger than $1,000 may be redeemed in part.
<PAGE>
Except as set forth in the Indenture, if monies for the
redemption of the Notes called for redemption shall have been deposited with the
Paying Agent for redemption on such Redemption Date, then, unless the Company
defaults in the payment of such Redemption Price plus accrued interest, if any,
the Notes called for redemption will cease to bear interest from and after such
Redemption Date and the only right of the Holders of such Notes will be to
receive payment of the Redemption Price plus accrued interest, if any.
(7) Offers to Purchase. Sections 4.15 and 4.16 of the
Indenture provide that, after certain Asset Sales (as defined in the Indenture)
and upon the occurrence of a Change of Control (as defined in the Indenture),
and subject to further limitations contained therein, the Company will make an
offer to purchase certain amounts of the Notes in accordance with the procedures
set forth in the Indenture.
(8) Denominations; Transfer; Exchange. The Notes are in
registered form, without coupons, and (except Notes issued as payment of
Interest) in denominations of $1,000 and integral multiples of $1,000. A Holder
shall register the transfer of or exchange Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange of any Notes or portions thereof selected for redemption.
(9) Persons Deemed Owners. The registered Holder of a
Note shall be treated as the owner of it for all purposes.
(10) Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for one year, the Trustee and the Paying Agent will
pay the money back to the Company. After that, all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
(11) Discharge Prior to Redemption or Maturity. If the Company
at any time deposit with the Trustee U.S. Legal Tender or U.S. Government
Obligations sufficient to pay the principal of and interest on the Notes to
redemption and comply with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (including certain covenants, including, under certain
circumstances, their obligation to pay the principal of and interest on the
Notes but without affecting the rights of the Holders to receive such amounts
from such deposit).
<PAGE>
(12) Amendment; Supplement; Waiver. Subject to certain
exceptions set forth in the Indenture, the Indenture or the Notes may be amended
or supplemented with the written consent of the Holders of not less than a
majority in aggregate principal amount of the Notes then outstanding, and any
past Default or Event of Default or noncompliance with any provision may be
waived with the written consent of the Holders of not less than a majority in
aggregate principal amount of the Notes then outstanding. Without notice to or
consent of any Holder, the parties thereto may amend or supplement the Indenture
or the Notes to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated Notes in addition to or in place of
certificated Notes, comply with any requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the TIA or comply
with Article Five of the Indenture or make any other change that does not
adversely affect the rights of any Holder of a Note.
(13) Restrictive Covenants. The Indenture imposes certain
limitations on the ability of the Company and the Restricted Subsidiaries to,
among other things, incur additional Indebtedness, make payments in respect of
their Capital Stock or certain Indebtedness, make certain Investments, create or
incur liens, enter into transactions with Affiliates, create dividend or other
payment restrictions affecting Restricted Subsidiaries, issue Preferred Stock of
their Restricted Subsidiaries, and on the ability of the Company and their
Restricted Subsidiaries to merge or consolidate with any other Person or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of the Company's and their Restricted Subsidiaries' assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the
Company must annually report to the Trustee on compliance with such limitations.
(14) Successors. When a successor assumes, in accordance with
the Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
(15) Defaults and Remedies. Except as set forth in the
Indenture, if an Event of Default occurs and is continuing, the Trustee or the
Holders of not less than 25% in principal amount of Notes then outstanding may
declare all the Notes to be due and payable in the manner, at the time and with
the effect provided in the Indenture. Holders of Notes may not enforce the
<PAGE>
Indenture or the Notes except as provided in the Indenture. The Trustee is not
obligated to enforce the Indenture or the Notes unless it has received indemnity
reasonably satisfactory to it. The Indenture permits, subject to certain
limitations therein provided, Holders of a majority in aggregate principal
amount of the Notes then outstanding to direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of Notes notice of any
continuing Default or Event of Default (except a Default in payment of principal
or interest when due, for any reason or a Default in compliance with Article
Five of the Indenture) if it determines that withholding notice is in their
interest.
(16) Trustee Dealings with the Company. The Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Notes and may otherwise deal with the Company, their Subsidiaries or
their respective Affiliates as if it were not the Trustee.
(17) No Recourse Against Others. No partner, director,
officer, employee or stockholder, as such, of the Company or any Subsidiary
Guarantor, as such, shall have any liability for any obligations of the Company
or any Subsidiary Guarantor under the Notes, the Indenture, the Guarantees or
the Registration Rights Agreement or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
(18) Guarantees. This Note will be entitled to the benefits of
certain Guarantees, if any, made for the benefit of the Holders. Reference is
hereby made to the Indenture for a statement of the respective rights,
limitations of rights, duties and obligations thereunder of the Subsidiary
Guarantors, the Trustee and the Holders.
(19) Authentication. This Note shall not be valid until
the Trustee or Authenticating Agent manually signs the certificate of
authentication on this Note.
(20) Governing Law. This Note and the Indenture shall be
governed by and construed in accordance with the laws of the State of New York,
as applied to contracts made and performed within the State of New York, without
regard to principles of conflict of laws. Each of the parties hereto agrees to
submit to the jurisdiction of the courts of the State of New York in any action
or proceeding arising out of or relating to this Note.
<PAGE>
(21) Abbreviations and Defined Terms. Customary abbreviations
may be used in the name of a Holder of a Note or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(22) CUSIP Numbers. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes as a convenience to the Holders
of the Notes. No representation is made as to the accuracy of such numbers as
printed on the Notes and reliance may be placed only on the other identification
numbers printed hereon.
The Company will furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture, which has the text of this Note.
Requests may be made to: Magnum Hunter Resources, Inc., 600 East Las Colinas
Blvd., Suite 1200, Irving, Texas 75039.
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Print or type name, address and zip code and social security or tax ID number of
assignee) and irrevocably appoint _______________________________________,
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________ Signed:___________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:___________________________________________
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Note
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) [ ], the undersigned confirms that it has not utilized
any general solicitation or general advertising in connection with the transfer:
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the
appropriate box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Note purchased
by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state
the amount you elect to have purchased:
$-------------------
Dated: _________________
NOTICE: The signature on this
assignment must correspond with
the name as it appears upon the
face of the within Note in every
particular without alteration or
enlargement or any change
whatsoever and be guaranteed.
Signature Guarantee: _____________________________
<PAGE>
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
[ ], [ ]
[ ]
[ ]
[ ]
Ladies and Gentlemen:
In connection with our proposed purchase of 10% Senior Notes
due 2007 (the "Notes") of Magnum Hunter Resources, Inc., we confirm that:
1. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the
indenture relating to the Notes (the "Indenture") and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer
the Notes except in compliance with, such restrictions and conditions
and the Securities Act of 1933, as amended (the "Securities Act"), and
all applicable State securities laws.
2. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes may not be
offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except as permitted in the following sentence.
We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell any Notes, we
will do so only (i) to Magnum or any subsidiary thereof, (ii) inside
the United States in accordance with Rule 144A under the Securities Act
to a "qualified institutional buyer" (as defined in Rule 144A
<PAGE>
promulgated under the Securities Act) that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
the Trustee (as defined in the Indenture) a signed letter containing
certain representations and agreements relating to the restrictions on
transfer of the Notes (the form of which letter can be obtained from
the Trustee), (iii) outside the United States in accordance with Rule
904 of Regulation S promulgated under the Securities Act (provided that
any such sale or transfer in Canada or to or for the benefit of a
Canadian resident must be effected pursuant to an exemption from the
prospectus and registration requirements under applicable Canadian
securities laws), (iv) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available), or (v)
pursuant to an effective registration statement under the Securities
Act, and we further agree to provide to any person purchasing any of
the Notes from us a notice advising such purchaser that resales of the
Notes are restricted as stated herein.
3. We understand that, on any proposed resale of any Notes, we
will be required to furnish to the Trustee, Magnum and Magnum such
certification, legal opinions and other information as the Trustee and
Magnum may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that
the Notes purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of our
investment in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or their
investment, as the case may be.
5. We are acquiring the Notes purchased by us for our account
or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You, Magnum, the Trustee and others are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
Name:
Title:
<PAGE>
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
[ ], [ ]
[ ]
[ ]
[ ]
[ ]
Re: Magnum Hunter Resources, Inc. (the "Company")
10% Senior Notes due 2007 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $[ ] aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated offshore securities market and neither
we nor any person acting on our behalf knows that the transaction has
been prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Notes.
<PAGE>
You, the Company and counsel for the Company are entitled to
rely upon this letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or legal proceedings
or official inquiry with respect to the matters covered hereby. Terms used in
this certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferee]
By:
Authorized Signature
<PAGE>
EXHIBIT E
GUARANTEE
For value received, the undersigned hereby unconditionally
guarantees, as principal obligor and not only as a surety, to the Holder of this
Note the cash payments in United States dollars of principal of, premium, if
any, and interest on this Note (and including Additional Interest payable
thereon) in the amounts and at the times when due and interest on the overdue
principal, premium, if any, and interest, if any, of this Note, if lawful, and
the payment or performance of all other obligations of the Company under the
Indenture or the Notes, to the Holder of this Note and the Trustee, all in
accordance with and subject to the terms and limitations of this Note, Article
Twelve of the Indenture and this Guarantee. This Guarantee will become effective
in accordance with Article Twelve of the Indenture and its terms shall be
evidenced therein. The validity and enforceability of any Guarantee shall not be
affected by the fact that it is not affixed to any particular Note. Capitalized
terms used but not defined herein shall have the meanings ascribed to them in
the Indenture dated as of May 29, 1997, among Magnum Hunter Resources, Inc., a
Nevada corporation, and First Union National Bank of North Carolina, as trustee
(the "Trustee"), as amended or supplemented (the "Indenture").
The obligations of the undersigned to the Holders of Notes and
to the Trustee pursuant to this Guarantee and the Indenture are expressly set
forth in Article Twelve of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which this Guarantee relates.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW. Each Subsidiary Guarantor hereby agrees to
submit to the jurisdiction of the courts of the State of New York in any action
or proceeding arising out of or relating to this Guarantee.
This Guarantee is subject to release upon the terms set forth
in the Indenture.
<PAGE>
IN WITNESS WHEREOF, each Subsidiary Guarantor has caused its
Guarantee to be duly executed.
Date: ____________________
[NAME OF SUBSIDIARY GUARANTOR],
as Guarantor
By:
Name:
Title:
By:
Name:
Title:
EXHIBIT 4.9
CUSIP No.: [ ]
MAGNUM HUNTER RESOURCES, INC.
10% SENIOR NOTE DUE 2007, SERIES B
No. [ ] $[ ]
MAGNUM HUNTER RESOURCES, INC., a Nevada corporation (the "Company," which
term includes any successor entities), for value received promises to pay to [ ]
or registered assigns the principal sum of [ ] Dollars on June 1, 2007.
Interest Payment Dates: June 1 and December 1, commencing December 1, 1997
Record Dates: May 15 and November 15
Reference is made to the further provisions of this Note contained herein,
which will for all purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers and a facsimile of its corporate
seal to be affixed hereto or imprinted hereon.
MAGNUM HUNTER RESOURCES, INC.
By: ____________________________
Name:
Title:
Dated:
Certificate of Authentication
This is one of the 10% Senior Notes due 2007, Series B referred to in the
within-mentioned Indenture.
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Trustee
By:______________________________
Authorized Signatory
Date of Authentication:
<PAGE>
(REVERSE OF SECURITY)
10% Senior Note due 2007, Series B
(1) Interest. MAGNUM HUNTER RESOURCES, INC., a Nevada corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from May 29, 1997. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing December 1, 1997. Interest will be
computed on the basis of a 360-day year of twelve 30-day months and, in the case
of a partial month, the actual number of days elapsed.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes and on overdue installments of interest (without regard to any applicable
grace periods) to the extent lawful.
(2) Method of Payment. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are cancelled on registration of transfer or registration of
exchange after such Record Date. Holders must surrender Notes to a Paying Agent
to collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by their check payable in such U.S. Legal Tender.
The Company may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address.
(3) Paying Agent and Registrar. Initially, First Union National Bank of
North Carolina (the "Trustee") will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice to
the Holders.
(4) Indenture. The Company issued the Notes under an Indenture, dated as of
May 29, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors and
the Trustee. This Note is one of a duly authorized issue of Exchange Notes of
the Company designated as its 10% Senior Notes due 2007, Series B (the "Exchange
Notes"). The Notes are limited in aggregate principal amount to $140,000,000.
The Notes include the 10% Notes due 2007 (the "Initial Notes") and the Exchange
<PAGE>
Notes, issued in exchange for the Initial Notes pursuant to the Registration
Rights Agreement. The Initial Notes and the Exchange Notes are treated as a
single class of securities under the Indenture. Capitalized terms herein are
used as defined in the Indenture unless otherwise defined herein. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and said Act for
a statement of them. The Notes are general unsecured obligations of the Company.
Payment on each Note is guaranteed on a senior basis by the Subsidiary
Guarantors pursuant to Article 12 of the Indenture. Each Holder, by accepting a
Note, agrees to be bound by all of the terms and provisions of the Indenture, as
the same may be amended from time to time in accordance with its terms.
(5) Redemption. The Notes will be redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after June 1, 2002, upon
not less than 30 nor more than 60 days' notice, at the following Redemption
Prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on June 1 of the years set forth
below, plus, in each case, accrued interest, if any, thereon to the date of
redemption:
Year Percentage
2002............................ 105.000%
2003............................ 103.333%
2004............................ 101.667%
2005 and thereafter............. 100.000%
At any time, or from time to time, on or prior to June 1,
2000, the Company may, at its option, use all or a portion of the net cash
proceeds of one or more Equity Offerings to redeem up to 35% of the aggregate
principal amount of the Notes originally issued at a redemption price equal to
110% of the aggregate principal amount of the Notes to be redeemed, plus accrued
interest, if any, thereon to the date of redemption; provided, however, that at
least 65% of the aggregate principal amount of Notes originally issued remains
outstanding immediately after giving effect to any such redemption. In order to
effect the foregoing redemption with the proceeds of any Equity Offering, the
Company shall make such redemption not more than 60 days after the consummation
of any such Equity Offering.
(6) Notice of Redemption. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the Redemption Date to each
Holder of Notes to be redeemed at such Holder's registered address. Notes in
denominations larger than $1,000 may be redeemed in part.
<PAGE>
Except as set forth in the Indenture, if monies for the
redemption of the Notes called for redemption shall have been deposited with the
Paying Agent for redemption on such Redemption Date, then, unless the Company
defaults in the payment of such Redemption Price plus accrued interest, if any,
the Notes called for redemption will cease to bear interest from and after such
Redemption Date and the only right of the Holders of such Notes will be to
receive payment of the Redemption Price plus accrued interest, if any.
(7) Offers to Purchase. Sections 4.15 and 4.16 of the
Indenture provide that, after certain Asset Sales (as defined in the Indenture)
and upon the occurrence of a Change of Control (as defined in the Indenture),
and subject to further limitations contained therein, the Company will make an
offer to purchase certain amounts of the Notes in accordance with the procedures
set forth in the Indenture.
(8) Denominations; Transfer; Exchange. The Notes are in
registered form, without coupons, and (except Notes issued as payment of
Interest) in denominations of $1,000 and integral multiples of $1,000. A Holder
shall register the transfer of or exchange Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange of any Notes or portions thereof selected for redemption.
(9) Persons Deemed Owners. The registered Holder of a
Note shall be treated as the owner of it for all purposes.
(10) Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for one year, the Trustee and the Paying Agent will
pay the money back to the Company. After that, all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
(11) Discharge Prior to Redemption or Maturity. If the Company
at any time deposit with the Trustee U.S. Legal Tender or U.S. Government
Obligations sufficient to pay the principal of and interest on the Notes to
redemption and comply with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (including certain covenants, including, under certain
circumstances, their obligation to pay the principal of and interest on the
Notes but without affecting the rights of the Holders to receive such amounts
from such deposit).
<PAGE>
(12) Amendment; Supplement; Waiver. Subject to certain
exceptions set forth in the Indenture, the Indenture or the Notes may be amended
or supplemented with the written consent of the Holders of not less than a
majority in aggregate principal amount of the Notes then outstanding, and any
past Default or Event of Default or noncompliance with any provision may be
waived with the written consent of the Holders of not less than a majority in
aggregate principal amount of the Notes then outstanding. Without notice to or
consent of any Holder, the parties thereto may amend or supplement the Indenture
or the Notes to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated Notes in addition to or in place of
certificated Notes, comply with any requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the TIA or comply
with Article Five of the Indenture or make any other change that does not
adversely affect the rights of any Holder of a Note.
(13) Restrictive Covenants. The Indenture imposes certain
limitations on the ability of the Company and the Restricted Subsidiaries to,
among other things, incur additional Indebtedness, make payments in respect of
their Capital Stock or certain Indebtedness, make certain Investments, create or
incur liens, enter into transactions with Affiliates, create dividend or other
payment restrictions affecting Restricted Subsidiaries, issue Preferred Stock of
their Restricted Subsidiaries, and on the ability of the Company and their
Restricted Subsidiaries to merge or consolidate with any other Person or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of the Company's and their Restricted Subsidiaries' assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the
Company must annually report to the Trustee on compliance with such limitations.
(14) Successors. When a successor assumes, in accordance with
the Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
(15) Defaults and Remedies. Except as set forth in the
Indenture, if an Event of Default occurs and is continuing, the Trustee or the
Holders of not less than 25% in principal amount of Notes then outstanding may
declare all the Notes to be due and payable in the manner, at the time and with
the effect provided in the Indenture. Holders of Notes may not enforce the
<PAGE>
Indenture or the Notes except as provided in the Indenture. The Trustee is not
obligated to enforce the Indenture or the Notes unless it has received indemnity
reasonably satisfactory to it. The Indenture permits, subject to certain
limitations therein provided, Holders of a majority in aggregate principal
amount of the Notes then outstanding to direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of Notes notice of any
continuing Default or Event of Default (except a Default in payment of principal
or interest when due, for any reason or a Default in compliance with Article
Five of the Indenture) if it determines that withholding notice is in their
interest.
(16) Trustee Dealings with the Company. The Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Notes and may otherwise deal with the Company, their Subsidiaries or
their respective Affiliates as if it were not the Trustee.
(17) No Recourse Against Others. No partner, director,
officer, employee or stockholder, as such, of the Company or any Subsidiary
Guarantor, as such, shall have any liability for any obligations of the Company
or any Subsidiary Guarantor under the Notes, the Indenture, the Guarantees or
the Registration Rights Agreement or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
(18) Guarantees. This Note will be entitled to the benefits of
certain Guarantees, if any, made for the benefit of the Holders. Reference is
hereby made to the Indenture for a statement of the respective rights,
limitations of rights, duties and obligations thereunder of the Subsidiary
Guarantors, the Trustee and the Holders.
(19) Authentication. This Note shall not be valid until
the Trustee or Authenticating Agent manually signs the certificate of
authentication on this Note.
(20) Governing Law. This Note and the Indenture shall be
governed by and construed in accordance with the laws of the State of New York,
as applied to contracts made and performed within the State of New York, without
regard to principles of conflict of laws. Each of the parties hereto agrees to
submit to the jurisdiction of the courts of the State of New York in any action
or proceeding arising out of or relating to this Note.
<PAGE>
(21) Abbreviations and Defined Terms. Customary abbreviations
may be used in the name of a Holder of a Note or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(22) CUSIP Numbers. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes as a convenience to the Holders
of the Notes. No representation is made as to the accuracy of such numbers as
printed on the Notes and reliance may be placed only on the other identification
numbers printed hereon.
The Company will furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture, which has the text of this Note.
Requests may be made to: Magnum Hunter Resources, Inc., 600 East Las Colinas
Blvd., Suite 1200, Irving, Texas 75039.
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Print or type name, address and zip code and social security or tax ID number of
assignee) and irrevocably appoint _______________________________________,
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________ Signed:___________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:___________________________________________
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Note
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) [ ], the undersigned confirms that it has not utilized
any general solicitation or general advertising in connection with the transfer:
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the
appropriate box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Note purchased
by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state
the amount you elect to have purchased:
$-------------------
Dated: _________________
NOTICE: The signature on this
assignment must correspond with
the name as it appears upon the
face of the within Note in every
particular without alteration or
enlargement or any change
whatsoever and be guaranteed.
Signature Guarantee: _____________________________
Exhibit 5
October 16, 1997
Magnum Hunter Resources, Inc.
600 East Las Colinas Blvd.
Suite 1200
Irving, Texas 75039
Dear Sirs:
We have acted as counsel for Magnum Hunter Resources, Inc., a Nevada
corporation (the "Company"), in connection with the Company's offer (the
"Exchange Offer") to exchange its 10% Senior Notes due 2007 to be registered
under the Securities Act of 1933 (the "Exchange Notes") for any and all of its
outstanding 10% Senior Notes due 2007 (the "Outstanding Notes"). The Outstanding
Notes are, and the Exchange Notes will be, fully and unconditionally guaranteed
(the "Subsidiary Guarantees," and together with the Exchange Notes, the
"Securities") on a joint and several basis by Magnum Hunter Production, Inc.,
Gruy Petroleum Management Company, Rampart Petroleum, Inc. and ConMag Energy
Corporation (collectively, the "Initial Subsidiary Guarantors"). The Outstanding
Notes have been, and the Exchange Notes will be, issued pursuant to an Indenture
dated as of May 29, 1997 (the "Indenture"), among the Company, the Initial
Subsidiary Guarantors and First Union National Bank of North Carolina, as
trustee.
In connection with such matters, we have examined the Indenture
(including the Subsidiary Guarantees contained therein), the Registration
Statement on Form S-4 filed by the Company and the Initial Subsidiary Guarantors
with the Securities and Exchange Commission for the registration of the
Securities under the Securities Act of 1933 (the Registration Statement, as
amended at the time it becomes effective, being referred to as the "Registration
Statement") and such corporate records of the Company, certificates of public
officials and such other documents as we have deemed necessary or appropriate
for the purpose of this opinion.
Based upon the foregoing, subject to the qualifications hereinafter set
forth, and having regard for such legal considerations as we deem relevant, we
are of the opinion that the Securities proposed to be issued pursuant to the
Exchange Offer have been duly authorized for issuance and, subject to the
Registration Statement becoming effective under the Securities Act of 1933, and
to compliance with any applicable state securities laws, when issued and
delivered in accordance with the Exchange Offer and the Indenture, (i) the
Exchange Notes will constitute valid and legally binding obligations of the
Company, entitled to the benefits of the Indenture and the Subsidiary Guarantees
contained therein, and (ii) the Subsidiary Guarantees will constitute valid and
legally binding obligations of the Initial Subsidiary Guarantors.
<PAGE>
Magnum Hunter Resources, Inc.
October 16, 1997
Page 2
The opinions expressed above are limited by, subject to and based on
the assumptions, limitations and qualifications set forth below:
(a) The validity and binding effect of the Exchange Notes and
the Subsidiary Guarantees may be limited or affected by bankruptcy,
reorganization, insolvency, fraudulent conveyance, moratorium or other
similar laws relating to or affecting creditors' rights generally and
by general equitable principles (regardless of whether such validity
and binding effect are considered in a proceeding in equity or at law),
and except as rights to indemnity and contribution under the Indenture
(including the Subsidiary Guarantees contained therein) may be limited
by applicable laws or policies underlying such laws.
(b) We are members of the bar of the State of Texas and do not
hold ourselves out as being conversant with the laws of any
jurisdiction other than those of the State of Texas and the United
States of America, and we express no opinion herein with respect to the
laws of any such other jurisdiction. Insofar as the opinions expressed
herein relate to matters governed by New York law, we have assumed,
without knowing and without making any investigation to determine, that
such laws are the same as the laws of the State of Texas.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving this consent, we do not thereby admit that we are within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933
and the rules and regulations of the Securities and Exchange Commission
thereunder.
Respectfully submitted,
THOMPSON & KNIGHT
A Professional Corporation
By:/s/ David E. Morrison
---------------------------
David E. Morrison, Attorney
EXHIBIT 10.1
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (the "Agreement"), dated as
of April 30, 1997, is among MAGNUM HUNTER RESOURCES, INC. (formerly named Magnum
Petroleum, Inc.), a Nevada corporation (the "Borrower"), each Bank (as defined
herein), BANKERS TRUST COMPANY, (in its individual capacity, "Bankers Trust"),
as administrative agent (in such capacity, together with its successors in such
capacity, the "Administrative Agent"), and as an issuing bank (in such capacity,
together with its successors in such capacity, an "Issuing Bank"), BANQUE
PARIBAS, a French bank acting through its Houston Agency (in its individual
capacity, "Paribas"), as documentation agent (in such capacity, together with
its successors in such capacity, the "Documentation Agent"), and FIRST UNION
NATIONAL BANK OF NORTH CAROLINA, a national banking association, (in its
individual capacity,
"First Union") as collateral agent (in such capacity, together with its
successors in such capacity, the "Collateral Agent"), and as syndication agent
(in such capacity, together with its successors in such capacity, the
"Syndication Agent").
R E C I T A L S:
WHEREAS, the Borrower, Wells Fargo Bank (Texas) National Association, a
national banking association ("Wells Fargo"), Paribas and certain of the Banks
have entered into the Prior Credit Agreement (as defined herein); and
WHEREAS, the Borrower desires to increase the credit available to it
under the Prior Credit Agreement and to amend and restate the Prior Credit
Agreement in its entirety by entering into this Agreement; and
WHEREAS, immediately preceding the execution and delivery of this
Agreement, (a) Wells Fargo resigned as agent under the Prior Credit Agreement,
(b) the Banks elected Paribas as Documentation Agent, Bankers Trust as
Administrative Agent and First Union as Collateral Agent and as Syndication
Agent, and (c) Wells Fargo executed and delivered one or more assignments of
liens in favor of First Union, as Collateral Agent for the Banks and the Bridge
Lenders; and
WHEREAS, simultaneously with the execution and delivery of this
Agreement (a) Bankers Trust and the other Banks are executing and delivering the
Bridge Loan Agreement (as hereinafter defined), (b) Bankers Trust and the other
lenders under the Bridge Loan Agreement are funding to the Borrower the Bridge
Loan (as hereinafter defined) thereunder in the principal amount of $60,000,000,
(c) First Union, the administrative agent under the Bridge Loan Agreement, the
Banks and the lenders party to the Bridge Loan Agreement are executing and
delivering the Intercreditor Agreement (as hereinafter defined) pursuant to
which First Union agrees to act as Collateral Agent for the Banks hereunder and
the Bridge Lenders (as hereinafter defined) and (d) the Borrower is executing
and delivering the Security Documents (as hereinafter defined) to, among other
things, confirm the grant of security interests and mortgages to the
AMENDED AND RESTATED CREDIT AGREEMENT - Page 1
<PAGE>
Bridge Lenders as contemplated in the Bridge Loan Agreement and the
Intercreditor Agreement and (e) each lender under the Prior Credit Agreement is
surrendering the instrument evidencing its note or notes issued thereunder and
the Borrower is executing and delivering to such lender a new note or notes
hereunder that amends and restates such notes; and
WHEREAS, the Borrower and the Banks are willing to increase the credit
available under the Prior Credit Agreement and to consolidate, amend and restate
the Prior Credit Agreement in its entirety upon and subject to the terms,
conditions and provisions of this Agreement;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and promises herein contained and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows, intending to be legally bound:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following
terms have the following meanings:
"AAA" has the meaning assigned to it in Section 14.20(b) hereof
"Acquired Properties" means the real and personal property
acquired by Borrower or one or more of the Guarantors pursuant to the
Acquisition.
"Acquisition" means the acquisition by the Borrower or a
Guarantor of certain Oil and Gas Properties and other Property from
Sellers.
"Acquisition Documents" means all documents, instruments and
agreements executed and delivered in connection with the Acquisition,
including without limitation, the Purchase Agreement.
"Additional Costs" has the meaning specified in Section 5.1.
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for
any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) determined by the Administrative
Agent to be equal to the Eurodollar Rate for such Eurodollar Loan for
such Interest Period divided by 1 minus the Reserve Requirement for
such Eurodollar Loan for such Interest Period.
"Affiliate" means, as to any Person, any other Person (a) that
directly or indirectly, through one or more intermediaries, controls or
is controlled by, or is under common control with, such Person; (b)
that directly or indirectly beneficially owns or holds five percent or
more of any class of voting stock of such Person; or (c) five percent
or more
AMENDED AND RESTATED CREDIT AGREEMENT - Page 2
<PAGE>
of the voting stock of which is directly or indirectly beneficially
owned or held by the Person in question. The term "control" means the
possession, directly or indirectly, of the power to direct or cause
direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise;
provided, however, in no event shall any Agent, the Issuing Bank or any
Bank be deemed an Affiliate of the Borrower or any of its Subsidiaries.
"Agent" means any of the Administrative Agent, the
Documentation Agent, the Collateral Agent and the Syndication Agent;
and "Agents" shall mean all of them.
"Agents Letter" means the letter agreement dated April 30,
1997, between the Agents and the Borrower.
"Applicable Base Rate Margin" means (i) 0.50% until the
Initial Rate Adjustment Date and (ii) 0.00% on and after the Initial
Rate Adjustment Date.
"Applicable Eurodollar Margin" means 2.50% until the Initial
Rate Adjustment Date.
On and after the Initial Rate Adjustment Date, the Applicable
Eurodollar Margin shall be as set forth in the following grid
and determined to be the applicable percentage pursuant to the
Borrowing Percentage, which Applicable Eurodollar Margin shall
change as and when the Borrowing Percentage changes:
================================================================================
Borrowing Percentage Applicable
Eurodollar Margin
- --------------------------------------------------------------------------------
Greater than or equal to 75% 1.75%
- --------------------------------------------------------------------------------
Greater than or equal to 50% but less than 1.50%
75%
- --------------------------------------------------------------------------------
Greater than or equal to 25% but less than 1.25%
50%
- --------------------------------------------------------------------------------
Less than 25% 1.00%
================================================================================
"Applicable Lending Office" means for each Bank and each Type
of Loan, the Lending Office of such Bank (or of an Affiliate of such
Bank) designated for such Type of Loan below its name on the signature
pages hereof or such other office of such Bank (or of an Affiliate of
such Bank) as such Bank may from time to time specify to the Borrower
and the Administrative Agent as the office by which its Loans of such
Type are to be made and maintained.
AMENDED AND RESTATED CREDIT AGREEMENT - Page 3
<PAGE>
"Applicable Rate" means: (a) during the period that a Loan is
a Base Rate Loan, the Base Rate plus the Applicable Base Rate Margin;
and (b) during the period that a Loan is a Eurodollar Loan, the
Adjusted Eurodollar Rate plus the Applicable Eurodollar Margin.
"Assignee" has the meaning assigned to it in Section 14.8(b).
"Assigning Bank" has the meaning assigned to it in Section 14.
8(b).
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Bank and its assignee and accepted by the
Administrative Agent pursuant to Section 14.8, in substantially the
form of Exhibit "G" hereto, or such other form as to which all of the
parties hereto shall consent in writing.
"Assignment of Liens" means one or more assignments of liens
executed by Wells Fargo in favor of the Collateral Agent, in
substantially the form of Exhibit "H" hereto.
"Bank" means each bank or other lending institution that is or
that may from time to time become a signatory hereto, any successor or
assignee thereof and solely for the purposes of the Security
Documents, any Person holding Swap Obligations of the Borrower that
was previously a signatory to this Agreement.
"Base Rate" means, for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greater of
(a) the Prime Rate in effect on such day, or (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective on the effective day of such change
in the Prime Rate or the Federal Funds Effective Rate, respectively.
If for any reason the Administrative Agent determines (which
determination shall be conclusive absent manifest error) that it is
unable to ascertain the Federal Funds Effective Rate, for any reason,
including the inability or failure of the Agent to obtain sufficient
quotations in accordance with the terms hereof, the Base Rate shall be
determined without regard to clause (b) of the first sentence of this
definition, as appropriate, until the circumstances giving rise to
such inability no longer exist.
"Base Rate Loans" means Loans the interest rates on which are
determined on the basis of the rates referred to in the definition of
"Base Rate" in this Section 1.1.
"Beneficial Owner" shall be determined in accordance with
Rules 13d-3 and 13d-5 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended and
as it may be amended from time to time, or any successor provision
thereto, except that a Person shall be deemed to have "beneficial
ownership" of all shares that such Person has the right to acquire,
whether such right is exercisable immediately or only after the
passage of time.
AMENDED AND RESTATED CREDIT AGREEMENT - Page 4
<PAGE>
"Borrower Pledge Agreement" means the Amended and Restated
Pledge Agreement of the Borrower in favor of the Collateral Agent for
the benefit of itself, the other Agents, the Banks and the Issuing
Banks, in substantially the form of Exhibit "D" hereto, as the same
may be amended, supplemented, or modified.
"Borrowing Base" means an amount of indebtedness which can be
adequately supported by the value of oil and gas reserves and assets,
contracts and throughput attributable to the Mortgaged Properties
owned by Borrower and its Subsidiaries in which the Collateral Agent
holds a perfected, first priority Lien, the values of which shall be
determined and redetermined by the Majority Banks, in the exercise of
their sole discretion, in accordance with the terms hereof and their
customary practices and standards for the valuation of similar
property. The initial Borrowing Base shall be $130,000,000.
"Borrowing Base Deficiency" means as of any date, that the
aggregate outstanding Loans plus the Letter of Credit Liabilities
exceed the Borrowing Base as determined by the Required Banks pursuant
to Section 2.8 and as reduced from time to time pursuant to Section
4.5(b).
"Borrowing Base Deficiency Rate" means, the lesser of (a) the
Maximum Rate, or (b) the Applicable Rate in effect from day to day,
plus [two] percent.
"Borrowing Percentage" shall mean, for the purpose of
determining the Applicable Eurodollar Margin, the aggregate unpaid
principal balance of the Loans then outstanding as a percentage of the
Borrowing Base then in effect.
"Bridge Lenders" means, collectively, Paribas, First Union
Corporation and Bankers Trust and their successors and assigns.
"Bridge Loan" means the loan or loans made by the Bridge
Lenders to the Borrower pursuant to the Bridge Loan Agreement.
"Bridge Loan Agreement" means that certain Senior Subordinated
Credit Agreement, dated as of the date hereof among the Borrower and
the Bridge Lenders, as amended.
"Business Day" means (a) a day other than Saturday, Sunday or
day on which commercial banks in New York are not authorized or
required to close, and, (b) with respect to all borrowings, payments,
Conversions, Continuations, Interest Periods, and notices in
connection with Eurodollar Loans, any day which is a Business Day
described in clause (a) above and which is also a day on which
dealings in Dollar deposits are carried out in the London interbank
market.
"Capital Lease Obligations" means, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease
of (or other agreement conveying the
AMENDED AND RESTATED CREDIT AGREEMENT - Page 5
<PAGE>
right to use) real and/or personal property, which obligations are
required to be classified and accounted for as a capital lease on a
balance sheet of such Person under GAAP. For purposes of this
Agreement, the amount of such Capital Lease Obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.
