<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
NUEVO ENERGY COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 1311 76-0304436
(State or other jurisdiction of incorporation (Primary Standard Industrial (I.R.S. Employer
or organization) Classification Code Number) Identification Number)
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1021 MAIN, SUITE 2100, HOUSTON, TEXAS 77002
(713) 652-0706
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
ROBERT M. KING
1021 MAIN, SUITE 2100, HOUSTON, TEXAS 77002
(713) 652-0706
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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Copies to:
GEORGE G. YOUNG III
HAYNES AND BOONE, L.L.P.
1000 LOUISIANA ST., SUITE 4300
HOUSTON, TEXAS 77002
TELEPHONE: (713) 547-2081
TELECOPY: (713) 547-2600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the Registration Statement becomes
effective
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number of the earlier effective registration statement
for the same offering.
---------------
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
========================================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION FEE
REGISTERED PRICE PER UNIT PRICE
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<S> <C> <C> <C> <C>
9 1/2% Senior Subordinated
Notes due 2008................ $257,310,000 100% $257,310,000 $71,533 (1)
========================================================================================================================
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(1) Calculated in accordance with Rule 457(f)(2).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and we are not soliciting an offer to buy these
securities, in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 3, 1999.
[LOGO] NUEVO ENERGY COMPANY
OFFER TO EXCHANGE
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR
ANY AND ALL OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
($257,310,000 IN PRINCIPAL AMOUNT OUTSTANDING)
THE EXCHANGE OFFER
o The exchange offer expires at 5:00 p.m., New York City time, on
______________________________, 1999, unless extended.
o Subject to customary conditions, which we may waive, the exchange
offer is not conditioned upon a minimum aggregate principal amount of
existing notes being tendered.
o All existing notes tendered according to the procedures in this
prospectus and not withdrawn will be exchanged for an equal principal
amount of exchange notes.
o The exchange offer is not subject to any condition other than that it
not violate applicable laws or any applicable interpretation of the
staff of the Securities and Exchange Commission.
THE EXCHANGE NOTES
o The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the existing notes, except that we have
registered the exchange notes with the Securities and Exchange
Commission. In addition, the exchange notes will not be subject to the
transfer restrictions the existing notes are subject to, and
provisions relating to an increase in the stated interest rate on the
existing notes will be eliminated.
o The exchange notes will be senior subordinated obligations of Nuevo
Energy Company. They are subordinate to our senior debt. As of June
30, 1999, we had senior debt outstanding of approximately $120.0
million.
o Interest on the exchange notes will accrue from August 20, 1999 at the
rate of 9 1/2% per year, payable semi-annually in arrears on each June
1 and December 1, beginning December 1, 1999.
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YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 15 OF
THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
THE DATE OF THIS PROSPECTUS IS _____________________, 1999.
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TABLE OF CONTENTS
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Page
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Where You Can Find More Information...............................................................................1
Forward-Looking Statements........................................................................................2
Summary...........................................................................................................3
Risk Factors.....................................................................................................15
Capitalization...................................................................................................22
Selected Consolidated Financial Data.............................................................................23
Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................................................26
Business and Properties..........................................................................................38
Beneficial Ownership of Our Common Stock.........................................................................52
Management.......................................................................................................54
Executive Compensation...........................................................................................57
Performance Graph................................................................................................63
Use of Proceeds..................................................................................................63
The Exchange Offer...............................................................................................64
Description of the Exchange Notes................................................................................72
Registration Rights.............................................................................................110
Plan of Distribution............................................................................................110
Legal Matters...................................................................................................111
Experts.........................................................................................................111
Glossary of Oil and Gas Terms...................................................................................111
Index to Financial Statements....................................................................................F1
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. Our SEC filings are available to the public
over the Internet at the SEC's web site at http://www.sec.gov. You may also
read and copy any document we file at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may obtain
information on the operation of the SEC's public reference room in Washington,
D.C. by calling the SEC at 1-800-SEC-0330. We also file information with the
New York Stock Exchange. Such reports, proxy statements and other information
may be read and copied at 30 Broad Street, New York, New York 10005.
This prospectus incorporates important business and financial
information about us that is not included in or delivered with this document.
You may request a copy of this information at no cost, by writing or telephoning
us at the following address:
Nuevo Energy Company
1021 Main, Suite 2100
Houston, Texas 77002
Attn: Corporate Secretary
Phone: (800) 364-0206
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THE EXCHANGE OFFER IS EXPECTED TO EXPIRE ON _____________, 1999 AND YOU MUST
MAKE YOUR EXCHANGE DECISIONS BY THIS EXPIRATION DATE. TO OBTAIN TIMELY DELIVERY
OF THE REQUESTED INFORMATION, YOU MUST REQUEST THIS INFORMATION BY
_____________, 1999, OR THE DATE THAT IS NO LATER THAN FIVE BUSINESS DAYS BEFORE
THE EXPIRATION DATE.
You should rely only on the information provided or incorporated by
reference in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information included or incorporated by reference in this
prospectus or any documents incorporated by reference herein is accurate as of
any date other than the date on the front of such documents.
FORWARD-LOOKING STATEMENTS
In this prospectus, we make forward-looking statements. We cannot
assure you that the plans, intentions or expectations upon which our
forward-looking statements are based will occur. Our forward-looking statements
are subject to risks, uncertainties and assumptions, including those discussed
elsewhere in this prospectus and the documents that are incorporated by
reference into this prospectus. Some of the risks which could affect our future
results and could cause results to differ materially from those expressed in
our forward-looking statements include:
o the volatility of oil and natural gas prices;
o the uncertainty of estimates of oil and natural gas reserves;
o the impact of competition;
o difficulties encountered during the exploration for and
production of oil and natural gas;
o the difficulties encountered in delivering oil and natural
gas to commercial markets;
o changes in customer demand;
o the uncertainty of our ability to attract capital;
o changes in the extensive government regulations regarding the
oil and natural gas business; and
o compliance with environmental regulations.
The information contained in this prospectus, including the
information set forth under the heading "Risk Factors," identifies additional
factors that could affect our operating results and performance. We urge you to
carefully consider those factors.
Our forward-looking statements are expressly qualified in their
entirety by this cautionary statement.
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SUMMARY
This summary highlights information from this prospectus, but does not
contain all material features of the exchange offer. For a complete description
of information which may be important to you, you should read this entire
document and the materials we have referred you to and consult with your own
legal and tax advisors. If you are not familiar with the terms used to describe
the quantities, present value and other information about oil and gas reserves,
please see "Glossary of Oil and Gas Terms."
In this prospectus, the words "we," "our," "ours," and "us" refer to
Nuevo Energy Company and, except as otherwise specified in this prospectus, to
our subsidiaries.
THE EXCHANGE OFFER
On August 20, 1999, we issued $257,310,000 of our 9 1/2% Senior
Subordinated Notes due 2008, Series A in exchange for $157,460,000 aggregate
principal amount of our 9 1/2% Senior Subordinated Notes due 2006 and
$99,850,000 aggregate principal amount of our 8 7/8% Senior Subordinated Notes
due 2008. The existing notes were issued to qualified institutional buyers and
institutional accredited investors in reliance upon the exemption from
registration provided by Regulation D under the Securities Act. In connection
with the issuance of the existing notes, we entered into a registration
agreement in which we agreed to deliver to you this prospectus and to use our
best efforts to complete the exchange offer or to file and cause to become
effective a registration statement covering the resale of the existing notes.
If the exchange offer is not completed by February 16, 2000 and if we have not
caused a registration statement covering the resale of the existing notes to
become effective by that date, the interest rate on the notes will be increased
by 0.5% per year for the 90 days subsequent to February 16, 1999. The interest
rate on the notes will be increased by an additional 0.25% per year for each
90-day period during which the exchange offer is not completed and the resale
registration statement is not effective. The maximum amount by which the
interest rate will be increased is 1% in total. After the exchange offer is
complete, you will no longer be entitled to any exchange or registration rights
for your notes. You should read the discussion under the heading "The Exchange
Offer" beginning on page 27 and "Description of the Exchange Notes" beginning
on page 38 for further information about the exchange notes.
The Exchange Offer........................ We are offering to exchange up to
$257,310,000 principal amount of
exchange notes for an identical
principal amount of existing notes.
Existing notes may be exchanged
only in $1,000 increments.
The terms of the exchange notes are
identical in all material respects
to the existing notes except that
the exchange notes have been
registered under the Securities
Act. Because we have registered the
exchange notes, the exchange notes
will not be subject to transfer
restrictions and holders of
exchange notes will have no
registration rights. Also, the
exchange notes will not contain
provisions for an increase in their
stated interest rate.
Resale ................................. We believe the notes issued in the
exchange offer may be offered for
resale, resold and otherwise
transferred by you without
compliance with the registration
and prospectus delivery provisions
of the Securities Act provided
that:
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o the exchange notes
received in the exchange
offer are acquired in
the ordinary course of
your business;
o you are not
participating and have
no understanding with
any person to
participate in the
distribution of the
exchange notes issued to
you in the exchange
offer; and
o you are not an affiliate
of ours.
Each broker-dealer issued exchange
notes in the exchange offer for its
own account in exchange for
existing notes acquired by the
broker-dealer as a result of
market-making or other trading
activities must acknowledge that it
will deliver a prospectus meeting
the requirements of the Securities
Act in connection with any resale
of the exchange notes issued in the
exchange offer. A broker-dealer may
use this prospectus for an offer to
resell, resale or other retransfer
of the exchange notes issued to it
in the exchange offer.
Expiration Date........................... 5:00 p.m., New York City time, on
_________________, 1999, unless we
extend the exchange offer. It is
possible that we will extend the
exchange offer until all existing
notes are tendered. You may
withdraw existing notes you
tendered at any time before 5:00
p.m., New York City time, on the
expiration date. See "The Exchange
Offer--Expiration Date; Extensions;
Amendments."
Accrued Interest on the
Exchange Notes and the
Existing Notes....................... The exchange notes will bear
interest from August 20, 1999 at a
rate of 9 1/2% per year, payable
semi-annually on June 1 and
December 1, commencing December 1,
1999. May 15 and November 15 are
the record dates for determining
holders entitled to interest
payments.
Conditions to the Exchange
Offer................................ The exchange offer is subject only
to the following conditions:
o the compliance of the
exchange offer with
securities laws;
o the proper tender of the
existing notes;
o the representation by
the holders of the
existing notes that they
are not our affiliate,
that the exchange notes
they will receive are
being acquired by them
in the ordinary course
of their business and
that at the time the
exchange offer is
completed the holder had
no plan to participate
in the distribution of
the exchange notes; and
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o no judicial or
administrative
proceeding shall have
been threatened that
would limit us from
proceeding with the
exchange offer.
Procedures for Tendering Existing
Notes Held in the Form of
Book-Entry Interests................. The existing notes were issued as
global securities and were
deposited with State Street Bank
and Trust Company when they were
issued. State Street Bank and Trust
Company issued a certificateless
depositary interest in each note,
which represents a 100% interest in
the note, to The Depository Trust
Company. Beneficial interests in
the notes held by participants in
DTC, which we will refer to as
notes held in book-entry form, are
shown on, and transfers of the
notes can be made only through,
records maintained in book-entry
form by DTC and its participants.
If you are a holder of an existing
note held in the form of a
book-entry interest and you wish to
tender your book-entry interest for
exchange in the exchange offer, you
must transmit to State Street Bank
and Trust Company, as exchange
agent, at the address on the cover
page of the letter of transmittal,
before the expiration date of the
exchange offer, the following:
EITHER
o a properly completed and
executed letter of
transmittal, which
accompanies this
prospectus, or a
facsimile of the letter
of transmittal,
including all other
documents required by
the letter of
transmittal; or
o a computer-generated
message transmitted by
means of DTC's Automated
Tender Offer Program
(ATOP) system that, when
received by the exchange
agent will form a part
of a confirmation of
book-entry transfer in
which you acknowledge
and agree to be bound by
the terms of the letter
of transmittal;
AND, EITHER
o a timely confirmation of
book-entry transfer of
your existing notes into
the exchange agent's
account at DTC,
according to the
procedure for book-entry
transfers described in
this prospectus under
the heading "The
Exchange
Offer--Procedures for
Tendering--Existing
Notes Held in Book-Entry
Form", must be received
by the exchange agent on
or prior to the
expiration date; or
o the documents necessary
for compliance with the
guaranteed delivery
procedures described
below.
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Procedures for Tendering
Existing Notes Held in
Certificated Form.................... If you hold your existing notes in
certificated form and wish to
accept the exchange offer, sign and
date the letter of transmittal, and
deliver the letter of transmittal,
along with certificates for the
existing notes and any other
required documentation, to the
exchange agent on or before the
expiration date.
Representations and
Warranties........................... By executing the letter of
transmittal or by being deemed to
have executed the letter of
transmittal by tendering through
ATOP, you represent to us that,
among other things:
o the exchange notes you
receive will be acquired
in the ordinary course
of your business;
o you have no arrangement
with any person to
participate in the
distribution of the
exchange notes; and
o you are not an affiliate
of ours or, if you are
an affiliate, you will
comply with the
registration and
prospectus delivery
requirements of the
Securities Act to the
extent applicable.
Special Procedures for
Beneficial Owners.................... If you are a beneficial owner whose
existing notes are registered in
the name of a broker, dealer,
commercial bank, trust company or
other nominee and wish to tender
those existing notes in the
exchange offer, please contact the
registered holder as soon as
possible and instruct them to
tender on your behalf and comply
with the instructions in this
prospectus.
Guaranteed Delivery
Procedures........................... If you are unable to deliver the
existing notes, the letter of
transmittal or any other required
documents to the exchange agent
prior to the expiration date, you
may tender your existing notes
according to the guaranteed
delivery procedures described in
this prospectus under the heading
"The Exchange Offer--Guaranteed
Delivery Procedures."
Withdrawal Rights......................... You may withdraw existing notes you
tendered by furnishing a notice of
withdrawal to the exchange agent or
by complying with applicable ATOP
procedures at any time before 5:00
p.m. New York City time on the
expiration date. See "The Exchange
Offer--Withdrawal of Tenders."
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Acceptance of Existing
Notes and Delivery
of Exchange Notes.................... If the conditions described under
"The Exchange Offer--Conditions"
are satisfied, we will accept for
exchange any and all existing notes
that are properly tendered before
the expiration date. See "The
Exchange Offer--Procedures for
Tendering." If we close the
exchange offer, the exchange notes
will be delivered promptly
following the expiration date.
Otherwise, we will promptly return
any existing notes tendered.
Exchange Agent............................ State Street Bank and Trust Company
is serving as exchange agent for
the exchange offer. The address for
the exchange agent is listed under
"The Exchange Offer--Exchange
Agent." If you would like more
information about the exchange
offer, you should call the exchange
agent at (617) 662-1525. The
facsimile number for the exchange
agent is (617) 662-1724.
See "The Exchange Offer" for more detailed information concerning the terms of
the exchange offer.
TERMS OF THE EXCHANGE NOTES
The form and terms of the exchange notes to be issued in the exchange
offer are the same as the form and terms of the existing notes except that the
exchange notes will be registered under the Securities Act and, accordingly,
will not bear legends restricting their transfer. The notes issued in the
exchange offer will evidence the same debt as the existing notes, and both the
existing notes and the exchange notes are governed by the same indenture.
Title..................................... 9 1/2% Senior Subordinated Notes
due 2008, Series B.
Maturity Date............................. June 1, 2008.
Interest Payment Dates.................... June 1 and December 1 of each year,
commencing on December 1, 1999.
Optional Redemption....................... We may redeem up to one-third of
the exchange notes prior to June 1,
2001 from the proceeds of one or
more bona fide underwritten sales
to the public of our common stock
at a redemption price of 109.5% of
the principal amount. Otherwise, we
will not have the right to redeem
the exchange notes until June 1,
2003, after which we may redeem the
exchange notes if we pay the
redemption premium described under
"Description of the Exchange
Notes--Redemption at the Option of
Nuevo."
Subordination............................. The exchange notes will be
unsecured senior subordinated
obligations of ours. The payment of
the principal of, and premium and
interest on, the exchange notes
will be subordinated in right of
payment to the payment of all of
our current and future senior
indebtedness to the same extent as
the existing notes are subordinated
to senior indebtedness. In
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addition, the exchange notes will
be structurally subordinated to the
liabilities of our subsidiaries.
For a description of the terms and
possible effects of subordination,
see "Risk Factors" and "Description
of the Exchange
Notes--Subordination." At June 30,
1999, we had $120.0 million of
outstanding senior indebtedness and
our subsidiaries had liabilities on
their balance sheets of $106.6
million. The exchange notes will
rank equally with:
o any of the existing
notes not acquired by us
in the exchange offer;
o our 9 1/2% Senior
Subordinated Notes due
2006; and
o our 8 7/8% Senior
Subordinated Notes due
2008.
As of September 1, 1999, there was
outstanding $2,540,000 and $150,000
principal amount of our 9 1/2%
notes due 2006 and our 8 7/8% notes
due 2008, respectively. The
indenture for the exchange notes
will permit us to incur additional
indebtedness, including
indebtedness that ranks senior in
right of payment to the exchange
notes.
Change of Control......................... If a change of control occurs, we
will be required to offer to
repurchase the exchange notes for
cash in the amount of 101% of the
principal amount of the exchange
notes plus accrued and unpaid
interest. For a description of a
change of control, see "Description
of the Exchange Notes--Repurchase
at the Option of the
Holders--Change of Control." Our
bank credit facility currently
prohibits us from purchasing any of
the exchange notes, which would
include any purchase we may be
required to make pursuant to a
change of control offer. We cannot
assure you that we will be able to
amend the bank credit facility to
permit the purchase of exchange
notes or refinance the bank credit
facility with lendors who will
allow us to make the required
purchases. Also, if a change of
control were to occur, there can be
no assurance that we will have
sufficient funds to purchase any of
the exchange notes or be permitted
under the terms of other agreements
to purchase the exchange notes. See
"Risk Factors" for a description of
the possible effects if we are
unable to purchase the exchange
notes upon a change of control.
Exchange Notes Covenants.................. The indenture governing the
exchange notes contains covenants
that limit our ability to, among
other things:
o incur additional
indebtedness;
o pay dividends and
repurchase our capital
stock;
o enter into transactions
with our affiliates;
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<PAGE> 11
o dispose of assets; and
o engage in mergers and
consolidations.
These covenants are subject to
important exceptions and
qualifications which are described
under "Description of the Exchange
Notes--Material Covenants."
Risk Factors.............................. See "Risk Factors" for a discussion
of factors you should carefully
consider before deciding to invest
in the exchange notes.
ABOUT NUEVO
We are an independent oil and gas company. Our properties are
concentrated in California, where we are the largest independent producer, with
properties located both onshore and offshore. Our onshore California properties
are located primarily in the San Joaquin, Los Angeles and Ventura Basins. Our
offshore California properties are located in the Santa Barbara Channel and
offshore Long Beach. We also own properties in the onshore Gulf Coast region
and internationally offshore the Republics of Congo and Ghana in West Africa
and onshore in Tunisia. Since our inception in 1990, we have expanded our
operations through a series of disciplined, low-cost acquisitions of oil and
gas properties and the subsequent exploitation and development of these
properties. We have complemented these efforts with strategic divestitures and
an opportunistic exploration program which provides exposure to prospects with
the potential to add substantially to our growth.
At June 30, 1999, our estimated net proved reserves were 297.4 MMBOE,
of which 75% were proved developed. On a pro forma basis, assuming we had closed
the Star acquisition described below on January 1, 1999, average daily net
production would have been approximately 61.0 MBOE per day during the first half
of 1999. Approximately 85% of this pro forma production on a BOE basis was
attributable to our California properties, while our Gulf Coast area properties
and West Africa properties represented approximately 6% and 9%, respectively, of
this pro forma production. Additionally, our production during the first half of
1999 was 38% light and medium grades of oil and refined products, 48% heavy oil
and 14% natural gas. As of June 30, 1999, we operated properties representing
approximately 85% of our estimated net proved reserves on a BOE basis.
BUSINESS STRATEGY
Our business strategy consists of the following:
o dedication to a management philosophy that frames important
decisions in terms of anticipated impact on per share, rather
than absolute, growth in reserves, production, cash flows and
net asset value;
o maintenance of a sound capital structure that allows us to
implement a contrarian investment orientation;
o the outsourcing of non-strategic functions;
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<PAGE> 12
o the alignment of employee compensation with shareholder
objectives; and
o a commitment to an exemplary corporate governance structure
which reinforces the view of Nuevo as a conduit for
stockholders to achieve superior long term capital gains.
BUSINESS STRENGTHS
We believe that the following strengths provide us with significant
competitive advantages.
Timely Acquisitions and Divestitures of Properties. We have
demonstrated an ability to make acquisitions of producing properties with
significant exploitation or exploration opportunities at favorable prices and
have shown discipline in avoiding acquisitions in high-priced markets. We also
seek to divest properties in order to take advantage of strong markets and to
redeploy capital into higher return alternatives. For example, in the first six
months of 1999, we sold our East Texas properties described under "--Recent
Developments" and redeployed a portion of the proceeds in the Star acquisition.
Record of Reserve Growth at Low Finding Costs. Between December 31,
1996 and June 30, 1999, our estimated net proved reserves increased 18% on both
an aggregate and a per share basis, from 251.8 MMBOE to 297.4 MMBOE, at an
average finding cost of $2.83 per BOE. Over this period, our finding costs from
exploration and exploitation per BOE have averaged $2.87 domestically and $9.93
internationally, while our average finding costs from acquisitions were $1.84
per BOE.
Exploitation Projects. We have an inventory of over five years of low
risk exploitation projects which have the potential to significantly increase
reserves. Despite a significantly reduced capital budget in response to low oil
prices, between January 1, 1998 and June 30, 1999, we replaced 282% of our
production through exploitation and exploration.
Long-Lived Production Profile. Our properties are long-lived with a
reserve life index of 14.6 years as of June 30, 1999. This reduces
re-investment risk and adds stability to long term cash flows.
Low Cost Structure. We believe that we have the ability to
significantly reduce operating costs on acquired properties from levels
experienced by prior operators. For example, the lease operating expense per
BOE for the properties acquired in April 1996 from Union Oil Company of
California was reduced from $6.40 in the first quarter of 1996 to $5.94 for the
year ended December 31, 1998 despite an increase in prices for natural gas used
as an energy source in our thermal oil operations and other service costs
during this period. Additionally, we aggressively outsource many day to day
functions to third party service providers, allowing us to maintain a low cost
structure and permitting our executive management team to focus on strategic
decisions.
Preservation of a Sound Capital Structure. We believe that our
contrarian acquisition strategy requires that we maintain a strong capital
structure. Accordingly, as of June 30, 1999 our long term debt was $1.28 per
BOE, which is among the lowest in the industry. During the recent period of
depressed oil prices, our strong capital structure allowed us to maintain
significant liquidity in the form of unused commitments under our bank credit
facility.
Reduction of Commodity Price Risk Exposure. We have implemented a
hedging policy designed to reduce our near term exposure to fluctuating oil
prices. This hedging policy is designed to enhance the stability of our cash
flows, assure us of internal funding for capital projects, improve our debt
capacity and reduce the volatility of our interest coverage ratios. We have
entered into oil
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<PAGE> 13
hedges equal to 67% of our forecasted production in the second half of 1999,
and 60% of our forecasted oil production in 2000.
RECENT DEVELOPMENTS
East Texas Sale. In January 1999, we sold properties in East Texas for
$192.0 million. Reserves attributable to the East Texas properties were
primarily natural gas. The estimated net proved reserves of these properties
were 329 Bcfe on December 31, 1998. We placed $100.0 million of the proceeds of
this sale in an escrow account to facilitate like-kind exchange tax treatment
for any properties we acquired in the first six months of 1999. Of these
escrowed proceeds, $61.4 million were used to fund the Star acquisition. We
used the remaining net proceeds from this sale plus amounts remaining in escrow
after the Star acquisition to reduce amounts outstanding under our bank credit
facility.
Star Acquisition. In June 1999, we acquired oil properties located
onshore and offshore California for $61.4 million from Texaco, Inc. The
acquired properties had estimated net proved reserves at June 30, 1999 of 33.7
MMBOE and will increase our production from California by approximately 5.0
MBOE per day. All of these properties are additional interests in our existing
properties or are located near our existing properties. The acquisition
includes interests in the Cymric, the East Coalinga, the Dos Cuadras and other
fields we operate.
Recovery of Oil Prices. The price for crude oil on the New York
Mercantile Exchange for near month contracts increased from $12.09 per Bbl at
December 31, 1998 to $19.29 per Bbl at June 30, 1999. Our estimated net proved
reserves would have increased 61.8 MMBOE during the first six months of 1999,
without including the effect of acquisitions and divestitures.
PRINCIPAL OFFICE
Our principal executive offices are located at 1021 Main, Suite 2100,
Houston, Texas 77002 and our telephone number is (713) 652-0706.
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<PAGE> 14
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- -----------------------
ACTUAL PRO FORMA ACTUAL
------------------------------------- --------- -----------------------
1996(1) 1997(1) 1998 1998(2) 1998 1999
--------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas revenues ......................... $ 279,859 $ 331,973 $ 240,010 $ 214,195 $ 123,045 $ 95,052
Gain on sale of assets, net .................. 6,008 1,372 5,768 5,768 1,677 80,312
Other ........................................ 43,190 23,933 6,925 6,925 4,451 4,139
--------- --------- --------- --------- --------- ---------
Total revenues ................................. 329,057 357,278 252,703 226,888 129,173 179,503
--------- --------- --------- --------- --------- ---------
Costs and expenses:
Operating expenses ........................... 128,478 138,641 139,934 132,650 69,039 60,355
Provision for impairment of oil and
gas properties(3) ......................... -- 30,000 68,904 68,904 -- --
Provision for (revision of) impairment
of assets held for sale(4) ................ -- 23,942 (3,740) (3,740) -- --
Exploration costs ............................ 4,571 11,082 16,562 16,562 2,331 9,999
Depreciation, depletion and
amortization .............................. 75,664 102,158 85,036 81,695 46,556 46,257
General and administrative expenses .......... 14,880 19,822 18,633 18,633 8,526 7,199
Outsourcing fees ............................. 10,249 11,984 9,461 8,157 7,199 6,846
Interest expense ............................. 36,009 27,357 32,471 25,350 14,444 16,400
Dividends on TECONS(5) ....................... 165 6,613 6,613 6,613 3,306 3,306
Other expense ................................ 1,069 3,019 5,726 5,726 1,846 2,836
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes, minority
interest and extraordinary item .............. 57,972 (17,340) (126,897) (133,662) (24,074) 26,305
Net income (loss)(6) ........................... 34,278 (13,700) (94,272) (99,303) (14,204) 15,784
STATEMENT OF CASH FLOWS DATA:
Net cash flows provided by (used in)
operating activities ......................... $ 126,921 $ 165,462 $ 35,833 N/A $ 21,917 $ (13,156)
Net cash flows (used in) provided by
investing activities ......................... (546,002) (169,478) (148,335) N/A (94,603) 99,642
Net cash flows provided by (used in)
financing activities ......................... 426,952 (412) 110,697 N/A 69,842 (40,250)
OTHER FINANCIAL DATA:
Capital expenditures:
Acquisitions ................................. $ 492,603 $ 10,206 $ 10,733 $ 10,733 $ 7,810 $ 61,416
Other ........................................ 89,743 185,689 152,541 135,508 94,285 36,695
--------- --------- --------- --------- --------- ---------
Total ........................................ $ 582,346 $ 195,895 $ 163,274 $ 146,241 $ 102,095 $ 98,111
========= ========= ========= ========= ========= =========
EBITDAX(7) ..................................... $ 168,373 $ 182,440 $ 73,181 $ 55,954 $ 40,886 $ 21,955
Ratio of earnings to fixed charges (8) ......... 2.6x -- -- -- -- 2.3x
Ratio of EBITDAX to interest expense(9) ....... 4.7x 6.7x 2.3x 2.2x 2.8x 1.3x
Ratio of EBITDAX to interest expense
and TECON dividends .......................... 4.7x 5.4x 1.9x 1.8x 2.3x 1.1x
Ratio of total debt to EBITDAX(10) ............. 1.7x 1.7x 5.8x 5.9x N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1999
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital............................................................................. $ 55,917
Total assets................................................................................ 790,274
Total debt.................................................................................. 382,051
Stockholders' equity........................................................................ 247,782
</TABLE>
(See footnotes on the following page)
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<PAGE> 15
- ------------------
(1) Effective January 1, 1998, we changed our method of accounting for our
investments in oil and gas properties from the full cost method to the
successful efforts method. All prior years' financial statements
presented in this memorandum have been restated to reflect this
change. A more detailed explanation of the successful efforts method
of accounting and the effect of the change on our financial statements
is set forth under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and note 2 to the consolidated
financial statements for the year ended December 31, 1998 included in
our Form 10-K for the year ended December 31, 1998. See "Where You Can
Find More Information."
(2) In January 1999, we sold properties in East Texas. Pro forma
information gives effect to the sale as if it occurred January 1,
1998. Pro forma information is not necessarily indicative of future
results.
(3) We incurred an impairment of $68.9 million at December 31, 1998 and
$30.0 million at December 31, 1997 on our oil and gas properties due
to decreased crude oil prices. For more information with respect to
impairment expense, see note 2 to the consolidated financial
statements for the year ended December 31, 1998, included in our Form
10-K.
(4) The provision for impairment of assets held for sale reflects a charge
we took to write down our midstream assets to their fair value in
1997. These assets are primarily gas pipelines and processing plants.
The impairment represents our estimate of the difference between the
book value of these assets and the amount we expect to receive when we
sell the assets.
(5) TECONS are the Company Obligated Mandatorily Redeemable Convertible
Preferred Securities of our financing subsidiary, Nuevo Financing I.
The principal assets of Nuevo Financing I are $115.0 million of our
5 3/4% convertible subordinated debentures due December 15, 2026.
Interest we pay on the 5 3/4% debentures to Nuevo Financing I are paid
by Nuevo Financing I as dividends on the TECONS.
(6) During 1997, we redeemed our 12 1/2% senior subordinated notes prior
to maturity and recorded $3.0 million as our extraordinarily loss on
early extinguishment of debt, net of income tax benefit.
(7) The term "EBITDAX" means earnings before interest, dividends on
TECONS, taxes, depreciation, depletion and amortization, property
impairment, gain/loss on sale and exploration costs. EBITDAX is
included because it is commonly used as a measure of a company's
ability to incur indebtedness. EBITDAX should not be used as a
substitute for cash flow from operating activities or other income or
cash flow information prepared in accordance with generally accepted
accounting principles as an indication of profitability or liquidity.
EBITDAX may not be comparable to similarly titled items of other
companies.
(8) When we calculate our ratio of earnings to fixed charges, earnings
means income or loss before income taxes and fixed charges. Fixed
charges means the sum of the following:
o interest expense;
o dividends on the TECONS;
o amortization of debt issuance costs; and
o the portion of operating leases deemed to be representative
of interest.
Earnings were not sufficient to cover fixed charges for 1997 and 1998
by $19.5 million and $127.5 million, respectively, and for the six
months ended June 30, 1998 by $24.6 million.
(9) For purposes of this calculation, interest expense does not include
dividends on the TECONS.
(10) Total debt does not include the TECONS.
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<PAGE> 16
SUMMARY OPERATING AND RESERVE DATA
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------
1996 1997 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Estimated Net Proved Reserves:
Oil (MBbls) .......................................... 186,053 227,264 190,141 272,266
Gas (MMcf) ........................................... 394,630 390,691 403,256 150,713
Oil equivalent (MBOE) ................................ 251,825 292,379 257,350 297,385
Pretax discounted present value (in thousands) ....... $1,358,581 $ 901,107 $ 299,933 $ 836,002
Percent of proved developed reserves ................. 71% 68% 72% 75%
Reserve life index (in years) ........................ 13.2 12.5 10.6 14.6
Reserve Replacement Data:
Three year average finding costs per BOE(1)
Domestic ........................................... $ 3.03 $ 2.83 $ 3.54 $ 2.58
International ...................................... $ 1.16 $ 1.42 $ 6.80 $ 7.15
Total .............................................. $ 2.85 $ 2.70 $ 3.66 $ 2.83
Three year average production replacement ratio(1) ... 735% 584% 380% 279%
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- ---------------------
PRO
ACTUAL FORMA(2) ACTUAL
--------------------------------------------- ---------------------
1996 1997 1998 1998 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Production Data:
Oil (MBbls)(5) ............................... 13,344 17,409 18,806 18,718 9,364 8,757
Gas (MMcf) ................................... 34,775 35,625 32,521 19,471 16,736 8,227
Oil equivalent (MBOE) ........................ 19,140 23,347 24,226 21,963 12,154 10,128
Average Sales Price Per Unit(3):
Oil (per Bbl) ................................ $ 15.84 $ 14.86 $ 9.25 $ 9.23 $ 9.48 $ 9.07
Gas (per Mcf) ................................ $ 2.08 $ 2.06 $ 2.00 $ 2.10 $ 2.01 $ 1.87
Oil and Gas Operating Income per BOE:
Revenues ..................................... $ 14.62 $ 14.22 $ 9.91 $ 9.75 $ 10.12 $ 9.39
Operating expenses (including severance
taxes) ..................................... 4.86 5.14 5.56 5.80 5.41 5.71
Exploration costs ............................ 0.24 0.47 0.68 0.75 0.19 0.99
General and administrative expenses (4) ..... 1.31 1.36 1.16 1.22 1.29 1.39
Depreciation, depletion and amortization ..... 3.72 4.23 3.45 3.65 3.77 4.49
-------- -------- -------- -------- -------- --------
Operating income (loss) ...................... $ 4.49 $ 3.02 $ (0.94) $ (1.67) $ (0.54) $ (3.19)
======== ======== ======== ======== ======== ========
</TABLE>
- ------------------
(1) The reserve replacement data and production replacement ratio for June
30, 1999 represent averages over the two years and six months ended
June 30, 1999.
(2) We sold properties in East Texas in January 1999 as described under
"--Recent Developments," above. These properties had estimated net
proved reserves at December 31, 1998 of 329 Bcfe. Pro forma
information gives effect to this sale as if it occurred January 1,
1998.
(3) Average sale prices include the effects of hedging.
(4) Our general and administrative expenses per BOE include outsourcing
fees.
(5) Includes natural gas liquids.
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<PAGE> 17
RISK FACTORS
You should carefully consider all of the information we have included
in this prospectus and the documents we have incorporated by reference before
tendering your existing notes.
OUR SIGNIFICANT DEBT LEVELS AND OUR DEBT COVENANTS MAY LIMIT OUR FUTURE
FLEXIBILITY IN OBTAINING ADDITIONAL FINANCING AND IN PURSUING BUSINESS
OPPORTUNITIES.
As of June 30, 1999, we had approximately $380.0 million in long-term
debt, excluding current maturities. The level of our indebtedness will have
important effects on our future operations, including:
o A portion of our cash flow will be used to pay interest and
principal on our debt and will not be available for other
purposes.
o Our bank credit facility contains financial tests which we
must satisfy in order to avoid a default under our bank
credit facility.
o Covenants in the new notes, our existing senior subordinated
notes and our bank credit facility require us to meet
financial tests in order to borrow additional money, which
may have the effect of limiting our flexibility in reacting
to changes in our business and our ability to fund future
operations and acquisitions.
o Our ability to obtain additional financing for capital
expenditures and other purposes may be limited.
SINCE THE EXCHANGE NOTES ARE SUBORDINATED TO SENIOR DEBT, THERE MAY NOT BE
SUFFICIENT ASSETS TO PAY AMOUNTS OWED ON THE EXCHANGE NOTES IF A DEFAULT
OCCURS.
The exchange notes will be subordinated to our current and future
senior debt. In addition, the exchange notes will rank equally with our
existing and future senior subordinated indebtedness and will be subordinated
to the obligations of our subsidiaries. Upon a liquidation or in a bankruptcy
or other similar proceeding, the holders of our senior debt will be entitled to
be paid in full before any payment may be made to the holders of the exchange
notes. In addition, creditors of our subsidiaries will be paid prior to any use
of our subsidiaries' assets to make payments on the exchange notes. As a
result, the holders of exchange notes may receive less, proportionately, than
the holders of senior debt. We cannot assure you that we will have sufficient
assets to pay amounts due on the exchange notes. Our indenture for the exchange
notes will permit us to incur additional debt in the future, including the
entire amount that will be available for borrowing under our bank credit
facility.
YOU MAY SUFFER ADVERSE CONSEQUENCES IF YOU DO NOT EXCHANGE EXISTING NOTES.
The existing notes that are not exchanged for exchange notes have not
been registered with the SEC or in any state. Unless the existing notes are
registered, they may only be offered and sold pursuant to an exemptions from,
or in a transaction that is not subject to, the registration requirements of
the Securities Act. Depending upon the percentage of existing notes exchanged
for exchange notes, the liquidity of the existing notes may be adversely
affected.
WE MAY NOT BE ABLE TO REPURCHASE EXCHANGE NOTES UPON A CHANGE OF CONTROL.
If a change of control occurs, each holder of exchange notes will have
the right to require us to repurchase all or any part of that holder's exchange
notes as described under "Description of the Exchange Notes--Repurchase at the
Option of Holders--Change of Control." Our bank credit facility
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<PAGE> 18
prohibits the repurchase of the exchange notes. In order to repurchase the
exchange notes, we would be required to repay our debt under our bank credit
facility or obtain consents from our bank lenders. If we cannot repay the bank
credit facility or obtain the consents, we would not be able to repurchase the
exchange notes. Also, we may not have sufficient funds available or be able to
obtain the financing necessary to repurchase the exchange notes.
If a change of control occurs and we do not offer to repurchase the
exchange notes or if we do not repurchase the exchange notes when we are
required to, an event of default will occur under the indenture governing the
exchange notes, which would also be a default under our bank credit facility.
Each of these defaults could have a material adverse effect on us and the
holders of the exchange notes.
OIL AND GAS PRICES ARE VOLATILE AND WERE DEPRESSED RECENTLY.
Our success is highly dependent on prices for oil and gas, which are
extremely volatile. Beginning in 1997 and continuing through earlier this year,
the prices we received for our production declined, especially for oil. Any
substantial or extended decline in the price of oil would have a material
adverse effect on us. Oil and gas markets are both seasonal and cyclical. The
prices of oil and gas depend on factors we cannot control such as weather,
economic conditions and government actions. Prices of oil and gas will affect
the following aspects of our business:
o our revenues, cash flows and earnings;
o our ability to attract capital to finance our operations and
the cost of the capital;
o the amount we are allowed to borrow under our bank credit
facility;
o the value of our oil and gas properties; and
o the profit or loss we incur in exploring for and developing
our reserves.
OUR CALIFORNIA HEAVY OIL PRODUCTION MAY INCREASE OUR SUSCEPTIBILITY TO OIL
PRICE VOLATILITY.
The price we receive for heavy oil is lower than for lighter oil. In
addition, the difference between the prices we receive for California heavy oil
and our production costs are less than for lighter grades. As a result, the
effect of a decrease in the price of oil will more adversely affect the
profitability of heavy oil compared with lighter oil.
WE MAY BE UNABLE TO REPLACE RESERVES WHICH WE HAVE PRODUCED.
Our future success depends upon our ability to find, develop and
acquire additional oil and gas reserves that are economically recoverable.
Without successful exploration, exploitation or acquisition activities, our
reserves and revenues will decline. We cannot assure you that we will be able
to find and develop or acquire additional reserves at an acceptable cost.
WE MAY NOT BE SUCCESSFUL IN ACQUIRING AND DEVELOPING OIL AND GAS PROPERTIES.
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. As a result, we may not
recover the purchase price of a property from the sale of production from the
property, or may not recognize an acceptable return from properties we
acquired. In addition, we cannot assure you that
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<PAGE> 19
our exploitation and development activities will result in any increases in
reserves. Our 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.
WE MAY NOT BE ABLE TO MAKE ACQUISITIONS OR GENERATE CASH FLOWS IF WE ARE UNABLE
TO RAISE CAPITAL.
We will be required to make substantial capital expenditures to
develop our existing reserves and to discover new oil and gas reserves.
Historically, we have financed these expenditures primarily with cash from
operations, proceeds from bank borrowings and proceeds from the sale of debt
and equity securities. We cannot assure you that we will be able to raise
capital in the future. We also make offers to acquire oil and gas properties in
the ordinary course of our business. If these offers are accepted, our capital
needs may increase substantially.
INFORMATION IN THIS PROSPECTUS REGARDING OUR FUTURE EXPLOITATION AND
EXPLORATION PROJECTS REFLECTS OUR CURRENT INTENT AND IS SUBJECT TO CHANGE.
We describe our current exploitation and exploration plans in this
prospectus and the materials incorporated by reference in this prospectus.
Whether we ultimately undertake an exploitation or exploration project will
depend on the following factors:
o availability and cost of capital;
o receipt of additional seismic data or the reprocessing of
existing data;
o material changes in oil or gas prices;
o the costs and availability of drilling rigs and other
equipment, supplies and personnel necessary to conduct these
operations;
o success or failure of activities in similar areas;
o changes in the estimates of the costs to complete the
projects;
o our ability to attract other industry partners to acquire a
portion of the working interest to reduce exposure to costs
and risks; and
o decisions of our joint working interest owners.
We will continue to gather data about our projects, and it is possible
that additional information may cause us to alter our schedule or determine
that a project should not be pursued at all. You should understand that our
plans regarding our projects are subject to change.
YOU SHOULD NOT PLACE UNDUE RELIANCE ON RESERVE INFORMATION BECAUSE RESERVE
INFORMATION REPRESENTS ESTIMATES.
Estimating quantities of proved reserves is inherently imprecise and
involves uncertainties and factors beyond our control. The reserve data in this
prospectus represent only estimates. Such estimates are based upon assumptions
about future production levels, future oil and gas prices and future operating
costs. As a result, the quantity of proved reserves may be subject to downward
or
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<PAGE> 20
upward adjustment. In addition, estimates of the economically recoverable oil
and gas reserves, classifications of such reserves, and estimates of future net
cash flows, prepared by different engineers or by the same engineers at
different times, may vary substantially. Information about reserves constitutes
forward-looking information. See "Forward-Looking Statements." Estimates as of
June 30, 1999 included in this prospectus are estimates prepared by our
internal staff of engineers and were not reviewed by our independent reserve
engineers. See "Experts."
WEATHER, UNEXPECTED SURFACE CONDITIONS, AND OTHER UNFORESEEN OPERATING HAZARDS
MAY ADVERSELY IMPACT OUR OIL AND GAS ACTIVITIES.
There are many operating hazards in exploring for and producing oil
and gas, including:
o our drilling operations may encounter unexpected formations
or pressures which could cause damage to equipment or
personal injury;
o we may experience equipment failure which curtails or stops
production; and
o we could experience blowouts or other damages to the
productive formations which may require a well to be
re-drilled or other corrective action to be taken.
In addition, any of the foregoing may result in environmental damages
or personal injury for which we will be liable. Moreover, our offshore
operations are subject to a variety of risks peculiar to the marine environment
such as hurricanes and other adverse weather conditions. Offshore operations
are also subject to more extensive governmental regulations.
We cannot assure you that we will be able to maintain adequate
insurance at rates we consider reasonable to cover our possible losses from
operating hazards. The occurrence of a significant event not fully insured or
indemnified against could materially and adversely affect our financial
condition and results of operations.
THE RECENT DEPRESSED FINANCIAL CONDITIONS IN THE OIL AND GAS INDUSTRY MAY
CHANGE EXPLORATION AND DEVELOPMENT PLANS OR CAUSE DIFFICULTIES IN FINANCING
ACTIVITIES.
The low prices for oil and gas during 1998 and the first half of 1999
have limited the access of many independent oil and gas companies to the
capital necessary to finance activities. As a result, the decision not to drill
or complete a well may be based on a lack of available capital rather than the
quality of the project. Most oil companies have substantially reduced their
capital budgets for 1999 and 2000.
In addition, some of the other working interest owners of our wells
may be unwilling or unable to pay their share of the costs or projects as they
become due. At worst, a working interest owner may declare bankruptcy and
refuse or be unable to pay its share of the cost of a project. In such cases,
we could be required to pay other working interest owners' share of the costs.
TURMOIL IN FOREIGN COUNTRIES MAY AFFECT OUR FOREIGN INVESTMENTS.
Our foreign investments involve risks typically associated with
investments in emerging markets, including:
o we may experience political instability in the countries
where we have foreign investments;
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<PAGE> 21
o we may be forced to renegotiate our contracts with foreign
governments;
o we may experience the nationalization of the oil and gas
industry in the countries where we have foreign investments;
o we may experience foreign government restrictions on their
currency and large fluctuations in the exchange rate; and
o we may have increased taxes or royalties imposed on our
foreign operations by foreign governments.
Political conditions in the geographic area around the Congo have been
unstable in recent years. During 1997, a new government took power in the Congo
following a civil war. Our Congo production is located approximately 30 miles
offshore and has experienced no material interruption as a result of the
political instability. We attempt to conduct our business in such a manner so
that political and economical events of this nature will continue to have
minimal effect on our operations, but we cannot assure you that we will be
successful in protecting against such risks. Previous Congo governments have
requested that we convert our Marine I Exploitation Permit to a production
sharing agreement. We cannot assure you that the new government will not make
such a request or as to the terms of the agreement if such a request is made.
WE HAVE LESS CONTROL OVER OUR FOREIGN THAN OUR DOMESTIC INVESTMENTS.
Foreign governments often retain ownership of the minerals. Our lack
of control over the minerals could result in the following:
o the foreign country may require exploration or development to
progress on a faster of slower pace than we prefer;
o the foreign country may require us to pay large royalties or
taxes to them; and
o the foreign country may require us to spend larger amounts on
exploration and development than we have funds for or than we
deem appropriate, which may mean that we forfeit all or a
portion of acreage subject to this requirement.
All of these events could reduce the value of our foreign investments.
WE COULD INCUR LIABILITY IN CONNECTION WITH OUR PROPERTIES IN THE CONGO.
In connection with our respective acquisitions of two subsidiaries
owning interests in the Yombo field offshore the Republic of Congo, we and a
wholly-owned subsidiary of CMS NOMECO Oil and Gas Co. agreed with the seller of
the subsidiaries not to claim tax losses, called "dual consolidated losses,"
incurred by such subsidiaries prior to the acquisitions. Under the agreement,
we and the CMS subsidiary may be liable to the seller for the recapture of dual
consolidated losses utilized by the seller in years prior to the acquisitions
if triggering events occur. These triggering events include:
o the disposition by us or the CMS subsidiary of a respective
Congo subsidiary;
o either Congo subsidiary's sale of its interest in the Yombo
field;
o the acquisition of us or CMS by another consolidated group;
or
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<PAGE> 22
o the failure of a Congo subsidiary to continue as a member of
its respective consolidated group.
