<PAGE>
Filed Pursuant to Rule 424(b)(5)
File Number 333-16231
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated November 26, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 25, 1996)
1,860,000 Shares
[LOGO]
[Logo of Nuevo Energy Company appears here]
NUEVO ENERGY COMPANY
Common Stock
(par value $.01 per share)
All of the shares of Common Stock of Nuevo Energy Company ("Nuevo" or the
"Company") offered hereby ("Common Stock Offering") are being sold by the
Selling Stockholders identified herein. See "Selling Stockholders." The Common
Stock is listed on the New York Stock Exchange under the symbol "NEV." On
November 25, 1996, the closing price of the Common Stock was $51.125 per share.
The Common Stock Offering is being conducted concurrently with an offering (the
"TECONSSM Offering") of Trust Convertible Securities ("TECONS") issued by Nuevo
Financing I, a Delaware business trust formed by Nuevo for the purpose of
conducting the TECONS Offering. The TECONS are convertible into Common Stock of
the Company. See "TECONS Offering." The consummation of the Common Stock
Offering is not contingent upon the closing of the TECONS Offering.
SEE "RISK FACTORS" COMMENCING ON PAGE S-8 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) SELLING STOCKHOLDERS(2)
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- --------------------------------------------------------------------------
Total (3) $ $ $
- --------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Common Stock Offering payable by the
Company and the Selling Stockholders estimated to be $ and $ ,
respectively.
(3) The Selling Stockholders have granted the Underwriters options to purchase
up to an aggregate of an additional 278,605 shares of Common Stock, on the same
terms as set forth above, solely to cover over-allotments, if any. If such
options are exercised in full, the Price to Public, Underwriting Discount, and
Proceeds to Selling Stockholders will be $ , $ and $ , respectively.
See "Underwriting."
The shares of Common Stock being offered by this Prospectus Supplement are
being offered by the Underwriters, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters, and subject to approval of
certain legal matters by Vinson & Elkins L.L.P., counsel for the Underwriters.
It is expected that delivery of shares of Common Stock will be made against
payment therefor on or about December , 1996 at the offices of J.P. Morgan
Securities Inc., 60 Wall Street, New York, New York.
J.P. MORGAN & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN KEEGAN & COMPANY, INC.
PAINEWEBBER INCORPORATED
December , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
No person is authorized to give any information or to make any representation
not contained or incorporated by reference in this Prospectus Supplement or the
accompanying Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by Nuevo or
any Underwriter. Neither this Prospectus Supplement nor the accompanying
Prospectus constitutes an offer to sell or a solicitation of an offer to buy
any securities 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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT PAGE
<S> <C>
Prospectus Supplement Summary.......... S-3
The Offering........................... S-5
Risk Factors........................... S-8
Use of Proceeds........................ S-12
TECONS Offering........................ S-12
Price Range of Common Stock and
Dividend Policy....................... S-13
Capitalization......................... S-14
Selected Consolidated Financial Data... S-15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ S-16
Business and Properties................ S-21
Management............................. S-29
Description of Shareholders Rights
Plan.................................. S-32
Underwriting........................... S-33
Selling Stockholders................... S-34
Legal Matters.......................... S-34
Glossary............................... S-35
</TABLE>
<TABLE>
<CAPTION>
PROSPECTUS PAGE
<S> <C>
Available Information..................... 3
Incorporation of Certain Documents by
Reference................................ 3
The Company............................... 4
The Nuevo Trust........................... 4
Use of Proceeds........................... 4
Ratios of Earnings to Fixed Charges and of
Earnings to Combined Fixed Charges and
Preferred Stock Dividends................ 5
Description of Debt Securities............ 5
Description of Capital Stock.............. 13
Certain Anti-Takeover Provisions.......... 15
Description of Warrants................... 18
Description of Trust Preferred Securities. 19
Description of Trust Preferred Securities
Guarantee................................ 20
Plan of Distribution...................... 22
Selling Stockholders...................... 23
Experts................................... 24
Legal Matters............................. 24
</TABLE>
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read in
connection with, the more detailed information and Consolidated Financial
Statements and the Notes thereto incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus. All information in the Prospectus
Supplement assumes that the Underwriters' over-allotment option will not be
exercised, unless otherwise indicated. References herein to "Nuevo" or the
"Company" include Nuevo and its predecessors and subsidiaries unless the
context requires otherwise. See "Glossary" for definitions of oil and gas terms
used in this Prospectus Supplement.
THE COMPANY
Nuevo is a Houston, Texas-based company primarily engaged in the exploration
for, and the acquisition, exploitation, development and production of crude oil
and natural gas. The Company's principal properties are located domestically
onshore and offshore California, in East Texas and the onshore Gulf Coast
region; and internationally offshore the Republic of Congo in West Africa.
Since the Company's inception in 1990, it has grown and diversified its
operations through a series of disciplined, opportunistic acquisitions of oil
and gas properties and the subsequent exploitation and development of these
properties. The Company has complemented these efforts with an active and
growing exploration program which provides exposure to high potential
prospects. The Company's primary strengths are its large inventory of
exploitation and exploration projects in its core areas of operation, its
demonstrated ability to implement and maintain a low cost structure, its
ability to identify and acquire, at attractive prices, producing properties
which have significant potential for further exploration, exploitation and
development, and a capital structure supportive of a growing investment program
and future acquisitions.
As a result of these activities, Nuevo has substantially increased its
reserves, production, cash flow and earnings. The Company increased its
estimated net proved reserves by 719% from 32.3 MMBOE on December 31, 1992 to
264.5 MMBOE on December 31, 1995 (on a pro forma basis giving effect to the
acquisition of the California Properties as of such date). Average daily
production has increased by 385% from 12.9 MBOE/d in the quarter ended
September 30, 1993 to 62.6 MBOE/d in the quarter ended September 30, 1996. Cash
flow from operations (prior to changes in working capital and other assets and
liabilities) increased by 152% from $33.7 million in the first nine months of
1993 to $84.8 million in the first nine months of 1996. Net income has also
increased 181% from $6.9 million in the first nine months of 1993 to $19.4
million in the first nine months of 1996. The Company operated properties
representing 85% of its pro forma estimated net proved reserves as of December
31, 1995.
BUSINESS STRATEGY
Nuevo's objective is to increase shareholder value through growth in reserves,
production, cash flow and earnings. Key elements of the Company's strategy to
achieve its objective are described below.
Exploitation of Existing Reserve Base The Company initiates workovers,
recompletions, development drilling, secondary and tertiary recovery operations
and other production enhancement techniques to maximize current production and
the ultimate recovery of reserves. Using constant year end 1995 prices, the
Company has identified in excess of 1,000 exploitation projects on its existing
properties which it believes offer meaningful opportunities to grow reserves
and increase production, irrespective of exploration or acquisition successes.
Examples of current or planned projects include: (i) infill drilling, the
initiation of a new steamflood project, and multiple zone completions in the
Midway-Sunset field in central California; (ii) infill drilling and horizontal
drilling in the Cymric field in central California; (iii) recompletions and the
initiation of a waterflood project in the Brea Olinda field in the Los Angeles
basin; (iv) infill drilling and the commencement of construction of an adjacent
gas processing plant at the Point Pedernales field offshore California; (v)
infill drilling in the Oak Hill field in East Texas; and (vi) development
drilling and well workovers at the Yombo field in the Republic of Congo. The
Company expects to increase its capital expenditures for exploitation projects
from an estimated $75.0 million in 1996 to $115.0 million in 1997.
Exploration for Potential New Reserves The Company has an active and growing
exploration program targeting high potential reserve opportunities offshore the
Republic of Congo, in California and the onshore Gulf Coast region. The Company
seeks to reduce the risks normally associated with exploration through the use
of advanced technologies, such as 3-D seismic surveys and computer aided
exploration ("CAEX") techniques, and by participating with other experienced
industry partners. The Company has had recent exploratory discoveries in: (i)
the Lower Sendji section of the Yombo field offshore the Republic of Congo;
(ii) the Antelope Shale section in the Monument Junction area of the Cymric
field in central California; (iii) the Frontier section in the North Riley
Ridge area in western Wyoming; and (iv) the Sespe section
S-3
<PAGE>
in the Big Mountain field in the Ventura Basin of California. Ongoing
exploratory activities include the drilling of a large Cotton Valley Pinnacle
Reef structure in Trinity County, Texas and the exploration of the downdip
Austin Chalk trend in Grimes County, Texas. The Company currently expects to
increase its exploration budget from an estimated $15.0 million in 1996 to
$25.0 million in 1997.
Maintenance of a Low Cost Structure The Company believes that its ability to
implement and maintain a low cost structure allows it to compete successfully
in an industry characterized by fluctuating commodity prices. The Company
focuses its cost strategy on reducing its per BOE finding costs, lease
operating expenses, general and administrative expenses and costs of capital in
order to maintain operating profitability even during periods of adverse
commodity prices. For the three years ended December 31, 1995, Nuevo's finding
costs from exploration and exploitation per BOE have averaged $4.00
domestically and $1.57 internationally, significantly below published industry
averages. Lease operating expense per BOE produced from the properties acquired
by Nuevo from Union Oil Company of California ("Unocal") in April 1996 was
reduced from $6.40 in the first quarter of 1996 to $5.92 and $5.34 in the
second and third quarters of 1996, respectively. The Company's total general
and administrative costs have declined from $1.78 per BOE in the quarter ended
September 30, 1993 to $1.11 per BOE in the quarter ended September 30, 1996.
Subject to prevailing market conditions, the Company anticipates that it will
redeem its 12 1/2% Senior Subordinated Notes due June 15, 2002 ("12 1/2 Notes")
in June 1997, in an effort to further reduce its capital costs. See
"Description of Existing Indebtedness--12 1/2% Notes."
Opportunistic Acquisitions of Properties The Company may from time to time
acquire producing properties which are either complementary to existing
operations or which are believed to provide significant exploitation or
exploration opportunities. The Company has demonstrated an ability to identify,
negotiate and close acquisitions of producing properties at favorable prices.
The Company's average finding costs from acquisitions have been $2.41 per BOE
for the three years ended December 31, 1995 (on a pro forma basis giving effect
to the acquisition of the California Properties).
Preservation of a Sound Capital Structure The Company strives to maintain a
sound financial condition to accommodate the capital outlays necessary to
increase reserves and production through exploration, exploitation and selected
acquisitions, even during periods of low commodity prices and unfavorable
capital markets. As of September 30, 1996, as adjusted for the TECONS Offering,
the Company's long-term debt to total capitalization will be approximately 40%,
and its Long-Term Debt to Adjusted Capitalization will be approximately 27%.
See "Capitalization" and "Glossary." As of September 30, 1996, as adjusted for
the TECONS Offering, the Company had $232.0 million available for borrowing
under its primary bank credit facility. See "Description of Existing
Indebtedness - Credit Facility."
RECENT DEVELOPMENTS
In April 1996, the Company acquired oil and gas properties in California (the
"California Properties") from Unocal and from Torch Energy Advisors
Incorporated ("Torch") for a combined net purchase price of $515.3 million,
plus a contingent payment based on future oil prices. The California Properties
consist of 42 fields (of which 36 are operated) with approximately 2,300 active
wells (2,000 operated) and estimated net proved reserves as of December 31,
1995 of 183.8 MMBOE, with a PV-10 Value of $587.8 million. During the six
months ended September 30, 1996, the California Properties constituted 72% of
the Company's total oil and natural gas production on a BOE basis. Since
acquiring the California Properties, the Company has spent approximately $20
million to commence over 110 exploitation and development projects. In addition
to the exploitation projects, the Company in October 1996 successfully
completed an exploratory well in the Cymric field in California. The well was
drilled to 6,600 feet and encountered 77 feet of net pay in the Antelope Shale
section in the Monument Junction area.
In February 1995, the Company acquired a 43.8% working (32.5% net revenue)
interest in the Yombo field in the Republic of Congo. The Yombo field, located
27 miles offshore in 360 feet of water, has 25 wells producing at depths
ranging from 2,100 to 3,800 feet. The cash purchase price for the Yombo field
was $10.8 million. Between December 1, 1993, the effective date of the
acquisition, and December 31, 1995, the field produced 3.1 MMBbls net to
Nuevo's interest, and as of December 31, 1995, had estimated proved reserves
net to Nuevo's interest of 20.8 MMBbls of oil with a PV-10 Value of $112.9
million. As part of the Yombo acquisition, the Company acquired a converted
super tanker with storage capacity of over one million barrels of oil for use
as a floating production, storage and offloading vessel. In October 1996, the
Company drilled a successful exploration well to the Lower Sendji formation in
the Yombo field. This well is currently being deepened to test an additional
sub-salt structure before a decision will be made as to where to complete and
commence production. A delineation well for the Lower Sendji or any sub-salt
discovery will be spudded immediately after the completion of the well
currently in progress. In 1997, the Company plans to drill an additional
exploration well to evaluate the Lower Sendji and sub-salt sections underlying
the Masseko field located several miles to the west of the Yombo field, as well
as to further delineate the Upper Sendji and Tchala zones which were discovered
but not developed by the previous operator. Other potential exploration
features on the concession are being evaluated for possible future drilling.
Additionally, the Company plans in 1997 to initiate a waterflood project to
enhance production from the existing Upper Sendji and Tchala zones.
S-4
<PAGE>
THE OFFERING
COMMON STOCK OFFERED BY SELLING STOCKHOLDERS(1):
<TABLE>
<S> <C>
The 1818 Fund, L.P............... 688,605.
United Investors Management
Company......................... 1,171,395.
Total Offering................... 1,860,000.
COMMON STOCK OUTSTANDING AFTER THE
COMMON STOCK OFFERING (1)(2)...... 19,620,340.
USE OF PROCEEDS.................... The Company will not receive any of the
proceeds of the Common Stock Offering.
LISTING............................ The Common Stock is listed on the New York
Stock Exchange under the symbol "NEV."
TECONS OFFERING.................... Concurrently with the Common Stock
Offering, Nuevo Financing I, a Delaware
business trust formed by Nuevo, is
offering 2,000,000 TECONS to the public
(2,300,000 if the underwriters' over-
allotment option granted in the TECONS
Offering is exercised in full). Each
TECONS is being offered to the public at a
price of $50.00, and is convertible into
shares of Nuevo Common Stock
(equivalent to a conversion price of $
per share of Nuevo Common Stock). See "The
TECONS Offering." The consummation of the
Common Stock Offering is not contingent
upon closing the TECONS Offering.
</TABLE>
(1) Assumes the Underwriters' over-allotment options for up to 175,000 and
103,605 shares granted by The 1818 Fund ("1818 Fund") and United Investors
Management Company ("United"), respectively, are not exercised. The
Underwriters have agreed that prior to exercising their over-allotment option
with respect to shares owned by the 1818 Fund they will exercise their over-
allotment option with respect to all of the shares subject to the over-
allotment option granted by United. See "Underwriting."
(2) Includes 18,931,735 shares outstanding at September 30, 1996, as adjusted
for the issuance of 688,605 shares upon conversion of 8,948 of the 11,220
outstanding shares of the 7% Cumulative Convertible Preferred Stock in
connection with the Common Stock Offering. Does not include (i) 1,520,938
shares issuable upon exercise of options issued under the Company's stock
option plans; (ii) 150,000 shares of Common Stock issuable upon exercise of an
outstanding warrant at an exercise price of $28.00 per share; and (iii)
shares issuable upon conversion of the TECONS, assuming the closing of the
TECONS Offering (and that the over-allotment option granted in connection with
the TECONS Offering is not exercised).
S-5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
--------------------------------------------------------
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------------------
NINE MONTHS
NINE MONTHS ENDED YEAR ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
Dollars in thousands, 1993 1994 1995 1995 1996 1995 1996
except per share data -------- -------- -------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS (UNAUDITED) (UNAUDITED)
DATA
Revenues............... $107,832 $119,320 $138,727 $103,655 $218,851 $344,352 $269,780
Operating expenses..... 42,943 47,721 57,027 42,038 91,007 141,857 109,124
General and administra-
tive
expenses.............. 9,355 10,656 10,165 7,362 14,941 22,523 17,655
Depreciation, depletion
and
amortization.......... 29,066 38,568 41,866 32,328 54,495 99,527 68,824
Provision for impair-
ment of oil and gas
properties............ - 34,632(2) - - - -- --
Interest expense....... 11,861 12,560 15,389 11,754 25,825 45,643 33,389
Other expense.......... 36 2,387 45 20 57 45 57
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
minority interest..... 14,571 (27,204) 14,235 10,153 32,526 34,757 40,731
Net income (loss)...... 8,933 (17,603) 9,010 6,382 19,397 20,671 24,261
Earnings (loss) attrib-
utable to common
stockholders.......... $ 7,183 $(19,353) $ 7,538 $ 5,174 $ 18,631 $ 19,199 $ 23,495
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
common share.......... $ .70 $ (1.76) $ .66 $ .47 $ 1.12 $ 1.08 $ 1.23
======== ======== ======== ======== ======== ======== ========
STATEMENT OF CASH FLOWS
DATA
Net income (loss)...... $ 8,933 $(17,603) $ 9,010 $ 6,382 $ 19,397 $ 20,671 $ 24,261
Depreciation, depletion
and
amortization.......... 29,066 73,200(2) 41,866 32,328 54,495 99,527 68,824
Other non-cash items... 6,282 (11,754) (381) (683) 10,917 N/A N/A
-------- -------- -------- -------- -------- -------- --------
44,281 43,843 50,495 38,027 84,809 N/A N/A
Net change in assets
and
liabilities........... (11,282) 19,924 (10,387) (8,383) 1,331 N/A N/A
-------- -------- -------- -------- -------- -------- --------
Net cash flows provided
by
operating activities.. $ 32,999 $ 63,767 $ 40,108 $ 29,644 $ 86,140 N/A N/A
======== ======== ======== ======== ======== ======== ========
CAPITAL EXPENDITURES
Acquisitions........... $ 24,325 $ 30,776 $ 639 $ 639 $549,423 N/A N/A
Exploitation, explora-
tion
and other............. 57,369 80,168 42,964 33,077 60,436 N/A N/A
-------- -------- -------- -------- -------- -------- --------
Total.................. $ 81,694 $110,944 $ 43,603 $ 33,716 $609,859 N/A N/A
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
--------------------
<CAPTION>
SEPTEMBER 30, 1996
ACTUAL AS ADJUSTED(3)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA (UNAUDITED)
Total assets.......................................... $ 854,327 $ 854,327
Total debt............................................ 410,597 310,597
TECONS................................................ -- 100,000
Stockholders' equity.................................. 355,752 355,752
</TABLE>
(1) Pro forma financial data give effect to the acquisition of the California
Properties as if they were acquired as of January 1, 1995. The Company has made
other acquisitions and divestitures since January 1, 1995 (certain of which are
described under "Business and Properties--Recent Developments") which are not
included herein because their pro forma effect is not material.
(2) Sharp declines in gas prices in 1994 caused the Company to recognize a non-
cash charge to write down certain oil and gas properties accounted for using
the full cost method.
(3) As adjusted data give effect to the TECONS Offering as if it were
consummated on September 30, 1996.
S-6
<PAGE>
SUMMARY OPERATING AND RESERVE DATA
----------------------------------
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31,
Dollars in thousands, except per 1993 1994 1995 1995(1)
unit data -------- -------- -------- ------------
<S> <C> <C> <C> <C>
ESTIMATED PROVED RESERVES (UNAUDITED)
Oil (MBbls)....................... 5,961 10,852 30,526 194,554
Gas (MMcf)........................ 237,758 261,115 301,311 419,802
Oil equivalent (MBOE)............. 45,587 54,371 80,745 264,521
PV-10 Value....................... $171,520 $197,072 $367,669 $ 955,506
Percent of proved developed
reserves......................... 53% 66% 58% 69%
Reserve Life Index (in years)(2).. 9.6 8.7 9.2 10.0
RESERVE REPLACEMENT DATA
Finding Costs per BOE(3).......... $ 4.21 $ 4.82 $ 2.88 $ 2.67
Production replacement ratio(4)... 520% 258% 421% 834%
</TABLE>
--------------------------------------------------
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------------------
NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1993 1994 1995 1995 1996 1995 1996
------- ------- ------- ------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
PRODUCTION DATA (UNAUDITED) (UNAUDITED)
Oil (MBbls)........................ 1,933 2,365 3,947 2,921 9,256 17,876 12,402
Gas (MMcf)......................... 16,768 23,327 28,913 22,429 25,245 51,506 29,022
Oil equivalent (MBOE).............. 4,728 6,253 8,766 6,659 13,464 26,460 17,239
AVERAGE SALES PRICE PER UNIT (5)
Oil (per Bbl)...................... $ 16.67 $ 14.89 $ 14.68 $ 14.45 $ 15.38 $ 13.21 $14.89
Gas (per Mcf)...................... 1.96 1.90 1.56 1.52 1.92 1.41 1.84
OIL AND GAS OPERATING INCOME PER BOE
Revenues........................... $ 14.21 $ 12.79 $ 11.77 $ 11.58 $ 13.99 $ 11.67 $13.88
Operating expenses (including
severance taxes).................. 2.54 2.42 3.38 3.23 4.94 4.33 4.91
General and administrative
expenses........................... 1.98 1.70 1.16 1.11 1.11 0.85 1.02
Depreciation, depletion and
amortization....................... 5.50 5.60 4.37 4.46 3.81 3.63 3.80
------- ------- ------- ------- ------- ------- ------
Operating income................... $ 4.19 $ 3.07 $ 2.86 $ 2.78 $ 4.13 $ 2.86 $ 4.15
======= ======= ======= ======= ======= ======= ======
</TABLE>
(1) Pro forma data give effect to the acquisitions of the California Properties
as if they were acquired as of January 1, 1995. The Company has made other
acquisitions and divestures since January 1, 1995 (certain of which are
described under "Business and Properties--Recent Developments") which are not
included herein because their pro forma effect is not material.
(2) Reserve Life Index represents year-end estimated net proved reserves
divided by total production for the most recent year, on a BOE basis. See
"Glossary."
(3) Finding Costs represent the average Finding Costs over a three-year period
ending at the end of the period presented. See "Glossary."
(4) Production replacement ratio equals estimated net proved reserve additions
through acquisitions of reserves, extensions and discoveries and revisions
during the year divided by total production for such year, on a BOE basis.
(5) Average sales prices include the impact of the Company's oil and gas
hedging transactions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Overview."
S-7
<PAGE>
RISK FACTORS
This Prospectus Supplement includes "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934
("Exchange Act"). All statements other than statements of historical facts
included in this Prospectus Supplement and the accompanying Prospectus,
including without limitation, statements under "Summary", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business and Properties" regarding the Company's financial position, estimated
quantities and net present values of reserves, business strategy, plans and
objectives of management of the Company for future operations and covenant
compliance, are forward-looking statements. Although the Company believes that
the assumptions upon which such forward-looking statements are based are
reasonable, it can give no assurances that such assumptions will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed below and elsewhere in this Prospectus Supplement and the
accompanying Prospectus. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified by the Cautionary Statements. Prospective purchasers of the
TECONS offered hereby should carefully consider, together with other
information in this Prospectus Supplement and the accompanying Prospectus, the
following factors that affect the Company.
Volatility of Oil and Gas Prices
The Company's financial condition, operating results, future growth and the
carrying value of its oil and gas properties are substantially dependent on
prevailing prices of oil and gas. The Company's ability to maintain or increase
its borrowing capacity and to obtain additional capital on attractive terms is
also substantially dependent upon oil and gas prices. Prices for oil and gas
are subject to large fluctuations in response to relatively minor changes in
the supply of and demand for oil and gas, market uncertainty and a variety of
additional factors beyond the control of the Company. These factors include
weather conditions in the United States, the condition of the United States
economy, the actions of the Organization of Petroleum Exporting Countries
("OPEC"), governmental regulation, political stability in the Middle East and
elsewhere, the foreign supply of oil and gas, the price of foreign oil imports
and the availability of alternate fuel sources. Any substantial and extended
decline in the price of oil or gas would have an adverse effect on the
Company's carrying value of its proved reserves, borrowing capacity, the
Company's ability to obtain additional capital, and its revenues, profitability
and cash flows from operations.
Volatile oil and gas prices make it difficult to estimate the value of
producing properties for acquisition and often cause disruption in the market
for oil and gas producing properties, as buyers and sellers have difficulty
agreeing on such value. Price volatility also makes it difficult to budget for
and project the return on acquisitions and development and exploitation
projects.
A portion of the Company's production is California heavy oil. The market for
California heavy oil differs substantially from the established market indices
for oil and gas, due principally to the higher transportation and refining
costs associated with heavy oil. As a result, the price received for heavy oil
is generally lower than the price for medium and light oil, and the production
costs associated with heavy oil are relatively higher than for lighter grades.
The margin (sales price minus production costs) on heavy oil sales is generally
less than for lighter oil, and the effect of material price decreases will more
adversely affect the profitability of heavy oil production compared with
lighter grades of oil.
Reserve Replacement Risks
The Company's future performance depends upon its ability to find, develop and
acquire additional oil and gas reserves that are economically recoverable.
Without successful exploration or acquisition activities, the Company's
reserves and revenues will decline. No assurances can be given that the Company
will be able to find and develop or acquire additional reserves at an
acceptable cost.
The successful acquisition and development of oil and gas properties requires
an assessment of recoverable reserves, future oil and gas prices and operating
costs, potential environmental and other liabilities and other factors. Such
assessments are necessarily inexact and their accuracy inherently uncertain. In
addition, no assurances can be given that the Company's exploitation and
development activities will result in any increases in reserves. The Company's
operations may be curtailed, delayed or canceled as a result of lack of
adequate capital and other factors, such as title problems, weather, compliance
with governmental regulations or price controls, mechanical difficulties or
shortages or delays in the delivery of equipment. In addition, the costs of
exploitation and development may materially exceed initial estimates.
Effects of Leverage
At September 30, 1996, the Company's percentage of total long-term debt to
total capitalization was 53%, and such percentage was 40% as adjusted to give
effect to the TECONS Offering. See "Capitalization." The Company's level of
indebtedness will have
S-8
<PAGE>
several important effects on its future operations, including (i) a significant
portion of the Company's cash flow from operations must be dedicated to the
payment of interest on its indebtedness and will not be available for other
purposes and (ii) covenants contained in the Company's debt agreement will
require the Company to meet certain financial tests, and other restrictions
will limit its ability to borrow additional funds or to dispose of assets and
may affect the Company's flexibility in planning for, and reacting to, changes
in its business, including possible acquisition activities. The Company's
ability to meet its debt service obligations and to reduce its total
indebtedness will be dependent upon the Company's future performance, which
will be subject to general economic conditions and to financial, business and
other factors affecting the operations of the Company, many of which are beyond
its control.
Substantial Capital Requirements
The Company makes, and will continue to make, substantial capital expenditures
for the exploitation, exploration, acquisition and production of oil and gas
reserves. Historically, the Company has financed these expenditures primarily
with cash generated by operations, proceeds from bank borrowings and the
proceeds of debt and equity issuances. The Company believes that it will have
sufficient cash provided by operating activities and borrowings under its bank
credit facility to fund planned capital expenditures. If revenues or the
Company's borrowing base decreases as a result of lower oil and gas prices,
operating difficulties or declines in reserves, the Company may have limited
ability to expend the capital necessary to undertake or complete future
drilling programs. There can be no assurance that additional debt or equity
financing or cash generated by operations will be available to meet these
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Uncertainty of Estimates of Reserves and Future Net Cash Flows
Estimates of economically recoverable oil and gas reserves and of future net
cash flows are based upon a number of variable factors and assumptions, all of
which are to some degree speculative and may vary considerably from actual
results. Therefore, actual production, revenues, taxes, and development and
operating expenditures may not occur as estimated. Future results of operations
of the Company will depend upon its ability to develop, produce and sell its
oil and gas reserves. The reserve data included herein are estimates only and
are subject to many uncertainties. Actual quantities of oil and gas may differ
considerably from the amounts set forth herein. In addition, different reserve
engineers may make different estimates of reserve quantities and cash flows
based upon the same available data.