"Change in Control" shall mean an occurrence where (a) any
Person, or any Persons acting together in a manner which would
constitute a "group" (a "Group") for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended and as it may be amended
from time to time, or any successor provision thereto, together with
any Affiliates thereof, (i) become the Beneficial Owners of capital
stock of the Borrower through a purchase, merger or other acquisition
transaction, entitling such Person or Persons and its or their
Affiliates to exercise more than 50% of the total voting power of all
classes of the Borrower's capital stock entitled to vote generally in
the election of directors or (ii) shall succeed in having sufficient
of its or their nominees who are not supported by a majority of the
then current board of directors of the Borrower elected to the board
of directors of the Borrower such that such nominees, when added to
any existing directors remaining on the board of directors of the
Borrower after such election who are Affiliates of or acting in
concert with any such Persons, shall constitute a majority of the
board of directors of the Borrower, (b) a plan is adopted relating to
the liquidation or dissolution of the Borrower, (c) the Borrower shall
consolidate with or merge into any other Person or convey, transfer or
lease its properties and assets substantially as an entirety to any
Person other than a Subsidiary, or any other Person shall consolidate
with or merge into the Borrower (other than, in the case of this
clause (c), pursuant to any consolidation or merger where Persons who
are Beneficial Owners of the Borrower's capital stock entitled to vote
generally in the election of directors immediately prior thereto
become the Beneficial Owners of shares of capital stock of the
surviving corporation entitling such Persons to exercise more than 50%
of the total voting power of all classes of such surviving
corporation's capital stock entitled to vote generally in the election
of directors or persons holding similar positions), (d) Gary C. Evans
shall fail to own 5% or more of the outstanding capital stock of
Borrower entitling him to exercise at least 5% of the total voting
power of all classes of the Borrower's capital stock entitled to vote
generally in the election of directors, or (e) a material change in
the management of the Borrower shall occur. Without limiting the
foregoing, a material change in management of the Borrower shall be
deemed to have occurred if Gary C. Evans ceases to be actively
involved in the day to day management of the Borrower.
"Closing Date" means the date on which the closing of the loan
transactions contemplated by this Agreement occurs.
"Code" means the Internal Revenue Code of 1986, as amended,
and the regulations promulgated and rulings issued thereunder.
"Collateral" has the meaning specified in Section 6.1.
AMENDED AND RESTATED CREDIT AGREEMENT - Page 6
<PAGE>
"Compliance Certificate" means a certificate of the chief
financial officer or chief executive officer of the Borrower required
under Section 9.1(c) hereof.
"Commitment" means, as to each Bank, the obligation of such
Bank to make Loans and purchase participations in Letters of Credit
pursuant to Section 3.1 in an aggregate principal amount at any one
time outstanding up to but not exceeding the amount set forth opposite
the name of such Bank on the signature pages hereof under the heading
"Commitment," or in the Assignment and Acceptance pursuant to which
such Bank assumed its Commitment, as applicable as the same may be (a)
reduced pursuant to Section 2.7 or terminated pursuant to Section 2.7
or 12.2 and (b) reduced or increased from time to time pursuant to
assignments by or to such Bank pursuant to Section 14.8.
"Consolidated Current Assets" means, at any particular time,
all amounts which in conformity with GAAP, would be included as
current assets on a consolidated balance sheet of the Borrower.
"Consolidated Current Liabilities" means, at any particular
time, all amounts which, in conformity with GAAP, would be included as
liabilities on a consolidated balance sheet of the Borrower; provided,
however, that the current portion of long-term Debt under this
Agreement and the other Loan Documents and the Bridge Loan shall be
excluded from the calculation of current liabilities.
"Consolidated EBITDA" means, for any period, the sum of the
following for the Borrower determined on a consolidated basis in
accordance with GAAP and without duplication: (i) Consolidated Net
Income for such period before provision for income taxes, plus (ii)
depreciation, depletion, amortization and other non-cash charges,
which in determining Consolidated Net Income for such period were
deducted from gross income, plus (iii) Interest Expense for such
period.
"Consolidated Interest Coverage Ratio" means, at any
particular time, the ratio of (a) Consolidated EBITDA to (b) Interest
Expense.
"Consolidated Net Income" means, for any period, the
consolidated net income of Borrower and its Subsidiaries from
operations for such period determined in accordance with GAAP provided
that there shall be excluded therefrom: (a) any net income (or net
loss) of any Person in which Borrower has an ownership interest other
than the Subsidiaries, except to the extent that any such income has
actually been received by the Borrower in the form of cash dividends
or similar distributions; (b) any net gains on the sale or other
disposition, not in the ordinary course of business, of investments
and other capital assets, provided that there shall also be excluded
any related charges for taxes thereon and other costs associated with
the sale or other disposition thereof; and (c) any net gain arising
from the collection of proceeds of any insurance policy.
AMENDED AND RESTATED CREDIT AGREEMENT - Page 7
<PAGE>
"Consolidated Net Worth" means, at any particular time, all
amounts which, in conformity with GAAP, would be included as
stockholders' equity on a consolidated balance sheet of the Borrower.
"Consolidated Tangible Net Worth" means, at any particular
time, all amounts which, in conformity with GAAP, would be included as
Consolidated Net Worth; provided, however, there shall be excluded
therefrom: (a) the aggregate amount of shares of any treasury stock,
(b) any amount at which shares of capital stock of the Borrower appear
as an asset on the Borrower's balance sheet, (c) goodwill, including
any amounts, however designated, that represent the excess of the
purchase price paid for assets or stock over the value assigned
thereto, (d) patents, trademarks, trade names, and copyrights, (e)
deferred expenses (excluding bank related fees and expenses), (f)
loans and advances, other than travel and expense related advances to
any stockholder, director, officer, or employee of the Borrower or any
Affiliate of the Borrower not made in the ordinary course of business,
and (g) all other assets which are properly classified as intangible
assets.
"Contingent Liabilities" means, as applied to any Person,
those direct or indirect liabilities of that Person with respect to
any Debt, lease, dividend, letter of credit or other obligation (the
"primary obligations") of another Person (the "primary obligor"),
including, without limitation, any obligation of such Person, whether
or not contingent, (a) to purchase, repurchase or otherwise acquire
such primary obligations or any property constituting direct or
indirect security therefor, or (b) to advance or provide funds (i) for
the payment or discharge of any such primary obligation, or (ii) to
maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary
obligation, or (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of
such primary obligation, or (d) otherwise to assure or hold harmless
the owner of any such primary obligation against loss in respect
thereof. The amount of any Contingent Liabilities shall be deemed to
be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Liabilities are made
or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by the Borrower in good
faith.
"Continue," "Continuation," and "Continued" shall refer to the
continuation pursuant to Section 4.2 of a Eurodollar Loan as a
Eurodollar Loan from one Interest Period to the next Interest Period.
"Convert," "Conversion," and "Converted" shall refer to a
conversion pursuant to Section 4.2 or Article V of one Type of Loan
into another Type of Loan.
"Current Ratio" means, at any particular time, the ratio of
Consolidated Current Assets to Consolidated Current Liabilities.
AMENDED AND RESTATED CREDIT AGREEMENT - Page 8
<PAGE>
"Debt" means as to any Person at any time (without duplication)
(a) all Funded Debt and (b) all liabilities of such Person in respect
of unfunded vested benefits under any Plan.
"Debt to Capitalization Ratio" means, at any particular time,
the ratio of (i) Funded Debt to (ii) the sum of Funded Debt, plus
Consolidated Net Worth.
"Default" means an Event of Default or the occurrence of an
event or condition which with notice or lapse of time or both would
become an Event of Default.
"Default Rate" means the lesser of (i) the Maximum Rate, or
(ii) the sum of the Applicable Rate in effect from day to day, plus
two percent.
"Determination Date" means each April 1 and October 1 of each
year, commencing October 1, 1997.
"Dispute" has the meaning assigned to it in Section 14.20(a)
hereof.
"Dollars" and "$" mean lawful money of the United States of
America.
"Eligible Assignee" means any commercial bank, savings and
loan association, savings bank, finance company, insurance company,
pension fund, mutual fund, or other financial institution (whether a
corporation, partnership, or other entity) approved by the
Administrative Agent, which approval shall not be unreasonably
withheld or delayed, and unless an Event of Default has occurred and
is continuing, reasonably approved by Borrower to the extent required
in Section 14.8, such approval by Borrower not to be unreasonably
withheld or delayed.
"Engineering Reports" shall have the meaning specified in
subsection 2.8(a).
"Environmental Laws" means any and all federal, state, and
local laws, regulations, and requirements pertaining to health,
safety, or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, 42 U.S.C. ss. 9601 et seq., the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. ss. 6901 et seq., the Occupational
Safety and Health Act, 29 U.S.C. ss. 651 et seq., the Clean Air Act,
42 U.S.C. ss. 7401 et seq., the Clean Water Act, 33 U.S.C. ss. 1251 et
seq., and the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et
seq., as such laws, regulations, and requirements may be amended or
supplemented from time to time.
"Environmental Liabilities" means, as to any Person, all
liabilities, obligations, responsibilities, Remedial Actions, losses,
damages, punitive damages, consequential damages, treble damages,
costs, and expenses (including, without limitation, all reasonable
fees, disbursements and expenses of counsel, expert and consulting
fees and costs of investigation and feasibility studies), fines,
penalties, sanctions, and interest incurred as a result of any claim
or demand, by any Person, whether based in contract,
AMENDED AND RESTATED CREDIT AGREEMENT - Page 9
<PAGE>
tort, implied or express warranty, strict liability, criminal or civil
statute, including any Environmental Law, permit, order or agreement
with any Governmental Authority or other Person, arising from
environmental, health or safety conditions or the Release or
threatened Release of a Hazardous Material into the environment,
resulting from the past, present, or future operations of such Person
or its Affiliates.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereunder.
"ERISA Affiliate" means any corporation or trade or business
which is a member of the same controlled group of corporations (within
the meaning of Section 414(b) of the Code) as the Borrower or is under
common control (within the meaning of Section 414(c) of the Code) with
the Borrower.
"Eurodollar Loans" means Loans the interest rates on which are
determined on the basis of the rates referred to in the definition of
"Adjusted Eurodollar Rate" in this Section 1.1.
"Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) at which the Reference Bank is
offered Dollar deposits at or about 10:00 A.M., New York City time,
two Business Days prior to the first day of such Interest Period in
the interbank eurodollar market where the eurodollar and foreign
currency and exchange operations in respect of its Eurodollar Loans
are then being conducted for delivery on the first day of such
Interest Period for a number of days comprised therein and in an
amount comparable to the principal amount of the Eurodollar Loan to
which such Interest Period relates.
"Event of Default" has the meaning specified in Section 12.1.
"Excluded Subsidiaries" means Hunter Butcher nternational
Limited Liability Company.
"Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight federal funds transactions
with members of the Federal Reserve System arranged by federal funds
brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Administrative Agent from
three federal funds brokers of recognized standing selected by it.
"Funded Debt" means, as of any date of determination (without
duplication): (a) all obligations of the Borrower and the Material
Subsidiaries for borrowed money, (b) all obligations of the Borrower
and the Material Subsidiaries evidenced by bonds, notes, debentures,
or other similar instruments, (c) all obligations of the Borrower and
the
AMENDED AND RESTATED CREDIT AGREEMENT - Page 10
<PAGE>
Material Subsidiaries to pay the deferred purchase price of property
or services, except trade accounts payable of such Person arising in
the ordinary course of business that are not past due by more than 90
days, (d) all Capital Lease Obligations of the Borrower and the
Material Subsidiaries, (e) all obligations secured by a Lien existing
on property owned by the Borrower and the Material Subsidiaries,
whether or not the obligations secured thereby have been assumed by
the Borrower or are non-recourse to the credit of such Person, and (f)
all contractual Contingent Liabilities and all reimbursement
obligations of the Borrower and the Material Subsidiaries (whether
contingent or otherwise) in respect of letters of credit, bankers'
acceptances, surety or other bonds and similar instruments.
"GAAP" means generally accepted accounting principles, applied
on a consistent basis, as set forth in Opinions of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting Standards
Board and/or their respective successors and which are applicable in
the circumstances as of the date in question. Accounting principles
are applied on a "consistent basis" when the accounting principles
applied in a current period are comparable in all material respects to
those accounting principles applied in a preceding period.
"Gas Gathering Systems" means the gas plant and those certain
gas gathering systems consisting of all equipment, assets,
rights-of-way, surface leases, contracts and related assets more
particularly described on Schedule 1.1 attached hereto.
"Governmental Authority" means any nation or government, any
state or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory, or administrative
functions of or pertaining to government.
"Guarantor" means each present and future Material Subsidiary
of Borrower.
"Hazardous Material" means any substance, product, waste,
pollutant, material, chemical, contaminant, constituent, or other
material which is or becomes listed, regulated, or addressed under any
Environmental Law, including, without limitation, asbestos, petroleum,
and polychlorinated biphenyls.
"Hedge Agreements" shall have the meaning assigned to such
term in Section 9.14.
"Hydrocarbons" means all oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate, carbon dioxide,
liquid hydrocarbons, gaseous hydrocarbons, and all other minerals, and
all products obtained, refined or processed therefrom.
"Initial Rate Adjustment Date" means the date that the
Borrower has repaid the Bridge Loan in full.
AMENDED AND RESTATED CREDIT AGREEMENT - Page 11
<PAGE>
"Intercreditor Agreement" means the Intercreditor Agreement
executed by and among the Administrative Agent, the administrative
agent under the Bridge Loan Agreement, the Banks, and the lenders
party to the Bridge Loan Agreement in substantially the form of
Exhibit "I" hereto, as the same may be amended, supplemented, or
modified.
"Interest Expense" means, for any period, all interest on Debt
(including the interest portion of payments under Capital Lease
Obligations and any capitalized interest but excluding the non-cash
accretion of the discount and amortization of the Agents' and the
Banks' fees hereunder and the fees of the agents and Lenders under the
Bridge Loan Agreement) of Borrower and its Subsidiaries (determined on
a consolidated basis) paid or accrued during such period, provided
that there shall be added to "Interest Expense" any fees or
commissions payable in connection with any letters of credit during
such period.
"Interest Period" means, with respect to any Eurodollar Loan,
each period commencing on the date such Loan is made or Converted from
a Base Rate Loan or, in the case of each subsequent, successive
Interest Period applicable to a Eurodollar Loan, the last day of the
next preceding Interest Period with respect to such Loan, and ending
on the numerically corresponding day in the first, second or third
calendar month thereafter, as the Borrower may select as provided in
Section 4.1 or 4.2 hereof, except that each such Interest Period which
commences on the last Business Day of a calendar month (or on any day
for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month.
Notwithstanding the foregoing: (a) each Interest Period which
would otherwise end on a day which is not a Business Day shall
end on the next succeeding Business Day (or, if such
succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day); (b) any Interest
Period which would otherwise extend beyond the Termination
Date shall end on the Termination Date; (c) no more than six
Interest Periods for Eurodollar Loans shall be in effect at
the same time; (d) no Interest Period for any Eurodollar Loans
shall have a duration of less than one month and, if the
Interest Period for any Eurodollar Loans would otherwise be a
shorter period, Eurodollar Loans shall not be available
hereunder; and (e) no Interest Period may extend beyond a
principal repayment date unless, after giving effect thereto,
the aggregate principal amount of the Eurodollar Loans having
Interest Periods that end after such principal payment date
shall be equal to or less than the Loans to be outstanding
hereunder after such principal payment date.
"Issuing Bank" means, with respect to any Letter of Credit,
Bankers Trust or any of its Affiliates or, with the approval of the
Administrative Agent, any other Bank which chooses to be an Issuing
Bank hereunder, in its capacity as issuer of each Letter of Credit,
and any successor Issuing Bank appointed pursuant to the terms of
Section 3.9.
AMENDED AND RESTATED CREDIT AGREEMENT - Page 12
<PAGE>
"L/C Application" has the meaning specified in Section 3.1.
"L/C Documents" has the meaning specified in Section 3.1.
"LC Participation" means, with respect to any Bank at any
time, the amount of the participating interest held by such Bank in
respect of a Letter of Credit.
"Letter of Credit" means any standby letter of credit issued
by an Issuing Bank for the account of the Borrower pursuant to Article
III.
"Letter of Credit Liabilities" means, at any time, the
aggregate face amounts of all outstanding Letters of Credit.
"Letter of Credit Request Form" means a certificate, in
substantially the form of Exhibit "C" hereto, properly completed and
signed by the Borrower requesting issuance of a Letter of Credit.
"Lien" means any lien, mortgage, security interest, tax lien,
financing statement, pledge, charge, hypothecation, assignment,
preference, priority, or other encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or
title retention agreement), whether arising by contract, operation of
law, or otherwise.
"Loan" means, as to each Bank, the revolving credit loans to
be made by such Bank pursuant to Section 2.1.
"Loan Documents" means this Agreement and all promissory
notes, security agreements, pledge agreements, intercreditor and/or
subordination agreements, deeds of trust, mortgages, fee letters,
assignments, guaranties, letters of credit, letter of credit
applications and other instruments, documents, and agreements executed
and delivered pursuant to or in connection with this Agreement, as
such instruments, documents, and agreements may be amended, modified,
renewed, extended, or supplemented from time to time.
"Loan Request Form" means a certificate, in substantially the
form of Exhibit "B" hereto, properly completed and signed by the
Borrower requesting a Loan.
"Majority Banks" means at any time while no Loans or Letter of
Credit Liabilities are outstanding, Banks having commitments totalling
at least 75% of the amount of the Borrowing Base and, at any time
while Loans or Letter of Credit Liabilities are outstanding, Banks
holding Loans and LC Participations totalling at least 75% of the
amount of the Borrowing Base.
"Material Subsidiary" means each Subsidiary other than the
Excluded Subsidiaries.
AMENDED AND RESTATED CREDIT AGREEMENT - Page 13
<PAGE>
"Maximum Rate" means, at any time and with respect to any
Bank, the maximum rate of interest under applicable law that such Bank
may charge the Borrower. The Maximum Rate shall be calculated in a
manner that takes into account any and all fees, payments, and other
charges in respect of the Loan Documents that constitute interest
under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the
Maximum Rate shall take effect without notice to the Borrower at the
time of such change in the Maximum Rate.
"Mortgaged Properties" means all right, title and interest of
Borrower and its Subsidiaries in and to (i) the Oil and Gas Properties
identified on Schedule 1.1(a) hereof and such other Oil and Gas
Properties as may from time to time become subject to the Lien of any
Security Document; and (ii) the Gas Gathering Systems and such other
assets and properties as may from time to time become subject to the
Lien of any Security Document.
"Multiemployer Plan" means a multiemployer plan defined as
such in Section 3(37) of ERISA to which contributions have been made
by the Borrower or any ERISA Affiliate and which is covered by Title
IV of ERISA.
"Net Cash Proceeds" means in connection with (a) any issuance
by the Borrower or any of its Subsidiaries of any Debt, equity or debt
securities or instruments, (b) the incurrence of other loans other
than as permitted by Section 10.1 or (c) the disposition of any assets
permitted by Section 10.8, the cash proceeds received from such
issuance or sale, as applicable, net of all reasonable investment
banking fees, legal fees, accountants' fees, underwriting discounts
and commissions and other customary fees and expenses, actually
incurred and satisfactorily documented in connection therewith.
"New Properties" shall have the meaning specified in subsection
4.5(e) hereof.
"1996 Series A Preferred Stock" means the one million shares
of the Borrower's 1996 Series A Convertible Preferred Stock, $.001 par
value per share and a $10.00 stated value per share with a quarterly
rate of $.21875 per share.
"Note" means a promissory note of the Borrower payable to the
order of a Bank, in substantially the form of Exhibit "A" hereto, and
all extensions, renewals, and modifications thereof and all
substitutions therefor.
"Obligated Party" means any Person who is or becomes party to
any agreement that guarantees or secures payment and performance of
the Obligations or any part thereof.
"Obligations" means all (a) Swap Obligations, and (b)
obligations, indebtedness, and liabilities of the Borrower to the
Agents, the Issuing Banks and the Banks, or any of them, arising
pursuant to any of the Loan Documents (other than any obligations
under Loan Documents to the extent such obligations relate exclusively
to the Bridge Loan),
AMENDED AND RESTATED CREDIT AGREEMENT - Page 14
<PAGE>
now existing or hereafter arising, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, unliquidated, joint,
several, or joint and several, including, without limitation, the
obligations, indebtedness, and liabilities of the Borrower under this
Agreement and the other Loan Documents (including, without limitation,
all of Borrower's contingent reimbursement obligations in respect of
Letters of Credit but limited as provided in the preceding
parenthetical clause), and all interest accruing thereon and all
attorneys' fees and other expenses incurred in the enforcement or
collection thereof.
"Oil and Gas Properties" means and includes, collectively, (a)
all Hydrocarbons prior to severance, and all leases, licenses and
other contracts or arrangements granting interests in Hydrocarbons or
proceeds of Hydrocarbons prior to severance, including without
limitation all fee mineral interests, oil, gas and other minerals,
leases, subleases, farmouts, royalties, overriding royalties, net
profits interests, production payments and similar mineral interests,
and all unsevered oil, gas, and other minerals in, under or
attributable to any of the foregoing properties and interests, (b) all
leases, licenses and other contracts or arrangements granting rights
to explore for Hydrocarbons on or under partially or completely
undeveloped acreage, and (c) all oil wells, gas wells, injection wells
and other wells and all production therefrom.
"Operating Lease" means any lease (other than a lease
constituting a Capital Lease Obligation) of real or personal property.
"Payment Notice" means a request for payment given pursuant to
Section 4.5 hereof.
"Payor" has the meaning assigned to it in Section 4.8.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to all or any of its functions under ERISA.
"Permitted Debt" has the meaning specified in Section 10.1.
"Permitted Liens" has the meaning specified in Section 10.2.
"Person" means any individual, corporation, business trust,
association, company, partnership, joint venture, Governmental
Authority, or other entity.
"Plan" means any employee benefit or other plan established or
maintained by the Borrower or any ERISA Affiliate and which is covered
by Title IV of ERISA.
"Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by the Administrative Agent as
its prime rate in effect at its Principal Office which may or not be
the lowest or best rate offered by the Administrative Agent to its
customers.
AMENDED AND RESTATED CREDIT AGREEMENT - Page 15
<PAGE>
"Principal Office" means the principal office of the
Administrative Agent, presently located at One Bankers Trust Plaza,
130 Liberty Street, New York, New York 10006.
"Prior Credit Agreement" means that certain Credit Agreement
dated as of June 28, 1996, executed among the Borrower, Wells Fargo,
as agent, Paribas, as co-agent, and the other banks or other lending
institutions which were signatories thereto, as amended or
supplemented from time to time.
"Prohibited Transaction" means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Code.
"Property" means all real estate and other tangible and
intangible property.
"Purchase Agreement" means that certain Purchase and Sale
Agreement dated February 27, 1997, executed by and among Sellers and
Magnum Hunter Production, Inc., a Texas corporation.
"Quarterly Payment Date" means the last day of each March,
June, September and December of each year, the first of which shall be
June 30, 1997.
"Reference Bank" means Bankers Trust.
"Register" has the meaning assigned to it in Section 14.8(d).
"Regulation D" means Regulation D of the Board of Governors of
the Federal Reserve System as the same may be amended or supplemented
from time to time.
"Regulatory Change" means, with respect to any Bank, any
change after the date of this Agreement in United States federal,
state, or foreign laws or regulations (including Regulation D) or the
adoption or making after such date of any interpretations, directives,
or requests applying to a class of banks including such Bank of or
under any United States federal or state, or any foreign laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"Release" means, as to any Person, any release, spill,
emission, leaking, pumping, injection, deposit, disposal,
disbursement, leaching, or migration of Hazardous Materials into the
indoor or outdoor environment or into or out of property owned by such
Person, including, without limitation, the movement of Hazardous
Materials through or in the air, soil, surface water, ground water, or
property.
"Remedial Action" means all actions required to (a) clean up,
remove, treat, or otherwise address Hazardous Materials in the indoor
or outdoor environment, (b) prevent the Release or threat of Release
or minimize the further Release of Hazardous Materials
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so that they do not migrate or endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment, or (c) perform
pre-remedial studies and investigations and post-remedial monitoring
and care.
"Reportable Event" means any of the events set forth in Section
4043 of ERISA.
"Required Banks" means at any time while no Loans or Letter of
Credit Liabilities are outstanding, Banks having at least 66-2/3% of
the aggregate amount of the Commitments and, at any time while Loans
or Letter of Credit Liabilities are outstanding, Banks holding at
least 66-2/3% of the outstanding aggregate principal amount of the
Loans and LC Participations.
"Required Payment" has the meaning assigned to it in Section
4.8.
"Reserve Requirement" means, for any Eurodollar Loan for any
Interest Period therefor, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation
D by member banks of the Federal Reserve System in New York City with
deposits exceeding $1,000,000,000 against "Eurocurrency Liabilities"
as such term is used in Regulation D. Without limiting the effect of
the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by such member banks by reason of
any Regulatory Change against (i) any category of liabilities which
includes deposits by reference to which the Adjusted Eurodollar Rate
is to be determined, or (ii) any category of extensions of credit or
other assets which include Eurodollar Loans.
"RICO" means the Racketeer Influenced and Corrupt Organization
Act of 1970, as amended from time to time.
"Security Documents" means all mortgages, deeds of trust,
security agreements, guaranties, assignments of production and
financing statements or such other instruments securing or ensuring
payment and performance of the Obligations or any part thereof, as the
same may be amended, supplemented, or modified from time to time.
"Sellers" means, collectively, Burlington Resources Oil & Gas
Company, a Delaware corporation, and Glacier Park Company, a Delaware
corporation.
"Stock Purchase Agreement" means the Stock Purchase Agreement,
dated as of December 6, 1996, among the Borrower and Trust Company of
the West and TCW Asset Management Company, in the capacities described
therein, TCW Debt and Royalty Fund IVB and TCW Debt and Royalty Fund
IVC.
"Subordinated Debt" means Debt issued by the Borrower which is
subordinated to all Debt of the Borrower owing to the Banks on terms
and conditions satisfactory to
AMENDED AND RESTATED CREDIT AGREEMENT - Page 17
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the Banks, the proceeds of which shall be used to repay Advances
hereunder and to repay the Bridge Loan in its entirety.
"Subsidiary" means any corporation, partnership, joint
venture, business trust or other legal entity in which the Borrower,
either directly or indirectly through one or more intermediaries, owns
or holds beneficial or record ownership of a majority of the
outstanding voting securities or equity interests therein.
"Subsidiary Guaranty Agreement" means the Amended and Restated
Guaranty Agreement of the Subsidiaries (other than the Excluded
Subsidiaries) in favor of the Collateral Agent for the benefit of
itself, the other Agents, the Banks, the Issuing Banks, and the Bridge
Lenders in substantially the form of Exhibit "F" hereto, as the same
may be amended, supplemented, or modified.
"Subsidiary Pledge Agreement" means the Amended and Restated
Pledge Agreement of the Material Subsidiaries in favor of the
Collateral Agent for the benefit of itself, the other Agents, the
Banks, the Issuing Banks and the Bridge Lenders, in substantially the
form of Exhibit "E" hereto, as the same may be amended, supplemented,
or modified.
"Swap Obligations" shall mean any indebtedness, obligations
and liabilities owed by the Borrower to any Bank arising under
financial interest swap agreements entered into by Borrower to lock in
interest rates payable under this Agreement or commodity swap
agreements or similar contractual arrangements intended to hedge
market price fluctuations and interest rates applicable to this
Agreement or crude oil, natural gas or other Hydrocarbons; provided
that (i) no such commodity swap agreement shall be entered into which
would require Borrower to deliver, or make cash settlement payments
based upon quantities of Hydrocarbons which, in the aggregate for all
such agreements, would exceed 75% of the estimated production during
the term of such agreements from that portion of the Mortgaged
Properties consisting of proved developed producing reserves, and (ii)
such contracts shall not have a maturity exceeding two years, without
the prior consent of the Required Banks.
"Termination Date" means 12:00 P.M. New York, New York time on
April 30, 2002, or such earlier date and time on which the Commitments
terminate as provided in this Agreement.
"Type" means any type of Loan (i.e., Base Rate Loan or
Eurodollar Loan).
"UCC" means the Uniform Commercial Code as in effect in the
State of New York.
Section 1.2 Other Definitional Provisions. All definitions contained in
this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof," "herein," and "hereunder" and words of
similar import referring to this Agreement refer to this
AMENDED AND RESTATED CREDIT AGREEMENT - Page 18
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Agreement as a whole and not to any particular provision of this Agreement.
Unless otherwise specified, all Article and Section references pertain to this
Agreement. All accounting terms not specifically defined herein shall be
construed in accordance with GAAP. Terms used herein that are defined in the
UCC, unless otherwise defined herein, shall have the meanings specified in the
UCC.
ARTICLE II
Loans
Section 2.1 Commitments. Subject to the terms and conditions of this
Agreement, each Bank severally agrees to make one or more Loans to the Borrower
from time to time from the date hereof to and including the Termination Date in
an aggregate principal amount at any time outstanding up to but not exceeding
the amount of such Bank's Commitment as then in effect, provided that the
aggregate amount of all Loans at any time outstanding shall not exceed the
lesser of (i) the aggregate amount of the Commitments minus the outstanding
Letter of Credit Liabilities or (ii) the Borrowing Base (as reduced from time to
time pursuant to the terms of this Agreement) minus the outstanding Letter of
Credit Liabilities. Subject to the foregoing limitations, and the other terms
and provisions of this Agreement, the Borrower may borrow, repay, and reborrow
hereunder the amount of the Commitments by means of Base Rate Loans and
Eurodollar Loans and, until the Termination Date, the Borrower may Convert Loans
of one Type into Loans of another Type. Loans of each Type made by each Bank
shall be made and maintained at such Bank's Applicable Lending Office for Loans
of such Type.
Section 2.2 Notes. The obligation of the Borrower to repay each Bank
for Loans made by such Bank and interest thereon shall be evidenced by a Note
executed by the Borrower, payable to the order of such Bank, in the principal
amount of such Bank's Commitment, and dated the date hereof or such later date
as may be required with respect to transactions contemplated by Section 14.8.
Section 2.3 Repayment of Loans. The Borrower shall repay the
unpaid principal amount of all Loans on the Termination Date.
Section 2.4 Interest. The unpaid principal amount of the Loans shall
bear interest at a varying rate per annum equal from day to day to the lesser of
(a) the Maximum Rate, or (b) the Applicable Rate. If at any time the Applicable
Rate for any Loan shall exceed the Maximum Rate, thereby causing the interest
accruing on such Loan to be limited to the Maximum Rate, then any subsequent
reduction in the Applicable Rate for such Loan shall not reduce the rate of
interest on such Loan below the Maximum Rate until the aggregate amount of
interest accrued on such Loan equals the aggregate amount of interest which
would have accrued on such Loan if the Applicable Rate had at all times been in
effect. Accrued and unpaid interest on the Loans shall be due and payable as
follows:
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(i) in the case of Base Rate Loans, on each Quarterly
Payment Date and on the Termination Date;
(ii) in the case of each Eurodollar Loan, on the last day of
the Interest Period with respect thereto or in the case of any
Interest Period that exceeds three months, on the last day of the
third month of the Interest Period and on the last day of the Interest
Period with respect thereto;
(iii) upon the payment or prepayment of any Loan or the
Conversion of any Loan to a Loan of another Type (but only on the
principal amount so paid, prepaid, or Converted); and
(iv) on the Termination Date.
Notwithstanding the foregoing, any outstanding principal of any Loan and (to the
fullest extent permitted by law) any other amount payable by the Borrower under
this Agreement or any other Loan Document that is not paid in full when due
(whether at stated maturity, by acceleration, or otherwise) shall bear interest
at the Default Rate for the period from and including the due date thereof to
but excluding the date the same is paid in full. Interest payable at the Default
Rate shall be payable from time to time on demand.
Section 2.5 Use of Proceeds. The proceeds of Loans shall be used by
the Borrower to repay existing Debt, to finance the Acquisition, to develop
property, to support working capital and for general corporate purposes.
Section 2.6 Commitment Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Bank a commitment fee on the daily
average unused portion of the amount available under such Bank's Commitment
pursuant to the Borrowing Base (as reduced from time to time pursuant to the
terms of this Agreement) for the period from and including the date of this
Agreement to and including the Termination Date, at the rate of three-eighths
percent of one percent per annum, such rate to be based on a 360 day year and
the actual number of days elapsed. The accrued commitment fee shall be payable
in arrears on each Quarterly Payment Date and on the Termination Date.
Section 2.7 Reduction or Termination of Commitments. The Borrower
shall have the right to terminate in whole or reduce in part the available
Borrowing Base or the unused portion of the Commitments upon at least three
Business Days' prior notice (which notice shall be irrevocable) to the
Administrative Agent specifying the effective date thereof, whether a
termination or reduction is being made, and the amount of any partial reduction,
provided, however, the Commitment shall never be reduced below an amount equal
to the outstanding Letter of Credit Liabilities. Each partial reduction shall be
in the amount of $1,000,000 or an integral multiple thereof and the Borrower
shall simultaneously prepay the amount by which the unpaid principal amount of
the Loans plus the outstanding Letter of Credit Liabilities exceeds the lesser
of (i) an amount equal to the Borrowing Base, or (ii) the Commitments (after
giving effect to such notice) plus accrued and unpaid interest on the principal
amount so prepaid. The
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Borrowing Base and/or the Commitments may not be reinstated after they have been
terminated or reduced.
Section 2.8 Borrowing Base.
(a) The Borrowing Base shall be cumulative of all other
limitations contained in this Agreement and the other Loan Documents.
The initial Borrowing Base shall be $130,000,000, and shall be
redetermined as provided herein and in connection with any issuance of
Subordinated Debt by the Borrower. In the event that the Borrower
issues $125,000,000 of Subordinated Debt, the Borrowing Base shall be
permanently reduced to $75,000,000; in the case of other issuances of
Subordinated Debt by the Borrower, the Borrowing Base shall be
redetermined, in the sole discretion of the Majority Banks, as
provided herein. In addition, the Borrowing Base shall be redetermined
semiannually on each Determination Date, commencing October 1, 1997.
Upon delivery of the engineering reserve evaluation reports required
by subsections 9.1(l) and (m) (collectively, the "Engineering
Reports") and such other reports, data and supplemental information as
may, from time to time, be reasonably requested by the Administrative
Agent and the Banks, together with a certificate from the chief
financial officer of Borrower that, to the best of such officer's
knowledge, after making due inquiry (A) the factual information upon
which such Engineering Reports are based is true and correct, (B) the
certificate identifies the Properties covered by the Engineering
Reports that have not been previously included in any prior
Engineering Report, and (C) no Mortgaged Properties have been sold
since the last Determination Date, on each Determination Date or on
such other date as otherwise permitted hereunder, the Administrative
Agent shall redetermine the Borrowing Base in accordance with its
customary practices and standards for loans secured by similar types
of property. Within 45 days of its receipt of the Engineering Reports,
the Administrative Agent shall provide such redetermined Borrowing
Base in writing to the Banks. Within ten days after their receipt of
such information, the Banks shall give the Administrative Agent
written notice of whether the Banks approve of the Administrative
Agent's proposed Borrowing Base. If, for any reason, the Majority
Banks do not approve of the proposed Borrowing Base, the
Administrative Agent and the Majority Banks shall consult with one
another to determine the Borrowing Base that will be approved by the
Majority Banks. The Borrowing Base established pursuant to this
subsection shall be effective as of the ensuing Determination Date and
shall remain in effect until it is subsequently redetermined pursuant
to this subsection 2.8(a) or subsection 2.8(b). If a redetermination
in 1997 results in an increase in the Borrowing Base, the Borrower
shall pay to the Administrative Agent for the account of the Banks, a
fee for such increase in the amount of one-quarter of one percent of
the increase; in all other cases, any increase shall be subject to
agreement of the Borrower and the Banks with respect to a fee, if any,
for such increase.