A triggering event will not occur, however, if a subsequent purchase
enters into 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. We have agreed with CMS 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. Our potential direct liability
could be as much as $50 million, as of December 31, 1998, if a triggering event
with respect to us occurs. We believe that CMS's liability, for which we would
be jointly liable with an indemnification right against CMS, could be as much
as $67 million, as of December 31, 1998. We do not expect a triggering event to
occur with respect to us or CMS and do not believe that the agreement will have
a material adverse effect on us.
WE MAY NOT HAVE PRODUCTION TO OFFSET HEDGES; BY HEDGING, WE MAY NOT BENEFIT
FROM PRICE INCREASES.
Part of our business strategy is to reduce our exposure to the
volatility of oil and gas prices by hedging a portion of our production. In a
typical hedge transaction, we will have the right to receive from the other
parties to the hedge the excess of the fixed price specified in the hedge over
a floating price based on a market index, multiplied by the quantity hedged. If
the floating price exceeds the fixed price, we are required to pay the other
parties this difference multiplied by the quantity hedged. We are required to
pay the difference between the floating price and the fixed priced when the
floating price exceeds the fixed price regardless of whether we have sufficient
production to cover the quantities specified in the hedge. Significant
reductions in production at times when the floating price exceeds the fixed
price could require us to make payments under the hedge agreements even though
such payments are not offset by sales of production. Hedging will also prevent
us from receiving the full advantage of increases in oil or gas prices above
the fixed amount specified in the hedge. The price of California heavy crude
oil may vary widely from the index prices typically used in oil hedges. This
difference increases the risk involved in hedging the California heavy crude
oil.
COMPLIANCE WITH ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS COULD BE COSTLY
AND COULD NEGATIVELY IMPACT PRODUCTION.
Our operations are subject to numerous laws and regulations governing
the operation and maintenance of our facilities and the discharge of materials
into the environment or otherwise relating to environmental protection. These
laws and regulations may:
o require that we acquire permits before commencing drilling;
o restrict the substances that can be released into the
environment in connection with drilling and production
activities;
o limit or prohibit drilling activities on protected areas such
as wetlands or wilderness areas; and
o require remedial measure to mitigate pollution from former
operations, such as plugging abandoned wells.
Under these laws and regulations, we could be liable for personal
injury and clean-up costs and other environmental and property damages, as well
as administrative, civil and criminal penalties. We maintain limited insurance
coverage for sudden and accidental environmental
-20-
<PAGE> 23
damages. We do not believe that insurance coverage for environmental damages
that occur over time is available at a reasonable cost. Moreover, we do not
believe that insurance coverage for the full potential liability that could be
caused by sudden and accidental environmental damages is available at a
reasonable cost. Accordingly, we may be subject to liability or we may be
required to cease production from properties in the event of environmental
damages.
FACTORS BEYOND OUR CONTROL AFFECT OUR ABILITY TO MARKET PRODUCTION.
The ability to market oil and gas from our wells depends upon numerous
factors beyond our control. These factors include:
o the extent of domestic production and imports of oil and gas;
o the availability of capacity to refine heavy oil;
o the proximity of the gas production to gas pipelines;
o the availability of pipeline capacity;
o the demand for oil and gas by utilities and other end users;
o the availability of alternative fuel sources;
o the effects of inclement weather;
o state and federal regulation of oil and gas marketing; and
o federal regulation of gas sold or transported in interstate
commerce.
Because of these factors, we may be unable to market all of the oil or
gas we produce. In addition, we may be unable to obtain favorable prices for
the oil and gas we produce.
THERE MAY NOT BE A LIQUID MARKET FOR RESALE OF THE EXCHANGE NOTES.
There is not established trading market for the exchange notes. We do
not intend to apply for listing the exchange notes on any securities exchange
or for quotations through the NASDAQ National Market. We cannot assure you that
a market for the exchange notes will develop, or that the market will have
sufficient liquidity to enable resale of the exchange notes.
WE FACE A THREAT OF BUSINESS DISRUPTION FROM THE YEAR 2000 ISSUE.
The year 2000 issue refers to the inability of computer and other
information technology systems to properly process date and time information,
stemming from the outdated programming practice of using two digits rather than
four to represent the year in a date. The consequence of the year 2000 issue is
that computer and embedded processing systems are at risk of malfunctioning,
particularly during the transition from 1999 to 2000. The effects of the year
2000 issue are exacerbated by the interdependence of the computer and
telecommunications systems throughout the world. This interdependence also
exists among Nuevo and our vendors, customers and business partners, as well as
with regulators in the United States.
-21-
<PAGE> 24
Our operations are highly dependent on automation. The risks to us
associated with the year 2000 issue fall into three general areas:
o failure of our financial and administrative systems which
could result in our receiving incorrect information upon
which we base decisions;
o failure of the embedded systems which control our highly
automated production facilities; and
o failure of our suppliers and purchasers to correct their year
2000 problems.
-22-
<PAGE> 25
CAPITALIZATION
Our consolidated capitalization at June 30, 1999, as adjusted to give
effect to the exchange of the exchange notes for the existing notes, is
described below:
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------------
PRO PRO FORMA
ACTUAL FORMA(1) AS ADJUSTED(2)
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents ........................................ $ 53,639 $ 46,116 $ 46,016
========== ========== ==========
Long-term debt (excluding current maturities):
Credit Facility ................................................ $ 120,000 $ 120,000 $ 120,000
Exchange notes ................................................. -- -- 257,310
Existing notes ................................................. -- 257,310 --
8 7/8% senior subordinated notes due 2008 ...................... 100,000 150 150
9 1/2% senior subordinated notes due 2006 ...................... 160,000 2,540 2,540
---------- ---------- ----------
Total long-term debt ....................... 380,000 380,000 380,000
Company-obligated Mandatorily Redeemable Convertible Preferred
Securities of Nuevo Financing I ("TECONS") ..................... 115,000 115,000 115,000
Stockholders' equity:
Preferred stock, $1.00 par value, 10,000,000 shares authorized;
none outstanding ............................................. -- -- --
Common stock, $.01 par value, 50,000,000 shares authorized;
20,308,462 issued(3) ......................................... 203 203 203
Treasury stock, 449,255 shares ................................. (19,053) (19,053) (19,053)
Stock held by benefit trust, 71,630 shares ..................... (2,014) (2,014) (2,014)
Additional paid-in capital ..................................... 355,720 355,720 355,720
Accumulated deficit ............................................ (87,074) (88,804) (88,864)(4)
---------- ---------- ----------
Total stockholders' equity ........................ 247,782 246,052 245,992
---------- ---------- ----------
Total capitalization .............................. $ 742,782 $ 741,052 $ 740,992
========== ========== ==========
</TABLE>
- -------------------
(1) Pro forma amounts give effect to the exchange of existing notes for
our 9 1/2% senior subordinated notes due 2006 and our 8 7/8% senior
subordinated notes due 2008.
(2) Assumes that all holders of the existing notes validly tender their
existing notes and that net fees and expenses payable by us associated
with the exchange offer aggregate approximately $100,000.
(3) Does not include 2,745,613 shares of common stock subject to
outstanding options which may be issued under our stock incentive
plans.
(4) Reflects estimated costs and expenses for third-party financial
advisory, legal and accounting services rendered in connection with
the exchange offer. Does not include interest payable to holders of
existing notes in the exchange offer.
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<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected financial data for the
five years ended December 31, 1998 and for the six-month periods ended June 30,
1998 and 1999. The financial data for each of the five years in the period
ended December 31, 1998 has been derived from our audited consolidated
financial statements for these periods which are incorporated by reference into
this prospectus. The financial data for each of the six-month periods ended
June 30, 1999 and 1998 has been derived from our unaudited condensed
consolidated financial statements for these periods which are also incorporated
by reference into this prospectus. Such unaudited financial statements have
been prepared on the same basis as our audited financial statements. We believe
that such unaudited 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. The selected financial data is not necessarily
indicative of our future results.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- --------------------
1994(1) 1995(1) 1996(1) 1997(1) 1998 1998 1999
-------- -------- -------- -------- --------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas revenues ................. $ 79,968 $102,455 $279,859 $331,973 $ 240,010 $123,045 $ 95,052
Gas plant revenues ................... 28,798 27,183 34,802 14,826 2,665 1,405 1,288
Pipeline and other revenues .......... 10,309 7,222 6,774 5,772 2,700 1,722 4
Gain on sale of assets, net .......... 2,402 -- 6,008 1,372 5,768 1,677 80,312
Interest and other income ............ 245 1,106 1,614 3,335 1,560 1,324 2,847
-------- -------- -------- -------- --------- -------- --------
Total revenues .................... 121,722 137,966 329,057 357,278 252,703 129,173 179,503
-------- -------- -------- -------- --------- -------- --------
Costs and expenses:
Lease operating expenses ............. 15,160 28,873 93,062 120,042 134,704 65,774 57,876
Gas plant operating expenses ......... 25,794 22,667 29,311 13,356 3,202 1,423 2,336
Pipeline and other operating costs ... 6,767 4,726 6,105 5,243 2,028 1,842 143
Provision for impairment of oil and
gas properties(2) ................. -- -- -- 30,000 68,904 -- --
Provision for (revision of)
impairment of assets held for
sale(3) ........................... -- -- -- 23,942 (3,740) -- --
Exploration costs .................... 4,300 2,357 4,571 11,082 16,562 2,331 9,999
Depreciation, depletion and
amortization ...................... 48,144 45,233 75,664 102,158 85,036 46,556 46,257
General and administrative
expenses .......................... 7,480 5,444 14,880 19,822 18,633 8,526 7,199
Outsourcing fees ..................... 6,369 5,857 10,249 11,984 9,461 7,199 6,846
Interest expense ..................... 12,560 15,389 36,009 27,357 32,471 14,444 16,400
Dividends on TECONS(4) ............... -- -- 165 6,613 6,613 3,306 3,306
Loss on sales of assets, net ......... -- 645 -- -- -- -- --
Other expense ........................ 2,387 45 1,069 3,019 5,726 1,846 2,836
-------- -------- -------- -------- --------- -------- --------
Total costs and expenses .......... 128,961 131,236 271,085 374,618 379,600 153,247 153,198
-------- -------- -------- -------- --------- -------- --------
</TABLE>
-24-
<PAGE> 27
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1994(1) 1995(1) 1996(1) 1997(1) 1998
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
(Loss) income before income taxes,
minority interest, and
extraordinary item ....................... (7,239) 6,730 57,972 (17,340) (126,897)
Income tax (benefit) expense ............... (2,865) 2,582 23,965 (6,656) (32,625)
Minority interest in earnings (loss) of
subsidiary ............................... 52 16 (271) (8) --
---------- ---------- ---------- ---------- ----------
(Loss) income before extraordinary item .... (4,426) 4,132 34,278 (10,676) (94,272)
Extraordinary loss on early extinguishment
of debt net of income tax benefit of
$2,037(5) ................................ -- -- -- 3,024 --
---------- ---------- ---------- ---------- ----------
Net (loss) income .......................... $ (4,426) $ 4,132 $ 34,278 $ (13,700) $ (94,272)
Dividends on preferred stock ............... 1,750 1,472 939 -- --
---------- ---------- ---------- ---------- ----------
(Loss) income attributable to common
stockholders ............................. $ (6,176) $ 2,660 $ 33,339 $ (13,700) $ (94,272)
========== ========== ========== ========== ==========
(Loss) income per common share--basic ...... $ (0.57) $ 0.24 $ 1.99 $ (0.69) $ (4.76)
========== ========== ========== ========== ==========
Weighted average common shares
outstanding .............................. 10,763 11,057 16,755 19,796 19,795
========== ========== ========== ========== ==========
(Loss) income per common share--diluted .... $ (0.57) $ 0.23 $ 1.84 $ (0.69) $ (4.76)
========== ========== ========== ========== ==========
Weighted average common and dilutive
potential common shares outstanding ...... 10,763 11,355 18,596 19,796 19,795
========== ========== ========== ========== ==========
STATEMENT OF CASH FLOWS DATA:
Net cash flows provided by (used in)
operating activities ..................... $ 58,513 $ 37,194 $ 126,921 $ 165,462 $ 35,833
Net cash flows (used in) provided by
investing activities ..................... $ (100,158) $ (32,582) $ (546,002) $ (169,478) $ (148,335)
Net cash flows provided by (used in)
financing activities ..................... $ 29,929 $ (2,294) $ 426,952 $ (412) $ 110,697
OTHER FINANCIAL DATA:
Capital expenditures ....................... $ 105,048 $ 41,445 $ 582,346 $ 195,895 $ 163,274
EBITDAX(6) ................................. $ 55,363 $ 70,354 $ 168,373 $ 182,440 $ 73,181
Ratio of earnings to fixed charges(7) ...... -- 1.4x 2.6x -- --
Ratio of EBITDAX to interest expense(8) .... 4.4x 4.6x 4.7x 6.7x 2.3x
Ratio of total debt to EBITDAX(9) .......... 2.2x 1.7x 1.7x 1.7x 5.8x
Book value per common share--diluted ....... 10.92 10.86 18.58 16.40 11.71
BALANCE SHEET DATA:
Working capital (deficit) .................. $ 6,396 $ 15,757 $ 22,338 $ 9,257 $ 111,629
Total assets ............................... 272,444 262,359 817,643 804,286 817,685
Total debt(9) .............................. 119,541 116,709 292,446 309,656 422,302
Stockholders' equity ....................... 117,557 123,349 345,439 324,739 231,878
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1998 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
(Loss) income before income taxes,
minority interest, and
extraordinary item ....................... (24,074) 26,305
Income tax (benefit) expense ............... (9,870) 10,521
Minority interest in earnings (loss) of
subsidiary ............................... -- --
---------- ----------
(Loss) income before extraordinary item .... (14,204) 15,784
Extraordinary loss on early extinguish
of debt net of income tax benefit of
$2,037(5) ................................ -- --
---------- ----------
Net (loss) income .......................... $ (14,204) $ 15,784
Dividends on preferred stock ............... -- --
---------- ----------
(Loss) income attributable to common
stockholders ............................. $ (14,204) $ 15,784
========== ==========
(Loss) income per common share--basic ...... $ (0.72) $ 0.80
========== ==========
Weighted average common shares
outstanding .............................. 19,759 19,848
========== ==========
(Loss) income per common share--diluted .... $ (0.72) $ 0.79
========== ==========
Weighted average common and dilutive
potential common shares outstanding ...... 19,759 19,915
========== ==========
STATEMENT OF CASH FLOWS DATA:
Net cash flows provided by (used in)
operating activities ..................... $ 21,917 $ (13,156)
Net cash flows (used in) provided by
investing activities ..................... $ (94,603) $ 99,642
Net cash flows provided by (used in)
financing activities ..................... $ 69,842 $ (40,250)
OTHER FINANCIAL DATA:
Capital expenditures ....................... $ 100,414 $ 100,021
EBITDAX(6) ................................. $ 40,886 $ 21,955
Ratio of earnings to fixed charges(7) ...... -- 2.3x
Ratio of EBITDAX to interest expense(8) .... 2.8x 1.3x
Ratio of total debt to EBITDAX(9) .......... N/A N/A
Book value per common share--diluted ....... 15.79 12.44
BALANCE SHEET DATA:
Working capital (deficit) .................. $ 2,598 $ 55,917
Total assets ............................... 851,387 790,274
Total debt(9) .............................. 380,754 382,051
Stockholders' equity ....................... 311,933 247,782
</TABLE>
- ---------------------
(1) Effective January 1, 1998, we changed our method of accounting for our
investments in oil and gas properties from the full cost to the successful
efforts method. All prior years' financial statements presented in this
prospectus have been restated to reflect this change.
(2) We incurred an impairment of $68.9 million at December 31, 1998 and $30.0
million at December 31, 1997 on certain fields due to decreased crude oil
prices.
(3) The provision for impairment of assets held for sale reflects a charge we
took to write down our midstream assets to their fair value in 1997. These
assets are primarily gas pipelines and processing plants. The impairment
represents our estimate of the difference between the book value of these
assets and the amount we expect to receive when we sell the assets.
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<PAGE> 28
(4) TECONS are the Company-Obligated Mandatorily Redeemable Convertible
Preferred Securities of our financing subsidiary Nuevo Financing I. The
principal assets of Nuevo Financing I are $115.0 million of our 5 3/4%
convertible subordinated debentures due December 15, 2026. Interest we pay
on the 5 3/4% debentures to Nuevo Financing I are paid by Nuevo Financing
I as dividends on the TECONS.
(5) During 1997, we redeemed our 12 1/2% senior subordinated notes prior to
maturity and recorded $3.0 million as our extraordinary loss on early
extinguishment of debt, net of income tax benefit.
(6) The term "EBITDAX" means earnings before interest, dividends on TECONS,
taxes, depreciation, depletion and amortization, property impairment,
gain/loss on sale and exploration costs. EBITDAX is included because it is
commonly used as a measure of a company's ability to incur indebtedness.
EBITDAX should not be used as a substitute for cash flow from operating
activities or other income or cash flow information prepared in accordance
with generally accepted accounting principals as an indication of
profitability or liquidity. EBITDAX may not be comparable to similarly
titled items of other companies.
(7) When we calculate our ratio of earnings to fixed charges, earnings means
income or loss before income taxes and fixed charges. Fixed charges means
the sum of the following:
o interest expense;
o dividends on the TECONS;
o amortization of debt issuance costs; and
o the portion of operating leases deemed to be representative of
interest.
Earnings were not sufficient to cover fixed charges for 1994, 1997 and
1998 by $ 7.2 million, $19.5 million and $127.5 million, respectively, and
for the six months ended June 30, 1998 by $24.6 million.
(8) For purposes of this calculation, interest expense does not include
dividends or interest payments on the TECONS.
(9) Total debt does not include the TECONS.
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<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We are an independent oil and gas company. Our properties are concentrated
in California, where we are the largest independent producer, with properties
located both onshore and offshore. Our onshore California properties are located
primarily in the San Joaquin, Los Angeles and Ventura Basins. Our offshore
California properties are located in the Santa Barbara Channel and offshore Long
Beach. We also own properties in the onshore Gulf Coast region and
internationally offshore the Republics of Congo and Ghana in West Africa and
onshore in Tunisia. Since our inception in 1990, we have expanded our operations
through a series of disciplined, low-cost acquisitions of oil and gas properties
and the subsequent exploitation and development of these properties. We have
complemented these efforts with strategic divestitures and an opportunistic
exploration program which provides exposure to prospects with the potential to
add substantially to the growth of our shareholder value.
On January 1, 1998, we changed the method we use to account for our
investments in oil and gas properties from full cost to the successful efforts
method. We believe that the change to the successful efforts method improves
earnings quality and results in a balance sheet which more closely approximates
the underlying economic value of our assets. In accordance with accounting
rules, we have restated all prior year financial statements to give effect to
the change to successful efforts accounting. The effect, after tax, of the
change in accounting method as of December 31, 1997, was a reduction to retained
earnings of $64.1 million. See the notes to our financial statements for
additional information on the successful efforts method of accounting.
RESULTS OF OPERATIONS
Our results of operations are significantly affected by the prices we
receive for our oil and gas production and the costs we incur to produce oil and
gas. The following table shows our oil and gas production, average oil and gas
prices and average costs incurred. The sales prices in the following table
includes the effect of hedges.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Production Data:
Oil (MBBLS) (1) ......................... 13,344 17,409 18,806 9,364 8,757
Gas (MMcf) .............................. 34,775 35,625 32,521 16,736 8,227
Average Sales Price Per Unit:
Oil (per Bbl) ........................... $ 15.84 $ 14.86 $ 9.25 $ 9.48 $ 9.07
Gas (per Mcf) ........................... 2.08 2.06 2.00 2.01 1.87
Cost Per BOE:
Operating expenses, including severance
taxes ................................. $ 4.86 $ 5.14 $ 5.56 $ 5.41 $ 5.71
Depreciation, depletion and
amortization .......................... 3.72 4.23 3.45 3.77 4.49
</TABLE>
- -------------------------
(1) Includes natural gas liquids.
Our results of operations have also been affected by our acquisitions and
sales of oil and gas properties. In April 1996, we acquired properties in
California which currently form our core
-27-
<PAGE> 30
operating areas. In January 1999, we sold substantially all of our natural gas
properties in East Texas for proceeds of $192.0 million. We placed $100 million
of these proceeds in an escrow account to effect a like-kind exchange for
federal tax purposes if we acquired oil and gas properties within six months
following the East Texas sale. We closed the Star acquisition on June 28, 1999
for $61.4 million with a portion of the funds in escrow.
Comparison of Six Months Ended June 30, 1999 and 1998
Revenues
Oil and gas revenues for the six months ended June 30, 1999 were $95.1
million, or 23% lower than oil and gas revenues of $123.0 million for the same
period in 1998. This decrease was primarily due to lower realized oil and gas
prices in the first half of 1999, reduced oil volumes due to reduced capital
spending and the sale of several non-core assets in 1999 and reduced gas volumes
as a result of the sale of the East Texas natural gas properties on January 6,
1999. The following is a description of our oil and gas revenues by operating
area.
East: Oil and gas revenues for the six months ended June 30, 1999 were
$7.7 million, or 68% lower than oil and gas revenues of $24.2 million for
the same period in 1998. The decrease results primarily from lower natural
gas production due to the sale of the East Texas natural gas properties as
well as lower realized natural gas prices.
West: Oil and gas revenues for the six months ended June 30, 1999 were
$76.5 million, or 16% lower than oil and gas revenues of $90.7 million for
the same period in 1998. This decrease is primarily due to a 7% lower
realized oil price in the first half of 1999 as well as reduced oil volumes
due to reduced capital spending. The realized oil price of $8.47 per barrel
for the six months ended June 30, 1999, includes a hedging loss of $1.28
per barrel of oil produced..
International: Oil revenues for the six months ended June 30, 1999 were
$10.9 million as compared to $8.1 million for the same period in 1998. The
34% increase results from a 19% increase in oil production along with a 13%
increase in oil price realizations to $12.86 per barrel.
Gain on sale for the six months ended June 30, 1999 was $80.3 million. Such
gain was recognized in connection with the sale of the East Texas natural gas
properties for proceeds of $191.1 million, as adjusted for final accounting,
along with the sale of several non-core assets. Gain on sale for the six months
ended June 30, 1998 was $1.7 million, which relates to the sale of our interest
in the Coke field in Chapel Hill, Texas.
Interest and other income for the six months ended June 30, 1999, includes
$2.4 million associated with interest earned on the $100.0 million in proceeds
from the sale of the East Texas natural gas properties funded into an escrow
account to provide "like-kind exchange" tax treatment in the event we acquired
domestic producing oil and gas properties in the first half of 1999. The escrow
account was liquidated in late June and early July 1999, in connection with our
June 1999 acquisition of certain California oil properties from Texaco, Inc. and
repayment of a portion of bank debt, respectively.
Expenses
Lease operating expenses for the six months ended June 30, 1999 totaled
$57.9 million, or 12% lower than $65.8 million for the six months ended June 30,
1998. Lease operating expenses per BOE were $5.71 in the first half of 1999,
compared to $5.41 in the same period in 1998. The following is a description of
our lease operating expenses by operating area.
-28-
<PAGE> 31
East: Lease operating expenses for the six months ended June 30, 1999
totaled $1.6 million, or 75% lower than $6.3 million for the six months
ended June 30, 1998. The decrease is primarily attributable to the sale of
the East Texas natural gas properties in January of 1999. Lease operating
expenses per BOE were $2.36 in the first half of 1999, compared to $3.07 in
the same period in 1998.
West: Lease operating expenses for the six months ended June 30, 1999
totaled $50.0 million, or 7% lower than $53.9 million for the six months
ended June 30, 1998. Lease operating expenses per BOE were $5.80 in the
first half of 1999, compared to $5.74 in the same period in 1998. In the
first quarter of 1998, poor weather conditions in California caused
landslides and power outages, which resulted in $2.3 million of
incremental, unusual costs. Reduced workover costs onshore in 1999 also
contributed to the lower lease operating expenses year over year.
International. Lease operating expenses for the six months ended June
30, 1999 totaled $6.3 million, or14% higher than $5.6 million for the six
months ended June 30, 1998. Lease operating expenses per BOE were $7.44 in
the first half of 1999, compared to $7.79 in the same period in 1998.
Gas plant operating expenses were $2.3 million for the six months ended
June 30, 1999 as compared to $1.4 million for the six months ended June 30,
1998. The 64% increase in gas plant expenses in 1999 compared to 1998 is due to
increased ad valorem taxes.
Exploration costs, which are composed of geological and geophysical costs,
dry hole costs, delay rentals and expensed project costs, were $10.0 million and
$2.3 million for the six months ended June 30, 1999 and 1998, respectively. For
the six months ended June 30, 1999, exploration costs are comprised of:
o $7.3 million in dry hole costs;
o $1.5 million in geological and geophysical costs;
o $0.3 million in delay rentals; and
o $0.9 million in expensed project cost.
For the six months ended June 30, 1998, exploration costs were comprised of:
o $0.1 million in dry hole costs;
o $2.0 million in geological and geophysical costs; and
o $0.2 million in delay rentals.
East: During the first half of 1999, we plugged and abandoned the
DeBord #1 well in our East area. The dry hole costs associated with this
well were $0.6 million. The first half of 1999 also includes $0.2 million
of geological and geophysical costs associated with a prospect in South
Louisiana. Exploration costs in the first half of 1999 were $0.5 million.
West: During the first half of 1999, we decided to plug and abandon the
Cree Fee #1 well in the Midway Peak prospect area onshore California. The
dry hole costs associated with this well were $6.5 million. Exploration
costs in the first half of 1998 were $0.5 million.
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<PAGE> 32
International: During the first half of 1999, $1.0 million in
geological and geophysical costs were expensed associated with the Accra
Keta and the East Cape Three Points prospects in Ghana. Exploration costs
of $1.3 million in the first half of 1998 relates to geological and
geophysical costs in Ghana.
Depreciation, depletion and amortization of $46.3 million for the six
months ended June 30, 1999 reflects a slight decrease from $46.6 million in the
same period in 1998, due primarily to decreased production volumes offset by a
higher depletion rate per BOE on our oil and gas properties. The weighted
average depletion rate per BOE in the first half of 1999 was $4.57 versus $3.83
in the first half of 1998. Several factors contributed to the change in the
average depletion rate per BOE. First, the property mix changed as the lower
cost East Texas natural gas properties were sold in January. Second, our year
end reserves decreased by approximately 12% from the previous year primarily as
a result of lower crude oil prices utilized in computing estimated net proved
reserves at year end 1998. Finally, the impairment of $68.9 million recognized
in the fourth quarter of 1998 reduced the capitalized costs to be depleted and
partially offset the increase in the depletion rate per BOE. The following is a
description of depreciation, depletion and amortization by operating area.
East: Depreciation, depletion and amortization of $4.3 million for the
six months ended June 30, 1999 reflects a 34% decrease from $6.5 million in
the same period in 1998, due primarily to decreased production volumes as a
result of the sale of the East Texas natural gas properties in January
1999.
West: Depreciation, depletion and amortization of $37.3 million for the
six months ended June 30, 1999 reflects a 1% increase from $36.8 million in
the same period in 1998, due primarily to an increased average depletion
rate per BOE offset by decreased production volumes.
International: Depreciation, depletion and amortization of $3.9 million
for the six months ended June 30, 1999 reflects a 56% increase from $2.5
million in the same period in 1998, due primarily to an increased average
depletion rate per BOE as well as increased production volumes.
General and administrative expenses, together with outsourcing fees,
totaled $7.2 million and $8.5 million in the six months ended June 30, 1999 and
1998, respectively. The 16% decrease is due primarily to a reduction in bonus
accruals, engineering costs and third-party consulting studies.
Interest expense of $16.4 million incurred in the six months ended June 30,
1999 reflects an increase of 14% as compared to interest expense of $14.4
million in the six months ended June 30, 1998. The increase is primarily
attributable to our issuance of $100.0 million of 87/8% Senior Subordinated
Notes due 2008 in June of 1998, which we used to repay lower-interest bank debt.
In March 1999, we discovered that a non-officer employee had fraudulently
authorized and diverted for personal use funds totaling $5.9 million, $4.3
million in 1998 and the remainder in the first quarter of 1999, that were
intended for international exploration. Accordingly, we have reclassified the
amounts lost in 1998 and 1999 from exploration costs to other expense. Based on
our review of the facts, management is confident that only one employee was
involved in the matter and that all misappropriated funds have been identified.
Our board engaged a certified fraud examiner to conduct an in-depth review of
the fraudulent transactions to determine the scope of the fraud, the possibility
of recovery of amounts lost from insurance, from the terminated employee and/or
from third parties, and to make recommendations regarding what, if any, new
internal control procedures should be implemented.
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<PAGE> 33
Net Income
Net income of $15.8 million, $0.80 per common share -- basic and $0.79 per
common share --diluted, was generated for the six months ended June 30, 1999, as
compared to a net loss of $14.2 million, ($0.72) per common share -- basic and
diluted, in the same period in 1998.
Comparison of Years Ended December 31, 1996, 1997 and 1998
Revenues
We have experienced significant oil and gas revenue volatility in recent
years. Low oil prices are primarily responsible for the decreased revenues in
1998, while our acquisitions of producing properties and development drilling
programs are primarily responsible for the increased revenues during 1997 and
1996. During this three year period, the volatility of oil and gas prices
directly impacted revenues. To reduce our exposure to changes in oil and gas
prices, we periodically utilize derivative financial instruments. As a result of
such hedging transactions, oil and gas revenues were increased by $0.6 million
in 1998, and were reduced by $6.0 million and $2.5 million in 1997 and 1996,
respectively.
Oil and gas revenues for 1998 of $240.0 million were 28% lower than 1997
oil and gas revenues of $332.0 million, primarily due to a 38% decrease in
average realized oil prices from $14.86 per barrel in 1997 to $9.25 per barrel
in 1998. Also contributing to this decline in oil and gas revenues were
decreases in natural gas production and realized gas prices. Our gas production
decreased 9% from 35.6 Bcf in 1997 to 32.5 Bcf in 1998. Average realized gas
prices decreased 3% from $2.06 per Mcf in 1997 to $2.00 per Mcf in 1998. The
decline in oil and gas revenues was partially offset by a 9% increase in our oil
production from 17.1 MMBbls in 1997 to 18.5 MMBbls in 1998. The following is a
description of our oil and gas revenues by operating area.
East: Oil and gas revenues decreased 24% from $61.5 million in 1997 to
$46.9 million in 1998. This decrease is primarily due to a 10% decrease in
gas production from 20.8 Bcf in 1997 to 18.8 Bcf in 1998, as well as a 13%
decrease in the average realized price of gas from $2.08 per Mcf in 1997 to
$1.80 per Mcf in 1998.
West: Oil and gas revenues decreased 28% from $247.7 million in 1997 to
$177.3 million in 1998. This decrease is primarily due to a 39% decrease in
the average realized price of oil from $14.73 per Bbl in 1997 to $8.98 per
Bbl in 1998, which was partially offset by an 11% increase in oil
production from 14.7 MMBbls in 1997 to 16.3 MMBbls in 1998.
International: Oil and gas revenues decreased 31% from $22.8 million in
1997 to $15.8 million in 1998. This decrease was primarily due to a 26%
decrease in the average realized price of oil from $14.66 per Bbl in 1997
to $10.82 per Bbl in 1998, as well as a decrease in oil production of 6%
from 1.6 MMBbls in 1997 to 1.5 MMBbls in 1998.
Oil and gas revenues for 1997 of $332.0 million were 19% higher than 1996
oil and gas revenues of $279.9 million, primarily due to 30% increase in oil
production (including natural gas liquids) from 13.3 MMBbls in 1996 to 17.4
MMBbls in 1997. This increase in oil volumes is attributable to the fact that
1997 included an entire year of operating results for the California properties
we acquired in April 1996, compared to only nine months in 1996. These
California properties accounted for 75% of total oil and gas revenues in 1997.
The increase in production was partially offset by the disruption of Point
Pedernales production due to an oil spill in September 1997 and a decrease in
the average realized prices of oil and gas in 1997. Our average realized price
for oil in 1997 was $14.86 per barrel, a 6% decrease from $15.84 in 1996. Our
average realized price for gas in 1997 was $2.06, a 1%
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<PAGE> 34
decrease from $2.08 in 1996. The following is a description of our oil and gas
revenues by operating area.
East: Oil and gas revenues decreased 18% from $74.9 million in 1996 to
$61.5 million in 1997. This decrease is due to:
o a 6% decrease in gas production from 22.2 Bcf in 1996 to 20.8 Bcf
in 1997;
o a 36% decrease in oil production from 1.4 MMBbls in 1996 to 878
MBBLS in 1997;
o a 7% decrease in the average realized price of oil from $20.39 per
Bbl in 1996 to $18.95 per Bbl in 1997; and
o a slight decrease in the average realized price of gas from $2.13
per Mcf in 1996 to $2.08 per Mcf in 1997.
West: Oil and gas revenues increased 34% from $184.3 million in 1996 to
$247.7 million in 1997. This increase is primarily due to the fact that
1997 included an entire year of operating results for the California
properties, compared to only nine months in 1996.
International: Oil and gas revenues increased 10% from $20.7 million in
1996 to $22.8 million in 1997. This increase is primarily due to a 10%
increase in oil production from 1.4 MMBbls in 1996 to 1.6 MMBbls in 1997.
Gas plant revenues in 1998 of $2.7 million were 82% lower than 1997
revenues of $14.8 million. This decrease is due to the sale of our interest in
the Benedum Plant System in May 1997. Gas plant revenues in 1997 of $14.8
million were 57% lower than 1996 revenues of $34.8 million due to the sale of
our investment in the Benedum Plant System in May 1997. We recognized a $2.3
million pre-tax gain on the sale.
Pipeline and other revenues in 1998 of $2.7 million were 53% lower than
1997 revenues of $5.8 million. This decrease is primarily due to the sale of our
interests in the Richfield Gas Storage facility in February 1998 and Bright Star
Gathering, Inc. in July 1998. Pipeline and other revenues in 1997 of $5.8
million were 15% lower than 1996 revenues of $6.8 million, as a result of lower
throughput during 1997 compared to 1996.
Gain on sale of assets for 1998 was $5.8 million. This gain on sale of
assets includes:
o a $4.1 million gain on the sale of our interest in the Sansinena
field in California in the third quarter of 1998; and
o a $1.7 million gain on the sale of our interest in the Coke field
in Chapel Hill, Texas in the first quarter of 1998.
The net gain on sale of assets for 1997 was $1.4 million, which is
comprised of:
o a $1.4 million gain on the sale of our interest in Second Bayou,
Weeks Island, Louisiana;
o a $2.3 million gain on our interest in the Benedum Plant System;
o a $1.6 million loss on the sale of our interest in the South
Timbalier field; and
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<PAGE> 35
o a $0.7 million loss on the sale of other non-core properties.
The net gain on sale of assets for 1996 was $6.0 million, which is
comprised of a $9.2 million gain on the sale of our interest in the Giddings
field and East Texas Austin Chalk holdings in June 1996, which was offset by a
$3.2 million loss on the sale of other non-core properties.
Expenses
Lease operating expenses for 1998 totaled $134.7 million, as compared to
$120.0 million and $93.1 million for 1997 and 1996, respectively. The annual
increases of 12% in 1998 and 29% in 1997 are generally reflective of higher
production and costs associated with our California properties, which
constituted 77%, 73% and 66% of total production in 1998, 1997 and 1996,
respectively. In 1998, we experienced an increase in workovers of $11.2 million
as compared to the same period in 1997, as well as poor weather conditions in
the first quarter of 1998 in California that caused landslides and power
outages, which resulted in $2.3 million of incremental, unusual costs. In 1997,
lease operating expenses were incurred for an entire year versus only nine
months in 1996, since the California properties acquired from Unocal were
acquired in April 1996. The following is a description of the lease operating
expenses by operating area.
East: Lease operating expenses decreased slightly from $11.9 million in
1997 to $11.6 million in 1998. Lease operating expenses for our eastern oil
and gas operations decreased 16% from $14.1 million in 1996 to $11.9
million in 1997, primarily due to a 14% decrease in oil and gas production.
West: Lease operating expenses increased 16% from $96.1 million in 1997
to $111.2 million in 1998. This increase was due to an increase in
workovers as compared to the same period in 1997, as well as poor weather
conditions in the first quarter of 1998 in California that caused
landslides and power outages which resulted in $2.3 million of incremental,
unusual costs. Lease operating expenses for the west increased 41% from
$68.1 million in 1996 to $96.1 million in 1997, since we owned the
California properties for an entire year in 1997 versus only nine months in
1996.
International: Lease operating expenses decreased slightly from $12.0
million in 1997 to $11.9 million in 1998. Lease operating expenses for our
foreign oil and gas operations increased 10% from $10.9 million in 1996 to
$12.0 million in 1997 due to a 10% increase in production.
Gas plant operating expenses of $3.2 million in 1998 decreased 76% from
$13.4 million in 1997, which decreased 54% from $29.3 million in 1996. These
decreases are due to the sale of our investment in the Benedum Plant System in
May 1997.
Pipeline and other operating expenses for 1998 totaled $2.0 million, as
compared to $5.2 million and $6.1 million in 1997 and 1996, respectively. The
61% decrease in 1998 is primarily due to the sale of our interests in the
Richfield Gas Storage facility in February 1998 and Bright Star Gathering, Inc.
in July 1998. The 14% decrease in 1997 is due to lower throughput in 1997 as
compared to 1996.
Exploration costs, including geological and geophysical costs, dry hole
costs and delay rentals, were $16.6 million, $11.1 million and $4.6 million for
the years ended December 31, 1998, 1997 and 1996, respectively. Exploration
costs for the year ended 1998 included:
o $13.0 million of dry hole costs ($7.3 million of which relates to
exploration activity in Ghana, West Africa);
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<PAGE> 36
o $2.1 million of geological and geophysical costs ($1.5 million of
which relates to activity in Ghana);
o $0.9 million of delay rentals; and
o $0.6 million of other exploration costs.
Exploration costs for the year ended 1997 included:
o $9.3 million of dry hole costs;
o $0.7 million of geological and geophysical costs;
o $1.0 million of delay rentals; and
o $0.1 million of other exploration costs.
Exploration costs for the year ended 1996 included:
o $3.1 million of dry hole costs;
o $1.2 million of geological and geophysical costs;
o $0.2 million of delay rentals; and
o $0.1 million of other exploration costs.
Depreciation, depletion and amortization of $85.0 million in 1998 decreased
17% from $102.2 million in 1997, which increased 35% from $75.7 million in 1996.
The decrease in 1998 is primarily due to the year-end 1997 impairment of $30.0
million related to the excess of capitalized costs over future net revenues, as
well as the reclassification of the East Texas natural gas properties to assets
held for sale as of July 1, 1998, at which point the properties were no longer
depleted. The increase in 1997 is attributable to increased production volumes
in 1997, due to the acquisition of the California properties from Unocal in
April 1996.
We recorded provisions for impairment of oil and gas properties in 1998 and
1997 in the amounts of $68.9 million and $30.0 million, respectively. These
impairments were recorded as a result of declines in the price of oil, which
caused capitalized costs to be in excess of future net revenues. No such
impairment was recognized during 1996.
In December 1997, we recorded a $23.9 million provision for impairment on
assets held for sale, in connection with our plans to dispose of our non-core
gas gathering, pipeline and gas storage assets during 1998, including all such
assets except our California gas plants. A positive revision to this charge was
made in the fourth quarter of 1998 in the amount of $3.7 million to reflect the
estimated current fair market value of the Illini pipeline.
General and administrative expenses totaled $18.6 million, $19.8 million,
and $14.9 million in 1998, 1997 and 1996, respectively. The 6% decrease in 1998
is primarily due to a reduction in employee bonuses in 1998 and a $1.7 million
severance expense incurred in the third quarter of 1997 associated with the
resignation of our president and chief executive officer. These decreases were
offset in part by non-recurring costs incurred in 1998 associated with outside
engineering costs and third-party consulting studies associated with the
re-negotiation of our outsourcing agreements. The
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<PAGE> 37
33% increase in 1997 compared to 1996 is primarily due to additional general and
administrative costs associated with a full year of operations from the
California properties acquired from Unocal in 1996 and the $1.7 million
severance payment referred to above.
Outsourcing fees were $9.5 million, $12.0 million, and $10.2 million in
1998, 1997 and 1996, respectively. The 21% decrease in 1998 is primarily due to
decreased operating cash flows as a result of low realized oil prices. The 17%
increase in 1997 is primarily due to the fact that we had a full year of
operations from the California properties in 1997 as compared to 1996.
Interest expense of $32.5 million for 1998 increased 19% from $27.4 million
in 1997, primarily as a result of additional borrowings under the our bank
credit facility and the issuance in June 1998 of $100.0 million of 8 7/8% notes.
Interest expense for 1997 decreased 24% from $36.0 million in 1996, primarily as
a result of our redemption of the 12 1/2% notes, as well as decreased debt under
the bank credit facility due to the repayment of a portion of the debt
outstanding under this facility with the proceeds from the issuance of the
TECONS in late 1996.
Dividends on the TECONS increased from $0.2 million in 1996 to $6.6 million
in 1998 and 1997. The TECONS pay dividends at a rate of 5.75% and were issued in
December 1996.
In March 1999, we discovered that an employee had fraudulently authorized
and diverted for personal use funds totaling $5.9 million, $4.3 million in 1998
and the remainder in 1999, that were intended for international exploration.
Accordingly, we have reclassified the amounts lost in 1998 from exploration
costs to other expense. Based on its review of the facts, management is
confident that only one employee was involved in the matter and that all
misappropriated funds have been identified. The board of directors has engaged a
certified fraud examiner to conduct an in-depth review of the fraudulent
transactions to determine the scope of the fraud, the possibility of recovery of
amounts lost from insurance, from the terminated employee and/or from third
parties, and to make recommendations regarding what, if any, new internal
control procedures should be implemented.
Income tax benefit of $32.6 million was recognized in 1998, compared to a
benefit of $8.7 million in 1997 and expense of $24.0 million in 1996. Our
effective income tax rate was (25.7)%, (38.8)% and 41.3% in 1998, 1997 and 1996,
respectively. At December 31, 1998, we determined that it was more likely than
not that a portion of the deferred tax assets will not be realized and the
valuation allowance was increased by $16.9 million to a total valuation
allowance of $17.6 million.
Extraordinary Loss
In June 1997, we recorded an extraordinary loss on the early extinguishment
of our 12 1/2% notes in the amount of $3.0 million, net of the related tax
benefit of $2.0 million. No extraordinary items were recorded in 1998 or 1996.
Net Income (Loss)
A net loss of $94.3 million was generated in 1998, as compared to a net
loss of $13.7 million in 1997 and net income of $34.3 million in 1996. Net
income after deducting dividends paid on the 7% preferred stock was $33.3
million in 1996. There was no 7% preferred stock outstanding during 1998 or
1997; as such, no preferred dividends were paid in 1998 or 1997.
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<PAGE> 38
PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT EXPENDITURES
Our expenditures to acquire properties, and for exploration and development
for the three years ended December 31, 1998 and for the six months ended June
30, 1999 are set forth in the following table:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------ JUNE 30,
1996 1997 1998 1999
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Acquisitions ....... $ 492,603 $ 10,206 $ 10,733 $ 61,416
Development ........ 73,610 156,328 116,631 30,552
Exploration ........ 16,133 29,361 35,910 6,143
---------- ---------- ---------- ----------
$ 582,346 $ 195,895 $ 163,274 $ 98,111
========== ========== ========== ==========
</TABLE>
Our capital budget for 1999 includes $40.0 million for exploitation and
development, $28.0 million of which is budgeted to be spent in California, $5.0
million in the Gulf Coast area and $7.0 million internationally. Our capital
budget for 1999 also includes $17.0 million for exploration, $7.0 million of
which is targeted for California, $2.0 million for the Gulf Coast area and $8.0
million internationally. Our capital budget for 1999 does not include any
amounts for acquisitions, which could be material. As of June 30, 1999, we had
spent approximately 48% of our capital budget for exploitation and 46% for
exploration. In addition, in June 1999 we closed the Star acquisition for $61.4
million.
Our 1999 capital budget is significantly smaller than our capital budgets
for 1998 and 1997, primarily because of the depressed oil prices. Although oil
prices have recently improved, we have not increased our 1999 capital budget.
CAPITAL RESOURCES AND LIQUIDITY
Since our inception, we have grown and focused our operations through a
series of disciplined, low cost acquisitions of oil and gas properties and the
subsequent exploitation and development of these properties. We have
complemented these efforts with an opportunistic exploration program which
provides exposure to prospects that have the potential to add substantially to
our growth. The funding of these activities has historically been provided by
operating cash flows, bank financing, private and public placements of debt and
equity securities, property divestitures and joint ventures with industry
participants. Net cash provided by operating activities was $35.8 million,
$165.5 million, and $126.9 million in 1998, 1997 and 1996, respectively. We
invested $157.4 million, $195.1 million and $516.0 million in oil and gas
properties in 1998, 1997 and 1996, respectively. Additionally, we spent $2.8
million, $1.7 million and $21.1 million on gas plant and other facilities in
1998, 1997 and 1996, respectively. Included in the oil and gas capital
expenditures for 1998 is approximately $81.5 million for development drilling
activity in California.
In our 1999 capital budget, approximately $40.0 million is allocated to
exploitation and development projects and approximately $17.0 million is
directed to prospect generation and exploration. Exploitation spending is
anticipated to consist of $28.0 million in California, $5.0 million in the Gulf
Coast region, and $7.0 million internationally. We plan to allocate exploration
spending of $7.0 million in California, $2.0 million in the Gulf Coast region,
and $8.0 million internationally. Changes in our cash flow from operations due
to oil and gas price fluctuations may cause us to revise our capital expenditure
plans.
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<PAGE> 39
As of June 30, 1999, we had unused commitments under our bank revolving
credit facility of $91.0 million and cash balances of $51.6 million. Effective
January 6, 1999, the borrowing base on our bank credit facility was reduced from
$380.0 million to $200.0 million, reflecting the sale on that date of our East
Texas properties, and a significant decline in current and projected oil prices
since the previous determination.
We plan to sell some of our surface real estate assets in Orange County,
California, during 1999 and use a portion of the proceeds to fund a portion of
our 1999 capital program. We believe our working capital, cash provided by
operating activities, property divestitures, project financing resources and the
bank credit facility are sufficient to meet these capital commitments.
MARKET RISK DISCLOSURE -- HEDGING
We are exposed to market risk, including adverse changes in commodity
prices and interest rates.
Commodity Price Risk. We produce and sell crude oil, natural gas and
natural gas liquids. As a result, our operating results are significantly
affected by fluctuations in commodity prices caused by changing market forces.