Operating Risks
Nuevo's operations are subject to risks inherent in the oil and gas industry,
such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or
well fluids, fires, pollution, earthquakes and other environmental risks. These
risks could result in substantial losses to the Company due to injury and loss
of life, severe damage to and destruction of property and equipment, pollution
and other environmental damage and suspension of operations. Moreover, offshore
operations are subject to a variety of operating risks peculiar to the marine
environment, such as hurricanes or other adverse weather conditions, to more
extensive governmental regulation, including regulations that may, in certain
circumstances, impose strict liability for pollution damage, and to
interruption or termination of operations by governmental authorities based on
environmental or other considerations.
The Company's operations could result in liability for personal injuries,
property damage, oil spills, discharge of hazardous materials, remediation and
clean-up costs and other environmental damages. The Company could be liable for
environmental damages caused by previous property owners. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could have a material adverse effect on the
Company's financial condition and results of operations. The Company maintains
insurance coverage for its operations, including limited coverage for sudden
environmental damages, but does not believe that insurance coverage for
environmental damages that occur over time is available at a reasonable cost.
Moreover, the Company does not believe that insurance coverage for the full
potential liability that could be caused by sudden environmental damages is
available at a reasonable cost. Accordingly, the Company may be subject to
liability or may lose substantial portions of its properties in the event of
certain environmental damages.
Foreign Investments
The Company's foreign investments involve risks typically associated with
investments in emerging markets such as an uncertain political, economic, legal
and tax environments and expropriation and nationalization of assets. In
addition, if a dispute arises in its foreign operations, the Company may be
subject to the exclusive jurisdiction of foreign courts or may not be
successful in subjecting foreign persons to the jurisdiction of the United
States. The Company attempts to conduct its business and financial affairs so
as to protect against political and economic risks applicable to operations in
the various countries where it operates, but there can be no assurance the
Company will be successful in protecting against such risks.
S-9
<PAGE>
The government of the Republic of the Congo has requested that Nuevo convert
its interest in the Yombo field from its current convention to a production
sharing agreement ("PSA"). See "Business and Properties--Principal Properties--
International." Although the Company does not expect that the conversion from
its current convention to a PSA will materially affect the PV-10 value of its
properties in the Yombo field, no assurances in this regard can be made, and
the final terms of the Company's interest in the Yombo field may be adversely
affected by a conversion to a PSA.
Dual Consolidated Losses in Congo Subsidiary
In connection with their respective acquisitions of two subsidiaries owning
interests in the Yombo field offshore the Republic of Congo (each a "Congo
subsidiary"), the Company and a wholly owned subsidiary of CMS NOMECO Oil & Gas
Co. ("CMS") agreed with the seller of the subsidiaries not to claim certain tax
losses ("dual consolidated losses") incurred by such subsidiaries prior to the
acquisitions. Pursuant to the agreement, the Company and CMS may be liable to
the seller for the recapture of dual consolidated losses utilized by the seller
in years prior to the acquisitions if certain triggering events occur,
including: (i) a disposition by either the Company or CMS of its respective
Congo subsidiary; (ii) either Congo subsidiary's sale of its interest in the
Yombo field; (iii) the acquisition of the Company or CMS by another
consolidated group; or (iv) the failure of the Company's or CMS's Congo
subsidiary to continue as a member of its respective consolidated group. A
triggering event will not occur, however, if a subsequent purchaser enters into
certain agreements specified in the U.S. Internal Revenue Service's
consolidated return regulations intended to ensure that such dual consolidated
losses will not be claimed. The Company and CMS have agreed among themselves
that the party responsible for the triggering event shall indemnify the other
for any liability to the seller as a result of such triggering event. The
Company's potential direct liability could be as much as $60 million if a
triggering event with respect to the Company occurs, and the Company believes
that CMS's liability (for which the Company would be jointly liable with an
indemnification right against CMS) could be as much as $80 million. The Company
does not expect a triggering event to occur with respect to it or CMS and does
not believe the agreement will have a material adverse effect upon the Company.
The Company has been advised that, under one interpretation of the applicable
agreements, the execution of a PSA with the Republic of Congo could be a
triggering event unless certain provisions are included in such PSA. The
Company does not intend to enter into a PSA which causes a triggering event to
occur. No assurances can be made, however, as to the terms of the PSA.
Hedging
The Company periodically seeks to reduce its exposure to price volatility by
hedging its production through swaps, options and other commodity derivative
instruments. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Overview." In a typical hedging transaction, the
Company will have the right to receive from the counterparty to the hedge the
excess of the fixed price specified in the hedge and a floating price based on
a market index, multiplied by the quantity hedged. If the floating price
exceeds the fixed price, the Company is required to pay the counterparty the
difference. The Company would be required to pay the counterparty the
difference between such prices regardless of whether the Company's production
was sufficient to cover the quantities specified in the hedge. In addition, the
index used to calculate the floating price in a hedge is frequently not the
same as the prices actually received for the production hedged. The difference
(referred to as basis differential) may be material, and may reduce the benefit
or increase the detriment caused by a particular hedge. There is not an
established pricing index for hedges of California heavy crude oil production,
and the cash market for heavy oil production in California tends to vary widely
from index prices typically used in oil hedges. Consequently, hedging
California heavy crude oil is particularly subject to the risks associated with
volatile basis differentials.
Competition; Markets for Production
The Company operates in the highly competitive areas of oil and gas
exploration, exploitation, development and production. The availability of
funds and information relating to a property, the standards established by the
Company for the minimum projected return on investment, the availability of
alternate fuel sources and the intermediate transportation of gas are factors
which affect the Company's ability to compete in the marketplace. The Company's
competitors include major integrated oil companies and a substantial number of
independent energy companies, many of which possess greater financial and other
resources than the Company.
The Company's heavy crude oil production in California requires special
treatment available only from a limited number of refineries. Substantial
damage to such a refinery or closures or reduction in capacity due to financial
or other factors could adversely affect the market for the Company's heavy
crude oil production.
S-10
<PAGE>
Environmental and Other Regulation
The Company's operations are subject to numerous laws and regulations governing
the discharge of materials into the environment or otherwise relating to
environmental protection. These laws and regulations require the acquisition of
a permit before drilling commences, restrict the types, quantities and
concentration of various substances that can be released into the environment
in connection with drilling and production activities, limit or prohibit
drilling activities on certain lands lying within wilderness, wetlands and
other protected areas, and impose substantial liabilities for pollution which
might result from the Company's operations. Moreover, the recent trend toward
stricter standards in environmental legislation and regulation is likely to
continue. For instance, legislation has been proposed in Congress from time to
time that would reclassify certain oil and gas exploration and production
wastes as "hazardous wastes" which would make the reclassified wastes subject
to much more stringent handling, disposal and clean-up requirements. If such
legislation were to be enacted, it could have a significant impact on the
operating costs of the Company, as well as the oil and gas industry in general.
Initiatives to further regulate the disposal of oil and gas wastes are also
pending in certain states, and these various initiatives could have a similar
impact on the Company. The Company could incur substantial costs to comply with
environmental laws and regulations.
The Oil Pollution Act of 1990 imposes a variety of regulations on "responsible
parties" related to the prevention of oil spills. The implementation of new, or
the modification of existing, environmental laws or regulations, including
regulations promulgated pursuant to the Oil Pollution Act of 1990, could have a
material adverse impact on the Company.
S-11
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds of the Common Stock Offering.
TECONS OFFERING
Concurrently with the Common Stock Offering, Nuevo Financing I, a Delaware
business trust formed by Nuevo (the "Trust"), is offering 2,000,000 TECONS to
the public at a price to the public of $50.00 per TECONS ("Offering Price").
The Trust may issue up to an additional 300,000 TECONS to the underwriters of
the TECONS Offering solely to cover over-allotments. In addition, the Trust
will issue common securities ("Trust Common Securities") to Nuevo in an amount
equal to approximately 3% of the total capital of the Trust. Each TECONS and
Trust Common Security represents an undivided interest in the assets of the
Trust. The only assets of the Trust will be % convertible subordinated
debentures due December , 2026 issued by Nuevo to the Trust ("Convertible
Debentures"). The Trust exists for the sole purpose of issuing the TECONS and
investing the proceeds thereof in the Convertible Debentures in an aggregate
principal amount equal to the sum of the stated liquidation amount of the
TECONS and the capital contributed by Nuevo in exchange for the Trust Common
Securities.
Holders of the TECONS are entitled to receive cumulative quarterly cash
Distributions at an annual rate of $ per TECONS ("Distributions"). The
payment of Distributions out of moneys held by the Trust and certain payments
on liquidation of the Trust or the redemption of TECONS, are guaranteed by
Nuevo (the "Guarantee"). The Guarantee covers payments of Distributions and
other payments on the TECONS only if and to the extent that the Trust has funds
available therefor, which will not be the case unless Nuevo has made a payment
of interest or principal or other payments on the Convertible Debentures held
by the Trust as its sole asset. The obligations of Nuevo under the Guarantee
are subordinate and junior in right of payment to all other liabilities of
Nuevo and rank pari passu with the most senior preferred stock issued, from
time to time, if any, by Nuevo. The obligations of Nuevo under the Convertible
Debentures are subordinate and junior in right of payment to all present and
future Senior Indebtedness, as defined in the indenture pursuant to which the
Convertible Debentures are issued.
The Distribution rate and the quarterly Distribution payment date and other
payment dates for the TECONS will correspond to the interest rate and quarterly
interest payment date and other payment dates for the Convertible Debentures.
As a result, if principal or interest is not paid on the Convertible
Debentures, no amounts will be paid on the TECONS. If Nuevo does not make
principal or interest payments on the Convertible Debentures, the Trust will
not have sufficient funds to make Distributions on the TECONS, in which event,
the Guarantee will not apply to such Distributions until the Trust has
sufficient funds available therefor. So long as Nuevo shall not be in default
in the payment of interest on the Convertible Debentures, Nuevo has the right
to defer payments of interest on the Convertible Debentures from time to time
for successive periods by extending the interest payment period on the
Convertible Debentures at any time for up to 20 consecutive quarters.
Each TECONS is convertible at the option of the holder into shares of Common
Stock at the initial rate of shares of Common Stock for each TECONS
(equivalent to an initial conversion price of $ per share of Common Stock),
subject to adjustment in certain circumstances. The TECONS offered in the
TECONS Offering are therefore initially convertible into an aggregate of
shares of Common Stock ( shares of Common Stock if the underwriters' over-
allotment option granted in the TECONS Offering is exercised in full).
See "Description of the Trust Preferred Securities" and "Description of Trust
Preferred Securities Guarantee" in the accompanying Prospectus for additional
information.
S-12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Nuevo Common Stock is traded on the New York Stock Exchange under the
symbol "NEV." The following table sets forth, on a per share basis for the
periods shown, the range of high and low reported closing sale prices of the
Common Stock on the New York Stock Exchange Composite Tape.
<TABLE>
<S> <C> <C>
-------------
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Years Ended December 31
1994:
First Quarter................................................ $24.13 $19.00
Second Quarter............................................... 19.75 17.25
Third Quarter................................................ 23.25 19.00
Fourth Quarter............................................... 22.50 16.88
1995:
First Quarter................................................ $20.00 $16.00
Second Quarter............................................... 23.63 18.63
Third Quarter................................................ 24.88 20.13
Fourth Quarter............................................... 23.63 20.38
1996:
First Quarter................................................ $28.75 $20.38
Second Quarter............................................... 32.75 26.88
Third Quarter................................................ 43.00 30.75
Fourth Quarter (through November 25, 1996)................... 53.75 41.50
</TABLE>
The Company has followed a policy of reinvesting its cash flows and earnings in
the growth of its business and has not paid cash dividends to the holders of
its Common Stock since its formation. The Company does not anticipate that cash
dividends will be paid on the Common Stock in the foreseeable future. The
Credit Agreement and the indentures for the 12 1/2% Notes and the 9 1/2% Notes
currently limit the payment of cash dividends on the Common Stock.
S-13
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
at September 30, 1996, and as adjusted to give effect to the Common Stock
Offering and the TECONS Offering and the application of the estimated net
proceeds therefrom.
<TABLE>
<S> <C> <C>
----------------------
<CAPTION>
SEPTEMBER 30, 1996
ACTUAL AS ADJUSTED(1)
Dollars in thousands -------- --------------
(UNAUDITED)
<S> <C> <C>
Long-term debt (excluding current maturities):
Credit Facility................................... $157,000 $ 57,000
12 1/2% Senior Subordinated Notes due 2002........ 74,263 74,263
9 1/2% Senior Subordinated Notes due 2006......... 160,000 160,000
Project-related financings and other notes
payable.......................................... 14,217 14,217
-------- ----------
Total long-term debt............................ 405,480 305,480
Company-obligated mandatorily redeemable preferred
securities of Nuevo Financing ("TECONS")........... -- 100,000(1)
Stockholders' equity:
Preferred Stock, $1.00 par value, 10,000,000
shares
authorized; 7% Cumulative Convertible
Preferred Stock, 11,220 shares issued and
outstanding; 0 as adjusted....................... 11 --(2)
Common Stock, $.01 par value, 50,000,000 shares
authorized; 18,931,735 shares issued and
outstanding;
19,795,228 shares as adjusted(4)................. 189(3) 198(3)
Additional paid-in capital........................ 333,887 333,889
Retained earnings................................. 21,665 21,665
-------- ----------
Total stockholders' equity...................... 355,752 355,752
-------- ----------
Total capitalization................................ $761,232 $ 761,232
======== ==========
Total long-term debt to total capitalization........ 53% 40%
</TABLE>
(1) Assumes the over-allotment option to purchase up to 300,000 TECONS in the
TECONS Offering is not exercised.
(2) Assumes conversion of 11,220 shares of the 7% Cumulative Convertible
Preferred Stock in connection with the Common Stock Offering.
(3) Does not include 1,520,938 shares of Common Stock subject to options
granted under the Company's stock incentive plans, 150,000 shares of Common
Stock issuable upon exercise of outstanding warrants at an exercise price of
$28.00 per share, and shares of Common Stock issuable upon conversion of
the TECONS.
(4) Actual shares of Common Stock outstanding does not include 863,493 shares
issuable upon conversion of the 7% Cumulative Convertible Preferred Stock. As
adjusted shares of Common Stock and Preferred Stock assumes conversion of all
of such shares of 7% Cumulative Convertible Preferred Stock in connection with
the Common Stock Offering.
S-14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial data for the Company for the
years ended December 31, 1991, 1992, 1993, 1994 and 1995 and for the nine month
periods ended September 30, 1995 and 1996. The selected historical consolidated
financial information for the years ended December 31, 1991 through 1995 has
been derived from the Company's audited financial statements. The historical
information for the nine months ended September 30, 1995 and 1996 is derived
from unaudited consolidated financial statements, which are incorporated herein
by reference. Such unaudited consolidated financial statements have been
prepared on the same basis as the Company's audited financial statements, and
the Company believes that such unaudited consolidated financial statements
contain all adjustments necessary for a fair presentation of the financial
information presented (consisting only of normal, recurring adjustments).
Interim results are not necessarily indicative of results for the full year.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
Dollars in thousands, except 1991 1992 1993 1994 1995 1995 1996
per share data -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA (UNAUDITED)
Revenues:
Oil and gas revenues.... $ 32,928 $ 41,331 $ 67,184 $ 79,968 $103,216 $ 77,100 $188,364
Pipeline and other
revenues............... 3,058 3,574 14,697 10,309 7,222 5,613 5,765
Gas plant revenues...... -- 15,883 24,680 28,798 27,183 20,557 23,296
Interest and other
income................. 266 664 1,271 245 1,106 385 1,426
-------- -------- -------- -------- -------- -------- --------
Total revenues........ 36,252 61,452 107,832 119,320 138,727 103,655 218,851
-------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Lease operating
expenses............... 6,831 9,948 11,992 15,160 29,634 21,477 66,463
Pipeline and other
operating costs........ 802 1,492 9,976 6,767 4,726 3,525 4,976
Gas plant operating
expenses............... -- 12,974 20,975 25,794 22,667 17,036 19,568
General and
administrative
expenses............... 5,579 6,726 9,355 10,656 10,165 7,362 14,941
Depreciation, depletion
and amortization....... 13,849 17,298 29,066 38,568 41,866 32,328 54,495
Provision for impairment
of oil and gas
properties............. -- -- -- 34,632(1) -- -- --
Interest expense........ 3,217 6,532 11,861 12,560 15,389 11,754 25,825
Other expense........... -- 818 36 2,387 45 20 57
-------- -------- -------- -------- -------- -------- --------
Total costs and
expenses............... 30,278 55,788 93,261 146,524 124,492 93,502 186,325
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and minority
interest................. 5,974 5,664 14,571 (27,204) 14,235 10,153 32,526
Income tax expense
(benefit)................ 2,243 1,942 5,366 (9,653) 5,209 3,755 13,173
Minority interest in
earnings (loss) of
subsidiary............... -- 40 272 52 16 16 (44)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......... 3,731 3,682 8,933 (17,603) 9,010 6,382 19,397
Dividends on preferred
stock.................... -- 1,035 1,750 1,750 1,472 1,208 766
-------- -------- -------- -------- -------- -------- --------
Earnings (loss)
attributable to common
stockholders............. $ 3,731 $ 2,647 $ 7,183 $(19,353) $ 7,538 $ 5,174 $ 18,631
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per common
share.................... $ .43 $ .30 $ .70 $ (1.76) $ .66 $ .47 $ 1.12
======== ======== ======== ======== ======== ======== ========
STATEMENT OF CASH FLOWS
DATA
Net income (loss)......... $ 3,731 $ 3,682 $ 8,933 $(17,603) $ 9,010 $ 6,382 $ 19,397
Depreciation, depletion
and amortization......... 13,849 17,298 29,066 73,200(1) 41,866 32,328 54,495
Other non-cash items...... 274 2,927 6,282 (11,754) (381) (683) 10,917
-------- -------- -------- -------- -------- -------- --------
17,854 23,907 44,281 43,843 50,495 38,027 84,809
Net change in assets and
liabilities.............. (3,295) 4,802 (11,282) 19,924 (10,387) (8,383) 1,331
-------- -------- -------- -------- -------- -------- --------
Net cash flows provided by
operating activities..... $ 14,559 $ 28,709 $ 32,999 $ 63,767 $ 40,108 $ 29,644 $ 86,140
======== ======== ======== ======== ======== ======== ========
CAPITAL EXPENDITURES
Acquisitions.............. $ 28,991 $ 8,512 $ 24,325 $ 30,776 $ 639 $ 639 $549,423
Exploitation, exploration
and other................ 13,613 79,048 57,369 80,168 42,964 33,077 60,436
-------- -------- -------- -------- -------- -------- --------
Total................... $ 42,604 $ 87,560 $ 81,694 $110,944 $ 43,603 $ 33,716 $609,859
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA
Total assets.............. $151,605 $238,891 $287,591 $307,220 $306,544 $313,175 $854,327
Total debt................ 45,433 91,920 87,941 119,541 116,709 122,752 410,597
Stockholders' equity...... 88,577 115,524 163,137 143,938 154,608 151,544 355,752
</TABLE>
(1) Sharp declines in gas prices in 1994 caused the Company to recognize a non-
cash charge to write down certain oil and gas properties accounted for using
the full cost method.
S-15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Nuevo is a Houston, Texas-based company primarily engaged in the exploration
for, and the acquisition, exploitation, development and production of oil and
gas. The Company's principal properties are located domestically onshore and
offshore California, in East Texas and the onshore Gulf Coast region; and
internationally offshore the Republic of Congo. Since the Company's inception
in 1990, it has grown and diversified its operations through a series of
disciplined, opportunistic acquisitions of oil and gas properties and the
subsequent exploration, exploitation and development of these properties.
The Company's results of operations have been significantly affected by its
success in acquiring oil and gas properties and its ability to maintain or
increase production through its exploitation activities. Fluctuations in oil
and gas prices have also significantly affected the Company's results.
Primarily through acquisitions and exploitation, the Company has achieved
significant increases in its oil and gas production. The following table
reflects the Company's oil and gas production and its average oil and gas
prices (inclusive of oil and gas price swaps) for the periods presented:
<TABLE>
<CAPTION>
----------------------------------
NINE MONTHS
YEAR ENDED DECEMBER ENDED
31, SEPTEMBER 30,
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PRODUCTION DATA
Oil (MBbls)............................... 1,933 2,365 3,947 2,921 9,051
Gas (MMcf)................................ 16,768 23,327 28,913 22,429 25,245
Liquids (MBbls)........................... -- -- -- -- 205
AVERAGE SALES PRICE PER UNIT
Oil (Bbls)................................ $16.67 $14.89 $14.68 $14.45 $15.38
Gas (Mcf)................................. $ 1.96 $ 1.90 $ 1.56 $ 1.52 $ 1.92
COSTS PER BOE
Production costs, including severance
taxes.................................... $ 2.54 $ 2.42 $ 3.38 $ 3.23 $ 4.94
Depreciation, depletion and amortization:
Domestic................................ $ 5.50 $ 5.60 $ 4.98 $ 5.01 $ 4.06
Congo................................... -- -- $ .75 $ .75 $ .75
</TABLE>
The Company uses the full cost method of accounting for the Company's
investment in oil and 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 on a country-by-
country basis. Oil and gas properties in the pool, plus estimated future
expenditures to develop proved reserves and future abandonment, site
remediation and dismantlement costs, are depleted and charged to operations
using the unit of production method based on the ratio of current production to
total proved recoverable oil and gas reserves. To the extent that such
capitalized costs (net of depreciation, depletion and amortization) exceed the
discounted future net revenues on an after-tax basis of estimated proved oil
and gas reserves, such excess costs are charged to operations. Once incurred,
the writedown of oil and gas properties is not reversible at a later date even
if oil or gas prices increase. Sharp declines in gas prices in 1994 required a
number of oil and gas companies, which also use the full cost method, to
recognize a non-cash charge to write down oil and gas properties, thereby
decreasing their earnings during such reporting periods. Accordingly, during
1994, Nuevo recognized a non-cash charge of $34.6 million to write down the
value of its oil and gas properties. No such writedown was made in 1993 or 1995
or during the first three quarters of 1996. The Company is unable to predict to
what degree, if any, it may be required to recognize a write down of its oil
and gas properties in the future as a result of any price declines.
The Company periodically uses derivative financial instruments to manage oil
and gas price risk. Settlements of gains and losses on price swap contracts are
generally based upon the difference between the contract price and the average
closing NYMEX price and are reported as a component of oil and gas revenues.
Gains or losses attributable to the termination of swap contracts are deferred
and recognized in revenue when the hedged oil and gas is sold. As a result of
hedging transactions, oil and gas revenues were reduced by $900,000 and
increased by $300,000 in the third quarter of 1996 and 1995, respectively.
During the first nine months of 1996, oil and gas revenues were reduced by $2.0
million as a result of these transactions. The Company had no material hedges
as of September 30, 1996.
S-16
<PAGE>
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
Revenues
Oil and gas revenues for the nine months ended September 30, 1996 were $188.4
million, or 144.4% higher than oil and gas revenues of $77.1 million for the
same period in 1995. The increase in oil and gas revenues was attributable
primarily to production from the California Properties and higher oil and gas
prices.
Gas plant revenues of approximately $23.3 million and $20.6 million are
reflected in the nine months ended September 30, 1996 and 1995, respectively.
The 13.1% increase in gas plant revenues is primarily due to increased natural
gas liquids prices.
Pipelines and other revenues for the nine months ended September 30, 1996 were
approximately $5.8 million, or 3.6% higher than pipeline and other revenues of
approximately $5.6 million for the same period in 1995. The increase is
primarily due to increased throughput on the Illini pipeline because of
additional transportation contracts.
Expenses
Lease operating expenses for the nine months ended September 30, 1996 totaled
$66.5 million, an increase of 209.3% from $21.5 million for the same period in
1995. Lease operating expenses per BOE were $4.94 in the first nine months of
1996, an increase of 52.9% over $3.23 in the same period in 1995 due primarily
to higher lifting costs associated with the California Properties.
Plant operating expenses were $19.6 million in the nine months ended September
30, 1996, compared to $17.0 million for the nine months ended September 30,
1995. The 15.3% increase in gas plant expenses in 1996 compared to 1995
primarily relates to increased liquids settlements under percent of proceeds
contracts resulting from higher natural gas and natural gas liquids prices.
Pipeline and other operating expenses for the nine months ended September 30,
1996 were $5.0 million, or 42.9% higher than pipeline operating expenses of
approximately $3.5 million for the same period in 1995. This increase was
primarily due to increased natural gas and natural gas liquids prices, as well
as to the increased tariffs on the Illini pipeline caused by increased
throughput.
Depreciation, depletion and amortization of $54.5 million for the nine months
ended September 30, 1996 reflects an increase of 68.7% from $32.3 million in
the same period in 1995. This increase was due to increased oil and gas
production volumes resulting from the acquisition of the California Properties,
partially offset by a decreased depletion rate per barrel of oil equivalent
caused by an increase in estimated proved oil and gas reserves.
General and administrative expenses totaled $14.9 million and $7.4 million in
the nine months ended September 30, 1996 and 1995, respectively. The 101.4%
increase in general and administrative expense for the nine months of 1996 is
due primarily to the increase in management fees resulting from significant
growth in the assets of the Company.
Interest expense increased to $25.8 million for the nine months ended September
30, 1996 from $11.8 million in the same period of 1995. The increase in
interest expense is the result of increased borrowings under the new credit
facility as well as the issuance of $160 million of 9 1/2% Notes in order to
finance the acquisition of the California Properties. Additionally, the Company
entered into a bridge commitment in relation to the acquisition of the
California Properties. The facility was not drawn down; however, $1.7 million
in fees associated with the bridge commitment was expensed in the second
quarter of 1996.
Net Income
Net income of approximately $19.4 million was generated for the nine months
ended September 30, 1996, as compared to net income of $6.4 million in the same
period of 1995. Earnings available to common stockholders totaled $18.6 million
after deductions for preferred stock dividends for the nine months ended
September 30, 1996 versus $5.2 million for the same period in 1995.
S-17
<PAGE>
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Revenues
The Company has experienced significant oil and gas revenue growth in recent
years. In 1994, oil and gas revenues of $80.0 million were 19.0% higher than
the 1993 oil and gas revenues of $67.2 million. Oil and gas revenues for 1995
were $103.2 million, or 29.0% higher than 1994 oil and gas revenues of $80.0
million. In 1995, the Congo acquisition accounted for $17.4 million of the
increase in revenues over 1994. In 1994, oil and gas revenues were increased by
$300,000 due to a gas price hedge, while the effect of hedging in 1995 was to
reduce revenues by $100,000. The Company's acquisitions of producing properties
and development drilling programs are primarily responsible for the increased
revenues during 1994 and 1995. During the three year period, the volatility of
oil and gas prices directly impacted revenues.