(b) In addition to the determinations of the Borrowing Base
required pursuant to subsection 2.8(a), special determinations thereof
may be made for any reason (but not more than once between
Determination Dates) at the option of either (i) the Borrower or (ii)
Required Banks. To request a special determination of the Borrowing
Base, the
AMENDED AND RESTATED CREDIT AGREEMENT - Page 21
<PAGE>
Person requesting such determination shall provide the Agent and the
Borrower with a written request of such determination. Any such
special determination of the Borrowing Base shall be made by the Banks
in consultation with one another using their customary standards for
oil and gas lending and shall be based upon the most recent
Engineering Reports delivered to the Banks by the Borrower and such
other reports and data as the Banks may reasonably request. The Agent
shall notify the Borrower of the redetermined Borrowing Base within 45
days of the Agent's receipt of the special determination request and
the redetermined Borrowing Base shall be effective upon such
notification. If a redetermination in 1997 results in an increase in
the Borrowing Base, the Borrower shall pay to the Agent for the
account of Banks, a fee for such increase in the amount of one-quarter
of one percent of the increase; in all other cases any increase shall
be subject to agreement of the Borrower and the Banks with respect to
a fee, if any, for such increase. If the redetermination results in a
decrease in the Borrowing Base, the Borrower shall repay the Loans
within six months of such redetermination in six equal monthly
installments, each in an amount equal 1/6 of the Borrowing Base
Deficiency.
ARTICLE III
Letters of Credit
Section 3.1 Letters of Credit. Subject to the terms and conditions of
this Agreement, each Issuing Bank agrees to issue one or more Letters of Credit
for the account of the Borrower from time to time from the date hereof to and
including the Termination Date; provided, however, that the outstanding Letter
of Credit Liabilities shall not at any time exceed the lesser of (1)
$20,000,000, (2) an amount equal to the aggregate amount of the Commitments
minus the sum of the outstanding Loans, or (3) the Borrowing Base (as reduced
from time to time) minus the sum of the outstanding Loans. Each Letter of Credit
shall have an expiration date not beyond the Termination Date, shall be payable
in Dollars, must be satisfactory in form and substance to the applicable Issuing
Bank, and shall be issued pursuant to such documents and instruments (including,
without limitation, such Issuing Bank's standard application and agreement for
issuance of letters of credit as then in effect [each an "L/C Application"]) as
such Issuing Bank may require (collectively, the "L/C Documents"). No Letter of
Credit shall require any payment by the Issuing Bank to the beneficiary
thereunder pursuant to a drawing prior to the third Business Day following
presentment of a draft and any related documents to the Issuing Bank.
Section 3.2 Participation by Banks. By the issuance of any Letter of
Credit and without any further action on the part of the applicable Issuing Bank
or any of the Banks in respect thereof, each Issuing Bank hereby grants to each
Bank and each Bank hereby irrevocably agrees to acquire from each Issuing Bank a
participation in each such Letter of Credit and the related Letter of Credit
Liabilities, effective upon the issuance thereof without recourse or warranty,
equal to such Bank's pro rata part (based on the aggregate Commitments) of such
Letter of Credit and Letter of Credit Liabilities. Each Issuing Bank shall
provide a copy of each Letter of Credit to each other Bank promptly after
issuance. This agreement to grant and acquire participations is an agreement
between each Issuing Bank and the Banks, and neither Borrower
AMENDED AND RESTATED CREDIT AGREEMENT - Page 22
<PAGE>
nor any beneficiary of a Letter of Credit shall be entitled to rely thereon.
Borrower agrees that each Bank purchasing a participation from any Issuing Bank
pursuant to this Section 3.2 may exercise all its rights to payment against
Borrower including the right of setoff, with respect to such participation as
fully as if such Bank were the direct creditor of Borrower in the amount of such
participation.
Section 3.3 Procedure for Issuing Letters of Credit. Each Letter of
Credit shall be issued on at least five Business Days prior notice from the
Borrower to the applicable Issuing Bank (with a copy to the Agent) by means of a
Letter of Credit Request Form describing the transaction proposed to be
supported thereby and specifying (a) the requested date of issuance (which shall
be a Business Day), (b) the face amount of the Letter of Credit, (c) the
expiration date of the Letter of Credit, (d) the name and address of the
beneficiary and the account party, and (e) the form of the draft and any other
documents required to be presented at the time of any drawing (such notice to
set forth the exact wording of such documents or to attach copies thereof). Such
Issuing Bank shall notify each Bank of the contents of each such notice on the
day such notice is received by such Issuing Bank if received by 12:00 P.M. New
York, New York time on a Business Day and otherwise on the next succeeding
Business Day. Upon fulfillment of the applicable conditions precedent contained
in Article VII, such Issuing Bank shall make the applicable Letter of Credit
available to Borrower or, if so requested by Borrower, to the beneficiary of the
Letter of Credit.
Section 3.4 Reimbursements; Payments Constitute Loans. Each payment by
an Issuing Bank pursuant to a drawing under a Letter of Credit shall constitute
and be deemed a Base Rate Loan by each Bank to the Borrower under such Bank's
Note and this Agreement as of the day and time such payment is made by such
Issuing Bank and in the amount of such Bank's pro rata share of such payment;
provided, however, if the applicable conditions precedent contained in Section
7.2 are not satisfied on the date such payment is made, the Borrower shall pay
to the Administrative Agent for the account of the Issuing Bank, prior to 12:00
P.M. New York, New York time on the Business Day immediately following the date
such payment is made by the Issuing Bank, the amount of such payment, together
with interest thereon at the Base Rate plus the Applicable Base Rate Margin from
the date such payment is made by the Issuing Bank. If the Borrower fails to
reimburse the Issuing Bank for such drawing prior to 12:00 P.M. New York, New
York time on the Business Day following the date such payment is made by the
Issuing Bank, such amount shall bear interest at the Default Rate for the period
from and including the due date thereof to but excluding the date the same is
paid in full. Promptly on the Business Day immediately following the date each
payment is made by an Issuing Bank pursuant to a drawing under a Letter of
Credit and after receipt of notice from the Issuing Bank of the Borrower's
failure to reimburse the Issuing Bank for such payment and the amount of such
payment, each Bank will make available to the Administrative Agent for the
account of the Issuing Bank at the Principal Office in immediately available
funds, such Bank's pro rata share of such payment. Each Bank hereby agrees that
its obligation to participate in each Letter of Credit, and to pay or to
reimburse the Issuing Bank for its participating share of the drafts drawn or
amounts otherwise paid thereunder, is absolute, irrevocable and unconditional
and shall not be affected by any circumstances whatsoever (including, without
limitation, the occurrence or
AMENDED AND RESTATED CREDIT AGREEMENT - Page 23
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continuance of any Default or Event of Default), and that each such payment
shall be made without offset, abatement, withholding or other reduction
whatsoever.
Section 3.5 Letter of Credit Fee. The Borrower shall pay to the
Administrative Agent for the account of the Banks (to be shared ratably) a
nonrefundable Letter of Credit fee payable on the date each Letter of Credit is
issued, renewed or extended in an amount equal to the greater of (i) 1% per
annum of the face amount of such Letter of Credit, for the period during which
such Letter of Credit is scheduled to remain outstanding, based on a 360 day
year and the actual number of days elapsed, or (ii) $350. A nonrefundable fee in
the amount of 0.125% of the face amount of such Letter of Credit shall be
payable at the time of issuance by the Borrower to the applicable Issuing Bank
for its own account. In addition to the foregoing fees, the Borrower shall pay
or reimburse the applicable Issuing Bank for such normal and customary costs and
expenses as are incurred or charged by such Issuing Bank in issuing, negotiating
or otherwise effecting payment under, transferring, amending or otherwise
administering any Letter of Credit.
Section 3.6 Obligations Absolute. The obligations of the Borrower
under this Agreement and the other Loan Documents (including without limitation
the obligation of the Borrower to reimburse the Issuing Bank for draws under any
Letter of Credit) shall be absolute, unconditional, and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement and the
other Loan Documents under all circumstances whatsoever, including without
limitation the following circumstances:
(a) Any lack of validity or enforceability of any Letter
of Credit or any other Loan Document;
(b) Any amendment or waiver of or any consent to departure
from any Loan Document;
(c) The existence of any claim, set-off, counterclaim, defense
or other rights which the Borrower, any Obligated Party, or any other
Person may have at any time against any beneficiary of any Letter of
Credit, the Issuing Bank, or any other Person, whether in connection
with this Agreement or any other Loan Document or any unrelated
transaction;
(d) Any statement, draft, or other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid, or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(e) Payment by the Issuing Bank under any Letter of Credit
against presentation of a draft or other document which does not
comply with the terms of such Letter of Credit; or
(f) Any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
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Section 3.7 Limitation of Liability. The Borrower assumes all risks of
the acts or omissions of any beneficiary of any Letter of Credit with respect to
its use of such Letter of Credit. Neither the Issuing Bank, any Agent, any Bank
nor any of their officers or directors shall have any responsibility or
liability to the Borrower or any other Person for: (a) the failure of any draft
to bear any reference or adequate reference to any Letter of Credit, or the
failure of any documents to accompany any draft at negotiation, or the failure
of any Person to surrender or to take up any Letter of Credit or to send
documents apart from drafts as required by the terms of any Letter of Credit, or
the failure of any Person to note the amount of any instrument on any Letter of
Credit, each of which requirements, if contained in any Letter of Credit itself,
it is agreed may be waived by the Issuing Bank, (b) errors, omissions,
interruptions, or delays in transmission or delivery of any messages, (c) the
validity, sufficiency, or genuineness of any draft or other document, or any
endorsement(s) thereon, even if any such draft, document or endorsement should
in fact prove to be in any and all respects invalid, insufficient, fraudulent,
or forged or any statement therein is untrue or inaccurate in any respect, (d)
the payment by the Issuing Bank to the beneficiary of any Letter of Credit
against presentation of any draft or other document that does not comply with
the terms of the Letter of Credit, or (e) any other circumstance whatsoever in
making or failing to make any payment under a Letter of Credit. The Issuing Bank
may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
Section 3.8 Letter of Credit Documents. Certain additional provisions
regarding the obligations, liabilities, rights, remedies and agreements of the
Borrower and the Issuing Bank relative to the Letters of Credit shall be set
forth in the L/C Documents.
Section 3.9 Replacement of the Issuing Bank. Borrower may, with the
approval of Required Banks, appoint a successor Issuing Bank hereunder upon the
condition precedent that such successor Issuing Bank shall become a party to
this Agreement and expressly agree to be bound by the terms and conditions
contained in this Agreement pertaining to the Issuing Bank. Upon the appointment
of a successor Issuing Bank, the Issuing Bank replaced by such successor Issuing
Bank shall cease to issue Letters of Credit but shall continue to carry out its
obligations hereunder and shall continue to have the benefit of this Agreement
and the other Loan Documents with respect to the outstanding Letters of Credit
issued by it until all such Letters of Credit have expired and any drawings
thereunder have been reimbursed in full.
ARTICLE IV
Borrowing Procedure; Payments
Section 4.1 Borrowing Procedure. The Borrower shall give the
Administrative Agent notice by means of a Loan Request Form of each requested
Loan at least one Business Day before the requested date of each Base Rate Loan
and at least three Business Days before the requested date of each Eurodollar
Loan, specifying: (a) the requested date of such Loan (which shall be a Business
Day), (b) the amount of such Loan, (c) the Type of the Loan, and (d) in the case
of a Eurodollar Loan, the duration of the Interest Period for such Loan. The
Administrative Agent at its option may accept telephonic requests for Loans,
provided that such acceptance shall
AMENDED AND RESTATED CREDIT AGREEMENT - Page 25
<PAGE>
not constitute a waiver of the Administrative Agent's right to delivery of a
Loan Request Form in connection with subsequent Loans. Any telephonic request
for a Loan by the Borrower shall be promptly confirmed by submission of a
properly completed Loan Request Form to the Agent. Each Loan shall be in a
minimum principal amount of $500,000 or an integral multiple thereof. The
aggregate principal amount of Eurodollar Loans having the same Interest Period
shall be at least equal to $500,000. The Administrative Agent shall notify each
Bank of the contents of each such notice. Not later than 1:00 P.M. New York, New
York time on the date specified for each Loan hereunder, each Bank will make
available to the Administrative Agent at the Principal Office in immediately
available funds, for the account of the Borrower, its pro rata share of each
Loan. After the Administrative Agent's receipt of such funds and subject to the
other terms and conditions of this Agreement, the Administrative Agent will make
each Loan available to the Borrower by depositing the same, in immediately
available funds, in an account of the Borrower (designated by the Borrower)
maintained with the Administrative Agent at the Principal Office. All notices
under this Section shall be irrevocable and shall be given not later than 1:00
P.M. New York, New York, time on the day which is not less than the number of
Business Days specified above for such notice.
Section 4.2 Conversions and Continuations. The Borrower shall have the
right from time to time to Convert all or part of a Loan of one Type into a Loan
of another Type or to Continue Eurodollar Loans as Eurodollar Loans by giving
the Administrative Agent written notice at least three Business Days before
Conversion into a Base Rate Loan and at least three Business Days before
Conversion into or Continuation of a Eurodollar Loan, specifying: (a) the
Conversion or Continuation date, (b) the amount of the Loan to be Converted or
Continued, (c) in the case of Conversions, the Type of Loan to be Converted
into, and (d) in the case of a Continuation of or Conversion into a Eurodollar
Loan, the duration of the Interest Period applicable thereto; provided that (i)
Eurodollar Loans may only be Converted on the last day of the Interest Period,
and (ii) except for Conversions into Base Rate Loans, no Conversions shall be
made while a Default has occurred and is continuing. The Administrative Agent
shall promptly notify each Bank of the contents of each such notice. All notices
under this Section shall be irrevocable and shall be given not later than 12:00
P.M. New York, New York time on the day which is not less than the number of
Business Days specified above for such notice. If the Borrower shall fail to
give the Administrative Agent the notice as specified above for Continuation or
Conversion of a Eurodollar Loan prior to the end of the Interest Period with
respect thereto, such Eurodollar Loan shall be Converted automatically into a
Base Rate Loan on the last day of the then current Interest Period for such
Eurodollar Loan.
Section 4.3 Method of Payment. All payments of principal, interest,
and other amounts to be made by the Borrower under this Agreement and the other
Loan Documents shall be made to the Administrative Agent at the Principal Office
for the account of each Bank's Applicable Lending Office in Dollars and in
immediately available funds, without setoff, deduction, or counterclaim, not
later than 12:00 P.M., New York, New York time on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). The Borrower
shall, at the time of making each such payment, specify to the Administrative
Agent the sums payable by the Borrower under this Agreement and the other Loan
Documents to which such payment is to be
AMENDED AND RESTATED CREDIT AGREEMENT - Page 26
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applied (and in the event that the Borrower fails to so specify, or if an Event
of Default has occurred and is continuing, the Administrative Agent may apply
such payment to the Obligations in such order and manner as it may elect in its
sole discretion, subject to Section 4.6 hereof). Each payment received by the
Administrative Agent under this Agreement or any other Loan Document for the
account of a Bank shall be paid promptly to such Bank, in immediately available
funds, for the account of such Bank's Applicable Lending Office. Whenever any
payment under this Agreement or any other Loan Document shall be stated to be
due on a day that is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of the payment of interest and commitment fee, as
the case may be.
Section 4.4 Voluntary Prepayment. The Borrower may, upon at least one
Business Day's prior notice to the Administrative Agent in the case of Base Rate
Loans and at least three Business Days' prior notice to the Administrative Agent
in the case of Eurodollar Loans, prepay the Loans in whole at any time or from
time to time in part without premium or penalty (except as set forth in Section
5.5) but with accrued interest to the date of prepayment on the amount so
prepaid, provided that (a) Eurodollar Loans may be prepaid only on the last day
of the Interest Period for such Loans, and (b) each partial prepayment shall be
in the principal amount of $500,000 or an integral multiple thereof. All notices
under this Section 4.4 shall be irrevocable and shall be given not later than
12:00 P.M. New York, New York, time on the day which is not less than the number
of Business Days specified above for such notice.
Section 4.5 Mandatory Prepayment or Addition of Collateral.
(a) If at any time a Borrowing Base Deficiency exists, the
Administrative Agent shall send the Borrower a Payment Notice and the
Borrower shall immediately (except in the case of a redetermination of
the Borrowing Base pursuant to Section 2.8(b)) prepay the outstanding
Loans by the amount of the Borrowing Base Deficiency, plus accrued and
unpaid interest on the amount so prepaid in accordance with this
Section 4.5 unless Borrower exercises the option to increase the
Collateral as provided by Section 4.6. If within 30 days of the date
Borrower receives a Payment Notice the Borrower has not prepaid the
Loans by the amount of the Borrowing Base Deficiency or complied with
Section 4.6 hereof, the amount of the Borrowing Base Deficiency shall
be due and payable in six monthly installments, each in the amount of
one-sixth of the principal amount of the Borrowing Base Deficiency,
plus accrued and unpaid interest thereon, with the first such
installment being due and payable immediately (and in any event,
within 33 days after Borrower received the Payment Notice). During any
period of time in which a Borrowing Base Deficiency has occurred and
is continuing, the Obligations shall bear interest at the Borrowing
Base Deficiency Rate.
(b) After a Borrowing Base has been determined, upon the sale
by the Borrower of any Mortgaged Property (other than the sale of
Hydrocarbons after severance in the ordinary course of business), the
Borrowing Base shall be reduced, effective on the date of consummation
of such sale, by an amount which the Borrower certifies in writing to
the Banks is the Borrowing Base value last assigned to such Mortgaged
Property
AMENDED AND RESTATED CREDIT AGREEMENT - Page 27
<PAGE>
according to the most recent Engineering Reports delivered to the
Banks; provided, however, that if the Required Banks, for any reason,
disagree with the proposed Borrowing Base value certified by the
Borrower, then the Required Banks shall determine, which determination
shall be conclusive absent manifest error, the Borrowing Base value
last assigned to such Mortgaged Property according to the most recent
Engineering Reports delivered to the Banks; provided, further, that no
such reduction to the Borrowing Base shall be required if the
aggregate net sales proceeds of all sales of Mortgaged Property
occurring since the last Determination Date do not exceed $1,000,000,
and provided further, that all such sales shall be subject to the
provisions of Section 10.8. The net proceeds received from the sale of
such Mortgaged Property shall on the first Business Day after receipt,
be applied, to the extent that the sale of any such Mortgaged Property
causes a Borrowing Base Deficiency to exist, to the outstanding Loans
in an amount required to eliminate the Borrowing Base Deficiency. So
long as no Default has occurred and is continuing, any remaining
proceeds may be retained by the Borrower.
(c) If, subsequent to the Closing Date, unless the Required
Banks and the Borrower shall otherwise agree, the Borrower or any of
its Subsidiaries shall issue any Debt, capital stock, equivalent
ownership interests, warrants or options to purchase any of the
foregoing, including without limitation the Subordinated Debt, or
shall incur any Debt other than Permitted Debt, 100% of the Net Cash
Proceeds thereof shall on the first Business Day after receipt, be
applied (i) first, to the Bridge Loan, until such Bridge Loan has been
repaid in full and (ii) second, to the outstanding Loans.
(d) If the Borrower shall make any disposition of assets
(other than dispositions of Hydrocarbons in the ordinary course of
business) permitted by Section 10.8, then 100% of the Net Cash
Proceeds from such disposition shall on the first Business Day after
receipt, be applied (i) first, to the Bridge Loan, unless otherwise
required to be applied to the outstanding Loans pursuant to Section
4.5(b) and (ii) second, to the outstanding Loans.
(e) Within ten days after Borrower has received a Payment
Notice, Borrower shall make a prepayment of principal on the Notes
equal to the amount by which the outstanding principal balance of the
Loans exceeds the Borrowing Base as of such date. Provided, however,
that if the Payment Notice and demand for payment is made in
connection with a quarterly redetermination of the Borrowing Base no
payment of the amount specified above shall be due if Borrower has
notified Administrative Agent in writing (within three days after
Borrower has received the Payment Notice) of Borrower's election to
comply with Section 4.6 hereof and has provided the Administrative
Agent with complete descriptions of the Oil and Gas Properties or
other properties or interests ("New Properties") which Borrower shall
add or cause to be added to the Collateral and subject to Liens in
favor of the Administrative Agent for purposes of Section 4.6 hereof.
Section 4.6 Borrower's Option to Increase Collateral. Within ten days after
the date on which the Administrative Agent receives notice of Borrower's
election to comply with this
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<PAGE>
Section 4.6 in order to avoid a prepayment of amounts required pursuant to
Section 4.5 hereof, Borrower shall grant to the Collateral Agent for the benefit
of itself, the Administrative Agent, the Documentation Agent, the Issuing Banks
and the Banks, valid, enforceable, perfected, first priority liens in the New
Properties, subject to Security Documents and accompanied by title opinions
and/or other evidence of title, each of which shall be in form and substance
satisfactory to the Collateral Agent and the Banks. All such Collateral shall be
subject to a subordinate Lien securing the Bridge Loan. In addition, Borrower
shall deliver to the Collateral Agent upon request, such other information,
data, and reports describing the New Properties and the reserves and production
related thereto, as the Collateral Agent and the Banks shall reasonably request.
Within a reasonable period of time after the date on which the Administrative
Agent receives notice of Borrower's election hereunder, the Banks shall
redetermine (as of the immediately preceding Determination Date) and notify
Borrower of the Borrowing Base determined as if the New Properties were part of
the Collateral as of such Determination Date. Within ten Business Days after
receipt of such notice, Borrower shall make a prepayment of principal on the
Loans equal to the amount (if any) by which the outstanding principal balance of
the Loans, as of such Determination Date, exceeds the Borrowing Base as of such
Determination Date as determined by the Banks pursuant to this Section 4.6. No
redetermination to increase the Borrowing Base shall be effective until the
Collateral Agent has valid, perfected, enforceable first priority Liens on the
New Properties that are to be part of the Collateral.
Section 4.7 Pro Rata Treatment. Except to the extent otherwise
provided herein: (a) each Loan shall be made by the Banks under Section 2.1 or
deemed made by the Banks under Section 3.4, each payment of commitment fee under
Section 2.6 and letter of credit fees under Section 3.5 (other than the 0.125%
issuance fee payable to the Issuing Bank for its own account) shall be made for
the account of the Banks, and each termination or reduction of the Commitments
under Section 2.7 shall be applied to the Commitments of the Banks, pro rata
according to the respective unused Commitments and each Letter of Credit shall
be deemed participated in by the Banks, pro rata according to the amounts of
their respective Commitments; (b) the making, Conversion, and Continuation of
Loans of a particular Type (other than Conversions provided for by Section 5.4)
shall be made pro rata among the Banks holding Loans of such Type according to
the amounts of their respective Commitments; (c) each payment and prepayment of
principal of or interest on Loans by the Borrower of a particular Type shall be
made to the Administrative Agent for the account of the Banks holding Loans of
such Type pro rata in accordance with the respective unpaid principal amounts of
such Loans held by such Banks; and (d) Interest Periods for Loans of a
particular Type shall be allocated among the Banks holding Loans of such Type
pro rata according to the respective principal amounts held by such Banks.
Section 4.8 Non-Receipt of Funds by the Administrative Agent. Unless
the Administrative Agent shall have been notified by a Bank or the Borrower (the
"Payor") prior to the date on which such Bank is to make payment to the
Administrative Agent of the proceeds of a Loan to be made by it hereunder or the
Borrower is to make a payment to the Administrative Agent for the account of one
or more of the Banks, as the case may be (such payment being herein called the
"Required Payment"), which notice shall be effective upon receipt, that the
Payor does not intend to make the Required Payment to the Administrative
AMENDED AND RESTATED CREDIT AGREEMENT - Page 29
<PAGE>
Agent, the Administrative Agent may assume that the Required Payment has been
made and may, in reliance upon such assumption (but shall not be required to),
make the amount thereof available to the intended recipient on such date and, if
the Payor has not in fact made the Required Payment to the Administrative Agent,
the recipient of such payment shall, on demand, pay to the Agent the amount made
available to it together with interest thereon in respect of the period
commencing on the date such amount was so made available by the Administrative
Agent until the date the Administrative Agent recovers such amount at a rate per
annum equal to the Federal Funds Rate for such period.
Section 4.9 Withholding Tax Exemption. Each Bank that is not
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to the Borrower and the Administrative Agent two
duly completed copies of Form 1001 or 4224, certifying in either case that such
Bank is entitled to receive payments from the Borrower under any Loan Document
without deduction or withholding of any United States federal income taxes. Each
Bank which so delivers a Form 1001 or 4224 further undertakes to deliver to
Borrower and the Administrative Agent two additional copies of such form (or a
successor form) on or before the date such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent form so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by the Borrower or the Administrative Agent, in
each case certifying that such Bank is entitled to receive payments from the
Borrower under any Loan Document without deduction or withholding of any United
States federal income taxes, unless an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Bank from duly completing and
delivering any such form with respect to it and such Bank advises the Borrower
and the Administrative Agent that it is not capable of receiving such payments
without any deduction or withholding of United States federal income tax.
Section 4.10 Computation of Interest. Interest on the Eurodollar Loans
shall be computed on the basis of a year of 360 days and the actual number of
days elapsed (including the first day but excluding the last day) unless such
calculation would result in a usurious rate, in which case interest shall be
calculated on the basis of a year of 365 or 366 days, as the case may be.
Interest on Base Rate Loans and all other amounts payable by the Borrower
hereunder shall be computed on the basis of a year of 365 days and the actual
number of days elapsed (including the first day but excluding the last day).
ARTICLE V
Yield Protection and Illegality
Section 5.1 Additional Costs.
(a) The Borrower shall pay directly to each Bank from time to
time such amounts as such Bank may determine to be necessary to
compensate it for any costs incurred by such Bank which such Bank
determines are attributable to its making or
AMENDED AND RESTATED CREDIT AGREEMENT - Page 30
<PAGE>
maintaining of any Eurodollar Loans hereunder or its obligation to
make any of such Loans hereunder, or any reduction in any amount
receivable by such Bank hereunder in respect of any such Loans or such
obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts
payable to such Bank under this Agreement or its Notes in
respect of any of such Loans (other than taxes imposed on the
overall net income of such Bank or its Applicable Lending
Office for any Eurodollar Loans by the jurisdiction in which
such Bank has its principal office or such Applicable Lending
Office);
(ii) imposes or modifies any reserve, special
deposit, minimum capital, capital ratio, or similar
requirement relating to any extensions of credit or other
assets of, or any deposits with or other liabilities or
commitments of, such Bank (including any Eurodollar Loans or
any deposits referred to in the definition of "Eurodollar
Rate" in Section 1.1 hereof); or
(iii) imposes any other condition affecting this
Agreement or the Notes or any of such extensions of credit or
liabilities or commitments.
Each Bank will notify the Borrower of any event occurring after the
date of this Agreement which will entitle such Bank to compensation
pursuant to this Section 5.1(a) as promptly as practicable and in any
event, within 180 days, after it obtains knowledge thereof and
determines to request such compensation, and will designate a
different Applicable Lending Office for the Loans affected by such
event if such designation will avoid the need for, or reduce the
amount of, such compensation and will not, in the sole opinion of such
Bank, violate any law, rule, or regulation or be in any way
disadvantageous to such Bank, provided that such Bank shall have no
obligation to so designate an Applicable Lending Office located
outside the United States of America. Borrower shall not be obligated
to pay for any such amounts if such Bank does not notify the Borrower
that such additional amounts are owing within 180 days of the date
such Bank obtains knowledge thereof. Each Bank will furnish the
Borrower with a certificate setting forth the basis and the amount of
each request of such Bank for compensation under this Section 5.1(a).
If any Bank requests compensation from the Borrower under this Section
5.1(a), the Borrower may, by notice to such Bank (with a copy to the
Administrative Agent) suspend the obligation of such Bank to make or
Continue making, or Convert Loans into, Loans of the Type with respect
to which such compensation is requested until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the
provisions of Section 5.4 hereof shall be applicable).
(b) Without limiting the effect of the foregoing provisions of
this Section 5.1, in the event that, by reason of any Regulatory
Change that becomes effective after date hereof, any Bank either (i)
incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other
liabilities of such
AMENDED AND RESTATED CREDIT AGREEMENT - Page 31
<PAGE>
Bank which includes deposits by reference to which the interest rate
on Eurodollar Loans is determined as provided in this Agreement or a
category of extensions of credit or other assets of such Bank which
includes Eurodollar Loans or (ii) becomes subject to restrictions on
the amount of such a category of liabilities or assets which it may
hold, then, if such Bank so elects by notice to the Borrower (with a
copy to the Administrative Agent), the obligation of such Bank to make
or Continue making, or Convert Loans into, Eurodollar Loans hereunder
shall be suspended until such Regulatory Change ceases to be in effect
(in which case the provisions of Section 5.4 hereof shall be
applicable).
(c) Determinations and allocations by any Bank for purposes of
this Section 5.1 of the effect of any Regulatory Change on its costs
of maintaining its obligations to make Eurodollar Loans or of making
or maintaining Eurodollar Loans or on amounts receivable by it in
respect of Eurodollar Loans, and of the additional amounts required to
compensate such Bank in respect of any Additional Costs, shall be
conclusive, provided that such determinations and allocations are made
on a reasonable basis.
Section 5.2 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, if with respect to any Eurodollar Loans for any Interest Period
therefor:
(a) The Administrative Agent determines (which determination
shall be conclusive) that quotations of interest rates for the
relevant deposits referred to in the definition of "Eurodollar Rate"
in Section 1.1 hereof are not being provided in the relative amounts
or for the relative maturities for purposes of determining the rate of
interest for Eurodollar Loans as provided in this Agreement; or
(b) Required Banks determine (which determination shall be
conclusive) and notify the Administrative Agent that the relevant
rates of interest referred to in the definition of "Eurodollar Rate"
in Section 1.1 hereof on the basis of which the rate of interest for
such Loans for such Interest Period is to be determined do not
accurately reflect the cost to the Banks of making or maintaining
Eurodollar Loans for such Interest Period;
then the Administrative Agent shall give the Borrower prompt notice thereof
specifying the relevant amounts or periods, and so long as such condition
remains in effect, the Banks shall be under no obligation to make additional
Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans and the
Borrower shall, on the last day(s) of the then current Interest Period(s) for
the outstanding Eurodollar Loans, either prepay such Eurodollar Loans or Convert
such Eurodollar Loans into Base Rate Loans in accordance with the terms of this
Agreement.
Section 5.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to (a) honor its obligation to make Eurodollar Loans hereunder or
(b) maintain Eurodollar Loans hereunder, then such Bank shall promptly notify
the Borrower (with a copy to the Administrative Agent) thereof and such Bank's
obligation to make or maintain Eurodollar Loans and to Convert Base Rate Loans
into Eurodollar Loans hereunder shall be suspended until such time as such Bank
may
AMENDED AND RESTATED CREDIT AGREEMENT - Page 32
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again make and maintain Eurodollar Loans (in which case the provisions of
Section 5.4 hereof shall be applicable).
Section 5.4 Treatment of Eurodollar Loans. If the Eurodollar Loans of
any Bank are to be Converted pursuant to Section 5.1 or 5.3 hereof, such Bank's
Eurodollar Loans shall be automatically Converted into Base Rate Loans on the
last day(s) of the then current Interest Period(s) for the Eurodollar Loans (or,
in the case of a Conversion required by Section 5.1(b) or 6.3 hereof, on such
earlier date as such Bank may specify to the Borrower with a copy to the Agent)
and, unless and until such Bank gives notice as provided below that the
circumstances specified in Section 5.1 or 5.3 hereof which gave rise to such
Conversion no longer exist:
(a) To the extent that such Bank's Eurodollar Loans have been
so Converted, all payments and prepayments of principal which would
otherwise be applied to such Bank's Eurodollar Loans shall be applied
instead to its Base Rate Loans;
(b) All Loans which would otherwise be made or Continued by
such Bank as Eurodollar Loans shall be made as or Converted into Base
Rate Loans and all Loans of such Bank which would otherwise be
Converted into Eurodollar Loans shall be Converted instead into (or
shall remain as) Base Rate Loans; and
If such Bank gives notice to the Borrower (with a copy to the Administrative
Agent) that the circumstances specified in Section 5.1 or 5.3 hereof which gave
rise to the Conversion of such Bank's Eurodollar Loans pursuant to this Section
5.4 no longer exist (which such Bank agrees to do promptly upon such
circumstances ceasing to exist) at a time when Eurodollar Loans are outstanding,
such Bank's Base Rate Loans shall be automatically Converted, on the first
day(s) of the next succeeding Interest Period(s) for such outstanding Eurodollar
Loans to the extent necessary so that, after giving effect thereto, all Loans
held by the Banks holding Eurodollar Loans and by such Bank are held pro rata
(as to principal amounts, Types, and Interest Periods) in accordance with their
respective Commitments.
Section 5.5 Compensation. The Borrower shall pay to the Administrative
Agent for the account of each Bank, upon the request of such Bank through the
Administrative Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Bank) to compensate it for any loss, cost, or expense
incurred by it as a result of:
(a) Any payment, prepayment or Conversion of a Eurodollar Loan
for any reason (including, without limitation, the acceleration of the
outstanding Loans pursuant to Section 12.2) on a date other than the
last day of an Interest Period for such Loan; or
(b) Any failure by the Borrower for any reason (including,
without limitation, the failure of any conditions precedent specified
in Article VII to be satisfied) to borrow, Convert, or prepay a
Eurodollar Loan on the date for such borrowing, Conversion, or
prepayment, specified in the relevant notice of borrowing, prepayment,
or Conversion under this Agreement.
AMENDED AND RESTATED CREDIT AGREEMENT - Page 33
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Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid or Converted
or not borrowed for the period from the date of such payment, Conversion, or
failure to borrow to the last day of the Interest Period for such Loan (or, in
the case of a failure to borrow, the Interest Period for such Loan which would
have commenced on the date specified for such borrowing) at the applicable rate
of interest for such Loan provided for herein over (ii) the interest component
of the amount such Bank would have bid in the London interbank market for Dollar
deposits of leading banks and amounts comparable to such principal amount and
with maturities comparable to such period.
Section 5.6 Capital Adequacy. If after the date hereof, any Bank shall
have determined that the adoption or implementation of any applicable law, rule,
or regulation regarding capital adequacy, or any change therein, or any change
in the interpretation or administration thereof by any central bank or other
Governmental Authority charged with the interpretation or administration
thereof, or compliance by such Bank (or its parent) with any guideline, request,
or directive regarding capital adequacy (whether or not having the force of law)
of any central bank or other Governmental Authority, has or would have the
effect of reducing the rate of return on such Bank's (or its parent's) capital
as a consequence of its obligations hereunder or the transactions contemplated
hereby to a level below that which such Bank (or its parent) could have achieved
but for such adoption, implementation, change or compliance (taking into
consideration such Bank's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within ten
Business Days after demand by such Bank (with a copy to the Agent), the Borrower
shall pay to such Bank such additional amount or amounts as will compensate such
Bank (or its parent) for such reduction; provided, however, Borrower shall not
be liable for any such amounts unless the Bank to which such amounts are due
gives Borrower notice thereof within 180 days of the date that such Bank obtains
knowledge that such additional compensation is owing. A certificate of such Bank
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive, provided that the
determination thereof is made on a reasonable basis. In determining such amount
or amounts, such Bank may use any reasonable averaging and attribution methods.