We periodically seek to reduce our exposure to price volatility by hedging our
production through swaps, options and other commodity derivative instruments. We
use hedge accounting for these instruments when available, and we report
settlements of gains or losses on these contracts as a component of oil and gas
revenues and operating cash flows in the period realized. These agreements
expose us to counterparty credit risk to the extent that the counterparty is
unable to meet its settlement commitments to us.
Changes in prices for California crude oil production, especially sour
heavy oil production, do not closely follow changes in the prices of oil futures
prices on the NYMEX or other established futures markets. The difference we
receive for our California production and the NYMEX prices or prices on other
established futures markets is referred to as basis differential. The volatility
of the basis differential makes it difficult to effectively hedge our California
production.
For the second half of 1999, we are party to crude oil swaps on an average
of 30,000 Bbls per day, or 67% of our estimated crude oil production, at an
average NYMEX price of $16.35 per Bbl. For calendar year 2000, we have entered
into crude oil swaps on 16,500 Bbls per day, or 30% of our estimated crude oil
production, at an average NYMEX price of $17.94 per Bbl. In addition, for
calendar year 2000, we have hedged an additional 30% of our estimated crude oil
production through the purchase of put options on 16,500 Bbls per day at a NYMEX
price of $16.00 per Bbl, and the sale of call options on 16,500 Bbls per day at
an average NYMEX price of $21.21 per Bbl. There was no net cost to us for these
options.
Interest Rate Risk. We may enter into financial instruments such as
interest rate swaps to manage the impact of changes in interest rates. In 1999,
we entered into an agreement which has the effect of hedging the price at which
we may repurchase $16.4 million in principal amount of our 9 1/2% notes and
converts the interest rate under the portion of the 9 1/2% notes subject to the
agreement to a floating rate for a period of one year. The floating rate in June
1999 was 5.6%. The counterparty to this agreement is Bank of America, N.A.
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<PAGE> 40
Our exposure to changes in interest rates primarily results from our
short-term and long-term debt with both fixed and floating interest rates. The
following table sets forth the principal amounts and the related average
interest rates by year of maturity for our debt obligations at June 30, 1999:
<TABLE>
<CAPTION>
FAIR VALUE
1999 2000 2001 2002 2003 THEREAFTER TOTAL LIABILITY
---------- ------ ----- ----- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt, including
current maturities:
Variable rate ............. $ 2,051 -- -- -- $ 120,000 -- $ 122,051 $ 122,051
Average interest rate ..... 5.2% -- -- -- 5.4% -- 5.4%
Fixed rate ................ -- -- -- -- -- $ 260,000 $ 260,000 $ 258,602
Average interest rate ..... -- -- -- -- -- 9.3% 9.3%
</TABLE>
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement,
as amended, establishes standards of accounting for and disclosures of
derivative instruments and hedging activities. This statement requires all
derivative instruments to be carried on the balance sheet at fair value and is
effective for us beginning January 1, 2001, however, early adoption is
permitted. We have not yet determined the impact of this statement on our
financial condition or results of operations or whether we will adopt the
statement early.
OTHER MATTERS
Inflation. Inflation has not had a material impact on our operations and is
not expected to have a material impact on us in the future.
Gas Balancing Positions. 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 gas balancing positions is not
anticipated to adversely impact our financial condition.
Year 2000. See the discussion of the year 2000 issue under "Business and
Properties -- Year 2000."
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<PAGE> 41
BUSINESS AND PROPERTIES
We are an independent oil and gas company. Our properties are concentrated
in California, where we are the largest independent producer, with properties
located both onshore and offshore. Our onshore California properties are located
primarily in the San Joaquin, Los Angeles and Ventura Basins. Our offshore
California properties are located in the Santa Barbara Channel and offshore Long
Beach. We also own properties in the onshore Gulf Coast region and
internationally offshore the Republics of Congo and Ghana in West Africa and
onshore in Tunisia. Since our inception in 1990, we have expanded our operations
through a series of disciplined, low-cost acquisitions of oil and gas properties
and the subsequent exploitation and development of these properties. We have
complemented these efforts with strategic divestitures and an opportunistic
exploration program which provides exposure to prospects with the potential to
add substantially to the growth of our shareholder value.
RECENT DEVELOPMENTS
East Texas Sale. In January 1999, we sold properties in East Texas for
$192.0 million. Reserves attributable to the East Texas properties were
primarily natural gas. The estimated net proved reserves of these properties
were 329 Bcfe on December 31, 1998. We placed $100.0 million of the proceeds of
this sale in an escrow account to facilitate like-kind exchange tax treatment
for any properties we acquire in the first six months of 1999. Of these escrowed
proceeds, $61.4 million was used to fund the Star acquisition. We used the
remaining net proceeds from this sale plus amounts remaining in escrow after the
Star acquisition to pay down our bank credit facility.
Star Acquisition. In June 1999, we acquired oil properties located onshore
and offshore California for $61.4 million. The acquired properties had estimated
net proved reserves at June 30, 1999 of 33.7 MMBOE and will increase our
production from California by approximately 5.0 MBOE per day. All of these
properties are additional interests in or near our existing properties. The
acquisition includes interests in the Cymric, the East Coalinga, the Dos Cuadras
and other fields we operate.
Recovery of Oil Prices. The price for crude oil on the New York Mercantile
Exchange for near month contracts increased from $12.09 per Bbl at December 31,
1998 to $19.29 per Bbl at June 30, 1999. Our estimated net proved reserves would
have increased 61.8 MMBOE during the first six months of 1999, without including
the effect of acquisitions and divestitures.
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<PAGE> 42
PRINCIPAL PROPERTIES
The following table sets forth information about our principal oil and gas
properties. This table does not include our properties in East Texas which we
sold on January 6, 1999.
<TABLE>
<CAPTION>
PRE-TAX
ESTIMATED DISCOUNTED
NET PROVED RESERVES, AS OF PRESENT
JUNE 30, 1999 VALUE AT 1998 NET PRODUCTION
--------------------------- JUNE 30, ---------------------------
OIL GAS BOE 1999 OIL GAS BOE
(MBbls) (MMcf) (MBOE) (M$) (MBbls) (MMcf) (MBOE)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
U. S. Properties:
California Fields:
Cymric Fields ............... 49,189 4,974 50,018 150,740 3,905 1,604 4,172
Midway-Sunset Field ......... 43,162 -- 43,162 108,479 2,900 -- 2,900
Brea Olinda Field ........... 32,959 21,126 36,480 86,112 826 136 849
Belridge Field .............. 12,059 947 12,217 54,003 608 198 641
Santa Clara Field ........... 17,723 30,515 22,809 47,509 940 649 1,048
Point Pedernales
Field ..................... 14,134 8,360 15,527 32,840 2,385 990 2,550
Huntington Beach
Field ..................... 9,532 1,015 9,701 31,564 753 77 766
Dos Cuadras Field ........... 6,921 3,064 7,432 16,082 388 290 436
East Dos Cuadras
Field ..................... 6,162 8,134 7,518 14,101 334 354 393
Other ....................... 25,753 35,725 31,707 55,357 3,401 9,407 4,969
------- ------- ------- ------- ------- ------- -------
Total California ....... 217,594 113,860 236,571 596,787 16,440 13,705 18,724
Other U.S. Fields ............. 497 9,334 2,052 13,673 817 5,766 1,778
------- ------- ------- ------- ------- ------- -------
Total U.S. ............. 218,091 123,194 238,623 610,460 17,257 19,471 20,502
------- ------- ------- ------- ------- ------- -------
International Properties:
Yombo Field, Congo .......... 17,208 -- 17,208 75,040 1,461 -- 1,461
Masseko Field, Congo ........ 7,878 -- 7,878 8,609 -- -- --
------- ------- ------- ------- ------- ------- -------
Total
International ........ 25,086 -- 25,086 83,649 1,461 -- 1,461
------- ------- ------- ------- ------- ------- -------
Company Total (excluding
Star Acquisition
Fields) ................... 243,177 123,194 263,709 694,109 18,718 19,471 21,963
======= ======= ======= ======= ======= ======= =======
Star Acquisition
Fields .................... 29,089 27,519 33,676 141,893 N/A N/A N/A
------- ------- ------- ------- ------- ------- -------
Company Total ............... 272,266 150,713 297,385 836,002 N/A N/A N/A
======= ======= ======= ======= ======= ======= =======
</TABLE>
PRODUCING PROPERTIES
California Properties
We acquired substantially all of our California properties from Unocal in
April 1996. We acquired additional properties in California from Texaco, Inc. in
the Star acquisition in June 1999.
Cymric Field. The Cymric Field, discovered in 1909, is located in the
southern San Joaquin Basin in Kern County, California. We own an average 99%
working (88% average net revenue) interest in properties in the field, and
operate 12 leases in the field, totaling 4,700 acres and containing 614 active
wells (544 producers, 70 injectors). 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 to 4,500 feet.
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<PAGE> 43
Between April 1996 and December 1998, we drilled 205 wells, of which 109
were Tulare completions (including 11 horizontal Tulare wells), 53 were Thermal
Antelope completions, and 42 were deeper fracture stimulated Antelope
completions. We also have used multiple completion technology in producing the
Thermal Antelope which can triple the production from a well while increasing
the costs by only half. Production has increased by 76% from 6.8 MBBLS per day
at the time of the acquisition to 11.9 MBBLS per day in December 1998.
Additionally, our estimated net proved reserves increased in this field as of
June 30, 1999 by 21.5 MMBOE since April 1996. We plan to drill an additional 10
wells during 1999, including four horizontal wells and six injection wells.
In the Star acquisition described under "Recent Developments" we acquired
additional interests in the Cymric Field.
Midway Sunset Field. The Midway Sunset Field, discovered in the 1890's, is
located in the southern San Joaquin Basin in Kern County, California. We own a
100% working (97% average net revenue) interest in our properties in the field.
We operate seven leases in the field, totaling 1,120 acres and containing 536
(497 producers, 39 injectors) active wells. Production is from five zones with
the Potter Sand and the Thermal Diatomite accounting for over 95% of total
production.
Between April 1996 and December 1998, we drilled 119 wells, of which 55
were Potter completions (including 11 horizontal Potter wells), 39 were Thermal
Diatomite completions, seven were injection wells and 18 were Sub Potter sand
completions. We have also used multiple completion technology in producing the
Thermal Diatomite. Production increased by 29% from 5.9 MBBLS per day at the
time of the acquisition in April 1996 to 7.6 MBBLS per day for December 1998.
Our estimated net proved reserves increased in this field as of June 30, 1999 by
12.7 MMBOE since April 1996. We plan to drill an additional 10 vertical wells
during 1999.
Brea Olinda Field. The Brea Olinda Field, discovered in 1880, is located in
Orange County near the City of Brea, California. We operate three fee properties
with a 100% working and net revenue interest containing 189 active wells. We
also have royalty interests in an additional 57 wells in this field. Production
is from multiple-pay zones in the Miocene and Pliocene sandstones at depths of
up to 6,500 feet.
In 1996, following our acquisition of the property, 11 wells were
recompleted, a new gas plant start-up was accomplished and two infill producers
plus one waterflood injector were drilled. In 1997, we drilled seven infill
producers and seven waterflood injectors and initiated water injection in three
fault blocks. In 1998, we drilled three additional infill producers, continued
waterflood expansion, and installed an electrical generation unit to power our
field operations.
Belridge Field. The Belridge Field, discovered in 1911, is located in the
southern San Joaquin Basin in Kern County, California. We own a 100% working and
net revenue interest in two leases in the field. In addition, we own a royalty
interest in the productive zones above 2,000 feet on one of the leases.
Between April 1996 and December 1998, we began redevelopment of the Tulare
sands on one of the leases. This lease was idle at the time of the acquisition.
We have drilled 54 wells in the Tulare sand including 10 horizontal and 28
injection wells. All of these wells were drilled during 1997 and 1998. Activity
also continues in the ongoing development of the non-operated royalty property.
We plan to drill an additional 20 wells in the field during 1999 including five
horizontal wells. We also began a continuous steam injection program in 1998 as
part of the redevelopment of the previously idle property. Our estimated net
proved reserves increased in this field as of June 30, 1999 by 8.3 MMBOE since
April 1996.
Santa Clara Field. The Santa Clara Field is located seven miles offshore of
Ventura County in the Santa Barbara Channel. We operate the platform (Gilda)
with a 100% working (83.33% net revenue) interest. The field was developed in
1991 with production from the Pico, upper Repetto, lower Repetto, and Monterey
reservoirs.
Since April 1996, we have drilled and completed seven wells. Our estimated
net proved reserves increased in this field as of June 30, 1999 by 10 MMBOE
since April 1996.
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<PAGE> 44
Point Pedernales Field. We 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 properties in April 1996. We operate the field which 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 to
5,150 feet.
In 1997, both a successful infill well and an exploratory well were
completed in the Point Pedernales Field. The successful exploratory well proved
the existence of the Tranquillon Ridge Field, located to the southeast of the
Point Pedernales Field, primarily in California state waters. We believe this
new field contains substantial recoverable reserves, and can be developed using
existing Point Pedernales infrastructure. We are in discussions with state
regulators for the purpose of acquiring a lease to develop this field.
We experienced an oil spill due to a pipeline leak at the end of September
1997. Repairs were performed and the field was back on production before the end
of December 1997. Also in 1997 and early 1998, two wells were recompleted to
provide additional gas production.
Huntington Beach Field. The Huntington Beach Field in Orange County is
located beneath the city of Huntington Beach extending offshore into state
waters. We operate the platform which is located 2 1/4 miles offshore and was
installed in 1964. We own a 100% working (82.7% net revenue) interest.
Production is from two separate sands in the Upper Miocene reservoir.
In 1997, we initiated a waterflood expansion and began a production
enhancement program that added incremental production of over 900 Bbls per day.
In 1999, we plan to continue both the waterflood expansion and production
enhancements.
Other U.S. Properties
North Frisco City Field. We discovered the North Frisco City Field in 1991.
It is located in Monroe County, Alabama. We operate the field which is
productive in the Haynesville sand at 12,000 feet. We own an approximate 22%
working (17% net revenue) interest. The field was unitized in 1994 in order to
initiate a pressure maintenance project. This successful pressure maintenance
project is expected to maintain production at current levels and should increase
the ultimate recovery from the field from 25% to 50% of original oil in place.
Our average daily production was 761 Bbls of oil per day and 856 Mcf of natural
gas per day during 1998.
Giddings Field. We currently own an interest in 12 producing wells in the
Giddings field, located in Grimes and Austin Counties, Texas and have an average
46.9% working (35.2% net revenue) interest in these wells. Production is derived
from the highly fractured Austin Chalk formation at approximate depths of
between 12,800 and 15,300 feet. All of these wells are horizontally drilled and
have been prolific producers with rates as high as 30 MMcf per day. We own a
total of 6,078 acres in our Turkey Creek Prospect area. We recently drilled the
Eller 1-H well on our 12,500 acre Nelsonville Prospect in Austin County. The
well initially produced natural gas at 30 MMcf per day. We own a 50% working
interest in this acreage. Our net average daily production was 8.8 MMcf per day
and 30 Bbls per day for 1998.
International
Republic of Congo. In February 1995, we acquired a 43.8% working (32.5% net
revenue) interest in the Congo Marine I Exploration Permit covering the Yombo
and Masseko Fields offshore Congo. Our interest currently consists of a 50%
working (37.5% average net revenue) interest. The permit area is located 30
miles offshore in 360 feet of water. The Yombo Field has 22 producing wells and
two water injection wells on two platforms that produce from the Tchala and
Sendji formations between 2,800 and 8,000 feet. Estimated net proved reserves in
the Yombo Field were 17.2 MMBbls on December 31, 1993, the effective date of its
acquisition by us. Since that date, net production has been 8.3 MMBbls and
estimated net proved reserves have increased to 25.1 MMBbls as of June 30, 1999,
52% of which are proved developed. As part of the acquisition, we 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. Our
production is converted to fuel oil on the vessel and sold on the
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<PAGE> 45
basis of #6 fuel oil with less than 1% sulphur content. CMS NOMECO Oil and Gas
Co. is the operator of the concession.
During 1996, we completed a six-well development drilling program and a
successful exploratory well to the Lower Sendji formation in the Yombo Field.
The exploratory well has produced 1.3 MMBOE through December 1998 and currently
produces at 1.2 MBbls per day. In 1997, we drilled a successful exploratory well
to evaluate the Lower Sendji and subsalt section underlying the Masseko
structure located several miles to the west of the Yombo Field, as well as to
further delineate the Tchala and Upper Sendji zones which were discovered but
not developed by a previous operator. This well tested at rates of over 3.0
MBbls per day in the Middle Sendji and successfully delineated the shallow
horizons. The operator has obtained preliminary platform and facility designs.
The Masseko structure had estimated net proved reserves of 7.6 MMBbls at
December 31, 1998.
During 1998, the operator continued expansion of the waterflood projects to
enhance production from both the Tchala and Upper Sendji formations. Incremental
production increases of 1.0 MBbls per day have been achieved to date. In August
1998, a platform rig began drilling in the field. A total of five new wells and
three sidetrack wells are expected to be drilled by July 1999. Production for
December 1998 averaged 4.2 MBbls per day. Current production is approximately
6.0 MBbls per day.
EXPLORATION PROSPECTS
Our exploration efforts focus on a mixture of low-risk step-out
opportunities associated with known producing areas and high potential "impact"
prospects. We seek to reduce the risk normally associated with high potential
prospects through the utilization of advanced technology and by participating
with other experienced industry partners.
During 1998, we drilled 18 gross exploration wells, of which eight (44%)
were successful. Our most significant discoveries were at the McKittrick Front
700, the Twisselman 6-14 and the Mongoose #3, all located in California. We plan
to participate in two exploration wells in 1999 and have budgeted $16.0 million
for exploration in 1999. Both 1999 exploration wells will be drilled in
California.
In 1999, we will continue to evaluate our East Cape Three Points (1.7
million acres) and Accra-Keta (2.7 million acres) Blocks offshore the Republic
of Ghana in West Africa. We operate both blocks and hold 75% and 100% working
interests, respectively. Our 1998 exploration well on the East Cape Three Points
block encountered non-commercial quantities of hydrocarbons; however, additional
prospects remain to be evaluated and will be a focus of 1999 efforts. We have
several prospects in the Accra-Keta Block. These will be further evaluated by
new seismic data to be acquired in 1999, with the drilling of an exploration
well planned for 2000.
An exploratory well on the Chott Fejaj Permit in Tunisia, in which we
participated, encountered non-commercial quantities of hydrocarbons. Encouraged
by the results of the well, the partners in the well obtained a renewal of the
permit in order to allow deepening of the well. Current plans are to farmout the
deepening of the well to an industry partner in 2000.
During the second quarter of 1999, we abandoned our Cree Fee 1A exploration
well in the Midway Peak Prospect in Kern County, California. We owned an 80%
working interest in the well which was drilled to approximately 17,150 feet. Dry
hole costs for this well (net to us) were $6.5 million through May 1999. The
cost of the Cree Fee 1A exploration well was included in our 1998 budget and is
not a part of our 1999 budget.
In addition, a substantial portion of our exploration activity in the
balance of 1999 will focus on identifying, evaluating and pursuing high-quality
exploration opportunities in West Africa and North Africa.
Our 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 completion of
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<PAGE> 46
the study is scheduled for the third quarter 1999. We believe these tracts
contain substantial recoverable oil reserves and plan to participate in the
development of the fields when the suspension is lifted.
OIL AND GAS RESERVES
The following table shows information about our estimated net proved and
proved developed reserves of oil and gas.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------------------------------------- -----------------
1996 1997 1998 1999
----------------- ----------------- ----------------- -----------------
OIL GAS OIL GAS OIL GAS OIL GAS
(MBbl) (MMcf) (MBbl) (MMcf) (MBbl) (MMcf) (MBbl) (MMcf)
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proved reserves ...... 186,053 394,630 227,264 390,691 190,141 403,256 272,266 150,713
Proved developed
reserves ........... 138,815 236,013 153,012 266,179 133,319 308,667 202,074 121,042
</TABLE>
The following table sets forth the pre-tax discounted present value of our
oil and gas reserves:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------ JUNE 30,
1996 1997 1998 1999
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Pre-tax discounted present value:
United States ...................... $1,251,378 $ 832,808 $ 277,963 $ 752,353
International ...................... 107,203 68,299 21,970 83,649
---------- ---------- ---------- ----------
Total ...................... $1,358,581 $ 901,107 $ 299,933 $ 836,002
========== ========== ========== ==========
</TABLE>
In general, estimates of reserves and of the future net cash flows
attributable to the reserves are based upon a number of variable factors and
assumptions, such as historical production from the 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 these 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 cash flows expected therefrom, prepared by different
engineers or by the same engineers at different times, may vary substantially.
The actual production, revenues, severance and excise taxes, development and
operating expenditures with respect to our reserves will vary from estimates,
and such variances could be material. Information set forth herein regarding the
quantities of and cash flows attributable to our oil and gas reserves are
forward looking statements. See "Forward-Looking Statements."
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<PAGE> 47
ACREAGE
The following table sets forth information about the properties we owned on
December 31, 1998. Undeveloped acreage is considered to be those acres on which
wells have not been drilled or completed to a point that would permit the
production of commercial quantities of oil and gas, regardless of whether or not
such acreage contains proved reserves.
<TABLE>
<CAPTION>
GROSS NET
--------- ---------
<S> <C> <C>
Developed acreage ...................... 284,158 138,566
Undeveloped acreage .................... 4,835,338 4,161,276
---------- ----------
Total ........................ 5,119,496 4,299,842
========== ==========
</TABLE>
Undeveloped acreage primarily consists of interests in the Republic of
Ghana.
PRODUCTIVE WELLS
The following table sets forth our gross and net interests in productive
oil and gas wells as of December 31, 1998. Productive wells are producing wells
and wells capable of production.
<TABLE>
<CAPTION>
GROSS NET
----- -----
<S> <C> <C>
Oil wells .............................. 2,500 2,122
Gas wells .............................. 352 139
----- -----
Total ........................ 2,852 2,261
===== =====
</TABLE>
DRILLING ACTIVITY
The number of gross and net exploratory and development wells we drilled is
described below.
Exploratory Wells
<TABLE>
<CAPTION>
GROSS NET
----------------------------------- --------------------------------------
NON- NON-
PRODUCTIVE PRODUCTIVE TOTAL PRODUCTIVE PRODUCTIVE TOTAL
---------- ---------- ----- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
1996........................ 6 7 13 3.40 2.09 5.49
1997........................ 9 5 14 6.63 2.33 8.96
1998........................ 8 6 14 4.09 3.58 7.67
</TABLE>
Development Wells
<TABLE>
<CAPTION>
GROSS NET
----------------------------------- --------------------------------------
NON- NON-
PRODUCTIVE PRODUCTIVE TOTAL PRODUCTIVE PRODUCTIVE TOTAL
---------- ---------- ----- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
1996.................... 149 1 150 125.24 1.00 126.24
1997.................... 236 1 237 217.52 1.00 218.52
1998.................... 155 -- 155 134.43 -- 134.43
</TABLE>
GAS PLANT, PIPELINES AND OTHER FACILITIES
In 1997 we decided to sell the gas gathering, processing and other
mid-stream assets we owned which were not related to our core oil and gas
assets. Following this decision, we made the following divestitures:
o in May 1997, we sold our 95% interest in the Benedum Gas Plant for
$25.0 million;
o in February 1998, we sold our 48.5% interest in the Richfield Gas
Storage Facility for $2.2 million; and
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<PAGE> 48
o in July 1998, we sold our 80% interest in Bright Star Gathering,
Inc. for $1.5 million.
We have also entered into an agreement to sell our interest in the Illini
Gas Pipeline which we expect to close in 1999.
We continue to own three gas processing plants in California, which process
gas from our California properties.
LEGAL PROCEEDINGS
We have been named as a defendant in the lawsuit Gloria Garcia Lopez and
Husband, Hector S. Lopez, Individually, and as successors to Galo Land & Cattle
Company v. Mobil Producing Texas & New Mexico, et al. currently pending in the
79th Judicial District Court of Brooks County, Texas.
This suit was filed on August 30, 1996. The plaintiffs allege:
o underpayment of royalties and claim damages, on a gross basis
against all working interest owners, of $27.7 million plus $26.2
million in interest for the period from 1985 to date;
o that their production was improperly commingled with gas produced
from an adjoining lease, resulting in damages, including interest
of $40.8 million (gross); and
o numerous other claims that may result in unspecified damages.
Our working interest in these properties is 20%. We, along with the other
defendants in this case, deny these allegations and are vigorously contesting
these claims. We do not believe that the final outcome of this matter will have
a material adverse impact on our operating results, financial condition or
liquidity.
Although from time to time we are involved in other legal proceedings
relating to the ordinary course of our business, we do not believe that any of
these proceedings, individually or in the aggregate, are material to us.
CONTINGENT PAYMENT TO UNOCAL
In connection with the acquisition of the properties located in California
from Unocal in 1996, we agreed to make a contingent payment for the years 1998
through 2004 if oil prices exceed thresholds set forth in our agreement with
Unocal. The contingent payment will equal 50% of the difference between the
actual average annual price received on a field-by-field basis (capped by a
maximum price) and a minimum price, less taxes, multiplied by the actual number
of barrels of oil sold during the respective year. The minimum price of $17.75
per Bbl under the agreement (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 on the 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 in effect in 1995 ($4.34 per Bbl weighted average for all the
properties acquired from Unocal). We will accumulate credits to offset the
contingent payment when prices are $0.50 per Bbl below the minimum price. We
accumulated $45.5 million in price credits as of June 30, 1999, which will be
used to reduce future amounts owed under the contingent payment.
YEAR 2000
Like all other enterprises that utilize computer technology, we face a
threat of business disruption from the year 2000 issue. The year 2000 issue or
Y2K refers to the inability of computer and other information technology systems
to properly process date and time information, stemming from the outdated
programming practice of using two digits rather than four to represent the year
in a date. The consequence of Y2K is that computer and embedded processing
systems are at risk of malfunctioning, particularly during the transition from
1999 to 2000.
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<PAGE> 49
The effects of Y2K are exacerbated by the interdependence of computer and
telecommunication systems throughout the world. This interdependence also exists
among us and our vendors, customers and business partners, as well as with
regulators in the United States and host governments abroad.
The risks associated with Y2K that are expected to affect our business,
fall into three general areas:
o failure of the computer systems which control our financial
reporting and administrative systems;
o failure of the embedded systems in our field process control units
which control the production of oil and gas from our fields; and
o failure of computer systems of third parties with whom we do
business or on whom we rely to conduct our business.
We intend to address each of these three areas through a readiness process
that seeks to:
o increase the awareness of the issue among all employees;
o identify areas of potential risk;
o assess the relative impact of these risks and our ability to
manage them;
o remediate high priority risks wherever possible; and
o engage in contingency planning for identifiable risks that cannot
be remediated.
Our board of directors has assigned the oversight of Y2K to the audit
committee. From the audit committee, all responsibility for the readiness effort
runs through our chief executive officer, and from our chief executive office
through our chief financial officer (for financial and administrative systems)
and the vice president of exploitation (for embedded systems in field process
control units). The officers routinely update the audit committee and the entire
board on their efforts to increase readiness for Y2K.
We outsource a substantial portion of our administration and operations to
Torch Energy Advisors Incorporated. We have worked with Torch to jointly develop
a plan to address risks associated with Y2K as it is expected to affect our
business. Torch provides our financial and administrative systems and operates a
substantial portion of our properties. As used in the remainder of this Y2K
discussion, references to us may include the Torch employees assisting us in our
Y2K readiness program. As of August 1, 1999, we are in various stages of
implementation of the plan, as summarized below.
Financial and Administrative Systems
Awareness. We have conducted numerous Y2K informational programs with our
employees and Torch employees who provide input to or utilize the output of our
financial and administrative systems. Employees at all levels of our
organization have been asked to participate in the identification of potential
Y2K risks which might otherwise go unnoticed by higher level employees and
officers. As a result of these programs, we believe awareness of the Y2K issue
is high among our employees and employees of Torch.
Risk Identification. We believe that our significant financial and
administrative systems exposure is the Y2K status of the accounting and land
administration software that we use to collect and manage data for internal
management decision making and for external financial reporting purposes. Other
concerns include network hardware and software, desktop computing hardware and
software, telecommunications and office space readiness.
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<PAGE> 50
Risk Assessment. The failure to identify and correct a material Y2K problem
in our financial and administrative systems could result in inaccurate or
untimely financial information for management decision-making or financial
reporting purposes. The severity of any such problems will impact the time
period during which the quality of management information comes under question.
At this time, we believe that any Y2K disruptions associated with our financial
and administrative systems will not have a material effect on us.
Remediation. Following upgrades to our accounting software, we achieved
full Y2K compliance for our Oracle-based financial and administrative systems in
July 1999. In addition, Torch has inventoried all network and desktop software
applications used by us and believes them to be generally Y2K compliant. The
costs of all such risk assessments and remediation are borne by Torch under the
terms of our outsourcing agreements.
Contingency Planning. If there are significant unanticipated disruptions in
our financial and administrative systems, a number of accounting processes that
are currently automated will need to be performed manually. Based on current
information, we have not concluded that contingency arrangements for temporary
staffing to accommodate such situations will be warranted.
Embedded Systems
Awareness. Our Y2K program has involved all levels of management of field
assets from production foremen and higher. As a result, we believe awareness of
the issue is high among our field personnel.
Risk Identification. As is the case with most oil and gas companies,
operation of our properties is highly automated. We have completed a
comprehensive inventory of embedded computer components within the process
control systems of our operated oil and natural gas fields and processing
plants. We identified approximately 1,900 embedded components in these
computerized systems. We researched the manufacturer and/or installer of each
component to determine the anticipated compliance or non-compliance of the
component. To date, almost all of our embedded components researched have been
deemed either date insensitive or Y2K compliant. The Y2K compliance status for
approximately 16% of our embedded components have not yet been identified, and
research is continuing on these components. However, the complexity of embedded
systems is such that a small minority of non-compliant components, even a single
non-compliant component, can corrupt an entire system.
Risk Assessment. The failure to identify and correct a Y2K problem could
result in outcomes ranging from errors in data reporting, to curtailments or
shutdowns in production, to environmental pollution or safety incidents. In an
attempt to prevent such failures, we conducted system-level testing of assets
owned at June 30, 1999. The component -level evaluation is complete, with the
status of 16% of components still unknown and research on these components
continuing. The system-level evaluation is virtually complete with approximately
90% of all critical systems owned at June 30, 1999 fully tested. Testing on the
remaining systems is expected to be completed by September 30, 1999. For
properties acquired after June 30, 1999, evaluation is ongoing and the extent of
testing required is to be determined. To assist in this effort, we and Torch
Operating Company have retained consultants who are knowledgeable and
experienced in the assessment of Y2K issues impacting field operations. We
completed risk assessment of all mission critical systems in the second quarter
of 1999 for all of our properties owned as of June 30, 1999. Remediation will
extend to September 30, 1999 for properties owned at June 30, 1999. Costs
incurred through June 30, 1999, were not material to our results of operations,
and cost of the assessment is not expected to be material to our future
financial results. Because of the complexity of the risks inherent in the Y2K
problem, at this time we are unable to express any degree of confidence that
there will not be material production disruptions associated with Y2K
non-compliance. Depending on the magnitude of any such disruptions and the time
required to correct them, such failures could materially and adversely impact
our results of operations, liquidity and financial condition.
Remediation. We have prioritized the remediation of embedded components and
systems that are either known to be Y2K non-compliant or that have higher risk
of Y2K failures. We intend to give first priority to the remediation of any
situation with potential impacts to human health and safety or the environment,
and will further prioritize remediation targets by the anticipated financial
impact.
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<PAGE> 51
We are testing, upgrading and re-testing those embedded components and systems
in field process control units deemed to pose the greatest risk. It is important
to note that in some circumstances, the procedures that are used to test
embedded components for Y2K compliance themselves pose a risk of damaging the
component or corrupting the system, thereby accelerating the consequences of Y2K
failures. Accordingly, in some situations, it may be deemed the most prudent
decision not to test certain embedded components and systems. The amount of
capital that we budgeted for these anticipated costs to remediate or replace
embedded components and systems that pose the greatest risk of Y2K
non-compliance is approximately $1.6 million and is not considered to be
material to our liquidity or financial condition. However, it is expected that
some additional risks may be identified during 1999, so there can be no
assurances that actual capital spending on Y2K remediation will not
significantly exceed any amounts originally budgeted.
Contingency Planning. If material production disruptions occur as a result
of Y2K failures in field operations, our operating cash flow will be impacted.
This contingency is being factored into deliberations on capital budgeting,
liquidity and capital adequacy. It is our intention to maintain adequate
financial flexibility to sustain us during any such period of cash flow
disruption. We are currently evaluating all alternatives and assessing our
levels of risks based on the testing performed to date. We should have a better
understanding of these issues by the end of the third quarter, which will enable
us to execute the best contingency plan given the aforementioned risks.
Third Party Exposures
Awareness. We have conducted numerous Y2K informational programs with our
employees and the employees of Torch who have significant interaction with our
outside vendors, customers, and business partners. All of these employees have
been asked to participate in the identification of potential third party Y2K
risks, which might otherwise go unnoticed by higher level employees and
officers. We believe that awareness of the issue is high.
Risk Identification. Our most significant third party Y2K exposure is to
the refinery customers who purchase our oil production, on the customer side,
and from electricity and other utility companies supplying field operations, on
the supplier side. Other significant concerns include the readiness of third
party crude oil and natural gas pipeline facilities involved in the
transportation of our products, the integrity of global telecommunication
systems, the readiness of commercial banks to execute electronic fund transfers,
and the ability of the financial community to maintain an orderly market in our
securities.
Risk Assessment. Refineries are extremely complex operations containing
hundreds or thousands of computerized processes. The failure on the part of a
refining customer to identify and correct a material Y2K problem could result in
material disruptions in the sale of our production to that refinery. In many
cases, our production may not be easily shifted to other markets, and the result
can range from reduced realizations on crude oil produced, curtailed production
or even shut-in production. Failures of pipelines that connect our production to
markets may have similar effects. Although we have made inquiries to key third
parties on the subject of Y2K readiness and will continue to do so, we have no
ability to require responses to such inquiries or to independently verify their
accuracy. Accordingly, we are unable to express any degree of confidence that
there will not be material production disruptions associated with third party
Y2K non-compliance. Depending on the magnitude of any such disruptions and the
time required to correct them, such failures could materially and adversely
impact our results of operations, liquidity and financial condition.
Remediation. Where we perceive significant risk of Y2K non-compliance that
may have a material impact on our operations, and where our relationship with a
vendor, customer or business partner permits, we may pursue joint testing during
1999. Joint testing would occur following upgrades and other remediation to
hardware, software and communication links, as applicable, with the intent of
determining that the remediated system being tested will perform as expected on
December 31, 1999.
Contingency Planning. Should material production disruptions occur as a
result of Y2K failures of third parties, our operating cash flow will be
impacted. This contingency is being factored into deliberations on capital
budgeting, liquidity and capital adequacy. It is our intention to maintain
adequate financial flexibility to sustain us during any such period of cash flow
disruption. We are currently evaluating all alternatives and assessing our
levels of risks based on the testing performed to date and our confidence in the
Y2K readiness programs of major/critical suppliers and customers. We should have
a better understanding of these issues by the end of the third quarter, which
will enable us to execute the best contingency plan given the aforementioned
risks.
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MARKETS
The markets for hydrocarbons continue to be quite volatile. Our financial
condition, operating results, future growth and the carrying value of our oil
and gas properties are substantially dependent on prevailing prices of oil and
gas. Our ability to maintain or increase our 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 our control.
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, 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 our
carrying value of our proved reserves, our borrowing capacity, our ability to
obtain additional capital, and our revenues, profitability and cash flows from
operations.
Properties characterized by the production of San Joaquin Valley heavy oil,
which we define as those fields which produce primarily 15 (degrees) API quality
crude oil or heavier through thermal operations, constituted 28% of our total
1998 output.
In addition, properties which produce primarily other grades of relatively
heavy oil, generally, 19 (degrees) API or heavier but produced through non-
thermal operations, constituted 2% of our total 1998 output.
The market for California heavy oil differs from the established market
indices for oil elsewhere in the U.S., due principally to the higher
transportation and refining costs associated with heavy oil.
Our Yombo Field production in our Marine I Permit offshore the Congo
produces a relatively heavy crude oil, 16-20 (degrees) API gravity, which is
processed into a low-sulfur No. 6 fuel oil product for sale to worldwide
markets. Production from this property constituted 6% of our total 1998 output.
The market for residual fuel oil differs from the markets for WTI and other
benchmark crudes due to its primary use as an industrial or utility fuel versus
the higher value transportation fuel component, which is produced from refining
most grades of crude oil.
Sales to Tosco, formerly Unocal, accounted for 60%, 62% and 52% of 1998,
1997 and 1996 oil and gas revenues, respectively. Also in 1998, sales to Torch
Energy L.L.C. accounted for 10% of total 1998 oil and gas revenues. The loss of
any single significant customer or contract could have a material adverse short-
term effect on us; however, we do not believe that the loss of any single
significant customer or contract would materially affect our business in the
long-term.
Under the terms of a $30.0 million volumetric production payment, we were
committed to deliver 10.7 BCF of natural gas through December 1998. As of
December 31, 1998, we had fulfilled our obligation under this commitment. There
are no other significant delivery commitments, and substantially all of our oil
and gas production is sold at market responsive pricing through a marketing
affiliate of Torch Energy Advisors Incorporated. From time to time, we may enter
into crude oil and natural gas price swaps or other similar transactions to
hedge our exposure to price fluctuations.
REGULATION
Oil and Gas Regulation
The availability of a ready market for oil and gas production depends upon
numerous factors beyond our control. These factors include state and Federal
regulation of oil and gas production and transportation, as well as regulations
governing environmental quality and pollution control, state limits on allowable
rates of production by a well or proration unit, the amount of oil and gas
available for sale, the availability of adequate pipeline and other
transportation and processing facilities and the marketing of competitive fuels.
For example, a productive gas well may be "shut-in" because of an over-supply of
gas or lack of an available gas pipeline in the areas in which we may conduct
operations. State and Federal regulations generally are intended to prevent
waste of oil and gas, protect rights to produce oil and gas between owners in a
common reservoir, control the amount of oil and gas produced by assigning
allowable rates of production and control contamination of the environment.
Pipelines and gas plants also are subject to the jurisdiction of various
Federal, state and local agencies.
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<PAGE> 53
Our sales of natural gas are affected by the availability, terms and costs
of transportation. The rates, terms and conditions applicable to the interstate
transportation of gas by pipelines are regulated by the Federal Energy
Regulatory Commission under the Natural Gas Acts, as well as under Section 311
of the Natural Gas Policy Act. Since 1985, the Federal Energy Regulatory
Commission has implemented regulations intended to increase competition within
the gas industry by making gas transportation more accessible to gas buyers and
sellers on an open-access, non-discriminatory basis.
Our sales of oil are also affected by the availability, terms and costs of
transportation. The rates, terms, and conditions applicable to the interstate
transportation of oil by pipelines are regulated by the Federal Energy
Regulatory Commission under the Interstate Commerce Act. In this connection, the
Federal Energy Regulatory Commission has implemented a simplified and generally
applicable ratemaking methodology for interstate oil pipelines to fulfill the
requirements of Title VIII of the Energy Policy Act of 1992 comprised of an
indexing system to establish ceilings on interstate oil pipeline rates. The
Federal Energy Regulatory Commission will also, under defined circumstances,
permit alternative ratemaking methodologies for interstate oil pipelines such as
the use of cost of service rates, settlement rates, and market-based rates.
Market-based rates will be permitted to the extent the oil pipeline can
demonstrate that it lacks significant market power in the market in which it
proposes to charge market-based rates.
Environmental Regulation
General. Our activities are subject to existing Federal, state and local
laws and regulations governing environmental quality and pollution control. It
is anticipated that, absent the occurrence of an extraordinary event, compliance
with existing Federal, state and local laws, rules and regulations regulating
the release of materials in the environment or otherwise relating to the
protection of the environment will not have a material effect upon our
operations, capital expenditures, earnings or competitive position.
Our activities with respect to exploration, drilling and production from
wells, natural gas facilities, including the operation and construction of
pipelines, plants and other facilities for transporting, processing, treating or
storing natural gas and other products, are subject to stringent environmental
regulation by state and Federal authorities including the Environmental
Protection Agency, the Department of Transportation and the Federal Energy
Regulatory Commission. Such regulation can increase the cost of planning,
designing, installing and operating such facilities. In most instances, the
regulatory requirements relate to water and air pollution control measures.
Waste Disposal. We currently own or lease, and have in the past owned or
leased, numerous properties that have been used for production of oil and gas
for many years. Although we have utilized operating and disposal practices that
were standard in the industry at the time, hydrocarbons or other wastes may have
been disposed of or released on or under the properties we owned or leased. In
addition, many of these properties have been operated by third parties over whom
we had no control as to such entities' treatment of hydrocarbons or other wastes
or the manner in which such substances may have been disposed of or released.
State and Federal laws applicable to oil and gas wastes and properties have
become more strict. Under these new laws, we could be required to remove or
remediate previously disposed wastes, including wastes disposed of or released
by prior owners or operators, or property contamination, including groundwater
contamination, or to perform remedial plugging operations to prevent future
contamination.
We may generate wastes, including hazardous wastes that are subject to the
Federal Resource Conservation and Recovery Act and comparable state statutes.
The Environmental Protection Agency has limited the disposal options for certain
hazardous wastes and is considering the adoption of stricter disposal standards
for nonhazardous wastes. Furthermore, certain wastes generated by our oil and
gas operations that are currently exempt from treatment as "hazardous wastes"
may in the future be designated as "hazardous wastes," and therefore be subject
to more rigorous and costly operating and disposal requirements.
Superfund. The Federal Comprehensive Environmental Response, Compensation
and Liability Act, also known as the "Superfund" law, imposes joint and several
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons with respect to the release of a "hazardous
substance" into the environment. These persons include the current owner and
operator of a facility and persons that disposed of or arranged for the disposal
of the hazardous substances found at a facility. The Federal Comprehensive
Environmental Response, Compensation and Liability Act also authorizes the
Environmental Protection Agency and, in some cases, third parties,
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<PAGE> 54
to take actions in response to threats to the public health or the environment
and to seek to recover from the responsible classes of persons the costs of such
action. In the course of our operations, we may have generated and may generate
wastes that fall within the Superfund's definition of "hazardous substances". We
may also be an owner of facilities on which "hazardous substances" have been
released by previous owners or operators. We may be responsible under the
Federal Comprehensive Environmental Response, Compensation and Liability Act for
all or part of the costs to clean up facilities at which such wastes have been
released. Neither we nor, to our knowledge, our predecessor partnerships have
been named a potentially responsible person under the Federal Comprehensive
Environmental Response, Compensation and Liability Act nor do we know of any
prior owners or operators of our properties that are named as potentially
responsible parties related to their ownership or operation of such property.
Air Emissions. Our operations are subject to local, state and Federal
regulations for the control of emissions of air pollution. Administrative
enforcement actions for failure to comply strictly with air pollution
regulations or permits are generally resolved by payment of monetary fines and
correction of any identified deficiencies. Alternatively, regulatory agencies
could require us to forego construction, modification or operation of certain
air emission sources, although we believe that in the latter cases we would have
enough permitted or permittable capacity to continue our operations without a
material adverse effect on any particular producing field.
Oil Pollution Act. The Oil Pollution Act of 1990 and regulations thereunder
impose certain duties and liabilities on "responsible parties" related to the
prevention of oil spills and damages resulting from such spills in United States
waters. A "responsible party" includes the owner or operator of a facility or
vessel, or the lessee or permittee of the area in which a facility covered by
the Oil Pollution Act is located. The Oil Pollution Act assigns joint and
several liability to each responsible party for oil removal costs and a variety
of public and private damages. Few defenses exist to the liability imposed by
the Oil Pollution Act.
The Oil Pollution Act of 1990 also imposes ongoing requirements on a
responsible party, including proof of financial responsibility to cover at least
some costs in a potential spill. Certain amendments to the Oil Pollution Act
that were enacted in 1996 require owners and operators of offshore facilities
that have a worst case oil spill potential of more than 1,000 barrels to
demonstrate financial responsibility in amounts ranging from $10.0 million in
specified state waters to $35.0 million in federal Outer Continental Shelf
waters, with higher amounts, up to $150.0 million in certain limited
circumstances, where the Mineral Management Service believes such a level is
justified by the risks posed by the quantity or quality of oil that is handled
by the facility. On March 25, 1997, the Mineral Management Service promulgated a
proposed rule implementing these Oil Pollution Act financial responsibility
requirements. We believe that we currently have established adequate proof of
financial responsibility for our offshore facilities. However, we cannot predict
whether the financial responsibility requirements under the Oil Pollution Act
amendments or the proposed rule will result in the imposition of substantial
additional annual costs to us in the future or otherwise materially adversely
affect us. The impact of the financial responsibility requirements is not
expected to be any more burdensome to us than it will be to our similarly or
less capitalized competitors.
We believe that we are in substantial compliance with current applicable
environmental laws and regulations and that continued compliance with existing
requirements will not have a material adverse impact on us.
COMPETITION
We operate in the highly competitive areas of oil and gas exploration,
development and production. The availability of funds and information relating
to a property, the standards established by us for the minimum projected return
on investment and the availability of alternate fuel sources are factors that
affect our ability to compete in the marketplace. Our competitors include major
integrated oil companies and a substantial number of independent energy
companies, many of which possess greater financial and other resources than we
possess.
PERSONNEL
At December 31, 1998, we employed 58 full time employees who represent our
executive officers and key operating, exploration, financial and accounting
management. We outsource certain administrative and operational functions to
Torch Energy Advisors Incorporated, which maintains a large technical,
operating, accounting and administrative staff. Pursuant to an agreement with
Torch, Torch administered certain of our business activities for a monthly fee
based on a fixed
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<PAGE> 55
percentage of operating cash flow and total assets during 1998. Torch and our
combined personnel consisted of 861 employees at December 31, 1998.
BENEFICIAL OWNERSHIP OF OUR COMMON STOCK
The following tables show the ownership of our common stock by (i) anyone
who is known by us to beneficially own 5% of more of our outstanding of common
stock, (ii) each of our non-employee directors, (iii) our five most highly
compensated executive officers and (iv) all of our executive officers and
directors taken together as a group. Unless otherwise indicated, each person
named in the following table has the sole power to vote and dispose of the
shares listed next to their name. Information in the tables has been obtained
from filings made with the SEC or, in the case of our directors and executive
officers, has been provided by such individual. Unless otherwise indicated, the
information provided below is based on information available to us as of April
5, 1999.