Gas plant revenues of $28.8 million in 1994 were 16.6% higher than revenues of
$24.7 million in 1993, primarily due to increased volumes associated with a
full year of operations at the Company's Benedum bypass plant, which began
operations in June 1993, and offset by price declines in natural gas liquids.
Gas plant revenues were $27.2 million in 1995 or 5.6% lower than 1994 revenues
of $28.8 million. The decrease from 1995 to 1994 was primarily due to decreased
volumes and price declines in natural gas liquids. Pipeline revenues of $10.3
million for 1994 were 29.9% less than 1993 pipeline revenues of $14.7 million
due to reduced throughput in the Bright Star gathering system resulting from
producers in the Alabama Ferry field employing gas lift recovery in their
reservoir maintenance operations. Pipeline and other revenues for 1995 were
$7.2 million, or 30.1% less than 1994 pipeline and other revenues of $10.3
million. The decrease in pipeline and other revenues was primarily attributable
to reduced throughput in the Company's West Delta 152 pipeline and Bright Star
gathering system associated with reduced volumes resulting from producers in
the Alabama Ferry field employing gas lift recovery in their reservoir
maintenance operations.
Expenses
Lease operating expenses for 1995 totaled $29.6 million, as compared to $12.0
million and $15.2 million for 1993 and 1994, respectively. The annual increases
of 26.7% in 1994 and 94.7% in 1995 are reflective of higher lifting costs
associated with the Point Pedernales and Congo acquisitions and increased
production, respectively.
Gas plant expenses for 1995 were $22.7 million as compared to $21.0 million in
1993 and $25.8 million in 1994. The increase from 1993 to 1994 was primarily
attributable to the commencement of the Benedum bypass plant operations in June
1993. The decrease from 1994 to 1995 was primarily due to decreased volumes and
the effect of decreased gas prices on plant volume recovery gas. Pipeline and
other operating expenses for 1995 were $4.7 million, or 30.9% lower than 1994
pipeline expenses of $6.8 million which were 32.0% lower than 1993 pipeline
expenses of $10.0 million. The annual decreases were due to decreased
throughput at the Bright Star gathering system.
In 1994, depreciation, depletion and amortization of $38.6 million was 32.6%
higher than the 1993 amount of $29.1 million, primarily due to increased
production volumes in 1994 as well as an increase in property costs per unit of
production. Depreciation, depletion and amortization of $41.9 million in 1995
reflects an increase of 8.5% from the 1994 amount of $38.6 million. Such
increase reflects increased production volumes in 1995 which was partially
offset by a decreased depletion rate per barrel of oil equivalent due to the
write down relating to the excess of capitalized costs over future net revenues
in December 1994.
Late in 1994 and continuing into 1995, natural gas prices declined
significantly. As a result of this decline, the capitalized costs of the
Company were in excess of the discounted future net revenues. During 1994,
Nuevo recognized provision for impairment of oil and gas properties of $34.6
million. No such provision was required in 1993 or 1995.
General and administrative expenses totaled $9.4 million, $10.7 million and
$10.2 million in 1993, 1994, and 1995, respectively. The 13.8% increase in 1994
as compared to 1993 was primarily due to increased management fees resulting
from the growth in the Company's assets and operating cash flows. The 4.7%
decrease in 1995 as compared to 1994 was primarily due to decreased management
fees resulting from a revision to the Torch Agreement (as defined under
"Management--Relationship with Torch") which was implemented on January 1, 1995
as well as reduced legal fees.
In 1994, interest expense increased by 5.9% to $12.6 million from $11.9 million
in 1993 due to increased borrowings under debt facilities. Interest expense
increased 22.2% to $15.4 million in 1995 from $12.6 million in 1994. Such
increase was due primarily to increased borrowings under existing debt
facilities along with interest incurred under the OPIC Facility (as defined).
S-18
<PAGE>
Income tax expense of $5.2 million was recognized in 1995 compared to an income
tax benefit of $9.7 million in 1994 and an income tax expense of $5.4 million
in 1993. The Company's effective income tax rate increased from 35.5% in 1994
to 36.6% in 1995 primarily due to increased state income taxes.
Net Income (Loss)
Net income of $9.0 million was generated in 1995, as compared to a net loss of
$17.6 million in 1994 and net income of $8.9 million in 1993. Net income after
deducting dividends paid on the 7% Preferred Stock was $7.5 million in 1995 as
compared to a net loss of $19.4 million in 1994 and net income of $7.2 million
in 1993.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities was $86.1 million and $29.6 million
for the nine months ended September 30, 1996 and 1995, respectively. At
September 30, 1996, the Company also had $3.3 million of working capital and
$132 million available under its primary Credit Facility with a bank group led
by NationsBank of Texas, N.A. that expires on May 17, 2001. The Company
believes cash flows from operations, working capital and financing sources are
sufficient to meet its obligations as they become due and to finance its
exploration, exploitation and development programs.
For a description of indemnification provisions relating to dual consolidated
losses in the Republic of Congo, see "Risk Factors--Dual Consolidated Losses in
Congo Subsidiary."
Financing Activities
The maximum borrowings that may be outstanding under the Credit Facility may
not exceed the lesser of $385.0 million and a borrowing base ("Borrowing Base")
based on the present value of the Company's oil and gas reserves based on
assumptions regarding prices, production and costs approved by the bank group.
The Borrowing Base as of September 30, 1996 was $289.0 million, and will be
reset annually. The Borrowing Base is subject to redetermination in the event
of sales of assets in excess of $10.0 million. If amounts outstanding under the
Credit Facility exceed the Borrowing Base, as redetermined from time to time,
the Company will be required to repay such excess, and may be required to sell
assets to make such repayments. Amounts outstanding under the Credit Facility
bear interest at a rate equal to the London Interbank Offered Rate ("LIBOR")
plus a number of basis points which increases as the senior indebtedness of the
Company as a percent of the Borrowing Base increases. Currently, the Company's
interest rate under the Credit Facility is LIBOR plus 0.5%, with outstanding
borrowings in the amount of $157.0 million. The proceeds of the Credit Facility
were used to finance a portion of the purchase price of the California
Properties as well as retire the borrowings under an existing credit facility
in the amount of $27.0 million.
In April 1996, the Company financed a portion of the purchase price of the
California Properties by the issuance of 5,109,200 shares of its Common Stock
to the public for net proceeds of approximately $136 million, and the sale of
its 9 1/2% Notes for total net proceeds of approximately $156 million. In
addition, the Company issued to Torch 1,275,000 shares of Common Stock in
exchange for certain of the California Properties acquired from Torch.
In February 1995, in connection with the acquisition of the Yombo field
properties, a subsidiary of the Company entered into a $25.0 million non-
recourse credit facility with the Overseas Private Investment Corporation and
an agent bank to finance $8.8 million of the purchase price for such
properties. The remaining funds under the credit facility will be used to
finance 75% of a development drilling program in the Yombo field. A portion of
the remaining outstanding commitment, $6.0 million, was drawn down in January
1996 to fund the first phase of the development drilling program in the Yombo
field. The interest rate associated with such credit facility is LIBOR plus 20
basis points and a guaranty fee of 2.75% of the outstanding loan balance, all
of which is payable quarterly. The loan agreement requires principal to be
repaid in 16 equal quarterly installments. At September 30, 1996, $12.2 million
was outstanding under the loan agreement, of which $3.7 million is due in 1996.
Subject to market conditions at the time, the Company currently intends to
redeem the 12 1/2% Notes during June 1997.
Gas Balancing
It is customary in the industry for various working interest partners to sell
more or less than their entitled share of natural gas. The settlement or
disposition of existing gas balancing positions is not anticipated to
materially impact the financial condition of the Company.
S-19
<PAGE>
CAPITAL EXPENDITURES
The Company's capital expenditures for each of the three years ended December
31, 1995 and for the nine months ended September 30, 1996 are set forth in the
following table:
<TABLE>
<CAPTION>
--------------------------------------
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1993 1994 1995 1996
Dollars in thousands ------- -------- ------- -------------
<S> <C> <C> <C> <C>
Acquisitions of oil and gas properties.. $24,325 $ 30,776 $ 639 $484,423
Development............................. 40,149 70,334 32,555 49,014
Exploration............................. 8,163 7,128 9,387 11,617
Gas plant, gas storage and pipeline
facilities............................. 9,057 2,706 1,022 64,805
------- -------- ------- --------
Total............................... $81,694 $110,944 $43,603 $609,859
======= ======== ======= ========
</TABLE>
Contingent Payment to Unocal
In connection with the acquisition of the California Properties from Unocal,
the Company agreed to make a contingent payment ("Contingent Payment') for the
years 1998 through 2004 if oil prices exceed certain thresholds. The Contingent
Payment will be equal to 50% of the difference between the actual price
received (capped by a maximum price) and a minimum price, less taxes,
multiplied by the actual number of barrels of oil sold. The minimum price of
$17.75 per Bbl (determined based on near month delivery of West Texas
intermediate crude oil on the NYMEX) is escalated at 3% per year and the
maximum price of $21.75 per Bbl NYMEX is escalated at 3% per year. Minimum and
maximum prices will be netted down to the field level using a fixed
differential equal to approximately the differential between actual sales
prices and NYMEX prices ($4.34 per Bbl weighted average for all the properties
acquired from Unocal). The Company will accrue credits to offset the Contingent
Payment when prices are $0.50 per Bbl below the minimum price. The calculation
of the Contingent Payment owed will be done on December 31 of each year
commencing 1998.
Commencing in 1998, at the end of each quarter, the Company will estimate the
amount of the Contingent Payment to be paid at the end of the year with respect
to production during such quarter, and will accrue for any Contingent Payment
by reducing its oil revenues for such quarter by the amount of such estimated
liability. If, as a result of low oil prices, the Company receives price
credits which reduce a Contingent Payment accrued during a prior quarter, the
reduction in such accrual will have the effect of increasing oil revenues
during the quarter in which such price credits are received (up to the amount
previously accrued).
ACCOUNTING STANDARDS
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
issued by the Financial Accounts Standards Board ("FASB") in March 1995, was
implemented by the Company in the first quarter of 1996. This standard
addresses the accounting for the recognition and measurement of impairment
losses for long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used. This standard also addresses the
accounting for long-lived assets and certain identifiable intangibles to be
disposed of.
The adoption of Accounting Standard 121 did not have a significant impact on
consolidated results of operations of the financial position of the Company.
The Company follows the intrinsic value method for stock options granted to
employees. In October 1995, the FASB issued Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation." The Company did
not adopt the fair value method for stock-based compensation plans, but will
provide pro forma disclosures pursuant to an optional provision of Accounting
Standard 123.
S-20
<PAGE>
BUSINESS AND PROPERTIES
GENERAL
Nuevo is a Houston, Texas-based company primarily engaged in the exploration
for, and the acquisition, exploitation, development and production of crude oil
and natural gas. The Company's principal properties are located domestically
onshore and offshore California, in East Texas and the onshore Gulf Coast
region; and internationally offshore the Republic of Congo in West Africa.
Since the Company's inception in 1990, it has grown and diversified its
operations through a series of disciplined, opportunistic acquisitions of oil
and gas properties and the subsequent exploitation and development of these
properties. The Company has complemented these efforts with an active and
growing exploration program which provides exposure to high potential
prospects. The Company's primary strengths are its large inventory of
exploitation and exploration projects in its core areas of operation, its
demonstrated ability to implement and maintain a low cost structure, its
ability to identify and acquire, at attractive prices, producing properties
which have significant potential for further exploration, exploitation and
development, and a capital structure supportive of a growing investment program
and future acquisitions.
As a result of these activities, Nuevo has substantially increased its
reserves, production, cash flow and earnings. The Company increased its
estimated net proved reserves by 719% from 32.3 MMBOE on December 31, 1992 to
264.5 MMBOE on December 31, 1995 (on a pro forma basis giving effect to the
acquisition of the California Properties as of such date). Average daily
production has increased by 385% from 12.9 MBOE/d in the quarter ended
September 30, 1993 to 62.6 MBOE/d in the quarter ended September 30, 1996. Cash
flow from operations (prior to changes in working capital and other assets and
liabilities) increased by 152% from $33.7 million in the first nine months of
1993 to $84.8 million in the first nine months of 1996. Net income has also
increased 181% from $6.9 million in the first nine months of 1993 to $19.4
million in the first nine months of 1996.
Substantially all of the Company's heavy oil production is from four fields in
California which accounted for approximately one-third of the Company's total
production on a BOE basis during the quarter ended September 30, 1996.
Approximately 26% of the Company's production on a BOE basis during such period
was natural gas, and the balance was a mix of lighter grades of crude oil and
refined fuel oil. The Company operated properties representing 85% of its pro
forma estimated net proved reserves as of December 31, 1995.
BUSINESS STRATEGY
Nuevo's objective is to increase shareholder value through growth in reserves,
production, cash flow and earnings. Key elements of the Company's strategy to
achieve its objective are described below.
Exploitation of Existing Reserve Base
The Company initiates workovers, recompletions, development drilling, secondary
and tertiary recovery operations and other production enhancement techniques to
maximize current production and the ultimate recovery of reserves. Using
constant year end 1995 prices, the Company has identified in excess of 1,000
exploitation projects on its existing properties which it believes offer
meaningful opportunities to grow reserves and increase production, irrespective
of exploration or acquisition successes. Examples of current or planned
projects include: (i) infill drilling, the initiation of a new steamflood
project, and multiple zone completions in the Midway-Sunset field in central
California; (ii) infill drilling and horizontal drilling in the Cymric field in
central California; (iii) recompletions and the initiation of a waterflood
project in the Brea Olinda field in the Los Angeles basin; (iv) infill drilling
and the commencement of construction of an adjacent gas processing plant at the
Point Pedernales field offshore California; (v) infill drilling in the Oak Hill
field in East Texas; and (vi) development drilling and well workovers at the
Yombo field offshore the Republic of Congo. The Company expects to increase its
capital expenditures for exploitation projects from an estimated $75.0 million
in 1996 to $115.0 million in 1997.
Exploration for Potential New Reserves
The Company has an active and growing exploration program targeting high
potential reserve opportunities offshore the Republic of Congo, in California
and the onshore Gulf Coast region. The Company seeks to reduce the risks
normally associated with exploration through the use of advanced technologies,
such as 3-D seismic surveys and CAEX techniques, and by participating with
other experienced industry partners. The Company has had recent exploratory
discoveries in: (i) the Lower Sendji section of the Yombo field offshore the
Republic of Congo; (ii) the Antelope Shale section in the Monument Junction
area of the Cymric field in central California; (iii) the Frontier section in
the North Riley Ridge area in western Wyoming; and (iv) the Sespe section in
the Big Mountain field in the Ventura Basin of California. Ongoing exploratory
activities include the drilling of a large Cotton Valley Pinnacle Reef
structure in Trinity County, Texas and the exploration of the downdip Austin
Chalk trend in Grimes County, Texas. The Company currently expects to increase
its exploration budget from an estimated $15.0 million in 1996 to $25.0 million
in 1997.
S-21
<PAGE>
Maintenance of a Low Cost Structure
The Company believes that its ability to implement and maintain a low cost
structure allows it to compete successfully in an industry characterized by
fluctuating commodity prices. The Company focuses its cost strategy on reducing
its per BOE finding costs, lease operating expenses, general and administrative
expenses and costs of capital in order to maintain operating profitability even
during periods of adverse commodity prices. For the three years ended December
31, 1995, Nuevo's finding costs from exploration and exploitation per BOE have
averaged $4.00 domestically and $1.57 internationally, significantly below
published industry averages. Lease operating expense per BOE produced from the
properties acquired by Nuevo from Unocal in April 1996 was reduced from $6.40
in the first quarter of 1996 to $5.92 and $5.34 in the second and third
quarters of 1996, respectively. The Company's total general and administrative
costs have declined from $1.78 per BOE in the quarter ended September 30, 1993
to $1.11 per BOE in the quarter ended September 30, 1996. Subject to prevailing
market conditions, the Company anticipates that it will redeem its 12 1/2%
Notes in June 1997, in an effort to further reduce its capital costs. See
"Description of Existing Indebtedness--12 1/2% Notes."
Opportunistic Acquisitions of Properties
The Company may from time to time acquire producing properties which are either
complementary to existing operations or which are believed to provide
significant exploitation or exploration opportunities. The Company has
demonstrated an ability to identify, negotiate and close acquisitions of
producing properties at favorable prices. The Company's average finding costs
from acquisitions have been $2.41 per BOE for the three years ended December
31, 1995 (on a pro forma basis giving effect to the acquisition of the
California Properties.
Preservation of a Sound Capital Structure
The Company strives to maintain a sound financial condition to accommodate the
capital outlays necessary to increase reserves and production through
exploration, exploitation and selected acquisitions, even during periods of low
commodity prices and unfavorable capital markets. As of September 30, 1996, as
adjusted for the TECONS Offering, the Company's long-term debt to total
capitalization will be approximately 40%, and its Long-Term Debt to Adjusted
Capitalization will be approximately 27%. See "Capitalization" and "Glossary."
As of September 30, 1996, as adjusted for the TECONS Offering, the Company had
$232.0 million available for borrowing under its Credit Facility. See
"Description of Existing Indebtedness - Credit Facility."
RECENT DEVELOPMENTS
In April 1996, the Company acquired the California Properties from Unocal and
from Torch for a combined net purchase price of $515.3 million, plus a
contingent payment based on future oil prices. The California Properties
consist of 42 fields (of which 36 are operated) with approximately 2,300 active
wells (2,000 operated) and estimated net proved reserves as of December 31,
1995 of 183.8 MMBOE, with a PV-10 Value of $587.8 million. During the six
months ended September 30, 1996, the California Properties constituted 72% of
the Company's total oil and natural gas production on a BOE basis. Since
acquiring the California Properties, the Company has spent approximately $20
million to commence over 110 exploitation and development projects. In addition
to the exploitation projects, the Company in October 1996 successfully
completed an exploratory well in the Cymric field in California. The well was
drilled to 6,600 feet and encountered 77 feet of net pay in the Antelope Shale
section in the Monument Junction area.
In February 1995, the Company acquired a 43.8% working (32.5% net revenue)
interest in the Yombo field in the Republic of Congo. The Yombo field, located
27 miles offshore in 360 feet of water, has 25 wells producing at depths
ranging from 2,100 to 3,800 feet. The cash purchase price for the Yombo field
was $10.8 million. Between December 1, 1993, the effective date of the
acquisition, and December 31, 1995, the field produced 3.1 MMBbls net to
Nuevo's interest, and as of December 31, 1995, had estimated proved reserves
net to Nuevo's interest of 20.8 MMBbls of oil with a PV-10 Value of $112.9
million. As part of the Yombo acquisition, the Company acquired a converted
super tanker with storage capacity of over one million barrels of oil for use
as a floating production, storage and offloading vessel.
In October 1996, the Company drilled a successful exploration well to the Lower
Sendji formation in the Yombo field. This well is currently being deepened to
test an additional sub-salt structure before a decision will be made as to
where to complete and commence production. A delineation well for the Lower
Sendji or any sub-salt discovery will be spudded immediately after the
completion of the well currently in progress. In 1997, the Company plans to
drill an exploration well to evaluate the Lower Sendji and sub-salt sections
underlying the Masseko field located several miles to the west of the Yombo
field, as well as to further delineate the Upper Sendji and Tchala zones which
were discovered but not developed by the previous operator. Other potential
exploration features of the concession are being evaluated for possible future
drilling. Additionally, the Company plans in 1997 to initiate a waterflood
project to enhance production from existing Upper Sendji and Tchala zones.
S-22
<PAGE>
The Company also acquired properties in East Texas during 1996. As of December
31, 1995, estimated net proved reserves attributable to the East Texas
properties were 5.6 MMBOE. The Company has been advised that holders of
preferential rights to acquire certain of the properties in the East Texas
field may exercise such rights which would reduce the reserves acquired by
approximately half and result in a payment to the Company of $9.3 million.
In June 1996, the Company sold 177 producing wells and the majority of its
undeveloped acreage in the Giddings field and East Texas Austin Chalk holdings
for $27.3 million, representing estimated net proved reserves of 4.2 MMBOE as
of December 31, 1995. The Company retained ownership of seven wells and
surrounding acreage in the Turkey Creek prospect area of the Austin Chalk
trend located in Grimes County Texas.
PRINCIPAL PROPERTIES
The following table sets forth certain information (giving effect to the April
1996 acquisition of the California Properties, the July 1996 acquisition of
certain East Texas properties, and the June 1996 sale of certain Austin Chalk
properties as discussed under "--Recent Developments"), regarding the
Company's principal oil and gas properties:
<TABLE>
<CAPTION>
_________________________________________________
-------------------------------------------------
NET PRODUCTION
NET PROVED NINE MONTHS
RESERVES ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
--------------- --------------
PV-10 VALUE
GROSS OIL GAS OIL GAS DECEMBER 31,
WELLS (MBBLS) (MMCF) (MBBLS) (MMCF) 1995
Dollars in thousands ----- ------- ------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. PROPERTIES
California Fields
Cymric field............... 367 28,080 345 1,769 23 $124,107
Midway-Sunset field........ 408 30,990 -- 1,624 -- 111,223
Brea Olinda field.......... 232 25,942 14,166 514 146 77,300
Point Pedernales field..... 14 21,053 13,965 2,241 -- 63,064
Belridge field............. 398 4,667 2,373 1,769 276 34,033
Dos Cuadros field.......... 133 7,208 5,862 504 426 37,009
East Coalinga field........ 47 266 24,892 56 4,265 27,113
Other...................... 925 48,968 58,975 1,746 7,150 122,949
----- ------- ------- ------ ------ --------
Total California fields.. 2,524 167,174 120,578 10,223 12,286 $596,798
----- ------- ------- ------ ------ --------
Other U.S. Fields
Oak Hill field, TX......... 166 291 246,419 19 6,938 $108,806
Chappell Hill area, TX(1).. 276 677 29,395 94 2,600 29,700
Weeks Island field, LA..... 10 934 713 334 255 12,162
North Frisco City field,
AL........................ 10 2,025 2,561 257 295 26,864
Giddings field, TX......... 7 92 7,087 14 2,920 12,152
Other...................... 386 2,243 23,393 268 1,461 43,983
----- ------- ------- ------ ------ --------
Total other U.S. fields.. 855 6,262 309,568 986 14,469 $233,667
----- ------- ------- ------ ------ --------
Total U.S. Properties...... 3,379 173,436 430,146 11,209 26,755 $830,465
===== ======= ======= ====== ====== ========
INTERNATIONAL PROPERTIES
Yombo field, West Africa... 19 20,826 -- 1,058 -- $112,878
----- ------- ------- ------ ------ --------
Total Properties............. 3,398 194,262 430,146 12,267 26,755 $943,343
===== ======= ======= ====== ====== ========
</TABLE>
(1) The Company has been advised that the holders of preferential rights,
which became subject to exercise in connection with the Company's purchase of
the East Texas properties, plan to exercise such rights. If exercised, the
Company would receive a cash payment of approximately $9.3 million and the
purchasers would acquire properties representing approximately one-half of the
estimated net proved reserves as of December 31, 1995.
Exploitation and Development of Existing Properties
The Company has an extensive existing portfolio of properties well suited to
exploitation and development operations. The Company has identified over 1,000
projects designed to increase the present value of reserves attributable to
the properties (using constant year end 1995 prices and a risk-adjusted
discount rate) by an amount exceeding the cost of the project. The following
is a description of the types of exploitation and development projects which
the Company currently conducts on its properties.
S-23
<PAGE>
Workovers and recompletions are operations designed to enhance or stabilize
production rates or increase the ultimate quantity of reserves recovered for
relatively low risk and modest capital costs. Workover projects include well
stimulations, sand control measures such as gravel packing, improvement or
replacement of pumps, and the use of cased hole log applications. Recompletions
include the process of commencing production from bypassed zones, commingling
production from several formations and the plugging of non-economic zones.
Although the Company conducts workovers and recompletions on all of its
properties, because of the large number of wells which have produced for a long
period, the Company's California Properties are particularly well suited to
operational enhancements through workovers and recompletions.
Multiple zone completions permit simultaneous production of hydrocarbons from
more than one zone within a producing reservoir. While multiple zone
completions with commingled production streams are commonplace with natural gas
and conventional oil production, the Company has developed a technique for dual
and triple completions in layered thermal Diatomite sections typically found in
the heavy oil fields of central California. The process involves using
concentric strings of tubing within the casing of a well, with each string
completed to a separate sand section which is produced using cyclic steam
injection (see description below). In the process, two or three zones are
produced simultaneously, resulting in increased production and an acceleration
of recovery of in-place reserves. The Company has found that such wells
experience approximately 200% to 300% of the normal rates of production and
have completion costs approximately 150% above those of a typical single zone
well. The Company has successfully implemented four triple completions in the
Midway-Sunset field since April 1996, and anticipates installing four dual
completions before the end of the year. The Company plans as many as 40
multiple zone completions in the Midway-Sunset field during 1997, and the
Company expects the technique to be applicable in certain parts of the Cymric
field as well.
Infill drilling refers to the drilling of wells into existing reservoirs with
reduced spacing between productive wells in an effort to increase production
rates, accelerate reserve recoveries and to capture reserves not being drained
by existing wells. The Company is conducting an active infill drilling program
in its East Texas fields, where well spacing is being reduced from the current
160 acre spacing to 80 acre spacing, to more efficiently produce from these
tight sand formations. In addition, the Company is conducting infill drilling
on several of its heavy oil properties produced with thermal operations in
California where well spacing is being reduced from one acre to one-half acre.
Horizontal drilling refers to wells drilled laterally to expose more of the
wellbore to the productive reservoir. When successful, the increased production
rates from horizontal wells more than offset the higher drilling costs. The
Company has significant experience in drilling horizontal wells from its
activities in the Austin Chalk formations in Texas, where the Company has
drilled over 60 horizontal wells. The Company has recently applied this
technology to its heavy oil fields in California, which are produced using
thermal techniques. In these fields, horizontal drilling reduces costs and
improves the efficiency of development activities. The Company has drilled
three horizontal wells in its California thermal fields in 1996, and plans to
drill eight in 1997.
Cyclic steam injection refers to the injection of steam into a formation to
increase the temperature, and therefore decrease the viscosity of heavy oil,
allowing it to move more efficiently into wellbores for production. A typical
steam cycle consists of injection of steam into a well for several days or
weeks, and then the production of the heated oil for a period of weeks or
months. Another method is steam flooding in which steam is continuously
injected in a well bore and heated oil is produced from adjacent wells. Both of
these methods are used in the Company's Midway-Sunset and Cymric fields. In
addition, the Company has proprietary production techniques which lengthen the
period between steam cycles in its thermal Diatomite wells, thereby making
production more efficient.
Steam assisted gravity drainage (SAG-D) is a new technology in which concentric
strings of pipe are included in a horizontal well. Steam is injected through
the innermost string and heated oil is produced through the outer wellbore. The
Company has plans to use this new technology in its California thermal
operations in 1997.
Fracturing is the process of injecting a highly pressurized fluid into a tight
productive formation to create fractures. The result is generally increased
production. In the tight sand wells in the Cotton Valley formations in the Oak
Hill field in East Texas, the Company has experienced an increase in production
of over ten times as compared with unstimulated wells. The Company plans an
active fracturing program in the Cotton Valley formation in 1997. Fracturing
technologies also have applications in the Company's deep Diatomite zones in
California, where the Company plans to fracture 15 wells in 1997.