Section 5.7 Additional Costs in Respect of Letters of Credit. If as a
result of any Regulatory Change there shall be imposed, modified, or deemed
applicable any tax, reserve, special deposit, or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder or the commitments to issue or participate in Letters of Credit
hereunder, and the result shall be to increase the cost to the Issuing Banks or
any Bank of issuing, maintaining or participating in any Letter of Credit or its
commitment to issue or participate in Letters of Credit hereunder or reduce any
amount receivable by any Issuing Bank or any Bank hereunder in respect of any
Letter of Credit (which increase in cost, or reduction in amount receivable,
shall be the result of such Issuing Bank's or such Bank's reasonable allocation
of the aggregate of such increases or reductions resulting from such event),
then, upon demand by such Issuing Bank or such Bank, the Borrower agrees to pay
such Issuing Bank or such Bank, from time to time as specified by such Issuing
Bank or such Bank, such additional amounts as shall be sufficient to compensate
such Issuing Bank or such Bank for such
AMENDED AND RESTATED CREDIT AGREEMENT - Page 34
<PAGE>
increased costs or reductions in amount. A statement as to such increased costs
or reductions in amount incurred by such Issuing Bank or such Bank, submitted by
such Issuing Bank or such Bank to the Borrower, shall be conclusive as to the
amount thereof, provided that the determination thereof is made on a reasonable
basis.
ARTICLE VI
Security
Section 6.1 Collateral. To secure full and complete payment and
performance of the Obligations, the Borrower shall execute and deliver or cause
to be executed and shall grant or cause to be granted to the Collateral Agent
for the benefit of itself, the other Agents, the Issuing Banks, the Banks, and
the Bridge Lenders or confirm that the Collateral Agent possesses, a perfected
first priority Lien on substantially all of the Property of the Borrower and its
Material Subsidiaries whether now owned or hereafter acquired (which, together
with any other property and collateral which may now or hereafter secure the
Obligations or any part thereof, is sometimes herein called the "Collateral"),
including the following:
(a) The Mortgaged Properties, which shall consist of
properties, constituting at least 80% of the present value of the
Borrower's and the Material Subsidiaries proved reserves (whether
developed or undeveloped).
(b) All Hydrocarbons which are derived from or attributable to
the Mortgaged Properties or which are purchased, exchanged or
transported in connection with the operation of the Gas Gathering
Systems.
(c) All accounts (including accounts in the form of joint
interest billings), contract rights and general intangibles, relating
to the sale, purchase, exchange, transportation or processing of
Hydrocarbons in connection with operation of the Gas Gathering Systems
or produced or to be produced from the Mortgaged Properties, including
without limitation all operating agreements and oil or gas purchase,
sale and transportation contracts, together with all accounts and
proceeds attributable to the sale of Hydrocarbons produced from the
Mortgaged Properties or any portion thereof or sold or transported in
connection with the operation of the Gas Gathering Systems.
(d) All personal property and fixtures pertaining, affixed or
incidental to, situated upon or used or useful in connection with all
or any part of the Mortgaged Properties and the operating, working or
developing thereof, including without limitation all surface or
subsurface machinery, equipment, facilities or other Property of
whatever kind or nature which are useful for the production,
treatment, storage or transportation of any Hydrocarbons, including,
but not by way of limitation, all oil wells, gas wells, water wells,
injection wells, other wells, casing, tubing, rods, pumps, pumping
units and engines, Christmas trees, derricks, separators, gun barrels,
flow lines, tanks, gas systems (for gathering, treating and
compression), water systems (for treating, disposal and injection),
power plants, poles, lines, transformers, starters and controllers,
machine shops,
AMENDED AND RESTATED CREDIT AGREEMENT - Page 35
<PAGE>
tools, storage yards and equipment stored therein, buildings and
camps, structures, field separators, liquid extraction plants, plant
compressors, field gathering systems, pipelines, tanks and tank
batteries, fixtures, valves, fittings, parts, engines, boilers,
meters, apparatus, appliances, tools, implements, cables, wires,
towers, telegraph, telephone and other communication systems, roads,
loading racks and shipping facilities.
(e) All logs, drilling reports, geophysical or geological
data, division orders, transfer orders, operating agreements,
abstracts, title opinions, files, records, memoranda and other written
information in the possession or control of the Borrower or the
Material Subsidiaries not subject to specific confidentiality
agreements binding upon Borrower or its Subsidiaries relating to any
wells included in the Mortgaged Properties.
(f) All accounts, accounts receivable, investment property,
chattel paper, documents, instruments, and general intangibles of the
Borrower and its Material Subsidiaries, whether now owned or hereafter
acquired, and all products and proceeds thereof, pursuant to the
Borrower Pledge Agreement and the Subsidiary Pledge Agreement.
(g) All of the outstanding capital stock of the Material
Subsidiaries, whether now owned or hereafter acquired, and all
products and proceeds thereof, pursuant to the Borrower Pledge
Agreement and the Subsidiary Pledge Agreement. The Collateral Agent
shall retain possession of the certificates evidencing the capital
stock of the Material Subsidiaries, together with stock powers duly
executed in blank.
(h) All products and proceeds of any and all of the foregoing
and all additions, substitutions, replacements, accessions and
attachments to any and all of the foregoing.
All Liens granted by the Borrower to Collateral Agent in respect of
the above-described property shall also secure the Borrower's
obligations in respect of the Bridge Loan on a subordinated basis, to
the satisfaction of the Banks, in their sole discretion.
Section 6.2 Security Documents. Borrower and each Subsidiary shall
execute and cause to be executed such deeds of trust, mortgages, security
agreements and other documents and instruments including without limitation
Uniform Commercial Code financing statements, as the Collateral Agent and the
Banks, in their sole discretion, deem necessary or desirable to create, evidence
and perfect the Collateral Agent's Liens in the Collateral (including, without
limitation, the Liens securing the Bridge Loan). Borrower, the Collateral Agent
and the Banks agree that Schedules 1.1 and 1.1(b) shall be amended and
additional Security Documents executed from time to time to reflect the addition
of New Properties to the Collateral, such amendment to be made upon the granting
by Borrower or any Subsidiary, as the case may be, to the Collateral Agent of
valid, enforceable, perfected first priority Liens on the New Properties
pursuant to Section 4.6 hereof.
Section 6.3 Evidence of Title; Legal Opinions. On or before the 30 days
after the Closing Date, Borrower shall obtain and deliver, or cause to be
obtained and delivered, to the
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Collateral Agent (a) at the Collateral Agent's option, landman title reviews,
title opinions, reports and/or runsheets dated a current date, addressed to the
Agents, the Issuing Banks and the Banks and issued by landmen and/or attorneys
acceptable to the Administrative Agent competent in the examination of land
title, relating to those Mortgaged Properties identified by the Administrative
Agent, and showing that (i) Borrower has good and defensible title to such
Mortgaged Properties including all production of Hydrocarbons therefrom, and
(ii) the Security Documents create in favor of the Collateral Agent a perfected,
first priority Lien on such Mortgaged Properties including all production of
Hydrocarbons therefrom; and (b) an opinion of New Mexico and Oklahoma legal
counsel addressed to the Agents, the Issuing Banks and the Banks as to the
enforceability and form of the mortgages to be filed in the States of New Mexico
and Oklahoma.
Section 6.4 Subsidiary Guaranty Agreement. Each Subsidiary (other than
the Excluded Subsidiaries) of Borrower, whether now owned or hereafter acquired,
shall guarantee the prompt payment and performance of the Obligations pursuant
to the Subsidiary Guaranty Agreement and shall execute a counterpart of the
Subsidiary Pledge Agreement.
Section 6.5 Setoff. If an Event of Default shall have occurred and is
continuing, each Agent, each Issuing Bank and each Bank are hereby authorized at
any time and from time to time, without notice to the Borrower (any such notice
being hereby expressly waived by the Borrower), to set off and apply any and all
deposits (general, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by each Agent, each Issuing Bank or such
Bank to or for the credit or the account of the Borrower against any and all of
the obligations of the Borrower now or hereafter existing under this Agreement,
the Notes, or any other Loan Document, irrespective of whether or not such
Agent, such Issuing Bank or such Bank shall have made any demand under this
Agreement, the Notes or any other Loan Document and although such obligations
may be unmatured. Each Agent, each Issuing Bank and each Bank agree promptly to
notify the Borrower (with a copy to the Administrative Agent) after any such
setoff and application, provided that the failure to give such notice shall not
affect the validity of such setoff and application. The rights and remedies of
each Agent, each Issuing Bank and each Bank hereunder are in addition to other
rights and remedies (including, without limitation, other rights of setoff)
which each Agent, each Issuing Bank and each such Bank may have.
ARTICLE VII
Conditions Precedent
Section 7.1 Initial Loan. The obligation of each Bank to make its
initial Loan or of any Issuing Bank to issue the initial Letter of Credit is
subject to the condition precedent that the Administrative Agent shall have
received on or before the day of such Loan or issuance of all of the following,
each dated (unless otherwise indicated) the date hereof, in form and substance
satisfactory to the Administrative Agent:
(a) Resolutions. Resolutions of the Board of Directors of
the Borrower and each Obligated Party certified by its Secretary or an
Assistant Secretary which authorize
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the execution, delivery, and performance by such Person of the Loan
Documents to which such Person is or is to be a party;
(b) Incumbency Certificate. A certificate of incumbency
certified by the Secretary or an Assistant Secretary of the Borrower
and each Obligated Party certifying the names of the officers of such
Person authorized to sign this Agreement and each of the other Loan
Documents to which such Person is or is to be a party (including the
certificates contemplated herein) together with specimen signatures of
such officers;
(c) Articles of Incorporation. The articles of incorporation
of the Borrower and each Obligated Party certified by the Secretary of
State of the state of incorporation of such Person and dated within
ten days prior to the date of the initial Loan or issuance of a Letter
of Credit;
(d) Bylaws.The bylaws of the Borrower and each Obligated Party
certified by the Secretary or an Assistant Secretary of such Person;
(e) Governmental Certificates. Certificates of (i) the
appropriate government officials of the state of incorporation of the
Borrower and each Obligated Party as to the existence and good
standing of such Person, and (ii) the appropriate government officials
in each jurisdiction where Borrower or any Obligated Party is
qualified to do business as to its good standing and qualification to
do business in such jurisdiction, each dated within ten days prior to
the date of the initial Loan or issuance of a Letter of Credit;
(f) Notes. The Notes executed by the Borrower;
(g) Borrower Pledge Agreement. The Borrower Pledge Agreement
executed by the Borrower;
(h) Subsidiary Pledge Agreement. The Subsidiary Pledge
Agreement executed by each Guarantor;
(i) Financing Statements. Uniform Commercial Code financing
statements executed by the Borrower and each Guarantor covering the
Collateral;
(j) Subsidiary Guaranty Agreement. The Subsidiary Guaranty
Agreement executed by each Guarantor;
(k) Stock Certificates. The original certificates evidencing
the stock pledged by Borrower pursuant to the Borrower Pledge
Agreement and by Magnum Hunter Production, Inc. pursuant to the
Subsidiary Pledge Agreement, together with stock powers duly executed
in blank by such Persons;
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(l) Mortgages and Security Agreements. Mortgages, deeds of
trust and security agreements in form and substance satisfactory to
the Agent and the Banks covering the Mortgaged Properties;
(m) Environmental Due Diligence. The completion of a
satisfactory due diligence review of all environmental matters by the
Banks;
(n) Title. Evidence satisfactory in form and substance to the
Administrative Agent and the Banks that the Borrower and its
Subsidiaries have good and marketable title, subject to no other
Liens, to Mortgaged Properties representing at least 80% of the
discounted (at 10%) present value of the initial Borrowing Base;
(o) Fee Letter. The Agents Fee Letter executed by Borrower and
evidence that all fees due and payable thereunder or under Section
14.1, to the extent incurred, have been paid in full;
(p) Acquisition. A certificate from the president or chief
financial officer of Borrower certifying that all conditions precedent
to the consummation of the Acquisition for a purchase price not to
exceed $145,000,000 shall have been satisfied, and the Borrower's due
diligence in connection with the Acquisition and the terms and
conditions contained in the Acquisition Documents shall be
satisfactory in form and substance to the Agent;
(q) Acquisition Documents. True, correct and complete copies
of all of the Acquisition Documents;
(r) Material Adverse Change. No material adverse change shall
have occurred since the date of the most recent financial statements
delivered by Borrower to the Administrative Agent, in the financial
condition, business, operations, or prospects of the Borrower or any
Material Subsidiary or in its assets, liabilities and properties and
there shall be no material threatened or pending litigation adversely
affecting its property and no material adverse change shall have
occurred in the financial condition, business, operations, or
prospects of the business to be acquired pursuant to the Acquisition;
(s) Insurance Policies. Copies of all insurance policies
required by Section 9.5, and a satisfactory review of such insurance
policies by insurance brokers or consultants acceptable to the
Administrative Agent;
(t) UCC Searches. The results of a Uniform Commercial Code
search showing all financing statements and other documents or
instruments on file against the Borrower and the Guarantors in such
jurisdictions as the Administrative Agent shall determine, such
searches to be as of a date no more than ten days prior to the date of
the initial Loan or issuance of a Letter of Credit;
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(u) Lien Releases. Executed UCC-3 Termination Statements and
other Lien releases that release or assign to the Collateral Agent all
Liens held by holders of Debt not constituting Permitted Debt and all
other Liens that do not constitute Permitted Liens;
(v) Lien Assignments. Executed UCC-3 Assignments that assign
all Liens in favor of Wells Fargo to the Collateral Agent, together
with the Assignment of Liens in form and substance satisfactory to the
Collateral Agent.
(w) Opinion of Counsel. A favorable opinion of Thompson &
Knight, special legal counsel to the Borrower and the Material
Subsidiaries, as to such matters as the Agents and their counsel may
reasonably request; and
(x) Form U-1 Purpose Statement. A Form U-1 Purpose Statement
duly completed and executed by the Borrower.
(y) Bridge Loan. Evidence that the Bridge Loan has been
funded.
(z) Engineering Reports. Engineering Reports for all existing
reserves owned by the Borrower and for the reserve(s) to be acquired
by the Borrower pursuant to the Acquisition, each of which shall be
prepared by Ryder Scott Company Petroleum Engineers, Gaffney, Cline &
Associates, Inc., Glenn Harrison Petroleum Consultants, Inc., or
another independent engineering firm acceptable to the Administrative
Agent and each of which shall be satisfactory to the Administrative
Agent, in its sole discretion.
(aa) Financial Statements. Audited financial statement of
the Borrower for the fiscal year ending December 31, 1996, together
with an unqualified opinion from a recognized independent accounting
firm.
(bb) Repayment of Bank Debt. Evidence that all existing bank
debt has been repaid in full as of the Closing Date.
(cc) Due Diligence. The completion of a satisfactory due
diligence review of the Borrower, including without limitation, its
corporate legal structure.
(dd) Hedge Agreements. Copies of any and all financial
interest swap agreements or similar contractual arrangements intended
to hedge market price fluctuations and interest rates applicable to
this Agreement or crude oil, natural gas or other Hydrocarbons, each
of which shall be satisfactory to the Banks, in their sole discretion.
(ee) Commitment to Repay Bridge Loan. An engagement letter
duly executed by a firm approved by the Administrative Agent for the
arrangement of financing specifically dedicated to the repayment of
the Bridge Loan, which engagement letter shall contain terms and
conditions satisfactory to the Administrative Agent, in its sole
discretion.
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(ff) Intercreditor Agreement The executed Intercreditor
Agreement, in form and substance satisfactory to the Banks in their
sole discretion.
(gg) Additional Documentation. Such additional approvals,
opinions, or documents as the Administrative Agent or its legal
counsel, Winstead Sechrest & Minick P.C., may reasonably request.
Section 7.2 All Loans. The obligation of each Bank to make any Loan or
issue any Letter of Credit (including the initial Loan or issuance) is subject
to the following additional conditions precedent:
(a) Request for Loan or Letter of Credit. The Administrative
Agent or the Issuing Bank shall have received, in accordance with
Section 4.1 or 3.3, as the case may be, a Loan Request Form or Letter
of Credit Request Form, dated the date of such Loan or Letter of
Credit, executed by an authorized officer of the Borrower;
(b) No Default. No Default shall have occurred and be
continuing, or would result from such Loan or Letter of Credit, as the
case may be;
(c) Representations and Warranties. All of the representations
and warranties contained in Article VIII hereof and in the other Loan
Documents shall be true and correct on and as of the date of such Loan
with the same force and effect as if such representations and
warranties had been made on and as of such date; and
(d) Additional Documentation. The Administrative Agent shall
have received such additional approvals, opinions, or documents as the
Administrative Agent or its legal counsel, Winstead Sechrest & Minick
P.C., may reasonably request.
ARTICLE VIII
Representations and Warranties
To induce the Agents, the Issuing Banks and the Banks to enter into
this Agreement, the Borrower represents and warrants to the Agents, the Issuing
Banks and the Banks that:
Section 8.1 Corporate Existence. The Borrower and each Material
Subsidiary (a) is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation; (b) has all
requisite corporate power and authority to own its assets and carry on its
business as now being or as proposed to be conducted; and (c) is qualified to do
business in all jurisdictions in which the nature of its business makes such
qualification necessary and where failure to so qualify would have a material
adverse effect on its business, condition (financial or otherwise), operations,
prospects, or properties. The Borrower has the corporate power and authority to
execute, deliver, and perform its obligations under this Agreement and the other
Loan Documents to which it is or may become a party.
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Section 8.2 Financial Statements. The Borrower has delivered to the
Administrative Agent audited consolidated financial statements of the Borrower
and its Subsidiaries as at and for the fiscal year ended December 31, 1996. Such
financial statements are true and correct, have been prepared in accordance with
GAAP, and fairly and accurately present, on a consolidated basis, the financial
condition of the Borrower and its Subsidiaries as of the respective dates
indicated therein and the results of operations for the respective periods
indicated therein. Neither the Borrower nor any of its Subsidiaries has any
material contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments, or unrealized or anticipated losses from any unfavorable
commitments except as scheduled or referred to or reflected in such financial
statements. There has been no material adverse change in the business, condition
(financial or otherwise), operations, prospects, or properties of the Borrower
or any of its Subsidiaries since the effective date of the most recent audited
financial statements delivered to the Agent and the Banks.
Section 8.3 Corporate Action; No Breach. The execution, delivery, and
performance by the Borrower of this Agreement and the other Loan Documents to
which the Borrower is or may become a party and compliance with the terms and
provisions hereof and thereof have been duly authorized by all requisite
corporate action on the part of the Borrower and do not and will not (a) violate
or conflict with, or result in a breach of, or require any consent under (i) the
articles of incorporation or bylaws of the Borrower or any of the Subsidiaries,
(ii) any applicable law, rule, or regulation or any order, writ, injunction, or
decree of any Governmental Authority or arbitrator, or (iii) any agreement or
instrument to which the Borrower or any of the Subsidiaries is a party or by
which any of them or any of their property is bound or subject, or (b)
constitute a default under any such agreement or instrument, or result in the
creation or imposition of any Lien (except as provided in Article VI) upon any
of the revenues or assets of the Borrower or any Subsidiary.
Section 8.4 Operation of Business. The Borrower and each of its
Subsidiaries possess all licenses, permits, franchises, patents, copyrights,
trademarks, and tradenames, or rights thereto, necessary to conduct their
respective businesses substantially as now conducted and as presently proposed
to be conducted, and the Borrower and each of its Subsidiaries are not in
violation of any valid rights of others with respect to any of the foregoing.
Section 8.5 Litigation and Judgments. Except as disclosed on Schedule
8.5 hereto, there is no action, suit, investigation, or proceeding before or by
any Governmental Authority or arbitrator pending, or to the knowledge of the
Borrower, threatened against or affecting the Borrower or any Subsidiary, that
would, if adversely determined, have a material adverse effect on the business,
condition (financial or otherwise), operations, prospects, or properties of the
Borrower or any Subsidiary or the ability of the Borrower to pay and perform the
Obligations. There are no outstanding judgments against the Borrower or any
Subsidiary.
Section 8.6 Rights in Properties; Liens. The Borrower and each
Subsidiary have good and indefeasible title to or valid leasehold interests in
their respective properties and assets, real and personal, including the
properties, assets, and leasehold interests reflected in the financial
AMENDED AND RESTATED CREDIT AGREEMENT - Page 42
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statements described in Section 8.2, and none of the properties, assets, or
leasehold interests of the Borrower or any Subsidiary is subject to any Lien,
except the Permitted Liens.
Section 8.7 Enforceability. This Agreement constitutes, and the other
Loan Documents to which the Borrower is party, when delivered, shall constitute
the legal, valid, and binding obligations of the Borrower, enforceable against
the Borrower in accordance with their respective terms, except as limited by
bankruptcy, insolvency, or other laws of general application relating to the
enforcement of creditors' rights.
Section 8.8 Approvals. No authorization, approval, or consent of, and
no filing or registration with, any Governmental Authority or third party is or
will be necessary for the execution, delivery, or performance by the Borrower of
this Agreement and the other Loan Documents to which the Borrower is or may
become a party or for the validity or enforceability thereof.
Section 8.9 Debt. The Borrower and its Material Subsidiaries have no
Debt, except as disclosed on Schedule 8.9 hereto.
Section 8.10 Taxes. The Borrower and each Subsidiary have filed all
tax returns (federal, state, and local) required to be filed, including all
income, franchise, employment, property, and sales tax returns, and have paid
all of their respective liabilities for taxes, assessments, governmental
charges, and other levies that are due and payable. The Borrower knows of no
pending investigation of the Borrower or any Subsidiary by any taxing authority
or of any pending but unassessed tax liability of the Borrower or any
Subsidiary.
Section 8.11 Use of Proceeds; Margin Securities. Neither the Borrower
nor any Subsidiary is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulations G, T, U, or X of the
Board of Governors of the Federal Reserve System), and no part of the proceeds
of any Loan will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying margin stock.
Section 8.12 ERISA. The Borrower and each Subsidiary are in compliance
in all material respects with all applicable provisions of ERISA. Neither a
Reportable Event nor a Prohibited Transaction has occurred and is continuing
with respect to any Plan. No notice of intent to terminate a Plan has been
filed, nor has any Plan been terminated. No circumstances exist which constitute
grounds entitling the PBGC to institute proceedings to terminate, or appoint a
trustee to administer, a Plan, nor has the PBGC instituted any such proceedings.
Neither the Borrower nor any ERISA Affiliate has completely or partially
withdrawn from a Multiemployer Plan. The Borrower and each ERISA Affiliate have
met their minimum funding requirements under ERISA with respect to all of their
Plans, and the present value of all vested benefits under each Plan do not
exceed the fair market value of all Plan assets allocable to such benefits, as
determined on the most recent valuation date of the Plan and in accordance with
ERISA. Neither the Borrower nor any ERISA Affiliate has incurred any liability
to the PBGC under ERISA.
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Section 8.13 Disclosure. No statement, information, report,
representation, or warranty made by the Borrower in this Agreement or in any
other Loan Document or furnished to the Administrative Agent, the Issuing Bank
or any Bank in connection with this Agreement or any transaction contemplated
hereby contains any untrue statement of a material fact or omits to state any
material fact necessary to make the statements herein or therein not misleading.
There is no fact known to the Borrower which has a material adverse effect, or
which might in the future have a material adverse effect, on the business,
condition (financial or otherwise), operations, prospects, or properties of the
Borrower or any Subsidiary that has not been disclosed in writing to the
Administrative Agent, the Issuing Bank and the Banks.
Section 8.14 Subsidiaries. The Borrower has no Subsidiaries other than
those listed on Schedule 8.14 hereto, and Schedule 8.14 sets forth the
jurisdiction of incorporation of each Subsidiary, the percentage of the
Borrower's ownership of the outstanding voting stock of each Subsidiary and
designates each Excluded Subsidiary. All of the outstanding capital stock of
each Subsidiary has been validly issued, is fully paid, and is nonassessable.
Section 8.15 Agreements. Neither the Borrower nor any Subsidiary is a
party to any indenture, loan, or credit agreement, or to any lease or other
agreement or instrument, or subject to any charter or corporate restriction
which could have a material adverse effect on the business, condition (financial
or otherwise), operations, prospects, or properties of the Borrower or any
Subsidiary, or the ability of the Borrower to pay and perform its obligations
under the Loan Documents to which it is a party. Neither the Borrower nor any
Subsidiary is in default in any respect in the performance, observance, or
fulfillment of any of the obligations, covenants, or conditions contained in any
agreement or instrument material to its business to which it is a party.
Section 8.16 Compliance with Laws. Neither the Borrower nor any
Subsidiary is in violation in any material respect of any law, rule, regulation,
order, or decree of any Governmental Authority or arbitrator.
Section 8.17 Inventory. All inventory of the Borrower has been
produced in substantial compliance with all applicable laws, rules, regulations,
and governmental standards, including, without limitation, the minimum wage and
overtime provisions of the Fair Labor Standards Act, as amended (29 U.S.C.
ss.ss. 201-219), and the regulations promulgated thereunder.
Section 8.18 Investment Company Act. Neither the Borrower nor any
Subsidiar is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 8.19 Public Utility Holding Company Act. Neither the Borrower
nor any Subsidiary is a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" or a "public utility"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
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Section 8.20 Environmental Matters. Except as disclosed on Schedule 8.20
hereto:
(a) Except where the failure to obtain or comply could not
reasonably be expected to have a material adverse effect, the
Borrower, each Subsidiary, and all of their respective Properties,
assets, and operations are in compliance in all material respects with
all Environmental Laws. The Borrower is not aware of, nor has the
Borrower received notice of, any past, present, or future conditions,
events, activities, practices, or incidents which may interfere with
or prevent the compliance or continued compliance of the Borrower and
the Subsidiaries with all Environmental Laws;
(b) Except where the failure to obtain or comply could not
reasonably be expected to have a material adverse effect, the Borrower
and each Subsidiary have obtained all permits, licenses, and
authorizations that are required under applicable Environmental Laws,
and have received no notice that all such permits are not in good
standing, or that the Borrower and its Subsidiaries are not in
compliance with all of the terms and conditions of such permits;
(c) Except where the failure to obtain or comply could not
reasonably be expected to have a material adverse effect, no Hazardous
Materials exist on, about, or within or have been used, generated,
stored, transported, disposed of on, or Released from any of the
properties or assets of the Borrower or any Subsidiary except in
amounts that would not violate applicable law. The use which the
Borrower and the Subsidiaries make and intend to make of their
respective properties and assets will not result in the use,
generation, storage, transportation, accumulation, disposal, or
Release of any Hazardous Material on, in, or from any of their
properties or assets except in amounts that would not violate
applicable law;
(d) Neither the Borrower nor any of its Subsidiaries nor any
of their respective currently or previously owned or leased properties
or operations is subject to any outstanding or, to the best of its
knowledge, threatened order from or agreement with any Governmental
Authority or other Person or subject to any judicial or docketed
administrative proceeding with respect to (i) failure to comply with
Environmental Laws, (ii) Remedial Action, or (iii) any Environmental
Liabilities arising from a Release or threatened Release;
(e) Except where the failure to obtain or comply could not
reasonably be expected to have a material adverse effect, there are no
conditions or circumstances associated with the currently or
previously owned or leased properties or operations of the Borrower or
any of its Subsidiaries that could reasonably be expected to give rise
to any Environmental Liabilities;
(f) Neither the Borrower nor any of its Subsidiaries is a
treatment, storage, or disposal facility requiring a permit under the
Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq.,
regulations thereunder or any comparable provision of state
AMENDED AND RESTATED CREDIT AGREEMENT - Page 45
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law. The Borrower and its Subsidiaries are in substantial compliance
with all applicable financial responsibility requirements of all
Environmental Laws;
(g) Neither the Borrower nor any of its Subsidiaries has filed
or to the best of Borrower's knowledge, failed to file any notice
required under applicable Environmental Law reporting a Release; and
(h) The Borrower has received no notice that a Lien arising
under any Environmental Law has attached to any property or revenues
of the Borrower or its Subsidiaries.
ARTICLE IX
Positive Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder or any
Issuing Bank has any obligation to issue Letters of Credit hereunder, the
Borrower will perform and observe the following positive covenants:
Section 9.1 Reporting Requirements. The Borrower will furnish to
each Agent, each Issuing Bank and each Bank:
(a) Annual Financial Statements. As soon as available, and in
any event within 100 days after the end of each fiscal year of the
Borrower, beginning with the fiscal year ending December 31, 1997, (i)
a copy of the annual audit report of the Borrower and the Subsidiaries
for such fiscal year containing, on a consolidated basis, balance
sheets and statements of income, retained earnings, and cash flow as
at the end of such fiscal year and for the 12-month period then ended,
in each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and audited and
certified by independent certified public accountants of recognized
standing acceptable to the Administrative Agent, to the effect that
such report has been prepared in accordance with GAAP; and (ii) a
certificate of such independent certified public accountants to the
Administrative Agent (A) stating that to their knowledge no Default
has occurred and is continuing, or if in their opinion a Default has
occurred and is continuing, a statement as to the nature thereof, and
(B) confirming the calculations set forth in the officer's certificate
delivered simultaneously therewith;
(b) Quarterly Financial Statements. As soon as available, and
in any event within 50 days after the end of each of the quarters of
each fiscal year of the Borrower, a copy of an unaudited financial
report of the Borrower and the Subsidiaries as of the end of such
fiscal quarter and for the portion of the fiscal year then ended,
containing, on a consolidated basis, balance sheets and statements of
income, retained earnings, and cash flow, in each case setting forth
in comparative form the figures for the corresponding period of the
preceding fiscal year, all in reasonable detail certified by the chief
financial
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officer of the Borrower to have been prepared in accordance with GAAP
and to fairly and accurately present (subject to year-end audit
adjustments) the financial condition and results of operations of the
Borrower and the Subsidiaries, on a consolidated basis, at the date
and for the periods indicated therein;
(c) Compliance Certificate. Concurrently with the delivery of
each of the financial statements referred to in subsections 9.1(a) and
(b), a certificate of the chief executive officer or chief financial
officer of the Borrower (i) stating that to the best of such officer's
knowledge, no Default has occurred and is continuing, or if a Default
has occurred and is continuing, a statement as to the nature thereof
and the action that is proposed to be taken with respect thereto, and
(ii) showing in reasonable detail the calculations demonstrating
compliance with Article XI;
(d) Management Letters. Promptly upon receipt thereof, a
copy of any management letter or written report submitted to the
Borrower or any Subsidiary by independent certified public accountants
with respect to the business, condition (financial or otherwise),
operations, prospects, or properties of the Borrower or any Subsidiary
(e) Notice of Litigation. Promptly after the commencement
thereof, notice of all actions, suits, and proceedings before any
Governmental Authority or arbitrator affecting the Borrower or any
Subsidiary which, if determined adversely to the Borrower or such
Subsidiary, could have a material adverse effect on the business,
condition (financial or otherwise), operations, prospects, or
properties of the Borrower or such Subsidiary;
(f) Notice of Default. As soon as possible and in any event
within five days after the occurrence of each Default, a written
notice setting forth the details of such Default and the action that
the Borrower has taken and proposes to take with respect thereto;
(g) ERISA Reports. Promptly after the filing or receipt
thereof, copies of all reports, including annual reports, and notices
which the Borrower or any Subsidiary files with or receives from the
PBGC or the U.S. Department of Labor under ERISA; and as soon as
possible and in any event within five days after the Borrower or any
Subsidiary knows or has reason to know that any Reportable Event or
Prohibited Transaction has occurred with respect to any Plan or that
the PBGC or the Borrower or any Subsidiary has instituted or will
institute proceedings under Title IV of ERISA to terminate any Plan, a
certificate of the chief financial officer of the Borrower setting
forth the details as to such Reportable Event or Prohibited
Transaction or Plan termination and the action that the Borrower
proposes to take with respect thereto;
(h) Reports to Other Creditors. Promptly after the furnishing
thereof, copies of any statement or report furnished to any other
party pursuant to the terms of any indenture, loan, or credit or
similar agreement and not otherwise required to be furnished
AMENDED AND RESTATED CREDIT AGREEMENT - Page 47
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to the Administrative Agent, the Issuing Bank and the Banks pursuant
to any other clause of this Section 9.1;
(i) Notice of Material Adverse Change. As soon as possible and
in any event within five days after the occurrence thereof, written
notice of any matter that could have a material adverse effect on the
business, condition (financial or otherwise), operations, prospects,
or properties of the Borrower or any Subsidiary;
(j) Proxy Statements, Etc. As soon as available and in any
event within ten days of sending or filing with the Securities and
Exchange Commission or successor agency, one copy of each financial
statement, report, notice or proxy statement sent by the Borrower or
any Subsidiary to its stockholders generally and one copy of each
regular, periodic or special report, form (including, without
limitation, all 10-K and 10-Q filings), registration statement, or
prospectus filed by the Borrower or any Subsidiary with any securities
exchange or the Securities and Exchange Commission or any successor
agency;
(k) General Information. Promptly, such other information
concerning the Borrower or any Subsidiary as the Administrative Agent
or any Bank may from time to time reasonably request;
(l) Reserve Reports.
(i) On or before April 1 of each calendar year at
Borrower's expense, an annual report in form and substance
satisfactory to the Administrative Agent and the Banks
prepared by an independent third party engineering firm
acceptable to the Administrative Agent and the Banks dated as
of December 31 of the preceding year, reflecting the quantity
of existing proven and producing oil and gas reserves
attributable to the Mortgaged Properties and any New
Properties added since the last such annual report submitted
to the Administrative Agent and the Banks, a projection of the
rate of production and net operating income with respect
thereto as of such date, and such other information as is
customarily obtained from and provided in such reports;
(ii) On or before October 1 of each calendar year at
Borrower's expense, a report in form and substance
satisfactory to the Administrative Agent and the Banks
prepared by Borrower dated as of June 30 of such year,
reflecting the quantity of existing proven and producing oil
and gas reserves attributable to the Mortgaged Properties and
any New Properties submitted to the Administrative Agent and
the Banks for the first six months of such year, a projection
of the rate of production and net operating income with
respect thereto as of such date, and such other information as
is customarily obtained from and provided in such reports; and
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(iii) Concurrently with the delivery of each of the
financial statements referred to in Subsection 9.1(b), a
report in form and substance satisfactory to the
Administrative Agent and the Banks prepared by the chief
petroleum engineer of the Borrower, reflecting the quantity of
existing proven and producing oil and gas reserves
attributable to the Mortgaged Properties and any New
Properties submitted to the Administrative Agent and the Banks
during the prior fiscal quarter, a projection of the rate of
production and net operating income with respect thereto as of
such date, and such other information as is customarily
obtained from and provided in such reports;
(m) Gas Gathering System Evaluation Reports. On or before
April 1 of each calendar year at Borrower's expense, a report in form
and substance satisfactory to the Administrative Agent and the Banks
prepared by Borrower dated as of December 31 of the preceding year,
reflecting the quantity of existing proven and producing oil and gas
reserves connected to the Gas Gathering Systems, total throughput for
the Gas Gathering Systems for the previous twelve months, new wells
connected to the Gas Gathering Systems during such period of time and
such other information as the Administrative Agent and the Banks may
request to evaluate the Gas Gathering Systems, including, but not
limited to, anticipated capital costs for connecting new sources of
supply to the Gas Gathering Systems;
(n) Monthly Production and Lease Operating Statement. Within
60 days after the end of each calendar month commencing with the
calendar month ending March 31, 1997, a production statement which
identifies the most recent information available relating to the gross
volumes of Hydrocarbons produced from the Mortgaged Properties and a
statement of revenues and expenses attributable to the Mortgaged
Properties for such calendar month then ended, such production report
and statement of revenues and expenses to be in a form and substance
reasonably satisfactory to the Administrative Agent and the Banks; and
(o) Monthly Gas Gathering System Operating Report. Within 60
days after the end of each calendar month commencing with the calendar
month ending March 31, 1997, an operating report which identifies the
most recent information available relating to the Hydrocarbons
throughput of the Gas Gathering Systems, revenues and expenses
attributable to the Gas Gathering Systems for such calendar month then
ended and such other information as the Administrative Agent and the
Banks may request all in a form and substance reasonably satisfactory
to the Administrative Agent and the Banks.