OUR 5% STOCKHOLDERS
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
---------------- -----------
<S> <C> <C>
Franklin Resources, Inc. 2,781,639 13.1(1)
777 Mariners Island Boulevard
San Mateo, California 94404
Relational Investors, LLC 1,914,300 9.6(2)
David H. Batchelder
Joel L. Reed
Ralph V. Whitworth
Suite 220
4330 La Jolla Village Drive
San Diego, California 92122
State Street Research & Management Company 1,482,700 7.5(3)
One Financial Center, Thirtieth Floor
Boston, Massachusetts 02111
Crabbe Huson Group, Inc. 1,039,400 5.2(4)
121 Southwest Morrison, Suite 1400
Portland, Oregon 97204
</TABLE>
MEMBERS OF OUR BOARD OF DIRECTORS WHO ARE NOT EMPLOYEES
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
----------------------------------
UNDER STOCK
OUTSTANDING OPTIONS** TOTAL PERCENT
------------- ------------ ------- ---------
<S> <C> <C> <C> <C>
Isaac Arnold, Jr............................. 50,820(5) 52,500 103,320 *
David H. Batchelder.......................... 1,914,300(2) -- 1,914,300 9.6
Thomas D. Barrow............................. 30,800(6) 52,500 83,300 *
Charles M. Elson............................. 2,778 7,500 10,278 *
Robert L. Gerry III.......................... 6,500 272,500 279,000 1.4
Gary R. Petersen............................. 2,500 15,000 17,500 *
David Ross III............................... 10,000 7,500 17,500 *
Robert W. Shower............................. 10,000 7,500 17,000 *
</TABLE>
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<PAGE> 56
OUR EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
----------------------------------------------------------------------------
UNDER UNDER
UNDER STOCK DEFERRED RESTRICTED
OUTSTANDING 401(k) PLAN OPTIONS** COMPENSATION STOCK TOTAL PERCENT
------------ ----------- ---------- ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas L. 5,100 8,134 435,000 15,214 -- 463,448 2.3%
Foshee............
Michael P. -- 1,839 25,000 5,317 -- 32,156 *
Darden............
Robert S. 5,726(7) 1,940 70,000 11,059 2,000 90,725 *
Gaston............
Dennis A. 428(8) 2,431 81,855 12,394 4,000 101,108 *
Hammond...........
Robert M. 3,684(9) 1,802 69,650 11,441 4,000 90,577 *
King..............
</TABLE>
ALL DIRECTORS AND EXECUTIVE OFFICERS TOGETHER
<TABLE>
<CAPTION>
TOTAL PERCENT
--------- -------
<S> <C>
3,220,712 16.2%
</TABLE>
- ----------
* Under 1%
** Stock options include only options which may be exercised within 60 days.
(1) Of the shares reported for Franklin Resources, Inc., Franklin Advisers,
Inc. is reported to have sole voting power over 2,427,139 shares and
Franklin Advisers Services, Inc. has sole voting power over 94,000. In
addition, Franklin Advisers, Inc. is reported to have sole dispositive
power over 2,427,139 shares and Franklin Advisers Services, Inc. is
reported to have sole dispositive over 354,500 shares. Franklin Advisers,
Inc. and Franklin Advisers Services, Inc. are both wholly owned investment
advisory subsidiaries of Franklin Resources, Inc. Each of Messrs. Charles
B. Johnson and Rupert H. Johnson, Jr. own in excess of 10% of the
outstanding common stock of Franklin Resources, Inc. As the principal
shareholders of Franklin Resources, Inc., each of Messrs. Charles B.
Johnson and Rupert H. Johnson, Jr. may be deemed for certain purposes to be
beneficial owners of the shares beneficially owned by Franklin Resources,
Inc. Shares beneficially owned by Franklin Resources, Inc. include
1,338,939 shares which may be received upon conversion of our outstanding
term convertible securities ("TECONS").
(2) Relational Investors, LLC, reported sole dispositive and voting power with
respect to all 1,914,300 shares. These shares are owned by an account
managed at Relational Investors, LLC and by the following limited
partnerships of which Relational Investors, LLC is the sole general
partner: Relational Investors, L.P., Relational Fund Partners, L.P.,
Relational Coast Partners, L.P. and Relational Partners, L.P. Each of
Messrs. Batchelder, Whitworth and Reed are managing members of Relational
Investors, LLC, and may be deemed for certain purposes to beneficially own
shares beneficially owned by Relational Investors, LLC.
(3) State Street Research & Management Company ("State Street") is an
investment adviser registered under the Investment Advisers Act of 1940.
State Street has sole dispositive power with respect to all 1,482,700
shares and sole voting power with respect to 1,373,800 shares. In its
report filed with the SEC, State Street disclaims any beneficial interest
in such shares.
(4) Crabbe Huson Group, Inc. is a registered investment advisor. It does not
directly own any shares of our common stock. Crabbe Huson Group reported
the shared power to vote 941,500 shares of common stock and the shared
power to dispose of or direct the disposition of 1,039,400 shares.
(5) Includes 5,820 shares owned indirectly by The Arnold Corporation, of which
Mr. Arnold owns an approximate 25% equity interest.
(6) Includes indirect ownership of 6,200 shares owned by individual retirement
accounts for Mr. Barrow and his wife, his minor children or a corporation
he controls.
(7) Includes 200 shares owned by Mr. Gaston's spouse and 2,526 shares that
would be received upon conversion of 3,000 convertible preferred shares.
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<PAGE> 57
(8) Includes 168 shares of common stock that would be received upon conversion
of 200 convertible preferred shares.
(9) Includes 1,684 shares of common stock that would be received upon
conversion of 2,000 convertible preferred shares.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of our current executive
officers and directors. In 1999 we amended our certificate of incorporation to
provide for the annual election of directors.
<TABLE>
<CAPTION>
NAME Age Company Position
- --------------------------- --- ----------------
<S> <C> <C>
Douglas L. Foshee.......... 39 Chairman of the Board of Directors, President and Chief Executive Officer
Robert M. King............. 38 Senior Vice President and Chief Financial Officer
Dennis A. Hammond.......... 43 Vice President-- Engineering
Michael P. Darden.......... 41 Vice President-- Business Development
Sandra D. Kraemer.......... 31 Controller and Corporate Secretary
Bruce K. Murchison......... 49 General Counsel
Isaac Arnold, Jr........... 62 Director
Thomas D. Barrow........... 55 Director
David H. Batchelder........ 49 Director
Charles M. Elson........... 39 Director
Robert L. Gerry III........ 61 Director
Gary R. Petersen........... 52 Director
David Ross III............. 58 Director
Robert W. Shower........... 61 Director
</TABLE>
BIOGRAPHICAL INFORMATION
Directors
Mr. Foshee joined our board of directors in August 1997 concurrent with his
assumption of the position of president and chief executive officer. In December
1997, Mr. Foshee was also appointed chairman of our board of directors. Mr.
Foshee served from 1993 until 1997 in various capacities for Torch Energy
Advisors Incorporated, including vice president special projects, executive vice
president acquisitions and financial analysis, president, chief operating
officer, and ultimately chief executive officer. Prior to his tenure at Torch,
Mr. Foshee was employed by ARCO International Oil and Gas Company in various
positions in finance and new business ventures. His finance background also
includes seven years in commercial banking, primarily as an energy lender for
major financial institutions. Mr. Foshee serves on the board of Small Steps
Nurturing Center, and is a member of the Independent Petroleum Association of
America, the National Petroleum Council, and the Council of Overseers for the
Jones Graduate School at Rice University. Mr. Foshee received his B.B.A. from
Southwest Texas State University in 1982 and his M.B.A. from the Jesse H. Jones
Graduate School at Rice University in 1992. He is also a graduate of the
Southwestern Graduate School of Banking at Southern Methodist University (1991).
Mr. Arnold has, since 1984, been chairman of the board of Quintana
Petroleum Corporation, a privately held production company which does not
compete with us. He is also chairman of the board of Legacy Trust Company. He
has been a director of Cullen Center Bank & Trust since its inception in 1969
and is a director of Cullen/Frost Bankers, Inc. Mr. Arnold is a trustee of the
Museum of Fine Arts of Houston and The Texas Heart Institute. Mr. Arnold
received his B.B.A. from the University of Houston in 1959.
Mr. Barrow is president of Barrow Energy Corporation, a position he has
held since its formation in 1988. Barrow Energy is a privately held company in
the business of exploring for oil and gas primarily in East Texas which does not
compete with us. Mr. Barrow is also a director of Bargo Energy Company, a small
public oil and gas company. Bargo does not compete with us.
Mr. Batchelder has been chairman and chief executive officer of Batchelder
& Partners, Inc., a financial advisory and investment banking firm, since 1988.
He also has been a managing member of Relational Investors LLC, the general
partner of an active investment fund, since March 1996. Mr. Batchelder is also a
director of Morrison Knudson Corporation and Apria Healthcare Group Inc. Mr.
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Batchelder received a B.S. in accounting from Oklahoma State University in 1971
and is a certified public accountant.
Mr. Elson has been a professor of law at Stetson University College of Law
since 1990 and serves as of counsel to the law firm of Holland & Knight (since
1995). He is a member of the American Law Institute and the Advisory Council and
Commissions on Director Compensation, Audit Committees, and Director
Professionalism of the National Association of Corporate Directors. Mr. Elson is
widely regarded as an expert on corporate governance and has served on panels
and blue ribbon commissions on such issues as executive compensation, director
compensation, director professionalism, chief executive officer succession and
others. He is a trustee of Talledega College and a Salvatori Fellow of the
Heritage Foundation. Mr. Elson currently serves as a director of Sunbeam
Corporation, a consumer products company, a position he has held since 1996. He
also served as a director of Circon Corporation, a medical products
manufacturer, from 1996 until its sale in 1999. Mr. Elson received his B.A. from
Harvard College in 1981 and his J.D. from the University of Virginia in 1985.
Mr. Gerry has, since 1997, been chairman of the board of directors and
chief executive officer of VAALCO Energy, Inc., a public independent oil and gas
company which does not compete with us. From 1994 to 1997, Mr. Gerry was our
vice chairman. Prior to that, he was our president and chief operating officer
since our formation in 1990. Mr. Gerry currently serves as a trustee of Texas
Children's Hospital.
Mr. Petersen is a co-founder and has been a partner of EnCap Investments,
Inc., a firm which provides capital in the form of both debt and equity to the
energy industry. From 1984 to 1988, he served as senior vice president and
manager of the corporate finance division of the energy banking group for
RepublicBanc Houston. From 1979 to 1984, he was executive vice president and a
director of Nicklos Oil and Gas Company. He also served as a group vice
president in the petroleum and minerals division of RepublicBanc Dallas. He is a
member of the board of Harken Energy Corporation, Energy Capital Investment
Company, Equus II Incorporated and the Petroleum Club of Houston. Mr. Petersen
received his B.B.A from Texas Tech University in 1968 and his M.B.A. from Texas
Tech University in 1970.
Mr. Ross is a private investor. From 1987 to 1993, Mr. Ross was chairman
and chief executive officer of Sterling Consulting Group, which provided
corporate planning, treasury management and economic evaluation to the oil and
gas industry. He was a principal of The Sterling Group, a firm specializing in
leveraged buyouts, from 1986 to 1987. He currently serves on the Council of
Overseers and is an Adjunct Professor of Finance at the Jesse H. Jones Graduate
School of Administration at Rice University, where he has served since 1994 and
1979, respectively. Mr. Ross is a member of the board of Cooper Cameron
Corporation, an oilfield services equipment manufacturer. He also serves as vice
president and a board member of Da Camera of Houston, a nonprofit arts
organization. Mr. Ross received his B.A. from Yale University in 1962 and his
M.B.A. from Harvard University in 1970.
Mr. Shower served as executive vice president and chief financial officer
of Seagull Energy Corporation, an oil and gas company, from 1994 until his
retirement in 1996. From 1992 to 1994, he served as Seagull's senior vice
president and chief financial officer. From 1991 to 1992, Mr. Shower served as
senior vice president, corporate development, for Albert Fisher, Inc., a company
engaged in produce distribution. Mr. Shower served for 10 years as chief
financial officer for the Williams Companies and also served on its board from
1977 to 1986. Mr. Shower currently serves on the boards of Lear Corporation, one
of the world's largest automotive suppliers; Breed Technologies, a worldwide
leader in automotive occupant safety systems; Highlands Insurance Group, Inc.;
and Edge Petroleum Corporation, a technology-oriented exploration company. Mr.
Shower received his B.S. from the University of Tulsa in 1960. He also attended
the Program for Management Development at Harvard Business School in 1972.
Executive Officers
Robert M. King joined us as senior vice president and chief financial
officer in January 1996. Prior to that, 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.
Dennis A. Hammond joined us as vice president -- engineering in 1990. In
1983, he was a co-founder of IDM Engineering, Inc., a petroleum engineering
consulting firm. He has held various
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<PAGE> 59
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.
Michael P. Darden joined us as vice president -- business development in
May 1998. Prior to that he was special counsel for Baker & Botts, L.L.P., a law
firm, since 1993, where his practice focused on international and domestic oil
and gas ventures, asset acquisitions and sales, and energy-based financings. Mr.
Darden was employed by Hunt Oil Company from 1990 to 1993 where he was senior
international counsel. From 1988 to 1990, he was employed by BHP Petroleum
(Americas) Inc. as attorney-international/offshore and from 1986 to 1988 he was
employed by Tenneco Oil Company as senior international negotiator. Mr. Darden
has worked extensively on petroleum projects outside the United States and in
all regions of the world. His experience encompasses petroleum projects at all
stages, working with governments, industry partners, contractors, suppliers,
lenders and insurers. Mr. Darden received a B.B.A. in Petroleum Land Management
from The University of Texas in 1980 and a J.D. from the University of Houston
Law Center in 1986.
Sandra D. Kraemer has been our controller since 1993 and our corporate
secretary since 1997. Prior to 1993, she was employed by Torch Energy Advisors
Incorporated since 1991. From 1990 to 1991, Ms. Kraemer was employed by Price
Waterhouse in its audit department, specializing in the oil and gas industry.
She graduated summa cum laude from Stephen F. Austin State University with a
B.B.A. in accounting in 1990 and is a certified public accountant.
Bruce K. Murchison has been our general counsel since June 1999. Prior to
that, Mr. Murchison was a consultant to Plains Resources senior management
regarding transactional matters. From 1994 to 1998, he was president of Celeron
Corporation. Prior to that, he was general counsel of Celeron for six years.
From 1991 to 1994, in addition to his general counsel responsibilities at
Celeron, Mr. Murchison served as chief operating officer of All American
Pipeline Company. He began his career with Goodyear as an attorney in 1985. From
1981 to 1985, Mr. Murchison practiced corporate law and litigation at Texaco
Inc. Mr. Murchison received his J.D. degree from St. John's School of Law in
1981.
All of our executive officers and directors are United States citizens.
TRANSACTIONS WITH RELATED PERSONS
In January 1995, we loaned International Testing Services, Inc., a company
involved in the safety testing of oil and gas pipelines, the sum of $500,000.
The president of International Testing is John B. Connally III, a former
director until his resignation in January 1998. The loan bears interest at the
rate of 2.5% over the prime rate. The loan was initially due on July 1, 1995 and
was extended to May 1997. The loan is unsecured and subordinated to certain
existing indebtedness. Outstanding principal on the loan as of January 15, 1998
was $500,000. International Testing filed for bankruptcy protection in 1998. The
loan was written off for financial reporting purposes in December 1997. In
connection with the loan, we acquired a five-year warrant to acquire 350,000
shares of International Testing common stock, the exercise price of which is
substantially in excess of the current market price of such common stock.
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<PAGE> 60
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth cash compensation for
the past three years for our chief executive officer and our four other most
highly compensated officers in 1998.
<TABLE>
<CAPTION>
LONG-TERM
RESTRICTED COMPENSATION-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARDS OPTIONS
- ----------------------------------------- ---- ------ ----- ------------ -------------
<S> <C> <C> <C> <C> <C>
Douglas L. Foshee 1998 $ 375,000 $ -- $ -- 220,000(2)
Chairman, Chief Executive Officer 1997 143,466(1) 317,500 -- 330,000
and President
Robert M. King 1998 160,000 30,000 -- 66,250
Senior Vice President and 1997 160,000 130,000 79,856 32,500
Chief Financial Officer 1996 156,970 178,000 95,750 70,000
Dennis A. Hammond 1998 160,000 -- -- 66,250
Vice President--Engineering 1997 160,000 130,000 79,856 32,500
1996 140,000 162,000 95,750 40,000
Robert S. Gaston(3) 1998 160,000 -- 39,928 66,250
Vice President--Exploration 1997 160,000 130,000 47,875 32,500
1996 150,000 75,000 15,000
Michael D. Darden 1998 99,950(4) 100,000(5) -- 91,250
Vice President
Business Development
</TABLE>
- ------------------
(1) Mr. Foshee became an employee in August 1997. Information regarding Mr.
Foshee is for periods during which he was employed by Nuevo.
(2) Mr. Foshee was granted 100,000 options in August 1998 as part of his
employment agreement.
(3) Mr. Gaston resigned on June 30, 1999.
(4) Mr. Darden became an employee in May 1998. Information regarding Mr. Darden
is for the periods during which he was employed by us.
(5) Mr. Darden was hired by us in May 1998 and was paid a signing bonus of
$100,000. Mr. Darden contributed 75% of his bonus to the company's deferred
compensation plan in order to purchase shares of our common stock.
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<PAGE> 61
1998 STOCK OPTION GRANTS
The following table sets forth information concerning grants of options to
purchase our common stock made during 1998 to the executive officers named in
the summary compensation table. The exercise price of options granted to our
executive officers is the closing price of the common stock on the date of
grant.
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS PER SHARE GRANT DATE
OPTIONS GRANTED TO EXERCISE EXPIRATION PRESENT
NAME GRANTED EMPLOYEES PRICE DATE VALUE(1)
- ----------------------------------- --------- ----------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Douglas L. Foshee.................. 130,000(2) 11.6% $ 21.31 08/11/08 $ 1,391,000
81,000 7.2% 11.13 12/14/08 451,980
9,000 0.8% 16.13 12/14/08 39,690
Robert M. King..................... 16,250 1.5% 21.31 08/11/08 173,875
45,000 4.0% 11.13 12/14/08 251,100
5,000 0.4% 16.13 12/14/08 22,050
Dennis A. Hammond.................. 16,250 1.5% 21.31 08/11/08 173,875
45,000 4.0% 11.13 12/14/08 251,100
5,000 0.4% 16.13 12/14/08 22,050
Robert S. Gaston(3)................ 16,250 1.5% 21.31 08/11/08 173,875
45,000 4.0% 11.13 12/14/08 251,100
5,000 0.4% 16.13 12/14/08 22,050
Michael P. Darden.................. 25,000 2.2% 35.88 05/11/08 450,250
16,250 1.5% 21.31 08/11/08 173,875
45,000 4.0% 11.13 12/14/08 251,100
5,000 0.4% 16.13 12/14/08 22,050
</TABLE>
- ---------------------------
(1) We calculated the granted date present value using the "Black Scholes"
model, a widely accepted method of valuing options. This valuation model is
hypothetical; the actual value, if any, depends on the excess of the market
price of the shares over the exercise price on the date the option is
exercised. If the market price does not increase above the exercise price,
compensation to the grantee will be zero. The Black-Scholes option pricing
model is a mathematical formula used for estimating option values that
incorporates various assumptions. The "Grant Date Present Value" set out in
the above table is based on the following assumptions: (a) a ten-year
option term; (b) 50.9% expected future annual stock volatility for the
options; (c) a risk-free rate of return of 5.0% for the options granted;
and (d) no expected dividend yield. The above model does not include any
reduction in value for non-transferability, forfeiture or vesting of
options.
(2) Mr. Foshee was granted 100,000 options in August of 1998 as part of his
employment agreement.
(3) Mr. Gaston resigned on June 30, 1999.
During 1998, we repriced options owned by our employees who are not
officers. These options had been granted over a number of years. Under the SEC's
rules for preparing the option grant table, we treat all of the repriced options
as having been granted in 1998. As a result, the amounts set forth under "% of
total options granted to employees" are lower for the named executive officers
than they would have been had we not repriced options.
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<PAGE> 62
The following table shows the number of options owned by our named
executives. Options in the column marked "unexercisable" are subject to vesting
and will be forfeit if the named executive's employment with us is terminated
for certain reasons. The value of unexercised options is calculated using an
$11.50 per share closing for our stock on December 31, 1998. None of our named
executives exercised options in 1998.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS OPTIONS AT DECEMBER 31, 1998(1)
----------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------ ----------- ------------- ----------- -------------
<S> <C> <C> <C>
Douglas L. Foshee........................ 435,000 130,000 -- $ 30,375
Robert M. King........................... 69,650 83,750 -- 16,875
Dennis A. Hammond........................ 81,855 83,750 -- 16,875
Robert S. Gaston(2)...................... 70,000 83,750 -- 16,875
Michael P. Darden........................ 25,000 66,250 -- 16,875
</TABLE>
- ---------------------------
(1) Based on $11.50 per share which was the closing price per share of our
common stock on the New York Stock Exchange Composite Tape on December 31,
1998.
(2) Mr. Gaston resigned on June 30, 1999.
COMPENSATION COMMITTEE REPORT
Our compensation committee consists of three directors who are not employees or
executive officers. The members of the compensation committee in 1998 were Mr.
Elson, who was chairman, and Messrs.
Arnold and Petersen.
Our Executive Compensation Program
Our executive compensation program reflects a policy of attracting
highly-qualified executives who strive to achieve outstanding individual
performance and who collectively seek outstanding corporate and share price
performance versus that of peer group companies. The committee believes that
Nuevo should seek executives who desire a work environment characterized by a
high level of "at-risk" compensation, which rewards excellent performance and
aligns overall compensation with the objectives of our stockholders.
Accordingly, our compensation system consists of the following elements:
Base salary. The base salaries for our named executive officers are
established by employment agreements with those officers. The base salaries
in these agreements are intended to represent approximately 50% to 60% of
the executives' total salary and cash bonus.
Incentive bonus. Under the employment agreements with most of our
executives, bonuses are awarded at the discretion of the compensation
committee. It is the committee's overall objective that the sum of base
salaries plus cash bonuses should generally be at or about the 50th to 60th
percentile of peer group companies.
Stock options. Each of our employees receives stock options as a component
of his or her compensation, in order to align the interests of employees
with those of our stockholders. The number of options granted to an
employee is based on the committee's view of the employee's capacity to
impact the value of Nuevo's shares. We believe that because we outsource
non-strategic functions, resulting in substantially fewer employees
eligible to receive options, we have a substantial advantage over peer
companies in the number of options that we can grant to our employees. It
is the committee's overall objective that the sum of base salaries plus
incentive bonuses plus options should generally compare at or about the
80th to 90th percentile of peer group companies.
During 1997, the compensation committee established a stock ownership
program for its senior executives that provides incentives for each executive to
achieve and maintain a targeted level of ownership of Nuevo common stock. These
target levels of ownership are set by the committee for each executive. Counted
against this stock ownership are shares owned directly by the executive or owned
beneficially through an immediate family member, including shares acquired
through the exercise of options and shares acquired through our deferred
compensation and 401(k) plans. Shares that may be received upon exercise of
options do not count toward the ownership objectives. Under the
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<PAGE> 63
program, each executive's common stock ownership is reported to the committee
twice a year. An executive's progress toward meeting stated ownership objectives
is a meaningful element of his performance review.
Overview
1998 was a difficult year for Nuevo. Oil prices during 1998 and into 1999
have reached historic lows when adjusted for inflation. Because a substantial
part of our oil production is heavy oil, these low prices affected our revenues
and cash flows more than conventional oil and gas producers. Our executive team,
however, has positioned us to survive this low price environmental and, as
importantly, positioned Nuevo to benefit quickly when oil prices return to
normal levels. For example, during 1998 we completed an offering of $100 million
of senior subordinated notes which mature in 2008. These notes more closely
align our indebtedness with the long lives of our assets. In addition, we sold
our East Texas gas properties for a very attractive price. These transactions
reduced our net bank debt to zero following the closing of the sale of the East
Texas assets and application of proceeds. Additionally, even with a reduced
capital expenditure budget, we replaced our 1998 production without making any
material acquisitions.
Chief Executive Officer. Douglas L. Foshee was appointed chief executive
officer in August 1997, at which time he entered into an employment agreement
providing for a base salary of $375,000 during 1998. Mr. Foshee did not receive
a bonus during 1998 because of Nuevo's share price performance. Mr. Foshee was
granted options to purchase 90,000 shares of common stock.
Key Executive Officers. The compensation committee continues to review on
an individual level each such executive's leadership in his area of expertise,
and also evaluates years of service, experience level, position and general
economic and industry conditions. However, no specific weight is assigned to
these factors. The committee also studies peer group compensation levels for
comparable positions. With respect to bonus compensation, the committee has
historically followed a philosophy of allocating a significant portion of the
total compensation paid to executive officers as "at risk" compensation in order
to emphasize pay for performance.
During 1998, our executive officers were not granted incentive bonuses due
to our share price performance. Mr. King received a cash bonus payment of
$30,000 under his employment contract, and Mr. Darden received a bonus of
$100,000 in connection with his acceptance of employment with us in 1998.
Base salaries for 1999 were not increased for the second consecutive year.
Stock Based Compensation
The compensation committee believes the stock options that it has granted
in the past, and those granted in 1998, serve a valuable purpose by attracting
and retaining key executives, and encouraging increased job performance by the
recipients of such grants. The committee bases the number of awards granted to
executed officers on no predetermined formula, but rather on each individual's
accomplishments, level of responsibility, and that person's impact on Nuevo's
performance for the year.
Messrs. Foshee, King, Hammond, Gaston and Darden, were granted a total of
220,000, 66,250, 66,250, 66250, and 91,250 options in 1998, respectively. Ten
percent of these grants were made at a $5.00 premium to the market price on date
of grant and the remainder were made at the market price of the common stock on
the date of the grant.
Executive Employment Contracts
In 1997, we entered into an employment contract with Mr. Foshee, our chief
executive officer. The agreement provided for the following compensation during
1998:
o a base salary of $375,000,
o discretionary bonuses based upon performance to be determined by
our compensation committee,
o reimbursement for membership fees to the Houston Center Club, the
Petroleum Club and the Young Presidents Organization, and
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<PAGE> 64
o a grant of options to purchase 100,000 shares of our common stock
on August 14, 1998, at a stock price equal to the closing price on
that date.
Mr. Foshee's employment agreement is terminable by either party but, in the
event that his employment is terminated for reasons other than just cause or his
voluntary resignation, we are obligated to pay him a sum equal to two times the
aggregate of:
o his salary for the twelve months immediately preceding the date
of termination (less applicable withholdings and deductions
required by law), plus
o any bonus paid to Mr. Foshee in the twelve-month period.
In the agreement, just cause is generally defined as the failure to render
services to Nuevo as provided in the agreement or the commission of fraud or
other specified illegal acts.
In 1998, we entered into a two year employment agreement with Robert M.
King providing for the following compensation during 1998:
o an annual salary of $160,000,
o reimbursement for reasonable country club dues.
Mr. King's employment agreement is terminable by either party but, in the
event his employment is terminated for reasons other than just cause or at his
option, we must pay him the greater of two times his annual salary and bonus or
$320,000. Just cause has the same meaning in Mr. King's contract as in Mr.
Foshee's.
In 1997, we entered into identical employment agreements with Dennis A.
Hammond and Robert S. Gaston providing for a monthly salary of $13,333.34,
payable in semi-monthly installments and an annual discretionary bonus, stock
option and stock bonus awards as determined by our compensation committee. Each
of Mr. Hammond's and Mr. Gaston's Employment Agreement is for no definitive term
and is terminable by either party at any time for any lawful reason. In the
event that Mr. Hammond's or Mr. Gaston's employment is terminated as a result of
a change of control, then each of Mr. Hammond and Mr. Gaston is entitled to
receive two years salary and bonus (calculated based on the average of the last
two year's bonus award) if they are not offered an equivalent job with our
successor.
Long-Term Incentive Plan Awards
We do not have a long-term incentive plan for our employees, other than the
1990 stock option plan and the 1993 stock incentive plan. Under the 1990 stock
option plan and the 1993 stock incentive plan, our executive officers, directors
and employees are eligible to receive awards of stock options or of shares of
stock or other awards which have a value which increases or decreases with the
price of our stock.
Deferred Compensation Plan
During 1996, we adopted the Nuevo Energy Deferred Compensation Plan to
encourage senior executive officers to personally invest in our shares.
Executives at the level of vice president and above are eligible to participate
in the plan. The plan allows our senior executives to defer all or a portion of
their annual salaries and bonuses. Currently, such deferred salaries and bonuses
must be invested in our common stock or a money market account until the
employee satisfies the stock ownership criteria established by the compensation
committee. After the stock ownership thresholds are met (the "target"), deferred
amounts may be invested in any equity indexed investment selected by the
compensation committee. Stock is acquired under the plan at a discount of 25% to
the then current market price, and is subject to restrictions on transfer.
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<PAGE> 65
The following table shows the targeted stock ownership amounts under our
Deferred Compensation Plan. The shares owned column includes shares owned
directly or indirectly in our 401(k) plan and deferred compensation plan, but
does not include shares which may be issued pursuant to stock options.
<TABLE>
<CAPTION>
NAME SHARES OWNED TARGET
- ------------------------------------------------------- ------------ ------
<S> <C> <C>
Douglas L. Foshee...................................... 28,448 46,875
Robert M. King......................................... 20,928 16,667
Dennis A. Hammond...................................... 19,253 13,333
Robert S. Gaston....................................... 19,883 13,333
Michael P. Darden...................................... 7,156 12,917
</TABLE>
Proposed Revisions in Stock Based Compensation
Director Compensation. The compensation committee has proposed changes to
the compensation paid to non-employee directors in order to encourage greater
stock ownership by directors and to bring director compensation in line with the
compensation paid by peer group companies.
Currently directors receive an annual cash retainer of $30,000. While the
amount of the cash retainer will remain unchanged, directors will be given the
option to elect to receive all or a portion of their retainer in shares of
restricted stock. Elections will be made in 25% increments with a 33% increase
in value for the amounts invested in restricted stock, so that a director
electing to convert $7,500 in cash retainer will be awarded $10,000 in
restricted stock.
In addition to the cash retainer, directors also receive a semi-annual
grant of 3,750 options. This grant will be amended to provide for a grant of
3,500 options and 2,500 shares of restricted stock. Stock options will be
granted for a ten year term with an exercise price equal to the fair market
value of a share of stock on the date of grant. Restricted stock will be subject
to a three year restricted period and directors will have the option to rollover
this period until their retirement from the board.
Other Stock Options. The compensation committee plans to amend existing
stock option grants to change the treatment of options when a change of control
occurs. Currently, if a change in control occurs, all options vest and may be
exercised. The committee proposes that, under certain circumstances, in
connection with a change of control, if the exercise price of the options is
greater than the consideration to be received in the change of control
transaction, the option holder will be entitled to receive the Black-Sholes
model value of his or her options. The compensation committee anticipates that
grants to directors and officers in the future will have this provision.
We anticipate that these changes will become effective commencing after our
1999 annual meeting of stockholders.
We anticipate that these changes will become effective commencing after our
1999 annual meeting of stockholders.
CHARLES M. ELSON, CHAIRMAN
ISAAC ARNOLD, JR.
GARY R. PETERSEN
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<PAGE> 66
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in our cumulative
total stockholder return on our common stock to the total return on the New York
Stock Exchange and the cumulative total return on a peer group of oil and gas
exploration companies selected by us from January 1, 1994 until December 31,
1998.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
-------- -------- ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Nuevo..................................... 100.00 92.31 114.74 266.67 208.97 58.97
NYSE Market Index......................... 100.00 98.06 127.15 153.16 201.50 239.77
Peer group................................ 100.00 110.89 169.84 211.88 151.22 63.78
WTI....................................... 100.00 92.97 99.57 119.10 111.53 78.08
Dow Jones Oil Secondary Index............. 100.00 100.85 116.66 154.69 163.15 107.80
</TABLE>
For 1998 and in future years, we will include a comparison to a "peer
group." In prior years, in addition to the NYSE market index, we included a
comparison to the Dow Jones Oil Secondary Index. We have changed to a peer group
in place of the secondary index because the secondary index included a number of
companies which were not engaged in the exploration and production of oil and
gas. Our peer group is composed of the following companies: Benton Oil and Gas
Company, Coho Energy, Inc., EEX Corporation, Forcenergy Inc., HS Resources,
Inc., Newfield Exploration Company, Plains Resources Inc., Pogo Producing
Company, Range Resources Corporation, Vintage Petroleum, Inc. and Triton Energy
Ltd. We have also included the Dow Jones Oil Secondary Index this year for
comparative purposes.
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<PAGE> 67
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. In consideration for issuing the exchange notes as contemplated in this
prospectus, we will receive in exchange existing notes in like principal amount.
The existing notes surrendered in exchange for exchange notes will be retired
and canceled and cannot be reissued. Issuance of the exchange notes will not
result in a change in our amount of outstanding debt.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We issued $257,310,000 in principal amount of existing notes on August
20, 1999 in exchange for $157,460,000 aggregate principal amount of our 9 1/2%
Senior Subordinated Notes due 2006 and $99,850,000 aggregate principal amount of
our 87/8% Senior Subordinated Notes due 2008. The existing notes were issued to
qualified institutional buyers and institutional accredited investors in
reliance upon the exemption from registration provided by Regulation D under the
Securities Act. In connection with the issuance of the existing notes, we agreed
with Banc of America Securities LLC and Salomon Smith Barney Inc., who acted as
co-dealer managers for the issuance of the existing notes, that promptly
following the issuance of the existing notes, we would:
o file with the SEC a registration statement related to the
exchange notes;
o use our reasonable best efforts to cause the registration
statement to become effective under the Securities Act; and
o offer to the holders of the existing notes the opportunity to
exchange their existing notes for a like principal amount of
exchange notes upon the effectiveness of the registration
statement.
A copy of the agreements with Banc of America Securities and Salomon
Smith Barney have been filed as exhibits to the registration statement of which
this prospectus is a part.
Based on existing interpretations of the Securities Act by the staff of
the SEC described in several no-action letters, and subject to the following
sentence, we believe that the exchange notes issued in the exchange offer may be
offered for resale, resold and otherwise transferred by their holders, other
than broker-dealers or our "affiliates," without further compliance with the
registration and prospectus delivery provisions of the Securities Act. However,
any holder of existing notes who is an affiliate of ours, who is not acquiring
the exchange notes in the ordinary course of such holder's business or who
intends to participate in the exchange offer for the purpose of distributing the
exchange notes:
o will not be able to rely on the interpretations by the staff
of the SEC described in the above-mentioned no-action letters;
o will not be able to tender existing notes in the exchange
offer; and
o must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale
or transfer of the existing notes unless the sale or transfer
is made under an exemption from these requirements.
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<PAGE> 68
We do not intend to seek our own no-action letter, and there is no
assurance that the staff of the SEC would make a similar determination regarding
the exchange notes as it has in these no-action letters to third parties. See
"Plan of Distribution."
As a result of the filing and effectiveness of the registration
statement of which this prospectus is a part, we will not be required to pay an
increased interest rate on the existing notes. Following the closing of the
exchange offer, holders of existing notes not tendered will not have any further
registration rights except in limited circumstances requiring the filing of a
shelf registration statement, and the existing notes will continue to be subject
to restrictions on transfer. Accordingly, the liquidity of the market for the
existing notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions stated in this prospectus
and in the letter of transmittal, we will accept all existing notes properly
tendered and not withdrawn prior to 5:00 p.m. New York City time, on the
expiration date. After authentication of the exchange notes by the trustee or an
authenticating agent, we will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding existing notes accepted
in the exchange offer. Holders my tender some or all of their existing notes in
denominations of $1,000 or any integral multiple of $1,000.
If you wish to exchange your existing notes for exchange notes in the
exchange offer, you will be required to represent that:
o you are not our affiliate, as defined in Rule 405 of the
Securities Act;
o any exchange notes will be acquired in the ordinary course of
your business;
o you have no arrangement with any person to participate in the
distribution of the exchange notes;
o if you are not a broker-dealer, that you are not engaged in
and do not intend to engage in the distribution of the
exchange notes; and
o if you are a broker-dealer that will receive exchange notes
for your own account in exchange for existing notes that were
acquired as a result of market-making or other trading
activities, that you will deliver a prospectus, as required by
law, in connection with any resale of those exchange notes.
You will make these representations to us by signing or agreeing to be bound by
the letter of transmittal.
Broker-dealers that are receiving exchange notes for their own account
must have acquired the existing notes as a result of market-making or other
trading activities in order to participate in the exchange offer. Each
broker-dealer that receives exchange notes for its own account under the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. The letter of transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
admitting that it is an "underwriter" within the meaning of the Securities Act.
We will be required to allow broker-dealers to use this prospectus following the
exchange offer in connection with the resale of exchange notes received in
exchange for existing notes acquired by broker-dealers for their own account as
a result of market-making or other trading activities. If required by applicable
securities laws, we will, upon written request, make this
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<PAGE> 69
prospectus available to any broker-dealer for use in connection with a resale of
exchange notes for a period of 90 days after the consummation of the exchange
offer. See "Plan of Distribution."
The exchange notes will evidence the same debt as the existing notes
and will be issued under and entitled to the benefits of the same indenture. The
form and terms of the exchange notes are identical in all material respects to
the form and terms of the existing notes except that:
o the exchange notes will be issued in a transaction registered
under the Securities Act;
o the exchange notes will not be subject to transfer
restrictions; and
o provisions providing for an increase in the stated interest
rate on the existing notes will be eliminated.
As of the date of this prospectus, $257,310,000 aggregate principal
amount of the existing notes was outstanding. In connection with the issuance of
the existing notes, we arranged for the existing notes to be issued and
transferable in book-entry form through the facilities of DTC, acting as
depositary. The exchange notes will also be issuable and transferable in
book-entry form through DTC.
This prospectus, together with the accompanying letter of transmittal,
is initially being sent to all registered holders as of the close of business on
, 1999. We intend to conduct the exchange offer as required by the
Exchange Act, and the rules and regulations of the SEC under the Exchange Act,
including Rule 14e-1, to the extent applicable.
Rule 14e-1 describes unlawful tender practices under the Exchange Act.
This section requires us, among other things:
o to hold our exchange offer open for twenty business days;
o to give ten days notice of any change in the terms of this
offer; and
o to issue a press release in the event of an extension of the
exchange offer.
The exchange offer is not conditioned upon any minimum aggregate
principal amount of existing notes being tendered, and holders of the existing
notes do not have any appraisal or dissenters' rights under the General
Corporation Law of the State of Delaware or under the indenture in connection
with the exchange offer. We shall be considered to have accepted existing notes
tendered according to the procedures in this prospectus when, as and if we have
given oral or written notice of acceptance to the exchange agent. See
"--Exchange Agent." The exchange agent will act as agent for the tendering
holders for the purpose of receiving exchange notes from us and delivering
exchange notes to those holders.
If any tendered existing notes are not accepted for exchange because of
an invalid tender or the occurrence of other events described in this
prospectus, certificates for these unaccepted existing notes will be returned,
at our cost, to the tendering holder of the existing notes or, in the case of
existing notes tendered by book-entry transfer, into the holder's account at DTC
according to the procedures described below, as promptly as practicable after
the expiration date.
Holders who tender existing notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes related to the exchange of existing
notes in the exchange offer. We will pay all charges and expenses, other
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than applicable taxes, in connection with the exchange offer. See
"--Solicitation of Tenders; Fees and Expenses."
NEITHER WE NOR OUR BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
HOLDERS OF EXISTING NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL
OR ANY PORTION OF THEIR EXISTING NOTES TO THE EXCHANGE OFFER. MOREOVER, NO ONE
HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION. HOLDERS OF EXISTING NOTES MUST
MAKE THEIR OWN DECISION WHETHER TO TENDER IN THE EXCHANGE OFFER AND, IF SO, THE
AMOUNT OF EXISTING NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER
OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN
FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean 5:00 p.m., New York City time,
on ____________, 1999, unless we, in our sole discretion, extend the exchange
offer, in which case the term "expiration date" shall mean the latest date to
which the exchange offer is extended.
We expressly reserve the right, in our sole discretion:
o to delay acceptance of any existing notes or to terminate the
exchange offer and to refuse to accept existing notes not
previously accepted, if any of the conditions described under
"--Conditions" shall have occurred and shall not have been
waived by us;
o to extend the expiration date of the exchange offer;
o to amend the terms of the exchange offer in any manner;
o to purchase or make offers for any existing notes that remain
outstanding subsequent to the expiration date;
o to the extent permitted by applicable law, to purchase
existing notes in the open market, in privately negotiated
transactions or otherwise.
The terms of the purchases or offers described in the fourth and fifth clauses
above may differ from the terms of the exchange offer.
Any delay in acceptance, termination, extension, or amendment will be
followed as promptly as practicable by oral or written notice to the exchange
agent and by making a public announcement. If the exchange offer is amended in a
manner determined by us to constitute a material change, we will promptly
disclose the amendment in a manner reasonably calculated to inform the holders
of the amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, termination, extension, or amendment
of the exchange offer, we shall have no obligation to publish, advise, or
otherwise communicate any public announcement, other than by making a timely
release to the Dow Jones News Service.
You are advised that we may extend the exchange offer because some of
the holders of the existing notes do not tender on a timely basis. In order to
give these noteholders the ability to participate in the exchange and to avoid
the significant reduction in liquidity associated with holding an unexchanged
note, we may elect to extend the exchange offer.
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INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from the date of issuance of the
existing notes that are tendered in exchange for the exchange notes or the most
recent date on which interest was paid or provided for on the existing notes
surrendered for the exchange notes. Accordingly, holders of existing notes that
are accepted for exchange will not receive interest that is accrued but unpaid
on the existing notes at the time of tender. Interest on the exchange notes will
be payable semi-annually on each June 1 and December 1, commencing on December
1, 1999.
PROCEDURES FOR TENDERING
Only a holder may tender its existing notes in the exchange offer. Any
beneficial owner whose existing notes are registered in the name of his broker,
dealer, commercial bank, trust company or other nominee or are held in
book-entry form and who wishes to tender should contact the registered holder
promptly and instruct the registered holder to tender on his behalf. If the
beneficial owner wishes to tender on his own behalf, the beneficial owner must,
prior to completing and executing the letter of transmittal and delivering his
existing notes, either make appropriate arrangements to register ownership of
the existing notes in the owner's name or obtain a properly completed bond power
from the registered holder. The transfer of record ownership may take
considerable time.
The tender by a holder will constitute an agreement between the holder,
us and the exchange agent according to the terms and subject to the conditions
described in this prospectus and in the letter of transmittal.
A holder who desires to tender existing notes and who cannot comply
with the procedures set forth herein for tender on a timely basis or whose
existing notes are not immediately available must comply with the procedures for
guaranteed delivery set forth below.
THE METHOD OF DELIVERY OF EXISTING NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND
RISK OF THE HOLDERS. DELIVERY OF SUCH DOCUMENTS WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE EXCHANGE AGENT OR DEEMED RECEIVED UNDER THE ATOP
PROCEDURES DESCRIBED BELOW. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. NO LETTER OF
TRANSMITTAL OR EXISTING NOTES SHOULD BE SENT TO US. HOLDERS MAY ALSO REQUEST
THAT THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES EFFECT THE TENDER FOR HOLDERS IN EACH CASE AS DESCRIBED IN THIS
PROSPECTUS AND IN THE LETTER OF TRANSMITTAL.
EXISTING NOTES HELD IN CERTIFICATED FORM
For a holder to validly tender existing notes held in physical form,
the exchange agent must receive, prior to 5:00 p.m. New York city time on the
expiration date, at its address set forth in this prospectus:
o a properly completed and validly executed letter of
transmittal, or a manually signed facsimile thereof, together
with any signature guarantees and any other documents required
by the instructions to the letter of transmittal, and
o certificates for tendered existing notes.
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EXISTING NOTES HELD IN BOOK-ENTRY FORM
We understand that the exchange agent will make a request promptly
after the date of the prospectus to establish accounts for the existing notes at
DTC for the purpose of facilitating the exchange offer, and subject to their
establishment, any financial institution that is a participant in DTC may make
book-entry delivery of existing notes by causing DTC to transfer the existing
notes into the exchange agent's account for the existing notes using DTC's
procedures for transfer.
If you desire to transfer existing notes held in book-entry form with
DTC, the exchange agent must receive, prior to 5:00 p.m. New York City time on
the expiration date, at its address set forth in this prospectus, a confirmation
of book-entry transfer of the existing notes into the exchange agent's account
at DTC, which is referred to in this prospectus as a "book-entry confirmation,"
and:
o a properly completed and validly executed letter of
transmittal, or manually signed facsimile thereof, together
with any signature guarantees and other documents required by
the instructions in the letter of transmittal; or
o an agent's message transmitted pursuant to DTC's Automated
Tender Offer Program.
TENDER OF EXISTING NOTES USING DTC'S AUTOMATED TENDER OFFER PROGRAM (ATOP)
The exchange agent and DTC have confirmed that the exchange offer is
eligible for DTC's Automated Tender Offer Program. Accordingly, DTC participants
may electronically transmit their acceptance of the exchange offer by causing
DTC to transfer existing notes held in book-entry form to the exchange agent in
accordance with DTC's ATOP procedures for transfer. DTC will then send a
book-entry confirmation, including an agent's message to the exchange agent.
The term "agent's message" means a message transmitted by DTC, received
by the exchange agent and forming part of the book-entry confirmation, which
states that DTC has received an express acknowledgment from the participant in
DTC tendering existing notes that are the subject of that book-entry
confirmation that the participant has received and agrees to be bound by the
terms of the letter of transmittal, and that we may enforce such agreement
against such participant. If you use ATOP procedures to tender existing notes
you will not be required to deliver a letter of transmittal to the exchange
agent, but you will be bound by its terms just as if you had signed it.
SIGNATURES
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act, unless the existing notes tendered with the
letter of transmittal are tendered:
o by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery
Instructions" in the letter of transmittal; or
o for the account of an institution eligible to guarantee
signatures.
If the letter of transmittal is signed by a person other than the
registered holder or DTC participant who is listed as the owner, the existing
notes must be endorsed or accompanied by appropriate bond powers which authorize
the person to tender the existing notes on behalf of the registered holder or
DTC participant who is listed as the owner, in either case signed as the name of
the registered holder(s) who appears on the existing notes or the DTC
participant who is listed as the
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owner. If the letter of transmittal or any existing notes or bond powers are
signed or endorsed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, those persons should so indicate when signing, and
unless waived by us, evidence satisfactory to us of their authority to so act
must be submitted with the letter of transmittal.