Waterflood projects involve the injection of water into wellbores and the
production of displaced oil swept by the water to adjacent wells. Waterfloods
also help repressurize the reservoirs. The Company currently has waterflood
projects under way in its North Frisco City and Dos Cuadras fields and has
planned waterflood projects for the Yombo and Brea Olinda fields.
S-24
<PAGE>
Exploration Prospects
Nuevo's exploration efforts focus on high potential "impact" prospects. The
Company seeks to reduce the risk normally associated with these prospects
through the economic utilization of advanced technology and by participating
with other experienced industry partners.
During the first ten months of 1996, the Company has drilled 14 exploratory
wells, of which six were successfully completed, seven were dry holes, and one
was still drilling. The Company's most significant discoveries were in: (i) the
Lower Sendji section of the Yombo field; (ii) an Antelope Shale section beneath
the Cymric Field in central California; and (iii) a Frontier sand formation at
North Riley Ridge in western Wyoming. The Company anticipates spudding another
four exploration wells by the end of 1996, and has preliminary plans to drill
16 exploratory wells in 1997. The Company has budgeted $25 million for
exploration in 1997. One of the anticipated 1997 wells, representing
approximately 20% of the Company's exploration budget, will be drilled in the
Yombo Field and the remainder are anticipated to be drilled in the U.S.
The California Properties also include an average 12% working (10% net revenue)
interest in nine tested but undeveloped tracts located offshore California in
the vicinity of the Point Pedernales field. The oil and gas industry has
voluntarily suspended development activities on these and other undeveloped
offshore tracts pending completion of a study aimed at proposing a set of
streamlined development rules that can be agreed upon by federal, state and
local regulators. The Company believes these tracts contain substantial
recoverable oil reserves, and plans to participate in the development of the
fields if the regulations are satisfactorily modified.
California Properties
Cymric field The Cymric field, discovered in 1909, is located in the western
San Joaquin Basin in Kern County, California. The Company owns an average 98%
working (86% net revenue) interest. The Company operates eight leases in the
field, totaling 456 acres and containing 307 active wells. Production is from
two zones, the Tulare formation at depths from 400 to 1,700 feet and the
Antelope Shale at depths from 1,000-4,500 feet. The Company has identified over
150 proved undeveloped drilling locations that account for a PV-10 Value at
December 31, 1995 of $33.0 million and 9.2 MMBOE of estimated net proved oil
reserves.
Between acquisition of the field and October 1996, the Company has drilled an
additional 46 wells, of which 29 were Tulare completions (including two
horizontal Tulare wells), 14 were Thermal Antelope completions, and three were
Deep Antelope completions. The Company plans to drill another 20 wells by the
end of 1996, and approximately 101 wells in 1997, including seven horizontal
Tulare wells.
Midway-Sunset field The Midway-Sunset field, discovered in the 1890's, is
located in the western San Joaquin Basin in Kern County, California. The
Company owns the entire working interest and an average net revenue interest of
approximately 97%. The Company operates seven leases in the field, totaling
1,120 acres and containing 408 active wells. Production is from five zones with
the Potter Sand and the thermal Diatomite accounting for 96% of total
production.
Between acquisition of the field and October 1996, the Company has drilled an
additional 33 wells, of which 13 were Potter completions (including one
horizontal Potter well), 13 were Marvic completions, and seven were thermal
Diatomite completions. The Company has also successfully installed four triple
completions of thermal Diatomite wells. The Company has initiated a marvic
steamflood project which will be expanded in 1997. The Company plans to install
four dual completion wells in the thermal Diatomite by the end of 1996, and
drill an estimated 69 wells in 1997, three of which are planned as horizontal
wells. A number of the vertical wells drilled in 1997 will utilize multiple
completion technology.
Brea Olinda field The Brea Olinda field, discovered in 1880, is located in
Orange County near the City of Brea, California. The Company operates three fee
properties with a 100% working and net revenue interest containing 179 active
wells. The Company also has royalty interests in an additional 53 wells in this
field. Production is from multiple-pay zones in the Miocene and Pliocene
sandstones at depths up to 6,500 feet.
Between acquisition and October 1996, the Company has recompleted four Miocene
wells and one Pliocene well, with aggregate initial production of approximately
250 Bbls/d. The Company has drilled one infill producing well, which is
currently being completed. The Company plans to drill two additional infill
producing wells and three waterflood injector wells before the end of 1996. In
1997, the Company will expand the waterflood program by drilling four
additional injections, six infill wells, and by continuing the recompletion
program.
Point Pedernales field The Company acquired a 12% working (10% net revenue)
interest in the Point Pedernales field in July 1994 and an additional 68%
working (57% net revenue) interest in the field as part of the acquisition of
the California
S-25
<PAGE>
Properties. The field is operated by the Company, and is located 3.5 miles
offshore Santa Barbara County, California, in federal waters. There are 14
wells in the field, producing from a 12-pile 72 slot platform (Irene) in 240
feet of water. Production is from the Monterey Shale at depths from 3,500-5,150
feet.
Between acquisition of the field and October 1996, the Company commenced
construction of a gas plant in Santa Barbara County which will process natural
gas produced at Point Pedernales. The gas is currently being reinjected in an
onshore gas storage facility. The Company plans to spud one infill producing
well before the end of 1996, and to complete construction of the gas plant in
mid-1997, enabling the Company to process the onshore stored gas and to
recomplete a producing well in the gas cap section of the field offshore.
South Belridge field The South Belridge field, discovered in 1911, is located
in the western San Joaquin Basin in Kern County, California. The productive
zones above 2,000 feet (378 wells), in which the Company owns royalty interest
are operated by another independent energy company. The remaining deeper zones
(20 wells) are operated and owned by the Company in fee with a 100% working and
net revenue interest.
Between acquisition of the properties and October 1996, the Company
participated in 12 non-operated Diatomite wells. The operator plans to drill
four lower Tulare infill wells and install three steamflood patterns in the
upper Tulare before the end of 1996 and to continue this activity in 1997. The
Company plans to drill one steam assisted gravity drainage (SAG-D) well and one
horizontal Tulare well on its deeper operated zones in 1997.
Dos Cuadros field Dos Cuadros field is located offshore five and one-half
miles from Santa Barbara in the Santa Barbara Channel. The Company operates
three platforms with a 25% working (20.8% net revenue) interest and another
platform with a 42.5% working (35.4% net revenue) interest. The field was
initially developed in 1969 with production in the Pliocene Repetto formation.
Net production for the nine months ending September 1996 has averaged 1.8
MBbls/d and 1.6 MMcf/d.
Between acquisition of the field and October 1996, the Company has drilled one
waterflood injector well and has worked over two producing wells, increasing
production by approximately 230 Bbls/d in the aggregate. The Company plans one
additional workover in 1996 and 20 additional workovers and a waterflood
expansion project in 1997.
Coalinga East Extension field The Coalinga East Extension field, discovered in
1938, is located in Fresno County, California. The field is operated by Texaco
and contains 47 active wells. The Company owns an average 27% (24% net revenue)
working interest. Production is from the Gatchell formation at a depth of 6,600
feet.
Other California properties The California Properties contain 35 other fields,
none of which has a PV- 10 Value in excess of 5% of the total PV-10 Value of
the California Properties.
Other U.S. Properties
Oak Hill field The Oak Hill field is located in Rusk County, Texas, and
produces from low permeability reservoirs and has long-lived natural gas
reserves. The Company operates 116 wells in a core area in the Oak Hill field,
and has an average 94% working (80% net revenue) interest in these wells. The
majority of the Company's reserves are produced in the Upper and Lower Cotton
Valley formations at depths from 8,000-10,000 feet. The Company initiated a
major recompletion program in the field during the fourth quarter of 1992 with
30 wells being opened in the Upper Cotton Valley section. This activity
increased net production from 12.7 MMcf/d to 30.0 MMcf/d and qualified the
incremental production to receive Section 29 tax credits and severance tax
abatements. A 26-well infill drilling program was initiated in early 1994 that
increased net production to 40 MMcf/d in late 1994. The Company received Texas
Railroad Commission approval for 80 acre spacing for the field in March 1995.
This provided a total of 112 additional drilling locations, 72 of which are
included in the Company's proved reserve volumes, which the Company expects to
begin drilling within the next 12 months. Although the field has produced 6.7
net MMBOE since 1990, remaining estimated net proved reserves have increased
169% since year-end 1990 and at December 31, 1995, totaled 41 MMBOE.
In the first ten months of 1996, the Company completed six Taylor infill wells,
resulting in aggregate initial net production rates of approximately 10.0
MMcf/d. The Company intends to continue this infill program with another four
infill wells to be spudded in 1996 and an estimated 20 additional infill wells
to be drilled in 1997.
Chappell Hill area In 1996, the Company acquired an average 36% working (29%
net revenue) interest in 276 wells in 11 East Texas fields in the Chappell Hill
area, of which 96 are operated. Production is mainly from the Cotton Valley and
Travis Peak formations at depths of 8,000 to 10,000 feet. Additionally, 2,529
net mineral acres were acquired. Some of this acreage is in the active Cotton
Valley Reef Trend and could have exploration opportunities. Infill drilling
potential exists in these areas similar to
S-26
<PAGE>
the Company's Oak Hill field. Net production for the nine months ending
September 1996 has averaged 343 Bbls/d and 9.5 MMcf/d. The Company currently
believes that properties representing up to half of the reserves may be
acquired pursuant to preferential rights held by third parties which were
triggered by the Company's purchase of this field.
The Company is evaluating infill drilling opportunities in this field, and
anticipates the commencement of an infill program in 1997.
Weeks Island field The Weeks Island field in Iberia Parish, Louisiana was
discovered in 1990. The Company owns an approximate 26% working (20% net
revenue) interest in ten producing wells. Oil and gas are produced from several
Miocene reservoirs under an overhang of the Weeks Island salt dome at an
approximate depth of 12,000 feet. Net production for the nine months of 1996
has averaged 1.2MBbls/d and 930 Mcf/d.
North Frisco City field The North Frisco City field, discovered by Nuevo in
1991, is located in Monroe County, Alabama. The Company-operated field is
productive in the Haynesville sand at 12,000 feet. Nuevo owns approximately a
22% working (17% net revenue) interest. The field was unitized in 1994 in order
to initiate a pressure maintenance project. The successful pressure maintenance
project is expected to maintain production at current levels and, based on the
Company's year end 1995 reserve report, will increase the ultimate recovery
from the field by 60%. The Company's net average daily production was 941
Bbls/d and 1.1 MMcf/d for the first nine months of 1996.
Turkey Creek field The Company currently owns an interest in seven producing
wells in the Giddings field, Turkey Creek Prospect area, located in Grimes
County, Texas and has an average 50% working (39% net revenue) interest in
these wells. Production is derived from the highly fractured Austin Chalk
formation at an approximate depth of 12,800 feet. All of these wells are
horizontally drilled and have been prolific producers with rates as high as 22
MMcf/d. The Company owns a total of 6,078 acres in this area with plans to
drill three wells and re-enter three wells in the fourth quarter of 1996 and
early 1997. The Company's net average daily production was 51 Bbls/d of oil and
10.7 MMcf/d of gas for the first nine months of 1996.
International
Yombo Field In February 1995, the Company acquired a 43.8% working (32.5% net
revenue) interest in the Yombo field offshore the Republic of Congo for cash
consideration of approximately $10.8 million. The Yombo field is located 27
miles offshore in 360 feet of water. The field has 25 producing wells on two
platforms that produce from the Tchala and Upper Sendji formations between
2,800 and 3,500 feet. Estimated proved reserves in the Yombo field were 17.2
MMBbls on December 31, 1993, the effective date of its acquisition by Nuevo.
Since that date, net production has been 3.1 MMBbls and reserves have increased
to 20.8 MMBbls as of December 31, 1995, 71% of which are proved developed. As
part of the Yombo field acquisition, the Company also acquired a converted
super tanker with storage capacity of over one million barrels of oil for use
as a floating production, storage and offloading vessel ("FPSO"). The Company's
production is converted to No. 6 fuel oil with less than 0.3% sulphur content
on the FPSO. CMS is the operator of the concession.
By October 1996, the Company had completed a six-well development drilling
program which contributed approximately 750 Bbls/d of oil to the Company's net
production as of September 30, 1996. In October 1996, the Company drilled a
successful exploratory well to the Lower Sendji formation offshore the Republic
of Congo. This discovery well is currently being deepened to test an additional
sub-salt structure before a decision will be made as to where to complete and
commence production. A delineation well for the Lower Sendji and/or any subsalt
discovery will be spudded immediately after the completion of the well in
progress. In 1997, the Company plans to drill an exploratory well to evaluate
the Lower Sendji and subsalt section underlying the Masseko field located
several miles to the west of the Yombo field, as well as to further delineate
Tchala and Upper Sendji zones which were discovered but not developed by a
previous operator. Other potential exploratory features on the concession are
being evaluated for possible future drilling. Additionally, the Company plans
in 1997 to initiate a waterflood project to enhance production from existing
Tchala and Upper Sendji zones.
The government of the Congo has requested that Nuevo convert its interest in
the Yombo field from its current convention to a production sharing agreement
("PSA"). Currently, the Company receives its share of revenue and pays its
share of costs associated with its properties. Under a PSA, the Company would
be allocated a percentage of production to recover its costs, and would share
production in excess of the cost recovery production with the government of the
Congo. Although the change from its current convention to a PSA would change
the Company's rights with respect to the receipt of net revenues from the
properties, the Company does not believe the change of ownership to a PSA would
materially change the PV-10 Value attributable to the Yombo field.
S-27
<PAGE>
Oil and Gas Reserves
The Company's estimated net total proved and proved developed reserves of oil
and gas as of December 31, 1993, 1994 and 1995, based upon reserve reports of
the Company's independent reserve engineers were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------
PRO FORMA
DECEMBER 31, DECEMBER 31,
1993 1994 1995 1995(1)
--------------- --------------- --------------- ---------------
OIL GAS OIL GAS OIL GAS OIL GAS
(MBBLS) (MMCF) (MBBLS) (MMCF) (MBBLS) (MMCF) (MBBLS) (MMCF)
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proved Reserves......... 5,961 237,758 10,852 261,115 30,526 301,311 194,554 419,802
Proved Developed
Reserves............... 4,133 119,478 8,692 164,183 23,076 142,012 144,952 227,987
</TABLE>
(1) Pro forma amounts give effect to acquisition of the California Properties
as if they were consummated on December 31, 1995. The Company has made other
acquisitions and divestitures since January 1, 1996 (certain of which are
described under "--Recent Acquisitions") which are not included herein because
their pro forma effect is not material.
The following table sets forth the future net cash flows from the Company's
estimated proved reserves:
<TABLE>
<CAPTION>
-------------------------------------------
PRO FORMA
DECEMBER 31, DECEMBER 31,
1993 1994 1995 1995(1)
Dollars in thousands -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Future net cash flows before income
taxes............................. $375,655 $293,074 $623,199 $1,731,909
PV-10 Value........................ 171,520 197,072 367,669 955,506
</TABLE>
(1) Pro forma amounts give effect to the acquisitions of the California
Properties as if they were consummated on December 31, 1995. The Company has
made other acquisitions and divestitures since January 1, 1996 (certain of
which are described under "Business and Properties--Recent Developments") which
are not included herein because their pro forma effect is not material.
Estimated quantities of oil and gas reserves and the discounted present value
of future pre-tax cash flows therefrom for the Company's assets are based upon
reserve reports prepared by the independent petroleum engineering firms of
Miller and Lents, Ltd., S.A. Holditch and Associates, Inc., Ryder Scott
Company, D.O.R. Engineering Inc., and Poco Oil Co., for the California
Properties are based on a reserve report prepared by Ryder Scott Company and
for the Chappell Hill area are based on a reserve report prepared by T. J.
Smith & Company, Inc., as of December 31, 1995.
In general, estimates of economically recoverable oil and natural gas reserves
and of the future net revenues therefrom are based upon a number of variable
factors and assumptions, such as historical production from the subject
properties, the assumed effects of regulation by governmental agencies and
assumptions concerning future oil and gas prices and future operating costs,
all of which may vary considerably from actual results. All such estimates are
to some degree speculative, and classifications of reserves are only attempts
to define the degree of speculation involved. For those reasons, estimates of
the economically recoverable oil and natural gas reserves attributable to any
particular group of properties, classifications of such reserves based on risk
of recovery and estimates of the future net revenues expected therefrom,
prepared by different engineers or by the same engineers at different times,
may vary substantially. The Company therefore emphasizes that the actual
production, revenues, severance and excise taxes, development and operating
expenditures with respect to its reserves will likely vary from such estimates,
and such variances could be material.
Estimates with respect to proved reserves that may be developed and produced in
the future are often based upon volumetric calculations and upon analogy to
similar types of reserves rather than actual production history. Estimates
based on these methods are generally less reliable than those based on actual
production history. Subsequent evaluation of the same reserves based upon
production history will result in variations, which may be substantial, in the
estimated reserves.
In accordance with applicable requirements of the Commission, the estimated
discounted future net revenues from estimated proved reserves are based on
prices and costs as of the date of the estimate unless such prices or costs are
contractually determined at such date. Actual future prices and costs may be
materially higher or lower. Actual future net revenues also will be affected by
factors such as actual production, supply and demand for oil and natural gas,
curtailments or increases in consumption by natural gas purchasers, changes in
governmental regulations or taxation and the impact of inflation on costs.
S-28
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Certificate of Incorporation provides for a classified Board of
Directors. The Board of Directors is divided into three classes of nearly equal
size, designated as Class I, Class II and Class III. Initially, directors in
each class were elected to hold office for terms of one year, two years and
three years, respectively. At each annual meeting after such initial
classification, directors elected to succeed those directors whose terms expire
serve for a term which expires at the third succeeding annual meeting of
Stockholders after their election. The Certificate of Incorporation and Bylaws
of the Company provide that the exact number of directors may be fixed from
time to time by resolution of a majority of the Board of Directors.
The following table provides information with respect to the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
TERM AS
DIRECTOR
NAME AGE COMPANY POSITION EXPIRES
- -------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
J. P. Bryan 56 Chairman, Director 1997
Michael D. Watford 42 Director, Chief Executive Officer, President and Chief Operating Officer 1998
Robert L. Gerry, III 58 Vice-Chairman, Director 1996
Robert M. King 35 Senior Vice President and Chief Financial Officer
Willard I. Boss, Jr. 40 Vice President, General Counsel and Secretary
Dennis A. Hammond 40 Vice President - Engineering
Robert S. Schneeflock, Jr. 50 Vice President - Exploration - Geology
Robert S. Gaston 45 Vice President - Exploration - Geophysics
Gary R. Petersen 49 Director 1997
John B. Connally, III 49 Director 1997
Thomas D. Barrow 51 Director 1998
Isaac Arnold, Jr. 60 Director 1998
James T. Hackett 42 Director 1999
Robert H. Allen 68 Director 1999
T. Michael Long 52 Director 1999
</TABLE>
The following is a brief description of the background and principal occupation
of each director and executive officer:
MR. BRYAN, 56, has been Chairman of the Company since its formation in March
1990 and of Torch since 1981. In January 1995, Mr. Bryan resigned his position
as Chief Executive Officer of the Company, a position he had held with the
Company since the formation of the Company in March 1990, in order to accept
the position of Chief Executive Officer of Gulf Canada Resources Limited ("Gulf
Canada"). Mr. Bryan remains as Chairman of the Board of Directors of the
Company. Mr. Bryan was First Vice President and Director of Investment
Banking -- Southwest Region of E.F. Hutton & Company Inc. (1978-1981);
President and Chief Executive Officer of The Mortgage Banque, Inc. (1974-1981);
and Executive Vice President and Director of Investment Banking of Dominick &
Dominick, Inc. (1969-1974). Mr. Bryan has been actively engaged in the energy
business for 28 years. Mr. Bryan is also a member of the Board of Directors of
Gulf Canada, Bellwether Exploration Company and Republic Waste Industries.
MR. WATFORD, 42, has been President, Chief Operating Officer and a member of
the Board of Directors of the Company since February 1994. Following Mr.
Bryan's resignation in January 1995, Mr. Watford was named Chief Executive
Officer of the Company. He has been a Director of Bellwether Exploration
Company since March 1994, was President of Torch Energy Marketing, Inc. from
1990 until April 1995 and was a Director of Natural Gas Marketing for Meridian
Oil, Inc. from 1985 until 1990. Mr. Watford was employed by The Superior Oil
Company from 1981 until 1985 and Shell Oil Company from 1975 until 1981.
MR. GERRY, 58, has been Vice-Chairman of the Company since February 1994, prior
to which he was a Director, President and Chief Operating Officer of the
Company since its formation in March 1990. From 1989 to 1994, Mr. Gerry was
also an officer of Torch and certain of its subsidiaries. Prior to that, Mr.
Gerry was active as an independent investor concentrating on energy
investments. Formerly a Director of Zapata Offshore Corp., he currently serves
on the Board of Directors of the Earth Satellite Corporation, Houston National
Bank and Xavier Mining Company and serves as a Trustee of Texas Children's
Hospital and the Contemporary Arts Museum, of Houston.
S-29
<PAGE>
MR. KING, 35, joined the Company as Senior Vice President and Chief Financial
Officer in January 1996. Prior to joining the Company, Mr. King was Vice
President, Corporate Development and Treasurer of Seagull Energy Corporation,
which he joined in 1990 after having spent over seven years in energy finance
with The First National Bank of Chicago and Mellon Bank, N.A. Mr. King has a
B.A. in economics and political science from Southern Methodist University and
an M.B.A. in finance from the Cox School of Business at Southern Methodist
University.
MR. BOSS, 40, has been Vice President, General Counsel and Secretary of the
Company since October 1991, and has primary responsibility for legal matters
affecting the Company. Mr. Boss has been employed by Torch as Vice President
and Assistant General Counsel since 1989. Prior to that time, he was a partner
in the Houston law firm of Watt, White & Craig where he specialized in
litigation and oil and gas law. He is a graduate of the University of Texas at
Austin (B.A., cum laude, 1978) and the University of Houston (J.D., 1981).
MR. HAMMOND, 40, has been Vice President - Engineering of the Company since its
formation in March 1990. From 1985 to 1996, he was also an officer of Torch. In
1983, he was a co-founder of IDM Engineering, Inc., a petroleum engineering
consulting firm. He has held various reservoir engineering positions with
Chevron and Pogo Producing Company. He holds a B.S. degree in Petroleum
Engineering from Texas A&M University and is a registered professional engineer
in the state of Texas. Mr. Hammond is a member of the Society of Petroleum
Engineers and the American Petroleum Institute.
MR. SCHNEEFLOCK, 50, has been Vice President - Exploration - Geology of the
Company since 1995, and an officer of one of the Company's subsidiaries since
1992. Mr. Schneeflock's 26 years of oil and gas experience began in 1969 at
Chevron where he worked as a geologist, then Hunt Energy in 1978, and later as
exploration manager for Clayton Williams Energy. Mr. Schneeflock holds a B.S.
degree in geology from the University of Southern Mississippi, a B.A. degree in
economics from California State University and an M.S. in geology from the
University of Alabama.
MR. GASTON, 45, has been Vice President - Exploration - Geophysics of the
Company since 1995, and an officer of one of the Company's subsidiaries since
April 1993. Mr. Gaston became a geophysical consultant and partner for the firm
of Morrison and Gaston in May of 1979 where he remained until he became
President of the Company's subsidiary in April of 1993. Mr. Gaston's 24 years
of experience with independent and major oil and gas companies began with
Western Geophysical Co. of America in 1971, then Getty Oil Company in 1973 and
Diamond Shamrock as a district geophysicist in 1975. Mr. Gaston graduated summa
cum laude from Louisiana Tech with a B.S. in physics in 1971.
MR. PETERSEN, 49, has been a Director of the Company since its formation in
March 1990. He is a cofounder and partner of EnCap Investments, Inc., a firm
serving as financial intermediary to the energy industry, specializing in
procuring and managing institutional capital. From 1984 to 1988, Mr. Petersen
served as Senior Vice President and Manager of the Corporate Finance Division
of the Energy Banking Group for RepublicBank Houston. From 1979 to 1984, he was
Executive Vice President and a member of the Board of Directors of Nicklos Oil
& Gas Company. He has also served as a Group Vice President in the Petroleum
and Minerals Division of RepublicBank Dallas. He is a member of the Board of
Directors of Belden & Blake Energy Company, Energy Capital Investment Company,
Equus II Incorporated and the Petroleum Club of Houston. Mr. Petersen is also a
member of the Compensation Committee of the Company.
MR. CONNALLY, 49, has been a Director of the Company since April 1990. He is
President and Chief Executive Officer of International Testing Services, Inc.,
a public company engaged in non-destructive testing of pipelines, petrochemical
plants and refineries. Mr. Connally is also an independent attorney. From July
1989 to December 1990, Mr. Connally was Of Counsel with the law firm of
Sheinfeld, Maley & Kay, Houston, Texas. From September 1983 to July 1989, Mr.
Connally was engaged in private law practice and investments. Prior thereto,
Mr. Connally was a partner with the law firm of Baker & Botts, Houston, Texas,
and has represented both oil and gas exploration and production companies and
oilfield service companies, principally in the areas of mergers and
acquisitions and corporate finance. Mr. Connally is also a member of the
Compensation Committee of the Company.
MR. BARROW, 51, has been a Director of the Company since its formation in March
1990. From 1988 to the present, he has also served as President of Barrow
Energy Corporation, whose exploration activities are concentrated in East
Texas. Mr. Barrow was co-founder and President of B & N Petroleum, Inc. which
was formed in 1978 and sold its assets and working interest partner's assets in
1988. Mr. Barrow is also a member of the Audit Committee of the Company.
MR. ARNOLD, 60, has been a Director of the Company since April 1990. He is
presently Chairman of the Board of Quintana Petroleum Corporation, a privately
held production company, a position he has held since 1984. He is also Chairman
of the Board of Modar, Inc., a position he assumed in September 1988. He has
been a Director of Cullen Center Bank & Trust
S-30
<PAGE>
Company since its inception in 1969 and is a Director of Cullen/Frost Bankers,
Inc. Mr. Arnold is also Chairman of the Audit Committee of the Company.
MR. HACKETT, 42, has been director of the Company since May 1996. He has been
Executive Vice President of PanEnergy Corp and a member of its Policy Committee
since January 1996. Prior to joining PanEnergy Corp in 1996, Mr. Hackett was
Senior Vice President of NGC Corporation (formerly Natural Gas Clearinghouse)
and president of their Trident division. He joined Natural Gas Clearinghouse as
Senior vice President and Partner in 1990 and became Executive Vice President,
Partner and a member of the management committee in 1993. Mr. Hackett began his
career in 1975 with Amoco Oil Company as an internal auditor and became
operations manager at Energy Resources Company in 1979. He later held a number
of senior positions at Meridian Oil Incorporated and Texas Gas Resources
Corporation. Mr. Hackett is a member of the boards of directors of Junior
Achievement, the Houston Society for the Performing Arts and the Houston
Hospice.
MR. ALLEN, 68, has been a Director of the Company since March 1992. Mr. Allen
is a private investor residing in Houston, Texas. During the past ten years he
has been instrumental in the start-up of several natural resource oriented
companies including Getty Resources Ltd. in Toronto, Canada. Prior to 1982, Mr.
Allen served as Chairman and Chief Executive Officer of Gulf Resources and
Chemical Corporation for 22 years. Mr. Allen is a member of the Board of
Directors of Federal Express Corporation, GeoQuest International Holdings,
Inc., Baylor College of Medicine and Gulf Canada. Mr. Allen also serves on
several committees including the Geosciences and Earth Resources Advisory
Council and the President's Council of Advisors. Mr. Allen is a certified
public accountant.