Section 9.2 Maintenance of Existence; Conduct of Business. The
Borrower will preserve and maintain, and will cause each Subsidiary (other than
Excluded Subsidiaries) to preserve and maintain, its corporate existence and all
of its leases, privileges, licenses, permits, franchises, qualifications, and
rights that are necessary or desirable in the Borrower's reasonable business
judgment, and in the ordinary conduct of its business. The Borrower will
conduct, and will cause each Subsidiary to conduct, its business in an orderly
and efficient manner in accordance with good business practices.
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Section 9.3 Maintenance of Properties. The Borrower will maintain,
keep, and preserve, and cause each Material Subsidiary to maintain, keep, and
preserve, all of its properties (tangible and intangible) necessary or useful in
the proper conduct of its business in good working order and condition.
Section 9.4 Taxes and Claims. The Borrower will pay or discharge, and
will cause each Subsidiary to pay or discharge, at or before maturity or before
becoming delinquent (a) all taxes, levies, assessments, and governmental charges
imposed on it or its income or profits or any of its property, and (b) all
lawful claims for labor, material, and supplies, which, if unpaid, might become
a Lien upon any of its property; provided, however, that neither the Borrower
nor any Subsidiary shall be required to pay or discharge any tax, levy,
assessment, or governmental charge which is being contested in good faith by
appropriate proceedings diligently pursued, and for which adequate reserves have
been established.
Section 9.5 Insurance. The Borrower will maintain, and will cause each
of the Subsidiaries to maintain, insurance with financially sound and reputable
insurance companies in such amounts and covering such risks as is usually
carried by corporations engaged in similar businesses and owning similar
properties in the same general areas in which the Borrower and the Subsidiaries
operate, provided that in any event the Borrower will maintain and cause each
Subsidiary to maintain workmen's compensation insurance, property insurance,
comprehensive general liability insurance, products liability insurance, and
business interruption insurance reasonably satisfactory to the Administrative
Agent and the Banks. Each insurance policy covering Collateral shall provide
that such policy will not be cancelled or reduced without 30 days' prior written
notice to the Administrative Agent. In the event an Event of Default occurs and
continues for a period of 90 days, Borrower will cause, within five days, each
insurance policy covering Collateral to name the Collateral Agent as additional
insured and loss payee for the benefit of itself, the other Agents, the Banks,
the Issuing Banks and the Bridge Lenders.
Section 9.6 Inspection Rights. Upon reasonable prior notice, oral or
written, and during ordinary business hours, the Borrower will permit, and will
cause each Subsidiary to permit, representatives of each Agent, the Issuing
Banks and each Bank to examine, copy, and make extracts from its books and
records, to visit and inspect its properties, and to discuss its business,
operations, and financial condition with its officers, employees, and
independent certified public accountants. Notwithstanding the foregoing,
following the occurrence of a Default, the foregoing restrictions relating to
notice and normal business hours shall not apply.
Section 9.7 Keeping Books and Records. The Borrower will maintain, and
will cause each Subsidiary to maintain, proper books of record and account in
which full, true, and correct entries in conformity with GAAP shall be made of
all dealings and transactions in relation to its business and activities.
Section 9.8 Compliance with Laws. The Borrower will comply, and will
cause each Subsidiary to comply, in all material respects with all applicable
laws, rules, regulations, orders, and decrees of any Governmental Authority or
arbitrator.
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Section 9.9 Compliance with Agreements. The Borrower will comply, and
will cause each Subsidiary to comply, in all material respects with all
agreements, contracts, and instruments binding on it or affecting its properties
or business.
Section 9.10 Further Assurances. The Borrower will, and will cause
each Material Subsidiary to, execute and deliver such further agreements and
instruments and take such further action as may be requested by the
Administrative Agent to carry out the provisions and purposes of this Agreement
and the other Loan Documents and, subject to Section 6.1, to create, preserve,
and perfect the Liens of the Collateral Agent for the benefit of itself, the
other Agents, the Issuing Banks, the Banks, and the Bridge Lenders in the
Collateral.
Section 9.11 ERISA. The Borrower will comply, and will cause each
Subsidiary to comply, with all minimum funding requirements, and all other
material requirements, of ERISA, if applicable, so as not to give rise to any
liability thereunder.
Section 9.12 Subsidiary Security Agreement; Subsidiary Guaranty. The
Borrower shall cause each Person that becomes a Subsidiary (other than Excluded
Subsidiaries) after the date hereof to execute and deliver to the Collateral
Agent a counterpart of each of the Subsidiary Security Agreement and Subsidiary
Guaranty within 15 days after such Person becomes a Subsidiary.
Contemporaneously with the execution and delivery of any such counterpart of the
Subsidiary Security Agreement, Borrower shall deliver to the Collateral Agent
the original certificates evidencing all outstanding capital stock of such
Subsidiary (other than Excluded Subsidiaries), together with stock powers
relating thereto duly executed in blank and such other documents as the
Collateral Agent may reasonably request.
Section 9.13 Collateral Maintenance; Additional Mortgages. As of each
Determination Date, the Borrower shall execute or cause to be executed
additional mortgages or deeds of trust to the extent necessary to provide the
Collateral Agent with first priority perfected liens on at least 75% of the
present value of the Borrower's and Subsidiaries' (other than the Excluded
Subsidiaries) proved reserves (whether developed or undeveloped). In the event
that the Mortgaged Properties in which the Collateral Agent has a first priority
perfected Lien shall at any time constitute less than 80% of the present value
of the Borrower's and the Subsidiaries' (other than Excluded Subsidiaries)
proved reserves (whether developed or undeveloped), the Borrower shall upon
request from the Collateral Agent, promptly execute or cause to be executed
additional mortgages and deeds of trust to the extent required to increase such
percentage to at least 80%. Such mortgages and deeds of trust shall be
accompanied by title opinions and/or other evidence of title satisfactory in
form and substance to the Collateral Agent and the Banks. In addition, Borrower
shall deliver to the Collateral Agent upon request, such other information, data
and reports relating to the property subject to the new mortgages and deeds of
trust and the reserves and production related thereto, as the Agent and the
Banks shall reasonably request.
Section 9.14 Hedging Agreements. If the Borrower has not issued a
minimum of $125,000,000 of Subordinated Debt on or before May 31, 1997, the
Borrower shall, on or before June 30, 1997, enter into agreements or similar
contractual arrangements intended to hedge market price fluctuations of oil and
natural gas ("Hedge Agreements") that cover at least 25%
AMENDED AND RESTATED CREDIT AGREEMENT - Page 51
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of its total projected production from Oil and Gas Properties for a minimum
period of 12 months. After June 30, 1997, if the Subordinated Debt still has not
been issued, the Borrower shall over the next six-month period enter into Hedge
Agreements such that at least 50% of its total projected production of Oil and
Gas Properties will be covered by Hedge Agreements through April 30, 1999.
ARTICLE X
Negative Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder or any
Issuing Bank has any obligation to issue Letters of Credit hereunder, the
Borrower will perform and observe the following negative covenants:
Section 10.1 Debt. The Borrower will not incur, create, assume, or
permit to exist, and will not permit any Subsidiary (other than Excluded
Subsidiaries) to incur, create, assume, or permit to exist, any Debt, except the
following (herein referred to as "Permitted Debt"):
(a) Debt to the Agents, the Banks and the Issuing Banks
pursuant to or in connection with the Loan Documents;
(b) Existing Debt described on Schedule 8.9 hereto;
(c) Debt to the Bridge Lenders provided that such Debt is
subordinated pursuant to the terms of the Intercreditor Agreement;
(d) The Subordinated Debt;
(e) Debt owed by the Borrower to an Affiliate, provided that
such Debt is fully subordinated to the Obligations pursuant to a
subordination agreement satisfactory in form and substance to the
Agent;
(f) Debt consisting of current liabilities for taxes and
other assessments incurred in the ordinary course of business that are
not delinquent;
(g) Debt owed by the Borrower in connection with its
guaranty of the obligations of Hunter Butcher International, LLC to
Wells Fargo HSBC Trade Bank N.A.provided that the amount guaranteed by
the Borrower does not exceed $3,000,000;
(h) Debt owed by the Borrower in connection with Capital
Lease Obligations entered into in the ordinary course of business up
to an aggregate amount of $2,500,000; and
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<PAGE>
(i) Debt not otherwise permitted pursuant to (a) - (h) above
in an aggregate amount not to exceed $1,000,000 at any time
outstanding (excluding, without limitation, existing Debt described on
Schedule 8.9 hereto and Debt owed by the Borrower in connection with
Capital Lease Obligations).
Section 10.2 Limitation on Liens. The Borrower will not incur, create,
assume, or permit to exist, and will not permit any Subsidiary (other than
Excluded Subsidiaries) to incur, create, assume, or permit to exist, any Lien
upon any of its property, assets, or revenues, whether now owned or hereafter
acquired, except the following (herein referred to as "Permitted Liens"):
(a) Liens on the property described on Schedule 10.2
hereto to secure Permitted Debt;
(b) Liens in favor of the Collateral Agent for the
benefit of itself, the Documentation Agent, the Agent, the Banks and
the Issuing Banks;
(c) Liens in favor of the Bridge Lenders, provided such
Liens are subordinated to the Liens in favor of the Collateral Agent,
pursuant to the terms of the Intercreditor Agreement;
(d) Encumbrances consisting of minor easements, zoning
restrictions, or other restrictions on the use of real property that
do not (individually or in the aggregate) materially affect the value
of the assets encumbered thereby or materially impair the ability of
the Borrower or the Subsidiaries to use such assets in their
respective businesses, and none of which is violated in any material
respect by existing or proposed structures or land use;
(e) Liens for taxes, assessments, or other governmental
charges which are not delinquent or which are being contested in good
faith and for which adequate reserves have been established;
(f) Liens of mechanics, materialmen, warehousemen,
carriers, or other similar statutory Liens securing obligations that
are not yet due and are incurred in the ordinary course of business;
(g) Liens resulting from good faith deposits to secure
payments of workmen's compensation or other social security programs
or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, contracts (other than for payment of Debt), or
leases made in the ordinary course of business;
(h) Liens on property of the Borrower or the Material
Subsidiaries in connection with Capital Lease Obligations permitted
under Section 10.1(h); and
(i) Liens created in connection with (i) a $300,000
production payment made by Borrower to American Founders Life
Insurance Company, and (ii) a $750,000
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<PAGE>
production payment made by Borrower to American Founders Life
Insurance Company, with the prior written consent of the Required
Banks, similar arrangements.
Section 10.3 Mergers, Etc. The Borrower will not, and will not permit
any Subsidiary to, become a party to a merger or consolidation, or purchase or
otherwise acquire all or any part of the business or assets of any Person or any
shares or other evidence of beneficial ownership of any Person, or wind-up,
dissolve, or liquidate itself; provided, however, the Borrower and the
Subsidiaries shall be entitled to acquire the business or assets of any Person
or any shares or other evidence of beneficial ownership of any Person so long as
the total aggregate consideration - cash and noncash - for all such acquisitions
during any 12-month period does not exceed $1,000,000 and no Default is then
continuing.
Section 10.4 Restricted Payments. The Borrower will not declare or pay
any dividends (other than dividends in the form of stock) or make any other
payment or distribution (whether in cash, property, or obligations) on account
of its capital stock, or redeem, purchase, retire, or otherwise acquire any of
its capital stock, or permit any of its Subsidiaries to purchase or otherwise
acquire any capital stock of the Borrower or another Subsidiary, or set apart
any money for a sinking or other analogous fund for any dividend or other
distribution on its capital stock or for any redemption, purchase, retirement,
or other acquisition of any of its capital stock, except so long as no Default
is continuing (i) dividends approved in writing by Required Banks as of each
Determination Date, and (ii) dividends payable on the 1996 Series A Preferred
Stock.
Section 10.5 Investments. The Borrower will not make, and will not
permit any Material Subsidiary to make, any advance, loan, extension of credit,
or capital contribution to or investment in, or purchase or own, or permit any
Subsidiary to purchase or own, any stock, bonds, notes, debentures, or other
securities of, (i) any Excluded Subsidiary in excess of $500,000 in the
aggregate, or (ii) any Person in excess of $350,000 in the aggregate per fiscal
year of the Borrower, except:
(a) readily marketable direct obligations of the United States
of America or any agency thereof with maturities of one year or less
from the date of acquisition;
(b) fully insured certificates of deposit with maturities of
one year or less from the date of acquisition issued by any commercial
bank operating in the United States of America having capital and
surplus in excess of $250,000,000; and
(c) commercial paper of a domestic issuer if at the time of
purchase such paper is rated in one of the two highest rating
categories of Standard and Poor's, a division of McGraw-Hill, Moody's
Investor Service, Inc.
Section 10.6 Limitation on Issuance of Subsidiaries' Capital Stock.
The Borrower will not permit any of its Material Subsidiaries to, at any time
issue, sell, assign, or otherwise dispose of (a) any of such Subsidiary's
capital stock, (b) any securities exchangeable for or convertible into or
carrying any rights to acquire any of such Subsidiary's capital stock, or (c)
any option,
AMENDED AND RESTATED CREDIT AGREEMENT - Page 54
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warrant, or other right to acquire any of such Subsidiary's capital stock
without the prior written consent of the Majority Banks.
Section 10.7 Transactions With Affiliates. The Borrower will not enter
into, and will not permit any Material Subsidiary to enter into, any
transaction, including, without limitation, the purchase, sale, or exchange of
property or the rendering of any service, with any Affiliate of the Borrower or
such Subsidiary, except in the ordinary course of and pursuant to the reasonable
requirements of the Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary than would
be obtained in a comparable arm's-length transaction with a Person not an
Affiliate of the Borrower or such Subsidiary.
Section 10.8 Disposition of Assets. The Borrower will not sell, lease,
assign, transfer, or otherwise dispose of any of its assets, or permit any
Material Subsidiary to do so with any of its assets, except (a) dispositions of
Hydrocarbons in the ordinary course of business, (b) dispositions of obsolete,
damaged, or worn out equipment, (c) sales or transfers of assets from one
Guarantor to another Guarantor, or (d) sales of assets having an aggregate fair
market value of 10% or less of the then current Borrowing Base during any fiscal
year.
Section 10.9 Sale and Leaseback. The Borrower will not enter into, and
will not permit any Material Subsidiary to enter into, any arrangement with any
Person pursuant to which it leases from such Person real or personal property
that has been or is to be sold or transferred, directly or indirectly, by it to
such Person, except for any such arrangements which do not exceed the aggregate
amount of $500,000 for the Borrower and its Subsidiaries during any fiscal year.
Section 10.10 Prepayment of Debt. The Borrower will not prepay, and
will not permit any Material Subsidiary to prepay, any Debt in excess of an
aggregate amount of $50,000 during any fiscal year, except the Obligations.
Section 10.11 Nature of Business. The Borrower will not, and will not
permit any Material Subsidiary to, engage in any business other than the oil and
gas exploration and production, gas gathering, pipeline and processing, and
petroleum property management and consulting businesses in which they are
engaged on the date hereof.
Section 10.12 Environmental Protection. The Borrower will not, and
will not permit any of its Subsidiaries to, (a) use (or permit any tenant to
use) any of their respective properties or assets for the handling, processing,
storage, transportation, or disposal of any Hazardous Material except in amounts
that will not violate applicable law, (b) conduct any activity that is likely to
cause a Release or threatened Release of any Hazardous Material, or (c)
otherwise conduct any activity or use any of their respective properties or
assets in any manner that is likely in any material respect to violate any
Environmental Law or create any Environmental Liabilities for which the Borrower
or any of its Subsidiaries would be responsible.
Section 10.13 Accounting. The Borrower will not, and will not permit
any of its Subsidiaries to, change its fiscal year or make any change (a) in
accounting treatment or reporting
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practices, except as required by GAAP and disclosed to the Administrative Agent,
or (b) in tax reporting treatment, except as required by law and disclosed to
the Administrative Agent.
Section 10.14 Hedge Agreement. The Borrower has not entered and shall
not enter into, maintain agreements or similar contractual arrangements, other
than in form and substance as are satisfactory to the Administrative Agent and
the Banks, intended to hedge market price fluctuations of oil and natural gas
that cover more than 75% of its total projected production from Oil and Gas
Properties.
ARTICLE XI
Financial Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder or the
Issuing Bank has any obligation to issue Letters of Credit hereunder, the
Borrower will perform and observe the following financial covenants:
Section 11.1 Consolidated Interest Coverage Ratio. The Borrower will
not permit its Consolidated Interest Coverage Ratio to be less than (a) 2.0 to
1.0 at all times from the Closing Date until June 30, 1998, (b) 2.5 to 1.0 at
all times from June 30, 1998 until December 31, 1998, and (c) 2.75 to 1.0 at all
times thereafter, calculated quarterly (beginning April 30, 1997) for the four
quarters then ended as of the last day of each March, June, September and
December.
Section 11.2 Consolidated Tangible Net Worth. The Borrower will at all
times maintain Consolidated Tangible Net Worth in an amount not less than the
sum of (i) 90% of the Consolidated Tangible Net Worth as of the Closing Date,
plus (ii) 90% of the Consolidated Net Income (to the extent positive) of
Borrower for each fiscal year ending after December 31, 1996, calculated
quarterly as of the last day of each March, June, September and December, plus
(iii) 100% of the proceeds from issuances of equity by the Borrower, minus (iv)
ceiling test write-downs and preferred dividends related to stock purchased
pursuant to the Stock Purchase Agreement.
Section 11.3 Current Ratio. Borrower will not permit its Current Ratio
to be less than 1.0 to 1.0, calculated quarterly as of the last day of each
March, June, September and December.
Section 11.4 Debt to Capitalization Ratio. Borrower will not permit
its Debt to Capitalization Ratio to be more than (a) 0.86 to 1.00 at all times
from the Closing Date until March 31, 1998, (b) 0.75 to 1.00 at all times from
March 31, 1998 until September 30, 1998 and (c) 0.70 to 1.00 from September 30,
1998 until the Termination Date, calculated quarterly as of the last day of each
March, June, September and December.
Section 11.5 Capital Expenditures. Borrower will not permit the
aggregate capital expenditures (excluding acquisitions) of the Borrower and the
Subsidiaries to exceed (a) the greater of (i) the amount of capital expenditures
reflected in the Engineering Reports for such
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year and (ii) $15,000,000 during the 1997 fiscal year, (b) the greater of (i)
the amount of capital expenditures reflected in the Engineering Reports for such
year and (ii) $25,000,000 during the 1998 fiscal year and (c) thereafter not to
exceed the capital expenditures in the Engineering Reports for such fiscal year
without the prior written consent of Majority Banks.
ARTICLE XII
Default
Section 12.1 Events of Default. Each of the following shall be
deemed an "Event of Default":
(a) The Borrower shall fail to pay when due the Obligations or
any part thereof.
(b) Any representation or warranty made or deemed made by the
Borrower or any Obligated Party (or any of their respective officers)
in any Loan Document or in any certificate, report, notice, or
financial statement furnished at any time in connection with this
Agreement shall be false, misleading, or erroneous in any material
respect when made or deemed to have been made.
(c) The Borrower shall fail to perform, observe, or comply
with any covenant, agreement, or term contained in Section 9.1(e),
(f), (h) or (i), 9.5, 9.6, 9.10, Article X, or Article XI of this
Agreement (for which there shall be no grace); or the Borrower or any
Obligated Party shall fail to perform, observe, or comply with any
other covenant, agreement, or term contained in this Agreement or any
other Loan Document (other than those set forth in Section 9.1(e),
(f), (h) or (i), 9.5, 9.6, 9.10, Article X or XI or the covenants to
pay the Obligations) and such failure shall continue for a period of
ten days.
(d) The Borrower, any Subsidiary, or any Obligated Party shall
commence a voluntary proceeding seeking liquidation, reorganization,
or other relief with respect to itself or its debts under any
bankruptcy, insolvency, or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian, or other similar official of it or a substantial part of
its property or shall consent to any such relief or to the appointment
of or taking possession by any such official in an involuntary case or
other proceeding commenced against it or shall make a general
assignment for the benefit of creditors or shall generally fail to pay
its debts as they become due or shall take any corporate action to
authorize any of the foregoing.
(e) An involuntary proceeding shall be commenced against the
Borrower, any Subsidiary, or any Obligated Party seeking liquidation,
reorganization, or other relief with respect to it or its debts under
any bankruptcy, insolvency, or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official for it or a substantial part of
its property, and such involuntary proceeding shall remain undismissed
and unstayed for a period of sixty days.
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(f) The Borrower, any Subsidiary, or any Obligated Party shall
fail to discharge within a period of 30 days after the commencement
thereof any attachment, sequestration, or similar proceeding or
proceedings involving an aggregate amount in excess of $100,000
against any of its assets or properties.
(g) A final judgment or judgments for the payment of money in
excess of $100,000 in the aggregate shall be rendered by a court or
courts against the Borrower, any of its Subsidiaries, or any Obligated
Party and the same shall not be discharged (or provision shall not be
made for such discharge), or a stay of execution thereof shall not be
procured, within 30 days from the date of entry thereof and the
Borrower or the relevant Subsidiary or Obligated Party shall not,
within said period of 30 days, or such longer period during which
execution of the same shall have been stayed, appeal therefrom and
cause the execution thereof to be stayed during such appeal.
(h) The Borrower, any Subsidiary, or any Obligated Party shall
fail to pay when due any principal of or interest on any Debt (other
than the Obligations) the amount of which individually or in the
aggregate exceeds $100,000, or the maturity of any such Debt shall
have been accelerated, or any such Debt shall have been required to be
prepaid prior to the stated maturity thereof, or any event shall have
occurred that permits (or, with the giving of notice or lapse of time
or both, would permit) any holder or holders of such Debt or any
Person acting on behalf of such holder or holders to accelerate the
maturity thereof or require any such prepayment.
(i) This Agreement or any other Loan Document shall cease to
be in full force and effect or shall be declared null and void or the
validity or enforceability thereof shall be contested or challenged by
the Borrower, any Subsidiary, any Obligated Party, or the Borrower or
any Obligated Party shall deny that it has any further liability or
obligation under any of the Loan Documents, or any lien or security
interest created by the Loan Documents shall for any reason cease to
be a valid, first priority perfected security interest in and lien
upon any of the Collateral purported to be covered thereby.
(j) Any of the following events shall occur or exist with
respect to the Borrower or any ERISA Affiliate: (i) any Prohibited
Transaction involving any Plan; (ii) any Reportable Event with respect
to any Plan; (iii) the filing under Section 4041 of ERISA of a notice
of intent to terminate any Plan or the termination of any Plan; (iv)
any event or circumstance that might constitute grounds entitling the
PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any
Plan, or the institution by the PBGC of any such proceedings; or (v)
complete or partial withdrawal under Section 4201 or 4204 of ERISA
from a Multiemployer Plan or the reorganization, insolvency, or
termination of any Multiemployer Plan; and in each case above, such
event or condition, together with all other events or conditions, if
any, have subjected or could in the reasonable opinion of Required
Banks subject the Borrower to any tax, penalty, or other liability to
a Plan, a Multiemployer Plan, the PBGC, or otherwise (or any
combination thereof) which in the aggregate exceed or could reasonably
be expected to exceed $250,000.
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(k) The Borrower or any of its Material Subsidiaries, or any
of their properties, revenues, or assets aggregating $100,000 or
greater, shall become the subject of an order of forfeiture, seizure,
or divestiture (whether under RICO or otherwise) and the same shall
not have been discharged (or provisions shall not be made for such
discharge) within 30 days from the date of entry thereof.
(l) A Change in Control shall occur.
(m) A default under the Bridge Loan shall occur; provided,
however, that no such default shall be deemed to exist for purposes of
this clause (m) so long as the Bridge Lenders shall have agreed in
writing to waive such default.
Section 12.2 Remedies. If any Event of Default shall occur and be
continuing, the Administrative Agent may (and if directed by Required Banks,
shall) do any one or more of the following:
(a) Acceleration. Declare all outstanding principal of and
accrued and unpaid interest on the Notes and all other obligations of
the Borrower under the Loan Documents immediately due and payable, and
the same shall thereupon become immediately due and payable, without
notice, demand, presentment, notice of dishonor, notice of
acceleration, notice of intent to accelerate, protest, or other
formalities of any kind, all of which are hereby expressly waived by
the Borrower.
(b) Termination of Commitments. Terminate the Commitments and
the obligation of the Issuing Banks to issue Letters of Credit
hereunder without notice to the Borrower.
(c) Judgment. Reduce any claim of any Agent, any Issuing Bank
or any Bank to judgment.
(d) Foreclosure. Foreclose or otherwise enforce any Lien
granted to the Collateral Agent for the benefit of itself, the other
Agents, the Banks and the Issuing Banks to secure payment and
performance of the Obligations in accordance with the terms of the
Loan Documents.
(e) Rights. Exercise any and all rights and remedies afforded
by the laws of the State of New York or any other jurisdiction, by any
of the Loan Documents, by equity, or otherwise.
Provided, however, that upon the occurrence of an Event of Default under
subsection (d) or (e) of Section 12.1, the Commitments of all of the Banks and
the obligation of the Issuing Banks to issue Letters of Credit shall
automatically terminate, and the outstanding principal of and accrued and unpaid
interest on the Notes and all other obligations of the Borrower under the Loan
Documents shall thereupon become immediately due and payable without notice,
demand,
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presentment, notice of dishonor, notice of acceleration, notice of intent to
accelerate, protest, or other formalities of any kind, all of which are hereby
expressly waived by the Borrower.
Section 12.3 Letters of Credit. If any Event of Default shall occur
and be continuing, Borrower shall, if requested by the Administrative Agent for
the Required Banks, immediately deposit with and pledge to the Administrative
Agent cash or cash equivalent investments in an amount equal to the outstanding
Letter of Credit Liabilities as security for the Obligations.
Section 12.4 Performance by the Administrative Agent. If the Borrower
shall fail to perform any covenant or agreement in accordance with the terms of
the Loan Documents, the Administrative Agent may, at the direction of Required
Banks, perform or attempt to perform such covenant or agreement on behalf of the
Borrower. In such event, the Borrower shall, at the request of the
Administrative Agent, promptly pay any amount expended by the Administrative
Agent or the Banks in connection with such performance or attempted performance
to the Administrative Agent at the Principal Office, together with interest
thereon at the Default Rate from and including the date of such expenditure to
but excluding the date such expenditure is paid in full. Notwithstanding the
foregoing, it is expressly agreed that neither the Administrative Agent, the
Issuing Bank nor any Bank shall have any liability or responsibility for the
performance of any obligation of the Borrower under this Agreement or any of the
other Loan Documents.
ARTICLE XIII
Agency Provisions
Section 13.1 Appointment and Powers of the Administrative Agent. In
order to expedite the various transactions contemplated by this Agreement, the
other Agents, the Banks and the Issuing Banks hereby irrevocably appoint and
authorize Bankers Trust to act as their Administrative Agent hereunder and under
each of the other Loan Documents. Bankers Trust consents to such appointment and
agrees to perform the duties of the Administrative Agent as specified herein.
The other Agents, the Banks and the Issuing Banks authorize and direct the Agent
to take such action in their name and on their behalf under the terms and
provisions of the Loan Documents and to exercise such rights and powers
thereunder as are specifically delegated to or required of the Administrative
Agent for the other Agents, the Banks and the Issuing Banks, together with such
rights and powers as are reasonably incidental thereto. The Administrative Agent
is hereby expressly authorized to act as follows as the Administrative Agent on
behalf of itself, the other Agents, the other Banks and the Issuing Banks:
(a) To receive on behalf of each Agent, the Banks and the
Issuing Banks any payment of principal, interest, fees or other
amounts paid pursuant to this Agreement and the Notes and to
distribute to each Agent, each Bank and/or each Issuing Bank its share
of all payments so received as provided in this Agreement;
(b) To receive all documents and items to be furnished under
the Loan Documents;
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(c) To act as nominee for and on behalf of the Agents, the
Banks and the Issuing Banks in and under the Loan Documents;
(d) To arrange for the means whereby the funds of the Banks
are to be made available to the Borrower;
(e) To distribute to the Agents, the Banks and the Issuing
Banks information, requests, notices, payments, prepayments, documents
and other items received from the Borrower, the other Obligated
Parties, and other Persons;
(f) To execute and deliver to the Borrower, the other
Obligated Parties, and other Persons, all requests, demands,
approvals, notices, and consents received from the Agents, the Banks
and the Issuing Banks;
(g) To the extent permitted by the Loan Documents, to exercise
on behalf of each Agent, each Bank and each Issuing Bank all rights
and remedies of such Persons upon the occurrence of any Event of
Default; and
(h) To take such other actions as may be requested by Required
Banks.
Section 13.2 Appointment and Powers of the Collateral Agent. In order
to expedite the various transactions contemplated by this agreement, the other
Agents, the Banks and the Issuing Banks hereby irrevocably appoint and authorize
First Union to act as the Collateral Agent hereunder and under each of the other
Loan Documents. First Union consents to such appointment and agrees to perform
the duties of the Collateral Agent as specified herein. Subject to the
provisions of the Intercreditor Agreement, the other Agents, the Banks and the
Issuing Banks authorize and direct the Collateral Agent to take such action in
their name and on their behalf under the terms and provisions of the Loan
Documents and to exercise such rights and powers thereunder as are specifically
delegated to or required of the Collateral Agent for the other Agents, the Banks
and the Issuing Banks, together with such rights and powers as are reasonably
incidental thereto. Subject to the provisions of the Intercreditor Agreement,
the Collateral Agent is hereby expressly authorized to act as follows as the
Collateral Agent on behalf of itself, the other Agents, the other Banks and the
Issuing Banks:
(a) To receive all documents and items relating to the
Collateral to be furnished under the Loan Documents;
(b) To distribute to the Agents, the Banks and the Issuing
Banks information, requests, notices, payments, prepayments, documents
and other items received from the Borrower, the other Obligated
Parties, and other Persons;
(c) To the extent permitted by the Loan Documents and subject
to Section 13.3 below, to exercise on behalf of each Agent, each Bank
and each Issuing Bank all rights and remedies of such Persons upon the
occurrence of any Event of Default;
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(d) To accept, execute, and deliver the Borrower Pledge
Agreement, the Subsidiary Pledge Agreement, the Subsidiary Guaranty
and the other Security Documents as the secured party, including,
without limitation all UCC financing statements; and
(e) To take such other actions as may be requested by Required
Banks.
Section 13.3 Immunity. Neither the Agents, nor any of their
Affiliates, officers, directors, employees, attorneys, or agents shall be liable
for any action taken or omitted to be taken by any of them hereunder or
otherwise in connection with this Agreement or any of the other Loan Documents
except for its or their own gross negligence or willful misconduct. Without
limiting the generality of the preceding sentence, the Agents, (i) may treat the
payee of any Note as the holder thereof until the Administrative Agent receives
written notice of the assignment or transfer thereof signed by such payee and in
form satisfactory to the Administrative Agent; (ii) shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
other Loan Documents, and shall not by reason of this Agreement or any other
Loan Document be a trustee or fiduciary for any Bank or Issuing Bank; (iii)
shall not be required to initiate any litigation or collection proceedings
hereunder or under any other Loan Document except to the extent requested by
Required Banks; (iv) shall not be responsible to the Banks or the Issuing Banks
for any recitals, statements, representations or warranties contained in this
Agreement or any other Loan Document, or any certificate or other document
referred to or provided for in, or received by any of them under, this Agreement
or any other Loan Document, or for the value, validity, effectiveness,
enforceability, or sufficiency of this Agreement or any other Loan Document or
any other document referred to or provided for herein or therein or for any
failure by any Person to perform any of its obligations hereunder or thereunder;
(v) may consult with legal counsel (including counsel for the Borrower),
independent public accountants, and other experts selected by it and shall not
be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants, or experts; and (vi)
shall incur no liability under or in respect of any Loan Document by acting upon
any notice, consent, certificate, or other instrument or writing believed by it
to be genuine and signed or sent by the proper party or parties. As to any
matters not expressly provided for by this Agreement, the Agents, shall in all
cases be fully protected in acting, or in refraining from acting, hereunder in
accordance with instructions signed by Required Banks, and such instructions of
Required Banks and any action taken or failure to act pursuant thereto shall be
binding on all of the Banks; provided, however, that no Agent shall be required
to take any action which exposes such Agent to personal liability or which is
contrary to this Agreement or any other Loan Document or applicable law.
Section 13.4 Rights of Each Agent as a Bank. With respect to its
Commitment, the Loans made by it and the Notes issued to it, Paribas, Bankers
Trust and First Union in their capacity as a Bank hereunder shall have the same
rights and powers hereunder as any other Bank and may exercise the same as
though it were not acting as an agent or an Issuing Bank, and the term "Bank" or
"Banks" shall, unless the context otherwise indicates, include such agent in its
individual capacity. The Agents and their Affiliates may (without having to
account therefor to any Bank or any Issuing Bank) accept deposits from, lend
money to, act as trustee under indentures of, provide merchant banking services
to, and generally engage in any kind of business
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with the Borrower, any of its Subsidiaries, any other Obligated Party, and any
other Person who may do business with or own securities of the Borrower, any
Subsidiary, or any other Obligated Party, all as if it were not acting as an
agent hereunder and without any duty to account therefor to the other agents,
the Banks or the Issuing Banks.
Section 13.5 Sharing of Payments, Etc. If any Bank shall obtain any
payment of any principal of or interest on any Loan made by it under this
Agreement or payment of any other obligation under the Loan Documents then owed
by the Borrower or any other Obligated Party to such Bank, whether voluntary,
involuntary, through the exercise of any right of setoff, banker's lien,
counterclaim or similar right, or otherwise, in excess of its pro rata share,
such Bank shall promptly purchase from the other Banks participations in the
Loans held by them hereunder in such amounts, and make such other adjustments
from time to time as shall be necessary to cause such purchasing Bank to share
the excess payment ratably with each of the other Banks in accordance with its
pro rata portion thereof. To such end, all of the Banks shall make appropriate
adjustments among themselves (by the resale of participations sold or otherwise)
if all or any portion of such excess payment is thereafter rescinded or must
otherwise be restored. The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any Bank so purchasing a
participation in the Loans made by the other Banks may exercise all rights of
setoff, banker's lien, counterclaim, or similar rights with respect to such
participation as fully as if such Bank were a direct holder of Loans to the
Borrower in the amount of such participation. Nothing contained herein shall
require any Bank to exercise any such right or shall affect the right of any
Bank to exercise, and retain the benefits of exercising, any such right with
respect to any other indebtedness or obligation of the Borrower.
Section 13.6 INDEMNIFICATION. THE BANKS HEREBY AGREE TO INDEMNIFY THE
AGENTS, FROM AND HOLD THE AGENTS, AND THE ISSUING BANKS HARMLESS AGAINST (TO THE
EXTENT NOT REIMBURSED UNDER SECTIONS 14.1 AND 14.2, BUT WITHOUT LIMITING THE
OBLIGATIONS OF THE BORROWER UNDER SECTIONS 14.1 AND 14.2), RATABLY IN ACCORDANCE
WITH THEIR RESPECTIVE COMMITMENTS, ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES
(INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER
WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE AGENTS, OR ANY
ISSUING BANK IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS
OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY THE AGENTS, OR ANY ISSUING BANK
UNDER OR IN RESPECT OF ANY OF THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT NO
BANK SHALL BE LIABLE FOR ANY PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY
SUCH AGENT'S, OR SUCH ISSUING BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
WITHOUT LIMITATION OF THE FOREGOING, IT IS THE EXPRESS INTENTION OF THE BANKS
THAT THE AGENTS, AND THE ISSUING BANKS SHALL BE INDEMNIFIED HEREUNDER FROM AND
HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING
ATTORNEYS' FEES), AND
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DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH AGENT, OR SUCH
ISSUING BANK. WITHOUT LIMITING ANY OTHER PROVISION OF THIS SECTION, EACH BANK
AGREES TO REIMBURSE EACH AGENT, AND EACH ISSUING BANK PROMPTLY UPON DEMAND FOR
ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF THE COMMITMENTS) OF ANY AND ALL
OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY SUCH AGENT, OR
SUCH ISSUING BANK IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY,
ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH
NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF
RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT SUCH
AGENT, OR SUCH ISSUING BANK IS NOT REIMBURSED FOR SUCH EXPENSES BY THE BORROWER.