If you tender your notes through ATOP, signatures and signature
guarantees are not required.
DETERMINATIONS OF VALIDITY
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of the tendered existing notes will be
determined by us in our sole discretion. This determination will be final and
binding. We reserve the absolute right to reject any and all existing notes not
properly tendered or any existing notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the absolute right to waive
any irregularities or conditions of tender as to particular existing notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of existing notes must be cured within the time we shall determine. Although we
intend to notify holders of defects or irregularities related to tenders of
existing notes, neither we, the exchange agent nor any other person shall be
under any duty to give notification of defects or irregularities related to
tenders of existing notes nor shall any of them incur liability for failure to
give notification. Tenders of existing notes will not be considered to have been
made until the irregularities have been cured or waived. Any existing notes
received by the exchange agent that we determine are not properly tendered or
the tender of which is otherwise rejected by us and as to which the defects or
irregularities have not been cured or waived by us will be returned by the
exchange agent to the tendering holder unless otherwise provided in the letter
of transmittal, as soon as practicable following the expiration date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their existing notes and:
o whose existing notes are not immediately available;
o who cannot complete the procedure for book-entry transfer on a
timely basis;
o who cannot deliver their existing notes, the letter of
transmittal or any other required documents to the exchange
agent prior to the expiration date; or
o who cannot complete a tender of existing notes held in
book-entry form using DTC's ATOP procedures on a timely basis;
may effect a tender if they tender through an eligible institution described
under "--Procedures for Tendering--Signatures," or, if they tender using ATOP's
guaranteed delivery procedures.
A tender of existing notes made by or through an eligible institution
will be accepted if:
o prior to 5:00 p.m., New York City time, on the expiration
date, the exchange agent receives from an eligible institution
a properly completed and duly executed notice of guaranteed
delivery, by facsimile transmittal, mail or hand delivery,
that:
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(1) sets forth the name and address of the holder, the
certificate number or numbers of the holder's
existing notes and the principal amount of the
existing notes tendered,
(2) states that the tender is being made, and
(3) guarantees that, within five business days after the
expiration date, a properly completed and validly
executed letter of transmittal or facsimile, together
with a certificate(s) representing the existing notes
to be tendered in proper form for transfer, or a
confirmation of book-entry transfer into the exchange
agent's account at DTC of existing notes delivered
electronically, and any other documents required by
the letter of transmittal will be deposited by the
eligible institution with the exchange agent; and
o the properly completed and executed letter of transmittal or a
facsimile, together with the certificate(s) representing all
tendered existing notes in proper form for transfer, or a
book-entry confirmation, and all other documents required by
the letter of transmittal are received by the exchange agent
within five business days after the expiration date.
A tender made through DTC's Automated Tender Offer Program will be
accepted if:
o prior to 5:00 p.m., New York City time, on the expiration
date, the exchange agent receives an agent's message from DTC
stating that DTC has received an express acknowledgment from
the participant in DTC tendering the existing notes that they
have received and agree to be bound by the notice of
guaranteed delivery; and
o the exchange agent receives, within five business days after
the expiration date, either:
(1) a book-entry conformation, including an agent's
message, transmitted via DTC's ATOP procedures; or
(2) a properly completed and executed letter of
transmittal or a facsimile, together with the
certificate(s) representing all tendered existing
notes in proper form for transfer, or a book-entry
confirmation, and all other documents required by the
letter of transmittal are received by.
Upon request to the exchange agent, a notice of guaranteed delivery
will be sent to holders who wish to tender their existing notes according to the
guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of existing
notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the expiration date. To withdraw a tender of existing notes in the exchange
offer:
o a written or facsimile transmission of a notice of withdrawal
must be received by the exchange agent at its address listed
below prior to 5:00 p.m., New York City time, on the
expiration date; or
o you must comply with the appropriate procedures of DTC's
Automated Tender Offer Program.
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Any notice of withdrawal must:
o specify the name of the person having deposited the existing
notes to be withdrawn;
o identify the existing notes to be withdrawn, including the
certificate number or numbers and principal amount of the
existing notes or, in the case of existing notes transferred
by book-entry transfer, the name and number of the account at
the depositary to be credited;
o be signed by the same person and in the same manner as the
original signature on the letter of transmittal by which the
existing notes were tendered, including any required signature
guarantee, or be accompanied by documents of transfer
sufficient to permit the trustee for the existing notes to
register the transfer of the existing notes into the name of
the person withdrawing the tender; and
o specify the name in which any of these existing notes are to
be registered, if different from that of the person who
deposited the existing notes to be withdrawn.
All questions as to the validity, form and eligibility, including time
of receipt, of the withdrawal notices will be determined by us, whose
determination shall be final and binding on all parties. Any existing notes so
withdrawn will be judged not to have been tendered according to the procedures
in this prospectus for purposes of the exchange offer, and no exchange notes
will be issued in exchange for those existing notes unless the existing notes so
withdrawn are validly retendered. Any existing notes that have been tendered but
are not accepted for exchange will be returned to the holder of the existing
notes without cost to the holder or, in the case of existing notes tendered by
book-entry transfer into the holder's account at DTC according to the procedures
described above. This return or crediting will take place as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn existing notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
The exchange offer is subject only to the following conditions:
o the compliance of the exchange offer with securities laws;
o the tender of the existing notes;
o the representation by the holders of the existing notes that
they are not our affiliate, that the exchange notes they will
receive are being acquired by them in the ordinary course of
their business and that at the time the exchange offer is
completed the holder had no plan to participate in the
distribution of the exchange notes; and
o no judicial or administrative proceeding is pending or shall
have been threatened that would limit us from proceeding with
the exchange offer.
EXCHANGE AGENT
State Street Bank and Trust Company, the trustee under the indenture,
has been appointed as exchange agent for the exchange offer. In this capacity,
the exchange agent has no fiduciary duties and will be acting solely on the
basis of our directions. Requests for assistance and requests for additional
copies of this prospectus or of the letter of transmittal should be directed to
the
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exchange agent. You should send certificates for existing notes, letters of
transmittal and any other required documents to the exchange agent addressed as
follows:
<TABLE>
<S> <C>
By Mail: State Street Bank and Trust Company
Corporate Trust
P. O. Box 778
Boston, Massachusetts 02110-0778
By Hand Delivery or Overnight Courier: State Street Bank and Trust Company
2 Avenue de Lafayette
5th Floor, Corporate Trust Division
Boston, Massachusetts 02110-1724
Facsimile Transmission: (617) 662-1525
Confirm by Telephone: (617) 662-1452
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS
LISTED ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS
DESCRIBED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF
TRANSMITTAL.
SOLICITATION OF TENDERS; FEES AND EXPENSES
We will bear the expenses of requesting that holders of existing notes
tender those notes for exchange notes. The principal solicitation under the
exchange offer is being made by mail. Additional solicitations may be made by
our officers and regular employees and our affiliates in person, by telegraph,
telephone or telecopier.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We, however, will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket costs and expenses in connection
with the exchange offer and will indemnify the exchange agent for all losses and
claims incurred by it as a result of the exchange offer. We may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this prospectus,
letters of transmittal and related documents to the beneficial owners of the
existing notes and in handling or forwarding tenders for exchange.
We will pay the expenses to be incurred in connection with the exchange
offer, including fees and expenses of the exchange agent and trustee and
accounting and legal fees and printing costs.
You will not be obligated to pay any transfer tax in connection with
the exchange, except if you instruct us to register exchange notes in the name
of, or request that notes not tendered or not accepted in the exchange offer be
returned to, a person other than you, you will be responsible for the payment of
any applicable transfer tax.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
existing notes, as reflected in our accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by us upon the closing of the exchange offer. We will amortize the
expenses of the exchange offer over the term of the exchange notes.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion generally summarizes the principal U.S.
federal income tax consequences of the exchange of existing notes for exchange
notes. This discussion is based upon the U.S. federal income tax laws in effect
and available on the date of this prospectus, including the Internal Revenue
Code of 1986, as amended, the related Treasury Regulations and judicial and
administrative interpretations of the Internal Revenue Code and Treasury
Regulations. All of these laws are subject to change, possibly retroactively, or
different interpretation. We cannot assure you that the Internal Revenue Service
will not challenge one or more of the tax consequences described in this
prospectus. We have not obtained, nor do we intend to obtain, a ruling from the
Internal Revenue Service with respect to the U.S. federal income tax
consequences of the exchange offer. This discussion does not purport to address
all aspects of U.S. federal income taxation that may be relevant to you in light
of your specific circumstances, or if you are subject to special treatment under
the Internal Revenue Code. This discussion also does not address the effect of
any applicable U.S. federal estate and gift tax laws or state, local or foreign
tax laws.
The exchange of existing notes for exchange notes pursuant to the
exchange offer will not be a taxable event for U.S. federal income tax purposes.
You will not recognize gain or loss upon the receipt of exchange notes. If you
are not exempt from U.S. federal income tax you will be subject to such tax on
the same amount, in the same manner and at the same time as you would have been
as a result of holding the existing notes. If you are a cash-basis holder who is
exchanging existing notes for exchange notes, you will not recognize in income
any accrued and unpaid interest on the existing notes by reason of the exchange.
The basis and holding period of the exchange notes will be the same as the basis
and holding period of the corresponding existing notes.
THIS DESCRIPTION IS INCLUDED IN THIS PROSPECTUS FOR GENERAL INFORMATION
ONLY. ACCORDINGLY, YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR CONCERNING THE
U. S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER WITH RESPECT TO YOUR
PARTICULAR SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS.
PARTICIPATION IN THE EXCHANGE OFFER; UNTENDERED NOTES
Participation in the exchange offer is voluntary. Holders of the
existing notes are urged to consult their financial and tax advisors in making
their own decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
existing notes tendered under the terms of, this exchange offer, we will have
fulfilled a covenant contained in the terms of the registration agreement.
Holders of the existing notes who do not tender in the exchange offer will
continue to hold their existing notes and will be entitled to all the rights,
and subject to the limitations, applicable to the existing notes under the
indenture. Holders of existing notes will not longer be entitled to any rights
under the registration agreement that by their term terminate or cease to have
further effect as a result of the making of this exchange offer. See
"Description of the Exchange Notes." All untendered existing notes will continue
to be subject to the restrictions on transfer described in the indenture. To the
extent that existing notes are tendered and accepted in the exchange offer, the
trading market for untendered existing notes could be adversely affected. This
is because there will probably be many fewer remaining existing notes
outstanding following the exchange, significantly reducing the liquidity of the
untendered notes.
We may in the future seek to acquire untendered existing notes in the
open market or through privately negotiated transactions, through subsequent
exchange offers or otherwise. We intend to make any acquisitions of existing
notes following the applicable requirements of the Exchange Act, and the rules
and regulations of the SEC under the Exchange Act, including Rule 14e-1,
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to the extent applicable. We have no present plan to acquire any existing notes
that are not tendered in the exchange offer or to file a registration statement
to permit resales of any existing notes that are not tendered in the exchange
offer.
DESCRIPTION OF THE EXCHANGE NOTES
We will issue the exchange notes under an indenture to be entered into
between us and State Street Bank and Trust Company, as trustee. The following
description is a summary of selected provisions of the indenture and the
exchange notes. We have not restated the indenture in its entirety. We will
provide you a copy of the indenture for the exchange notes without charge if you
request it from us. You should read the indenture because the indenture, and not
this description, will control your rights as a holder of exchange notes. For
purposes of this section of this prospectus, references to the "Company,"
"Nuevo," "we," "us," "our" or "ours" means Nuevo Energy Company, excluding our
subsidiaries. The definitions of some of the terms used in the following summary
are set forth below under "--Material Definitions."
The exchange notes and the existing notes will be treated as a single
class for all purposes of the indenture, and references in this section to the
exchange notes include the existing notes.
The indenture provides for the issuance of up to $400,000,000 of notes,
We will issue a maximum principal amount of $257,310,000 of exchange notes in
exchange for the existing notes in the exchange offer. All other issuances of
notes in the future will be subject to the debt incurrence test described under
"--Material Covenants--Incurrence of Indebtedness." All of the notes will be
identical in all respects other than the price at which we issue the notes and
the date an which we issue the notes.
PRINCIPAL, MATURITY AND INTEREST OF THE EXCHANGE NOTES
The exchange notes will be our general unsecured senior subordinated
obligations. The exchange notes will mature on June 1, 2008. Interest on the
exchange notes will accrue at the rate of 9 1/2% per annum and will be payable
semiannually in arrears on June 1 and December 1, commencing on December 1,
1999. Interest payments will be made to the person in whose names the exchange
notes are registered at the close of business on the May 15 or November 15
preceding the interest payment date. Interest on the exchange notes will accrue
from the date of issuance of the existing notes or, if interest has already been
paid, from the date it was most recently paid. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
Principal, interest and premium on the exchange notes will be paid as
described under "--Book-Entry, Delivery and Form" below.
SUBORDINATION
The payment of the principal of, and premium and interest on, the
exchange notes will be subordinated in right of payment to the prior payment in
full of Senior Indebtedness (Section 14. 1 ). The subordination provisions
prohibit us from making payments with respect to the exchange notes if the
events described below occur. If triggered, the subordination provisions
prohibit us from paying any amounts with respect to the exchange notes,
including:
o payments of principal or interest;
o payments of any premium; and
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o repurchases of the exchange notes, including repurchases in
connection with a Change of Control or Asset Sale, as
described under "--Repurchase at the Options of
Holders--Change of Control" and "--Asset Sales."
If we:
o become subject to insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or similar case;
o liquidate, dissolve or otherwise wind-up our business; or
o make an assignment for the benefit of our creditors or marshal
our assets or liabilities;
the holders of Senior Indebtedness will be entitled to receive full payment of
all amounts owed to them prior to any payments being made to the holders of
exchange notes. We will not be required to repay all Senior Indebtedness in full
in connection with our consolidation or merger or our liquidation or dissolution
following the disposition of all or substantially all of our properties upon the
terms described under the subheading "--Material Covenants--Merger,
Consolidation or Sale of Assets" as a condition to any payments on the exchange
notes. If the trustee for the exchange notes receives any payment from us when
the subordination provisions prohibit payment of amounts owed on the exchange
notes, the trustee is required to return the payments to us or our receiver or
custodian for payment to holders of Senior Indebtedness. The subordination
provisions apply to payments of any nature, including payments:
o of cash;
o of property, assets or securities; and
o by way of set-off.
The subordination provisions, however, do not prohibit the payment of principal,
interest and premium on the exchange notes if the payment is made in Permitted
Junior Securities.
Additionally, we may not make any payment in respect of the exchange
notes, other than payments of Permitted Junior Securities, if a Payment Event of
Default occurs on our Specified Senior Indebtedness and the trustee receives
written notice of the default. We must resume payment in respect of the exchange
notes, including any missed payments, when we cure or obtain a waiver of the
Payment Event of Default or it otherwise ceases to exist. We must also resume
payment in respect of the exchange notes, including any missed payments, if we
pay in full or discharge the Specified Senior Indebtedness.
We also may not make any payment in respect of the exchange notes,
other than payments of Permitted Junior Securities, for the period specified
below ("Payment Blockage Period") if a Nonpayment Event of Default occurs on our
Specified Senior Indebtedness and the trustee and we receive written notice of
the default from any holder of Specified Senior Indebtedness. The Payment
Blockage Period will commence upon the earlier of the date of receipt by the
trustee or us of such notice of the default (the "Payment Blockage Notice") and
will end on the earliest of:
o 179 days after it begins;
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o the date on which the holders of Specified Senior Indebtedness
notify the trustee or us that the Non-payment Event of Default
no longer exists or that the Specified Senior Indebtedness has
been discharged; and
o the date we or the trustee receives notice from the person
initiating the Payment Blockage Period that the period has
been terminated.
We must resume making payments in respect of the exchange notes after the
Payment Blockage Period ends, including any missed payments, unless we are
otherwise prohibited by the other subordination provisions of the indenture. No
more than one Payment Blockage Period may commence during any period of 360
consecutive days. No Non-payment Event of Default that existed on the date of
delivery of a Payment Blockage Notice to the trustee can be made the basis for a
subsequent Payment Blockage Notice. (Section 14.3)
If we fail to make any payment on the exchange notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions described above, the failure will constitute an Event of Default
under the indenture and will entitle the holders of the exchange notes to
exercise the rights described under "--Events of Default and Remedies." (Section
5.1)
As a result of such subordination provisions described above, in the
event of a distribution of assets upon our liquidation, receivership,
reorganization or insolvency, our creditors who are holders of Senior
Indebtedness may recover more, ratably, than the holders of the exchange notes,
and assets which would otherwise be available to pay obligations in respect of
the exchange notes will be available only after we have paid all Senior
Indebtedness in full, and there may not be sufficient assets remaining to pay
amounts due on any or all of the exchange notes.
The subordination provisions described above will cease to be
applicable to the exchange notes upon any Legal Defeasance or Covenant
Defeasance of the exchange notes as described under "--Legal Defeasance and
Covenant Defeasance."
SUBSIDIARY GUARANTEES OF NOTES
None of our Restricted Subsidiaries will guarantee the exchange notes
unless the Restricted Subsidiary also guarantees or secures any of our Pari
Passu Indebtedness or Subordinated Indebtedness. If one of our Restricted
Subsidiaries guarantees or secures any of our Pari Passu Indebtedness or
Subordinated Indebtedness, we will cause it to be bound by the terms of the
indenture and to unconditionally guarantee the performance of our obligations
under the indenture and the exchange notes. (Sections 10.13 and 13.1)
The obligations of each Subsidiary Guarantor will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or made by or on behalf of any other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under the
indenture, result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Subsidiary Guarantor that makes a
payment or distribution under its Subsidiary Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor, if any, in a pro rata amount
based on the Adjusted Net Assets of each Subsidiary Guarantor. (Section 13.4)
Each Subsidiary Guarantor may consolidate with or merge into or sell or
otherwise dispose of all or substantially all of its properties and assets to us
or another Subsidiary Guarantor without
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limitation, except to the extent any such transaction is subject to the "Merger,
Consolidation or Sale or Assets" covenant of the indenture. Each Subsidiary
Guarantor may consolidate with or merge into or sell all or substantially all of
its properties and assets to a Person other than us or another Subsidiary
Guarantor, whether or not Affiliated with the Subsidiary Guarantor, provided
that:
o if the surviving Person is not the Subsidiary Guarantor, the
surviving Person agrees to assume the Subsidiary Guarantor's
Subsidiary Guarantee and all its obligations pursuant to the
indenture, except to the extent the following paragraph would
result in the release of such Subsidiary Guarantee; and
o such transaction does not violate any of the covenants
described under the heading "--Material Covenants" or result
in a Default or Event of Default immediately thereafter that
is continuing. (Section 13.2)
Upon the sale or other disposition, by merger or otherwise, of a
Subsidiary Guarantor of all or substantially all of its assets to a Person other
than us or another Subsidiary Guarantor and pursuant to a transaction that is
otherwise in compliance with the indenture, including as described in the
foregoing paragraph, such Subsidiary Guarantor shall be deemed released from its
Subsidiary Guarantee and the related obligations set forth in the indenture. Any
such termination shall occur only to the extent that all obligations of such
Subsidiary Guarantor under all of its guarantees of, and under all of its
pledges of assets or other security interests which secure, our or our
Restricted Subsidiaries' other Indebtedness shall also terminate upon such sale
or other disposition. In addition, all of the Subsidiary Guarantors shall be
deemed released from their respective Subsidiary Guarantees and the related
obligations set forth in the indenture in the event that all obligations of the
Subsidiary Guarantors under all of their guarantees of, and under all of their
pledges of assets or other security interests which secure our or our Restricted
Subsidiaries' other Indebtedness, excluding any Senior Indebtedness, shall also
terminate. (Section 13.3)
The obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee will be subordinated to the prior payment in full of all Guarantor
Senior Indebtedness of such Subsidiary Guarantor to substantially the same
extent as the exchange notes are subordinated to Senior Indebtedness. (Section
13.8)
REDEMPTION AT THE OPTION OF NUEVO
We may not redeem the exchange notes at our option prior to June 1,
2003. Thereafter, we may redeem the exchange notes at our option, in whole or in
part, at the redemption prices expressed as percentages of principal amount set
forth below. If we redeem the notes at our option, we must also pay interest
accrued and unpaid to the applicable redemption date. The redemption prices
during the twelve-month period beginning on June 1 of the years indicated are
set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003 ........................................................... 104.750%
2004 ........................................................... 103.167%
2003 ........................................................... 101.583%
2006 and thereafter ............................................ 100.000%
</TABLE>
In addition, prior to June 1, 2001 we may redeem up to 33 1/3% of the
aggregate principal amount of the exchange notes originally issued at a
redemption price of 109.5% of the principal amount, plus accrued and unpaid
interest to the date of redemption, with the net proceeds of one or
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more Equity Offerings. We may not cause a redemption from the proceeds of the
Equity Offering unless:
o at least 66 2/3% of the aggregate principal amount of the
exchange notes originally issued under the indenture at any
time prior to such redemption remain outstanding after the
redemption; and
o the redemption occurs within 90 days after the closing of the
Equity Offering. (Section 11.1)
If we redeem less than all of the exchange notes, selection of exchange
notes for redemption will be made by the trustee on a pro rata basis. We will
not, however, redeem notes in principal amounts of less than $10. (Section 11.4)
We will mail notice of a redemption at least 30 and not more than 60 days before
the redemption date. The notice will describe the amount of notes being
redeemed, if less than the entire principal amount. (Section 11.5) Interest will
cease to accrue on exchange notes which are redeemed on the redemption date.
(Section 11.7)
MANDATORY REDEMPTION
We will not be required to make mandatory redemption or sinking fund
payments with respect to the exchange notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
If a Change of Control occurs, we will be obligated to make an offer to
purchase all of the outstanding exchange notes. The purchase price we are
required to offer is 101% of the aggregate principal amount plus accrued and
unpaid interest to the date of purchase. We are required to purchase all
exchange notes tendered under the offer which are not withdrawn.
In order to effect a Change of Control offer, we must mail a notice of
the Change of Control to the trustee and each holder of exchange notes no later
than 30 days after the Change of Control occurs. We are obligated to close the
purchase of notes tendered under the Change of Control offer no less than 30 and
no more than 60 days after the notice is mailed. The notice will describe the
Change of Control and the procedures that must be followed to participate in the
offer.
Our bank credit facility states that events which constitute a Change
of Control constitute a default under the bank credit facility. In addition, our
bank credit facility prohibits the repurchase of both the existing notes and the
exchange notes. Future agreements relating to our Senior Indebtedness may
contain similar provisions. In the event a Change of Control occurs at a time
when we are prohibited from purchasing exchange notes, we could seek the consent
of our lenders to the purchase of exchange notes or could attempt to refinance
the borrowings that contain a prohibition. If we do not obtain a consent or
repay the borrowings, we will be prohibited from purchasing exchange notes,
which will constitute an Event of Default under the Indenture. A default under
the indenture for the exchange notes will also be a default under the bank
credit facility and may be a default under other current and future agreements
to which we are or may become a party. In such circumstances, the subordination
provisions in the indenture may prevent payments to the holders of exchange
notes required by the Change of Control.
We will not be required to make a Change of Control offer if a third
party makes the Change of Control offer at the same purchase price, at the same
times and otherwise in substantial
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compliance with the requirements applicable to a Change of Control offer made by
us and purchases the exchange notes properly tendered and not withdrawn.
(Section 10.16)
Asset Sales
We may not, and may not permit our Restricted Subsidiaries to, engage
in any Asset Sale unless the consideration received equals the fair market value
of the assets and properties sold or otherwise disposed of as determined by our
board of directors, and the consideration is either:
o cash, Cash Equivalents, Liquid Securities or Exchanged
Properties ("Permitted Consideration"); or
o the property or assets received that do not constitute
Permitted Consideration have an aggregate fair market value of
no more than 10.0% of our Adjusted Consolidated Net Tangible
Assets.
If we do not invest the Net Cash Proceeds of Asset Sales which occur
after the date of the indenture in properties and assets that will be used in
the Oil and Gas Business within 365 days after the closing of the Asset Sale, we
must either:
o repay Indebtedness under the Credit Facility;
o repay or purchase other Indebtedness (other than Subordinated
Indebtedness or Pari Passu Indebtedness) of ourself or a
Restricted Subsidiary, provided that any related loan
commitment is permanently reduced by the amount of such
Indebtedness repaid; or
o offer to repurchase exchange notes as described below.
The amount of Net Cash Proceeds from all Asset Sales which occur after the date
of the indenture not used for one of the purposes described in this paragraph
will constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds is equal to or more than
$10 million:
o we must make an Offer to purchase the exchange notes and any
outstanding Pari Passu Indebtedness required to be repurchased
in connection with an Asset Sale, provided that the amount of
the Pari Passu Indebtedness repurchased is permanently
reduced;
o we must make an offer to purchase exchange notes in the
principal amount calculated by multiplying the Excess Proceeds
by a fraction, the numerator of which is the outstanding
principal amount of the exchange notes and the denominator of
which is the sum of the outstanding principal amount of the
exchange notes plus any Pari Passu Indebtedness that we must
offer to repurchase;
o the offer price for the exchange notes will be payable in cash
in an amount equal to 100% of the principal amount of the
exchange notes tendered, plus accrued and unpaid interest to
the date of payment; and
o if more exchange notes are tendered than we have Excess
Proceeds to purchase, we will pro rate the exchange notes
tendered.
If the amount of exchange notes tendered is less than the amount of exchange
notes we offered to purchase, we may use the Excess Proceeds not used to
repurchase exchange notes for general
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corporate purposes. The use of Excess Proceeds for general corporate purposes
must comply with the other provisions of the indenture, including the covenant
described under "--Material Covenants--Restricted Payments."
After we make an Excess Proceeds offer as described above, the amount
of Excess Proceeds will be reset to zero. We will not permit any of our
Restricted Subsidiaries to be a party to any agreement that would place any
restriction on our right to make an offer to repurchase exchange notes following
an Asset Sale. (Section 10.17)
Securities Law Compliance
We will comply with the requirements of Rule 14e-1 under the Securities
Exchange Act of 1934 and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of the exchange notes as a result of a Change of Control or Asset
Sale. These rules require that we keep the offer open for 20 business days. They
also require that we notify holders of exchange notes of changes in the offer
and extend the offer for specified time periods if we amend the offer. If the
provisions of any securities laws or regulations conflict with the provisions in
the indenture relating to a Change of Control or Asset Sale offer, we will
comply with the applicable securities laws and regulations and will not be
deemed to have breached our obligations under the indenture.
MATERIAL COVENANTS
Ownership of Capital Stock
We may not permit any Restricted Subsidiary to issue any Capital Stock
other than to us or a Wholly Owned Restricted Subsidiary. Also, we may not
permit any Person other than us or a Wholly Owned Restricted Subsidiary to own
any Capital Stock of a Restricted Subsidiary, except for:
o directors' qualifying shares;
o Capital Stock of a Restricted Subsidiary organized in a
foreign jurisdiction required to be owned by the government of
the foreign jurisdiction or citizens of the foreign
jurisdiction in order for the Restricted Subsidiary to
transact business in the foreign jurisdiction;
o a sale of all or substantially all of the Capital Stock of a
Restricted Subsidiary effected in accordance with the "Asset
Sales" covenant;
o Qualifying TECONS; and
o the Capital Stock of a Restricted Subsidiary owned by a Person
at the time the Restricted Subsidiary became a Restricted
Subsidiary or which is acquired by the Person in connection
with the formation of the Restricted Subsidiary.
The Capital Stock owned by us or another Restricted Subsidiary will be treated
as an Investment for purposes of the "Restricted Payments" covenant, if the
amount of such Capital Stock represents less than a majority of the Voting Stock
of such Restricted Subsidiary. (Section 10.14)
Restricted Payments
The indenture will define the following as Restricted Payments if done
by us or any of our Restricted Subsidiaries:
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o the declaration or payment of any dividend or distribution on
our Capital Stock, including Eligible Convertible Securities
and Qualifying TECONS, other than dividends or distributions
payable solely in shares of our Qualified Capital Stock or in
options, warrants or other rights to purchase our Qualified
Capital Stock;
o the purchase or acquisition of our Capital Stock, including
Eligible Convertible Securities and Qualifying TECONS, or that
of our Affiliates, other than Capital Stock issued by a Wholly
Owned Restricted Subsidiary, or any options, warrants or other
rights to acquire such Capital Stock;
o making any principal payment on, or repurchase or other
acquisition of, any Subordinated Indebtedness prior to any
scheduled principal payment, scheduled sinking fund payment or
maturity, except using the Excess Proceeds remaining after
compliance with the provisions described under "--Repurchase
at the Option of Holders--Asset Sales," and to the extent
required by the indenture or other agreement or instrument
pursuant to which such Subordinated Indebtedness was issued;
o the declaration or payment of any dividend or other
distribution on shares of Capital Stock of any Restricted
Subsidiary, other than to us or any Wholly Owned Restricted
Subsidiary, or the purchase, redemption or other acquisition
or retirement of any Capital Stock of any Restricted
Subsidiary or any options, warrants or other rights to acquire
any such Capital Stock, other than for Capital Stock held by
us or any Wholly Owned Restricted Subsidiary; or
o making of any Investment, other than any Permitted Investment.
We may not make a Restricted Payment, unless at the time of and after
giving effect to the proposed Restricted Payment:
o no Default or Event of Default shall have occurred and be
continuing,
o we could incur $1.00 of additional Indebtedness, other than
Permitted Indebtedness, in accordance with the covenant
described under "--Incurrence of Indebtedness"; and
o the aggregate amount of all Restricted Payments declared or
made after June 8, 1999 shall not exceed the sum, without
duplication, of the following:
(1) 50% of our aggregate Consolidated Net Income accrued
on a cumulative basis during the period beginning on
April 1, 1998 and ending on the last day of our last
fiscal quarter ending prior to the date of such
proposed Restricted Payment (or, if such aggregate
Consolidated Net Income shall be a loss, minus 100%
of such loss); plus
2) the aggregate net cash proceeds or the fair market
value of any property or assets other than cash,
received after June 8, 1998 by us as capital
contributions to us, other than from any Restricted
Subsidiary; plus
(3) the aggregate net cash proceeds or the fair market
value of any property or assets other than cash,
received by us after June 8, 1998 from the issuance
or sale, other than to any of our Restricted
Subsidiaries, of our Qualified Capital Stock or any
option, warrants or rights to purchase our Qualified
Capital Stock; plus
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(4) the aggregate net cash proceeds received after June
8, 1999 by us, other than from any of our Restricted
Subsidiaries, upon the exercise of any options,
warrants or rights to purchase our Qualified Capital
Stock; plus
(5) the aggregate net cash proceeds received after June
8, 1998 by us from the issuance or sale, other than
to any of our Restricted Subsidiaries, of debt
securities or shares of Redeemable Capital Stock that
have been converted into or exchanged for our
Qualified Capital Stock, together with the aggregate
cash received by us at the time of such conversion or
exchange; plus
(6) the aggregate net cash proceeds or the fair market
value of any property or assets received after June
8, 1999 by us or our Restricted Subsidiaries,
computed on a consolidated basis, constituting a
return of capital on an Investment, other than a
Permitted Investment, made by us or any of our
Restricted Subsidiaries after June 8, 1998; plus
(7) $25.0 million.
However, we and our Restricted Subsidiaries may take the following
actions so long as, at the time thereof, no Default or Event of Default shall
have occurred and be continuing, except in the case of the first clause below,
and, in the case of the sixth clause below, we could incur $1.00 of additional
Indebtedness, excluding Permitted Indebtedness, in accordance with the covenant
described under "--Incurrence of Indebtedness":
o the payment of any dividend on any of our or any Restricted
Subsidiary's Capital Stock within 60 days after the date of
declaration thereof, if at such declaration date such
declaration complied with the covenant, and such payment shall
be deemed to have been paid on such date of declaration for
purposes of making any calculation under this covenant;
o the repurchase or other acquisition or retirement of any
shares of our or of any of our Restricted Subsidiaries'
Capital Stock, in exchange for, or out of the aggregate net
cash proceeds of, a substantially concurrent issue and sale of
our Qualified Capital Stock, other than a sale to a Restricted
Subsidiary;
o the repurchase or other acquisition or retirement for value of
any Subordinated Indebtedness, other than Redeemable Capital
Stock, in exchange for, or out of the aggregate net cash
proceeds of, a substantially concurrent issue and sale of our
Qualified Capital Stock, other than to a Restricted
Subsidiary;
o the purchase or other acquisition or retirement for value of
Subordinated Indebtedness in exchange for, or out of the
aggregate net cash proceeds of, a substantially concurrent
incurrence, other than to a Restricted Subsidiary, of
Subordinated Indebtedness so long as:
(1) the principal amount of such new Indebtedness does
not exceed the principal amount, or, if such
Subordinated Indebtedness being refinanced provides
for an amount less than the principal amount thereof
to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the
date of determination, of the Indebtedness being so
purchased, acquired or retired, plus the amount of
any premium required to be paid in connection with
such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount
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of any premium reasonably determined by us as
necessary to accomplish such refinancing, plus the
amount of our expenses incurred in connection with
such refinancing,
(2) such new Indebtedness is subordinated to the exchange
notes at least to the same extent as such
Indebtedness so purchased, acquired or retired,
(3) such new Indebtedness has an Average Life to Stated
Maturity that is longer than the Average Life to
Stated Maturity of the exchange notes, and
(4) such new Indebtedness has a Stated Maturity for its
final scheduled principal payment that is at least 91
days later than the Stated Maturity for the final
scheduled principal payment of the exchange notes;
o the repurchase or other acquisition or retirement for value of
any of our or our Subsidiaries' Qualified Capital Stock held
by any of our or our Subsidiaries' current or former officers,
directors or employees pursuant to the terms of agreements,
including employment agreements, or plans approved by our
board of directors, including any such repurchase, acquisition
or retirement of such Qualified Capital Stock that is deemed
to occur upon the exercise of stock options or similar rights
if such shares represent all or a portion of the exercise
price or are surrendered in connection with satisfying Federal
income tax obligations; provided, however, that the aggregate
amount of such repurchases, acquisitions and retirements shall
not exceed the sum of:
(1) $1.0 million in any twelve-month period, and
(2) the aggregate net proceeds, if any, received by us
during such twelve-month period from any issuance of
such Qualified Capital Stock pursuant to such
agreements or plans; and
o the repurchase or other acquisition of our Qualified Capital
Stock in an amount not to exceed 50% of the net after-tax gain
from Specified Property Sales.
The actions described in the first clause of this paragraph are Restricted
Payments that will be permitted to be taken in accordance with this paragraph
but shall reduce the amount that would otherwise be available for Restricted
Payments. The actions described in the second through the sixth clauses above
will be Restricted Payments that will be permitted to be taken in accordance
with this paragraph and will not reduce the amount that would otherwise be
available for Restricted Payments.
We or any of our Restricted Subsidiaries may make a Restricted Payment,
if at the time we first incurred a commitment for the Restricted Payment the
Restricted Payment could have been made, if all commitments incurred and
outstanding are treated as if they were Restricted Payments expended by us or a
Restricted Subsidiary at the time the commitments were incurred, except that
commitments incurred and outstanding which are treated as a Restricted Payment
and which are ultimately not made shall no longer be treated as a Restricted
Payment expended by us; and provided, further, that at the time such Restricted
Payment is made no Default or Event of Default shall have occurred and be
continuing and we must be able to incur $1.00 of additional Indebtedness, other
than Permitted Indebtedness, in accordance with the "Incurrence of Indebtedness"
covenant. (Section 10.10)
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Incurrence of Indebtedness
We may not, and may not permit any of our Restricted Subsidiaries to,
create, incur, assume, guarantee or otherwise become directly or indirectly
liable for the payment of (collectively, "incur") any Indebtedness, including
any Acquired Indebtedness but excluding Permitted Indebtedness, unless at the
time of such event and after giving effect thereto on a pro forma basis:
o if such incurrence occurs on or before March 31, 2000, the
Consolidated Fixed Charge Coverage Ratio for the applicable
period would have been at least 2.0 to 1.0; and
o if such incurrence occurs after March 31, 2000, the
Consolidated Fixed Charge Coverage Ratio for the applicable
period would have been at least equal to 2.5 to 1.0. (Section
10.12)
Liens
We may not, and may not permit any Restricted Subsidiary to, directly
or indirectly, create, incur, assume or suffer to exist any Lien of any kind,
except for Permitted Liens, upon any of our or any Restricted Subsidiary's
assets or properties, whether now owned or acquired after the date of the
indenture, or any income or profits therefrom to secure any Pari Passu
Indebtedness or Subordinated Indebtedness, unless prior to or contemporaneously
therewith the exchange notes are directly secured equally and ratably, provided
that:
o if such secured Indebtedness is Pari Passu Indebtedness, the
Lien securing such Pari Passu Indebtedness shall be
subordinate and junior to, or pari passu with, the Lien
securing the exchange notes; and
o if such secured Indebtedness is Subordinated Indebtedness, the
Lien securing such Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the exchange notes
at least to the same extent as such Subordinated Indebtedness
is subordinated to the exchange notes.
The foregoing covenant will not apply to any Lien securing Acquired
Indebtedness, provided that any such Lien extends only to the properties or
assets that were subject to such Lien prior to the related acquisition and was
not created, incurred or assumed in contemplation of such transaction. (Section
10.15)
Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries
We may not, and may not permit any Restricted Subsidiary to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to:
o pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock to us or
any other Restricted Subsidiary;
o pay any Indebtedness owed to us or any other Restricted
Subsidiary;
o make an Investment in us or any other Restricted Subsidiary;
or
o transfer any of its properties or assets to us or any other
Restricted Subsidiary.
However, with respect to the fourth clause of this paragraph only,
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o our Restricted Subsidiaries may have restrictions in the form
of Liens which are not prohibited as described in the "Liens"
covenant and which contain customary limitations on the
transfer of collateral; and
o our Restricted Subsidiaries may have customary restrictions
contained in asset sale agreements limiting the transfer of
such assets pending the closing of such sale.
In addition, the indenture will not prohibit the following encumbrances
and restrictions which exist pursuant to:
o the indenture, the Credit Facility or any other agreement in
effect as of the date of the indenture;
o any agreement or other instrument of a Person acquired by us
or any Restricted Subsidiary in existence at the time of such
acquisition which was not created in contemplation of the
acquisition which encumbrance or restriction is not applicable
to any other Person, or the properties or assets of any other
Person, other than the Person, or the property or assets of
the Person, so acquired;
o customary restrictions in leases and licenses relating to the
property covered thereby and entered into in the ordinary
course of business; or
o any agreement that extends, renews, refinances or replaces the
agreements containing the foregoing restrictions, if the terms
and conditions of those restrictions are not materially less
favorable to the holders of the exchange notes than those
under or pursuant to the agreements so extended, renewed,
refinanced or replaced. (Section 10.19)
Limitation on Layering Debt
We may not have any Indebtedness, including Acquired Indebtedness and
Permitted Indebtedness, that is subordinated in right of payment to Senior
Indebtedness, unless such Indebtedness also ranks equal with, or subordinated in
right of payment to, the exchange notes pursuant to subordination provisions
substantially similar to those applicable to the exchange notes.
(Section 10.11)
Merger, Consolidation or Sale of Assets
We may not, in any single transaction or series of related
transactions, consolidate or merge with or into any other Person, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of our and our Restricted Subsidiaries' properties and assets on a consolidated
basis to any person or group of Affiliated Persons, and we may not permit any of
our Restricted Subsidiaries to enter into any such transaction or series of
related transactions if such transaction or series of related transactions would
result in such a disposition of all or substantially all of our and our
Restricted Subsidiaries' properties and assets on a consolidated basis, unless
at the time and after giving effect thereto:
o either:
(1) if the transaction is a merger or consolidation, we
are the surviving Person of the merger or
consolidation, or
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(2) the Person formed by the consolidation or into which
we are merged or to which our or our Restricted
Subsidiaries' properties and assets are disposed of
(referred to as the "Surviving Entity") is a
corporation organized and existing under the laws of
the United States of America, any state thereof or
the District of Columbia and, in either case,
expressly assumes by a supplemental indenture to the
indenture executed and delivered to the trustee, in
form satisfactory to the trustee, all of our
obligations under the exchange notes and the
indenture and the indenture remains in effect;
o immediately after giving effect to the transaction or series
of transactions on a pro forma basis and treating any
Indebtedness not previously an obligation of ours or our
Restricted Subsidiaries in connection with or as a result of
such transaction as having been incurred at the time of the
transaction or series of transactions, no Default or Event of
Default shall have occurred and be continuing;
o except in the case of the consolidation or merger of any
Restricted Subsidiary with or into us, immediately after
giving effect to the transaction or series of transactions on
a pro forma basis, our or the Surviving Entity's Consolidated
Net Worth is at least equal to our Consolidated Net Worth
immediately before such transaction or transactions;
o except in the case of our consolidation or merger with or into
a Wholly Owned Restricted Subsidiary or any Restricted
Subsidiary with or into us or any of our Wholly Owned
Restricted Subsidiaries, immediately after giving effect to
the transaction or transactions on a pro forma basis assuming
that the transaction or transactions occurred on the first day
of the relevant period of fiscal quarters under the
"Incurrence of Indebtedness" covenant ending immediately prior
to the consummation of the transaction or transactions, with
the appropriate adjustments with respect to the transaction or
transactions being included in the pro forma calculation, we
or the Surviving Entity could incur $1.00 of additional
Indebtedness other than Permitted Indebtedness pursuant to
such covenant;
o if any of our or our Restricted Subsidiaries' properties or
assets would upon the transaction or series of related
transactions become subject to any Lien, other than a
Permitted Lien, the creation or imposition of such Lien shall
have been in compliance with the "Liens" covenant; and
o if we are not the continuing obligor under the Indenture, then
any Subsidiary Guarantor, unless it is the Surviving Entity,
shall have confirmed that its Subsidiary Guarantee will
continue to apply following the transaction or transactions.
If we are not the continuing or surviving corporation following any of
the foregoing transaction or transactions, the Surviving Entity shall be
substituted for us under the indenture with the same effect as if the Surviving
Entity had been named as Nuevo therein, and thereafter we will be discharged
from all obligations and covenants under the indenture and the exchange notes,
except in the case of a lease. (Article VIII)
Transactions with Affiliates
We may not, and may not permit any of our Restricted Subsidiaries to,
directly or indirectly, engage in any transaction or series of related
transactions with any of our Affiliates, other than us or a Restricted
Subsidiary, unless:
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o such transaction or series of related transactions is on terms
that are no less favorable to us or such Restricted
Subsidiary, as the case may be, than would be available in a
comparable transaction in arm's-length dealings with an
unrelated third party; and
o with respect to a transaction or series of related
transactions involving payments in excess of $1.0 million in
the aggregate, we deliver an officers' certificate to the
trustee certifying that such transaction complies with the
foregoing clause.
In addition, if the transaction or series of related transactions involves
payments in excess of $5.0 million in the aggregate, the officers' certificate
also must state that such transaction or series of related transactions has been
approved by a majority of our Disinterested Directors. If the transaction or
series of related transactions involves payments of $25.0 million or more in the
aggregate, we must also have received the written opinion of a nationally
recognized investment banking firm or appraisal firm in the United States that
such transaction or series of transactions is fair, from a financial point of
view, to us or our Restricted Subsidiary.