MR. LONG, 52, has been a Director of the Company since February 1994 and a
General Partner of Brown Brothers Harriman & Co. ("Brown Brothers") since 1983.
During Mr. Long's 22 years of experience at Brown Brothers, he served until
1989 in the firm's Corporate Finance Department. Since 1989, Mr. Long has been
Co-Manager of The 1818 Fund, L.P. and The 1818 Fund II, L.P. Mr. Long serves as
a Director of Columbia Hospital Corporation, The Ekco Group, Inc., Winrock
Enterprises Inc., Gulf Canada and as a Trustee of The Hospital Chaplaincy. He
holds a B.A. in government and an M.B.A. from Harvard University. So long as
The 1818 Fund, L.P. holds the Company's 7% Cumulative Convertible Preferred
Stock, it will have the right to appoint a representative to the Board of
Directors, and Mr. Long is such designee.
All officers and directors of the Company are United States citizens. For
additional information concerning the affiliation of Torch and the Company, see
"--Relationship with Torch."
EMPLOYEES
The Company has 52 full time employees, of which 43 are engineers and other
professional staff whose primary responsibilities include formulating and
implementing exploration, exploitation, development, production and financing
strategies. While certain back office and field-level operating activities,
preliminary acquisition analysis, and the marketing of the Company's production
are outsourced to Torch, the Company retains responsibility for capital
allocations, operating budgets and all material strategic decisions regarding
the management of existing assets, potential acquisitions, and financing
transactions. See "--Relationship with Torch."
RELATIONSHIP WITH TORCH
Pursuant to agreements with Torch and its subsidiaries (the "Torch Agreement"),
Torch administers certain business activities of the Company for a monthly fee
based on a specified percentage of operating cash flow and total assets (as
defined). Torch is primarily engaged in the business of providing management
and advisory services relating to oil and gas assets for institutional and
public investors, and maintains a large technical, operating, financial and
administrative staff. The Company believes that its relationship with Torch
exposes it to acquisitions and provides it with an experienced staff of
technical professionals and due diligence personnel to evaluate acquisitions.
The administrative services under the Torch Agreement include providing the
Company with office space, equipment and supplies, retaining and managing human
resources, accounting, legal, financial, land, tax, geological, engineering,
technical and insurance professionals as needed by the Company, processing
accounting records of the Company, assisting the Company in determining its
capital requirements, preparing any reports or other documents required by
governmental authorities, analyzing economic and other data related to the
Company's business and otherwise providing general management services and
advice to the Company's business. The Company intends to continue to operate
under the Torch Agreement.
The Company and Torch have also established procedures to permit the Company to
review with Torch its performance under the operating and marketing agreements.
S-31
<PAGE>
The Company acquired a portion of the California Properties from Torch for an
adjusted net purchase price of $35.7 million, payable by the issuance of
1,275,000 shares of Common Stock of the Company. The Common Stock issued to
Torch was valued at the public offering price of the Common Stock in a public
offering made in April 1996 to finance a portion of the acquisition of the
California Properties. On September 30, 1996, United Investors Management
Company ("United"), a wholly owned subsidiary of Torchmark Corporation, sold
Torch to an investment group formed by Torch management. As part of the sale,
Torch distributed the 1,275,000 shares of Common Stock to United. United is
offering 1,171,395 shares in the Common Stock Offering (1,275,000 shares if the
over-allotment in the Common Stock Offering is exercised). See "Selling
Stockholders" in the accompanying Prospectus.
In connection with the Company's acquisition of the California Properties, the
Company and Torch entered into a registration rights agreement pursuant to
which the Company agreed to register, on up to four occasions upon demand by
Torch, the Common Stock issued to Torch for the Point Pedernales Properties.
The registration rights agreement also grants Torch "piggyback" registration
rights (subordinate to the "piggyback" registration rights granted to The 1818
Fund, L.P.) to include such Common Stock in certain registration statements
filed by the Company. Torch has agreed that for so long as the Torch Agreement
is in effect, Torch will vote the shares of Common Stock owned by it as
directed by a two-thirds majority of the Company's Board of Directors. United
has succeeded to the rights and obligations under these agreements in
connection with its acquisition of the Common Stock.
DESCRIPTION OF SHAREHOLDERS RIGHTS PLAN
The Company currently anticipates that the Board of Directors of the Company
will approve a Shareholders Rights Plan ("Rights Plan") at its meeting on
December 4, 1996, and declare a dividend of one Right for each outstanding
share of Common Stock payable to stockholders of record at a date in December
1996 or January 1997. The following is a description of the provisions of the
Rights Plan which the Company anticipates the Board of Directors will approve,
although no assurances can be given as to the ultimate terms of the Rights
Plan.
Until the Rights to be issued under the Rights Plan ("Rights") become
exercisable, or the earlier redemption or exchange of the Rights, the Company
will issue one Right with each share of Common Stock that is newly issued so
that all shares of Common Stock will have Rights attached thereto. Upon the
occurrence of the events enumerated below, each Right will entitle the holder
thereof, until the earlier of the close of business on the expiration date of
the Rights Plan (anticipated to be ten years following the adoption of the
Plan), or the redemption or exchange of the Rights, to buy one-thousandth of
one share of Series C Preferred Stock of the Company, at a price of $150.00 per
one-thousandth of a share, subject to adjustment. The rights will not be
exercisable until the earlier to occur of (i) a public announcement that,
without the prior consent of the Company, a person or group of affiliated or
associated persons have acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding shares of Common Stock (an
"Acquiring Person") or (ii) the tenth business day (or such later date as may
be determined by the Board of Directors prior to such time as any person
becomes an Acquiring Person) following the commencement of, or the first public
announcement of an intention to make, a tender offer or exchange offer, the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of such outstanding shares of Common Stock (the earlier of
such dates being referred to as the "Distribution Date"). Until the
Distribution Date (or earlier exchange or redemption of the Rights), the Rights
will be transferred with and only with the shares of Common Stock. Separate
certificates for the Rights will be issued as soon as practicable following the
Distribution Date to holders of record of the Common Stock as of the
Distribution Date. The Rights will then begin trading separately from the
Common Stock.
In the event the Company is acquired in a merger or other business combination
transaction or 50% or more of its assets or earning power is sold, each holder
of a Right will have the right to receive, upon the exercise thereof at the
then current exercise price of the Right, that number of shares of common stock
of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Right. In the event that
any person becomes an Acquiring Person each holder of a Right (other than
Rights beneficially owned by the Acquiring Person which will thereafter be
void) will have the right to receive upon exercise that number of shares of
Common Stock having a market price of two times the exercise price of the
Right.
Generally, the Company may redeem each Right for $.01 at any time before a
person or group becomes an Acquiring Person without prior approval. After the
Distribution Date, Rights will not be issued with respect to Common Stock
except under certain circumstances.
The summary description of the Rights set forth above does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement
ultimately adopted by the Board of Directors a copy of which will be filed with
the Commission.
S-32
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions set forth in the Underwriting
Agreement dated the date of this Prospectus Supplement (the "Underwriting
Agreement"), the underwriters named below (the "Underwriters"), for whom J.P.
Morgan Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation,
Morgan Keegan & Company, Inc. and PaineWebber Incorporated are acting as
representatives (the "Representatives"), have severally agreed to purchase, and
the Selling Stockholders have severally agreed to sell to them, the respective
number of shares of Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
---------
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
J.P. Morgan Securities Inc............................................
Donaldson, Lufkin & Jenrette Securities Corporation...................
Morgan Keegan & Company, Inc..........................................
PaineWebber Incorporated..............................................
---------
Total................................................................ 1,860,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby if any are taken.
Under certain circumstances, the commitments of nondefaulting Underwriters may
be increased as set forth in the Underwriting Agreement.
The Underwriters propose to offer initially the shares of Common Stock to the
public at the price set forth on the cover page of this Prospectus Supplement
and to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the public
offering of the Common Stock, the public offering price and such concession may
be changed.
United has granted the Underwriters the option to purchase up to 103,605
additional shares of Common Stock and the 1818 Fund has granted the
Underwriters the option to purchase up to 175,000 additional shares of Common
Stock, in each case expiring at the close of business on the 30th day after the
date of this Prospectus Supplement, at the public offering price, less the
underwriting discount. The Underwriters may exercise such options solely for
the purpose of covering over-allotments, if any. If the Underwriters exercise
either option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase approximately the same number of option shares as the
number of shares of Common Stock to be purchased by that Underwriter shown in
the foregoing table bears to the total number of shares of Common Stock
initially offered by the Underwriters hereby. The Underwriters have agreed that
prior to exercising their over-allotment option granted by the 1818 Fund, they
will exercise the over-allotment option granted by United in full.
The Company, its directors and officers and certain of their affiliates and the
Selling Stockholders have agreed not to publicly offer, sell, contract to sell
or otherwise publicly dispose of any shares of Common Stock or rights to
acquire shares of Common Stock for a period of 90 days after the date of this
Prospectus Supplement without the prior consent of J.P. Morgan Securities Inc.
The restriction on the Company is subject to exceptions for (i) public
dispositions made pursuant to existing employee incentive plans, (ii)
conversion of the 7% Cumulative Convertible Preferred Stock and (iii) shares of
Common Stock or other rights to acquire Common Stock issued as consideration
for acquired businesses, provided any such shares or rights are subject to
resale restrictions equivalent to those held by directors of the Company. The
restriction on the Selling Stockholders contained in the first sentence of this
paragraph does not apply to the Common Stock Offering.
The Selling Stockholders and the Company have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
S-33
<PAGE>
The Underwriters have performed investment banking services for the Company for
which they received customary compensation, including (except in the case of
Donaldson, Lufkin & Jenrette Securities Corporation) acting as underwriters in
April 1996 of a primary offering of Common Stock, acting as underwriters in
April 1996 (in the case of J.P. Morgan Securities Inc. and PaineWebber
Incorporated) of the 9 1/2% Notes, and (in the case of Morgan Keegan & Company,
Inc.) acting as underwriter in September 1995 of a secondary offering of the
Common Stock. J.P. Morgan Securities Inc. is an underwriter in the TECONS
Offering. From time to time, in the ordinary course of their respective
businesses, the Underwriters and their respective affiliates have engaged and
may in the future engage in commercial and investment banking transactions with
the Company and its affiliates.
SELLING STOCKHOLDERS
The Selling Stockholders are United Investors Management Company, a wholly
owned subsidiary of Torchmark Corporation, and The 1818 Fund, L.P. (the "1818
Fund"). United is selling 1,171,395 shares of Common Stock, 1,275,000 if the
Underwriters' over-allotment option is exercised in full. United has advised
the Company that it is selling its shares pursuant to its previously announced
liquidation of its energy related portfolio. The 1818 Fund is selling 688,605
shares (863,605 if the Underwriters' over-allotment option is exercised in
full). The 1818 Fund has advised the Company that it is selling its Common
Stock because of the advanced term of the 1818 Fund in relation to its planned
life. For additional information respecting the Selling Stockholders, see
"Selling Stockholders" in the accompanying Prospectus. If the Underwriters'
overallotment options are exercized in full, United and the 1818 Fund will not
own any shares of Common Stock.
LEGAL MATTERS
The validity of the Common Stock will be passed upon for Nuevo by Butler &
Binion, L.L.P., Houston, Texas. Certain legal matters will be passed upon for
United by Carol A. McCoy, Esq., Associate Counsel of Torchmark Corporation, for
The 1818 Fund by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York,
and for the Underwriters by Vinson & Elkins L.L.P., Houston, Texas.
S-34
<PAGE>
GLOSSARY
The following are definitions of certain technical terms used in this
Prospectus Supplement.
"Bbls," "MBbls" and "MMBbls" mean barrels, thousand and million barrels of oil,
condensate or liquids, equal to approximately 42 U.S. gallons.
"Bbls/d," "BOE/d," "Mcf/d," "MMcf/d" and "MMBtu/d" mean Bbls per day, BOE per
day, Mcf per day, MMcf per day and MMBtu per day.
"BOE," "MBOE" and "MMBOE" mean barrels, thousand and million barrels of oil
equivalent, using the ratio of six Mcf of gas to one Bbl of oil, condensate or
natural gas liquids.
"Btu" and "MMBtu" mean British thermal unit and million British thermal units.
A Btu is the heat required to raise the temperature of a one-pound mass of
water from 59.5 to 60.5 degrees Fahrenheit under specified conditions.
"Development well" means a well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive in an
attempt to recover proved undeveloped reserves.
"Exploratory well" means 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.
"Finding Costs," expressed in dollars per BOE, are calculated by dividing the
amount of total capital expenditures for oil and gas activities by the amount
of estimated proved reserves added during the same period (including the effect
on proved reserves of reserve revisions). Finding costs from exploration and
exploitation are calculated by dividing capital expenditures for exploration
and development by reserve additions from revisions and extensions and
discoveries. Finding costs from acquisitions are calculated by dividing capital
expenditures for property acquisitions by reserves added by acquisitions.
"Gross" means the number of wells or acres in which the Company has an
interest.
"Lease operating expense" means all direct costs associated with and necessary
to operate a producing property.
"Long-Term Debt to Adjusted Capitalization" as of any date equals the principal
amount of the Company's long-term debt as of such date divided by the sum of
(i) the Company's stockholders equity plus (ii) the PV-10 Value as of the end
of the most recent quarter minus the net book value of the Company's oil and
gas properties set forth on its balance sheet as of such date.
"Mcf," "MMcf," and "Bcf" mean thousand, million and billion cubic feet of gas.
Natural gas volumes are stated at the legal pressure base of the state or area
in which the reserves are located at 60 degrees Fahrenheit.
"Net" is determined by multiplying gross wells or acres by the Company's
working interest in such wells or acres.
"PV-10 Value" means the present value, discounted at 10%, of future net cash
flows from estimated proved reserves, calculated holding prices and costs
constant at amounts in effect on the date of the report (unless such prices or
costs are subject to change pursuant to contractual provisions) and otherwise
in accordance with the Commission's rules for inclusion of oil and gas reserve
information in financial statements filed with the Commission.
"Reserve Life Index" measures how long it will take to produce a quantity of
proved reserves, calculated by dividing year-end proved reserves by annual
production for the most recent year.
S-35
<PAGE>
Prospectus
NUEVO ENERGY COMPANY
Debt Securities, Preferred Stock,
Common Stock and Warrants
NUEVO FINANCING I
Trust Preferred Securities Fully and Unconditionally Guaranteed by Nuevo Energy
Company
Nuevo Energy Company ("Nuevo" or the "Company") may offer and issue from time
to time, together or separately, (i) its debt securities (the "Debt
Securities"), which may be senior or senior subordinated debt securities (the
"Senior Debt Securities") or subordinated debt securities (the "Subordinated
Debt Securities"), consisting of notes, debentures or other secured or
unsecured evidences of indebtedness in one or more series; (ii) its preferred
shares, $1.00 par value per share (the "Preferred Stock"); and (iii) warrants
to purchase Debt Securities or Preferred Stock or any combination thereof, as
shall be designated by the Company at the time of the offering (the "Warrants")
in amounts, at prices and on terms to be determined at the time of the
offering. Any shares of its common stock, $.01 par value per share ("Common
Stock"), issued by Nuevo hereunder will be issued only upon conversion of, or
in exchange for, other securities, and no Common Stock will be issued by Nuevo
in a primary offering. Certain Selling Stockholders identified under "Selling
Stockholders" herein may sell up to 2,138,605 shares of Common Stock, in
amounts, at prices and on terms to be determined at the time of the offering.
Nuevo Financing I (the "Nuevo Trust"), a statutory business trust created under
the laws of the State of Delaware, may offer, from time to time, preferred
securities, representing undivided beneficial interests in the assets of the
Nuevo Trust ("Trust Preferred Securities"). Trust Preferred Securities may also
be issuable upon exchange for shares of Preferred Stock issued by the Company.
The payment of periodic cash distributions ("distributions") with respect to
Trust Preferred Securities out of moneys held by the Nuevo Trust, and payment
on liquidation, redemption or otherwise with respect to such Trust Preferred
Securities, will be guaranteed by the Company to the extent described herein
(the "Trust Preferred Securities Guarantee"). See "Description Of Trust
Preferred Securities Guarantee." The Company's obligations under the Trust
Preferred Securities Guarantee will be subordinate and junior in right to all
other liabilities of the Company and rank pari passu with the most senior
preferred stock, if any, issued from time to time by the Company. A series of
Subordinated Debt Securities may be issued and sold to the Nuevo Trust, or a
trustee of the Nuevo Trust, in connection with the investment of the proceeds
from the offering of Trust Preferred Securities and Trust Common Securities (as
defined herein, together the "Trust Securities") of the Nuevo Trust. The
Subordinated Debt Securities purchased by the Nuevo Trust may be subsequently
distributed pro rata to holders of Trust Preferred Securities and Trust Common
Securities in connection with the dissolution of the Nuevo Trust upon the
occurrence of certain events as may be described in an accompanying supplement
to this Prospectus (a "Prospectus Supplement"). The Trust Preferred Securities
Guarantee, when taken together with the Company's other obligations under the
Subordinated Debt Securities, the Indenture related thereto and the Declaration
(as defined below), including its obligations to pay costs, expenses, debts and
liabilities of the Nuevo Trust (other than with respect to the Trust
Securities), will provide a full and unconditional guarantee on a subordinated
basis by the Company of payments due on the Trust Preferred Securities. The
Debt Securities, Preferred Stock, Common Stock, Warrants, Trust Preferred
Securities and Trust Preferred Securities Guarantees are collectively called
the "Securities."
(continued on following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
November 25, 1996
<PAGE>
(continued from previous page)
The Securities to be sold by the Company and/or the Nuevo Trust may be offered
as separate series or issuances at an aggregate initial public offering price
not to exceed $150,000,000 or, if applicable, the equivalent thereof in one or
more foreign currencies, currency units, composite currencies or in amounts
determined by reference to an index as shall be designated by the Company, in
amounts, at prices and on terms to be determined in light of market conditions
at the time of sale and set forth in the applicable Prospectus Supplement. The
Prospectus Supplement relating to any series of Securities will contain
information concerning United States federal income tax considerations, if
applicable.
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities, when issued, will be unsecured and will rank on a parity with all
other unsubordinated indebtedness of the Company or, alternatively, will rank
on a parity with all other senior subordinated indebtedness of the Company. The
Subordinated Debt Securities, when issued, will be subordinated in right of
payment to all Senior Indebtedness (as hereinafter defined) of the Company
including any Senior Debt Securities. If the Debt Securities are secured, the
security, which may consist of oil and gas properties or other assets owned by
the Company, and any related mortgage will be described in the Prospectus
Supplement.
Certain specific terms of the particular Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement, including, where applicable, (i) in the case of Debt Securities,
the title, aggregate principal amount, denominations, maturity, subordination
terms, if any, any interest rate (which may be fixed or variable) and time of
payment of any interest, the right of the Company, if any, to defer payment of
interest on the Debt Securities and the maximum length of such deferral period,
any terms for redemption at the option of the Company or the holder, any terms
for sinking fund payments, any terms for conversion or exchange into other
Securities, currency or currencies of denomination and payment, if other than
U.S. dollars, any security applicable to Debt Securities which are secured, any
listing on a securities exchange and any other terms in connection with the
offering and sale of the Debt Securities in respect of which this Prospectus is
delivered, as well as the initial public offering price; (ii) in the case of
Trust Preferred Securities, the designation and number, liquidation preference
per Trust Preferred Security, initial public offering price, any listing on a
securities exchange, distribution rate (or method of calculation thereof),
dates on which distributions shall be payable and dates from which
distributions shall accrue, any voting rights, terms for any conversion or
exchange into other Securities, any redemption, exchange or sinking fund
provisions, any other rights, preferences, privileges, limitations or
restrictions relating to the Trust Preferred Securities and the terms upon
which the proceeds of the sale of the Trust Preferred Securities shall be used
to purchase a specific series of Subordinated Debt Securities of the Company,
(iii) in the case of Preferred Stock, the specific title, the aggregate amount,
any dividend (including the method of calculating payment of dividends),
seniority, liquidation, redemption, voting and other rights, any terms for any
conversion or exchange into other Securities, including Trust Preferred
Securities, any listing on a securities exchange, the initial public offering
price and any other terms; and (iv) in the case of Common Stock, the number of
shares of Common Stock, the identity of the Selling Stockholder and the terms
of offering thereof.
The Company's Common Stock is listed on the New York Stock Exchange, Inc. (the
"New York Stock Exchange") under the symbol "NEV." Any Common Stock sold by a
Selling Stockholder pursuant to a Prospectus Supplement will be listed on such
exchange. Any shares of Common Stock issuable upon conversion of any Trust
Preferred Securities, Debt Securities or Preferred Stock will also be listed on
such exchange, subject to official notice of issuance.
The Company, the Selling Stockholders and/or the Nuevo Trust may sell the
Securities directly, through agents, underwriters or dealers as designated from
time to time, or through a combination of such methods. See "Plan Of
Distribution." If agents of the Company, the Selling Stockholders and/or the
Nuevo Trust or any dealers or underwriters are involved in the sale of the
Securities in respect of which this Prospectus is being delivered, the names of
such agents, dealers or underwriters and any applicable commissions or
discounts will be set forth in or may be calculated from the Prospectus
Supplement with respect to such Securities. The net proceeds to the Company
from such sale also will be set forth in the applicable Prospectus Supplement.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
IN CONNECTION WITH AN UNDERWRITTEN OFFERING, THE UNDERWRITERS FOR SUCH OFFERING
MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE SECURITIES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, any accompanying
Prospectus Supplement or the documents incorporated or deemed incorporated by
reference herein, and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company, the Nuevo
Trust or by any underwriter, agent or dealer. This Prospectus and any
Prospectus Supplement shall not constitute an offer to sell or a solicitation
of an offer to buy any of the Securities offered hereby in any jurisdiction to
any person
2
<PAGE>
to whom it is unlawful to make such offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus and any Prospectus Supplement nor any
sale made thereunder shall, under any circumstances, create any implication
that the information therein is correct as of any time subsequent to the date
thereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities Ex-
change Act of 1934, as amended (the "Exchange Act"), and in accordance there-
with files reports, proxy statements and other information with the Securities
and Exchange Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected and copied at the public reference facili-
ties maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at Citicorp Center, 500
West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. The Company's Common Stock is listed on the New York Stock
Exchange. Reports, proxy statements and other information concerning the Com-
pany can be inspected and copied at the offices of The New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
The Company and the Nuevo Trust have filed a registration statement on Form S-3
(together with all amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information, reference is made to the Registra-
tion Statement and the exhibits filed as part thereof. Statements contained
herein are qualified in their entirety by reference to the Registration State-
ment and such exhibits.
No separate financial statements of the Nuevo Trust have been included herein.
The Company does not consider that such financial statements would be material
to holders of the Trust Preferred Securities because (i) all of the voting se-
curities of the Nuevo Trust will be owned, directly or indirectly, by the Com-
pany, a reporting company under the Exchange Act, (ii) the Nuevo Trust has no
independent operations but exists for the sole purpose of issuing securities
representing undivided beneficial interests in the assets of the Nuevo Trust
and investing the proceeds thereof in Subordinated Debt Securities issued by
the Company, and (iii) the Company's obligations described herein and in any
accompanying Prospectus Supplement under the Declaration of the Nuevo Trust,
the guarantee issued with respect to Trust Preferred Securities issued by the
Nuevo Trust, the Subordinated Debt Securities purchased by the Nuevo Trust and
the related Indenture, taken together, constitute a full and unconditional
guarantee of payments due on the Trust Preferred Securities. See "Description
Of Debt Securities" and "Description Of Trust Preferred Securities Guarantee."
The Nuevo Trust is not currently subject to the information reporting
requirements of the Exchange Act. The Nuevo Trust will become subject to such
requirements upon the effectiveness of the Registration Statement, although it
intends to seek and expects to receive exemptions therefrom.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995; the Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1996, June 30, 1996, and September 30, 1996, respectively; the
Company's Current Report on Form 8-K dated April 9, 1996, as amended; the
description of the Common Stock contained in the Registration Statement on Form
8-A declared effective by the Commission on May 15, 1990; and all other
documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act (File No. 1-10537) subsequent to the date of this
Prospectus and prior to the termination of the offering of the Securities are
incorporated herein by reference. Any statement contained in a document
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
such statement so modified or superseded shall not be deemed, except as
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the request of any such person, a copy of all of
the documents which are incorporated herein by reference, other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to Nuevo Energy
Company, 1331 Lamar, Suite 1650, Houston, Texas 77010, Attention: Corporate
Secretary, telephone number (713) 652-0706.
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<PAGE>
THE COMPANY
Nuevo is a Houston, Texas based company engaged in the exploitation,
exploration and acquisition of crude oil and natural gas properties. The
Company's properties are located domestically onshore and offshore California,
in East Texas and the onshore Gulf Coast region, and internationally in waters
offshore the Republic of Congo.
THE NUEVO TRUST
Nuevo Financing I is a statutory business trust created under Delaware law
pursuant to (i) a separate trust agreement (as amended, the "Declaration")
executed by the Company, as sponsor for the trust (the "Sponsor") and certain
of the Nuevo Trustees (as defined herein) for the trust and (ii) the filing of
a certificate of trust with the Delaware Secretary of State on November 15,
1996. The Nuevo Trust exists for the exclusive purposes of (i) issuing the
Trust Preferred Securities and common securities representing undivided
beneficial interests in the assets of the Trust (the "Trust Common Securities"
and, together with the Trust Preferred Securities, the "Trust Securities"),
(ii) investing the gross proceeds of the Trust Securities in a specific series
of Subordinated Debt Securities and (iii) engaging in only those other
activities necessary or incidental thereto. All of the Trust Common Securities
will be directly or indirectly owned by the Company. The Trust Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Trust Preferred Securities except that upon an event of default under
the Declaration, the rights of the holders of the Trust Common Securities to
payment in respect of distributions and payments upon liquidation, redemption
and otherwise will be subordinated to the rights of the holders of the Trust
Preferred Securities. The Company will, directly or indirectly, acquire Trust
Common Securities in an aggregate liquidation amount equal to 3% of the total
capital of the Nuevo Trust. The Nuevo Trust has a term of approximately 35
years, but may earlier terminate as provided in the Declaration. The Nuevo
Trust's business and affairs will be conducted by the trustees (the "Nuevo
Trustees") appointed by the Company, as the direct or indirect holder of all
the Trust Common Securities. Except in certain limited circumstances, the
holder of the Trust Common Securities will be entitled to appoint, remove or
replace any of, or increase or reduce the number of, the Nuevo Trustees. The
duties and obligations of the Nuevo Trustees shall be governed by the
Declaration of the Nuevo Trust. A majority of the Nuevo Trustees (the "Regular
Trustees") will be persons who are employees or officers of or affiliated with
the Company. One Nuevo Trustee will be a financial institution which will be
unaffiliated with the Company and which shall act as property trustee and as
indenture trustee for purposes of the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), pursuant to the terms set forth in a Prospectus
Supplement (the "Property Trustee"). In addition, unless the Property Trustee
maintains a principal place of business in the State of Delaware, and otherwise
meets the requirements of applicable law, one Nuevo Trustee will have its
principal place of business or reside in the State of Delaware (the "Delaware
Trustee"). The Company will pay all fees and expenses related to the Nuevo
Trust and the offering of Trust Securities. The payment of periodic
distributions with respect to the Trust Preferred Securities out of moneys held
by the Nuevo Trust, and payment on liquidation, redemption or otherwise with
respect to the Trust Preferred Securities, will be guaranteed by the Company to
the extent described herein. See "Description Of Trust Preferred Securities
Guarantee." The Company's obligations under the Trust Preferred Securities
Guarantee will be subordinate and junior in right of payment to all other
liabilities of the Company and rank pari passu with the most senior preferred
shares, if any, issued from time to time by the Company. The office of the
Delaware Trustee for the Nuevo Trust in the State of Delaware is c/o Wilmington
Trust Company, Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890-0001. The principal place of business of the Nuevo Trust shall
be c/o Nuevo Energy Company, 1331 Lamar, Suite 1650, Houston, Texas 77010.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, proceeds
from the sale of the Securities sold by the Company will be used by the Company
for general corporate purposes, which may include the repayment of existing
indebtedness. Proceeds from the sale of Securities initially may be temporarily
invested in short-term securities.