Section 13.7 Independent Credit Decisions. Each Bank agrees that it
has independently and without reliance on any Agent, any Issuing Bank or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and decision to enter
into this Agreement and that it will, independently and without reliance upon
any Agent, any Issuing Bank or any other Bank, and based upon such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any of the other Loan Documents. No Agent shall be required to keep itself
informed as to the performance or observance by the Borrower or any Obligated
Party of this Agreement or any other Loan Document or to inspect the properties
or books of the Borrower or any Obligated Party. Except for notices, reports and
other documents and information expressly required to be furnished to the Banks
by the Agents, hereunder or under the other Loan Documents, no Agent shall have
any duty or responsibility to provide the Issuing Banks or any Bank with any
credit, financial or other information concerning the affairs, financial
condition or business of the Borrower or any Obligated Party (or any of their
Affiliates) which may come into the possession of the Agents, or any of their
Affiliates.
Section 13.8 Several Commitments. The Commitments and other
obligations of the Banks under this Agreement are several. The default by any
Bank in making a Loan in accordance with its Commitment shall not relieve the
other Banks of their obligations under this Agreement. In the event of any
default by any Bank in making any Loan, each nondefaulting Bank shall be
obligated to make its Loan but shall not be obligated to advance the amount
which the defaulting Bank was required to advance hereunder. In no event shall
any Bank be required to advance an amount or amounts which shall in the
aggregate exceed such Bank's Commitment. No Bank shall be responsible for any
act or omission of any other Bank.
Section 13.9 Successor Agent. Subject to the appointment and
acceptance of a successor Agent, as provided below, any of the Agents may resign
at any time by giving notice thereof to the other agents, the Banks, the Issuing
Banks and the Borrower and any Agent may be removed at any time with or without
cause by Required Banks. Upon any such resignation or removal,
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Required Banks will have the right to appoint a successor Agent. If no successor
Agent shall have been so appointed by Required Banks and shall have accepted
such appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Required Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent, which
shall be a commercial bank organized under the laws of the United States of
America or any State thereof and having combined capital and surplus of at least
$100,000,000. In the event the successor Agent is not at the time of its
appointment, a Bank hereunder, the Borrower shall have the right to consent to
the successor Agent, which consent shall not be unreasonably withheld or
delayed. Upon the acceptance of its appointment as successor Agent, such
successor Agent shall thereupon succeed to and become vested with all rights,
powers, privileges, immunities, and duties of the resigning or removed Agent,
and the resigning or removed Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents. After any Agent's
resignation or removal as Agent, the provisions of this Article XIV shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was the Agent.
ARTICLE XIV
Miscellaneous
Section 14.1 Expenses. The Borrower hereby agrees to pay on demand:
(a) all reasonable costs and expenses of the Administrative Agent, in connection
with the preparation, negotiation, execution, and delivery of this Agreement and
the other Loan Documents and any and all amendments, modifications, renewals,
extensions, and supplements thereof and thereto, including, without limitation,
the reasonable fees and expenses of legal counsel for the Administrative Agent,
(b) all costs and expenses of the Agents, and the Issuing Banks in connection
with any Default and the enforcement of this Agreement or any other Loan
Document, including, without limitation, the reasonable fees and expenses of
legal counsel for the Agents, and the Issuing Banks, (c) all transfer, stamp,
documentary, or other similar taxes, assessments, or charges levied by any
Governmental Authority in respect of this Agreement or any of the other Loan
Documents, (d) all costs, expenses, assessments, and other charges incurred in
connection with any filing, registration, recording, or perfection of any
security interest or Lien contemplated by this Agreement or any other Loan
Document, and (e) all other reasonable costs and expenses incurred by the
Administrative Agent, in connection with this Agreement or any other Loan
Document, including, without limitation, all reasonable costs, expenses, and
other charges incurred following the occurrence and during the continuance of a
Default in connection with obtaining any audit or appraisal in respect of the
Collateral.
Section 14.2 INDEMNIFICATION. THE BORROWER SHALL INDEMNIFY THE AGENTS,
THE ISSUING BANKS AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF
THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING
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ATTORNEYS' FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR
INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY,
PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B)
ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY
THE BORROWER OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT
CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED
RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON,
ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF THE BORROWER OR
ANY SUBSIDIARY, OR (E) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR
OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING. WITHOUT LIMITING ANY
PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS
INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS
SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES,
LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND
EXPENSES (INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE
OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON.
Section 14.3 LIMITATION OF LIABILITY. NO AGENT, ANY ISSUING BANK, ANY
BANK, OR ANY AFFILIATE, OFFICER, DIRECTOR, EMPLOYEE, ATTORNEY, OR AGENT THEREOF
SHALL HAVE ANY LIABILITY WITH RESPECT TO, AND THE BORROWER HEREBY WAIVES,
RELEASES, AND AGREES NOT TO SUE ANY OF THEM UPON, ANY CLAIM FOR ANY SPECIAL OR
PUNITIVE DAMAGES SUFFERED OR INCURRED BY THE BORROWER IN CONNECTION WITH,
ARISING OUT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS. THE BORROWER HEREBY WAIVES, RELEASES, AND AGREES
NOT TO SUE ANY AGENT, ANY ISSUING BANK, OR ANY BANK OR ANY OF THEIR RESPECTIVE
AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, OR AGENTS FOR PUNITIVE
DAMAGES IN RESPECT OF ANY CLAIM IN CONNECTION WITH, ARISING OUT OF, OR IN ANY
WAY RELATED TO, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
Section 14.4 No Duty. All attorneys, accountants, appraisers, and
other professional Persons and consultants retained by the Agents, the Issuing
Banks and the Banks shall have the right to act exclusively in the interest of
the Agent, the Documentation Agent, the Collateral Agents, the Issuing Banks and
the Banks and shall have no duty of disclosure, duty of loyalty,
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duty of care, or other duty or obligation of any type or nature whatsoever to
the Borrower or any of the Borrower's shareholders or any other Person.
Section 14.5 No Fiduciary Relationship. The relationship between the
Borrower and each Bank is solely that of debtor and creditor, and neither any
Agent, any Issuing Bank nor any Bank has any fiduciary or other special
relationship with the Borrower, and no term or condition of any of the Loan
Documents shall be construed so as to deem the relationship between the
Borrower, any Agent, any Issuing Bank or any Bank to be other than that of
debtor and creditor.
Section 14.6 Equitable Relief. The Borrower recognizes that in the
event the Borrower fails to pay, perform, observe, or discharge any or all of
the Obligations, any remedy at law may prove to be inadequate relief to the
Agents, the Issuing Banks and the Banks. The Borrower therefore agrees that if
the Agents, the Issuing Banks or the Banks so request, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
Section 14.7 No Waiver; Cumulative Remedies. No failure on the part of
any Agent, any Issuing Bank or any Bank to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power, or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power, or privilege under this Agreement preclude
any other or further exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies provided for in this Agreement and the
other Loan Documents are cumulative and not exclusive of any rights and remedies
provided by law.
Section 14.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. The Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of the
Administrative Agent and all of the Banks. Any Bank may sell
participations to one or more banks or other institutions in or to all
or a portion of its rights and obligations under this Agreement and
the other Loan Documents (including, without limitation, all or a
portion of its Commitments and the Loans owing to it); provided,
however, that (i) such Bank's obligations under this Agreement and the
other Loan Documents (including, without limitation, its Commitments)
shall remain unchanged, (ii) such Bank shall remain solely responsible
to the Borrower for the performance of such obligations, (iii) such
Bank shall remain the holder of its Notes for all purposes of this
Agreement, (iv) the Borrower shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and
obligations under this Agreement and the other Loan Documents, and (v)
such Bank shall not sell a participation that conveys to the
participant the right to vote or give or withhold consents under this
Agreement or any other Loan Document, other than the right to vote
upon or consent to (A) any increase of such Bank's Commitments, (B)
any reduction of the principal amount of, or interest to be paid on,
the Loans of such Bank, (C) any reduction of any commitment fee or
other amount payable to such Bank under any Loan Document, (D) any
postponement of any date for the
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payment of any amount payable in respect of the Loans of such Bank or
(E) any release of Collateral or Obligated Party.
(b) The Borrower and each of the Banks agree that any Bank
(the "Assigning Bank") may, with the Administrative Agent's consent
and unless an Event of Default has occurred, the Borrower's consent
(except that no consent shall be required with respect to assignments
by the Banks during the first six months after the date hereof, each
of the Banks agreeing to use reasonable efforts to keep the Borrower
advised of any potential assignees), which consent of the Borrower
shall not be unreasonably withheld or delayed, at any time assign to
one or more Eligible Assignees all, or a proportionate part of all, of
its rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, its Commitments and Loans)
(each an "Assignee"); provided, however, that (i) any such assignment
made within the first 120 days after the date hereof shall be made by
all Banks on a pro rata basis, (ii) each such assignment shall be of a
consistent, and not a varying, percentage of all of the assigning
Bank's Commitments, rights and obligations under this Agreement and
the other Loan Documents, (iii) except in the case of an assignment of
all of a Bank's rights and obligations under this Agreement and the
other Loan Documents, the amount of the Commitments of the assigning
Bank being assigned pursuant to each assignment (determined as of the
date of the Assignment and Acceptance with respect to such assignment)
shall in no event be less than $5,000,000, and (iv) the parties to
each such assignment shall execute and deliver to the Administrative
Agent for its acceptance and recording in the Register (as defined
below), an Assignment and Acceptance, together with the Notes subject
to such assignment, and a processing and recordation fee of $2,500, to
be paid by the Assignee. Upon such execution, delivery, acceptance,
and recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five
Business Days after the execution thereof, or, if so specified in such
Assignment and Acceptance, the date of acceptance thereof by the
Administrative Agent, (x) the assignee thereunder shall be a party
hereto as a "Bank" and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Bank hereunder and
under the Loan Documents and (y) the Bank that is an assignor
thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this
Agreement and the other Loan Documents (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of a
Bank's rights and obligations under the Loan Documents, such Bank
shall cease to be a party thereto).
(c) Any Bank may at any time pledge or assign all or any
portion of its rights under this Agreement and the other Loan
Documents to any federal reserve bank without notice to or consent of
the Borrower. No such pledge or assignment shall release the
transferor lender from its obligations hereunder.
(d) By executing and delivering an Assignment and Acceptance,
the Bank that is an assignor thereunder and the assignee thereunder
confirm to and agree with each
AMENDED AND RESTATED CREDIT AGREEMENT - Page 68
<PAGE>
other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Bank makes
no representation or warranty and assumes no responsibility with
respect to any statements, warranties, or representations made in or
in connection with the Loan Documents or the execution, legality,
validity, and enforceability, genuineness, sufficiency, or value of
the Loan Documents or any other instrument or document furnished
pursuant thereto; (ii) such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of the Borrower or any Obligated Party or the performance or
observance by the Borrower or any Obligated Party of its obligations
under the Loan Documents; (iii) such assignee confirms that it has
received a copy of the other Loan Documents, together with copies of
the financial statements referred to in Section 8.2 and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and
Acceptance; (iv) such assignee will, independently and without
reliance upon the Administrative Agent or such assignor and based on
such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not
taking action under this Agreement and the other Loan Documents; (v)
such assignee confirms that it is an Eligible Assignee; (vi) such
assignee appoints and authorizes the Administrative Agent to take such
action as agent on its behalf and exercise such powers under the Loan
Documents as are delegated to the Administrative Agent by the terms
thereof, together with such powers as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms
of the Loan Documents (including the Intercreditor Agreement) are
required to be performed by it as a Bank.
(e) The Administrative Agent shall maintain at its Principal
Office a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and
addresses of the Banks and the Commitments of, and principal amount of
the Loans owing to, each Bank from time to time (the "Register"). The
entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Administrative
Agent, the Issuing Bank and the Banks may treat each Person whose name
is recorded in the Register as a Bank hereunder for all purposes under
the Loan Documents. The Register shall be available for inspection by
the Borrower, the Issuing Bank or any Bank at any reasonable time and
from time to time upon reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed
by an assigning Bank and assignee representing that it is an Eligible
Assignee, together with any Note subject to such assignment, the
Administrative Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit "G" hereto, (i)
accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register, and (iii) give prompt written
notice thereof to the Borrower. Within five Business Days after its
receipt of such notice, the Borrower, at its expense, shall execute
and deliver to the Administrative Agent in exchange for the
surrendered Notes new Notes to the order of such Eligible Assignee in
an amount equal to the
AMENDED AND RESTATED CREDIT AGREEMENT - Page 69
<PAGE>
Commitments assumed by it pursuant to such Assignment and Acceptance
and, if the assigning Bank has retained a portion of its Commitments,
new Notes to the order of the assigning Bank in an amount equal to the
Commitments retained by it hereunder (each such promissory note shall
constitute a "Note" for purposes of the Loan Documents). Such new
Notes shall be in an aggregate principal amount of the surrendered
Notes, shall be dated the effective date of such Assignment and
Acceptance, and shall otherwise be in substantially the form of
Exhibit "A" hereto.
(g) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section, disclose to the assignee or participant or proposed assignee
or participant, any information relating to the Borrower or its
Subsidiaries furnished to such Bank by or on behalf of the Borrower or
its Subsidiaries, subject, however, to the provisions of Section
14.20.
(h) If the Bridge Loan is not repaid in full on or before June
30, 1997, each Bank and each Agent agrees to attempt to syndicate (by
means of assignments of the Loans) the Loans made under this
Agreement.
Section 14.9 Survival. All representations and warranties made in this
Agreement or any other Loan Document or in any document, statement, or
certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents, and no
investigation by any Agents, any Issuing Bank or any Bank or any closing shall
affect the representations and warranties or the right of the Agents, any
Issuing Bank or any Bank to rely upon them. Without prejudice to the survival of
any other obligation of the Borrower hereunder, the obligations of the Borrower
under Article V and Sections 14.1 and 14.2 shall survive repayment of the Notes
and termination of the Commitments.
Section 14.10 Amendments, Etc. No amendment or waiver of any provision
of this Agreement, the Notes, or any other Loan Document to which the Borrower
is a party, nor any consent to any departure by the Borrower therefrom, shall in
any event be effective unless the same shall be agreed or consented to by
Required Banks and the Borrower, and each such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, that no amendment, waiver, or consent shall, unless in writing
and signed by all of the Banks and the Borrower, do any of the following: (a)
increase the Commitments of the Banks or subject the Banks to any additional
obligations; (b) reduce the principal of, or interest on, the Notes or any fees
or other amounts payable to the Banks hereunder; (c) postpone any date fixed for
any payment of principal of, or interest on, the Notes or any fees or other
amounts payable to the Banks hereunder; (d) waive any of the conditions
specified in Article VIII; (e) change the percentage of the Commitments or of
the aggregate unpaid principal amount of the Notes or the number of Banks which
shall be required for the Banks or any of them to take any action under this
Agreement; (f) change any provision contained in this Section 14.11; or (g)
release any Collateral or Obligated Party. Notwithstanding anything to the
contrary contained in this Section, no amendment, waiver, or consent shall be
made with respect to Article XIII hereof without the prior written consent of
the Agent and no amendment, waiver,
AMENDED AND RESTATED CREDIT AGREEMENT - Page 70
<PAGE>
or consent shall be made with respect to Article III hereof without the prior
written consent of the Issuing Banks.
Notwithstanding the foregoing provisions of this Section 14.10, no
amendment to this Agreement or any Security Document and no release of
Collateral shall be effective unless made in compliance with provisions of the
Intercreditor Agreement.
Section 14.11 Maximum Interest Rate. No provision of this Agreement or
of any other Loan Document shall require the payment or the collection of
interest in excess of the maximum amount permitted by applicable law. If any
excess of interest in such respect is hereby provided for, or shall be
adjudicated to be so provided, in any Loan Document or otherwise in connection
with this loan transaction, the provisions of this Section shall govern and
prevail and neither the Borrower nor the sureties, guarantors, successors, or
assigns of the Borrower shall be obligated to pay the excess amount of such
interest or any other excess sum paid for the use, forbearance, or detention of
sums loaned pursuant hereto. In the event any Bank ever receives, collects, or
applies as interest any such sum, such amount which would be in excess of the
maximum amount permitted by applicable law shall be applied as a payment and
reduction of the principal of the indebtedness evidenced by the Notes; and, if
the principal of the Notes has been paid in full, any remaining excess shall
forthwith be paid to the Borrower. In determining whether or not the interest
paid or payable exceeds the Maximum Rate, the Borrower and each Bank shall, to
the extent permitted by applicable law, (a) characterize any non-principal
payment as an expense, fee, or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) amortize, prorate,
allocate, and spread in equal or unequal parts the total amount of interest
throughout the entire contemplated term of the indebtedness evidenced by the
Notes so that interest for the entire term does not exceed the Maximum Rate.
Section 14.12 Notices. All notices and other communications provided
for in this Agreement and the other Loan Documents to which the Borrower is a
party shall be given or made by telecopy or in writing and telecopied, mailed by
certified mail return receipt requested, or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof; or, as to any party at such other address as shall be designated by such
party in a notice to each other party given in accordance with this Section.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telecopy, subject to
telephone confirmation of receipt, or when personally delivered or, in the case
of a mailed notice, when duly deposited in the mails, in each case given or
addressed as aforesaid; provided, however, notices to the Administrative Agent
pursuant to Article II and III shall not be effective until received by the
Administrative Agent.
Section 14.13 GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS AGREEMENT
HAS BEEN ENTERED INTO IN NEW YORK COUNTY, NEW YORK, AND IT SHALL BE PERFORMABLE
FOR ALL PURPOSES IN NEW YORK COUNTY, NEW YORK. SUBJECT TO SECTION 14.20, ANY
ACTION OR PROCEEDING AGAINST THE BORROWER UNDER OR IN CONNECTION
AMENDED AND RESTATED CREDIT AGREEMENT - Page 71
<PAGE>
WITH ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN
NEW YORK COUNTY, NEW YORK. THE BORROWER HEREBY IRREVOCABLY (A) SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT MAY
NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. THE BORROWER
AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED
MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED OR DETERMINED IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 14.13. NOTHING HEREIN OR IN ANY OF THE
OTHER LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF THE AGENTS, THE ISSUING BANK OR
ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SUBJECT TO
SECTION 14.20, SHALL LIMIT THE RIGHT OF THE AGENTS, ANY ISSUING BANK OR ANY BANK
TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR WITH RESPECT TO ANY OF
ITS PROPERTY IN COURTS IN OTHER JURISDICTIONS. ANY ACTION OR PROCEEDING BY THE
BORROWER AGAINST THE AGENTS, ANY ISSUING BANK OR ANY BANK SHALL BE BROUGHT ONLY
IN A COURT LOCATED IN NEW YORK COUNTY, NEW YORK.
Section 14.14 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 14.15 Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 14.16 Headings. The headings, captions, and arrangements used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 14.17 Construction. The Borrower, the Agents, the Issuing
Banks and each Bank acknowledge that each of them has had the benefit of legal
counsel of its own choice and has been afforded an opportunity to review this
Agreement and the other Loan Documents with its legal counsel and that this
Agreement and the other Loan Documents shall be construed as if jointly drafted
by the parties hereto.
Section 14.18 Independence of Covenants. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 14.19 Treatment of Certain Information; Confidentiality. Each
Bank, each Agent, and each Issuing Bank agree (on behalf of itself and each of
its affiliates, directors,
AMENDED AND RESTATED CREDIT AGREEMENT - Page 72
<PAGE>
officers, employees and representatives) to keep confidential any non-public
information supplied to it by Borrower pursuant to this Agreement that Borrower
identifies to such Bank, such Agent, each Issuing Bank (as the case may be) as
confidential at the time Borrower so supplies such information, provided, that
nothing herein shall limit the disclosure of any such information (i) to the
extent required by statute, rule, regulation or judicial process, (ii) to
counsel for any of the Banks, each Issuing Bank or each Agent, (iii) to bank
examiners, auditors or accountants, (iv) to the Agents, any Issuing Bank or any
other Bank, (v) in connection with any litigation to which any one or more of
the Banks, any Agent, or any Issuing Bank is a party, (vi) to a subsidiary or
affiliate of such Person, or (vii) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first executes and delivers to the
respective Bank an acknowledgement to the effect that it is bound by the
provisions of this Section 14.20, which acknowledgement may be included as part
of the respective assignment or participation agreement pursuant to which such
assignee or participant acquires an interest in the Loans hereunder; and
provided, further, that in no event shall any Bank, any Issuing Bank, or any
Agent be obligated or required to return any materials furnished to it by the
Borrower.
Section 14.20 Arbitration.
(a) Arbitration. Upon the demand of any party, any Dispute
shall be resolved by binding arbitration (except as set forth in (e)
below) in accordance with the terms of this Agreement. A "Dispute"
shall mean any action, dispute, claim or controversy of any kind,
whether in contract or tort, statutory or common law, legal or
equitable, now existing or hereafter arising under or in connection
with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities,
transactions or obligations of any kind related directly or indirectly
to any of the Loan Documents, including without limitation, any of the
foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any
party may by summary proceedings bring an action in court to compel
arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear
all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be
administered by the American Arbitration Association ("AAA") or such
other administrator as the parties shall mutually agree upon in
accordance with the AAA Commercial Arbitration Rules. All Disputes
submitted to arbitration shall be resolved in accordance with the
Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the
Loan Documents. The arbitration shall be conducted at a location in
New York selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms
and procedures set forth herein shall control. All statutes of
limitation applicable to any Dispute shall apply to any arbitration
proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment
AMENDED AND RESTATED CREDIT AGREEMENT - Page 73
<PAGE>
upon any award rendered in an arbitration may be entered in any court
having jurisdiction; provided however, that nothing contained herein
shall be deemed to be a waiver by any party that is a bank of the
protections afforded to it under 12 U.S.C. ss.91 or any similar
applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and
Foreclosure. No provision hereof shall limit the right of any party to
exercise self-help remedies such as setoff, foreclosure against or
sale of any real or personal property collateral or security, or to
obtain provisional or ancillary remedies, including without limitation
injunctive relief, sequestration, attachment, garnishment or the
appointment of a receiver, from a court of competent jurisdiction
before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right
of any party to compel arbitration hereunder.
(d) Arbitrator Qualifications and Powers Awards. Arbitrators
must be active members of the New York State Bar with expertise in the
substantive laws applicable to the subject matter of the Dispute.
Arbitrators are empowered to resolve Disputes by summary rulings in
response to motions filed prior to the final arbitration hearing.
Arbitrators (i) shall resolve all Disputes in accordance with the
substantive law of the state of New York, (ii) may grant any remedy or
relief that a court of the state of New York could order or grant
within the scope hereof and such ancillary relief as is necessary to
make effective any award, and (iii) shall have the power to award
recovery of all costs and fees, to impose sanctions and to take such
other actions as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the New York Rules
of Civil Procedure or other applicable law. Any Dispute in which the
amount in controversy is $5,000,000 or less shall be decided by a
single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By
submission to a single arbitrator, each party expressly waives any
right or claim to recover more than $5,000,000. Any Dispute in which
the amount in controversy exceeds $5,000,000 shall be decided by
majority vote of a panel of three arbitrators; provided however, that
all three arbitrators must actively participate in all hearings and
deliberations.
(e) Judicial Review. Notwithstanding anything herein to the
contrary, in any arbitration in which the amount in controversy
exceeds $5,000,000, the arbitrators shall be required to make
specific, written findings of fact and conclusions of law. In such
arbitrations (i) the arbitrators shall not have the power to make any
award which is not supported by substantial evidence or which is based
on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and
the conclusions of law are not erroneous under the substantive law of
the state of New York, and (iii) the parties shall have in addition to
the grounds referred to in the Federal Arbitration Act for vacating,
modifying or correcting an award the right to judicial review of (A)
whether the findings of fact rendered by the arbitrators are supported
by substantial evidence, and (B) whether the conclusions of law are
erroneous
AMENDED AND RESTATED CREDIT AGREEMENT - Page 74
<PAGE>
under the substantive law of the state of New York. Judgment
confirming an award in such a proceeding may be entered only if a
court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of New
York.
(f) Miscellaneous. To the maximum extent practicable, the AAA,
the arbitrators and the parties shall take all action required to
conclude any arbitration proceedings within 180 days of the filing of
the Dispute with the AAA. No arbitrator or other party to an
arbitration proceeding may disclose the existence, content or results
thereof, except for disclosures of information by a party required in
the ordinary course of its business, by applicable law or regulations,
or to the extent necessary to exercise any judicial review rights set
forth herein. If more than one agreement for arbitration by or between
the parties potentially applies to a Dispute, the arbitration
provisions most directly related to the Loan Documents or the subject
matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of any of the Loan
Documents or any relationship between the parties.
Section 14.21 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, THE NOTES,
THE OTHER LOAN DOCUMENTS, AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN
CONNECTION HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
Section 14.22 Certain Fees. Notwithstanding anything contained herein
to the contrary, the Borrower may pay certain fees (whether in cash or by the
issuance of warrants, stock or other equity) owing under the Bridge Loan
Agreement as it exists on the date hereof.
[Remainder of this page intentionally left blank.]
AMENDED AND RESTATED CREDIT AGREEMENT - Page 75
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORROWER:
MAGNUM HUNTER RESOURCES, INC.
(formerly known as Magnum Petroleum, Inc.)
By:
Gary C. Evans
President
Address for Notices:
600 East Las Colinas Boulevard, Suite 1200
Irving, Texas 75039
Fax No.: (214) 401-3110
Telephone No.: (214) 401-0752
Attention: Gary C. Evans
ADMINISTRATIVE AGENT:
BANKERS TRUST COMPANY
By
Name:
Title:
Addresses for Notices:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Fax No.: (212) 250-6314
Telephone No.: (212) 250-2500
Attention: James Cullen
AMENDED AND RESTATED CREDIT AGREEMENT - Page 76
<PAGE>
and
Bankers Trust Company
Two Houston Center
909 Fannin Street, Suite 3000
Houston, Texas 77010
Attention: Richard Doleshek
DOCUMENTATION AGENT:
BANQUE PARIBAS
By:
Barton D. Schouest
Group Vice President
- and -
By:
Michael H. Fiuzat
Assistant Vice President
Address for Notices:
Banque Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Fax No.: (713) 659-5305
Telephone No.: (713) 659-4811
Attention: Leah Evans-Hughes
AMENDED AND RESTATED CREDIT AGREEMENT - Page 77
<PAGE>
COLLATERAL AGENT:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By:
Michael J. Kolosowsky
Vice President
Address for Notices:
First Union Corporation of North Carolina
1001 Fannin, Suite 2255
Houston, Texas 77002
Attention: Paul N. Riddle
Fax No.: 713/650-6354
Telephone No.: 713/650-3716
ISSUING BANK:
BANKERS TRUST COMPANY
By
Name:
Title:
Addresses for Notices:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Fax No.: (212) 250-6314
Telephone No.: (212) 250-2500
Attention: James Cullen
and
Bankers Trust Company
Two Houston Center
909 Fannin Street, Suite 3000
Houston, Texas 77010
Attention: Richard Doleshek
AMENDED AND RESTATED CREDIT AGREEMENT - Page 78
<PAGE>
BANKS:
BANQUE PARIBAS
Commitment: By:
$43,333,333.33 Barton D. Schouest
Group Vice President
- and -
By:
Michael H. Fiuzat
Assistant Vice President
Address for Notices:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Fax No.: (713) 659-5305
Telephone No: (713) 659-4811
Attention: Leah Evans-Hughes
Lending Office for Base Rate Loans:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Fax No.: (713) 659-5305
Telephone No.: (713) 659-4811
Attention: Leah Evans-Hughes
Lending Office for Eurodollar Loans:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Fax No.: (713) 659-5305
Telephone No.: (713) 659-4811
Attention: Leah Evans-Hughes
AMENDED AND RESTATED CREDIT AGREEMENT - Page 79
<PAGE>
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
Commitment:
$43,333,333.33
By:
Michael J. Kolosowsky
Vice President
Address for Notices:
First Union Corporation of North Carolina
1001 Fannin, Suite 2255
Houston, Texas 77002
Attention: Paul N. Riddle
Fax No.: 713/650-6354
Telephone No.: 713/650-3716
Lending Office for Base Rate Loans:
First Union National Bank of North Carolina
301 S. College Street
Charlotte, NC 28288
Fax No.: 713/650-6354
Telephone No.: 713/650-1044
Attention: Debbie Blank
Lending Office for Eurodollar Loans:
First Union National Bank of North Carolina
301 S. College Street
Charlotte, NC 28288
Fax No.: 713/650-6354
Telephone No.: 713/650-1044
Attention: Debbie Blank
AMENDED AND RESTATED CREDIT AGREEMENT - Page 80
<PAGE>
BANKERS TRUST COMPANY
Commitment:
$43,333,333.34
By:
Name:
Title:
Address for Notices:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Fax No.: (212) 250-6314
Telephone No.: (212) 250-2500
Lending Office for Base Rate Loans:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Lending Office for Eurodollar Loans:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
DA970720340
043097 v21
AMENDED AND RESTATED CREDIT AGREEMENT - Page 81
EXHIBIT 10.2
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT,
RESIGNATION OF COLLATERAL AGENT,
AND APPOINTMENT OF SUBSTITUTE COLLATERAL AGENT
This First Amendment to Amended and Restated Credit Agreement,
Resignation of Collateral Agent and Appointment of Substitute Collateral Agent
(this "Amendment") is dated as of May 29, 1997, by and among MAGNUM HUNTER
RESOURCES, INC., a Nevada corporation (the "Borrower"), each Bank (as defined in
the Credit Agreement), BANKERS TRUST COMPANY, individually (in its individual
capacity, "Bankers Trust"), as administrative agent (in such capacity, together
with its successors in such capacity, the "Administrative Agent"), and as an
issuing bank (in such capacity, together with its successors in such capacity,
an "Issuing Bank"), BANQUE PARIBAS, a French bank acting through its Houston
Agency, individually (in its individual capacity, "Paribas"), as substitute
collateral agent (effective upon the execution of this Amendment and the
simultaneous resignation by First Union as collateral agent) (in such capacity,
together with its successors in such capacity, the "Substitute Collateral
Agent"), and as documentation agent (in such capacity, together with its
successors in such capacity, the "Documentation Agent"), and FIRST UNION
NATIONAL BANK OF NORTH CAROLINA, a national banking association, individually
(in its individual capacity, "First Union"), as collateral agent (until such
time as its resignation becomes effective with the execution of this Amendment)
(in such capacity, the "Resigning Collateral Agent"), and as syndication agent
(until such time as its resignation becomes effective with the execution of this
Amendment) (in such capacity, the "Resigning Syndication Agent").
R E C I T A L S:
WHEREAS, the Borrower, each Bank, the Administrative Agent, the
Documentation Agent, the Resigning Collateral Agent and the Resigning
Syndication Agent, have entered into that certain Amended and Restated Credit
Agreement dated as of April 30, 1997 (as amended, modified, or supplemented from
time to time, the "Credit Agreement"), pursuant to which the Banks have agreed
to make revolving credit loans available to the Borrower under the terms and
provisions stated therein; and
WHEREAS, the Borrower has requested the Banks and the Agents to amend
certain provisions of the Credit Agreement to permit the issuance by the
Borrower of up to $140,000,000 of senior unsecured debt, the proceeds of which
will be used to repay the Bridge Loan in full and to repay a portion of the
outstanding Loans under the Credit Agreement; and
WHEREAS, simultaneously with the execution and delivery of this
Amendment, (a) First Union is resigning as Collateral Agent and as Syndication
Agent under the Credit Agreement, (b) the Banks are electing Paribas as
Collateral Agent and (c) First Union is agreeing to execute
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 1
<PAGE>
and deliver one or more assignments of liens in favor of Paribas, as
Collateral Agent for the Banks and the Bridge Lenders; and
WHEREAS, the Banks and the Agents are willing to amend the Credit
Agreement as hereinafter provided; and
WHEREAS, the Borrower, the Banks and the Agents now desire to amend the
Credit Agreement as herein set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meaning as in the
Credit Agreement, as amended hereby.
ARTICLE II
Amendments
Section 2.1 Amendments to Section 1.1. Section 1.1 of the Credit
Agreement is amended as follows:
(a) The definitions of "L/C Application" and "Subordinated Debt" are hereby
deleted in their entirety.
(b) The following definitions are hereby added to Section 1.1 of the Credit
Agreement:
"'Indenture' means that certain Indenture dated as of
May 29, 1997, executed by and among the Borrower, the
Guarantors and First Union National Bank of North Carolina, as
trustee."
"'Senior Unsecured Debt' means up to $140,000,000 of
senior unsecured Debt issued by the Borrower pursuant to the
terms of the Indenture upon the terms and conditions set forth
therein, the proceeds of which shall be used to repay the
Bridge Loan in full and to repay outstanding Loans hereunder."
(c) The definition of "Change in Control" is hereby amended by adding the
following language after the word "mean":
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 2
<PAGE>
"either (i) a change of control as defined in the Indenture or (ii)"
Section 2.2 Amendment to Section 2.8. The third sentence of Section 2.8
of the Credit Agreement is hereby amended and restated in its entirety as
follows:
"Upon the issuance by the Borrower of the Senior
Unsecured Debt, the Borrowing Base shall be permanently
reduced to $60,000,000; in the case of any other issuances of
Debt by the Borrower, the Borrowing Base shall be
redetermined, in the sole discretion of the Majority Banks, as
provided herein."
Section 2.3 Amendment to Section 3.1. Section 3.1 of the Credit Agreement
is hereby ------------------------ amended as follows:
(a) The parenthetical in the second sentence of Section 3.1 of the Credit
Agreement is hereby deleted in its entirety.
(b) The third sentence of Section 3.1 of the Credit Agreement is hereby
deleted in its entirety.
Section 2.4 Amendment to Section 3.3. The second sentence of Section
3.3 of the Credit Agreement is hereby amended and restated in its entirety as
follows:
"Such Issuing Bank shall notify each Bank of its
receipt of such notice and of the face amount of Letter of
Credit being requested on the day such notice is received by
such Issuing Bank, if received by 12:00 P.M. New York, New
York time on a Business Day, and, otherwise, on the next
succeeding Business Day."
Section 2.5 Amendments to Section 3.5. Section 3.5 of the Credit
Agreement is hereby amended and restated in its entirety as follows:
"Section 3.5 Letter of Credit Fees. The Borrower
shall pay to the Administrative Agent for the account of the
Banks (to be shared ratably) a nonrefundable Letter of Credit
fee, payable quarterly in arrears, in an amount equal to the
greater of (i) 1% per annum of the face amount of such Letter
of Credit, for the period during which such Letter of Credit
remains outstanding, based on a 360 day year and the actual
number of days elapsed, or (ii) $350. The Borrower shall pay
to the Issuing Bank for its own account a nonrefundable Letter
of Credit fee, payable quarterly in arrears, in an amount
equal to 0.125% per annum of the face amount of such Letter of
Credit, for the period during which such Letter of Credit
remains outstanding, based on a 360 day year and the actual
number of days elapsed. In addition to the foregoing fees, the
Borrower shall pay or reimburse the applicable Issuing Bank
for such normal and customary costs and expenses as are
incurred or charged by such Issuing Bank in issuing, effecting
payment under, transferring, amending or otherwise
administering any Letter of Credit."