The foregoing restriction shall not apply to
o the provision of services and payments under any of the
existing agreements with Torch Energy Advisors Incorporated or
its subsidiaries so long as each of the agreements, including
any modifications or amendments entered into on or after the
date of the indenture, has been approved by a majority of our
Disinterested Directors;
o loans or advances to our or our Restricted Subsidiaries'
officers, directors and employees made in the ordinary course
of business and consistent with past practices in an aggregate
amount not to exceed $3,000,000 outstanding at any one time;
o the payment of reasonable and customary regular fees to our or
our Restricted Subsidiaries' directors who are not our
employees or employees of our Affiliates;
o our employee compensation and other benefit arrangements;
o indemnities of our and any Subsidiary's officers and directors
consistent with applicable bylaws and statutory provisions; or
o Restricted Payments permitted by the indenture. (Section
10.18)
Reports
We must file on a timely basis with the SEC, to the extent such filings
are accepted by the SEC and whether or not we have a class of securities
registered under the Exchange Act, the annual reports, quarterly reports and
other documents that we would be required to file if we were subject to Section
13 or 15 of the Exchange Act. These include an annual report on Form 10-K and
quarterly reports on Form 10-Q. We will also be required:
o to file with the trustee, with exhibits, and provide to each
holder of exchange notes, without cost to such holder, copies
of reports and documents, without exhibits, within 30 days
after the date on which we file the reports and documents with
the SEC or the date on which we would be required to file the
reports and documents if we were required to, and
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o if filing such reports and documents with the SEC is not
accepted by the SEC or is prohibited under the Exchange Act,
to supply at our cost copies of such reports and documents,
including any exhibits, to any holder of exchange notes,
securities analyst or prospective investor promptly upon
written request. (Section 10.09)
EVENTS OF DEFAULT AND REMEDIES
Each of the following will be an "Event of Default":
o failure to pay interest on the exchange notes when due for 30
days, whether or not prohibited by the subordination
provisions of the exchange notes;
o failure to pay the principal of or premium on the exchange
notes, whether such payment is due at Stated Maturity, upon
redemption, upon repurchase pursuant to a Change of Control
offer or an Asset Sales offer, upon acceleration or otherwise,
whether or not prohibited by the subordination provisions;
o failure to comply with the covenant described under
"--Material Covenants--Merger, Consolidation or Sale of
Assets";
o failure to comply with the covenant described under
"--Repurchase at the Option of Holders--Change of Control";
o failure to comply with the covenant described under
"--Repurchase at the Option of Holders--Asset Sales";
o failure by us or any Subsidiary Guarantor to comply with any
other covenant contained in the exchange notes, any Subsidiary
Guarantee or the indenture for a period of 60 days after
written notice of such failure given to us by the trustee or
to us and the trustee by the holders of at least 25% in
aggregate principal amount of the exchange notes then
outstanding;
o the occurrence and continuation beyond any applicable grace
period of any default in the payment of the principal of,
premium, if any, on or interest on any of our or any
Restricted Subsidiary's Indebtedness, other than the exchange
notes, for money borrowed when due, or any other default
resulting in acceleration of any of our or any Restricted
Subsidiary's Indebtedness for money borrowed, if the aggregate
principal amount of such Indebtedness exceeds $10,000,000, or,
in the case of Non-Recourse Purchase Money Indebtedness,
$40,000,000, and provided, further, that if any such default
is cured or waived or any such acceleration rescinded, or such
Indebtedness is repaid, within a period of 10 days from the
continuation of such default beyond the applicable grace
period or the occurrence of such acceleration, as the case may
be, such Event of Default under the indenture and any
consequential acceleration of the exchange notes shall be
automatically rescinded, so long as such rescission does not
conflict with any judgment or decree;
o any Subsidiary Guarantor shall for any reason cease to be, or
be asserted by us or any Subsidiary Guarantor not to be, in
full force and effect and enforceable in accordance with its
terms, except pursuant to the release or termination of such
Subsidiary Guarantee in accordance with the indenture;
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o final judgments or orders rendered against us or any
Restricted Subsidiary that are unsatisfied and that require
the payment in money, either individually or in an aggregate
amount, that is more than $10,000,000 over the coverage under
applicable insurance policies and either:
(1) commencement by any creditor of an enforcement
proceeding upon such judgment, other than a judgment
that is stayed by reason of pending appeal or
otherwise, or
(2) the occurrence of a 60-day period during which a stay
of such judgment or order, by reason of pending
appeal or otherwise, was not in effect;
o the entry of a decree or order by a court haying jurisdiction
in the premises:
(1) for relief in respect of us or any Material
Subsidiary in an involuntary case or proceeding under
any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law, or
(2) adjudging us or any Material Subsidiary bankrupt or
insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or
composition of us or any Material Subsidiary under
any applicable federal or state law, or appointing
under any such law a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar
official of us or any Material Subsidiary or of a
substantial part of our or any Material Subsidiary's
consolidated assets, or ordering the winding up or
liquidation of our or any Material Subsidiary's
affairs, and the continuance of any such decree or
order for relief or any such other decree or order
unstayed and in effect for a period of 60 consecutive
days; or
o the commencement by us or any Material Subsidiary of a
voluntary case or proceeding under any applicable federal or
state bankruptcy, insolvency, reorganization or other similar
law or any other case or proceeding to be adjudicated bankrupt
or insolvent, or the consent by us or any Material Subsidiary
to the entry of a decree or order for relief in an involuntary
case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or
to the commencement of any bankruptcy or insolvency case or
proceeding against us or any Material Subsidiary, or the
filing by us or any Material Subsidiary of a petition or
consent seeking reorganization or relief under any applicable
federal or state law, or the consent by us or any Material
Subsidiary under any such law to the filing of any such
petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of us or any Material
Subsidiary or of any substantial part of our or any Material
Subsidiary's consolidated assets, or the making by us or any
Material Subsidiary of an assignment for the benefit of
creditors under any such law, or the admission by us or any
Material Subsidiary in writing of our or any Material
Subsidiary's inability to pay debts generally as they become
due or the taking of corporate action by us or any Material
Subsidiary in furtherance of any such action. (Section 5. 1)
If any Event of Default, other than those specified in the last two
clauses above, occurs and is continuing, the trustee, by written notice to us,
or the holders of at least 25% in aggregate principal amount of the exchange
notes then outstanding, by notice to the trustee and us, may, and the trustee
upon the request of the holders of not less than 25% in aggregate principal
amount of the exchange notes then outstanding shall, declare the principal of,
premium, if any, and accrued interest on all of the exchange notes due and
payable immediately, upon which declaration all amounts payable in
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respect of the exchange notes shall be immediately due and payable. If an Event
of Default specified in the last two clauses above occurs and is continuing,
then the principal of, premium, if any, and accrued interest on all of the
exchange notes shall automatically become and be immediately due and payable
without any declaration, notice or other act on the part of the trustee or any
holder of exchange notes.
After a declaration of acceleration under the indenture, but before a
judgment or decree for payment of the money due has been obtained by the
trustee, the holders of a majority in aggregate principal amount of the
outstanding exchange notes, by written notice to us, any Subsidiary Guarantors
and the trustee, may rescind such declaration if:
o we or any Subsidiary Guarantor has paid or deposited with the
trustee a sum sufficient to pay
(1) all sums paid or advanced by the trustee under the
indenture and the reasonable compensation, expenses,
disbursements and advances of the trustee, its agents
and counsel,
(2) all overdue interest on all exchange notes,
(3) the principal of and premium, if any, on any exchange
notes which have become due otherwise than by such
declaration of acceleration and interest thereon at
the rate borne by the exchange notes, and
(4) to the extent that payment of such interest is
lawful, interest upon overdue interest and overdue
principal at the rate borne by the exchange notes
without duplication of any amount paid or deposited
pursuant to sub-clause (2) or (3);
o the rescission would not conflict with any judgment or decree
of a court of competent jurisdiction; and
o all Events of Default, other than the nonpayment of principal
of, premium, if any, on or interest on the exchange notes that
has become due solely by such declaration of acceleration,
have been cured or waived. (Section 5.2)
No holder of the exchange notes will have any right to institute any
proceeding with respect to the indenture or any remedy thereunder, unless
o such holder has notified the trustee or a continuing Event of
Default,
o the holders of at least 25% in aggregate principal amount of
the outstanding exchange notes have made written request, and
offered reasonable indemnity, to the trustee to institute such
proceeding,
o the trustee has failed to institute such proceeding within 60
days after receipt of such notice, and
o the trustee, within such 60-day period, has not received
directions inconsistent with such written request by holders
of a majority in aggregate principal amount of the outstanding
exchange notes. (Section 5.7)
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Such limitations will not apply, however, to a suit instituted by a holder of a
exchange note for the enforcement of the payment of the principal of, premium or
interest on a exchange note on or after the respective due dates expressed in
the exchange note. (Section 5.8)
During the existence of an Event of Default, the trustee will be
required to exercise the rights and powers vested in it under the indenture and
use the same degree of care and skill in its exercise thereof as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs. Subject to the provisions of the indenture relating to the duties
of the trustee in case an Event of Default shall occur and be continuing, the
trustee will not be under any obligation to exercise any of its rights or powers
under the indenture at the request or direction of any of the holders of
exchange notes unless such holders shall have offered to the trustee reasonable
security or indemnity. (Sections 6.1 and 6.2) Subject to certain provisions
concerning the rights of the trustee, the holders of a majority in aggregate
principal amount of the outstanding exchange notes will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the trustee, or exercising any trust or power conferred on the trustee under
the indenture. (Section 5.12)
If a Default occurs and is continuing and is known to the trustee, the
trustee shall mail to each holder of exchange notes notice of the Default within
60 days after the occurrence thereof. Except in the case of a Default in payment
of principal of, premium on or interest on any exchange notes, the trustee may
withhold the notice to the holders of exchange notes if the trustee determines
in good faith that withholding the notice is in the interest of such holders.
(Section 6.13)
We will be required to deliver to the trustee annual and quarterly
statements regarding compliance with the indenture. We also will be required,
upon becoming aware of any Default or Event of Default, to deliver to the
trustee a statement specifying such Default or Event of Default. (Section 10.8)
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Legal Defeasance
As long as we take steps to make sure that you receive all of your
payments under the exchange notes and are able to transfer the exchange notes,
we can elect to legally release ourselves and any of our Subsidiaries that may
guarantee the exchange notes from any obligations on the exchange notes (called
"legal defeasance") other than:
o the, rights of holders of outstanding notes to receive
payments in respect of the principal of, premium on and
interest on the exchange notes when these payments are due;
o our obligation to replace any temporary exchange notes,
register the transfer or exchange of any exchange notes,
replace mutilated, lost or stolen exchange notes, compensate
and reimburse the trustee, remove and appoint a successor
trustee, maintain an office or agency for payments in respect
of the notes and qualify the indenture under the Trust
Indenture Act;
o the rights, powers, trusts, duties and immunities of the
trustee, and
o the legal defeasance provisions of the indenture. (Section
12.2)
In order to accomplish legal defeasance, the following must occur:
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o We or any Subsidiary Guarantor must irrevocably deposit with
the trustee cash and/or U.S. government and/or U.S. government
agency securities that will generate enough cash to make
interest, principal and any other payments on the exchange
notes on their various due dates.
o Such defeasance shall not cause the trustee to have a conflict
of interest.
o There must be a change in current U.S. federal tax law or an
IRS ruling that lets us make that deposit without causing you
to be taxed on the exchange notes any differently than if we
did not make the deposit and just repaid the exchange notes
ourselves. Under current U.S. federal tax law, the deposit and
our legal defeasance from the notes would be treated as though
we took back your notes and gave you your share of the cash
and/or securities deposited in trust. In that event, you could
recognize gain or loss on the notes you give back to us.
o We must deliver to the trustee a legal opinion of our counsel
confirming the tax law change described above and that all of
the conditions to legal defeasance in the indenture have been
fulfilled.
We will not be able to achieve legal defeasance if there is a
continuing Default or Event of Default under the indenture or if doing so would
violate any other material agreement to which we are a party. (Section 12.4) If
we ever did accomplish legal defeasance as described above, you would have to
rely solely on the trust deposit for repayment of the exchange notes. You could
not look to us for repayment in the unlikely event of any shortfall.
Covenant Defeasance
Under current federal tax law, we can make the same type of deposit
described above and be released from covenants relating to the exchange notes.
The release from these covenants is called covenant defeasance. In that event,
you would lose the protection of these covenants but would gain the protection
of having money and/or securities set aside in trust to repay the exchange
notes. In order to achieve covenant defeasance, we must:
o Deposit in trust for the benefit of the holders of exchange
notes cash and/or U.S. government or U.S. government agency
securities that will generate enough cash to make interest,
principal and any other payments on the exchange notes on
their various due dates.
o Deliver to the trustee a legal opinion of our counsel
confirming that under current U.S. federal tax law we may make
that deposit without causing you to be taxed on the exchange
notes any differently than if we did not make the deposit and
just repaid the exchange notes ourselves. The opinion also
must state that all of the conditions to covenant defeasance
in the indenture have been fulfilled.
Further, such defeasance shall not cause the trustee to have a conflict of
interest.
We will not be able to achieve covenant defeasance if there is a
continuing Default or Event of Default under the indenture or if doing so would
violate any other material agreements to which we are a party. The indenture
describes the covenants we may fail to comply with without causing an Event of
Default if we accomplish covenant defeasance. (Sections 12.3 and 12.4)
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If we elect to make a deposit resulting in covenant defeasance, the
amount of money and/or U.S. government or U.S. government agency securities
deposited in trust would be sufficient to pay amounts due on the notes at the
time of their maturity. However, if the maturity of the exchange notes is
accelerated due to the occurrence of an Event of Default, the amount in trust
may not be sufficient to pay all amounts due on the notes. We would remain
liable for the shortfall as described in the indenture.
SATISFACTION AND DISCHARGE OF THE INDENTURE
We will have no further obligations under the indenture as to all
outstanding exchange notes, other than surviving rights of registration of
transfers of the exchange notes, when:
o all exchange notes have been delivered to the trustee for
cancellation, except lost, stolen or destroyed exchange notes
that we have replaced or paid or exchange notes for which we
have deposited in trust money and/or U.S. government
obligations; or all exchange notes have become due and payable
or, within one year, will become due and payable or be
redeemed and we have deposited with the trustee funds
sufficient to pay interest, principal and any other payments
on all outstanding exchange notes on their various due dates;
o we have paid all other sums then due and payable under the
indenture by us; and
o we have delivered to the trustee an officers' certificate and
an opinion of counsel, which, taken together, state that we
have complied with all conditions precedent under the
indenture relating to the satisfaction and discharge of the
indenture. (Section 4.1)
AMENDMENT AND WAIVER
We generally may amend the indenture with the written consent of the
holders of at least a majority in aggregate principal amount of the outstanding
exchange notes. The holders of at least a majority in aggregate principal amount
also may waive our compliance with most covenants. (Section 10.20) We must,
however, obtain the consent of each holder of exchange notes affected by an
amendment or waiver which does any of the following.
o reduces the principal amount of exchange notes that must
consent to an amendment or waiver;
o reduces the principal of or changes the Stated Maturity of any
exchange note or alter the provisions with respect to the
redemption of the exchange notes, other than provisions
relating to the covenants described above under the caption
"--Repurchase at the Option of Holders";
o reduces the rate of or changes the time for payment of
interest on any exchange note;
o waives a Default or Event of Default in the payment of
principal of, premium, if any, on or interest on the exchange
notes, except a rescission of acceleration of the exchange
notes by the holders of at least a majority in aggregate
principal amount of the exchange notes and a waiver of the
payment default that resulted from such acceleration;
o makes any exchange note payable in money other than that
stated in the exchange notes;
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o makes any change in the provisions of the indenture relating
to waivers of past Defaults or the rights of holders of
exchange notes to receive payments of principal of, premium,
if any, on or interest on the exchange notes;
o waives a redemption payment with respect to any exchange note,
other than a payment required by one of the covenants
described above under the caption "--Repurchase at the Option
of Holders";
o reduces the relative ranking of the exchange notes or any
Subsidiary Guarantees; or
o makes any change in the foregoing amendment and waiver
provisions. (Section 9.2)
In addition, without the consent of any holder of exchange notes we and
the trustee may amend the indenture:
o to cure any ambiguity, defect or inconsistency;
o to add or release any Subsidiary Guarantor pursuant to the
terms of the indenture;
o to provide for uncertificated exchange notes in addition to or
in place of certificated exchange notes;
o to provide for the assumption of our obligations to holders of
exchange notes in the case of a merger or consolidation;
o to make any change that would provide any additional rights or
benefits to the holders of exchange notes;
o to add any additional Events of Default;
o to appoint a successor trustee;
o to secure the exchange notes; or
o to comply with requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust
Indenture Act. (Section 9.1)
We may not change the indenture in a manner that would adversely affect
the rights of the holders of Senior Indebtedness under the subordination
provisions described under "--Subordination" or the holders of Guarantor Senior
Indebtedness under the subordination provisions described under "--Subsidiary
Guarantees of Notes," unless we obtain the consent of such holders that are
required to consent to such change pursuant to the agreements evidencing such
Senior Indebtedness or Guarantor Senior Indebtedness. (Section 9.8)
CONCERNING THE TRUSTEE
State Street Bank and Trust Company will serve as trustee under the
indenture. State Street Bank and Trust Company currently serves as trustee under
the indentures for the existing notes, our 9-1/2% Senior Subordinated Notes due
2006 and our 8-7/8% Senior Subordinated Notes due 2008. Such bank also maintains
normal banking relationships with us and may perform services for and transact
other business with us from time to time in the ordinary course of business.
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The indenture and the provisions of the Trust Indenture Act
incorporated by reference into the indenture will contain limitations on the
rights of the trustee, should it become a creditor of ours, to obtain payment of
claims or to realize on certain property received by it in respect of any such
claims, as security or otherwise. The indenture will permit the trustee to
engage in other transactions. If the trustee acquires any conflicting interest
as defined in the Trust Indenture Act it must eliminate such conflict or resign.
(Sections 6.8 and 6.9)
GOVERNING LAW
The Indenture, the exchange notes and any Subsidiary Guarantees will be
governed by the laws of the State of New York. (Section 15.10)
BOOK-ENTRY, DELIVERY AND FORM
The existing notes were, and any exchange notes issued in exchange for
existing notes tendered pursuant to The Depository Trust Company's Automated
Tender Offer Program will be, issued in the form of one or more fully registered
global certificates. Each global certificate will be deposited with the trustee
who will hold the global certificate for The Depository Trust Company ("DTC").
Each global certificate will be registered in the name of DTC or its nominee.
Except as set forth below, a global certificate may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. (Section 3.6)
DTC has advised us as follows: It is a limited-purpose trust company
which was created to hold securities for its participating organizations and to
facilitate the clearance and settlement of transactions in such securities
between its participants through electronic book-entry changes in accounts of
its participants. Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by DTC only through
participants or indirect participants.
DTC has also advised that pursuant to procedures established by it:
o upon our issuance of the exchange notes, DTC will credit the
accounts of participants designated by the exchange agent with the
principal amount of the exchange notes exchanged for existing
notes, and
o ownership of beneficial interests in any global certificate will
be shown on, and the transfer of that ownership will be effected
only through, records maintained by DTC, with respect to
participants' interests, the participants and the indirect
participants.
The laws of some states require that certain persons take physical
delivery in definitive form of securities which they own. Consequently, the
ability to transfer beneficial interests in a global certificate is limited to
such extent.
So long as DTC or its nominee is the registered owner of a global
certificate, DTC or such nominee will be considered the sole owner or holder of
the exchange notes for all purposes under the indenture. Except as provided
below, owners of beneficial interests in a global certificate will not be
entitled to have exchange notes registered in their names, will not receive or
be entitled to receive
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physical delivery of exchange notes in definitive form and will not be
considered the owners or holders thereof under the indenture. (Section 3.6)
Neither us, the trustee, the paying agent nor the registrar of the
exchange notes will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a global certificate, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
Principal and interest payments on a global certificate registered in
the name of DTC or its nominee will be made by us, either directly or through a
paying agent, to DTC or its nominee as the registered owner of such global
certificate. Under the terms of the indenture, we and the trustee will treat the
persons in whose names the exchange notes are registered as the owners of those
notes for the purpose of receiving payments of principal and interest on those
notes and for all other purposes whatsoever, (Section 3.8) Therefore, neither
us, the trustee nor any paying agent has any direct responsibility or liability
for the payment of principal or interest on the exchange notes to owners of
beneficial interests in a global certificate. DTC has advised us and the trustee
that its present practice is, upon receipt of any payment of principal or
interest to credit immediately the accounts of the participants with payment in
amounts proportionate to their respective holdings in principal amount of
beneficial interests in a global certificate as shown on the records of DTC.
Payments by participants and indirect participants to owners of beneficial
interests in a global certificate will be governed by standing instructions and
customary practices, as is now the cast with securities held for the accounts of
customers in bearer form or registered in "street name" and will be the
responsibility of such participants or indirect participants.
As long as the exchange notes are represented by a global certificate,
DTC's nominee will be the holder of the exchange notes and therefore will be the
only entity that can exercise a right to repayment or repurchase of the exchange
notes. See "--Repurchase at the Option of Holders--Change of Control" and
"--Asset Sales." Notice by participants or indirect participants or by owners of
beneficial interests in a global certificate held through such participants or
indirect participants of the exercise of the option to elect repayment of
beneficial interests in exchange notes represented by a global certificate must
be transmitted to DTC in accordance with its procedures on a form required by
DTC and provided to participants. In order to ensure that DTC's nominee will
timely exercise a right to repayment with respect to a particular exchange note,
the beneficial owner of such exchange note must instruct the broker or other
participant or indirect participant through which it holds an interest in such
exchange note to notify DTC of its desire to exercise a right to repayment.
Different firms have different cut-off times for accepting instructions from
their customers and, accordingly, each beneficial owner should consult the
broker or other participant or indirect participant through which it holds an
interest in a exchange note in order to ascertain the cutoff time by which such
an instruction must be given in order for timely notice to be delivered to DTC.
We will not be liable -for any delay in delivery of notices of the
exercise of the option to elect repayment.
CERTIFICATED NOTES
We will issue exchange notes in definitive form in exchange for a
global certificate if, and only if, either:
o DTC is at any time unwilling or unable to continue as depositary
and a successor depositary is not appointed by us within 90 days;
or
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o an Event of Default has occurred and is continuing and the
exchange notes registrar has received a request from DTC to issue
exchange notes in definitive form in lieu of all or a portion of
such global certificate.
In either instance, an owner of a beneficial interest in a global certificate
will be entitled to have exchange notes equal in principal amount to such
beneficial interest registered in its name and will be entitled to physical
delivery of such exchange notes in definitive form. Exchange notes so issued in
definitive form will be issued in denomination of $10 and integral multiples
thereof and will be issued in registered form only, without coupons. (Section
3.6)
MATERIAL DEFINITIONS
Set forth below are definitions of some of the terms used in the
indenture which we believe are material to an understanding of the indenture.
"Acquired Indebtedness" means Indebtedness of a Person:
o assumed in connection with an acquisition of properties or assets
from such Person; or
o outstanding at the time such Person becomes a Subsidiary of any
other Person.
Acquired Indebtedness does not include Indebtedness incurred in
connection with, or in contemplation of, such acquisition or such Person
becoming a Subsidiary. Acquired Indebtedness shall be deemed to be incurred on
the date of the related acquisition of properties or assets from any Person or
the date the acquired Person becomes a Subsidiary.
"Adjusted Consolidated Net Tangible Assets" means, without duplication,
as of the date of determination, the sum of:
o Discounted future net cash flows from our and our Restricted
Subsidiaries' proved oil and gas reserves calculated in
accordance with SEC guidelines but before any state or federal
income taxes, as estimated by a nationally recognized firm of
independent petroleum engineers in a reserve report prepared as
of the end of our most recently completed fiscal year. Discounted
future net cash flows will be increased pursuant to clauses (1)
and (2) below and decreased pursuant to clauses (3) and (4)
below, as of the date of determination, by the estimated
discounted future net cash flows, calculated in accordance with
SEC guidelines but before any state or federal income taxes and
utilizing the prices utilized in such year-end reserve report,
from:
(1) estimated proved oil and gas reserves acquired since the
date of such year-end reserve report;
(2) estimated oil and gas reserves attributable to extensions,
discoveries and other additions and upward revisions of
estimates of proved oil and gas reserves since the date of
such year-end reserve report due to exploration,
development, exploitation, production or other activities;
(3) estimated proved oil and gas reserves produced or disposed
of since the date of such year-end reserve report; and
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(4) estimated oil and gas reserves attributable to downward
revisions of estimates of proved oil and gas reserves
since the date of such year-end reserve report due to
exploration, development, exploitation, production or
other activities.
In the case of each of the determinations made pursuant to clauses (1) through
(4) above, such increases and decreases shall be as estimated by our petroleum
engineers, except that in the event there is a Material Change as a result of
such acquisitions, dispositions, or revisions, then the discounted future net
cash flows utilized for purposes of this clause shall be confirmed in writing by
a nationally recognized firm of independent petroleum engineers.
o The capitalized costs that are attributable to our and our
Restricted Subsidiaries' oil and gas properties to which no proved
oil and gas reserves are attributable, based on our books and
records as of a date no earlier than the date of our latest annual
or quarterly financial statements.
o The Net Working Capital on a date no earlier than the date of our
latest annual or quarterly financial statements.
o The greater of:
(1) the net book value on a date no earlier than the date of
our latest annual or quarterly financial statements, or
(2) the appraised value, as estimated by independent
appraisers, of our or our Restricted Subsidiaries' other
tangible assets, including, without duplication,
Investments in unconsolidated Restricted Subsidiaries, as
of the date no earlier than the date of our latest audited
financial statements.
Minus the sum of:
o Minority interests, other than a minority interest in a Finance
Person.
o Any of our or our Restricted Subsidiaries' net gas balancing
liabilities reflected in our latest audited financial statements.
o To the extent included in the first clause of this definition, the
discounted future net cash flows, calculated in accordance with
SEC guidelines but before any state or federal income taxes and
utilizing the prices utilized in the Company's year-end reserve
report, attributable to reserves which are required to be
delivered to third parties to fully satisfy our and our Restricted
Subsidiaries' obligations with respect to Volumetric Production
Payments on the schedules specified with respect thereto.
o The discounted future net cash flows, calculated in accordance
with SEC guidelines but before any state or federal income taxes,
attributable to reserves subject to Dollar-Denominated Production
Payments which, based on the estimates of production and price
assumptions included in determining the discounted future not
revenues specified in the first clause of this definition, would
be necessary to fully satisfy our and our Restricted Subsidiaries'
payment obligations with respect to Dollar-Denominated Production
Payments on the schedules specified with respect thereto.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date means the
amount by which the fair value of the properties and assets of such Subsidiary
Guarantor exceeds the total amount of
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liabilities, including, without limitation, contingent liabilities, after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date, but excluding liabilities under its Subsidiary Guarantee, of such
Subsidiary Guarantor at such date.
"Affiliate" of any specified Person means:
o any other Person directly or indirectly controlling or controlled
by or under direct or indirect common control with such specified
Person; or
o any other Person who is a director or executive officer of:
(1) such specified Person; or
(2) any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control
with such specified Person.
For the purposes of this definition, "control", as used with respect to
any Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition to any Person other than us or any of our Restricted
Subsidiaries, including, without limitation, by way of merger or consolidation,
(collectively, for purposes or this definition, a "transfer"), directly or
indirectly, in one or a series of related transactions, of:
o any Capital Stock of any Restricted Subsidiary held by us or any
Restricted Subsidiary, other than directors' qualifying shares and
shares owned by foreign shareholders to the extent required by
applicable local laws in the foreign countries;
o all or substantially all of our or any of our Restricted
Subsidiaries' properties and assets; or
o any other of our or any of our Restricted Subsidiaries' properties
or assets other than:
(1) a disposition of hydrocarbons or other mineral products,
inventory, accounts receivable, cash, Cash Equivalents or
other property in the ordinary course of business;
(2) any lease, abandonment, disposition, relinquishment or
farm-out of any oil and gas property in the ordinary
course of business;
(3) the liquidation of property or assets received in
settlement of debts owing to us or any Restricted
Subsidiary as a result of foreclosure, perfection or
enforcement of any Lien or debt, which debts were owing to
us or any Restricted Subsidiary in the ordinary course of
our or such Restricted Subsidiary's business; or
(4) the issuance and sale of Qualified Capital Stock by a
Finance Person.
For the purposes of this definition, the term "Asset Sale" shall not
include:
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o any transfer of properties or assets that is governed by, and made
in accordance with, the provisions described under "--Material
Covenants--Merger, Consolidation or Sale of Assets";
o any transfer of properties or assets to an Unrestricted
Subsidiary, if permitted under the "Restricted Payments" covenant
of the indenture; or
o any transfer, in one or a series of related transactions, of
properties or assets having a fair market value of less than
$2,500,000.
"Average Life" means, with respect to any Indebtedness, as at any date
of determination, the quotient obtained by dividing:
o The sum of the products of:
(1) the number of years, and any portion thereof, from the
date of determination to the date or dates of each
successive scheduled principal payment, including, without
limitation, any sinking fund or mandatory redemption
payment requirements, of such Indebtedness, multiplied by
(2) the amount of each such principal payment; by
o the sum of all such principal payments.
"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, and 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. Our Capital Stock includes any Qualifying TECONS and any Eligible
Convertible Securities.
"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, and, for the purpose of
the indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
o any evidence of Indebtedness with a maturity of 180 days or less
issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof,
provided that the full faith and credit of the United States of
America is pledged in support thereof;
o demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less
than $500,000,000;
o commercial paper with a maturity of 180 days or less issued by a
corporation that is not an Affiliate of us and is organized under
the laws of any state of the United States or the District or
Columbia and rated at least A-1 by S&P or at least P-1 by Moody's;
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o repurchase obligations with a term of not more than seven days for
underlying securities of the types described in the first clause
above entered into with any commercial bank meeting the
specifications of the second clause above;
o overnight bank deposits and bankers' acceptances at any commercial
bank meeting the qualifications specified in the second clause
above;
o deposits available for withdrawal on demand with any commercial
bank not meeting the qualifications specified in the second clause
above but which is organized under the laws of any country in
which we or any Restricted Subsidiary maintains an office or is
engaged in the Oil and Gas Business, provided that:
(1) all such deposits am required to be made in such accounts
in the ordinary course of business,
(2) such deposits do not at any one time exceed $5,000,000 in
the aggregate, and
(3) no funds so deposited remain on deposit in such bank for
more than 30 days;
o deposits available for withdrawal on demand with any commercial
bank not meeting the qualifications specified in the second clause
above but which is a lending bank under any of our or any
Restricted Subsidiary's credit facilities, provided all such
deposits do not exceed $5,000,000 in the aggregate at any one
time; and
o investments in money market funds substantially all of whose
assets comprise securities of the types described in any of the
first five clauses above.
"Change of Control" means the occurrence of any of the following
events:
o any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of more than 50% of our total Voting Stock;
o we are merged with or into or consolidated with another Person
and, immediately after giving effect to the merger or
consolidation:
(1) less than 50% of the total voting power of the outstanding
Voting Stock of the surviving or resulting Person is then
"beneficially owned" (within the meaning of Rule 13d-3
under the Exchange Act) in the aggregate by our
stockholders immediately prior to such merger or
consolidation, and
(2) any "person" or "group" (as defined in Section 13(d)(3)
or 14(d)(2) of the Exchange Act) has become the direct or
indirect "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 50% of the total
voting power of the Voting Stock of the surviving or
resulting Person;
o we, either individually or in conjunction with one or more
Restricted Subsidiaries, sell, assign, convey, transfer, lease or
otherwise dispose of, or the Restricted Subsidiaries sell, assign,
convey, transfer, lease or otherwise dispose of, all or
substantially all of our and the Restricted Subsidiaries'
properties and assets, taken as a whole, either in one transaction
or a series of related transactions, including Capital Stock of
the Restricted Subsidiaries, to any Person other than us or a
Wholly Owned Restricted Subsidiary,
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o during any consecutive two-year period, individuals who at the
beginning of such period constituted our board of directors,
together with any new directors whose election by such board of
directors or whose nomination for election by our stockholders was
approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period
or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of our
board of directors then in office; or
o our liquidation or dissolution; or
o so long as any Existing Notes are outstanding, any other event
constituting a Change of Control pursuant to the Indentures for
the Existing Notes.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Exploration Expenses" means, for any period, our and our
Restricted Subsidiaries' exploration expenses for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the
ratio of:
o the sum of our and our Restricted Subsidiaries' Consolidated Net
Income, Consolidated Interest Expense, the portion of Consolidated
Exploration Expenses deducted in computing Consolidated Net
Income, Consolidated Income Tax Expense and Consolidated Non-cash
Charges deducted in computing Consolidated Net Income, in each
case, for such period, on a consolidated basis, all determined in
accordance with GAAP, decreased, to the extent included in
determining Consolidated Net Income, by the sum of:
(1) the amount of deferred revenues that are amortized during
such period and are attributable to reserves that are
subject to Volumetric Production Payments, and
(2) amounts recorded in accordance with GAAP as repayments of
principal and interest pursuant to Dollar-Denominated
Production Payments; to
o the sum of such Consolidated Interest Expense for such period.
Provided, however, that
o the Consolidated Fixed Charge Coverage Ratio shall be calculated on
the assumption that:
(1) the Indebtedness to be incurred and all other Indebtedness
incurred after the first day of the relevant period of
fiscal quarters under the covenant described under
"--Material Covenants--Incurrence of Indebtedness" through
and including the date of determination and, if
applicable, the application of the net proceeds therefrom,
and from any other such Indebtedness, including to
refinance other Indebtedness, had been incurred on the
first day of, such period and, in the case of Acquired
Indebtedness, on the assumption that the related
transaction, whether by means of purchase merger or
otherwise, also had
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occurred on such date with the appropriate adjustments
with respect to such acquisition being included in such
pro forma calculation, and
(2) any acquisition or disposition by us or any Restricted
Subsidiary of any properties or assets outside the
ordinary course of business, or any repayment of any
principal amount of any of our or any Restricted
Subsidiary's Indebtedness prior to the Stated Maturity
thereof, in either case since the first day of such period
through and including the date of determination, had been
consummated on such first day of such period;
o in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness required to be
computed on a pro forma basis in accordance with the covenant
described under "--Material Covenants--Incurrence of Indebtedness"
and:
(1) bearing a floating interest rate shall be computed as if
the rate in effect on the date of computation had been the
applicable rate for the entire period, and
(2) which was not outstanding during the period for which the
computation is being made but which bears, at our option,
a fixed or floating rate of interest, shall be computed by
applying, at our option, either the fixed or floating
rate;
o in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness under a revolving
credit facility required to be computed on a pro forma basis in
accordance with the covenant described under "--Material
Covenants--Incurrence of Indebtedness" shall be computed based
upon the average daily balance of such Indebtedness during the
applicable period, provided that such average daily balance shall
be reduced by the amount of any repayment of Indebtedness under a
revolving credit facility during the applicable period, which
repayment permanently reduced the commitments or amounts available
to be reborrowed under such facility,
o notwithstanding the second and third clauses of this proviso,
interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest
Rate Protection Obligations, shall be deemed to have accrued at
the rate per annum resulting after giving effect to the operation
of such agreements;
o in making such calculation, Consolidated Interest Expense shall
exclude interest attributable to Dollar-Denominated Production
Payments; and
o if after the first day of the period referred to in the first
clause of this definition, we have retired any Indebtedness out of
the net cash proceeds of the issue and sale of our Qualified
Capital Stock within 30 days of such issuance and sale,
Consolidated Interest Expense shall be calculated on a pro forma
basis as if such Indebtedness had been retired on the first day of
such period.
For the purpose of the covenant described under "--Material
Covenants--Incurrence of Indebtedness," if we incur Indebtedness, including
Acquired Indebtedness but excluding Permitted Indebtedness:
o on any date which is on or before March 31, 2000, we will
determine our Consolidated Fixed Charge Coverage Ratio for the
full fiscal quarter or quarters, as the case may be, commencing on
April 1, 1999 and ending on or prior to such date; and
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o on any date which is after March 31, 2000, we will determine our
Consolidated Fixed Charge Coverage Ratio for the four full fiscal
quarters immediately preceding such date.
"Consolidated Income Tax Expense" means, for any period, the provision
for our and our Restricted Subsidiaries' federal, state, local and foreign
income taxes, including any state franchise taxes accounted for as income taxes
in accordance with GAAP, for such period as determined on a consolidated basis
in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without
duplication, the sum of:
o our and our Restricted Subsidiaries' interest expense for such
period as determined on a consolidated basis in accordance with
GAAP, including, without limitation, to the extent attributable to
such period:
(1) any amortization of debt discount,
(2) the net cost under Interest Rate Protection Obligations,
including any amortization of discounts,
(3) the interest portion of any deferred payment obligation
constituting Indebtedness,
(4) all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance
financing, and
(5) all accrued interest;
o to the extent any Indebtedness of any Person other than us or a
Restricted Subsidiary is guaranteed by us or any Restricted
Subsidiary, the aggregate amount of interest paid, to the extent
not accrued in a prior period, or accrued by such other Person
during such period attributable to any such Indebtedness, in each
case to the extent attributable to that period;
o the aggregate amount of the interest component of Capitalized
Lease Obligations paid, to the extent not accrued in a prior
period, accrued and/or scheduled to be paid or accrued by us and
our Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP; and
o the aggregate amount of dividends paid, to the extent not accrued
in a prior period, or accrued on our and our Restricted
Subsidiaries' Redeemable Capital Stock, to the extent such
Redeemable Capital Stock is owned by Persons other than us or our
Restricted Subsidiaries, and to the extent such dividends are not
paid in Common Stock.
The following shall not be included in the calculation of Consolidated
Interest Expense:
o Amortization of our and our Restricted Subsidiaries' capitalized
debt issuance costs during such period;
o fees and expenses associated with the exchange offer;
o dividends on Qualifying TECONS; and
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o non-cash interest on Eligible Convertible Securities.
"Consolidated Net Income" means, for any period, our and our Restricted
Subsidiaries' consolidated net income (or loss) for such period as determined in
accordance with GAAP, adjusted by excluding:
o net after-tax extraordinary gains or losses, less all fees and
expenses relating thereto;
o net after-tax gains or losses, less all fees and expenses relating
thereto, attributable to Asset Sales;
o the net income (or net loss) of any Person, other than us or any
of our Restricted Subsidiaries, in which we or any of our
Restricted Subsidiaries has an ownership interest, except to the
extent of the amount of dividends or other distributions or
interest on indebtedness actually paid to us or any of our
Restricted Subsidiaries in cash by such other Person during such
period, regardless of whether such cash dividends, distributions
or interest on indebtedness is attributable to net income (or net
loss) of such Person during such period or during any prior
period;
o net income (or net loss) of any Person combined with us of any of
our Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination;
o the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by
that Restricted Subsidiary is not at the date of determination
permitted, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
o fees and expenses associated with the exchange offer, to the
extent deducted in determining consolidated net income (or loss);
o dividends paid on Qualifying TECONS;
o non-cash interest on Eligible Convertible Securities, to the
extent deducted in determining consolidated net income (or loss);
o Consolidated Exploration Expenses and any writedowns or
impairments of noncurrent assets less an amount equal to the
amortization on a quarterly basis of the cumulative Consolidated
Exploration Expenses and writedowns or impairments of non-current
assets, calculated as two and one-half percent of the cumulative
net balance of such costs; and
o for purposes of calculating the Consolidated Fixed Charge Coverage
Ratio with respect to periods ending on or prior to March 31,
2000, net gains or losses on oil and natural gas price hedging
arrangements during such periods.
"Consolidated Net Worth" means, at any date, our and our Restricted
Subsidiaries' consolidated stockholders' equity less the amount of such
stockholders' equity attributable to our and our Restricted Subsidiaries'
Redeemable Capital Stock or treasury stock, as determined in accordance with
GAAP.
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"Consolidated Non-Cash Charges" means, for any period, our and our
Restricted Subsidiaries' aggregate depreciation, depletion, amortization and
other non-cash expenses reducing Consolidated Net Income for such period,
determined on a consolidated basis in accordance with GAAP, excluding any such
non-cash charge to the extent required as an accrual of or reserve for cash
charges for any future period.
"Credit Facility" means that certain Second Restated Credit Agreement
among us, certain of our Subsidiaries, Bank of America, N.A., as Administrative
Agent, Morgan Guaranty Trust Company of New York, as Documentation Agent, and
certain lenders named therein, as the same may be amended, modified,
supplemented, extended, restated, replaced, renewed or refinanced from time to
time.
"Default" means any event that is or with the passage or time or the
giving of notice or both would be an Event of Default.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which our board of directors is required to
deliver a resolution of the board of directors under the indenture, a member of
our board of directors who does not have any material direct or indirect
financial interest other than an interest arising solely from the beneficial
ownership of our Capital Stock in or with respect to such transaction or series
of transactions.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Eligible Convertible Securities" means any security issued by us that:
o is subordinated in right of payment to the exchange notes,
o has a final Stated Maturity at least 91 days after the final
Stated Maturity of the exchange notes, and
o by its terms or by the terms of any security into which it is
convertible or by contract or otherwise requires no scheduled
payments, including principal, premium, interest and fees, prior
to its final Stated Maturity, other than payments payable only in
shares of our Common Stock or in options, warrants or other rights
to purchase our Common Stock.
"Equity Offering" means a bona fide underwritten sale to the public of
our Common Stock pursuant to a registration statement, other than on Form S-8 or
any other form relating to securities issuable under any employee benefit plan
of ours, that is declared effective by the SEC following the Issue Date.
"Event of Default" has the meaning set forth above under the caption
"--Events of Default and Remedies."
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor act thereto.
"Exchanged Properties" means properties or assets used or useful in the
Oil and Gas Business received by us or a Restricted Subsidiary, whether directly
or indirectly through the acquisition of the Capital Stock of a Person holding
such assets so that such Person becomes our
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Wholly Owned Restricted Subsidiary, in trade or as a portion of the total
consideration for such other properties or assets.
"Existing TECONS" means our Obligated Mandatorily Redeemable
Convertible Preferred Securities issued by Nuevo Financing I, a statutory
business trust wholly owned by us, on December 23, 1996, in an aggregate
liquidation amount of $115.0 million.
"Finance Person" means a Subsidiary of ours, the Common Stock of which
is owned by us, that does not engage In any activity other than:
o the holding of Subordinated Indebtedness with respect to which
payments of interest on such Subordinated Indebtedness can, at the
election of the issuer thereof, be deferred for one or more
payment periods;
o the issuance of Qualifying TECONS and Common Stock and/or debt
securities; and
o any activity necessary, incidental or related to the foregoing
"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 were
effective as of June 8, 1998.
The term "guarantee" means, as applied to any obligation:
o a guarantee, other than by endorsement of negotiable instruments
or documents for collection in the ordinary course of business,
direct or indirect, in any manner, of any part or all of such
obligation; and
o an agreement, direct or indirect, contingent or otherwise, the
practical effect of which is to assure in any way the payment or
performance, or payment of damages in the event of
non-performance, of all or any part of such obligation, including,
without limiting the foregoing, the payment of amounts drawn down
by letters of credit;
A guarantee by any Person shall not include a contractual commitment by
one Person to invest in another Person provided that such Investment is
otherwise permitted by the indenture. When used as a verb, "guarantee" shall
have a corresponding meaning.
"Guarantor Senior Indebtedness" means the principal of, premium, if
any, on, interest on, including interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law, and other amounts due
on or in connection with, including any fees, premiums, expenses, including
costs of collection, and indemnities, any Indebtedness of a Subsidiary
Guarantor, whether outstanding on the date of the indenture or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness will be
pari passu with or subordinated in right of payment to its Subsidiary Guarantee.
Notwithstanding the foregoing, Guarantor Senior Indebtedness of a Subsidiary
Guarantor will not include:
o Indebtedness of such Subsidiary Guarantor evidenced by its
Subsidiary Guarantee;
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o Indebtedness of such Subsidiary Guarantor that is expressly pari
passu with its Subsidiary Guarantee or is expressly subordinated
in right of payment to any Guarantor Senior Indebtedness of such
Subsidiary Guarantor or its Subsidiary Guarantee;
o Indebtedness of such Subsidiary Guarantor to the extent incurred
in violation of the "Incurrence of Indebtedness" covenant of the
indenture;
o Indebtedness of such Subsidiary Guarantor to us or any of our
other Subsidiaries or to any Affiliate of us or any Subsidiary of
such Affiliate; and
o any Indebtedness which when incurred and without regard to any
election under Section 1111(b) of the Federal Bankruptcy Code is
without recourse to such Subsidiary Guarantor.
"Holder" means a Person in whose name an exchange note is registered in
the Note Register.
"Indebtedness" means, with respect to any Person, without duplication:
o 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, if, and to
the extent, any of the foregoing would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP;
o all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, if, and to the extent,
any of the foregoing would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP;
o 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;
o all Capitalized Lease Obligations of such Person;
o 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);
o all guarantees by such Person of Indebtedness referred to in this
definition, including, with respect to any Production Payment, any
warranties or guaranties of production or payment by such Person
with respect to such Production Payment but excluding other
contractual obligations of such Person with respect to such
Production Payment;
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o all Redeemable Capital Stock of such Person valued at the greater
of its voluntary or involuntary maximum fixed repurchase price
plus accrued dividends; and
o 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.
Indebtedness shall not include either Eligible Convertible Securities
or Qualifying TECONS and Indebtedness, including guarantees thereof, relating to
Qualifying TECONS and held by a Finance Person; provided, however, Indebtedness
shall include Existing TECONS and, for purposes of the seventh clause under
"--Events of Default and Remedies" only, debt securities issued in connection
with Eligible Convertible Securities and debt securities issued in connection
with Qualifying TECONS shall be deemed to be Indebtedness. Subject to the sixth
clause of the first sentence of this definition, neither Dollar-Denominated
Production Payments nor Volumetric Production Payments shall be deemed to be
Indebtedness.
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.
"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.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or capital
contribution by means of any transfer of cash or other property or assets to
others or any payment for property, assets or services for the account or use of
others, or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities, including derivatives, or
evidences of Indebtedness issued by, any other Person. In addition, the fair
market value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by us in such Unrestricted Subsidiary at such
time, and the designation of any Unrestricted Subsidiary as a Restricted
Subsidiary shall result in a return of an "Investment" in an amount not to
exceed the lesser of (x) the book value of the Investments previously made in
such Unrestricted Subsidiary that were treated as Restricted Payments, and (y)
the fair market value of such Unrestricted Subsidiary. "Investments" shall
exclude:
o extensions of trade credit under a joint operating agreement or
otherwise in the ordinary course of business, workers'
compensation, utility, lease and similar deposits and prepaid
expenses made in the ordinary course of business;
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o Interest Rate Protection Obligations entered into in the ordinary
course of business or as required by any Permitted Indebtedness or
any other Indebtedness incurred in compliance with the "Incurrence
of Indebtedness" covenant, but only to the extent that the stated
aggregate notional amounts of such Interest Rate Protection
Obligations do not exceed 105% of the aggregate principal amount
of such Indebtedness to which such Interest Rate Protection
Obligations relate;
o bonds, notes, debentures or other securities received in
compliance with the "Asset Sales" covenant; and
o endorsements of negotiable instruments and documents for
collection in the ordinary course of business.
"Issue Date" means the date on which the exchange notes were first
issued under the indenture.
"Lien" means any mortgage, charge, pledge, statutory or other, lien,
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance or similar agreement or preferential
arrangement of any kind or nature whatsoever, including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing, upon or with respect to any property of any kind. A Person shall be
deemed to own subject to a Lien any property which such Person has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"Liquid Securities" means securities:
o of an issuer that is not an Affiliate of us; and
o that are publicly traded on the New York Stock Exchange, the
American Stock Exchange, the Toronto Stock Exchange, the
Australian Stock Exchange, the London Stock Exchange or the NASDAQ
National Market.
Securities meeting the requirements of the two preceding clauses shall
be treated as Liquid Securities from the date of receipt thereof until and only
until the earlier of:
o the date on which such securities, or securities exchangeable for,
or convertible into, such securities, are sold or exchanged for
cash or Cash Equivalents; and
o 180 days following the date of receipt of such securities.
If such securities, or securities exchangeable for, or convertible
into, such securities, are not sold or exchanged for cash or Cash Equivalents
within 180 days of receipt thereof, for purposes of determining whether the
transaction pursuant to which we or a Restricted Subsidiary received the
securities was in compliance with the provisions of the indenture described
under "--Repurchase at the Option or Holders--Asset Sales," such securities
shall be deemed not to have been Liquid Securities until 181 days following the
date of receipt of such securities.
"Material Change" means an increase or decrease, excluding changes that
result solely from changes in prices, of more than 30% during a fiscal quarter
in the estimated discounted future net cash flows from our and our Restricted
Subsidiaries' proved oil and gas reserves, calculated in accordance with the
first clause of the definition of Adjusted Consolidated Net Tangible Assets;
provided, however, that the following will be excluded from the calculation of
Material Change:
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o any acquisitions during the quarter of oil and gas reserves that
have been estimated by a nationally recognized firm of independent
petroleum engineers and on which a report or reports exist; and
o any disposition of properties held at the beginning of such
quarter that have been disposed of as provided in the covenant
described under the caption "--Repurchase at the Option of
Holders--Asset Sales."
"Material Subsidiary" means, at any particular time, as shown on our
and our Restricted Subsidiaries' consolidated financial statements for our most
recently completed fiscal year, any Restricted Subsidiary that, together with
its Subsidiaries:
o accounted for more than 5% of our and our Restricted Subsidiaries'
consolidated revenues for such fiscal year; or
o was the owner of more than 5% of our and our Restricted
Subsidiaries' consolidated assets at the end of such fiscal year.