The Company will not receive any proceeds from the sale of any Common Stock by
a Selling Stockholder.
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<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES AND OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to fixed charges for the
Company for the periods indicated:
<TABLE>
<CAPTION>
-----------------------------------
YEAR ENDED
DECEMBER 31,
--------------- NINE MONTHS ENDED
1993 1994 1995 SEPTEMBER 30, 1996
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
Ratio of earnings to fixed charges(a)........ 2.2x -- 1.9x 2.3x
Ratio of earnings to fixed charges and
preferred stock dividends(b)................ 2.0x -- 1.8x 2.2x
</TABLE>
(a) For purposes of computing the ratio of earnings to fixed charges, "earn-
ings" are consolidated earnings (loss) from continuing operations before tax,
exclusive of the period's undistributed equity earnings of affiliated compa-
nies, plus fixed charges. Fixed charges are comprised of interest on indebted-
ness, amortization of debt issuance costs and that portion of operating lease
expense which is deemed to be representative of an interest factor. Earnings
were insufficient by $27.2 million to cover fixed charges for the year ended
December 31, 1994.
(b) In calculating the ratio of earnings to fixed charges and preferred stock
dividends, fixed charges includes preferred stock dividend requirements.
DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities will be issued under an indenture (the "Senior
Indenture") between the Company and a trustee (the "Senior Indenture
Trustee"); and the Subordinated Debt Securities are to be issued under a
subordinated indenture ("Subordinated Indenture") between the Company and
Wilmington Trust Company, as trustee (the "Subordinated Indenture Trustee").
The Senior Indenture and the Subordinated Indenture are sometimes referred to
herein collectively as the "Indentures" or, individually, as an "Indenture."
The form of the Subordinated Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part or incorporated
therein by reference. The form of Senior Indenture will be incorporated into
the Registration Statement by reference. Unless otherwise provided, all
references to Sections of an Indenture herein are references to such Section
in the Subordinated Indenture. The Senior Indenture will permit the Company
and the Senior Indenture Trustee, and the Subordinated Indenture permits the
Company and the Subordinated Indenture Trustee, to enter into a Supplemental
Indenture to provide for the appointment of another qualifying bank or trust
company to act as trustee with respect to a series of Senior Debt Securities
or Subordinated Debt Securities, respectively. Any such bank or trust company
so appointed will be identified in the Prospectus Supplement relating to the
particular Debt Securities offered thereby (the "Offered Debt Securities").
The Senior Indenture Trustee and the Subordinated Indenture Trustee, as well
as any such other bank or trust company as shall have been appointed to act
with respect to a series of Offered Debt Securities, are sometimes referred to
herein collectively as the "Trustees" or individually as a "Trustee."
The Debt Securities will represent unsecured general obligations of the
Company, unless otherwise provided in the Prospectus Supplement, with the
relative rankings indicated in the applicable Prospectus Supplement.
The following summaries of certain provisions of the Debt Securities and the
Indentures do not purport to be complete and are subject to and are qualified
in their entirety by reference to all the provisions of the Indenture
applicable to a particular series of Offered Debt Securities (the "Applicable
Indenture"), including the definitions of certain terms therein. Wherever
particular Sections, Articles or defined terms of the Applicable Indenture are
referred to, it is intended that such Sections, Articles or defined terms
shall be incorporated herein by reference. Article and Section references used
herein are references to the Applicable Indenture or the Indentures, as the
case may be. Capitalized terms not otherwise defined herein shall have the
respective meanings given to them in the Applicable Indenture.
In the event Subordinated Debt Securities are issued to the Nuevo Trust or a
trustee of such trust in connection with the issuance of Trust Securities by
the Nuevo Trust, such Subordinated Debt Securities will be issued pursuant to
the Subordinated Indenture and subsequently may be distributed pro rata to the
holders of such Trust Securities in connection with the dissolution of the
Nuevo Trust upon the occurrence of certain events described in the Prospectus
Supplement relating to such Trust Securities. Only one series of Subordinated
Debt Securities will be issued to the Nuevo Trust or a trustee of such trust
in connection with the issuance of Trust Securities by the Nuevo Trust.
The following description sets forth certain general terms and provisions of
the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Offered Debt Securities and the extent, if any, to
which such general provisions may not apply to the Offered Debt Securities
will be described in the Prospectus Supplement relating to such Offered Debt
Securities.
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<PAGE>
GENERAL
The Indentures will not limit the aggregate principal amount of Debt Securities
that may be issued thereunder and provide that Debt Securities may be issued
thereunder from time to time in one or more series. Reference is made to the
Prospectus Supplement relating to the Offered Debt Securities, which shall set
forth the following terms, as applicable, of the Offered Debt Securities: (1)
the title of the Offered Debt Securities; (2) any limit on the aggregate
principal amount of the Offered Debt Securities; (3) the price (expressed as a
percentage of the aggregate principal amount thereof) at which the Offered Debt
Securities will be issued; (4) the Person to whom any interest on the Offered
Debt Securities will be payable, if other than the Person in whose name such
Offered Debt Securities (or one or more Predecessor Securities) are registered
on any Regular Record Date; (5) the date or dates on which the principal of the
Offered Debt Securities will be payable; (6) the rate or rates per annum (which
may be fixed, floating or adjustable) at which the Offered Debt Securities will
bear interest, if any, or the formula pursuant to which such rate or rates
shall be determined, the date or dates from which such interest will accrue and
the dates on which such interest, if any, will be payable and the Regular
Record Dates for such interest payment dates; (7) the place or places where
principal of (and premium, if any) and interest, if any, on Offered Debt
Securities will be payable; (8) if applicable, the price at which, the periods
within which and the terms and conditions upon which the Offered Debt
Securities may be redeemed at the option of the Company, pursuant to a sinking
fund or otherwise; (9) if applicable, any obligation of the Company to redeem
or purchase Offered Debt Securities pursuant to any sinking fund or analogous
provisions or at the option of a holder thereof (each, a "Holder"), and the
period or periods within which, the price or prices at which and the terms and
conditions upon which the Offered Debt Securities will be redeemed or
purchased, in whole or in part; (10) if other than denominations of $1,000 and
any integral multiple thereof, the denominations in which the Offered Debt
Securities will be issuable; (11) the currency or currencies, including
composite currencies or currency units, in which payment of the principal of
(or premium, if any) or interest, if any, on any of the Offered Debt Securities
will be payable if other than the currency of the United States of America;
(12) if the amount of payments of principal of (or premium, if any) or
interest, if any, on the Offered Debt Securities may be determined with
reference to one or more indices, the manner in which such amounts will be
determined; (13) if the principal of (or premium, if any) or interest, if any,
on any of the Offered Debt Securities of the series is to be payable, at the
election of the Company or a Holder thereof, in one or more currencies,
including composite currencies, or currency units other than that or those in
which the Offered Debt Securities are stated to be payable, the currency,
currencies, including composite currencies, or currency units in which payment
of the principal of (or premium, if any) or interest, if any, on Offered Debt
Securities of such series as to which such election is made will be payable,
and the periods within which and the terms and conditions upon which such
election is to be made; (14) the portion of the principal amount of the Offered
Debt Securities, if other than the entire principal amount thereof, payable
upon acceleration of maturity thereof; (15) whether all or any part of the
Offered Debt Securities will be issued in the form of a permanent Global
Security or Securities, as described under "Permanent Global Securities," and,
if so, the depositary for, and other terms relating to, such permanent Global
Security or Securities; (16) any event or events of default applicable with
respect to the Offered Debt Securities in addition to those provided in the
Applicable Indenture; (17) any other covenant or warranty included for the
benefit of the Offered Debt Securities in addition to (and not inconsistent
with) those included in the Indentures for the benefit of Debt Securities of
all series, or any other covenant or warranty included for the benefit of the
Offered Debt Securities in lieu of any covenant or warranty included in the
Indenture for the benefit of Offered Debt Securities, or any combination of
such covenants, warranties or provisions; (18) any restriction or condition on
the transferability of the Offered Debt Securities; (19) if applicable, that
such Offered Debt Securities, in whole or any specified part, are defeasible
pursuant to the provisions of the Applicable Indenture described under
"Defeasance and Covenant Defeasance"; (20) any authenticating or paying agents,
registrars, conversion agents or any other agents with respect to the Offered
Debt Securities; (21) designation (including whether the Offered Debt
Securities are senior debt, senior subordinated debt or subordinated debt and
whether such debt is convertible); (22) the terms, if any, on which such
Offered Debt Securities will be subordinate to other debt of the Company; (23)
any rights of the Holders thereof to convert such Offered Debt Securities into
other securities or property of the Company; and (24) any other specific terms
or provisions of the Offered Debt Securities not inconsistent with the
Applicable Indenture. (Section 301)
Unless otherwise indicated in the Prospectus Supplement relating thereto, the
Offered Debt Securities are to be issued as registered securities without
coupons in denominations of $1,000 or any integral multiple of $1,000. (Section
302). No service charge will be made for any transfer or exchange of such
Offered Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Section 305)
Debt Securities may be issued under the Indentures as Original Issue Discount
Debt Securities to be offered and sold at a substantial discount below their
stated principal amount. Special Federal income tax, accounting and other
considerations applicable thereto will be described in the Prospectus
Supplement relating thereto. "Original Issue Discount Debt Security" means any
security which provides for an amount less than the principal amount thereof to
be due and payable upon the declaration of acceleration of the maturity thereof
upon the occurrence and continuance of an Event of Default. (Section 101)
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<PAGE>
If the Debt Securities are denominated in whole or in part in any currency
other than United States dollars, if the principal of (and premium, if any) or
interest, if any, on the Debt Securities is to be payable, at the election of
the Company or a Holder thereof, in a currency or currencies other than that in
which such Debt Securities are to be payable, or if any index is used to
determine the amount of payments of principal of, premium, if any, or interest
on any series of the Debt Securities, special Federal income tax, accounting
and other considerations applicable thereto will be described in the Prospectus
Supplement relating thereto.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment of
interest on a Debt Security on any Interest Payment Date will be made to the
Person in whose name such Debt Security (or one or more Predecessor Debt
Securities) is registered at the close of business on the Regular Record Date
for such interest payment. (Section 307)
Unless otherwise indicated in the applicable Prospectus Supplement, principal
of and any premium and interest on the Debt Securities of a particular series
will be payable at the office of such Paying Agent or Paying Agents as the
Company may designate for such purpose from time to time, except that, at the
option of the Company, payment of any interest may be made by check mailed to
the address of the Person entitled thereto as such address appears in the
Security Register. Unless otherwise indicated in the applicable Prospectus
Supplement, the corporate trust office of the applicable Trustee in New York,
New York will be designated as the Company's sole Paying Agent for payments
with respect to Debt Securities of each series.
Any other Paying Agents initially designated by the Company for the Debt
Securities of a particular series will be named in the applicable Prospectus
Supplement. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent or approve a change in the office
through which any Paying Agent acts, except that the Company will be required
to maintain a Paying Agent in each place of payment for the Debt Securities of
a particular series. (Section 1002)
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or any premium or interest on any Debt Security which remain
unclaimed at the end of two years after such principal, premium or interest has
become due and payable will be repaid to the Company, and the Holder of such
Debt Security thereafter may look only to the Company for payment thereof.
(Section 1003)
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Prospectus Supplement, the following
provisions will apply to the Subordinated Debt Securities.
The Subordinated Debt Securities will, to the extent set forth in the
Subordinated Indenture, be subordinate in right of payment to the prior payment
in full of all Senior Indebtedness. Upon any payment or distribution of assets
to creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors, marshaling of assets or any
bankruptcy, insolvency, debt restructuring or similar proceedings in connection
with any insolvency or bankruptcy proceeding of the Company the holders of
Senior Indebtedness will first be entitled to receive payment in full of
principal of (and premium, if any) and interest, if any, on such Senior
Indebtedness before the holders of the Subordinated Debt Securities will be
entitled to receive or retain any payment in respect of the principal of (and
premium, if any) or interest, if any, on the Subordinated Debt Securities.
(Section 1502)
By reason of such subordination, in the event of liquidation or insolvency,
Holders of Subordinated Debt Securities may recover less, ratably, than holders
of Senior Indebtedness and holders of Senior Indebtedness may recover more,
ratably, than the holders of the Subordinated Debt Securities. With respect to
any series of Subordinated Debt Securities, Senior Indebtedness may include
Indebtedness ("Senior Subordinated Indebtedness") which is senior to such
Subordinated Debt Securities and subordinated to other Senior Indebtedness and
obligations of the Company.
In the event of the acceleration of the maturity of any Subordinated Debt
Securities, the holders of all Senior Indebtedness (including any Senior
Subordinated Indebtedness) outstanding at the time of such acceleration will
first be entitled to receive payment in full of all amounts due thereon before
the Holders of Subordinated Debt Securities will be entitled to receive any
payment upon the principal of (or premium, if any) or interest, if any, on the
Subordinated Debt Securities. (Section 1503)
No payments on account of principal (or premium, if any) or interest, if any,
in respect of the Subordinated Debt Securities may be made if there shall have
occurred and be continuing (i) a default in the payment of principal of (or
premium, if any) or interest on Senior Indebtedness, (ii) an event of default
with respect to any Senior Indebtedness resulting in the acceleration of the
maturity thereof, or (iii) any other event of default permitting the holders of
Senior Indebtedness to accelerate the maturity or demand payment in full.
(Section 1504)
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<PAGE>
The Subordinated Indenture does not limit or prohibit the incurrence of
additional Senior Indebtedness, which may include Senior Subordinated
Indebtedness.
The applicable Prospectus Supplement may further describe the provisions, if
any, applicable to the subordination of the Subordinated Debt Securities of a
particular series. If the Senior Debt Securities are issued on a senior
subordinated basis, the applicable Prospectus Supplement will describe the
related subordination provisions. All Senior Debt Securities, whether issued on
a senior or senior subordinated basis, will be senior in right of payment to
each series of Subordinated Debt Securities.
CERTAIN COVENANTS OF THE COMPANY
Restrictions on Merger and Sale of Assets
Each Indenture will provide that the Company may not consolidate with or merge
into any other Person or sell, lease or otherwise transfer its property and
assets as, or substantially as, an entirety to any Person, and the Company may
not permit any Person to merge into or consolidate with the Company unless (i)
either (A) the Company will be the resulting or surviving entity or (B) any
successor or purchaser is a corporation, partnership, limited liability company
or trust organized under the laws of the United States of America, any State or
the District of Columbia, and any such successor or purchaser expressly assumes
the Company's obligations on the Debt Securities under a supplemental
indenture; (ii) immediately after giving effect to the transaction no Event of
Default, and no event which after notice or lapse of time or both would become
an Event of Default, shall have occurred and be continuing; and (iii) certain
other conditions are met. (Section 801). Upon any consolidation or merger into
any other Person or any conveyance, transfer or lease of the Company's assets
as, or substantially as, an entirety to any Person, the successor Person shall
succeed to, and be substituted for, the Company under the Indenture, and the
Company, except in the case of a lease, shall be relieved of all obligations
and covenants under the Indenture and the Debt Securities to the extent it was
the predecessor Person. (Section 802)
CONVERSION RIGHTS
The terms and conditions, if any, upon which Debt Securities are convertible
into Common Stock, Preferred Stock or other securities of the Company will be
set forth in the applicable Prospectus Supplement relating thereto. Such terms
will include the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the Holders or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of redemption
of such Debt Securities.
EVENTS OF DEFAULT AND NOTICE THEREOF
Unless otherwise specified in the Prospectus Supplement relating to a
particular series of Debt Securities, the following events are defined in the
Indentures as "Events of Default" with respect to Debt Securities of any
series: (a) failure to pay principal (including any sinking fund payment) of
(or premium, if any, on) any Debt Security of that series when due; (b) failure
to pay any interest on any Debt Security of that series when due, continued for
30 days; (c) failure to perform any other covenant or agreement of the Company
under the Applicable Indenture (other than a covenant the performance of which
is dealt with specifically elsewhere in the Applicable Indenture or which has
been included in the Applicable Indenture solely for the benefit of a series of
Debt Securities other than that series), continued for 60 days after written
notice as provided in the Applicable Indenture; (d) certain events of
bankruptcy, insolvency or reorganization; (e) in the event Subordinated Debt
Securities are issued to the Nuevo Trust or a trustee of such trust in
connection with the issuance of Trust Securities by the Nuevo Trust, the
voluntary or involuntary dissolution, winding-up or termination of the Nuevo
Trust, except in connection with the distribution of Subordinated Debt
Securities to the holders of Trust Securities in liquidation of the Nuevo
Trust, the redemption of all of the Trust Securities of the Nuevo Trust, or
certain mergers, consolidations or amalgamations, each as permitted by the
Declaration of the Nuevo Trust; and (f) any other Event of Default provided
with respect to Debt Securities of that series. (Section 501)
Except as defined in the Prospectus Supplement relating thereto, no Event of
Default with respect to Debt Securities of a particular series shall
necessarily constitute an Event of Default with respect to Debt Securities of
any other series. (Section 501) The Holders of a majority in principal amount
of the Outstanding Debt Securities of any series shall have the right, subject
to such provisions for indemnification of the Trustee, to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee under the Applicable Indenture or exercising any trust or power
conferred on the Trustee with respect to Debt Securities of that series.
(Section 512)
If an Event of Default (other than an Event of Default specified in clause (d)
of the second preceding paragraph) with respect to Debt Securities of any
series at the time Outstanding shall occur and be continuing, either the
Trustee or the Holders of at least 25% in principal amount of the Outstanding
Debt Securities of that series may, by a notice in writing to the Company (and
to the
8
<PAGE>
Trustee if given by the Holders), declare the principal amount (or, if the Debt
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms of that series) of all
Debt Securities of that series to be due and payable immediately; provided,
however, that under certain circumstances the Holders of a majority in
aggregate principal amount of Outstanding Debt Securities of that series may
rescind or annul such declaration and its consequences. (Section 502). If an
Event of Default specified in clause (d) of the next preceding paragraph
occurs, the outstanding Debt Securities automatically will become immediately
payable without any declaration or other act on the part of the Trustee or any
Holder. (Section 502). For information as to waiver of defaults, see
"Modification and Waiver" herein.
Reference is made to the Prospectus Supplement relating to any series of
Offered Debt Securities which are Original Issue Discount Securities for the
particular provisions relating to the principal amount of such Original Issue
Discount Securities due on acceleration upon the occurrence of an Event of
Default and the continuation thereof.
No Holder of a Debt Security of any series will have any right to institute any
proceeding with respect to the Applicable Indenture or for any remedy
thereunder, unless such Holder shall have previously given to the applicable
Trustee written notice of a continuing Event of Default with respect to Debt
Securities of that series and unless also the Holders of at least 25% in
principal amount of the Outstanding Debt Securities of the same series shall
have made written request, and offered reasonable indemnity to the applicable
Trustee, to institute such proceeding as trustee, and the applicable Trustee
shall not have received from the Holders of a majority in aggregate principal
amount of the Outstanding Debt Securities of the same series a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. (Section 507). However, such limitations do not
apply to a suit instituted by a Holder of any Debt Security for enforcement of
payment of the principal of (or premium, if any) or interest, if any, on such
Debt Security on or after the respective due dates expressed in such Debt
Security. (Section 508)
Subject to the provisions of the Trust Indenture Act, the Trustee will be under
no obligation to exercise any of its rights or powers under the Applicable
Indenture at the request of any of the Holders of Debt Securities unless they
shall have offered to the applicable Trustee security or indemnity in form and
substance reasonably satisfactory to such Trustee against the costs, expenses
and liabilities which might be incurred by it in compliance with such request.
(Section 603)
The Company will be required to furnish to each Trustee annually a statement by
certain officers of the Company as to whether the Company is in default in the
performance and observance of any of the terms, provisions and conditions of
the Applicable Indenture. (Section 1004)
Notwithstanding anything in the Indentures to the contrary, the right of any
Holder of a Debt Security to receive payment of the principal of (or premium,
if any) and interest on such Debt Security, on and after the respective due
dates expressed in such Debt Security (as the same may be extended in
accordance with the terms of such Debt Security) or to institute suit for the
enforcement of any such payment shall not be impaired or affected without the
consent of such Holder, including, in the case of a Subordinated Debt Security
issued to the Nuevo Trust, the holders of the Trust Preferred Securities. In
addition, in the case of a Subordinated Debt Security issued to the Nuevo
Trust, if an Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal (or
premium, if any) then a holder of Trust Preferred Securities may directly
institute a proceeding against the Company for payment.
MODIFICATION AND WAIVER
Each Indenture will provide that modifications and amendments of such Indenture
may be made by the Company and the applicable Trustee, with the consent of the
Holders of not less than a majority in principal amount of each series of the
Outstanding Debt Securities under such Indenture affected by the modification
or amendment; provided, however, that no such modification or amendment may,
without the consent of the Holder of each such Outstanding Debt Security
affected thereby: (a) change the Stated Maturity of the principal of (or
premium, if any) or any installment of principal or interest, if any, on any
such Debt Security; (b) reduce the principal amount of (or premium, if any) or
the interest rate, if any, on any such Debt Security or the principal amount
due upon acceleration of an Original Issue Discount Security; (c) adversely
affect any right of repayment at the option of the Holder of any such Debt
Security; (d) reduce the amount of, or postpone the date fixed for, the payment
of any sinking fund or analogous obligation; (e) change the place or currency
of payment of principal of (or premium, if any) or the interest, if any, on any
such Debt Security; (f) impair the right to institute suit for the enforcement
of any such payment on or with respect to any such Debt Security on or after
the Stated Maturity (or, in the case of redemption, on or after the Redemption
Date); (g) reduce the percentage of the aggregate principal amount of
Outstanding Debt Securities of any series, the consent of the Holders of which
is necessary to modify or amend the Applicable Indenture; or (h) modify the
foregoing requirements or reduce the percentage of Outstanding Debt Securities
necessary to waive compliance with certain provisions of the Applicable
Indenture or for waiver of certain defaults. (Section 902)
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The Holders of at least a majority of the principal amount of the Outstanding
Debt Securities of any series may, on behalf of all Holders of that series,
waive compliance by the Company with certain restrictive provisions of the
Applicable Indenture and waive any past default under such Indenture, except a
default in the payment of principal, premium or interest or in the performance
of certain covenants. (Sections 1008 and 513)
If the Nuevo Trust or the Property Trustee of the Nuevo Trust holds a series of
Subordinated Debt Securities no such amendment, modification or waiver which
requires the approval of the Holders of a certain percentage in principal
amount of such series of Subordinated Debt Securities shall be effective
without the approval of the holders of the same percentage of aggregate
liquidation preference of Trust Preferred Securities.
Each Indenture will provide that a supplemental indenture which changes or
eliminates any covenant or other provision of such Indenture which has
expressly been included solely for the benefit of one or more particular series
of Debt Securities, or which modifies the rights of the Holders of such series
with respect to such covenant or other provision, shall be deemed not to affect
the rights under such Indenture of the Holders of Debt Securities of any other
series. (Section 902)
Each Indenture will provide that modifications and amendments of such Indenture
may be made by the Company and the applicable Trustee, without the consent of
the Holders of any series of Debt Securities issued thereunder: (1) to evidence
the succession of another Person to the Company in accordance with the covenant
described under "Restrictions on Merger and Sale of Assets" and assumption by
any such successor of the covenants of the Company in such Indenture and in the
Debt Securities issued thereunder; (2) to add to the covenants of the Company
or to add any additional Events of Default; (3) to permit or facilitate the
issuance of Debt Securities in bearer form or to provide for uncertificated
Debt Securities to be issued thereunder; (4) to change or eliminate any
provision of such Indenture, provided that any such change or elimination shall
become effective only when there are no Debt Securities outstanding of any
series created prior to the execution of such supplemental indenture which are
entitled to the benefit of such provision; (5) to secure any Debt Securities
issued thereunder; (6) to establish the form or terms of Debt Securities issued
thereunder; (7) to evidence and provide for a successor trustee under such
Indenture with respect to one or more series of Debt Securities issued
thereunder or to provide for or facilitate the administration of the trusts
under such Indenture by more than one trustee; or (8) to cure any ambiguity, to
correct or supplement any provision in such Indenture that may be inconsistent
with any other provision of such Indenture or to make any other provisions with
respect to matters or questions arising under such Indenture, provided that
such action shall not adversely affect the interests of the Holders of any
series of Debt Securities issued thereunder. (Section 901)
The Indentures will provide that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities of any series
have given or taken any direction, notice, consent, waiver or other action
under the Indenture as of any date, (i) the principal amount of an Original
Issue Discount Debt Security that will be deemed to be Outstanding will be the
amount of the principal thereof that would be due and payable as of such date
upon acceleration of the Maturity thereof to such date; (ii) if, as of such
date, the principal amount payable at the Stated Maturity of a Debt Security is
not determinable (for example, because it is based on an index), the principal
amount of such Debt Security deemed to be Outstanding as of such date will be
an amount determined in the manner prescribed for such Debt Security; and (iii)
the principal amount of a Debt Security denominated in one or more foreign
currencies or currency units that will be deemed to be Outstanding will be the
United States dollar equivalent, determined as of such date in the manner
prescribed for such Debt Security, of the principal amount of such Debt
Security (or, in the case of a Debt Security described in clause (i) or (ii)
above, of the amount described in such clause). Certain Debt Securities,
including those for which payment or redemption money has been deposited or set
aside in trust for the Holders and those that have been fully defeased pursuant
to the Applicable Indenture, will not be deemed to be Outstanding. (Section
101) For purposes of the Indentures, the Debt Securities of any series
"Outstanding" thereunder will be deemed to exclude those held by Persons (other
than the Nuevo Trust if it has issued Trust Preferred Securities) that control,
are controlled by or are under common control with the Company; provided that
any Person who does not own, directly or indirectly, more than 5% of the
outstanding voting securities of the Company will not be deemed to control the
Company. (Section 101)
Except in certain limited circumstances, the Company will be entitled to set
any day as a record date for the purpose of determining the Holders of
Outstanding Debt Securities of any series entitled to give or take any
direction, notice, consent, waiver or other action under the Indentures, in the
manner and subject to the limitations provided in the Applicable Indenture. In
certain limited circumstances, the Trustee will be entitled to set a record
date for action by Holders. If a record date is set for any action to be taken
by Holders of a particular series, such action may be taken only by persons who
are Holders of Outstanding Debt Securities of that series on the record date.