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 3
<PAGE>
Section 2.6 Amendment to Section 3.7. Subsection (a) of Section 3.7 of the
Credit Agreement is hereby amended by deleting the words "at negotiation."
Section 2.7 Amendment to Section 4.5. The following subsection (f) is
hereby added to Section 4.5 of the Credit Agreement:
"(f) If the Senior Unsecured Debt shall at any time
become due and payable prior to its stated maturity as a
result of a Change in Control, then, at the option of the
Required Banks, the Commitments shall be cancelled and the
Borrower shall immediately prepay the outstanding Loans in
full, together with accrued interest to the date of such
prepayment."
Section 2.8 Amendment to Section 10.10. The following language is hereby
added at the end of Section 10.10 of the Credit Agreement:
"or a prepayment of the Senior Unsecured Debt required under
the Indenture pursuant to a Change in Control."
Section 2.9 Amendment to Section 14.1. Section 14.1 of the Credit Agreement
is hereby amended by deleting all references to "Administrative Agent" therein
and substituting instead the words "Documentation Agent".
Section 2.10 References to Subordinated Debt. The Credit Agreement is
hereby amended by deleting all references to "Subordinated Debt" therein and
substituting instead the words "Senior Unsecured Debt".
Section 2.11 Amendment to Exhibit C. Exhibit C to the Credit Agreement is
hereby amended and restated in its entirety as set forth on Annex I to this
Amendment.
Section 2.12 Resignation and Appointment of Collateral Agent. Effective
simultaneously with the execution of this Amendment, in accordance with the
provisions of Section 13.9 of the Credit Agreement, (a) First Union hereby
resigns as collateral agent and syndication agent under the Credit Agreement,
(b) the other Agents, the Banks and the Issuing Bank hereby irrevocably appoint
and authorize Paribas to act as the Collateral Agent under the Credit Agreement
and each of the other Loan Documents, (c) Paribas consents to such appointment
and agrees to perform the duties of the Collateral Agent as specified in the
Credit Agreement, and (d) First Union hereby agrees to execute and deliver any
and all documents and instruments necessary to effect the appointment of Paribas
as Collateral Agent, including without limitation UCC-3 assignments and
amendments to or assignments of Security Documents related to the Mortgaged
Properties.
Section 2.13 Application of Proceeds of Senior Unsecured Debt.
Notwithstanding anything contained in Section 4.7 of the Credit Agreement to the
contrary, the Borrower and each of the Banks and the Agents hereby agree that
the proceeds of the Senior Unsecured Debt shall be applied first, to repay the
Bridge Loan in full, second, to repay in full the outstanding Loans
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 4
<PAGE>
owing by the Borrower to First Union, and third, to repay outstanding Loans
under the Credit Agreement owing by the Borrower to Paribas and Bankers Trust.
Section 2.14 First Union No Longer a Bank. Effective immediately upon
repayment in full of the outstanding Loans owing to First Union, First Union
shall no longer be a Bank under the Credit Agreement, and First Union hereby
agrees to immediately deliver the original Note executed by the Borrower in
favor of First Union (marked paid in full) to the Administrative Agent.
Section 2.15 Modified Commitments. Effective immediately upon the
application of the proceeds of the Senior Unsecured Debt in accordance with
Section 2.13 hereof, the Commitments listed on the signature pages to the Credit
Agreement are hereby deleted, and the new Commitments shall be as set forth on
the signature pages to this Amendment. In connection therewith, all of the
parties to this Amendment hereby acknowledge that, upon repayment in full of the
Loans owing to First Union, First Union shall no longer have a Commitment under
the Credit Agreement, and its Commitment shall be deemed to be cancelled.
Section 2.16 New Notes. Effective immediately upon the application of the
proceeds of the Senior Unsecured Debt and the repayment in full of Loans owing
to First Union, the Borrower shall execute new Notes in favor of Paribas and
Bankers Trust, in the principal amount of each such Bank's modified Commitment.
ARTICLE III
Miscellaneous
Section 3.1 Ratifications, Representations and Warranties. Except as
expressly modified and superseded by this Amendment, the terms and provisions of
the Credit Agreement and the other Loan Documents are ratified and confirmed and
shall continue in full force and effect. The representations and warranties
contained herein and in all other Loan Documents, as amended hereby, shall be
true and correct as of, and as if made on, the date hereof. The Borrower, the
Banks and the Agents agree that the Credit Agreement as amended hereby shall
continue to be legal, valid, binding and enforceable in accordance with its
terms.
Section 3.2 Reference to the Credit Agreement. Each of the Loan Documents,
including the Credit Agreement and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Credit Agreement as amended hereby, are hereby
amended so that any reference in such Loan Documents to the Credit Agreement
shall mean a reference to the Credit Agreement as amended hereby.
Section 3.3 Expenses. The Borrower agrees to pay on demand all expenses set
forth in Section 14.1 of the Credit Agreement.
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 5
<PAGE>
Section 3.4 Severability. Any provisions of this Amendment held by court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provisions so held to be invalid or unenforceable.
Section 3.5 Applicable Law. This Amendment and all other Loan Documents
executed pursuant hereto shall be governed by and construed in accordance with
the laws of the State of New York.
Section 3.6 Successors and Assigns. This Amendment is binding upon and
shall enure to the benefit of the Banks, the Agents and the Borrower and their
respective successors and assigns.
Section 3.7 Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original
but all of which when taken together shall constitute one and the same
instrument.
Section 3.8 Headings. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
Section 3.9 NO ORAL AGREEMENTS. THIS AMENDMENT AND ALL OTHER INSTRUMENTS,
DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES, AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Balance of this page intentionally left blank.]
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 6
<PAGE>
EXECUTED as of the day and year first above written.
BORROWER:
MAGNUM HUNTER RESOURCES, INC.
By:
David S. Krueger
Vice President and Chief Accounting Officer
ADMINISTRATIVE AGENT:
BANKERS TRUST COMPANY
By
Name:
Title:
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 7
<PAGE>
DOCUMENTATION AGENT
AND SUBSTITUTE COLLATERAL AGENT:
BANQUE PARIBAS
By:
Barton D. Schouest
Group Vice President
- and -
By:
Michael H. Fiuzat
Assistant Vice President
RESIGNING COLLATERAL AGENT
AND RESIGNING SYNDICATION AGENT:
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:
Michael J. Kolosowsky
Vice President
ISSUING BANK:
BANKERS TRUST COMPANY
By
Name:
Title:
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 8
<PAGE>
BANKS:
Modified Commitment: BANQUE PARIBAS
37,500,000.00
By:
Barton D. Schouest
Group Vice President
- and -
By:
Michael H. Fiuzat
Assistant Vice President
Modified Commitment: FIRST UNION NATIONAL BANK
CANCELLED OF NORTH CAROLINA
By:
Michael J. Kolosowsky
Vice President
Modified Commitment: BANKERS TRUST COMPANY
$37,500,000
By:
Name:
Title:
DA971410133
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 9
<PAGE>
ACKNOWLEDGEMENT BY GUARANTORS
Each of the undersigned Guarantors hereby (i) consents to the terms and
conditions of the Amendment, (ii) confirms and ratifies the terms of the Amended
and Restated Subsidiary Guaranty, (iii) acknowledges and agrees that its consent
is not required for the effectiveness of the Amendment and (iv) represents and
warrants that (a) no Default or Event of Default has occurred or is continuing
or would otherwise be created by the Amendment, (b) it is in full compliance
with all covenants and agreements pertaining to it in the Credit Documents and
(c) it has reviewed a copy of the Amendment.
Executed as of the 29th day of May, 1997.
GUARANTORS:
HUNTER GAS GATHERING, INC.
GRUY PETROLEUM MANAGEMENT CO.
MAGNUM HUNTER PRODUCTION, INC.
CONMAG ENERGY CORPORATION
RAMPART PETROLEUM, INC.
By:
David S. Krueger
Authorized Officer
DA971410133
052997 v6
316:17811-1
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 10
Exhibit 10.6
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is dated
as of May 29, 1997, among MAGNUM HUNTER RESOURCES, INC., a Nevada corporation
(the "Company"), as issuer, MAGNUM HUNTER PRODUCTION, INC., GRUY PETROLEUM
MANAGEMENT COMPANY, HUNTER GAS GATHERING, INC., RAMPART PETROLEUM, INC., and
CONMAG ENERGY CORPORATION, as guarantors (the "Guarantors," and together with
the Company, the "Issuers"), and BT SECURITIES CORPORATION, FIRST UNION CAPITAL
MARKETS CORP., PARIBAS CORPORATION and PAINEWEBBER INCORPORATED, as initial
purchasers (the "Initial Purchasers").
This Agreement is entered into in connection with the Purchase
Agreement, dated as of May 22, 1997, among the Issuers and the Initial
Purchasers (the "Purchase Agreement"), which provides for the sale by the
Company to the Initial Purchasers of U.S. $140,000,000 aggregate principal
amount of the Company's 10% Senior Notes due 2007 (the "Notes"), guaranteed by
the Guarantors (the "Guarantees"). In order to induce the Initial Purchasers to
enter into the Purchase Agreement, the Issuers have agreed to provide the
registration rights set forth in this Agreement for the benefit of the Initial
Purchasers and any subsequent holder or holders of the Notes. The execution and
delivery of this Agreement is a condition to the Initial Purchasers' obligation
to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4 hereof.
Advice: See the last paragraph of Section 5 hereof.
Agreement: See the introductory paragraphs hereto.
Applicable Period: See Section 2 hereof.
Effectiveness Date: The 150th day after the Issue Date;
provided, however, that with respect to any Shelf Registration, the
Effectiveness Date shall be the 105th day after the Filing Date with respect
thereto.
<PAGE>
Effectiveness Period: See Section 3 hereof.
Event Date: See Section 4 hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2 hereof.
Exchange Offer: See Section 2 hereof.
Exchange Offer Registration Statement: See Section 2 hereof.
Filing Date: (A) If no Registration Statement has been filed
by the Issuers pursuant to this Agreement, the 45th day after the Issue Date;
provided, however, that if a Shelf Notice is given within 10 days of the Filing
Date, then the Filing Date with respect to the Initial Shelf Registration shall
be the 30th calendar day after the date of the giving of such Shelf Notice; and
(B) in each other case (which may be applicable notwithstanding the consummation
of the Exchange Offer), the 30th day after the delivery of a Shelf Notice.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Indenture: The Indenture, dated as of May 29, 1997, by and
among the Issuers and First Union National Bank of North Carolina, as Trustee,
pursuant to which the Notes and the Guarantees are being issued, as the same may
be amended or supplemented from time to time in accordance with the terms
thereof.
Initial Purchasers: See the introductory paragraphs hereto.
Initial Shelf Registration: See Section 3(a) hereof.
Inspectors: See Section 5(n) hereof.
Issue Date: May 29, 1997, the date of original issuance of
the Notes.
Issuers: See the introductory paragraphs hereto.
NASD: See Section 5(s) hereof.
<PAGE>
Participant: See Section 7(a) hereof.
Participating Broker-Dealer: See Section 2 hereof.
Person: An individual, trustee, corporation, partnership,
joint stock company, trust, unincorporated association, union, business
association, firm or other legal entity.
Private Exchange: See Section 2 hereof.
Private Exchange Notes: See Section 2 hereof.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act and any term sheet filed pursuant
to Rule 434 under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs hereof.
Records: See Section 5(n) hereof.
Registrable Notes: Each Note upon its original issuance and at
all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv)
hereof is applicable upon original issuance and at all times subsequent thereto
and each Private Exchange Note upon original issuance thereof and at all times
subsequent thereto, until (i) a Registration Statement (other than, with respect
to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the
Exchange Offer Registration Statement) covering such Note, Exchange Note or
Private Exchange Note has been declared effective by the SEC and such Note,
Exchange Note or such Private Exchange Note, as the case may be, has been
disposed of in accordance with such effective Registration Statement, (ii) such
Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or
Exchange Notes that may be resold without restriction under state and federal
securities laws, (iii) such Note, Exchange Note or Private Exchange Note, as the
case may be, ceases to be outstanding for purposes of the Indenture or (iv) such
Note, Exchange Note or Private Exchange Note, as the case may be, may be resold
without restriction pursuant to Rule 144 under the Securities Act.
<PAGE>
Registration Statement: Any registration statement of the
Company and/or the Guarantors that covers any of the Notes, the Exchange Notes
or the Private Exchange Notes (and the related Guarantees) filed with the SEC
under the Securities Act, including the Prospectus, amendments and supplements
to such registration statement, including post-effective amendments, all
exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of the issuer of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2 hereof.
Shelf Registration: See Section 3(b) hereof.
Subsequent Shelf Registration: See Section 3(b) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and the trustee
(if any) under any indenture governing the Exchange Notes and Private Exchange
Notes.
Underwritten registration or underwritten offering: A
registration in which securities of one or more of the Issuers are sold to an
underwriter for reoffering to the public.
2. Exchange Offer
(a) The Issuers shall file with the SEC, no later than the Filing Date, a
Registration Statement (the "Exchange Offer Registration Statement") on an
appropriate registration form with respect to a registered offer (the "Exchange
Offer") to exchange any and all of the Registrable Notes for a like aggregate
<PAGE>
principal amount of notes of the Company, guaranteed by the Guarantors, that are
identical in all material respects to the Notes, except that the Exchange Notes
shall contain no restrictive legend thereon (the "Exchange Notes"), and which
are entitled to the benefits of the Indenture or a trust indenture which is
identical in all material respects to the Indenture (other than such changes to
the Indenture or any such identical trust indenture as are necessary to comply
with the TIA) and which, in either case, has been qualified under the TIA. The
Exchange Offer shall comply with all applicable tender offer rules and
regulations under the Exchange Act and other applicable law. The Issuers shall
use their best efforts to (x) cause the Exchange Offer Registration Statement to
be declared effective under the Securities Act on or before the Effectiveness
Date; (y) keep the Exchange Offer open for at least 30 days (or longer if
required by applicable law) after the date that notice of the Exchange Offer is
mailed to Holders; and (z) consummate the Exchange Offer on or prior to the 45th
day following the date on which the Exchange Offer Registration Statement is
declared effective by the SEC. If, after the Exchange Offer Registration
Statement is initially declared effective by the SEC, the Exchange Offer or the
issuance of the Exchange Notes thereunder is interfered with by any stop order,
injunction or other order or requirement of the SEC or any other governmental
agency or court, the Exchange Offer Registration Statement shall be deemed not
to have become effective for purposes of this Agreement.
Each Holder that participates in the Exchange Offer will be
required, as a condition to its participation in the Exchange Offer, to
represent to the Company in writing (which may be contained in the applicable
letter of transmittal) that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, that at the time of the
consummation of the Exchange Offer such Holder will have no arrangement or
understanding with any Person to participate in the distribution of the Exchange
Notes in violation of the provisions of the Securities Act, and that such Holder
is not an affiliate of the Company within the meaning of the Securities Act.
Upon consummation of the Exchange Offer in accordance with
this Section 2, the provisions of this Agreement shall continue to apply,
mutatis mutandis, solely with respect to Registrable Notes that are Private
Exchange Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and
Exchange Notes held by Participating Broker-Dealers (as defined), and the
Issuers shall have no further obligation to register Registrable Notes (other
than Private Exchange Notes and other than in respect of any Exchange Notes as
to which clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof.
No securities other than the Exchange Notes shall be included
in the Exchange Offer Registration Statement.
<PAGE>
(b) The Issuers shall include within the Prospectus contained in the Exchange
Offer Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Holders, which shall contain a summary statement of
the positions taken or policies made by the staff of the SEC with respect to the
potential "underwriter" status of any broker-dealer that is the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by
such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"),
whether such positions or policies have been publicly disseminated by the staff
of the SEC or such positions or policies represent the prevailing views of the
staff of the SEC. Such "Plan of Distribution" section shall also expressly
permit, to the extent permitted by applicable policies and regulations of the
SEC, the use of the Prospectus by all Persons subject to the prospectus delivery
requirements of the Securities Act, including, to the extent permitted by
applicable policies and regulations of the SEC, all Participating
Broker-Dealers, and include a statement describing the means by which
Participating Broker-Dealers may resell the Exchange Notes in compliance with
the Securities Act.
The Issuers shall use their best efforts to keep the Exchange
Offer Registration Statement effective and to amend and supplement the
Prospectus contained therein in order to permit such Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as is necessary to comply with applicable
law in connection with any resale of the Exchange Notes covered thereby;
provided, however, that such period shall not exceed 180 days after such
Exchange Offer Registration Statement is declared effective (or such longer
period if extended pursuant to the last paragraph of Section 5 hereof) (the
"Applicable Period").
If, prior to consummation of the Exchange Offer, any Holder
holds any Notes acquired by it that have, or that are reasonably likely to be
determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Exchange
Offer, the Company upon the request of any such Holder shall simultaneously with
the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to
any such Holder, in exchange (the "Private Exchange") for such Notes held by any
such Holder, a like principal amount of notes (the "Private Exchange Notes") of
the Company, guaranteed by the Guarantors, that are identical in all material
respects to the Exchange Notes except for the placement of a restrictive legend
on such Private Exchange Notes. The Private Exchange Notes shall be issued
pursuant to the same indenture as the Exchange Notes and bear the same CUSIP
number as the Exchange Notes.
In connection with the Exchange Offer, the Issuers shall:
(1) mail, or cause to be mailed, to each Holder entitled to participate in
the Exchange Offer a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
<PAGE>
(2) keep the Exchange Offer open for not less than 30 days after the date
that notice of the Exchange Offer is mailed to Holders (or longer if
required by applicable law);
(3) utilize the services of a depositary for the Exchange Offer with an
address in the Borough of Manhattan, The City of New York;
(4) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last business day on which the
Exchange Offer shall remain open; and
(5) otherwise comply in all material respects with all applicable laws,
rules and regulations.
As soon as practicable after the close of the Exchange Offer
and the Private Exchange, if any, the Issuers shall:
(1) accept for exchange all Registrable Notes validly tendered and not
validly withdrawn pursuant to the Exchange Offer and the Private
Exchange, if any;
(2) deliver to the Trustee for cancellation all Registrable Notes so
accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each Holder of
Notes, Exchange Notes or Private Exchange Notes, as the case may be,
equal in principal amount to the Notes of such Holder so accepted for
exchange.
The Exchange Offer and the Private Exchange shall not be
subject to any conditions, other than that (i) the Exchange Offer or Private
Exchange, as the case may be, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) no action or proceeding shall have
been instituted or threatened in any court or by any governmental agency which
might materially impair the ability of the Issuers to proceed with the Exchange
Offer or the Private Exchange, and no material adverse development shall have
occurred in any existing action or proceeding with respect to the Issuers and
(iii) all governmental approvals shall have been obtained, which approvals the
Issuers deem necessary for the consummation of the Exchange Offer or Private
Exchange.
<PAGE>
The Exchange Notes and the Private Exchange Notes shall be
issued under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture and which, in either case, has been qualified under
the TIA or is exempt from such qualification and shall provide that the Exchange
Notes shall not be subject to the transfer restrictions set forth in the
Indenture. The Indenture or such indenture shall provide that the Exchange
Notes, the Private Exchange Notes and the Notes shall vote and consent together
on all matters as one class and that none of the Exchange Notes, the Private
Exchange Notes or the Notes will have the right to vote or consent as a separate
class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the SEC, the Issuers are not permitted to effect
the Exchange Offer, (ii) the Exchange Offer is not consummated within 195 days
of the Issue Date, (iii) any holder of Private Exchange Notes so requests in
writing to the Company within 60 days after the consummation of the Exchange
Offer, or (iv) in the case of any Holder that participates in the Exchange
Offer, such Holder does not receive Exchange Notes on the date of the exchange
that may be sold without restriction under state and federal securities laws
(other than due solely to the status of such Holder as an affiliate of the
Company within the meaning of the Securities Act), then in the case of each of
clauses (i) to and including (iv) of this sentence, the Company shall promptly
deliver to the Holders and the Trustee written notice thereof (the "Shelf
Notice") and shall file a Shelf Registration pursuant to Section 3 hereof.
3. Shelf Registration
If at any time a Shelf Notice is delivered as contemplated by
Section 2(c) hereof, then:
(a) Shelf Registration. The Issuers shall file with the SEC a Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415
covering all of the Registrable Notes not exchanged in the Exchange Offer,
Private Exchange Notes and Exchange Notes as to which Section 2(c)(iv) is
applicable (the "Initial Shelf Registration"). The Issuers shall use their best
efforts to file with the SEC the Initial Shelf Registration on or before the
applicable Filing Date. The Initial Shelf Registration shall be on Form S-1 or
another appropriate form permitting registration of such Registrable Notes for
<PAGE>
resale by Holders in the manner or manners designated by them (including,
without limitation, one or more underwritten offerings). The Issuers shall not
permit any securities other than the Registrable Notes to be included in the
Initial Shelf Registration or any Subsequent Shelf Registration (as defined
below).
The Issuers shall use their best efforts to cause the Initial
Shelf Registration to be declared effective under the Securities Act on or prior
to the Effectiveness Date and to keep the Initial Shelf Registration
continuously effective under the Securities Act until the date which is two
years from the Issue Date (the "Effectiveness Period"), or such shorter period
ending when (i) all Registrable Notes covered by the Initial Shelf Registration
have been sold in the manner set forth and as contemplated in the Initial Shelf
Registration or (ii) a Subsequent Shelf Registration covering all of the
Registrable Notes covered by and not sold under the Initial Shelf Registration
or an earlier Subsequent Shelf Registration has been declared effective under
the Securities Act; provided, however, that the Effectiveness Period in respect
of the Initial Shelf Registration shall be extended to the extent required to
permit dealers to comply with the applicable prospectus delivery requirements of
Rule 174 under the Securities Act and as otherwise provided herein.
(b) Subsequent Shelf Registrations. If the Initial Shelf Registration or any
Subsequent Shelf Registration ceases to be effective for any reason at any time
during the Effectiveness Period (other than because of the sale of all of the
securities registered thereunder), the Issuers shall use their best efforts to
obtain the prompt withdrawal of any order suspending the effectiveness thereof,
and in any event shall within 30 days of such cessation of effectiveness amend
the Initial Shelf Registration in a manner to obtain the withdrawal of the order
suspending the effectiveness thereof, or file an additional "shelf" Registration
Statement pursuant to Rule 415 covering all of the Registrable Notes covered by
and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf
Registration (each, a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, the Issuers shall use their best efforts to cause the
Subsequent Shelf Registration to be declared effective under the Securities Act
as soon as practicable after such filing and to keep such subsequent Shelf
Registration continuously effective for a period equal to the number of days in
the Effectiveness Period less the aggregate number of days during which the
Initial Shelf Registration or any Subsequent Shelf Registration was previously
continuously effective. As used herein the term "Shelf Registration" means the
Initial Shelf Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Issuers shall promptly supplement and amend
any Shelf Registration if required by the rules, regulations or instructions
applicable to the registration form used for such Shelf Registration, if
required by the Securities Act, or if reasonably requested by the Holders of a
majority in aggregate principal amount of the Registrable Notes covered by such
Registration Statement or by any underwriter of such Registrable Notes.
4. Additional Interest
(a) The Issuers and the Initial Purchasers agree that the Holders will suffer
damages if the Issuers fail to fulfill their obligations under Section 2 or
Section 3 hereof and that it would not be feasible to ascertain the extent of
such damages with precision. Accordingly, the Company agrees to pay, as
liquidated damages, additional interest on the Notes ("Additional Interest")
under the circumstances and to the extent set forth below (each of which shall
be given independent effect):
<PAGE>
(i) if (A) neither the Exchange Offer Registration Statement nor the
Initial Shelf Registration has been filed on or prior to the applicable Filing
Date or (B) notwithstanding that the Issuers have consummated or will consummate
the Exchange Offer, the Issuers are required to file a Shelf Registration and
such Shelf Registration is not filed on or prior to the Filing Date applicable
thereto, then, commencing on the day after any such Filing Date, Additional
Interest shall accrue on the principal amount of the Notes at a rate of 0.50%
per annum for the first 90 days immediately following each such Filing Date, and
such Additional Interest rate shall increase by an additional 0.50% per annum at
the beginning of each subsequent 90-day period; or
(ii) if (A) neither the Exchange Offer Registration Statement nor the
Initial Shelf Registration is declared effective by the SEC on or prior to the
relevant Effectiveness Date or (B) notwithstanding that the Issuers have
consummated or will consummate the Exchange Offer, the Issuers are required to
file a Shelf Registration and such Shelf Registration is not declared effective
by the SEC on or prior to the Effectiveness Date in respect of such Shelf
Registration, then, commencing on the day after such Effectiveness Date,
Additional Interest shall accrue on the principal amount of the Notes at a rate
of 0.50% per annum for the first 90 days immediately following the day after
such Effectiveness Date, and such Additional Interest rate shall increase by an
additional 0.50% per annum at the beginning of each subsequent 90-day period; or
(iii) if (A) the Issuers have not exchanged Exchange Notes for all Notes
validly tendered in accordance with the terms of the Exchange Offer on or prior
to the 45th day after the date on which the Exchange Offer Registration
Statement relating thereto was declared effective or (B) if applicable, a Shelf
Registration has been declared effective and such Shelf Registration ceases to
be effective at any time during the Effectiveness Period, then Additional
Interest shall accrue on the principal amount of the Notes at a rate of 0.50%
per annum for the first 90 days commencing on the (x) 46th day after such
effective date, in the case of (A) above, or (y) the day such Shelf Registration
<PAGE>
ceases to be effective in the case of (B) above, and such Additional Interest
rate shall increase by an additional 0.50% per annum at the beginning of each
such subsequent 90-day period; provided, however, that the Additional Interest
rate on the Notes may not exceed at any one time in the aggregate 1.0% per
annum; provided, further, however, that (1) upon the filing of the applicable
Exchange Offer Registration Statement or the applicable Shelf Registration as
required hereunder (in the case of clause (i) above of this Section 4), (2) upon
the effectiveness of the Exchange Offer Registration Statement or the applicable
Shelf Registration Statement as required hereunder (in the case of clause (ii)
of this Section 4), or (3) upon the exchange of the applicable Exchange Notes
for all Notes tendered (in the case of clause (iii)(A) of this Section 4), or
upon the effectiveness of the applicable Shelf Registration Statement which had
ceased to remain effective (in the case of (iii)(B) of this Section 4),
Additional Interest on the Notes in respect of which such events relate as a
result of such clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue.
(b) The Company shall notify the Trustee within three business days after each
and every date on which an event occurs in respect of which Additional Interest
is required to be paid (an "Event Date"). Any amounts of Additional Interest due
pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in
cash semiannually on each June 1 and December 1 (to the holders of record on the
May 15 and November 15 immediately preceding such dates), commencing with the
first such date occurring after any such Additional Interest commences to
accrue. The amount of Additional Interest will be determined by multiplying the
applicable Additional Interest rate by the principal amount of the Registrable
Notes, multiplied by a fraction, the numerator of which is the number of days
such Additional Interest rate was applicable during such period (determined on
the basis of a 360-day year comprised of twelve 30-day months and, in the case
of a partial month, the actual number of days elapsed), and the denominator of
which is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Sections 2 or 3 hereof, the Issuers shall effect such registrations
to permit the sale of the securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto and in
connection with any Registration Statement filed by the Issuers hereunder each
of the Issuers shall:
(a) Prepare and file with the SEC prior to the applicable Filing Date, a
Registration Statement or Registration Statements as prescribed by Sections 2 or
3 hereof, and use its best efforts to cause each such Registration Statement to
become effective and remain effective as provided herein; provided, however,
that, if (1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus
contained in the Exchange Offer Registration Statement filed pursuant to Section
2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
<PAGE>
Applicable Period relating thereto, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Issuers shall furnish
to and afford the Holders of the Registrable Notes covered by such Registration
Statement or each such Participating Broker-Dealer, as the case may be, their
counsel and the managing underwriters, if any, a reasonable opportunity to
review copies of all such documents (including copies of any documents to be
incorporated by reference therein and all exhibits thereto) proposed to be filed
(in each case at least five days prior to such filing, or such later date as is
reasonable under the circumstances). The Issuers shall not file any Registration
Statement or Prospectus or any amendments or supplements thereto if the Holders
of a majority in aggregate principal amount of the Registrable Notes covered by
such Registration Statement, or any such Participating Broker-Dealer, as the
case may be, their counsel, or the managing underwriters, if any, shall
reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective amendments
to each Shelf Registration Statement or Exchange Offer Registration Statement,
as the case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period, as
the case may be; cause the related Prospectus to be supplemented by any
Prospectus supplement required by applicable law, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) promulgated
under the Securities Act; and comply with the provisions of the Securities Act
and the Exchange Act applicable to each of them with respect to the disposition
of all securities covered by such Registration Statement as so amended or in
such Prospectus as so supplemented and with respect to the subsequent resale of
any securities being sold by a Participating Broker-Dealer covered by any such
Prospectus. The Issuers shall be deemed not to have used their best efforts to
keep a Registration Statement effective during the Effective Period or the
Applicable Period, as the case may be, relating thereto if any Issuer
voluntarily takes any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers seeking to
sell Exchange Notes not being able to sell such Registrable Notes or such
Exchange Notes during that period unless such action is required by applicable
law or permitted by this Agreement.
(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a
Prospectus contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period relating thereto from whom the Company has received written
notice that it will be a Participating Broker-Dealer in the Exchange Offer,
notify the selling Holders of Registrable Notes, or each such Participating
Broker-Dealer, as the case may be, their counsel and the managing underwriters,
if any, promptly (but in any event within one day), and confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration Statement or any
<PAGE>
post-effective amendment, when the same has become effective under the
Securities Act (including in such notice a written statement that any Holder
may, upon request, obtain, at the sole expense of the Issuers, one conformed
copy of such Registration Statement or post-effective amendment including
financial statements and schedules, documents incorporated or deemed to be
incorporated by reference and exhibits), (ii) of the issuance by the SEC of any
stop order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time when a
prospectus is required by the Securities Act to be delivered in connection with
sales of the Registrable Notes or resales of Exchange Notes by Participating
Broker-Dealers the representations and warranties of the Issuers contained in
any agreement (including any underwriting agreement) contemplated by Section
5(m) hereof cease to be true and correct in all material respects, (iv) of the
receipt by any Issuer of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement or any
of the Registrable Notes or the Exchange Notes to be sold by any Participating
Broker-Dealer for offer or sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, (v) of the happening of any
event, the existence of any condition or any information becoming known that
makes any statement made in such Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes in or
amendments or supplements to such Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (vi) of the
Issuers' determination that a post-effective amendment to a Registration
Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a
Prospectus contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Notes or the
Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any
jurisdiction, and, if any such order is issued, to use its best efforts to
obtain the withdrawal of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if requested by
the managing underwriter or underwriters (if any), the Holders of a majority in
aggregate principal amount of the Registrable Notes being sold in connection
with an underwritten offering or any Participating Broker-Dealer, (i) as
<PAGE>
promptly as practicable incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriter or underwriters (if any),
such Holders, any Participating Broker-Dealer or counsel for any of them
reasonably request to be included therein, (ii) make all required filings of
such prospectus supplement or such post-effective amendment as soon as
practicable after an Issuer has received notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment, and
(iii) supplement or make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a
Prospectus contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, furnish to each selling Holder of Registrable Notes and to
each such Participating Broker-Dealer who so requests and to their respective
counsel and each managing underwriter, if any, at the sole expense of the
Issuers, one conformed copy of the Registration Statement or Registration
Statements and each post-effective amendment thereto, including financial
statements and schedules, and, if requested, all documents incorporated or
deemed to be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a
Prospectus contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, deliver to each selling Holder of Registrable Notes, or each
such Participating Broker-Dealer, as the case may be, their respective counsel,
and the underwriters, if any, at the sole expense of the Issuers, as many copies
of the Prospectus or Prospectuses (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably request; and,
subject to the last paragraph of this Section 5, the Issuers hereby consent to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, and the underwriters or agents, if any, and
dealers (if any), in connection with the offering and sale of the Registrable
Notes covered by, or the sale by Participating Broker-Dealers of the Exchange
Notes pursuant to, such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any delivery of a
Prospectus contained in the Exchange Offer Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its best efforts to register or qualify, and to cooperate
with the selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, the managing underwriter or underwriters, if
any, and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
<PAGE>
Registrable Notes for offer and sale under the securities or Blue Sky laws of
such jurisdictions within the United States as any selling Holder, Participating
Broker-Dealer, or the managing underwriter or underwriters reasonably request in
writing; provided, however, that where Exchange Notes held by Participating
Broker-Dealers or Registrable Notes are offered other than through an
underwritten offering, the Issuers agree to cause their counsel to perform Blue
Sky investigations and file registrations and qualifications required to be
filed pursuant to this Section 5(h), keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all other
acts or things reasonably necessary or advisable to enable the disposition in
such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or
the Registrable Notes covered by the applicable Registration Statement;
provided, however, that no Issuer shall be required to (A) qualify generally to
do business in any jurisdiction where it is not then so qualified, (B) take any
action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or (C) subject itself to taxation
in excess of a nominal dollar amount in any such jurisdiction where it is not
then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate
with the selling Holders of Registrable Notes and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Notes to be sold, which certificates shall
not bear any restrictive legends and shall be in a form eligible for deposit
with The Depository Trust Company; and enable such Registrable Notes to be in
such denominations and registered in such names as the managing underwriter or
underwriters, if any, or Holders may request.
(j) Use its best efforts to cause the Registrable Notes covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be reasonably necessary to enable
the seller or sellers thereof or the underwriter or underwriters, if any, to
consummate the disposition of such Registrable Notes, except as may be required
solely as a consequence of the nature of such selling Holder's business, in
which case the Issuers will cooperate in all reasonable respects with the filing
of such Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a
Prospectus contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, upon the occurrence of any event contemplated by paragraph
5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to
Section 5(a) hereof) file with the SEC, at the sole expense of the Issuers, a
supplement or post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
<PAGE>
be incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes being
sold thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Notwithstanding the foregoing, the Issuers shall not be required
to amend or supplement a Registration Statement, any related Prospectus or any
document incorporated therein by reference, in the event that, and for a period
not to exceed an aggregate of 60 days in any calendar year if, (i) an event
occurs and is continuing as a result of which the Shelf Registration would, in
the Company's good faith judgment, contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and (ii) (a) the Company determines in its good faith judgment that
the disclosure of such event at such time would have a material adverse effect
on the business, operations or prospects of the Company or (b) the disclosure
otherwise relates to a pending material business transaction that has not yet
been publicly disclosed.
(l) Prior to the effective date of the first Registration Statement relating to
the Registrable Notes, (i) provide the Trustee with certificates for the
Registrable Notes in a form eligible for deposit with The Depository Trust
Company and (ii) provide a CUSIP number for the Registrable Notes.