"Maturity" means, with respect to any new note, the date on which any
principal of such exchange note becomes due and payable as provided therein or
in the indenture, whether at the Stated Maturity with respect to such principal
or by declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form or cash or Cash Equivalents, including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents except to the extent that such obligations are financed or sold with
recourse to us or any Restricted Subsidiary, net of:
o brokerage commissions and other fees and expenses, including fees
and expenses of legal counsel and investment banks related to such
Asset Sale,
o provisions for all taxes payable as a result of such Asset Sale;
o amounts required to be paid to any Person other than us or any
Restricted Subsidiary owning a beneficial interest in the assets
subject to the Asset Sale; and
o appropriate amounts to be provided by us or any Restricted
Subsidiary, as the case may be, as a reserve required in
accordance with GAAP consistently applied against any liabilities
associated with such Asset Sale and retained by us or any
Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters
and liabilities under any indemnification obligations associated
with such Asset Sale, all as reflected in an Officers' Certificate
delivered to the trustee; provided, however, that any amounts
remaining after adjustments, revaluations or liquidations of such
reserves shall constitute Net Cash Proceeds.
"Net Working Capital" means, as set forth in our consolidated financial
statements prepared in accordance with GAAP:
o all of our and our Restricted Subsidiaries' current assets, less
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o all of our and our Restricted Subsidiaries' current liabilities,
except current liabilities included in Indebtedness.
"Non-payment Event of Default" means any event, other than a Payment
Event of Default, the occurrence of which, with or without notice or the passage
of time, entities one or more Persons to accelerate the maturity of any
Specified Senior Indebtedness.
"Non-Recourse Purchase Money Indebtedness" means:
o our and any Restricted Subsidiary's Indebtedness, other than
Capital Lease Obligations, incurred in connection with the
acquisition by us or such Restricted Subsidiary in the ordinary
course of business of fixed assets used in the Oil and Gas
Business, including office buildings and other real property used
by us or such Restricted Subsidiary in conducting our or its
operations; and
o any renewals and refinancings of such Indebtedness.
For Indebtedness described in the two preceding clauses to qualify as
Non-Recourse Purchase Money Indebtedness, the holders of such Indebtedness must
agree that they will look solely to the fixed assets so acquired which secure
such Indebtedness, subject to customary exceptions such as indemnifications for
environmental, title, fraud and other matters, and neither we nor any Restricted
Subsidiary may;
(1) be directly or indirectly liable for such Indebtedness; or
(2) provide credit support, including any undertaking, guarantee,
agreement or instrument that would constitute Indebtedness,
other than the grant of a Lien on such acquired fixed assets.
"Note Register" means the register maintained by or for us in which we
shall provide for the registration of the exchange notes and of transfer of the
notes.
"Oil and Gas Business" means:
o the acquisition, exploration, development, operation and
disposition of interests in oil, gas and other hydrocarbon
properties;
o the gathering, marketing, treating, processing, storage, selling
and transporting of any production from such interests or
properties;
o any business relating to or arising from exploration for or
development, production, treatment, processing, storage,
transportation or marketing of oil, gas and other minerals and
products produced in association therewith;
o any power generation and electrical transmission business in a
jurisdiction outside of North America where fuel required by such
business is supplied, directly or indirectly, from production
reserves substantially from blocks in which we or our Restricted
Subsidiaries participate; and
o any activity necessary, appropriate or incidental to the
activities described in the foregoing clauses of this definition.
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"OPIC Facility" means that certain Finance Agreement dated December 28,
1994, among The Nuevo Congo Company, The Congo Holding Company, and the Overseas
Private Investment Corporation, as such agreement may be amended, modified,
supplemented, extended, restated, replaced, renewed or refinanced from time to
time in one or more credit agreements, loan agreements, instruments or similar
agreements, as such may be further amended, modified, extended, restated,
replaced, renewed or refinanced.
"Pari Passu Indebtedness" means any of our Indebtedness that is pari
passu in right of payment to the exchange notes, including, without limitation,
the existing notes, our 8 7/8% Senior Subordinate Notes due 2008, Series B and
our 9 1/2% Senior Subordinate Notes due 2006.
"Payment Event of Default" means any default in the payment or required
prepayment of principal of, premium, if any, on or interest on any Specified
Senior Indebtedness when due, whether at final maturity, upon scheduled
installment, upon acceleration or otherwise.
"Permitted Indebtedness" means any of the following:
o Indebtedness under the Credit Facility in an aggregate principal
amount at any one time outstanding not to exceed the greater of:
(1) $400,000,000, less any amounts of principal of such
Indebtedness repaid using the Net Cash Proceeds of an
Asset Sale pursuant to the covenant described under
"--Repurchase at the Option of Holders--Asset Sales" and
any amounts of principal of such Indebtedness refinanced
pursuant to the tenth clause of this definition; or
(2) the borrowing base thereunder,
provided, both subclauses (1) and (2) shall include any guarantee of
any such Indebtedness and any fees, premiums, expenses, including costs
of collection, indemnities and other amounts payable in connection with
such Indebtedness;
o Indebtedness under the existing notes issued in the exchange offer
and any Subsidiary Guarantees relating thereto or to any exchange
notes;
o Indebtedness outstanding on June 8, 1998, including, without
limitation, the existing notes, our 8 7/8% Senior Subordinate
Notes due 2008, Series B and our 9 1/2% Senior Subordinate Notes
due 2006, and additional Indebtedness permitted to be incurred
pursuant to commitments existing under the OPIC Facility on June
8, 1998;
o our and our Restricted Subsidiaries' obligations pursuant to
Interest Rate Protection Obligations, but only to the extent that
the stated aggregate notional amounts of such obligations do not
exceed 105% of the aggregate principal amount of the Indebtedness
covered by such Interest Rate Protection Obligations; obligations
under currency exchange contracts entered into in the ordinary
course of business and hedging arrangements that we or a
Restricted Subsidiary enter into in the ordinary course of
business for the purpose of protecting our or its production
against fluctuations in oil or natural gas prices;
o our Indebtedness to a Wholly Owned Restricted Subsidiary or a
Finance Person and Indebtedness of a Restricted Subsidiary to us
or a Wholly Owned Restricted Subsidiary or a Finance Person;
provided, however, that upon any subsequent issuance or transfer
of
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any Capital Stock or any other event which results in any such
Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned
Restricted Subsidiary or such Finance Person ceasing to be a
Finance Person, as the case may be, any other subsequent transfer
of any such Indebtedness except to us or a Wholly Owned Restricted
Subsidiary or Finance Person, such Indebtedness shall be deemed,
in each case, to be incurred and shall be treated as an incurrence
for purposes of the "Incurrence of Indebtedness" covenant at the
time the Wholly Owned Restricted Subsidiary or Finance Person in
question ceased to be a Wholly Owned Restricted Subsidiary or
Finance Person, as the case may be;
o in-kind obligations relating to net gas balancing positions
arising in the ordinary course of business and consistent with
past practice;
o Indebtedness in respect of bid, performance or surety bonds issued
for our or any Restricted Subsidiary's account in the ordinary
course of business, including guaranties and letters of credit
supporting such bid, performance or surety obligations, in each
case other than for an obligation for money borrowed;
o any guarantee of Senior Indebtedness or Guarantor Senior
Indebtedness, incurred in compliance with the "Incurrence of
Indebtedness" covenant, by us or a Restricted Subsidiary;
o Non-Recourse Purchase Money Indebtedness,
o any renewals substitutions, exchanges, refinancings or
replacements (each, for purposes of this clause, a "refinancing")
by us or a Restricted Subsidiary of any Indebtedness incurred
pursuant to the provisions of the "Incurrence of Indebtedness"
covenant or pursuant to clause one, two or three of this
definition, including any successive refinancings by us or such
Restricted Subsidiary, so long as:
(1) any such new Indebtedness shall be in a principal amount
that does not exceed the principal amount, or, if such
Indebtedness being refinanced provides for an amount less
than the principal amount thereof to be due and payable
upon a declaration of acceleration thereof, such lesser
amount as of the date of determination, so refinanced plus
the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of
the Indebtedness refinanced or the amount of any premium
reasonably determined by us or such Restricted Subsidiary
as necessary to accomplish such refinancing, plus the
amount of our or such Restricted Subsidiary's expenses
incurred in connection with such refinancing,
(2) in the case or any refinancing of our Indebtedness that is
not Senior Indebtedness, such new Indebtedness is either
pari passu with the exchange notes or subordinated to the
exchange notes at least to the same extent as the
Indebtedness being refinanced,
(3) in the case of any refinancing of our Indebtedness
pursuant to clause one, such new Indebtedness is either
Pari Passu Indebtedness or Subordinated Indebtedness and
has a final Stated Maturity at least 91 days after the
final Stated Maturity of the exchange notes, and
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(4) such new Indebtedness has an Average Life equal to or
longer than the Average Life of the Indebtedness being
refinanced and a final Stated Maturity equal to or later
than the final Stated Maturity of the Indebtedness being
refinanced;
o any additional Indebtedness in an aggregate principal amount not
to exceed $25.0 million.
"Permitted Investments" means any of the following:
o Investments in Cash Equivalents;
o Investments in us or any of our Restricted Subsidiaries;
o Investments in any amount not to exceed $10,000,000 at any one
time outstanding;
o Investments by us or any of our Restricted Subsidiaries in another
Person, if as a result of such Investment:
(1) such other Person becomes a Restricted Subsidiary, or
(2) such other Person is merged or consolidated with or into,
or transfers or conveys all or substantially all of its
properties and assets to, us or a Restricted Subsidiary;
o investments and expenditures made in the ordinary course of, and
of a nature that is or shall have become customary in, the Oil and
Gas Business as a means of actively exploiting, exploring for,
acquiring, developing, processing, gathering, marketing or
transporting oil and gas through agreements, transactions,
interests or arrangements which permit a Person to share risks or
costs, comply with regulatory requirements regarding local
ownership or satisfy other objectives customarily achieved through
the conduct of Oil and Gas Business jointly with third parties,
including, without limitation:
(1) ownership interests in oil and gas properties or gathering
systems, and
(2) Investments and expenditures in the form of or pursuant to
operating agreements, processing agreements, farm-in
agreements, farm-out agreements, development agreements,
area of mutual interest agreements, unitization
agreements, pooling arrangements, joint bidding
agreements, service contracts, joint venture agreements,
general or limited partnership agreements, subscription
agreements, stock purchase agreements and other similar
agreements with third parties, including Unrestricted
Subsidiaries;
o entry into any hedging arrangements in the ordinary course of
business for the purpose of protecting our or any Restricted
Subsidiary's production against fluctuations in oil or natural gas
prices;
o entry into any currency exchange contract in the ordinary course
of business;
o Investments in obligations or securities received as a result of
any Asset Sale;
o advances and loans to officers, directors and employees in the
ordinary course of business;
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o Investments pursuant to any agreement or obligation in effect on
June 8, 1998;
o Investments in obligations or securities received in settlement of
debts owing to us or a Restricted Subsidiary as a result of
bankruptcy or insolvency proceeding or upon the foreclosure,
perfection or enforcement of any Lien in favor of us or a
Restricted Subsidiary, in each case as to debt owing to us or a
Restricted Subsidiary that arose in the ordinary course of our or
any such Restricted Subsidiary's business; and
o contributions to Unrestricted Subsidiaries of our interests in 24
undeveloped federal leases offshore California, known as the
COOGER acreage, included in seven units, Bonita, Sword, Point Sal,
Gato Canyon, Lion Rock, Purisina Point and Santa Maria.
"Permitted Junior Securities" means any of our or any successor
obligor's equity securities or subordinated debt securities with respect to the
Senior Indebtedness provided for by a plan of reorganization or readjustment
that, in the case of any such subordinated debt securities, are subordinated in
right of payment to all Senior Indebtedness that may at the time be outstanding
to substantially the same degree as, or to a greater extent than, the exchange
notes are so subordinated as provided in the indenture.
"Permitted Liens" means the following types of Liens:
o Liens existing as of Juno 8, 1998, and any renewal, extension,
refunding, exchange or refinancing of any such Lien provided that
thereafter such Lien extends only to the properties that were
subject to such Lien prior to the renewal, extension, refunding,
exchange or refinancing thereof,
o Liens securing the exchange notes or the Subsidiary Guarantees
relating thereto; and
o Liens in favor of us.
"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.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents, however designated, of
such Person's preferred or preference stock, whether now outstanding or issued
after the date of the indenture, including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Production Payments" means, collectively, Dollar-Denominated
Production Payments and Volumetric Production Payments.
"Qualified Capital Stock" of any Person means any and all Capital Stock
of such Person other than Redeemable Capital Stock, provided that, with respect
to us, Qualified Capital Stock includes, without limitation, any Qualifying
TECONS and any Eligible Convertible Securities.
"Qualifying TECONS" means preferred trust securities or similar
securities issued by a Finance Person after June 8, 1998.
"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
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Stated Maturity of the exchange notes 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; provided, however, that Redeemable Capital Stock shall
not include any security by virtue of the fact that it may be exchanged or
converted at the option of the holder or at our option for our Common Stock,
"Restricted Subsidiary" means any Subsidiary of ours, whether existing
on or after the date of the indenture, unless such Subsidiary is an Unrestricted
Subsidiary or is designated as an Unrestricted Subsidiary pursuant to the terms
of the indenture.
"S&P" means Standard and Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Senior Indebtedness" means the principal of, premium, if any, on,
interest on, including interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law, and other amounts due
on or in connection with, including any fees, premiums, expenses, including
costs of collection, and indemnities, any of our Indebtedness, whether
outstanding on the date of the indenture or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness will be pari passu with or
subordinated in right of payment to the exchange notes. Notwithstanding the
foregoing, "Senior Indebtedness" will not include:
o Indebtedness evidenced by the exchange notes;
o our Indebtedness that is Pari Passu Indebtedness or is expressly
subordinated in right of payment to any other of our Indebtedness;
o Indebtedness that is represented by Redeemable Capital Stock,
o our Indebtedness to the extent incurred in violation of the
covenant described under "--Material Covenants--Incurrence of
Indebtedness;"
o our Indebtedness to any of our Subsidiaries or any other Affiliate
of ours or any subsidiary of such Affiliate; and
o Indebtedness which when incurred and without regard to any
election under Section 1111(b) of the Federal Bankruptcy Code is
without recourse to us.
"Specified Property Sales" means the sales of any of our and our
Restricted Subsidiaries'
o East Texas Oil and gas properties sold in January 1999 and
described under "Summary--Recent Developments;" and
o real properties, other than our or our Restricted Subsidiaries'
mineral interests, owned on the date of the indenture and located
in the Counties of Fresno, Kern, Kings, Los Angeles, Orange, Santa
Barbara, and Ventura in the State of California.
"Specified Senior Indebtedness" means:
o all of our Senior Indebtedness in respect of the Credit Facility
and any renewals, amendments, extensions, supplements,
modifications, deferrals, refinancings, or
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replacements (each, for purposes of this definition, a
"refinancing") thereof by us, including any successive
refinancings thereof by us; and
o any other Senior Indebtedness and any refinancings thereof by us
having a principal amount of at least $10,000,000 as of the date
of determination and provided that the agreements, indentures or
other instruments evidencing such Senior Indebtedness or pursuant
to which such Senior Indebtedness was issued specifically
designates such Senior Indebtedness as "'Specified Senior
Indebtedness" for purposes of the indenture.
For purposes of this definition, a refinancing of any Specified Senior
Indebtedness shall be treated as a Specified Senior Indebtedness only if the
Indebtedness issued in such refinancing ranks or would rank pari passu with the
Specified Senior Indebtedness refinanced and only if Indebtedness issued in such
refinancing is permitted by the covenant described under "--Material
Covenants--Incurrence of Indebtedness."
"Stated Maturity" means, when used with respect to any note or any
installment of interest thereon, the date specified in such new note as the
fixed date on which the principal of such exchange note or such installment of
interest is due and payable, and, when used with respect to any other
Indebtedness or any installment of interest thereon, means the date specified in
the instrument evidencing or governing such Indebtedness as the fixed date on
which the principal of such Indebtedness or such installment of interest is due
and payable.
"Subordinated Indebtedness" means our Indebtedness which is expressly
subordinated in right of payment to the exchange notes.
"Subsidiary" means, with respect to any Person:
o a corporation a majority of whose Voting Stock is at the time,
directly or indirectly, owned by such Person, by one or more
Subsidiaries of such Person or by such Person and one or more
Subsidiaries thereof; or
o any other Person other than a corporation, including, without
limitation, a joint venture, in which such Person, one or more
Subsidiaries thereof or such Person and one or more Subsidiaries
thereof, directly or indirectly, at the date of determination
thereof, have at least majority ownership interest entitled to
vote in the election of directors, managers, trustees or other
Persons performing similar functions.
"Subsidiary Guarantee" means an unconditional, unsecured, senior
subordinated guarantee of the exchange notes by any Restricted Subsidiary
pursuant to the terms of the indenture.
"Subsidiary Guarantor" means, unless released from their Subsidiary
Guarantees as permitted by the indenture, any Restricted Subsidiary that becomes
a guarantor of the exchange notes in compliance with the provisions of the
indenture and executes a supplemental indenture in which such Restricted
Subsidiary agrees to be bound by the terms of the indenture.
"Unrestricted Subsidiary" means:
o any Subsidiary of ours that at the time of determination will be
designated an Unrestricted Subsidiary by our board of directors as
provided below; and
o any Subsidiary of an Unrestricted Subsidiary.
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Our board of directors may designate any Subsidiary of ours as an
Unrestricted Subsidiary so long as:
o neither we nor any Restricted Subsidiary is directly or indirectly
liable pursuant to the terms of any Indebtedness of such
Subsidiary;
o no default with respect to any Indebtedness of such Subsidiary
would permit, upon notice, lapse of time or otherwise, any holder
of any of our or any Restricted Subsidiary's other Indebtedness to
declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its Stated Maturity;
o neither we nor any Restricted Subsidiary has made an Investment in
such Subsidiary unless such Investment was made pursuant to, and
in accordance with, the "Restricted Payments" covenant, other than
Investments of the type described in the fourth and twelfth
clauses of the definition of Permitted Investment; and
o such designation shall not result in the creation or imposition of
any Lien on any of our or any Restricted Subsidiary's properties,
other than any Permitted Lien or any Lien the creation or
imposition of which shall have been in compliance with the "Liens"
covenant.
With respect to the first clause of the second paragraph of this
definition, we or a Restricted Subsidiary may be liable for Indebtedness of an
Unrestricted Subsidiary if:
o such liability constituted a Permitted Investment or a Restricted
Payment permitted by the "Restricted Payments" covenant, in each
case at the time of incurrence; or
o the liability would be a Permitted Investment at the time of
designation of such Subsidiary as an Unrestricted Subsidiary.
Any such designation by our board of directors shall be evidenced to
the trustee by filing a board resolution with the trustee giving effect to such
designation. Our board of directors may designate any Unrestricted Subsidiary as
a Restricted Subsidiary if, immediately after giving effect to such designation:
o no Default or Event of Default shall have occurred and be
continuing;
o we could incur $1.00 of additional Indebtedness, other than
Permitted Indebtedness, under the "Incurrence of Indebtedness"
covenant; and
o if any of our or any of our Restricted Subsidiaries' properties or
assets would upon such designation become subject to any Lien,
other than a Permitted Lien, the creation or imposition of such
Lien shall have been in compliance with the "Liens" covenant.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person, irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency.
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<PAGE> 124
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to
the extent:
o all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors' qualifying shares
mandated by applicable law, is owned directly or indirectly by us;
or
o such Restricted Subsidiary is organized in a foreign jurisdiction
and is required by the applicable laws and regulations of such
foreign jurisdiction to be partially owned by the government of
such foreign jurisdiction or individual or corporate citizens of
such foreign jurisdiction in order for such Restricted Subsidiary
to transact business in such foreign jurisdiction, provided that
we, directly or indirectly, own the remaining Capital Stock or
ownership interest in such Restricted Subsidiary and, by contract
or otherwise, control the management and business of such
Restricted Subsidiary and derive the economic benefits of
ownership of such Restricted Subsidiary to substantially the same
extent as if such Restricted Subsidiary were a wholly owned
Subsidiary.
REGISTRATION RIGHTS
We have entered into a registration agreement with the dealer managers
under which we have agreed, for the benefit of the holders of the existing
notes, at our cost, to use our reasonable best efforts:
o to file with the SEC the registration statement of which this
prospectus is a part related to the exchange offer of the exchange
notes by November 11, 1999;
o to cause this exchange offer registration statement to be declared
effective under the Securities Act by January 17, 2000;
o to keep this exchange offer registration statement effective until
the closing of the exchange offer; and
o to cause this exchange offer to be completed by February 16, 2000.
The registration agreement shall be governed by, and construed under,
the laws of the State of New York. If you have further questions about
registration rights, you should refer to the registration agreement, a copy of
which is available upon request to us. The registration agreement is also
attached as an exhibit to this registration statement. In addition, the
information described above under "The Exchange Offer" concerning
interpretations of and positions taken by the staff of the SEC is not intended
to constitute legal advice, and prospective investors should consult their own
advisors on these matters.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for existing
notes where the existing notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, for a period of 90
days after the consummation of the exchange offer, we will make this prospectus,
as amended or supplemented, available to any broker-dealer for use in connection
with any such resale, if required under applicable securities laws and upon
prior
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<PAGE> 125
written request. In addition, until _________, 2000, all dealers effecting
transactions in the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
in the exchange offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the writing
of options on the exchange notes or a combination of these methods of resale, at
market prices prevailing at the time of resale, at prices related to those
prevailing market prices or at negotiated prices. Any resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer or
the purchasers of any exchange notes. Any broker-dealer that resells exchange
notes that were received by it for its own account in the exchange offer and any
broker or dealer that participates in a distribution of the exchange notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any resale of exchange notes and any commission or concessions
received by such person may be considered underwriting compensation under the
Securities Act. The letter of transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
regarded as admitting that it is an "underwriter", within the meaning of the
Securities Act.
For a period of 90 days after the consummation of the exchange offer,
we will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer, including the expenses of one counsel for the holders of the
existing notes, other than commissions or concessions of any brokers or dealers
and will indemnify the holders of the existing notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the issuance of the exchange notes will be passed upon
by our attorneys, Haynes and Boone, L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements of Nuevo Energy Company as of
December 31, 1998 and 1997 and for each of the years in the three-year period
ended December 31, 1998 incorporated by reference in the prospectus and the
registration statement have been incorporated herein in reliance upon the report
of KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing. The report of KPMG LLP refers to the retroactive effect of a change in
accounting for oil and gas properties from the full cost method to the
successful efforts method.
Information about our estimated net proved reserves and the future net
cash flows attributable to these reserves as of December 31, 1998 and 1997 was
prepared by Ryder Scott Company, L.P. and our estimated net proved reserves and
future cash flows attributable to those reserves as of December 31, 1996 was
prepared by Ryder Scott Company, L.P. and Poco Oil Co. Information about our
estimated net proved reserves and the future net cash flows attributable to
these reserves as of June 30, 1999 was prepared by our internal reserve
engineers.
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<PAGE> 126
GLOSSARY OF OIL AND GAS TERMS
TERMS USED TO DESCRIBE QUANTITIES OF OIL AND NATURAL GAS
o Bbl -- One stock tank barrel, or 42 US gallons liquid volume, of
crude oil or other liquid hydrocarbons.
o Bcf -- One billion cubic feet of natural gas.
o Bcfe -- One billion cubic feet of natural gas equivalent.
o BOE-- One barrel of oil equivalent, converting gas to oil at the
ratio of 6 Mcf of gas to 1 Bbl of oil.
o MBbl -- One thousand Bbls.
o Mcf -- One thousand cubic feet of natural gas.
o MMBbl -- One million Bbls of oil or other liquid hydrocarbons.
o MMcf -- One million cubic feet of natural gas.
o MBOE -- One thousand BOE.
o MMBOE -- One million BOE.
TERMS USED TO DESCRIBE OUR INTERESTS IN WELLS AND ACREAGE
o Gross oil and gas wells or acres -- Our gross wells or gross acres
represents the total number of wells or acres in which we own a
working interest.
o Net oil and gas wells or acres -- Determined by multiplying
"gross" oil and natural gas wells or acres by the working interest
that we own in such wells or acres represented by the underlying
properties.
TERMS USED TO ASSIGN A PRESENT VALUE TO OUR RESERVES
o Standard measure of proved reserves -- The present value,
discounted at 10%, of the pre-tax future net cash flows
attributable to estimated net proved reserves. We calculate this
amount by assuming that we will sell the oil and gas production
attributable to the proved reserves estimated in our independent
engineer's reserve report for the prices we received for the
production on the date of the report, unless we had a contract to
sell the production for a different price. We also assume that the
cost to produce the reserves will remain constant at the costs
prevailing on the date of the report. The assumed costs are
subtracted from the assumed revenues resulting in a stream of
future net cash flows. Estimated future income taxes using rates
in effect on the date of the report are deducted from the net cash
flow stream. The after-tax cash flows are discounted at 10% to
result in the standardized measure of our proved reserves. The
standardized measure of our proved reserves is disclosed in our
audited financial statements at note 16.
o Pre-tax discounted present value -- The discounted present value
of proved reserves is identical to the standardized measure,
except that estimated future income taxes are not
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<PAGE> 127
deducted in calculating future net cash flows. We disclose the
discounted present value without deducting estimated income taxes
to provide what we believe is a better basis for comparison of our
reserves to the producers who may have different tax rates.
TERMS USED TO CLASSIFY OUR RESERVE QUANTITIES
o Proved reserves -- The estimated quantities of crude oil, natural
gas and natural gas liquids which, upon analysis of geological and
engineering data, appear with reasonable certainty to be
recoverable in the future from known oil and natural gas
reservoirs under existing economic and operating conditions.
The SEC definition of proved oil and gas reserves, per Article
4-10(a)(2) of Regulation S-X, is as follows:
Proved oil and gas reserves. Proved oil and gas reserves are the
estimated quantities of crude oil, natural gas, and natural gas liquids
which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions, i.e., prices and costs as
of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements,
but not on escalations based upon future conditions.
(a) Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes (A) that portion
delineated by drilling and defined by gas-oil and/or oil-water
contacts, if any; and (B) the immediately adjoining portions not yet
drilled, but which can be reasonably judged as economically productive
on the basis of available geological and engineering data. In the
absence of information on fluid contacts, the lowest known structural
occurrence of hydrocarbons controls the lower proved limit of the
reservoir.
(b) Reserves which can be produced economically through
application of improved recovery, techniques (such as fluid injection)
are included in the "proved" classification when successful testing by
a pilot project, or the operation of an installed program in the
reservoir, provides support for the engineering analysis on which the
project or program was based.
(c) Estimates of proved reserves do not include the following: (1)
oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (2) crude oil, natural
gas, and natural gas liquids, the recovery of which is subject to
reasonable doubt because of uncertainty as to geology, reservoir
characteristics, or economic factors; (3) crude oil, natural gas, and
natural gas liquids, that may occur in undrilled prospects; and (4)
crude oil, natural gas, and natural gas liquids, that may be recovered
from oil shales, coal, gilsonite and other such sources.
o Proved developed reserves -- Proved reserves that can be expected
to be recovered through existing wells with existing equipment and
operating methods.
o Proved undeveloped reserves -- Proved reserves that are expected
to be recovered from new wells on undrilled acreage, or from
existing wells where a relatively major expenditure is required.
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<PAGE> 128
TERMS WHICH DESCRIBE THE COST TO ACQUIRE OUR RESERVES
o Finding costs -- Our finding costs compare the amount we spent to
acquire, explore and develop our oil and gas properties, explore
for oil and gas and to drill and complete wells during a period,
with the increases in reserves during the period. This amount is
calculated by dividing the net change in our evaluated oil and
property costs during a period by the change in proved reserves
plus production over the same period. Our finding costs as of
December 31 of any year represent the average finding costs over
the three-year period ending December 31 of that year. Our finding
costs as of June 30, 1999 represent average finding costs over a
two and one half year period ending on June 30, 1999.
TERMS WHICH DESCRIBE THE PRODUCTIVE LIFE OF A PROPERTY OR GROUP OF PROPERTIES
o Reserve life index -- A measure of the productive life of an oil
and gas property or a group of oil and gas properties, expressed
in years. Reserve life index for the years ended December 31,
1996, 1997 or 1998 equal the estimated net proved reserves
attributable to a property or group of properties divided by
production from the property or group of properties for the four
fiscal quarters preceding the date as of which the proved reserves
were estimated. In order to reflect the divestiture of the East
Texas properties and the Star acquisition, our reserve life index
for June 30, 1999 was calculated by dividing estimated net proved
reserves at June 30, 1999 by our annualized pro forma production
for the first six months of 1999, assuming we closed the Star
acquisition on January 1, 1999.
TERMS USED TO DESCRIBE THE LEGAL OWNERSHIP OF OUR OIL AND GAS PROPERTIES
o Royalty interest -- A real property interest entitling the owner
to receive a specified portion of the gross proceeds of the sale
of oil and natural gas production or, if the conveyance creating
the interest provides, a specific portion of oil and natural gas
produced, without any deduction for the costs to explore for,
develop or produce the oil and natural gas. A royalty interest
owner has no right to consent to or approve the operation and
development of the property, while the owners of the working
interests have the exclusive right to exploit the mineral on the
land.
o Working interest -- A real property interest entitling the owner
to receive a specified percentage of the proceeds of the sale of
oil and natural gas production or a percentage of the production,
but requiring the owner of the working interest to bear the cost
to explore for, develop and produce such oil and natural gas. A
working interest owner who owns a portion of the working interest
may participate either as operator or by voting his percentage
interest to approve or disapprove the appointment of an operator
and drilling and other major activities in connection with the
development and operation of a property.
TERMS USED TO DESCRIBE SEISMIC OPERATIONS
o Seismic data -- Oil and gas companies use seismic data as their
principal source of information to locate oil and gas deposits,
both to aid in exploration for new deposits and to manage or
enhance production from known reservoirs. To gather seismic data,
an energy source is used to send sound waves into the subsurface
strata. These waves are reflected back to the surface by
underground formations, where they are detected by geophones which
digitize and record the reflected waves. Computers are then used
to process the raw data to develop an image of underground
formations.
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<PAGE> 129
o 2-D seismic data -- 2-D seismic survey data has been the standard
acquisition technique used to image geologic formations over a
broad area. 2-D seismic data is collected by a single line of
energy sources which reflect seismic waves to a single line of
geophones. When processed, 2-D seismic data produces an image of a
single vertical plane of sub-surface data.
o 3-D seismic -- 3-D seismic data is collected using a grid of
energy sources, which are generally spread over several miles. A
3-D survey produces a three dimensional image of the subsurface
geology by collecting seismic data along parallel lines and
creating a cube of information that can be divided into various
planes, thus improving visualization. Consequently, 3-D seismic
data is a more reliable indicator of potential oil and natural gas
reservoirs in the area evaluated.
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<PAGE> 130
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
----------
<S> <C>
Condensed Consolidated Balance Sheets as of June 30, 1999
(Unaudited) and December 31, 1998............................................................ F-2
Unaudited Condensed Consolidated Statements of Operations
for the Six Months Ended June 30, 1999 and 1998............................................. F-3
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1999 and 1998.............................................. F-4
Unaudited Notes to Condensed Consolidated Financial
Statements................................................................................... F-5
Independent Auditors' Report................................................................... F-11
Consolidated Balance Sheets as of December 31, 1998 and 1997
(Restated)................................................................................... F-12
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 (Restated) and 1996 (Restated)....................................... F-13
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1998, 1997 (Restated) and
1996 (Restated).............................................................................. F-14
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 (Restated) and 1996 (Restated)....................................... F-15
Notes to Consolidated Financial Statements..................................................... F-16
</TABLE>
F-1
<PAGE> 131
NUEVO ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ......................................................... $ 53,639 $ 7,403
Accounts receivable ............................................................... 26,555 25,096
Product inventory ................................................................. 4,992 5,998
Assets held for sale .............................................................. 10,000 120,055
Prepaid expenses and other ........................................................ 5,157 2,700
----------- -----------
Total current assets ...................................................... 100,343 161,252
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Land .............................................................................. 51,038 51,038
Oil and gas properties (successful efforts method) ................................ 1,025,896 959,348
Gas plant facilities .............................................................. 17,786 17,112
Other facilities .................................................................. 9,130 6,696
----------- -----------
1,103,850 1,034,194
Accumulated depreciation, depletion and amortization .............................. (446,966) (417,622)
----------- -----------
656,884 616,572
----------- -----------
DEFERRED TAX ASSETS, net ............................................................ 22,010 27,534
OTHER ASSETS ........................................................................ 11,037 12,327
----------- -----------
$ 790,274 $ 817,685
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................................................. $ 18,318 $ 24,393
Accrued interest .................................................................. 4,211 4,161
Accrued liabilities ............................................................... 19,846 17,917
Current maturities of long-term debt .............................................. 2,051 3,152
----------- -----------
Total current liabilities ................................................. 44,426 49,623
----------- -----------
OTHER LONG-TERM LIABILITIES ......................................................... 3,066 2,034
LONG-TERM DEBT, net of current maturities ........................................... 380,000 419,150
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED SECURITIES OF NUEVO FINANCING I ......................................... 115,000 115,000
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000 shares authorized, 20,308,462 shares
issued at June 30, 1999 and December 31, 1998 .................................. 203 203
Additional paid-in capital ........................................................ 355,720 355,600
Treasury stock, at cost, 449,255 and 473,876 shares, at June 30, 1999 and
December 31, 1998, respectively ................................................ (19,053) (19,335)
Stock held by benefit trust, 71,630 and 47,759 shares, at
June 30, 1999 and December 31, 1998, respectively .............................. (2,014) (1,732)
Accumulated deficit ............................................................... (87,074) (102,858)
----------- -----------
Total stockholders' equity ................................................ 247,782 231,878
----------- -----------
$ 790,274 $ 817,685
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE> 132
NUEVO ENERGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
REVENUES:
Oil and gas revenues .......................................... $ 95,052 $ 123,045
Gas plant revenues ............................................ 1,288 1,405
Pipeline and other revenues ................................... 4 1,722
Gain on sale of assets, net ................................... 80,312 1,677
Interest and other income ..................................... 2,847 1,324
--------- ---------
179,503 129,173
--------- ---------
COSTS AND EXPENSES:
Lease operating expenses ...................................... 57,876 65,774
Gas plant operating expenses .................................. 2,336 1,423
Pipeline and other operating expenses ......................... 143 1,842
Exploration costs ............................................. 9,999 2,331
Depreciation, depletion and amortization ...................... 46,257 46,556
General and administrative expenses ........................... 7,199 8,526
Outsourcing fees .............................................. 6,846 7,199
Interest expense .............................................. 16,400 14,444
Dividends on Guaranteed Preferred Beneficial Interests in
Company's Convertible Debentures (TECONS) .................. 3,306 3,306
Other expense ................................................. 2,836 1,846
--------- ---------
153,198 153,247
--------- ---------
Income (loss) before income taxes ............................... 26,305 (24,074)
Provision (benefit) for income taxes ............................ 10,521 (9,870)
--------- ---------
NET INCOME (LOSS) ............................................... $ 15,784 $ (14,204)
========= =========
EARNINGS (LOSS) PER SHARE:
Earnings (loss) per common share-- Basic ...................... $ 0.80 $ (0.72)
========= =========
Weighted average common shares outstanding .................... 19,848 19,759
========= =========
Earnings (loss) per common share-- Diluted .................... $ 0.79 $ (0.72)
========= =========
Weighted average common and dilutive potential common
shares outstanding ......................................... 19,915 19,759
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE> 133
NUEVO ENERGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................................. $ 15,784 $ (14,204)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation, depletion and amortization ....................................... 46,257 46,556
Gain on sale of assets, net .................................................... (80,312) (1,677)
Dry hole costs ................................................................. 7,297 138
Amortization of other costs .................................................... 811 758
Appreciation of deferred compensation plan ..................................... 111 --
Deferred revenues .............................................................. -- (1,227)
Deferred taxes ................................................................. 5,521 (10,245)
Other .......................................................................... 120 --
--------- ---------
(4,411) 20,099
Change in assets and liabilities:
Accounts receivable ............................................................ (1,459) 11,240
Accounts payable and accrued liabilities ....................................... (5,606) (5,149)
Other .......................................................................... (1,680) (4,273)
--------- ---------
Net cash (used in) provided by operating activities ................................. (13,156) 21,917
--------- ---------
Cash flows from investing activities:
Additions to oil and gas properties ............................................... (35,497) (90,329)
Acquisitions of oil and gas properties ............................................ (61,416) (7,810)
Additions to gas plant facilities ................................................. (674) (1,091)
Additions to other facilities ..................................................... (2,434) (1,184)
Proceeds from sales of properties ................................................. 199,663 5,811
--------- ---------
Net cash provided by (used in) investing activities ................................. 99,642 (94,603)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings .......................................................... 120,090 193,000
Deferred financing costs .......................................................... -- (2,636)
Payments of long-term debt ........................................................ (160,340) (121,902)
Treasury stock sale ............................................................... -- 100
Proceeds from issuance of common stock ............................................ -- 1,280
--------- ---------
Net cash (used in) provided by financing activities ................................. (40,250) 69,842
--------- ---------
Net increase (decrease) in cash and cash equivalents .............................. 46,236 (2,844)
Cash and cash equivalents at beginning of period .................................. 7,403 9,208
--------- ---------
Cash and cash equivalents at end of period .......................................... $ 53,639 $ 6,364
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) .......................................... $ 15,646 $ 14,389
Income taxes ................................................................... $ 2,250 $ 475
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE> 134
NUEVO ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with instructions to Form 10-Q and, therefore, do
not include all disclosures required by generally accepted accounting
principles. However, in the opinion of management, these statements include all
adjustments, which are of a normal recurring nature, necessary to present fairly
the financial position at June 30, 1999 and December 31, 1998 and the results of
operations and changes in cash flows for the periods ended June 30, 1999 and
1998. These financial statements should be read in conjunction with the
financial statements and notes to the financial statements in the 1998 Form 10-K
of Nuevo Energy Company (the "Company") that was filed with the Securities and
Exchange Commission.
Use of Estimates
In order to prepare these financial statements in conformity with generally
accepted accounting principles, management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities,
the disclosure of contingent assets and liabilities and reserve information
(which affects the depletion calculation). Actual results could differ from
those estimates.
Comprehensive Income
Comprehensive income includes net income and all changes in an enterprise's
other comprehensive income including, among other things, foreign currency
translation adjustments, and unrealized gains and losses on certain investments
in debt and equity securities. There are no differences between comprehensive
income (loss) and net income (loss) for the periods presented.
Derivative Financial Instruments
The Company utilizes derivative financial instruments to reduce its
exposure to changes in the market price of natural gas and crude oil. Commodity
derivatives utilized as hedges include futures, swap and option contracts, which
are used to hedge natural gas and oil prices. Commodity price and basis swaps
are sometimes used to hedge the basis differential between the derivative
financial instrument index price and the commodity field price. In order to
qualify as a hedge, price movements in the underlying commodity derivative must
be highly correlated with the hedged commodity. Settlement of gains and losses
on price swap contracts are realized monthly, generally based upon the
difference between the contract price and the average closing New York
Mercantile Exchange ("NYMEX") price and are reported as a component of oil and
gas revenues and operating cash flows in the period realized.
Gains and losses on option and futures contracts that qualify as a hedge of
firmly committed or anticipated purchases and sales of oil and gas commodities
are deferred on the balance sheet and recognized in income and operating cash
flows when the related hedged transaction occurs. Premiums paid on option
contracts are deferred in other assets and amortized into oil and gas revenues
over the terms of the respective option contracts. Gains or losses attributable
to the termination of a derivative financial instrument are deferred on the
balance sheet and recognized in revenue when the hedged crude oil and natural
gas is sold. There were no such deferred gains or losses at June 30, 1999 or
December 31, 1998. Gains or losses on derivative financial instruments that do
not qualify as a hedge are recognized in income currently.
As a result of hedging transactions, oil and gas revenues were reduced by
$9.0 million and increased by $0.1 million in the second quarter of 1999 and
1998, respectively. During the first six months of 1999 and 1998, oil and gas
revenues were reduced by $8.8 million and increased by $0.2 million,
respectively, as a result of these transactions.
The Company entered into a swap arrangement with a major financial
institution that effectively converts the interest rate on $16.4 million
notional amount of the 9 1/2% Senior Subordinated Notes due 2006 to a variable
LIBOR-based rate through February 25, 2000. Based on LIBOR rates in effect at
June 30, 1999, this amounted to a net reduction in the carrying cost of the 9
1/2% Senior Subordinated Notes due 2006 from 9.5% to 5.64%, or 386 basis points.
In addition, the swap arrangement also effectively hedges the price at which
these Notes can be repurchased by the Company at 101.16% of their face amount.
Based on the market price of 101.23% for the Notes at June 30, 1999, an early
termination of this arrangement would result in a payment of approximately
$11,000 from the institution to Nuevo.
F-5
<PAGE> 135
For the second half of 1999, the Company is party to crude oil swaps on an
average of 31,500 barrels of oil ("Bbls") per day, or 65% of its estimated
crude oil production, at an average NYMEX price of $16.35 per Bbl. For calendar
year 2000, the Company has entered into crude oil swaps on 16,500 Bbls per day,
or 30% of its estimated crude oil production, at an average NYMEX price of
$17.94 per Bbl. In addition, for calendar year 2000, the Company has hedged an
additional 30% of its estimated crude oil production through the purchase of put
options on 16,500 Bbls per day at a NYMEX price of $16.00 per Bbl, and the sale
of call options on 16,500 Bbls per day at an average NYMEX price of $21.21 per
Bbl. There was not net cost to the Company for these options.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
statement, as amended by SFAS No. 137, establishes standards of accounting for
and disclosures of derivative instruments and hedging activities. This statement
requires all derivative instruments to be carried on the balance sheet at fair
value and is effective for the Company beginning January 1, 2001, however, early
adoption is permitted. The Company has not yet determined the impact of this
statement on its financial condition or results of operations or whether it will
adopt the statement early.
Reclassifications
Certain reclassifications of prior year amounts have been made to conform
to the current presentation.
2. PROPERTY AND EQUIPMENT
The Company utilizes the successful efforts method of accounting for its
investments in oil and gas properties. Under successful efforts, oil and gas
lease acquisition costs and intangible drilling costs associated with
exploration efforts that result in the discovery of proved reserves and costs
associated with development drilling, whether or not successful, are capitalized
when incurred. When a proved property is sold, ceases to produce or is
abandoned, a gain or loss is recognized. When an entire interest in an unproved
property is sold for cash or cash equivalent, gain or loss is recognized, taking
into consideration any recorded impairment. When a partial interest in an
unproved property is sold, the amount received is treated as a reduction of the
cost of the interest retained.
Unproved leasehold costs are capitalized pending the results of exploration
efforts. Significant unproved leasehold costs are reviewed periodically and a
loss is recognized to the extent, if any, that the cost of the property has been
impaired. An impairment of unproved leasehold costs of $8.1 million was
recognized as of December 31, 1998. Exploration costs, including geological and
geophysical expenses, exploratory dry holes and delay rentals, are charged to
expense as incurred.
Costs of productive wells, development dry holes and productive leases are
capitalized and depleted on a unit-of-production basis over the life of the
remaining proved reserves. Capitalized drilling costs are depleted on a
unit-of-production basis over the life of the remaining proved developed
reserves. Estimated costs (net of salvage value) of dismantlement, abandonment
and site remediation are computed by the Company's independent reserve engineers
and are included when calculating depreciation and depletion using the
unit-of-production method.
The Company reviews proved oil and gas properties on a depletable unit
basis whenever events or circumstances indicate that the carrying value of those
assets may not be recoverable. For each depletable unit determined to be
impaired, an impairment loss equal to the difference between the carrying value
and the fair value of the depletable unit is recognized. Fair value, on a
depletable unit basis, is estimated to be the present value of the undiscounted
expected future net revenues computed by application of estimated future oil and
gas prices, production and expenses, as determined by management, to estimated
future production of oil and gas reserves over the economic life of the
reserves. If the carrying value exceeds the undiscounted future net revenues, an
impairment is recognized equal to the difference between the carrying value and
the discounted estimated future net revenues of that depletable unit. The
Company considers probable reserves and escalated commodity pricing in its
estimate of future net revenues. A fair value impairment of $60.8 million was
recognized as of December 31, 1998.
Interest costs associated with non-producing leases and exploration and
development projects are capitalized only for the period that activities are in
progress to bring these projects to their intended use. The capitalization rates
are based on the Company's weighted average cost of funds used to finance
expenditures.
3. DEFERRED TAX ASSETS
As a result of the net loss generated during 1998, the Company has deferred
tax assets, net of valuation allowances, of $22.0 million and $27.5 million as
of June 30, 1999 and December 31, 1998, respectively. The Company believes that
sufficient future taxable income will be generated and has concluded that these
net deferred tax assets will more likely than not be realized.
F-6
<PAGE> 136
4. INDUSTRY SEGMENT INFORMATION
As of December 31, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information", which was issued by
the FASB in June 1997. This statement establishes standards for reporting
information about operating segments in annual financial statements and requires
that enterprises report selected information about operating segments in interim
periods.
Historically, the Company's operations were concentrated primarily in two
segments: the exploration and production of oil and natural gas and gas plant,
pipeline and gas storage operations. The Company's non-core gas gathering,
pipeline and gas storage assets were reclassified to assets held for sale as of
December 31, 1997, consistent with the Company's intention to dispose of these
assets during 1998 and 1999. The Company completed the sale of its Bright Star
gas gathering system in July 1998 and the Richfield gas storage assets in
February 1998, at their approximate carrying values, and has signed a letter of
intent with a third party to sell the remaining asset, the Illini pipeline.
Closing of the Illini pipeline sale is expected by the end of 1999, pending
finalization of a purchase and sale agreement and certain regulatory approvals.
The Company's policy is to record revenues and expenses associated with these
assets, which are no longer being depreciated, until they are sold.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
JUNE 30,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Sales to unaffiliated customers:
Oil and gas-- East ............................. $ 7,682 $ 24,218
Oil and gas-- West ............................. 76,455 90,689
Oil and gas-- International .................... 10,915 8,138
Gas plant, pipelines and other ................. 1,292 3,127
--------- ---------
Total sales ............................ 96,344 126,172
Gain on sale of assets, net ............ 80,312 1,677
Other revenues ................................. 2,847 1,324
--------- ---------
Total revenues ......................... $ 179,503 $ 129,173
========= =========
Operating profit before income taxes:
Oil and gas-- East(a) .......................... $ 81,141 $ 12,644
Oil and gas-- West ............................. (18,165) (552)
Oil and gas-- International .................... (806) (1,288)
Gas plant, pipelines and other ................. (1,786) (538)
--------- ---------
60,384 10,266
Unallocated corporate expenses ................... 14,373 16,590
Interest expense ................................. 16,400 14,444
Dividends on TECONS .............................. 3,306 3,306
--------- ---------
Income (loss) before income taxes .............. $ 26,305 $ (24,074)
========= =========
Depreciation, depletion and amortization:
Oil and gas-- East ............................. $ 4,307 6,467
Oil and gas-- West ............................. 37,344 36,817
Oil and gas-- International .................... 3,855 2,529
Gas plant, pipelines and other ................. 412 400
--------- ---------
$ 45,918 $ 46,213
========= =========
</TABLE>
- ----------
(a) Includes an $80.3 million net gain on sale of the East Texas gas properties
for the six months ended June 30, 1999.