To be effective, such action must be taken by Holders of the requisite
principal amount of such Debt Securities within a specified period following
the record date. For any particular record date, this period will be 180 days
or such shorter period as may be specified by the Company (or the Trustee, if
it set the record date), and may be shortened or lengthened (but not beyond 180
days) from time to time. (Section 104)
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DEFEASANCE AND COVENANT DEFEASANCE
Each Indenture will provide, if such provision is made applicable to the Debt
Securities of any series pursuant to Section 301 of the Indentures (which will
be indicated in the Prospectus Supplement applicable thereto), that the Company
may elect either (A) to defease and be discharged from any and all obligations
with respect to such Debt Securities then outstanding (except for the
obligations to exchange or register the transfer of such Debt Securities, to
replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to
maintain an office or agency in respect of the Debt Securities, and to hold
monies for payments in trust) ("defeasance"), or (B) to be released from its
obligations with respect to such Debt Securities concerning the restrictions
described under "Restrictions on Merger and Sale of Assets" (Section 801) and
any other covenants applicable to such Debt Securities which are subject to
covenant defeasance ("covenant defeasance"), and the occurrence of an event
described and notice thereof in clause (c) under "Events of Default and Notice
Thereof" (with respect to covenants determined, pursuant to Section 301 of the
Indenture, to be subject to covenant defeasance) shall no longer be an Event of
Default, in each case, upon the irrevocable deposit with the applicable Trustee
(or other qualifying trustee), in trust for such purpose, of money, and/or U.S.
Government Obligations (as defined in the Indentures) which through the payment
of principal and interest in accordance with their terms will provide money in
an amount sufficient without reinvestment to pay the principal of (and premium,
if any) and interest, if any, on such Debt Securities, and any mandatory
sinking fund or analogous payments thereon, on the scheduled due dates
therefor. Such a trust may only be established if, among other things, (i) the
Company has delivered to the applicable Trustee an opinion of counsel (as
specified in the Applicable Indenture) to the effect that the Holders of such
Debt Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance or 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 defeasance or covenant
defeasance had not occurred, (ii) no Event of Default or event which with the
giving of notice or lapse of time, or both, would become an Event of Default
under the Indenture shall have occurred and be continuing on the date of such
deposit or, insofar as Events of Default from bankruptcy, insolvency or
reorganization events are concerned, at any time in the period ending on the
91st day after such date of deposit and (iii) certain other customary
conditions precedent are satisfied. In the case of defeasance under clause (A)
above, the opinion of counsel referred to in clause (i) above must refer to and
be based on a ruling of the Internal Revenue Service issued to the Company or
published as a revenue ruling or on a change in applicable federal income tax
law, in each case after the date of such Indenture. (Article Thirteen)
The Company may exercise the defeasance option with respect to such Debt
Securities notwithstanding its prior exercise of the covenant defeasance
option. If the Company exercises the defeasance option, payment of such Debt
Securities may not be accelerated because of an Event of Default. If the
Company exercises the covenant defeasance option, payment of such Debt
Securities may not be accelerated by reference to the covenants noted under
clause (B) above. In the event the Company omits to comply with the remaining
obligations with respect to such Debt Securities under such Indenture after
exercising its covenant defeasance option and such Debt Securities are declared
due and payable because of the occurrence of any Event of Default, the amount
of money and U.S. Government Obligations on deposit with the applicable Trustee
may be insufficient to pay amounts due on the Debt Securities of such series at
the time of the acceleration resulting from such Event of Default, because the
required deposit in the defeasance trust is based upon scheduled cash flows,
rather than market values, which will vary depending on prevailing interest
rates and other factors. However, the Company will remain liable in respect of
such payments. (Article Thirteen)
The Prospectus Supplement may further describe the provisions, if any,
applicable to defeasance or covenant defeasance with respect to the Debt
Securities of a particular series.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indentures. Reference is made to the Applicable Indenture with respect to any
particular series of Debt Securities for the full definition of all such terms,
as well as any other terms used herein for which no definition is provided.
(Section 101)
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents in the equity
interests (however, designated) in such Person, any rights (other than debt
securities convertible into an equity interest), warrants or options
exercisable for, exchangeable for or convertible into such an equity interest
in such Person.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts 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 under GAAP.
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"GAAP" means generally accepted accounting principles, consistently applied,
that are 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 or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
effective on the date of this Indenture.
"Indebtedness" means, with respect to any Person, without duplication, (a) all
liabilities of such Person for borrowed money or for the deferred purchase
price of property or services (excluding any trade accounts payable and other
accrued current liabilities incurred in the ordinary course of business), and
all liabilities of such Person incurred in connection with any letters of
credit, bankers' acceptances or other similar credit transactions or any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock outstanding on the date of the Indenture or thereafter, (b)
all obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (c) all Indebtedness of such Person created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even if the rights and remedies of the seller
or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such Person, (e) all Indebtedness referred to in the preceding
clauses of other Persons and all dividends of other Persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right to be secured by) any lien upon property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness (the amount of such obligation being deemed to be the lesser of
the value of such property or asset or the amount of the obligation so
secured), (f) all guarantees by such Person of Indebtedness referred to in this
definition (including, with respect to any Production Payments and Reserve
Sales, any warranties or guaranties of production or payment by such Person
with respect to such Production Payments and Reserve Sales but excluding other
contractual obligations of such Person with respect to such Production Payments
and Reserve Sales ), (g) all Redeemable Capital Stock of such Person valued at
the greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued dividends and (h) all obligations of such Person under or in respect of
currency exchange contracts, oil or natural gas price hedging arrangements and
Interest Rate Protection Obligations. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable 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 Redeemable Capital Stock, such fair market value shall be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock; provided, however, that if such Redeemable Capital
Stock is not at the date of determination permitted or required to be
repurchased, the "maximum fixed repurchase price" shall be the book value of
such Redeemable Capital Stock. Subject to clause (f) of the first sentence of
this definition, Production Payments and Reserve Sales shall not be deemed
Indebtedness.
"Interest Rate Protection 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 or arrangements designed to
protect against or manage such Person's and any of its Subsidiaries' exposure
to fluctuations in interest rates.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Production Payments and Reserve Sales" means the grant or transfer to any
Person of a royalty, overriding royalty, net profits interest, production
payment (whether volumetric or dollar denominated), master limited partnership
interest or other interest in oil and gas properties, reserves or the right to
receive all or a portion of the production or the proceeds from the sale of
production attributable to such properties where the holder of such interest
has recourse solely to such production or proceeds of production, subject to
the obligation of the grantor or transferor to operate and maintain, or cause
the subject interest to be operated and maintained, in a reasonably prudent
manner or other customary standard or subject to the obligation of the grantor
or transferor to indemnify for environmental matters.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms,
by the terms of any security into which it is convertible or exchangeable or by
contract or otherwise, is, or upon the happening of an event or passage of time
would be, required to be redeemed prior to the final date specified in the Debt
Securities as the fixed date on which the principal of such Debt Securities is
due and payable ("Stated Maturity") or is redeemable at the option of the
holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final Stated Maturity.
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"Senior Indebtedness" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company to the
extent that such claim for post-petition interest is allowed in such
proceeding), on any Indebtedness of the Company, whether incurred on or prior
to the date of the Applicable Indenture or thereafter incurred, unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not superior in right of
payment to the Offered Debt Securities, or to other Indebtedness of the Company
which is pari passu with, or subordinated to the Offered Debt Securities;
provided, however, that Senior Indebtedness shall not be deemed to include the
Offered Debt Securities or any Indebtedness of the Company to any Subsidiary of
the Company. (Subordinated Indenture Section 101)
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding voting stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person (other than a corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, have at least a majority
ownership and power to direct the policies, management and affairs thereof.
PERMANENT GLOBAL SECURITIES
The Debt Securities of a series may be issued in the form of one or more
permanent Global Securities that will be deposited with a Depositary or its
nominee. In such a case, one or more Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of Outstanding Debt Securities of the series to be represented
by such Global Security or Securities. The Prospectus Supplement relating to
such series of Debt Securities will describe the circumstances, if any, under
which beneficial owners of interests in any such permanent Global Security may
exchange such interests for Debt Securities of such series and of like tenor
and principal amount in any authorized form and denomination. Unless and until
it is exchanged in whole or in part for Debt Securities in definitive
registered form, a permanent Global Security may not be registered for transfer
or exchange except in the circumstances described in the applicable Prospectus
Supplement. (Sections 204 and 305)
The specific terms of the depositary arrangement with respect to any portion of
a series of Debt Securities to be represented by a permanent Global Security
and a description of the Depositary will be contained in the applicable
Prospectus Supplement.
GOVERNING LAW
The Indentures and the Debt Securities will be governed by and construed in
accordance with the internal laws of the State of New York. (Section 112)
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description of the capital stock of the Company is subject to the
detailed provisions of the Company's Certificate of Incorporation, as amended
(the "Certificate"), and bylaws as currently in effect (the "Bylaws"). This
description does not purport to be complete or to give full effect to the terms
of the provisions of statutory or common law and is subject to, and qualified
in its entirety by reference to, the Certificate and the Bylaws, each of which
is filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
COMMON STOCK
The Company has 50,000,000 authorized shares of Common Stock, par value $.01
per share. Holders of Common Stock are entitled to receive dividends if, when
and as declared by the Board of Directors of the Company out of funds legally
available therefor. All shares of Common Stock have equal voting rights on the
basis of one vote per share on all matters to be voted upon by stockholders.
Cumulative voting for the election of directors is not permitted. Shares of
Common Stock have no preemptive, conversion, sinking fund or redemption
provisions and are not liable for further call or assessment. Each share of
Common Stock is entitled to share on a pro rata basis in any assets available
for distribution to the holders of the Common Stock upon liquidation of the
Company after satisfaction of any liquidation preference on any series of the
Company's preferred stock. All outstanding shares of Common Stock have been,
and all shares offered in any offering Securities will be when issued, validly
issued, fully paid and nonassessable. As of November 8, 1996, there were
18,976,085 shares of Common Stock issued and outstanding. As of November 8,
1996, a total of 5,013,493 shares of Common Stock were reserved for issuance of
which (a)
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863,493 shares were reserved for conversion of the 7% Preferred Stock (as
defined below), (b) 1,500,000 shares were reserved for exercise of stock
options under the 1990 Stock Option Plan ("1990 Plan"), (c) 2,500,000 shares
were reserved for issuance of options under the Company's 1993 Stock Incentive
Plan ("1993 Plan") and (d) 150,000 shares were reserved for issuance pursuant
to warrants. As of the date hereof, options to purchase 556,150 and 964,788
shares of Common Stock were outstanding under the 1990 Plan and the 1993 Plan,
respectively. On April 9, 1996, the Company issued warrants to purchase 150,000
shares of Common Stock. These warrants are initially exercisable at $28 per
share and have a maximum term of five years.
PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which a
Prospectus Supplement may relate. Specific terms of any series of Preferred
Stock offered by a Prospectus Supplement will be described in the Prospectus
Supplement relating to such series. The description set forth below is subject
to and qualified in its entirety by reference to the certificate of
designations establishing a particular series of Preferred Stock, which will be
filed with the Commission in connection with the offering of such series.
Under the Certificate, the Board of Directors of the Company is authorized,
without further stockholder action, to provide for the issuance of up to
10,000,000 shares of Preferred Stock in one or more series. As of the date of
this Prospectus, the 7% Preferred Stock is the only series of Preferred Stock
issued and outstanding. The rights, preferences, privileges, and restrictions,
including dividend rights, voting rights, conversion rights, terms of
redemption, and liquidation preferences, of the Preferred Stock of each series
will be fixed or designated by the Board of Directors pursuant to a certificate
of designations. The specific terms of a particular series of Preferred Stock
offered hereby will be described in a Prospectus Supplement relating to such
series and will include the following: (a) the maximum number of shares to
constitute the series and the distinctive designation thereof; (b) the annual
dividend rate, if any, on shares of the series (or the method of calculating
such rate), whether such rate is fixed or variable or both, the date or dates
from which dividends will begin to accrue or accumulate, and whether dividends
will be cumulative; (c) whether the shares of the series will be redeemable
and, if so, the price at and the terms and conditions on which such shares may
be redeemed, including the time during which such shares may be redeemed and
any accumulated dividends thereon that the holders of such shares shall be
entitled to receive upon the redemption thereof; (d) the liquidation
preference, if any, applicable to shares of the series; (e) whether the shares
of the series will be subject to operation of a retirement or sinking fund and,
if so, the extent and manner in which any such fund shall be applied to the
purchase or redemption of such shares for retirement or for other corporate
purposes, and the terms and provisions relating to the operation of such fund;
(f) the terms and conditions, if any, on which the shares of the series will be
convertible into, or exchangeable for, shares of any other class or classes of
capital stock of the Company, the Nuevo Trust or another issuer or any series
of any other class or classes, or of any other series of the same class,
including the price or rate of conversion or exchange and the method, if any,
of adjusting the same; (g) the voting rights, if any, on the shares of the
series; and (h) any other preferences and relative, participating, optional, or
other special rights or qualifications, limitations, or restrictions thereof.
Each series of Preferred Stock will, when issued, be fully paid and non-
assessable.
The transfer agent, registrar, and dividend disbursement agent for a series of
Preferred Stock will be selected by the Company and will be described in the
applicable Prospectus Supplement.
7% CUMULATIVE CONVERTIBLE PREFERRED STOCK
On May 28, 1992, the Company sold $25,000,000 of 7% Cumulative Convertible
Preferred Stock, $1.00 par value per share, "7% Preferred Stock") to The 1818
Fund, L.P. ("1818 Fund"). As of November 8, 1996, there were 11,220 shares of
7% Preferred Stock issued and outstanding. The holders of the 7% Preferred
Stock are entitled to receive dividends payable in arrears as of the last day
of March, June, September and December. The 7% Preferred Stock is convertible
into shares of Common Stock equal to the liquidation preference of $1,000 per
share divided by a current conversion price of approximately $13 per share,
subject to adjustment. Upon a change of control (as defined in the Designation
establishing the shares), dividends on the 7% Preferred Stock will be payable
at a rate of 14% per annum. The holders of the 7% Preferred Stock are entitled
to vote with the Common Stock on all matters except that the holders of the 7%
Preferred Stock have separate class voting rights on certain matters that
affect the rights of such holders, and are entitled to certain registration
rights. The Company may redeem the 7% Preferred Stock on or after June 30,
1997, at a price per share equal to the liquidation preference plus a 4%
premium that decreases ratably to zero after five years. Upon a change of
control, the Company has the option to redeem the 7% Preferred Stock at a price
per share equal to 125% of the liquidation preference plus accrued and unpaid
dividends, if such redemption occurs prior to June 30, 1997. The holders of the
7% Preferred Stock have the right to convert the shares of 7% Preferred Stock
into Common Stock on or after May 28, 1999 through May 28, 2002, at an adjusted
price based on the market price of the Common Stock subject to certain
limitations, including a minimum price of $10.00 per share. The holders of the
7% Preferred Stock have the right to appoint a representative to the Company's
Board of Directors in the event the Company fails to pay dividends for two
quarters (whether consecutive or not) or breaches certain provisions of the
stock purchase agreement.
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In connection with the acquisition of the 7% Preferred Stock, the Company and
the 1818 Fund entered into a registration rights agreement pursuant to which
the Company agreed to register, on three occasions upon demand by the 1818
Fund, the Preferred Stock or the Common Stock into which such Preferred Stock
is convertible. The agreement also grants the 1818 Fund "piggy back"
registration rights to include Preferred Stock or shares of Common Stock
received upon conversion thereof in certain registration statements filed by
the Company, and the 1818 Fund has exercised such rights with respect to all of
its shares of Common Stock covered by this Prospectus. See "Selling
Stockholders."
CERTAIN ANTI-TAKEOVER PROVISIONS
GENERAL
The Certificate contains several provisions that may make the acquisition of
control of the Company by means of a tender offer, open market purchases, a
proxy fight or otherwise more difficult. The Bylaws also contain provisions
that could have an anti-takeover effect. Many of the following provisions
contain requirements for a vote of 80% or more of the Company's stockholders.
BOARD OF DIRECTORS
Classified Board of Directors. The Certificate and Bylaws provide for the
Company's board of directors (the "Board of Directors") to be divided into
three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors is elected each year. The
classification of directors will have the effect of making it more difficult
for stockholders of the Company to change the composition of the Board of
Directors in a relatively short period of time. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
a majority of the directors of the Board of Directors. The classified Board of
Directors provision could have the effect of discouraging a third party from
making a tender offer or otherwise attempting to obtain control of the Company,
even though such an attempt might be beneficial to the Company and its
stockholders. The classified Board of Directors provision could thus increase
the likelihood that incumbent directors will retain their positions.
Number of Directors. The Bylaws provide that the number of directors shall be
not less than three nor more than twenty-one directors, the exact number to be
fixed from time to time by either (i) the Board of Directors, (ii) the
affirmative vote of 80% or more of the voting power of the shares of the
Company or (iii) the Certificate. Accordingly, the Board of Directors could
prevent any stockholder from obtaining majority representation on the Company's
Board of Directors by enlarging the size of the Board of Directors and filling
the new directorships with the Board of Directors' own nominees.
Removal of Directors. The Certificate provides that, subject to the rights of
the holders of any series of any preferred stock then outstanding, any director
or the entire Board of Directors may be removed from office at any annual or
special meeting called for such purpose, and then only for cause and only by
the affirmative vote of the holders of 80% or more of the voting power of all
the shares of the Company entitled to vote generally in the election of
directors, voting together as a single class. For purposes of director removal,
cause means only the following: conviction of a felony, proof beyond the
existence of a reasonable doubt that a director has committed grossly negligent
or willful misconduct resulting in material detriment to the Company or
commission of a material breach of fiduciary duty to the Company resulting in a
material detriment to the Company.
The removal of directors provisions could have the effect of discouraging a
third party from attempting to obtain control of the Company, even though such
an attempt might be beneficial to the Company and its stockholders. This
provision could also affect the ability of the stockholders of the Company to
remove incumbent directors and thus may increase the likelihood that incumbent
directors will retain their positions.
Newly-Created Directorships and Vacancies. Subject to the rights of the holders
of any series of any preferred stock then outstanding, newly-created
directorships resulting from any increase in the authorized number of directors
and any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
by a majority vote of the directors then in office even though less than a
quorum, or by a sole remaining director. The newly-created directorship and
vacancy provisions could prevent a stockholder from obtaining a position on the
Board of Directors. These provisions could also have the effect of making it
more difficult for stockholders to change the composition of the Board of
Directors of the Company.
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SPECIAL MEETINGS
The Bylaws provide that special meetings of stockholders may be called only by
the President, or by the Board of Directors or by the written order of a
majority of the directors, and shall be called by the President or Secretary at
the request in writing of stockholders owning 80% or more of the entire capital
stock of the Company issued and outstanding and entitled to vote. Accordingly,
holders of a significant percentage of the outstanding capital stock of the
Company may not be able to request a special meeting of the stockholders.
COMMON AND PREFERRED STOCK
The Certificate authorizes the Board of Directors to determine, with respect to
any series of Preferred Stock of the Company, the terms and rights of such
series, including the following: (i) the designation of such series and the
number of shares which shall constitute such series, (ii) the rate and time of,
and conditions with respect to, dividends, and whether such dividends are
cumulative, (iii) the price, timing and conditions regarding the redemption of
shares of such series, (iv) the rights and preferences of shares of such series
in the event of dissolution, liquidation or winding up of the affairs of the
Company, (v) the sinking fund provisions, if any, for the redemption or
purchase of shares of such series, (vi) the voting rights, if any, of shares of
such series, (vii) the right, if any, to convert or exchange shares of such
series into or for stock or securities of any other series or class, (viii) the
status as to, re-issuance or sale of such shares redeemed, purchased or
otherwise reacquired, or surrendered to the Company on conversion, (ix) the
conditions and restrictions, if any, on the payment of dividends or on the
making of other distributions on, or the purchase, redemption or other
acquisition by the Company or any subsidiary, of Common Stock or of any other
class of stock of the Company ranking prior to such shares as to dividends or
upon liquidation, (x) the conditions, if any, on the creation of indebtedness
of the Company or any subsidiary and (xi) any other preferences or other
special or relative rights of shares of such series. The Certificate provides
that the Common Stock of the Company shall be junior to the Preferred Stock and
is subject to all the rights, privileges, preferences and priorities of the
preferred stock as set forth in the Certificate or as determined by the Board
of Directors, including the issuance of dividends and distribution of assets in
the event of liquidation, dissolution or winding up. The exclusive voting power
of the Company shall be vested in the Common Stock of the Company, subject to
any particular class or series of Preferred Stock with additional voting
rights. No holder of any stock of any class of the Company shall, as such
holder, have any right to purchase or subscribe for any shares of the capital
stock of any class of securities which the Company may issue or sell, nor shall
any holder of any such stock have any right to purchase or subscribe for any
obligation which the Company may issue or sell that shall be convertible into,
or exchangeable for, any shares of the capital stock of the Company, or to
which shall be attached any warrant or instrument that shall confer upon the
owner of such obligation, warrant or instrument the right to subscribe for, or
to purchase from the Company any shares of its capital stock of any class.
The preemptive rights and the Preferred Stock provisions could have the effect
of diluting the voting rights of the Common Stockholders of the Company by
placing voting power in the hands of Preferred Stockholders to the exclusion of
the Common Stockholders.
The Company believes that the availability of Preferred Stock provides it with
increased flexibility in structuring possible future financing and
acquisitions, and in meeting other corporate needs which might arise. Having
such authorized shares available for issuance will allow the Company to issue
shares of Preferred Stock without the expense and delay of a special
stockholders' meeting. The authorized shares of Preferred Stock as well as
shares of the Company's Common Stock, will be available for issuances without
further action by the stockholders, unless such action is required by
applicable law or the rules of any stock exchange on which the Company's
capital stock may then be listed. The Board of Directors could issue a series
of Preferred Stock that could, depending on the terms of such series, either
impede or facilitate the completion of a merger, tender offer or other takeover
attempt. For instance, such series of Preferred Stock might impede a business
combination by including class voting rights which would enable the holder to
block such a transaction or facilitate a business combination by including
voting rights which would provide a required percentage vote of stockholders.
The Board of Directors will make any determination to issue such shares based
on its judgment as to the respective best interests of the Company and its then
existing stockholders.
BUSINESS COMBINATIONS
The Certificate requires that the following procedures be observed in
connection with the authorization of transactions involving an interested
stockholder which could eliminate or fundamentally change the interests of the
remaining stockholders of the Company ("Business Combinations").
If a Business Combination is proposed which will directly or indirectly involve
an "Interested Stockholder" (as hereinafter defined), such Business Combination
must be approved by the affirmative vote of the holders of the Company's
capital stock representing at least 80% of the votes entitled to be cast by the
holders of all the then outstanding shares of the voting stock,
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voting together as a single class, and by the affirmative vote of at least a
majority of the entire Board of Directors of the Company unless such Business
Combination is approved by the majority of the directors who were in office
prior to the time the Interested Stockholder became an Interested Stockholder
and who continue in office (the "Continuing Directors").
A Business Combination includes:
(i) any merger or consolidation of the Company or any subsidiary thereof
with (a) any Interested Stockholder or (b) any other company (whether or
not itself an Interested stockholder) which is, or after such merger or
consolidation would be, an Affiliate or Associate (as hereinafter defined)
of an Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer, or other dispo-
sition or security arrangement, investment, loan, advance, guarantee,
agreement to purchase, agreement to pay, extension of credit, joint venture
participation, or other agreement (in one transaction or a series of trans-
actions) with or for the benefit of any Interested Stockholder or any Af-
filiate or Associate of an Interested Stockholder involving any assets, se-
curities, or commitments of the Company, any subsidiary of any Interested
Stockholder, or any Affiliate or Associate of any Interested Stockholder
having an aggregate fair market value and/or involving aggregate commit-
ments of $1,000,000 or more; or
(iii) the adoption of any plan or proposal for the liquidation or dissolu-
tion of the Company which is voted for, approved, or consented to by any
Interested Stockholder; or
(iv) any reclassification of securities (including any reverse stock
split), or recapitalization of the Company, or any merger or consolidation
of the Company with any of its subsidiaries, or any other transaction
(whether or not with or otherwise involving an Interested Stockholder) that
has the effect, directly or indirectly, of increasing the proportionate
share of any class or series of capital stock, or any securities convert-
ible into capital stock or into equity securities of any subsidiary, that
is beneficially owned by any Interested Stockholder or any Affiliate or As-
sociate of any Interested Stockholder; or
(v) any agreement, contract, or other arrangement providing for any one or
more of the actions specified in the foregoing clauses (i) to (iv).
An "Interested Stockholder" is any person (other than the Company or any
subsidiary thereof and other than any profit-sharing, employee stock
ownership, or other employee benefit plan of the Company or any subsidiary or
any trustee of or fiduciary with respect to any such plan when acting in such
capacity) who (i) is the beneficial owner of voting stock representing 20% or
more of the votes entitled to be cast by the holders of all then outstanding
shares of voting stock or (ii) is an Affiliate or Associate of the Company and
at any time within the two-year period immediately prior to the date in
question was the beneficial owner of voting stock representing 20% or more of
the votes entitled to be cast by the holders of all then outstanding shares of
voting stock.
"Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 under the Exchange Act as in effect on the date that
the Business Combination is approved by the Board of Directors (the term
"registrant" in such Rule 12b-2 meaning, in this case, the Company).
A majority of the Continuing Directors of the Company shall each have the
power and duty to determine, for the purposes of applying the Business
Combination provisions to their respective corporations, on the basis of
information known to them after reasonable inquiry (i) whether a person is an
Interested Stockholder, (ii) the number of shares of capital stock or other
securities beneficially owned by any person, (iii) whether a person is an
Affiliate or Associate of another, and (iv) whether the assets that are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Company or any subsidiary in
any Business Combination has, an aggregate fair market value of $1,000,000 or
more.
AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE AND BYLAWS
The Certificate contains provisions requiring the affirmative vote of the
holders of at least 80% of the voting stock to amend the provisions relating
to the election and number of directors and Business Combinations described
above. The Bylaws contain provisions requiring the affirmative vote of holders
of at least 80% of the voting stock to amend the provisions relating to
special meetings of stockholders. These provisions will make it more difficult
for stockholders to make changes in the Certificate or Bylaws, including
changes designed to facilitate the exercise of control over the Company. In
addition, such requirements will enable the holders of a minority of stock to
prevent the holders of a majority or more of such stock from amending certain
provisions of the Certificate and Bylaws. The requirements for such vote may
be difficult to obtain, since at least 80% of the Common Stock must be present
or represented by proxy at any meeting at which any such amendment is proposed
and must vote in favor of such amendment.
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DESCRIPTION OF WARRANTS
The Company may issue warrants to purchase Debt Securities (the "Debt
Warrants") or Preferred Stock (the "Preferred Share Warrants", collectively
with the Debt Warrants, the "Warrants"). Warrants may be issued independently
or together with any other Securities and may be attached to or separate from
such Securities. The Warrants are to be issued under warrant agreements (each a
"Warrant Agreement") to be entered into between the Company and a bank or trust
company, as warrant agent (the "Warrant Agent"), all as shall be set forth in
the Prospectus Supplement relating to the Warrants being offered pursuant
thereto.