(m) In connection with any underwritten offering of Registrable Notes pursuant
to a Shelf Registration, enter into an underwriting agreement as is customary in
underwritten offerings of debt securities similar to the Notes in form and
substance reasonably satisfactory to the Company and take all such other actions
as are reasonably requested by the managing underwriter or underwriters in order
to expedite or facilitate the registration or the disposition of such
Registrable Notes and, in such connection, (i) make such representations and
warranties to, and covenants with, the underwriters with respect to the business
of the Company and the subsidiaries of the Company (including any acquired
business, properties or entity, if applicable) and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings of debt securities similar to the Notes,
and confirm the same in writing if and when requested in form and substance
reasonably satisfactory to the Company; (ii) obtain the written opinions of
counsel to the Company and written updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters, addressed
to the underwriters covering the matters customarily covered in opinions
reasonably requested in underwritten offerings and such other matters as may be
reasonably requested by the managing underwriter or underwriters; (iii) use its
best efforts to obtain "cold comfort" letters and updates thereof in form, scope
<PAGE>
and substance reasonably satisfactory to the managing underwriter or
underwriters from the independent public accountants of the Company (and, if
necessary, any other independent public accountants of the Company any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be, included or
incorporated by reference in the Registration Statement), addressed to each of
the underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings of debt securities similar to the Notes and such other
matters as reasonably requested by the managing underwriter or underwriters as
permitted by the Statement on Auditing Standards No. 72; and (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable to the sellers and underwriters, if
any, than those set forth in Section 7 hereof (or such other provisions and
procedures acceptable to Holders of a majority in aggregate principal amount of
Registrable Notes covered by such Registration Statement and the managing
underwriter or underwriters or agents, if any). The above shall be done at each
closing under such underwriting agreement, or as and to the extent required
thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a
Prospectus contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, make available for inspection by any selling Holder of such
Registrable Notes being sold, or each such Participating Broker-Dealer, as the
case may be, any underwriter participating in any such disposition of
Registrable Notes, if any, and any attorney, accountant or other agent retained
by any such selling Holder or each such Participating Broker-Dealer, as the case
may be, or underwriter (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and instruments of the Company and
subsidiaries of the Company (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of the Company
and any of its subsidiaries to supply all information reasonably requested by
any such Inspector in connection with such Registration Statement and
Prospectus. Each Inspector shall agree in writing that it will keep the Records
confidential and that it will not disclose any of the Records that the Company
determines, in good faith, to be confidential and notifies the Inspectors in
writing are confidential unless (i) the disclosure of such Records is necessary
to avoid or correct a material misstatement or material omission in such
Registration Statement or Prospectus, (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction, or (iii) the information in such Records has been made generally
available to the public; provided, however, that prior notice shall be provided
as soon as practicable to the Company of the potential disclosure of any
information by such Inspector pursuant to clauses (i) or (ii) of this sentence
to permit the Company to obtain a protective order (or waive the provisions of
this paragraph (n)) and that such Inspector shall take such actions as are
reasonably necessary to protect the confidentiality of such information (if
practicable) to the extent such action is otherwise not inconsistent with, an
impairment of or in derogation of the rights and interests of the Holder or any
Inspector.
<PAGE>
(o) Provide an indenture trustee for the Registrable Notes or the Exchange
Notes, as the case may be, and cause the Indenture or the trust indenture
provided for in Section 2(a) hereof, as the case may be, to be qualified under
the TIA not later than the effective date of the first Registration Statement
relating to the Registrable Notes; and in connection therewith, cooperate with
the trustee under any such indenture and the Holders of the Registrable Notes,
to effect such changes to such indenture as may be required for such indenture
to be so qualified in accordance with the terms of the TIA; and execute, and use
its best efforts to cause such trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents required to
be filed with the SEC to enable such indenture to be so qualified in a timely
manner.
(p) Comply with all applicable rules and regulations of the SEC and make
generally available to its securityholders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 60 days
after the end of any fiscal quarter (or 120 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Notes are sold to underwriters in a firm commitment
or best efforts underwritten offering and (ii) if not sold to underwriters in
such an offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(q) Upon consummation of the Exchange Offer or a Private Exchange, obtain an
opinion of counsel to the Company, in a form customary for underwritten
transactions, addressed to the Trustee for the benefit of all Holders of
Registrable Notes participating in the Exchange Offer or the Private Exchange,
as the case may be, that the Exchange Notes or Private Exchange Notes, as the
case may be, the related Guarantees and the related indenture constitute legal,
valid and binding obligations of the Issuers, enforceable against them in
accordance with their respective terms, subject to customary exceptions and
qualifications.
(r) If the Exchange Offer or a Private Exchange is to be consummated, upon
delivery of the Registrable Notes by Holders to the Company (or to such other
Person as directed by the Issuer) in exchange for the Exchange Notes or the
Private Exchange Notes, as the case may be, the Company shall mark, or cause to
be marked, on such Registrable Notes that such Registrable Notes are being
canceled in exchange for the Exchange Notes or the Private Exchange Notes, as
the case may be; in no event shall such Registrable Notes be marked as paid or
otherwise satisfied.
<PAGE>
(s) Cooperate with each seller of Registrable Notes covered by any Registration
Statement and each underwriter, if any, participating in the disposition of such
Registrable Notes and their respective counsel in connection with any filings
required to be made with the National Association of Securities Dealers, Inc.
(the "NASD").
(t) Use its best efforts to take all other steps reasonably necessary to effect
the registration of the Exchange Notes and/or Registrable Notes covered by a
Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes as to
which any registration is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable Notes
as the Company may, from time to time, reasonably request. The Company may
exclude from such registration the Registrable Notes of any seller so long as
such seller fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such seller not materially misleading.
If any such Registration Statement refers to any Holder by
name or otherwise as the holder of any securities of the Company, then such
Holder shall have the right to require (i) the insertion therein of language, in
form and substance reasonably satisfactory to such Holder, to the effect that
the holding by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the securities
covered thereby and that such holding does not imply that such Holder will
assist in meeting any future financial requirements of the Company, or (ii) in
the event that such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force, the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by its acquisition of such Registrable Notes or Exchange
Notes to be sold by such Participating Broker-Dealer, as the case may be, that,
upon actual receipt of any notice from the Company of the happening of any event
of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi)
hereof, such Holder will forthwith discontinue disposition of such Registrable
Notes covered by such Registration Statement or Prospectus or Exchange Notes to
be sold by such Holder or Participating Broker-Dealer, as the case may be, until
such Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
<PAGE>
or supplements thereto. In the event that the Company shall give any such
notice, the Applicable Period shall be extended by the number of days during
such periods from and including the date of the giving of such notice to and
including the date when each seller of Registrable Notes covered by such
Registration Statement or Exchange Notes to be sold by such Participating
Broker-Dealer, as the case may be, shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y)
the Advice.
6. Registration Expenses
All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuers (other than any underwriting
discounts or commissions) shall be borne by the Company whether or not the
Exchange Offer Registration Statement or any Shelf Registration is filed or
becomes effective or the Exchange Offer is consummated, including, without
limitation, (i) all registration and filing fees (including, without limitation,
(A) fees with respect to filings required to be made with the NASD in connection
with an underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Notes or Exchange Notes and determination of the eligibility of the
Registrable Notes or Exchange Notes for investment under the laws of such
jurisdictions (x) where the holders of Registrable Notes are located, in the
case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the
case of Registrable Notes or Exchange Notes to be sold by a Participating
Broker-Dealer during the Applicable Period)), (ii) printing expenses, including,
without limitation, expenses of printing certificates for Registrable Notes or
Exchange Notes in a form eligible for deposit with The Depository Trust Company
and of printing prospectuses if the printing of prospectuses is requested by the
managing underwriter or underwriters, if any, by the Holders of a majority in
aggregate principal amount of the Registrable Notes included in any Registration
Statement or in respect of Registrable Notes or Exchange Notes to be sold by any
Participating Broker-Dealer during the Applicable Period, as the case may be,
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company and reasonable fees and disbursements of one special
counsel for all of the sellers of Registrable Notes (exclusive of any counsel
retained pursuant to Section 7 hereof), (v) fees and disbursements of all
independent certified public accountants referred to in Section 5(m)(iii) hereof
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance), (vi) Securities
Act liability insurance, if the Company desires such insurance, (vii) fees and
expenses of all other Persons retained by the Issuer, (viii) internal expenses
of the Company (including, without limitation, all salaries and expenses of
officers and employees of the Company performing legal or accounting duties),
(ix) the expense of any annual audit, (x) any fees and expenses incurred in
connection with the listing of the securities to be registered on any securities
exchange, and the obtaining of a rating of the securities, in each case, if
applicable, and (xi) the expenses relating to printing, word processing and
distributing all Registration Statements, underwriting agreements, indentures
and any other documents necessary in order to comply with this Agreement.
<PAGE>
7. Indemnification
(a) Each of the Issuers, jointly and severally, agrees to indemnify and hold
harmless each Holder of Registrable Notes and each Participating Broker-Dealer
selling Exchange Notes during the Applicable Period, the affiliates, officers,
directors, representatives, employees and agents of each such Person, and each
Person, if any, who controls any such Person within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a
"Participant"), from and against any and all losses, claims, damages, judgments,
liabilities and expenses (including, without limitation, the reasonable legal
fees and other expenses actually incurred in connection with any suit, action or
proceeding or any claim asserted) caused by, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) or Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by, arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in the case of
the Prospectus in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
any Participant furnished to the Company in writing by such Participant
expressly for use therein.
(b) Each Participant agrees, severally and not jointly, to indemnify and hold
harmless the Issuers, their respective affiliates, officers, directors,
representatives, employees and agents of each Issuer and each Person who
controls each Issuer within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent (but on a several, and not
joint, basis) as the foregoing indemnity from the Issuers to each Participant,
but only with reference to information relating to such Participant furnished to
the Company in writing by such Participant expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto, or any preliminary
prospectus. The liability of any Participant under this paragraph shall in no
event exceed the proceeds received by such Participant from sales of Registrable
Notes or Exchange Notes giving rise to such obligations.
(c) If any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against any Person
in respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Persons against whom such indemnity may be sought (the "Indemnifying
Persons") in writing, and the Indemnifying Persons, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Persons may reasonably designate in such proceeding and shall pay
<PAGE>
the fees and expenses actually incurred by such counsel related to such
proceeding; provided, however, that the failure to so notify the Indemnifying
Persons (i) will not relieve it from any liability under paragraph (a) or (b)
above unless and to the extent such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraphs (a) and
(b) above. In any such proceeding, any Indemnified Person shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Person unless (i) the Indemnifying Persons and
the Indemnified Person shall have mutually agreed to the contrary, (ii) the
Indemnifying Persons shall have failed within a reasonable period of time to
retain counsel reasonably satisfactory to the Indemnified Person or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both any Indemnifying Person and the Indemnified Person or any affiliate thereof
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the Indemnifying Persons shall not, in connection with such proceeding or
separate but substantially similar related proceeding in the same jurisdiction
arising out of the same general allegations, be liable for the fees and expenses
of more than one separate firm (in addition to any local counsel) for all
Indemnified Persons, and that all such fees and expenses shall be reimbursed
promptly as they are incurred. Any such separate firm for the Participants and
such control Persons of Participants shall be designated in writing by
Participants who sold a majority in interest of Registrable Notes and Exchange
Notes sold by all such Participants and shall be reasonably acceptable to the
Company, and any such separate firm for the Issuers, their affiliates, officers,
directors, representatives, employees and agents and such control Persons of
such Issuer shall be designated in writing by such Issuer and shall be
reasonably acceptable to the Holders.
The Indemnifying Persons shall not be liable for any
settlement of any proceeding effected without its prior written consent (which
consent shall not be unreasonably withheld or delayed), but if settled with such
consent or if there be a final non-appealable judgment for the plaintiff for
which the Indemnified Person is entitled to indemnification pursuant to this
Agreement, each of the Indemnifying Persons agrees to indemnify and hold
harmless each Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. No Indemnifying Person shall, without the
prior written consent of the Indemnified Persons (which consent shall not be
unreasonably withheld or delayed), effect any settlement or compromise of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party, or indemnity could have been sought hereunder by
such Indemnified Person, unless such settlement (A) includes an unconditional
written release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of such
Indemnified Person.
<PAGE>
(d) If the indemnification provided for in the first and second paragraphs of
this Section 7 is for any reason unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the offering of
the Notes or (ii) if the allocation provided by the foregoing clause (i) is not
permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative benefits received by the
Issuers on the one hand and the Participants on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (net of discounts
and commissions but before deducting expenses) of the Notes received by the
Company bears to the total proceeds received by such Participant from the sale
of Registrable Notes or Exchange Notes, as the case may be, in each case as set
forth in the table on the cover page of the Offering Memorandum in respect of
the sale of the Notes. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Issuers on the one hand or such
Participant or such other Indemnified Person, as the case may be, on the other,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if contribution
pursuant to this Section 7 were determined by pro rata allocation (even if the
Participants were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an Indemnified Person as a result of the losses, claims, damages, judgments,
liabilities and expenses referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth above, any
reasonable legal or other expenses actually incurred by such Indemnified Person
in connection with investigating or defending any such action or claim.
<PAGE>
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, exceeds the amount of any damages that such
Participant has otherwise been required to pay or has paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the Indemnifying Party to the Indemnified Party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Issuers set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Holder or any person who controls a
Holder, the Issuer, its directors, officers, employees or agents or any person
controlling the Issuer, and (ii) any termination of this Agreement.
(g) The indemnity and contribution agreements contained in this Section 7 will
be in addition to any liability which the Indemnifying Persons may otherwise
have to the Indemnified Persons referred to above.
8. Rules 144 and 144A
Each of the Issuers covenants and agrees that it will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder in a timely manner
in accordance with the requirements of the Securities Act and the Exchange Act
and, if at any time such Issuer is not required to file such reports, such
Issuer will, upon the request of any Holder or beneficial owner of Registrable
Notes, make available such information necessary to permit sales pursuant to
Rule 144A under the Securities Act. Each of the Issuers further covenants and
agrees, for so long as any Registrable Notes remain outstanding that it will
take such further action as any Holder of Registrable Notes may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Notes without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the
Securities Act, as such Rules may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
<PAGE>
or investment bankers and manager or managers that will manage the offering will
be selected by the Holders of a majority in aggregate principal amount of such
Registrable Notes included in such offering and shall be reasonably acceptable
to the Issuer.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
10. Miscellaneous
(a) (a) No Inconsistent Agreements. The Issuers have not, as of the date hereof,
and the Issuers shall not, after the date of this Agreement, enter into any
agreement with respect to any of its securities that is inconsistent with the
rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Issuers' other issued and outstanding
securities under any such agreements. The Issuers will not enter into any
agreement with respect to any of its securities which will grant to any Person
piggy-back registration rights with respect to any Registration Statement.
(b) (b) Adjustments Affecting Registrable Notes. The Issuers shall not, directly
or indirectly, take any action with respect to the Registrable Notes as a class
that would adversely affect the ability of the Holders of Registrable Notes to
include such Registrable Notes in a registration undertaken pursuant to this
Agreement.
(c) (c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of (I) the Company and (II)(A) the Holders of not less than a majority
in aggregate principal amount of the then outstanding Registrable Notes and (B)
in circumstances that would adversely affect the Participating Broker-Dealers,
the Participating Broker-Dealers holding not less than a majority in aggregate
principal amount of the Exchange Notes held by all Participating Broker-Dealers;
provided, however, that Section 7 and this Section 10(c) may not be amended,
modified or supplemented without the prior written consent of each Holder and
each Participating Broker-Dealer (including any person who was a Holder or
Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case
may be, disposed of pursuant to any Registration Statement) affected by any such
<PAGE>
amendment, modification or supplement. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Notes may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Notes being sold pursuant to such
Registration Statement.
(d) (d) Notices. All notices and other communications (including, without
limitation, any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
(i) if to a Holder of the Registrable Notes or any
Participating Broker-Dealer, at the most current
address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the
records of the registrar under the Indenture.
(ii) if to the Issuers, at the address as follows:
c/o Magnum Hunter Resources, Inc.
600 E. Las Colinas Blvd., Suite 1200
Irving, Texas 75039
Facsimile No.: (972) 401-3110
Attention: Gary C. Evans
Chief Executive Officer
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one business
day after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address and in the manner specified in such Indenture.
(e) (e) Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the successors and assigns of each of the parties hereto, the
Holders and the Participating Broker-Dealers.
(f) (f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
<PAGE>
(g) (g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) (i) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(j) (j) Securities Held by the Company or Its Affiliates. Whenever the consent
or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes held by the Company or its affiliates (as
such term is defined in Rule 405 under the Securities Act) shall not be counted
in determining whether such consent or approval was given by the Holders of such
required percentage.
(k) (k) Third-Party Beneficiaries. Holders of Registrable Notes and
Participating Broker-Dealers are intended third-party beneficiaries of this
Agreement, and this Agreement may be enforced by such Persons.
(l) (l) Entire Agreement. This Agreement, together with the Purchase Agreement
and the Indenture, is intended by the parties as a final and exclusive statement
of the agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein and any and all prior oral or
written agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda between the Holders on the one hand
and the Issuers on the other, or between or among any agents, representatives,
parents, subsidiaries, affiliates, predecessors in interest or successors in
interest with respect to the subject matter hereof and thereof are merged herein
and replaced hereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
MAGNUM HUNTER RESOURCES, INC.
By: /s/ Matthew C. Lutz
-----------------------
Name: Matthew C. Lutz
Title: Chairman and Exploration and Business Development Manager
MAGNUM HUNTER PRODUCTION, INC., AS GUARANTOR
By: /s/ David S. Krueger
-----------------------
Name: David S. Krueger
Title: Vice President and Chief Financial Officer
GRUY PETROLEUM MANAGEMENT CO., AS GUARANTOR
By: /s/ David S. Krueger
-----------------------
Name: David S. Krueger
Title: Vice President and Chief Financial Officer
HUNTER GAS GATHERING INC., AS GUARANTOR
By: /s/ David S. Krueger
-----------------------
Name: David S. Krueger
Title: Vice President and Chief Financial Officer
RAMPART PETROLEUM, INC., AS GUARANTOR
By: /s/ David S. Krueger
-----------------------
Name: David S. Krueger
Title: Vice President and Chief Financial Officer
CONMAG ENERGY CORPORATION, AS GUARANTOR
By: /s/ David S. Krueger
-----------------------
Name: David S. Krueger
Title: Vice President and Chief Financial Officer
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
BT SECURITIES CORPORATION,
FIRST UNION CAPITAL MARKETS CORP.,
PARIBAS CORPORATION
PAINEWEBBER INCORPORATED
as Initial Purchasers
BT Securities Corporation
By: /s/ Terence Neafsey
------------------------
Name: Terence Neafsey
Title: Vice President
EXHIBIT 21
MANGUM HUNTER PRODUCTION, INC.
HUNTER GAS GATHERING, INC.
GRUY PETROLEUM MANAGEMENT CO., INC.
CONMAG ENERGY CORPORATION
RAMPART PETROLEUM, INC.
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Magnum Hunter Resources,
Inc. on Form S-4 of our report dated March 14, 1997 (April 30, 1997 as to Note
16), appearing in the Prospectus, which is part of this Registration Statement,
and to the reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Dallas, Texas
October 16, 1997
EXHIBIT 23.3
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Pre Effective Amendment No. 1 on Form S-4
Registration Statement of Magnum Hunter Resources, Inc. ("The Company") of our
reports dated April 23, 1997 and April 3, 1996, respectively, accompanying the
historical summaries of revenues and direct operating expenses of the Properties
to be Acquired April 30, 1997, and the consolidated financial statements of The
Company contained in such Registration Statement; and our report dated August 2,
1996 accompanying the historical summaries of revenues and direct operating
expenses of the Properties Acquired June 28, 1996 incorporated by reference into
such Registration Statement, and to the use of our name and the statements with
respect to us, as appearing under the heading "Experts" in the Registration
Statement.
/s/ HEIN + ASSOCIATES LLP
- - ----------------------------
HEIN + ASSOICATES LLP
Certified Public Accountants
October 16, 1997
Dallas, Texas
Exhibit 23.4
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
Ryder Scott Co. hereby consents to the use of its oil and gas reserve
reports in the Form S-4 Registration Statement (the "Registration Statemen") to
be filed with the Securities and Exchange Commission on approximately July 11,
1997 by Magnum Hunter Resoures, Inc., Magnum Hunter Production, Inc., Hunter Gas
Gathering, Inc., Gruy Petroleum Management Co., Conmag Energy Corporation and
Rampart Petroleum, Inc. and to the reference to our firm under the captions
"Prospectus Summary," "Business and Properties" and "Experts" in the
Registration Statement.
RYDER SCOTT CO.
/s/ John R. Warner
BY:----------------------------------
John R. Warner, P.E.
Group Vice President
October 16, 1997
Exhibit 23.5
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
Gaffney, Cline & Associates Inc. hereby consents to the use of its oil and
gas reserve reports in the Form S-4 Registration Statement (the "Registration
Statemen") to be filed with the Securities and Exchange Commission on
approximately July 11, 1997 by Magnum Hunter Resoures, Inc., Magnum Hunter
Production, Inc., Hunter Gas Gathering, Inc., Gruy Petroleum Management Co.,
Conmag Energy Corporation and Rampart Petroleum, Inc. and to the reference to
our firm under the captions "Prospectus Summary," "Business and Properties" and
"Experts" in the Registration Statement.
GAFFNEY, CLINE & ASSOCIATES, INC.
/s/ Bill Cline
BY:----------------------------------
Bill Cline, Authorized Officer
October 16, 1997
Exhibit 23.6
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
Glenn Harrison Petroleum Consultants, Inc. hereby consents to the use of
its oil and gas reserve reports in the Form S-4 Registration Statement (the
"Registration Statemen") to be filed with the Securities and Exchange Commission
on approximately July 11, 1997 by Magnum Hunter Resoures, Inc., Magnum Hunter
Production, Inc., Hunter Gas Gathering, Inc., Gruy Petroleum Management Co.,
Conmag Energy Corporation and Rampart Petroleum, Inc. and to the reference to
our firm under the captions "Business and Properties" and "Experts" in the
Registration Statement.
GLENN HARRISON PETROLEUM
CONSULTANTS, INC.
/s/ Glenn Harrison
BY:----------------------------------
Glenn Harrison, Authorized Officer
October 16, 1997
Exhibit 23.7
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
James J. Weisman, Jr. hereby consents to the use of its oil and
gas reserve reports in the Form S-4 Registration Statement (the "Registration
Statemen") to be filed with the Securities and Exchange Commission on
approximately July 11, 1997 by Magnum Hunter Resoures, Inc., Magnum Hunter
Production, Inc., Hunter Gas Gathering, Inc., Gruy Petroleum Management Co.,
Conmag Energy Corporation and Rampart Petroleum, Inc. and to the references to
him under the captions "Business and Properties" and
"Experts" in the Registration Statement.
/s/ James J. Weisman, Jr.
----------------------------------
James Weisman, Jr., Authorized Officer
October 16, 1997
Exhibit 23.8
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
Hensley Consultants, Inc. hereby consents to the use of its oil and gas
reserve reports in the Form S-4 Registration Statement (the "Registration
Statemen") to be filed with the Securities and Exchange Commission on
approximately July 11, 1997 by Magnum Hunter Resoures, Inc., Magnum Hunter
Production, Inc., Hunter Gas Gathering, Inc., Gruy Petroleum Management Co.,
Conmag Energy Corporation and Rampart Petroleum, Inc. and to the reference to
our firm under the captions "Prospectus Summary," "Business and Properties" and
"Experts" in the Registration Statement.
HENSLEY CONSULTANTS, INC.
/s/ Russ Hensley
BY:----------------------------------
Russ Hensley, Authorized Officer
October 16, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT FOR 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
FIRST UNION NATIONAL BANK
(Exact name of Trustee as specified in its charter)
230 SOUTH TRYON STREET, 9TH FLOOR
CHARLOTTE, NORTH CAROLINA
(Address of principal executive office)
28288-1179 56-0900030
(Zip Code) (I.R.S. Employer Identification No.)
MAGNUM HUNTER PRODUCTION, INC. HUNTER GAS GATHERING, INC.
(Exact name of registrants (Exact name of registrants
as specified in their charters) as specified in their charters)
Texas Texas
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
75-2589131 75-1222501
(I.R.S. Employee Identification No.) (I.R.S. Employee Identification No.)
GRUY PETROLEUM MANAGEMENT, INC. CONMAG ENERGY CORPORATION
(Exact name of registrants (Exact name of registrants
as specified in their charters) as specified in their charters)
Texas Texas
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
75-1074365 75-2715164
(I.R.S. Employee Identification No.) (I.R.S. Employee Identification No.)
RAMPART PETROLEUM, INC.
(Exact name of registrants
as specified in their charters)
Texas
(State or other jurisdication
of incorporated or organization)
75-1896997
(I.R.S. Employee Identification No.)
(Exact name of obligor as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
87-0462881
(I.R.S. Employer Identification No.)
600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75039
(Address of principal executive offices) (Zip Code)
10% Senior Notes due 2007
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
1.General information.
(a) The following are the names and addresses of each examining or
supervising authority to which the Trustee is subject:
Board of Governors of the Federal Reserve SystemWashington, DC The
Comptroller of the CurrencyWashington, D.C. Securities and Exchange Commission,
Division of Market RegulationWashington, D.C. Federal Deposit Insurance
Corporation Washington, D.C.
(b)The Trustee is authorized to exercise corporate trust powers.
2.Affiliations with obligor.
The obligor is not an affiliate of the Trustee.
(See Note 1 on Page 4)
3.Voting Securities of the Trustee.
The following information is furnished as to each class of voting
securities of the Trustee:
As of July 29, 1997
Column A Column B
Title of Class Amount Outstanding
Common Stock, par value $3.33-1/3 a share 560,977,408 shares
4.Trusteeships under other indentures.
The Trustee is not a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other securities
of the obligor are outstanding.
5.Interlocking directorates and similar relationships with the obligor or
underwriters.
Neither the Trustee nor any of the directors or executive officers of the
Trustee is a director, officer, partner, employee, appointee or representative
of the obligor or of any underwriter for the obligor.
6.Voting securities of the Trustee owned by the obligor or its officials.
The amount of voting securities of First Union Corporation, the parent of
the trustee owned, beneficially by the obligor and its directors, partners,
executive officers, taken as a group, do not exceed one (1) percent of the
outstanding voting securities of First Union Corporation.
7.Voting securities of the Trustee owned by underwriters or their
officials.
The amount of voting securities of First Union Corporation, the parent of
the Trustee, owned beneficially by any underwriter for the the obligor and its
directors, partners, and executive officers, taken as a group, do not exceed
one(1) percent of the outstanding voting securities of First Union Corporation.
8.Securities of the obligor owned or held by the Trustee.
The trustee does not own beneficially or hold as collateral security for
obligations in default any securities of any class of the obligor in excess of
one (1) percent of the outstanding securities of such class.
2
<PAGE>
9.Securities of underwriters owned or held by the Trustee.
The trustee does not own beneficially or hold as collateral security for
obligations in default any securities of an underwriter for the obligor in
excess of one (1) percent of the outstanding securities of such class..
10.Ownership or holdings by the Trustee of voting securities of certain
affiliates or security holders of the obligor.
The Trustee does not own beneficially or hold as collateral security for
obligations in default any voting securities of any class of a person who, to
the knowledge of the Trustee (1) owns 10% or more of the voting securities of
the obligor or (2) is an affiliate, other than a subsidiary, of the obligor, in
excess of one (1) percent of the outstanding voting securities of such class.
11 Ownership of holders by the Trustee of any securities of a person owning
50 percent or more of the voting securities of the obligor.
The Trustee does not own beneficially or hold as collateral security for
obligations in default any securities of any class of a person who, to the
knowledge of Trustee, owns 50% or more of the voting securities of the obligor,
in excess of one (1) percent of the outstanding securities of such class.
12.Indebtedness of the obligor to the Trustee.
None
13.Defaults by the obligor.
Not applicable.
14.Affiliations with the underwriters.
First Union Capital Marktets Corp is an affiliate of the Trustee.
15.Foreign trustee.
Not applicable.
16.List of Exhibits.
(1) Articles of Association of the Trustee as now in effect. Incorporated
in Exhibit (1) filed with Form T-1 Statement included in Registration Statement
No. 33-45946. (2) Certificate of Authority of the Trustee to commence business.
Incorporated by reference in Exhibit (2) filed with Form T-1 Statement included
in Registration Statement No. 33-45946. (3) Authorization of the Trustee to
exercise corporate trust powers, if such authorization is not contained in the
documents specified in exhibits (1)and(2) above. Included at Page 6 of this Form
T-1 Statement. (4) By-Laws of the Trustee. Incorporated by reference in Exhibit
(4) filed with Form T-1 Statement included in Registration Statement No.
33-45946. (5) Not applicable. (6) Consent by the Trustee required by Section
321(b) of the Trust Indenture Act of 1939. Included at Page 5 of this Form T-1
Statement. (7) Report of condition of Trustee.
(8) Not applicable.
(9) Not applicable.
3
<PAGE>
NOTES
1. Since the trustee is a member of First Union Corporation, a bank
holding company, all of the voting securities of the trustee are held
by First Union Corporation. The securities of First Union Corporation
are described in Item 3.
4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK, a national banking
organization, has duly caused this statement of eligibility and qualification to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Charlotte, and State of North Carolina on the 31st day of July,
1997.
FIRST UNION NATIONAL BANK
(Trustee)
BY:/s/ Shawn K. Bednasek
-------------------------------------------
Shawn K. Bednasek, Assistant Vice President
EXHIBIT T-1 (6)
CONSENTS OF TRUSTEE
Pursuant to the requirements of section 321(b) of the Trust Indenture Act
of 1939 and in connection with the proposed issuance by Magnum Hunter Resources,
Inc. of its 10% Senior Notes due 2007, First Union National Bank, as the Trustee
herein named, hereby consents that reports of examinations of said Trustee by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
FIRST UNION NATIONAL BANK
BY: /s/ Daniel J. Ober
----------------------
Daniel J. Ober, Vice President
Dated: July 31, 1997
5
<PAGE>
EXHIBIT T-1 (3)
EXTRACT FROM THE BY-LAW OF
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
Section 8.2. Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies, and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or accepted
in behalf of the Association by the Chairman of the Board, or the President, or
any Vice Chairman of the Board, any Vice president or Assistant Vice President,
or the Secretary or Assistant Secretary, Cashier, or Assistant Cashier, or, if
in connection with the exercise of fiduciary powers of the Association, by any
of said officers or by any Trust Officer or Assistant Trust Office; provided,
however, that where required, any such instruments may also be executed,
acknowledge, verified, delivered, or accepted in behalf of The Association in
such other manner and by such other officers as the Board of Directors may from
time to time direct. the provisions of this Section 8.2 are supplementary to any
other provision of these By Laws.
I HEREBY CERTIFY THAT THE forgoing is a true and complete extract from the
By-Laws of First Union National Bank of North Carolina, a national banking
association, now in full force and affect.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of
said Association on July 31, 1997.
/s/ Shawn K. Bednasek
--------------------------
Shawn K. Bednasek
Assistant Secretary
6
<PAGE>
Legal Title of Bank: First Union National Bank of NC
Address: Two First Union Center
City, State, Zip: Charlotte, NC 28288-0201
FDIC: Certificate No.: 04885
Consolidated Report of Condition for Insured Commercial and
State-Chartered Savings Banks for March 31, 1997
11 schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC--Balance Sheet
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Dollar Amounts in Thousands RCFD Bil Mil Thous
- -----------------------------------------------------------------------------------------------------------
1. Cash and balances due from depository institutions (from Schedule RC-A):..
a. Noninterest-bearing balances and currency and coin (1)............... 0081 2,003,276 1.a
b. Interest-bearing balances (2)........................................ 0071 297,579 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)........... 1754 569,806 2.a
b. Available-for-sale securities (from Schedule RC-B column D).......... 1773 1,641,071 2.b
3. Federal funds sold and securities purchased under agreements to resell.... 1350 2,536,841 3.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income
(from Schedule RC-C)............................RCFD 2122 22,332,077 4.a
b. LESS: Allowance for loan and lease losses......RCFD 3123 174,675 4.b
c. LESS: Allocated transfer risk reserve..........RCFD 3128 0 4.c
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c).................. 2125 22,157,402 4.d
5. Trading assets (from Schedule RC-D)....................................... 3545 2,112,168 5.
6. Premises and fixed assets (including capitalized leases).................. 2145 858,917 6.
7. Other real estate owned (from Schedule RC-M).............................. 2150 7,718 7.
8. Investments in unconsolidated subsidiaries and associated companies
(From Schedule RC-M)...................................................... 2130 18,614 8.
9. Customers' liability to this bank on acceptance outstanding............... 2155 403,090 9.
10. Intangible assets (from Schedule RC-M).................................... 2143 346,564 10.
11. Other assets (from Schedule RC-F)......................................... 2160 2,301,064 11.
12. Total assets (sum of items 1 through 11).................................. 2170 35,254,110 12.
- ------------
</TABLE>
1) Includes cash items in process of collection and unposted debits.
2) Includes time certificates of deposit not held for trading.
<PAGE>
Legal Title of Bank: First Union National Bank of NC
Address: Two First Union Center
City, State, Zip: Charlotte, NC 26288-0201 Call Date 3/31/97
FDIC Certificate No.: 04885
Schedule RC--Continued
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Dollar Amounts in Thousands Bil Mil Thous
- -------------------------------------------------------------------------------------------------------------
LIABILITIES:
13. Deposits:
a. In domestic offices (sum of totlas of columns A and C from Schedule
RC-E, part I).........................................................RCON 2200 12,901,568 13.a
(1) Noninterest-bearing (1)......................RCON 6631 4,616,676 13.a
(2) Interest-bearing.............................RCON 6636 8,284,892 13.a
b. In foreign offics, Edge and Agreement subsidiaries, and IBF's
(from Schedule RC-E) part II..........................................RCON 2200 7,149,255 13.b
(1) Noninterest-bearing..........................RCFN 6631 0 13.b
(2) Interest bearing.............................RCFN 6636 7,149,255 13.b
14. Federal funds purchased and securities sold under agreements to repurchase RCFD 2800 6,274,314 14.
15. a. Demand notes issued to the U.S. Treasury..............................RCON 2840 115,931 15.a
b. Trading liabilities (from Schedule RC-D)..............................RCFD 3548 2,201,346 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations
under capitalized leases):
a. With a remaining maturity of one year or less.........................RCFD 2332 1,754,025 16.a
b. With a remaining maturity of more than one year...................... RCFD 2333 416,761 16.b
17. Not applicable
18. Bank's liability on acceptances executed and outstanding.................. RCFD 2920 403,090 18.
19. Subordinated notes and debentures (2)..................................... RCFD 3200 925,000 19.
20. Other liabilities (from Schedule RC-G).................................... RCFD 2930 808,495 20.
21. Total liabilities (sum of items 13 through 20)............................ RCFD 2948 32,949,785 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus............................. RCFD 3838 0 23.
24. Common stock.............................................................. RCFD 3230 82,795 24.
25. Surplus (exclude all surplus related to preferred stock).................. RCFD 3839 763,989 25.
26. a. Undivided profits and capital reserves............................... RCFD 3632 1,468,980 26.a
b. Net unrealized holding gains (losses) on available for sale
securities................................................................ RCFD 8434 (11,439) 26.b
27. Cumulative foreign currency translation adjustments....................... RCFD 3284 0 27.
28. Total equity capital (sum of items 23 through 27)......................... RCFD 3210 2,304,325 28.
29. Total liabilities, limited-life preferred stock, and equity capital
(sum of items 21 and 28).................................................. RCFD 3300 35,254,110 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that
best describes the most comprehensive level of auditing work performed for Number
the bank by indepedent external auditors as of any date during 1996........RCFD 6724 2 M.1.
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