DEBT WARRANTS
The applicable Prospectus Supplement will describe the terms of Debt Warrants
offered thereby, the Warrant Agreement relating to such Debt Warrants and the
debt warrant certificates representing such Debt Warrants, including the
following: (1) the title of such Debt Warrants; (2) the aggregate number of
such Debt Warrants; (3) the price or prices at which such Debt Warrants will be
issued; (4) the designation, aggregate principal amount and terms of the Debt
Securities purchasable upon exercise of such Debt Warrants; (5) the designation
and terms of any related Debt Securities with which such Debt Warrants are
issued, and the number of such Debt Warrants issued with each such security;
(6) the date, if any, on and after which such Debt Warrants and the related
Debt Securities will be separately transferable; (7) the principal amount of
Debt Securities purchasable upon exercise of each Debt Warrant, and the price
at which such principal amount of Debt Securities may be purchased upon such
exercise; (8) the date on which the right to exercise such Debt Warrants shall
commence, and the date on which such right shall expire; (9) the maximum or
minimum number of such Debt Warrants which may be exercised at any time; (10) a
discussion of material federal income tax considerations, if any; and (11) any
other terms of such Debt Warrants and terms, procedures and limitations
relating to the exercise of such Debt Warrants.
Debt Warrant certificates will be exchangeable for new Debt Warrant
certificates of different denominations, and Debt Warrants may be exercised at
the corporate trust office of the Warrant Agent or any other office indicated
in the Prospectus Supplement. Prior to the exercise of their Debt Warrants,
holders of Debt Warrants will not have any of the rights of holders of the
securities purchasable upon such exercise and will not be entitled to payments
of principal of (or premium, if any) or interest, if any, on the securities
purchasable upon such exercise.
PREFERRED WARRANTS
The applicable Prospectus Supplement will describe the following terms of
Preferred Stock Warrants in respect of which this Prospectus is being
delivered: (1) the title of such Warrants; (2) the Securities for which such
Warrants are exercisable; (3) the price or prices at which such Warrants will
be issued; (4) the number of such Warrants issued with each share of Preferred
Stock; (5) any provisions for adjustment of the number or amount of Preferred
Stock receivable upon exercise of such Warrants or the exercise price of such
Warrants; (6) if applicable, the date on and after which such Warrants and the
related Preferred Stock will be separately transferable; (7) if applicable, a
discussion of material federal income tax considerations; (8) any other terms
of such Warrants, including terms, procedures and limitations relating to the
exchange and exercise of such Warrants; (9) the date on which the right to
exercise such Warrants shall commence, and the date on which the right shall
expire; (10) the maximum or minimum number of such Warrants which may be
exercised at any time.
EXERCISE OF WARRANTS
Each Warrant will entitle the holder of the Warrants to purchase for cash such
principal amount of Debt Securities or number of shares of Preferred Stock at
such exercise price as shall in each case be set forth in, or be determinable
as set forth in, the Prospectus Supplement relating to the Warrants offered
thereby. Warrants may be exercised at any time up to the close of business on
the expiration date set forth in the Prospectus Supplement relating to the
Warrants offered thereby. After the close of business on the expiration date,
unexercised Warrants will become void.
Warrants may be exercised as set forth in the Prospectus Supplement relating to
the Warrants offered thereby. Upon receipt of payment and the warrant
certificate properly completed and duly executed at the corporate trust office
of the Warrant Agent or any other office indicated in the Prospectus
Supplement, the Company will, as soon as practicable, forward the Debt
Securities or Preferred Stock purchasable upon such exercise. If less than all
of the Warrants represented by such warrant certificate are exercised, a new
warrant certificate will be issued for the remaining Warrants.
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DESCRIPTION OF TRUST PREFERRED SECURITIES
The Nuevo Trust may issue only one series of Trust Preferred Securities having
terms described in the Prospectus Supplement relating thereto. The Declaration
of the Nuevo Trust authorizes the Regular Trustees to issue on behalf of the
Nuevo Trust one series of Trust Preferred Securities. The Declaration will be
qualified as an indenture under the Trust Indenture Act. The Trust Preferred
Securities will have such terms, including distributions, redemption, voting,
liquidation, conversion rights and such other preferred, deferred or other
special rights or such restrictions as shall be set forth in the Declaration or
made part of the Declaration by the Trust Indenture Act, and which will mirror
the terms of the Subordinated Debt Securities held by the Property Trustee and
described in the Prospectus Supplement related thereto. Reference is made to
the Prospectus Supplement relating to the Trust Preferred Securities for
specific terms, including (i) the distinctive designation of such Trust
Preferred Securities; (ii) the number of Trust Preferred Securities; (iii) the
annual distribution rate (or method of determining such rate) for the Trust
Preferred Securities and the date or dates upon which such distributions shall
be payable; provided, however, that distributions on such Trust Preferred
Securities shall be payable on a quarterly basis to holders of such Trust
Preferred Securities as of a record date in each quarter during which such
Trust Preferred Securities are outstanding; (iv) whether distributions on the
Trust Preferred Securities shall be cumulative, and, in the case of Trust
Preferred Securities having such cumulative distribution rights, the date or
dates or method of determining the date or dates from which distributions on
the Trust Preferred Securities shall be cumulative; (v) the amount or amounts
which shall be paid out of the assets of the Nuevo Trust to the holders of the
Trust Preferred Securities upon voluntary or involuntary dissolution, winding-
up or termination of the Nuevo Trust; (vi) the obligation, if any, of the Nuevo
Trust to purchase or redeem the Trust Preferred Securities and the price or
prices at which, the period or periods within which, and the terms and
conditions upon which, the Trust Preferred Securities shall be purchased or
redeemed, in whole or in part, pursuant to such obligation; (vii) the voting
rights, if any, of the Trust Preferred Securities in addition to those required
by law, including the number of votes per Trust Preferred Security and any
requirement for the approval by the holders of the Trust Preferred Securities,
as a condition to specified action or amendments to the Declaration of the
Nuevo Trust; (viii) the terms and conditions, if any, upon which the Trust
Preferred Securities may be converted into shares of Common Stock, including
the conversion price per share and the circumstances, if any, under which any
such conversion right shall expire; (ix) the terms and conditions, if any, upon
which the Subordinated Debt Securities may be distributed to holders of the
Trust Preferred Securities; (x) if applicable, any securities exchange upon
which the Trust Preferred Securities shall be listed; and (xi) any other
relevant rights, preferences, privileges, limitations or restrictions of the
Trust Preferred Securities not inconsistent with the Declaration of the Nuevo
Trust or with applicable law. All Trust Preferred Securities offered hereby
will be guaranteed by the Company to the extent set forth below under
"Description Of Trust Preferred Securities Guarantee." Certain United States
federal income tax considerations applicable to any offering of Trust Preferred
Securities will be described in the Prospectus Supplement relating thereto.
In connection with the issuance of Trust Preferred Securities, the Nuevo Trust
will issue one series of Trust Common Securities. The Declaration of the Nuevo
Trust authorizes the Regular Trustees to issue on behalf of the Nuevo Trust one
series of Trust Common Securities having such terms including distributions,
redemption, voting and liquidation rights or such restrictions as shall be set
forth therein. The terms of the Trust Common Securities will be substantially
identical to the terms of the Trust Preferred Securities, and the Trust Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Trust Preferred Securities except that, upon an event of default under
the Declaration, the rights of the holders of the Trust Common Securities to
payment in respect of distributions and payments upon liquidation, redemption
and otherwise will be subordinated to the rights of the holders of the Trust
Preferred Securities. Except in certain limited circumstances, the Trust Common
Securities will also carry the right to vote to appoint, remove or replace any
of the Nuevo Trustees. All of the Trust Common Securities will be directly or
indirectly owned by the Company.
PROPOSED TAX LEGISLATION
On March 19, 1996, as a part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") that, among other things, would (i) treat as equity for United
States federal income tax purposes certain debt instruments with a maximum term
of more than 20 years and (ii) disallow interest deductions on certain
convertible debt instruments or defer interest deductions on certain debt
instruments issued with original issue discounts. The Proposed Legislation is
proposed to be effective for debt instruments issued on or after December 7,
1995.
On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and
House Ways and Means Committee Chairman Bill Archer issued a joint statement
(the "Joint Statement") indicating their intent that the Proposed Legislation,
if adopted by either of the tax-writing committees of Congress, would have an
effective date that is no earlier than the date of "appropriate Congressional
action." However, there can be no assurances that the effective date guidance
contained in the Joint Statement will be incorporated in the Proposed
Legislation, if enacted, or that other legislation enacted after the date
hereof will
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not otherwise adversely affect the tax treatment of the Subordinated Debt
Securities. In addition, there can be no assurances as to whether or in what
form the Proposed Legislation may be enacted into law or whether other
legislation will be enacted that otherwise adversely affects the tax treatment
of the Subordinated Debt Securities and the Trust Preferred Securities.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If an Event of Default under the Declaration of the Nuevo Trust occurs and is
continuing, then the holders of the Trust Preferred Securities would rely on
the enforcement by the Property Trustee of its rights as a holder of the
Subordinated Debt Securities against the Company. In addition, the holders of a
majority in liquidation amount of the Trust Preferred Securities will have the
right to direct the time, method, and place of conducting any proceeding for
any remedy available to the Property Trustee or to direct the exercise of any
trust or power conferred upon the Property Trustee under the Declaration,
including the right to direct the Property Trustee to exercise the remedies
available to it as a holder of the Subordinated Debt Securities. If the
Property Trustee fails to enforce its rights under such of Subordinated Debt
Securities, to the fullest extent permitted by law, a holder of the Trust
Preferred Securities may institute a legal proceeding directly against the
Company to enforce the Property Trustee's rights under such Subordinated Debt
Securities without first instituting any legal proceeding against the Property
Trustee or any other person or entity. Notwithstanding the foregoing, if an
Event of Default under the applicable Declaration has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on such Subordinated Debt Securities on the date such
interest or principal is otherwise payable (or in the case of redemption, on
the redemption date), then a holder of the Trust Preferred Securities may
directly institute a proceeding for enforcement of payment to such holder of
the principal of or interest on such Subordinated Debt Securities having a
principal amount equal to the aggregate liquidation amount of the Trust
Preferred Securities of such holder (a "Direct Action") on or after the
respective due date specified in the Subordinated Debt Securities. In
connection with such Direct Action, the Company will be subrogated to the
rights of such holder of the Trust Preferred Securities under the Declaration
to the extent of any payment made by the Company to such holder of Trust
Preferred Securities in such Direct Action.
DESCRIPTION OF TRUST PREFERRED SECURITIES GUARANTEE
Set forth below is a summary of information concerning the Trust Preferred
Securities Guarantee which will be executed and delivered by the Company for
the benefit of the holders from time to time of Trust Preferred Securities. The
Trust Preferred Securities Guarantee will be qualified as an indenture under
the Trust Indenture Act. Wilmington Trust Company will act as the independent
trustee under the Trust Preferred Securities Guarantee (the "Preferred
Guarantee Trustee") for purposes of the Trust Indenture Act. The terms of the
Trust Preferred Securities Guarantee will be those set forth in the Trust
Preferred Securities Guarantee and those made part of the Trust Preferred
Securities Guarantee by the Trust Indenture Act. The summary is subject in all
respects to the provisions of, and is qualified in its entirety by reference
to, the form of Trust Preferred Securities Guarantee, which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
and the Trust Indenture Act. The Trust Preferred Securities Guarantee will be
held by the Preferred Guarantee Trustee for the benefit of the holders of the
Trust Preferred Securities.
GENERAL
Pursuant to the Trust Preferred Securities Guarantee, the Company will agree,
to the extent set forth therein, to pay in full, to the holders of the Trust
Preferred Securities, the Guarantee Payments (as defined herein) (except to the
extent paid by the Nuevo Trust), as and when due, regardless of any defense,
right of setoff or counterclaim which the Nuevo Trust may have or assert. The
following payments with respect to the Trust Preferred Securities to the extent
not paid by the Nuevo Trust (the "Guarantee Payments"), will be subject to the
Trust Preferred Securities Guarantee thereon (without duplication): (i) any
accrued and unpaid distributions which are required to be paid on such Trust
Preferred Securities, to the extent the Nuevo Trust shall have funds available
therefor; (ii) the redemption price set forth in the applicable Prospectus
Supplement (the "Redemption Price"), which will not be lower than the
liquidation amount, and all accrued and unpaid distributions, to the extent the
Nuevo Trust has funds available therefor, with respect to any Trust Preferred
Securities called for redemption by the Nuevo Trust and (iii) upon a voluntary
or involuntary dissolution, winding-up or termination of the Nuevo Trust (other
than in connection with the distribution of Subordinated Debt Securities to the
holders of Trust Preferred Securities or the redemption of all of the Trust
Preferred Securities), the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid distributions on the Trust Preferred
Securities to the date of payment, to the extent the Nuevo Trust has funds
available therefor, and (b) the amount of assets of the Nuevo Trust remaining
available for distribution to holders of the Trust Preferred Securities in
liquidation of the Nuevo Trust. The Company's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of Trust Preferred Securities or by causing the Nuevo
Trust to pay such amounts to such holders.
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The Trust Preferred Securities Guarantee will not apply to any payment of
distributions on the Trust Preferred Securities except to the extent the Nuevo
Trust shall have funds available therefor. If the Company does not make
interest payments on the Subordinated Debt Securities purchased by the Nuevo
Trust, the Nuevo Trust will not pay distributions on the Trust Preferred
Securities issued by the Nuevo Trust and will not have funds available
therefor. See "Description Of Debt Securities--Certain Covenants of the
Company." The Trust Preferred Securities Guarantee, when taken together with
the Company's obligations under the Subordinated Debt Securities, the
Subordinated Indenture and the Declaration, including its obligations to pay
costs, expenses, debts and liabilities of the Nuevo Trust (other than with
respect to the Trust Securities), will provide a full and unconditional
guarantee on a subordinated basis by the Company of payments due on the Trust
Preferred Securities.
The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Nuevo Trust with respect to the Trust Common
Securities (the "Trust Common Securities Guarantee") to the same extent as the
Trust Preferred Securities Guarantee, except that upon an event of default
under the Subordinated Indenture, holders of Trust Preferred Securities shall
have priority over holders of Trust Common Securities with respect to
distributions and payments on liquidation, redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In the Trust Preferred Securities Guarantee, the Company will covenant that, so
long as any Trust Preferred Securities remain outstanding, if there shall have
occurred any event that would constitute an event of default under the Trust
Preferred Securities Guarantee or the Declaration of the Nuevo Trust, then (a)
the Company shall not declare or pay any dividend on, make any distributions
with respect to, or redeem, purchase or make a liquidation payment with respect
to, any of its capital stock (other than (i) purchases or acquisitions of
shares of Common Stock in connection with the satisfaction by the Company of
its obligations under any employee benefit plans, (ii) as a result of a
reclassification of the Company's capital stock or the exchange or conversion
of one class or series of the Company's capital stock for another class or
series of the Company's capital stock, or (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock of the Company or the security
being converted or exchanged) or make any guarantee payments with respect to
the foregoing and (b) the Company shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by the Company which rank pari passu
with or junior to the Subordinated Debt Securities held by the Property
Trustee.
MODIFICATION OF THE TRUST PREFERRED SECURITIES GUARANTEE; ASSIGNMENT
Except with respect to any changes which do not materially adversely affect the
rights of holders of Trust Preferred Securities (in which case no vote will be
required), the Trust Preferred Securities Guarantee may be amended only with
the prior approval of the holders of not less than a majority in liquidation
amount of the outstanding Trust Preferred Securities. The manner of obtaining
any such approval of holders of such Trust Preferred Securities will be as set
forth in an accompanying Prospectus Supplement. All guarantees and agreements
contained in the Trust Preferred Securities Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the holders of the Trust Preferred Securities
then outstanding.
TERMINATION
The Trust Preferred Securities Guarantee will terminate (a) upon full payment
of the Redemption Price of all Trust Preferred Securities, (b) upon
distribution of the Subordinated Debt Securities held by the Property Trustee
to the holders of the Trust Preferred Securities or (c) upon full payment of
the amounts payable in accordance with the Declaration upon liquidation of the
Nuevo Trust. The Trust Preferred Securities Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Trust Preferred Securities must restore payment of any sums paid under the
Trust Preferred Securities or the Trust Preferred Securities Guarantee. The
subordination provisions of the Subordinated Debt Securities provide that in
the event payment is made on the Subordinated Debt Securities in contravention
of such provisions such payments shall be paid over to the holders of Senior
Indebtedness.
EVENTS OF DEFAULT
An event of default under the Trust Preferred Securities Guarantee will occur
upon (a) the failure of the Company to perform any of its payment or other
obligations thereunder or (b) if applicable, the failure by the Company to
deliver Common Stock upon an appropriate election by the holder or holders of
Trust Preferred Securities to convert the Trust Preferred Securities into
shares of Common Stock.
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The holders of a majority in liquidation amount of the Trust Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Preferred Guarantee Trustee in
respect of the Trust Preferred Securities Guarantee or to direct the exercise
of any trust or power conferred upon the Preferred Guarantee Trustee under such
Trust Preferred Securities. If the Preferred Guarantee Trustee fails to enforce
such Trust Preferred Securities Guarantee, any holder of Trust Preferred
Securities may institute a legal proceeding directly against the Company to
enforce the Preferred Guarantee Trustee's rights under such Trust Preferred
Securities Guarantee, without first instituting a legal proceeding against the
Nuevo Trust, the Preferred Guarantee Trustee or any other person or entity.
Notwithstanding the foregoing, if the Company has failed to make a Guarantee
Payment, a holder of Trust Preferred Securities may directly institute a
proceeding against the Company for enforcement of the Trust Preferred
Securities Guarantee for such payment. The Company waives any right or remedy
to require that any action be brought first against the Nuevo Trust or any
other person or entity before proceeding directly against the Company.
STATUS OF THE TRUST PREFERRED SECURITIES GUARANTEE
The Trust Preferred Securities Guarantee will constitute an unsecured
obligation of the Company and will rank (i) subordinate and junior in right of
payment to all other liabilities of the Company, (ii) pari passu with the most
senior preferred or preference stock now or hereafter issued by the Company and
with any guarantee now or hereafter entered into by the Company in respect of
any preferred or preference stock of any affiliate of the Company and (iii)
senior to Common Stock. The terms of the Trust Preferred Securities provide
that each holder of Trust Preferred Securities by acceptance thereof agrees to
the subordination provisions and other terms of the Trust Preferred Securities
Guarantee relating thereto.
The Trust Preferred Securities Guarantee will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without instituting a legal proceeding against any other person or
entity).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to the Trust Preferred Securities Guarantee, undertakes to perform only
such duties as are specifically set forth in such Trust Preferred Securities
Guarantee and, after default, shall exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Preferred Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by a Trust Preferred
Securities Guarantee at the request of any holder of the Trust Preferred
Securities, unless offered reasonable indemnity against the costs, expenses and
liabilities which might be incurred thereby.
PLAN OF DISTRIBUTION
The Securities may be sold by the Company, the Nuevo Trust and/or the Selling
Stockholders (i) through agents, (ii) through underwriters, (iii) through
dealers or (iv) directly to purchasers (through a specific bidding or auction
process or otherwise). In addition, the 1818 Fund may offer and sell Common
Stock on the New York Stock Exchange. The distribution of Securities may be
effected from time to time in one or more transactions at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices relating to such prevailing market prices or at negotiated
prices.
Offers to purchase the Securities may be solicited by agents designated by the
Company or a Selling Stockholder from time to time. Any such agent involved in
the offer or sale of the Securities will be named, and any commissions payable
by the Company or Selling Stockholder to such agent will be set forth in the
Prospectus Supplement. Unless otherwise indicated in the Prospectus Supplement,
any such agent will be acting on a best efforts basis for the period of its
appointment. Any such agent may be deemed to be an underwriter, as that term is
defined in the Securities Act, of the Securities so offered and sold.
If an underwriter or underwriters are utilized in the sale of Securities, the
Company or any Selling Stockholders selling Common Stock thereunder will
execute an underwriting agreement with such underwriter or underwriters at the
time an agreement for such sale is reached, and the names of the specific
managing underwriter or underwriters, as well as any other underwriters and the
terms of the transactions, including compensation of the underwriters and
dealers, if any, will be set forth in the Prospectus Supplement, which will be
used by the underwriters to make resales of the Securities.
If a dealer is utilized in the sale of the Securities, the Company or a Selling
Stockholder will sell such Securities to the dealer, as principal. The dealer
may then resell such Securities to the public at varying prices to be
determined by such dealer at the time of resale. The name of the dealer and the
terms of the transactions will be set forth in the Prospectus Supplement
relating thereto. Offers to purchase the Securities may be solicited directly
by the Company or a Selling Stockholder and sales thereof may be made by the
Company or a Selling Stockholder directly to institutional investors or others.
The terms of any such sales, including the terms of any bidding or auction
process, if utilized, will be described in the Prospectus Supplement relating
thereto.
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The Securities may also be offered and sold, if so indicated in the Prospectus
Supplement, in connection with a remarketing upon their purchase, in accordance
with a redemption or repayment pursuant to their terms, or otherwise, by one or
more firms ("remarketing firms"), acting as principals for their own accounts
or as agents for the Company or a Selling Stockholder. Any remarketing firm
will be identified and the terms of its agreement, if any, with the Company or
a Selling Stockholder and its compensation will be described in the Prospectus
Supplement. Remarketing firms may be deemed to be underwriters in connection
with the Securities remarketed thereby.
Agents, underwriters, dealers and remarketing firms may be entitled under
agreements which may be entered into with the Company or Selling Stockholders
to indemnification by the Company or Selling Stockholders against certain
liabilities, including liabilities under the Securities Act, and any such
agents, underwriters, dealers or remarketing firms, or their affiliates may be
customers of, engage in transactions with or perform services for the Company
or Selling Stockholders in the ordinary course of business.
If so indicated in the Prospectus Supplement, the Company will authorize agents
and underwriters to solicit offers by certain institutions to purchase Debt
Securities from the Company at the public offering price set forth in the
Prospectus Supplement pursuant to Delayed Delivery Contracts ("Contracts")
providing for payment and delivery on the date stated in the Prospectus
Supplement. Such Contracts will be subject to only those conditions set forth
in the Prospectus Supplement. A commission indicated in the Prospectus
Supplement will be paid to underwriters and agents soliciting purchases of Debt
Securities pursuant to Contracts accepted by the Company.
SELLING STOCKHOLDERS
The Selling Stockholders are United Investors Management Company, a Delaware
corporation ("United") and wholly owned subsidiary of Torchmark Corporation, an
insurance and financial services holding company, and the 1818 Fund. As of
September 30, 1996, United owned 1,275,000 shares of Common Stock of Nuevo and
the 1818 Fund owned 112 shares of Common Stock and 11,220 shares of 7%
Preferred Stock convertible into approximately 863,493 shares of Common Stock.
United is registering for sale all of the shares of Common Stock owned by it
and the 1818 Fund is registering for sale all of the shares of Common Stock
owned by it or issuable upon conversion of all of the 7% Preferred Stock owned
by it. The Prospectus Supplement relating to any Common Stock being offered by
either Selling Stockholder will set forth the number of shares of Common Stock
being offered for its account as well as the number of such shares and the
percentage of the outstanding Common Stock to be owned by such Selling
Stockholder after completion of the offering.
The shares of Common Stock being registered hereunder for sale by United and
the 1818 Fund have been registered pursuant to registration rights agreements,
one of which is between Nuevo and the 1818 Fund, dated May 28, 1992 and the
other of which is between Nuevo and Torch Energy Advisors Incorporated ("Torch
Energy"), dated April 4, 1996. Torch Energy subsequently assigned its rights
under the April 4, 1996 agreement to United. Both registration rights
agreements provide a specified number of "demand" registration rights and
unlimited "piggy back" registration rights. The Company has agreed pursuant to
the registration rights agreements to indemnify the 1818 Fund and United (as
the case may be) against certain liabilities including liabilities under the
Securities Act, or to contribute to payments the 1818 Fund or United may be
required to make in respect thereof. The Company is obligated to pay all
expenses in connection with the shares sold by 1818 Fund hereunder, excluding
any underwriting discounts or commissions. United is required to pay its pro
rata share of any expenses of demand registrations requested by it, and the
Company is required to pay all expenses of registration statements in which
United participates under its piggy back registration rights, excluding any
underwriting discounts or commissions. The general and managing partner of the
1818 Fund is Brown Brothers Harriman & Co., a New York partnership ("Brown
Brothers"), which has designated its partners T. Michael Long and Lawrence C.
Tucker the sole and exclusive partners having voting power and investment power
with respect to the shares of Common Stock into which the 7% Preferred Stock is
convertible. Mr. Long is a director of the Company. Brown Brothers has advised
the Company that the 1818 Fund is selling its Common Stock because of the
advanced term of the 1818 Fund in relation to its planned life.
Prior to September 30, 1996, United owned all of the capital stock of Torch
Energy which has rendered administrative services to the Company since the
formation of the Company in 1990 pursuant to an administrative services
agreement, as amended. Prior to United's sale of Torch Energy on September 30,
1996, Torch Energy distributed to United the shares of Common Stock being
registered hereunder. Torch Energy acquired these shares in exchange for
properties sold to Nuevo in April 1996. For services rendered in connection
with the acquisition of oil and gas properties in California during April 1996,
the Company paid Torch Energy a fee of $10 million. Prior to September 30,
1996, J.P. Bryan, a director of the Company, was also a director of Torchmark
Corporation. United has advised the Company that it is selling its shares
pursuant to its previously announced liquidation of its energy-related
investments.
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This Prospectus is not the exclusive means for resale of any Common Stock of
the Selling Stockholders registered hereunder. For example, the 1818 Fund may
also sell Common Stock owned by it pursuant to Rule 144 under the Securities
Act.
EXPERTS
The consolidated financial statements of Nuevo Energy Company as of December
31, 1995 and 1994, and for each of the years in the three-year period ended
December 31, 1995, the statements of revenues and direct operating expenses of
the Unocal Properties for each of the years in the three-year period ended June
30, 1995, and the statements of revenues and direct operating expenses of the
Point Pedernales Properties for each of the years in the three-year period
ended June 30, 1995, have been incorporated by reference herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
Information incorporated by reference in this Prospectus regarding the
Company's estimated quantities of oil and gas reserves and the discounted
present value of future pre-tax cash flows therefrom is based upon estimates of
such reserves and present values prepared by Miller and Lents, Ltd., S. A.
Holditch and Associates, Inc., Ryder Scott Company, D.O.R. Engineering Inc.,
and Poco Oil Co., independent petroleum engineers. Information incorporated in
this Prospectus regarding the estimated quantities of oil and gas reserves
attributable to the California Properties and the discounted present value of
future pre-tax cash flows therefrom is based upon estimates of such reserves
and present values prepared by or derived from estimates prepared by Ryder
Scott Company. Information incorporated in this Prospectus regarding the
estimated quantities of oil and gas reserves attributable to the East Texas
Properties and the discounted present value of future pre-tax cash flows
therefrom is based upon estimates of such reserves and present values prepared
by or derived from estimates prepared by T.J. Smith & Company, Inc. All of such
information has been so included herein in reliance upon the authority of such
firms as experts in such matters.
LEGAL MATTERS
The validity of the Securities, other than the Trust Securities, offered hereby
will be passed upon for the Company by Butler & Binion L.L.P., Houston, Texas,
and will be passed upon for any agents, dealers or underwriters by counsel
named in the applicable Prospectus Supplement. The validity of the Trust
Securities will be passed upon by Richards, Layton & Finger, Wilmington,
Delaware, special Delaware counsel to the Company and the Nuevo Trust. If the
Securities include any Common Stock of a Selling Stockholder, certain legal
matters in connection therewith will be passed upon for such Selling
Stockholders by counsel named in the applicable Prospectus Supplement.
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