F-7
<PAGE> 137
5. LONG-TERM DEBT
Long-term debt consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- -----------
<S> <C> <C>
9 1/2% Senior Subordinated Notes due 2006(a) .......... $ 160,000 $ 160,000
8 7/8% Senior Subordinated Notes due 2008(a) ........... 100,000 100,000
Bank credit facility (b) .............................. 120,000 158,400
OPIC credit facility .................................. 2,051 3,902
--------- ---------
Total debt .................................. 382,051 422,302
Less: current maturities .............................. (2,051) (3,152)
--------- ---------
Long-term debt ........................................ $ 380,000 $ 419,150
========= =========
</TABLE>
- ----------
(a) In July 1999, the Company authorized a new issuance of $260.0 million of 9
1/2% senior subordinated notes due June 1, 2008. The Company has offered to
exchange the new notes for its outstanding $160.0 million of 9 1/2% senior
subordinated notes due 2006 and $100.0 million of 8 7/8% senior
subordinated due 2008. In connection with the exchange offers, the Company
has solicited consents to proposed amendments to the indentures under which
the old note were issued. These amendments delete most of the covenants in
the old indentures. The purpose of the exchange offers is to combine the
Company's two existing issues of senior subordinated notes into a single
new issue in the aggregate principal amount of $260.0 million. The purpose
of the consent solicitations is to streamline the Company's covenant
structure and to provide the Company with additional flexibility to pursue
its operating strategy. The exchange offers were conditioned on receipt of
tenders of at least a majority of the outstanding principal amount of each
of the old notes and satisfaction of other customary conditions. As of
August 9, 1999, tenders had been received from holders of a majority of
each issue of the old notes. Accordingly, the Company and the trustee for
the old notes executed supplemental indentures containing the proposed
amendments relating to the consent solicitations. In addition to the
consideration equal to 3% of the outstanding principal amount of the 9 1/2%
notes exchanged that the Company will pay to the holders of the 9 1/2%
notes who tendered in the exchange offer, which will be accounted for as
deferred financing costs, the Company expects to incur approximately $4.0
million of expenses during the third quarter of 1999, in connection with
this exchange offer.
(b) Nuevo's Restated Credit Agreement dated June 30, 1999, provides for secured
revolving credit availability of up to $400.0 million (subject to a
semi-annual borrowing base determination) from a bank group led by Bank of
America, N.A. and Morgan Guaranty Trust Company of New York, until its
expiration on April 1, 2003. Effective January 6, 1999, the borrowing base
on the Company's credit facility was reduced from $380.0 million to $200.0
million, reflecting the sale on that date of the Company's East Texas
natural gas reserves, and also reflecting a significant decline in current
and projected oil prices since the previous determination. The Company and
its banks have begun discussions regarding the reset of the borrowing base
to be effective as of October 15, 1999. Given the significant increase in
crude oil prices since the prior determination, management anticipates a
material increase in the borrowing base. The restatement of the Credit
Agreement also provided Nuevo with relief under the covenant requiring
minimum levels of EBITDA / Fixed Charge coverage. The Company was in
compliance with all covenants as of June 30, 1999, and does not anticipate
any issues of non-compliance arising in the foreseeable future. At June 30,
1999, outstanding borrowings under the revolving credit agreement were
$109.0 million. Additionally, Nuevo had $11.0 million of outstanding
borrowings under an uncommitted line of credit. Accordingly, $91.0 million
of committed revolving credit capacity was unused and available at June 30,
1999.
6. EARNINGS (LOSS) PER SHARE COMPUTATION
SFAS No. 128 requires a reconciliation of the numerator (income) and
denominator (shares) of the basic earnings per share ("EPS") computation to the
numerator and denominator of the diluted EPS computation. In the six-month
period ended June 30, 1998, weighted average potential dilutive common shares of
451,000 are not included in the calculation of diluted loss per share due to
their anti-dilutive effect. The Company's reconciliation is as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------------------
1999 1998
--------------------- ----------------------
INCOME SHARES LOSS SHARES
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Earnings (loss) per common share-- Basic ......... $ 15,784 19,848 $(14,204) 19,759
Effect of dilutive securities:
Stock options .................................. -- 67 -- --
-------- ------ -------- ------
Earnings (loss) per common share-- Diluted ....... $ 15,784 19,915 $(14,204) 19,759
======== ====== ======== ======
</TABLE>
7. CONTINGENCIES
The Company has been named as a defendant in the Gloria Garcia Lopez and
Husband, Hector S. Lopez, Individually, and as successors to Galo Land & Cattle
Company v. Mobil Producing Texas & New Mexico, et al. in the 79th Judicial
District Court of Brooks County, Texas. The plaintiffs allege: i) underpayment
of royalties and claim damages, on a gross basis, of $27.7 million plus $26.2
million in interest for the period from 1985 to date;
F-8
<PAGE> 138
ii) that their production was improperly commingled with gas produced from an
adjoining lease, resulting in damages, including interest of $40.8 million
(gross); and iii) numerous other claims that may result in unspecified damages.
Nuevo's working interest in these properties is 20%. The Company, along with the
other defendants in this case, denies these allegations and is vigorously
contesting these claims. Management does not believe that the final outcome of
this matter will have a material adverse impact on the Company's operating
results, financial condition or liquidity.
The Company has been named as a defendant in certain other lawsuits
incidental to its business. Management does not believe that the outcome of such
litigation will have a material adverse impact on the Company's operating
results or financial condition. However, these actions and claims in the
aggregate seek substantial damages against the Company and are subject to the
inherent uncertainties in any litigation. The Company is defending itself
vigorously in all such matters.
In March 1999, the Company discovered that a non-officer employee had
fraudulently authorized and diverted for personal use Company funds totaling
$5.9 million, $4.3 million in 1998 and the remainder in 1999, that were intended
for international exploration. Accordingly, the Company has reclassified the
amounts lost in 1998 and 1999 to other expense. Based on its review of the
facts, management is confident that only one employee was involved in the matter
and that all misappropriated funds have been identified. The Board has engaged a
Certified Fraud Examiner to conduct an in-depth review of the fraudulent
transactions to determine the scope of the fraud, the possibility of recovery of
amounts lost from insurance, from the terminated employee and/or from third
parties, and to make recommendations regarding what, if any, new internal
control procedures should be implemented.
In September 1997, there was a spill of crude oil into the Santa Barbara
Channel from a pipeline that connects the Company's Point Pedernales field with
shore-based processing facilities. The volume of the spill was estimated to be
163 barrels of oil. The costs of the clean up and the cost to repair the
pipeline either have been or are expected to be covered by insurance, less the
Company's deductibles, which in total are $120,000. Repairs were completed by
the end of 1997, and production recommenced in December 1997. The Company also
has exposure to certain costs that may not be recoverable from insurance,
including fines, penalties, and damages. Such costs are not quantifiable at this
time, but are not expected to be material to the Company's operating results,
financial condition or liquidity.
The Company's international investments involve risks typically associated
with investments in emerging markets such as an uncertain political, economic,
legal and tax environment 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 that the Company will
be successful in so protecting itself. A portion of the Company's investment in
the Republic of Congo in West Africa ("Congo") is insured through political risk
insurance provided by the Overseas Private Investment Corporation ("OPIC"). The
Company is currently investigating its options for political risk insurance in
the Republic of Ghana in West Africa ("Ghana").
The Company and its partners underwent a tax examination related to their
ownership interests in the Yombo field offshore the Republic of Congo, for the
years 1994 through 1997. On June 25, 1999, the Company and its partners settled
this tax assessment for a total of $1.0 million, of which the Company's share
was $400,000.
In connection with their respective acquisitions of two subsidiaries owning
interests in the Yombo field offshore West Africa (each a "Congo subsidiary"),
the Company and a wholly-owned subsidiary of CMS NOMECO Oil & Gas Co. ("CMS")
agreed with the seller not to claim certain tax 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 these tax losses
utilized by the seller in years prior to the acquisitions if certain triggering
events occur. A triggering event will not occur, however, if a subsequent
purchaser enters into certain agreements specified in the consolidated return
regulations intended to ensure that such losses will not be claimed. The
Company's potential direct liability could be as much as $50.0 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 $67.0 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.
8. ACQUISITIONS
In June 1999, the Company acquired oil properties located onshore and
offshore California for $61.4 million from Texaco, Inc. To purchase these
assets, the Company sued funds from a $100.0 million interest-bearing escrow
account that provided "like-kind exchange" tax treatment for the purchase of
domestic oil and gas producing properties. The escrow account was created with
proceeds from the Company's January 1999 sale of its East Texas natural gas
assets (see discussion in Note 9 below). Following the Texaco transaction, the
$41.0 million remaining
F-9
<PAGE> 139
in the escrow account, which included $2.4 million of interest income, was used
to repay a portion of the outstanding bank debt in early July 1999.
The acquired properties had estimated net proved reserves at June 30, 1999
of 33.7 million barrels of oil equivalent (BOE") and will increase the Company's
production from California by approximately 5.0 thousand BOE per day. All of
these properties are additional interests in the Company's existing properties
or are located near its existing properties. The acquisition includes interests
in Cymric, East Colainga, Dos Cuadras and other fields the Company operates.
9. DIVESTITURES
On January 6, 1999, the Company completed the sale of its East Texas
natural gas assets to an affiliate of Samson Resources Company for an adjusted
purchase price of approximately $191.0 million. Of the proceeds, $100.0 million
was set aside to fund an escrow account, as discussed above in Note 8. The
remainder of the proceeds were used to repay outstanding senior bank debt. The
Company realized an $80.3 million adjusted pre-tax gain on the sale of the East
Texas natural gas assets resulting in the realization of $14.6 million of the
Company's deferred tax asset. A $5.2 million gain on settled hedge transactions
was realized in connection with the closing this sale in 1999. The effective
date of the sale is July 1, 1998. The Company reclassified these assets to
assets held for sale and discontinued depleting these assets during the third
quarter of 1998. Estimated net proved reserves associated with these properties
totaled approximately 329.0 billion cubic feet of natural gas equivalent at
January 1, 1999.
F-10
<PAGE> 140
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nuevo Energy Company:
We have audited the accompanying consolidated balance sheets of Nuevo
Energy Company and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Nuevo Energy
Company and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, the
Company has given retroactive effect to the change in accounting for oil and gas
properties from the full cost method to the successful efforts method in 1998.
/s/ KPMG LLP
Houston, Texas
March 25, 1999
F-11
<PAGE> 141
NUEVO ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS:
DECEMBER 31,
------------------------
1998 1997*
----------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................................................ $ 7,403 $ 9,208
Accounts receivable .................................................................................. 25,096 38,196
Product inventory .................................................................................... 5,998 1,627
Assets held for sale ................................................................................. 120,055 6,950
Prepaid expenses and other ........................................................................... 2,700 2,879
----------- ----------
Total current assets .......................................................................... 161,252 58,860
----------- ----------
PROPERTY AND EQUIPMENT, at cost:
Land ................................................................................................. 51,038 51,411
Oil and gas properties (successful efforts method) ................................................... 959,348 984,273
Gas plant facilities ................................................................................. 17,112 15,500
Other facilities ..................................................................................... 6,696 7,831
----------- ----------
1,034,194 1,059,015
Accumulated depreciation, depletion and amortization ................................................. (417,622) (324,904)
----------- ----------
616,572 734,111
----------- ----------
DEFERRED TAX ASSETS, net ............................................................................... 27,534 --
OTHER ASSETS ........................................................................................... 12,327 11,315
----------- ----------
$ 817,685 $ 804,286
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable ..................................................................................... $ 24,393 $ 17,062
Accrued interest ..................................................................................... 4,161 4,285
Accrued drilling costs ............................................................................... 8,380 12,781
Accrued lease operating costs ........................................................................ 4,694 8,891
Other accrued liabilities ............................................................................ 4,843 2,868
Current maturities of long-term debt ................................................................. 3,152 3,716
----------- ----------
Total current liabilities ..................................................................... 49,623 49,603
----------- ----------
LONG-TERM DEBT, NET OF CURRENT MATURITIES .............................................................. 419,150 305,940
DEFERRED TAX LIABILITIES ............................................................................... -- 4,986
OTHER LONG-TERM LIABILITIES ............................................................................ 2,034 4,018
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED SECURITIES OF NUEVO FINANCING I ............................................................ 115,000 115,000
CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 10,000,000 shares authorized; 7% Cumulative Convertible
Preferred Stock, none issued and outstanding at December 31, 1998 and 1997 ........................ -- --
Common stock, $.01 par value, 50,000,000 shares authorized, 20,308,462 and
20,237,537 shares issued at December 31, 1998 and 1997, respectively ............................. 203 202
Additional paid-in capital ........................................................................... 355,600 354,296
Treasury stock, at cost, 473,876 and 497,372 shares, at December 31, 1998 and 1997, respectively ..... (19,335) (19,929)
Stock held by benefit trust, 47,759 and 45,119 shares, at December 31, 1998 and 1997, respectively ... (1,732) (1,244)
Accumulated deficit
(102,858) (8,586)
----------- ----------
Total stockholders' equity .................................................................... 231,878 324,739
----------- ----------
$ 817,685 $ 804,286
=========== ===========
</TABLE>
- ----------------
* Restated
See Notes to Consolidated Financial Statements.
F-12
<PAGE> 142
NUEVO ENERGY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997* 1996*
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Oil and gas revenues ............................................... $ 240,010 $ 331,973 $ 279,859
Gas plant revenues ................................................. 2,665 14,826 34,802
Pipeline and other revenues ........................................ 2,700 5,772 6,774
Gain on sale of assets, net ........................................ 5,768 1,372 6,008
Interest and other income .......................................... 1,560 3,335 1,614
--------- --------- ---------
252,703 357,278 329,057
--------- --------- ---------
COSTS AND EXPENSES:
Lease operating expenses ........................................... 134,704 120,042 93,062
Gas plant operating expenses ....................................... 3,202 13,356 29,311
Pipeline and other operating costs ................................. 2,028 5,243 6,105
Exploration costs .................................................. 16,562 11,082 4,571
(Revision of) provision for impairment on assets held for sale ..... (3,740) 23,942 --
Provision for impairment of oil and gas properties ................. 68,904 30,000 --
General and administrative expenses ................................ 18,633 19,822 14,880
Outsourcing fees ................................................... 9,461 11,984 10,249
Depreciation, depletion and amortization ........................... 85,036 102,158 75,664
Interest expense ................................................... 32,471 27,357 36,009
Dividends on Guaranteed Preferred Beneficial Interests in
Company's Convertible Debentures (TECONS) ....................... 6,613 6,613 165
Other expense ...................................................... 5,726 3,019 1,069
--------- --------- ---------
379,600 374,618 271,085
--------- --------- ---------
(Loss) income before income taxes, minority interest and
extraordinary item ................................................. (126,897) (17,340) 57,972
Income tax (benefit) expense ......................................... (32,625) (6,656) 23,965
Minority interest in loss of subsidiary .............................. -- (8) (271)
--------- --------- ---------
(Loss) income before extraordinary item .............................. (94,272) (10,676) 34,278
Extraordinary loss on early extinguishment of debt, net of
income tax benefit of $2,037 ....................................... -- 3,024 --
--------- --------- ---------
Net (loss) income .................................................... (94,272) (13,700) 34,278
Dividends on preferred stock ......................................... -- -- 939
--------- --------- ---------
Net (loss) income available to common stockholders ................... $ (94,272) $ (13,700) $ 33,339
========= ========= =========
(Loss) earnings per common share -- Basic:
(Loss) income before extraordinary item (net of dividends
on preferred stock) ............................................. $ (4.76) $ (0.54) $ 1.99
Extraordinary loss on early extinguishment of debt, net of
income tax benefit .............................................. -- (0.15) --
--------- --------- ---------
Net (loss) income .................................................. $ (4.76) $ (0.69) $ 1.99
========= ========= =========
Weighted average Common shares outstanding ........................... 19,795 19,796 16,755
========= ========= =========
(Loss) earnings per Common share-- Diluted:
(loss) income before extraordinary item ............................ $ (4.76) $ (0.54) $ 1.84
Extraordinary loss on early extinguishment of debt, net of
income tax benefit .............................................. -- (0.15) --
--------- --------- ---------
Net (loss) income .................................................. $ (4.76) $ (0.69) $ 1.84
========= ========= =========
Weighted average Common and dilutive potential Common shares
outstanding ........................................................ 19,795 19,796 18,596
========= ========= =========
</TABLE>
- ------------------
* Restated
See Notes to Consolidated Financial Statements.
F-13
<PAGE> 143
NUEVO ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL STOCK HELD RETAINED TOTAL
-------------- --------------- PAID-IN TREASURY BY BENEFIT EARNINGS STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK TRUST (DEFICIT) EQUITY
------ ------ ------ ------- ----------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1996* .................. 11,717 $ 117 15 $ 15 $ 151,442 $ -- $ -- $ (28,225) $ 123,349
Issuance of Common Stock .......... 6,384 64 -- -- 172,147 -- -- -- 172,211
Exercise of stock options and
related tax benefit ............. 587 6 -- -- 14,718 -- -- -- 14,724
Issuance of non-employee stock
options ......................... -- -- -- -- 244 -- -- -- 244
Issuance of warrants .............. -- -- -- -- 1,575 -- -- -- 1,575
Conversion of Preferred Stock ..... 1,164 12 (15) (15) -- -- -- -- (3)
Preferred Stock dividends ......... -- -- -- -- -- -- -- (939) (939)
Net income* ....................... -- -- -- -- -- -- -- 34,278 34,278
------ ------ ---- ------ --------- --------- -------- ------- ---------
December 31, 1996* ................ 19,852 199 -- -- 340,126 -- -- 5,114 345,439
====== ====== ==== ====== ========= ========= ======== ======= =========
Exercise of stock options and
related tax benefit ............. 386 3 -- -- 11,332 -- -- -- 11,335
Stock put options ................. -- -- -- -- 1,630 -- -- -- 1,630
Employee stock awards ............. -- -- -- -- 1,208 -- -- -- 1,208
Purchase of Treasury Shares ....... -- -- -- -- -- (21,173) -- -- (21,173)
Stock held by benefit trust ....... -- -- -- -- -- 1,244 (1,244) -- --
Net loss* ......................... -- -- -- -- -- -- -- (13,700) (13,700)
------ ------ ---- ------ --------- --------- -------- ------- ---------
December 31, 1997* ................ 20,238 202 -- -- 354,296 (19,929) (1,244) (8,586) 324,739
====== ====== ==== ====== ========= ========= ======== ======= =========
Exercise of stock options and
related tax benefit ............. 70 1 -- -- 1,304 -- -- -- 1,305
Stock held by benefit trust ....... -- -- -- -- -- 488 (488) -- --
Sale of Treasury Shares ........... -- -- -- -- -- 106 -- -- 106
Net loss .......................... -- -- -- -- -- -- -- (94,272) (94,272)
------ ------ ---- ------ --------- --------- -------- ------- ---------
December 31, 1998 ................. 20,308 $ 203 -- -- $ 355,600 $ (19,335) $ (1,732) $(102,858) $ 231,878
====== ====== ==== ====== ========= ========= ======== ======= =========
</TABLE>
- --------------
* Restated
See Notes to Consolidated Financial Statements.
F-14
<PAGE> 144
NUEVO ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997* 1996*
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ............................................................................ $ (94,272) $ (13,700) $ 34,278
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, depletion and amortization .................................................. 85,036 102,158 75,664
Dry hole costs ............................................................................ 12,962 9,311 3,145
Amortization of debt financing costs ...................................................... 1,643 1,513 1,370
Amortization of deferred revenue .......................................................... (1,625) (3,203) (4,104)
(Revision of) provision for impairment on assets held for sale ............................ (3,740) 23,942 --
Provision for impairment of oil and gas properties ........................................ 68,904 30,000 --
Gain on sale of assets, net ............................................................... (5,768) (1,372) (6,008)
Loss on early extinguishment of debt ...................................................... -- 5,061 --
Employee stock awards ..................................................................... -- 1,208 --
Deferred taxes ............................................................................ (32,520) (9,249) 22,465
Depreciation of deferred compensation liability ........................................... (1,138) -- --
Minority interest ......................................................................... -- (8) (271)
--------- --------- ---------
29,482 145,661 126,539
Changes in assets and liabilities, net of acquisition effects:
Accounts receivable .......................................................................... 13,051 578 (21,086)
Gas imbalances ............................................................................... 333 20 (198)
Accounts payable ............................................................................. 6,634 1,663 14,574
Accrued liabilities .......................................................................... (5,813) 13,719 11,316
Other ........................................................................................ (7,854) 3,821 (4,224)
--------- --------- ---------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES ...................................... 35,833 165,462 126,921
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to land ............................................................................ -- -- (51,638)
Additions to oil and gas properties .......................................................... (157,352) (195,108) (515,985)
Proceeds from sale of gas plant .............................................................. -- 24,992 --
Proceeds from sales of properties ............................................................ 11,830 2,385 42,700
Additions to gas plant and other facilities .................................................. (2,813) (1,747) (21,079)
--------- --------- ---------
NET CASH FLOWS USED IN INVESTING ACTIVITIES .......................................... (148,335) (169,478) (546,002)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ..................................................................... 240,900 234,000 408,000
Debt issuance costs .......................................................................... (3,360) -- (10,920)
Net proceeds from issuance of common stock ................................................... -- -- 138,327
Payments of long-term debt ................................................................... (128,254) (217,503) (232,359)
Preferred stock dividends .................................................................... -- -- (939)
Proceeds from exercise of stock options ...................................................... 1,305 6,074 10,003
Proceeds from issuance of Company-Obligated Mandatorily Redeemable
Convertible Preferred Securities of Nuevo Financing I ..................................... -- -- 115,000
Premium on early extinguishment of debt ...................................................... -- (3,440) --
Proceeds from sale of stock put options ...................................................... -- 1,630 --
Proceeds from sale of treasury stock ......................................................... 106 -- --
Purchase of treasury shares .................................................................. -- (21,173) --
Cash distribution to minority interest owner ................................................. -- -- (160)
--------- --------- ---------
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES ............................ 110,697 (412) 426,952
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ........................................... (1,805) (4,428) 7,871
Cash and cash equivalents at beginning of year ................................................. 9,208 13,636 5,765
--------- --------- ---------
Cash and cash equivalents at end of year ....................................................... $ 7,403 $ 9,208 $ 13,636
========= ========= =========
</TABLE>
- ------------------
* Restated
See Notes to Consolidated Financial Statements.
F-15
<PAGE> 145
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Nuevo Energy Company ("Nuevo") was formed as a Delaware corporation on
March 2, 1990, to acquire the businesses of certain public and private
partnerships (collectively "Predecessor Partnerships"). On July 9, 1990, the
plan of consolidation ("Plan of Consolidation") was approved by limited partners
owning a majority of units of limited partner interests in the partnerships
whereby the net assets of the Predecessor Partnerships, which were subject to
such Plan of Consolidation, were exchanged for Common Stock of Nuevo ("Common
Stock"). All references to the "Company" include Nuevo and its majority and
wholly-owned subsidiaries, unless otherwise indicated or the context indicates
otherwise.
The Company is primarily engaged in the exploration for, and the
acquisition, exploitation, development and production of crude oil and natural
gas. The Company's principal oil and gas properties are located domestically
onshore and offshore California, in East Texas and the onshore Gulf Coast
region; and internationally offshore West Africa.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Nuevo and its
majority and wholly-owned subsidiaries. The Company's 48.5% general partner
interest in Richfield Gas Storage Partnership was pro rata consolidated through
February 1998, at which time the Company's interest was sold. The consolidated
financial statements also include Bright Star Gathering, Inc., which was 80%
owned by the Company until it was sold in July 1998. NuStar Joint Venture and
its 66.7% investment in the Benedum Plant System, of which the Company owned a
95% interest, was pro rata consolidated through May 2, 1997, at which time the
Company's interest was sold. Minority interests have been deducted from results
of operations and stockholders' equity in the appropriate periods. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Change in Accounting Method
Effective January 1, 1998, the Company elected to convert from the full
cost method to the successful efforts method of accounting for its investments
in oil and gas properties. The Company believes that the successful efforts
method of accounting is preferable, as it will provide a fair presentation of
the Company's development activities in its core California business and the
drilling success of its selective exploration activities, and reflect an
impairment in the carrying value of its oil and gas properties only when there
has been a permanent decline in their fair value. Accordingly, all prior year
financial statements have been restated to conform with successful efforts
accounting. The effect, after tax, of the change in accounting method as of
December 31, 1997, was a reduction to retained earnings of $64.1 million,
primarily attributable to a decrease in net property and equipment and the
deferred tax liability of $99.2 million and $38.0 million, respectively. The
change in accounting method resulted in a decrease in net income of $32.5
million ($1.64 per share -- basic and diluted) and $0.4 million ($0.02 per share
- -- basic and diluted) during 1997 and 1996, respectively. Had the Company not
converted to the successful efforts method, the results of operations for the
three months ended March 31, 1998, would have included a pre-tax full cost
ceiling write-down of approximately $250.0 million.
F-16
<PAGE> 146
Oil and Gas Properties
The Company utilizes the successful efforts method of accounting for its
investments in oil and gas properties. Under successful efforts, oil and gas
lease acquisition costs and intangible drilling costs associated with
exploration efforts that result in the discovery of proved reserves and costs
associated with development drilling, whether or not successful, are capitalized
when incurred. When a proved property is sold, ceases to produce or is
abandoned, a gain or loss is recognized. When an entire interest in an unproved
property is sold for cash or cash equivalent, gain or loss is recognized, taking
into consideration any recorded impairment. When a partial interest in an
unproved property is sold, the amount received is treated as a reduction of the
cost of the interest retained.
Unproved leasehold costs are capitalized pending the results of exploration
efforts. Significant unproved leasehold costs are reviewed periodically and a
loss is recognized to the extent, if any, that the cost of the property has been
impaired. An impairment of unproved leasehold costs of $8.1 million was
recognized as of December 31, 1998. Exploration costs, including geological and
geophysical expenses, exploratory dry holes and delay rentals, are charged to
expense as incurred.
Costs of productive wells, development dry holes and productive leases are
capitalized and depleted on a unit-of-production basis over the life of the
remaining proved reserves. Capitalized drilling costs are depleted on a
unit-of-production basis over the life of the remaining proved developed
reserves. Estimated costs (net of salvage value) of dismantlement, abandonment
and site remediation are computed by the Company's independent reserve engineers
and are included when calculating depreciation and depletion using the
unit-of-production method.
The Company reviews proved oil and gas properties on a depletable unit
basis whenever events or circumstances indicate that the carrying value of those
assets may not be recoverable. For each depletable unit determined to be
impaired, an impairment loss equal to the difference between the carrying value
and the fair value of the depletable unit is recognized. Fair value, on a
depletable unit basis, is estimated to be the present value of the undiscounted
expected future net revenues computed by application of estimated future oil and
gas prices, production and expenses, as determined by management, to estimated
future production of oil and gas reserves over the economic life of the
reserves. If the carrying value exceeds the undiscounted future net revenues, an
impairment is recognized equal to the difference between the carrying value and
the discounted estimated future net revenues of that depletable unit. The
Company considers probable reserves and escalated commodity pricing in its
estimate of future net revenues. Fair value impairments of $60.8 million and
$30.0 million were recognized as of December 31, 1998 and 1997, respectively; no
such impairment was recognized during 1996.
Interest costs associated with non-producing leases and exploration and
development projects are capitalized only for the period that activities are in
progress to bring these projects to their intended use. The capitalization rates
are based on the Company's weighted average cost of funds used to finance
expenditures.
Any reference to oil and gas reserve information in the Notes to
Consolidated Financial Statements is unaudited.
F-17
<PAGE> 147
Environmental Liabilities
Environmental expenditures that relate to current or future revenues are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or clean-ups are probable, and the costs can be reasonably
estimated. Generally, the timing of these accruals coincides with the Company's
commitment to a formal plan of action.
Gas Plant and Other Facilities
Gas plant and other facilities include the costs to acquire certain gas
plant and other facilities and to secure rights-of-way. Capitalized costs
associated with gas plant and other facilities are amortized primarily over the
estimated useful lives of the various components of the facilities utilizing the
straight-line method. The estimated useful lives of such assets range from three
to thirty years. The Company reviews these assets for impairment whenever events
or changes in circumstances indicate that their carrying amounts may not be
recoverable.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement, as amended,
establishes standards of accounting for and disclosures of derivative
instruments and hedging activities. This statement requires all derivative
instruments to be carried on the balance sheet at fair value and is effective
for the Company beginning January 1, 2001, however, early adoption is permitted.
The Company has not yet determined the impact of this statement on its financial
condition or results of operations or whether it will adopt the statement early.
Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income",
effective January 1, 1998. Comprehensive income includes net income and all
changes in an enterprise's other comprehensive income including, among other
things, foreign currency translation adjustments, and unrealized gains and
losses on certain investments in debt and equity securities. The implementation
of this statement had no impact on the Company, as there are no differences
between comprehensive (loss) income and net (loss) income for the periods
presented.
Gas Balancing Positions
The Company uses the entitlement method for recording sales of natural gas.
Under the entitlement method, revenue is recorded based on the Company's net
revenue interest in production. Deliveries of natural gas in excess of the
Company's net revenue interests are recorded as liabilities and under-deliveries
are recorded as assets. Production imbalances are recorded at the lower of the
sales price in effect at the time of production or the current market value.
Substantially all such amounts are anticipated to be settled with production in
future periods.
F-18
<PAGE> 148
Derivative Financial Instruments
The Company utilizes derivative financial instruments to reduce its
exposure to changes in the market prices of natural gas and crude oil. Commodity
derivatives utilized as hedges include futures, swap and option contracts, which
are used to hedge natural gas and oil prices. Commodity price and basis swaps
are sometimes used to hedge the basis differential between the derivative
financial instrument index price and the commodity field price. In order to
qualify as a hedge, price movements in the underlying commodity derivative must
be highly correlated with the hedged commodity. Settlement of gains and losses
on price swap contracts are realized monthly, generally based upon the
difference between the contract price and the average closing New York
Mercantile Exchange ("NYMEX") price and are reported as a component of oil and
gas revenues and operating cash flows in the period realized.
Gains and losses on option and futures contracts that qualify as a hedge of
firmly committed or anticipated purchases and sales of oil and gas commodities
are deferred on the balance sheet and recognized in income when the related
hedged transaction occurs. Premiums paid on option contracts are deferred in
other assets and amortized into oil and gas revenues over the terms of the
respective option contracts. Gains or losses attributable to the termination of
a derivative financial instrument are deferred on the balance sheet and
recognized in revenue when the hedged crude oil and natural gas is sold. There
were no such deferred gains or losses at December 31, 1998 or 1997. Gains or
losses on derivative financial instruments that do not qualify as a hedge are
recognized in income currently.
As a result of such hedging transactions, oil and gas revenues were
increased by $0.6 million in 1998, and were reduced by $6.0 million and $2.5
million in 1997 and 1996, respectively.
Earnings per Share ("EPS")
Basic EPS is computed by dividing income available to common stockholders
by the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue Common Stock were exercised or converted into Common
Stock or resulted in the issuance of Common Stock that then shared in the
earnings of the entity. For the years ended December 31, 1998 and 1997, the
Company did not have any potentially dilutive securities, as net losses were
incurred during these periods. For the year ended December 31, 1996, the
Company's potentially dilutive securities included dilutive stock options.
Potential dilution may also occur in future periods due to the Company-Obligated
Mandatorily Redeemable Convertible Preferred Securities of Nuevo Financing I
("TECONS").
Stock-Based Compensation
The Company applies the intrinsic value method for accounting for stock and
stock-based compensation described by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees". Had the Company applied the fair
value method described by SFAS No. 123, "Accounting for Stock-Based
Compensation", it would have incurred compensation expense for stock-based
compensation in 1998, 1997 and 1996. (See Note 8 for the SFAS No. 123 pro forma
effects on income and earnings per share.)
Income Taxes
Deferred taxes are accounted for under the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to
F-19
<PAGE> 149
differences between the financial statement carrying amounts and the tax basis
of existing assets and liabilities. The effect on deferred taxes of a change in
tax rates is recognized in income in the period the change occurs.
Statements of Cash Flows
For cash flow presentation purposes, the Company considers all highly
liquid money market instruments with an original maturity of three months or
less to be cash equivalents. Interest paid in cash, net of amounts capitalized,
for 1998, 1997 and 1996 was $31.6 million, $28.2 million and $30.6 million,
respectively. Net amounts paid (refunded) in cash for income taxes for 1998,
1997 and 1996 were $1,332,000, ($45,000) and $1,500,000, respectively.
Product Inventory
Inventory relating to quantities of processed fuel oil and natural gas
liquids in storage as of the balance sheet date is carried at current market
pricing. The Company recognizes revenue for fuel oil sales when the sale is
completed and risk of loss transfers to a third party purchaser. Fuel oil in
inventory is stated at year end market prices less transportation costs; the
Company recognizes changes in the market value of inventory from one period to
the next as oil revenues.
Use of Estimates
In order to prepare these financial statements in conformity with generally
accepted accounting principles, management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities, as well as reserve
information, which affects the depletion calculation. Actual results could
differ from those estimates.
Reclassifications
Certain reclassifications of prior period amounts have been made to conform
to the current presentation.
3. ACQUISITIONS
In April 1998, the Company acquired a third party's interest in the Yombo
field in the Republic of Congo, West Africa ("Congo") for $7.8 million. Such
acquisition added 3.4 million barrels of oil equivalent to the Company's reserve
base and increased the Company's net working interest in the Congo from 43.75%
to 50.0%.
In July 1996, the Company completed the acquisition of certain East Texas
oil and gas properties for a net purchase price of $9.3 million in cash. The
acquisition of these properties was effective as of December 1, 1995, and the
purchase price was reduced by the net cash flows from production between such
date and closing. In December 1996, the holders of the preferential rights on
these properties exercised such rights for a cash payment of $8.0 million,
acquiring properties constituting approximately half of the estimated proved
reserves related to this acquisition.
In April 1996, the Company consummated the acquisition of (i) certain
upstream oil and gas properties located onshore and offshore California ("Unocal
Properties") of Union Oil Company of California ("Unocal") for an adjusted
purchase price of $490.2 million in cash plus a contingent payment based on
future realized oil prices, and (ii) certain California oil properties ("Point
F-20
<PAGE> 150
Pedernales Properties", and together with the Unocal Properties, the "California
Properties") from Torch Energy Advisors Incorporated ("Torch") and certain of
its wholly-owned subsidiaries for a net adjusted purchase price of $35.7 million
in Common Stock of the Company. The acquisition of the California Properties was
effective as of October 1, 1995, and the purchase price was reduced by the net
cash flows from production between such date and closing. The acquisition was
recorded using the purchase method, effective April 1, 1996 for accounting
purposes.
4. DIVESTITURES
On January 6, 1999, the Company completed the sale of its East Texas
natural gas assets to an affiliate of Samson Resources Company for an adjusted
purchase price of $192.0 million. Of the proceeds, $100.0 million was set aside
to fund an escrow account to provide "like-kind exchange" tax treatment in the
event the Company acquires domestic producing oil and gas properties in the
first half of 1999. The remainder of the proceeds were used to repay outstanding
senior bank debt. A $5.2 million gain on settled hedge transactions was realized
in connection with the closing of this sale in 1999. The effective date of the
sale is July 1, 1998. The Company reclassified these assets to assets held for
sale and discontinued depleting these assets during the third quarter of 1998.
Estimated net proved reserves associated with these properties totaled
approximately 329.0 billion cubic feet of natural gas equivalent at January 1,
1999. The following condensed balance sheet reflects the pro forma effects of
the sale of the East Texas assets:
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, ADJUSTMENTS DECEMBER 31,
1998 (SALE OF E. TX) 1998
----------- --------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets ............................ $ 161,252 $ (10,055) $ 151,197
Net property and equipment ................ 616,572 -- 616,572
Deferred tax assets, net .................. 27,534 (15,222) 12,312
Other assets .............................. 12,327 -- 12,327
--------- --------- ---------
$ 817,685 $ (25,277) $ 792,408
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities ....................... $ 49,623 $ (9,530) $ 40,093
Long-term debt ............................ 419,150 (82,633) 336,517
Deferred tax liabilities .................. -- -- --
Deferred revenue .......................... -- -- --
Other long-term liabilities ............... 2,034 -- 2,034
TECONS .................................... 115,000 -- 115,000
Stockholders' equity ...................... 231,878 66,886 298,764
--------- --------- ---------
$ 817,685 $ (25,277) $ 792,408
========= ========= =========
</TABLE>
During the third quarter of 1998, the Company sold its interest in the
Sansinena field in California, and recorded a gain on the sale of $4.1 Million.
During the first quarter of 1998, the Company sold its interest in the Coke
Field in Chapel Hill, Texas, and recorded a $1.7 Million gain on this sale.
In december 1997, the Company announced its intention to dispose of the
remainder of its non- core gas gathering, pipeline and storage assets during
1998. Such assets include: the Company's 48.5% interest in the Richfield Gas
Storage facility, which was sold in February 1998 at its
F-21
<PAGE> 151
approximate carrying value; an 80% interest in Bright Star Gathering, Inc.,
which was sold in July 1998 at its approximate carrying value; and the Illini
pipeline. The Company recorded a non-cash, pre-tax charge to fourth quarter 1997
earnings of $23.9 million, reflecting the estimated loss on the disposition of
these assets. A positive revision to this charge was made in the fourth quarter
of 1998 in the amount of $3.7 Million to reflect the estimated current fair
value of the Illini pipeline. The Company entered into a sale agreement during
1998 to sell the Illini pipeline to a third party. Such sale is currently
pending and awaiting regulatory approval. The Company's results of operations
for the year ended December 31, 1998, included the operating results from these
assets through the disposition date, as applicable; however, these assets were
not depreciated during 1998. The Company will retain its California gas plants,
as these plants are strategic assets for the Company's oil and gas activities in
California.
In May 1997, Nuevo Liquids, a wholly-owned subsidiary of the Company, sold
its 95% interest in the Nustar Joint Venture, which held the Company's
investment in the Benedum Plant System, for proceeds of $25.0 million. The
effective date of the sale was January 1, 1997. Proceeds from the sale were used
to reduce outstanding debt under the Company's revolving credit facility, as
well as project debt related to the Benedum Gas Plant in the amount of $5.9
Million. The Company recorded a pre-tax gain of $2.3 million relating to the
sale.
During the first quarter of 1997, the Company sold its interest in the
Second Bayou Field in Cameron Parish, Louisiana and recorded a gain of $1.4
million. During the third quarter of 1997, the Company recognized a loss of $1.6
million on the sale of South Timbalier Block 8. In addition, the Company
disposed of several non-core properties at a combined net loss of $679,000.
In June 1996, the Company sold 177 producing wells and the majority of its
acreage in the Giddings field and East Texas Austin Chalk holdings for $27.3
million recognizing a gain of $9.2 million. The Company retained ownership of
seven wells and surrounding acreage in the Turkey Creek prospect area of the
Austin Chalk trend. The Company also sold several non-core properties at a
combined loss of $3.2 million.
5. PRODUCTION PAYMENTS
In April 1994, the Company entered into a four-year commitment for a $30.0
million volumetric production payment for the development of certain infill
drilling locations in the Oak Hill field in East Texas. The proceeds from this
agreement financed the capital expenditures for well drilling, fracturing and
completing and for surface facility installations. Each advance under the
production payment obligates the Company to deliver a fixed volume of natural
gas, based upon prevailing market conditions at the time of the advance. During
1994, the Company received $18.4 million, committing the Company to deliver 10.7
BCF of natural gas through December 1998. As of December 31, 1998, the Company
had fulfilled its obligation under this commitment. The cash advances were
reflected as deferred revenues on the Company's December 31, 1997 consolidated
balance sheet and were amortized into revenue as the natural gas volumes were
delivered. No such advances were received in 1998, 1997 or 1996.
6. OUTSOURCING SERVICES
Torch, the Company's outside service provider, is primarily 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,
accounting and administrative staff.
F-22
<PAGE> 152
In early 1999, Nuevo signed new outsourcing agreements with Torch and its
subsidiaries, effective January 1, 1999, to provide the following services: (i)
oil and gas administration (accounting, information technology and land
administration); (ii) human resources; (iii) corporate administration (legal,
graphics, support, and corporate insurance); (iv) crude oil marketing; (v)
natural gas marketing; (vi) land leasing, and (vii) field operations. Each of
the new agreements is stand alone, with different terms ranging from one to five
years. In addition, the Company executed a Master Services Agreement with Torch,
which contains all the overall terms and conditions governing each individual
service agreement. Several functions, such as mergers and acquisitions and
internal audit, will be brought in-house. The Company is still in the process of
finalizing the field operations agreement with Torch, but anticipates signing
this agreement in late March 1999.
Prior to January 1, 1999, the Company's outsourcing services were governed
by an agreement with Torch (the "Torch Agreement") whereby Torch administered
certain business activities of the Company for a monthly fee. The Torch
Agreement required Torch to administer the business activities of the Company
for a monthly fee equal to the sum of one-twelfth of 2% on the first $250
million of assets and one-twelfth of 1% on assets in excess of $250 million,
excluding certain gas plant facilities and cash, plus 2% of monthly operating
cash flows (as defined) during the period in which the services were rendered.
In addition, the Torch Agreement contained a provision whereby 20% of the
overhead fees on Torch operated properties were credited against the monthly fee
paid to Torch, as well as a provision whereby the monthly fee was credited for
one-twelfth of $900,000. For the years ended December 31, 1998, 1997 and 1996,
outsourcing fees paid to Torch amounted to $9.5 million, $12.0 million and $10.2
million, respectively.
A subsidiary of Torch markets oil, natural gas and natural gas liquids from
certain oil and gas properties and gas plants in which the Company owns an
interest. In 1998, 1997 and 1996, such marketing fees were $2.0 million, $2.9
million and $2.8 million, respectively.
Torch operates certain oil and gas interests owned by the Company. The
Company is charged, on the same basis as other third parties, for all customary
expenses and cost reimbursements associated with these activities. Operator's
fees charged for these activities for the years ended December 31, 1998, 1997
and 1996, was $25.5 million, $24.8 million and $8.8 million, respectively.
In consideration of the services rendered by Torch in connection with the
origination of the 1996 acquisition of the Unocal Properties, the Company agreed
to pay Torch $10.0 million in twelve equal monthly installments after the
closing of the acquisition.
7. RELATED PARTY TRANSACTIONS
A broker's fee of 30,000 warrants was granted to a company, of which a
director of the Company is a partner, for services associated with the
acquisition of the Unocal Properties. These warrants were exercised in the first
quarter of 1997.
Included in general and administrative expenses for 1997 was a $1.7 million
severance payment to the Company's former President and Chief Executive Officer.
F-23
<PAGE> 153
8. STOCKHOLDERS' EQUITY
Common and Preferred Stock
The Certificate of Incorporation of the Company authorizes the issuance of
up to 50,000,000 shares of Common Stock and 10,000,000 shares of Preferred
Stock, the terms, preferences, rights and restrictions of which are established
by the Board of Directors of the Company. All shares of Common Stock have equal
voting rights of one vote per share on all matters to be voted upon by
stockholders. Cumulative voting for the election of directors is not permitted.
Certain restrictions contained in the Company's loan agreements limit the amount
of dividends that may be declared. Under the terms of the most restrictive
indenture of the 87/8% Senior Subordinated Notes and the 9 1/2% Senior
Subordinated Notes described in Note 10, the Company and its restricted
subsidiaries had no funds available for the payment of dividends at December 31,
1998. However, the Company had unrestricted liquidity available through its
unrestricted subsidiaries at December 31, 1998.
On December 23, 1996, the Company and United Investors Management Company
("United") and The 1818 Fund, L.P. ("The 1818 Fund") closed the offering of
2,138,605 shares of Common Stock (the "Shares"). United sold 1,275,000 shares
and The 1818 Fund sold 863,605 shares. The price to the public of the Shares was
$47.50 per share. All of the Shares sold by United were outstanding and 112 of
the Shares sold by The 1818 Fund were outstanding prior to the offering. The
remaining 863,493 of the Shares sold by The 1818 Fund were issued upon
conversion of the remaining 11,220 shares of 7% Preferred Stock of the Company.
The Company did not receive any proceeds from the issuance of these shares. As a
result of this conversion by The 1818 Fund of its shares of 7% Preferred Stock,
there are no longer any shares of the 7% Preferred Stock outstanding.
During April 1996, the Company partially financed the acquisition of the
Unocal Properties with the proceeds from the sale to the public of 5,109,200
shares of Common Stock (the "Common Stock Offering"). The purchase of the Point
Pedernales Properties was financed by the issuance to Torch of 1,275,000 shares
of the Company's Common Stock valued at the public offering price of $28.00 per
share in the Common Stock Offering.
F-24
<PAGE> 154
EPS Computation
SFAS No. 128, "Earnings per Share", requires a reconciliation of the
numerator (income) and denominator (shares) of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. In 1998 and 1997,
weighted average potential dilutive common shares of 331,000 and 670,000 are not
included in the calculation of diluted loss per share due to their anti-dilutive
effect. The Company's reconciliation is as follows (amounts in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 1997* 1996*
---------------------- ---------------------- ---------------------
LOSS SHARES LOSS SHARES INCOME SHARES
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
(Loss) income before
extraordinary item ................... $(94,272) $(10,676) $ 34,278
Less: Dividends on Preferred
Stock ................................ -- -- (939)
-------- -------- --------
(Loss) earnings before
extraordinary item per
Common share-- Basic ................. (94,272) 19,795 (10,676) 19,796 33,339 16,755
Effect of dilutive securities:
Convertible Preferred
Stock ................................ -- -- -- -- 939 --
Stock options .......................... -- -- -- -- -- 1,841
-------- ------ -------- ------ -------- ------
(Loss) earnings before
extraordinary item per
Common share--Diluted ................ $(94,272) 19,795 $(10,676) 19,796 $ 34,278 18,596
======== ====== ======== ====== ======== ======
</TABLE>
- ---------------
* Restated
Treasury Stock Repurchases
In March 1997, the Board of Directors of the Company authorized the open
market repurchase of up to one million shares of outstanding Common Stock during
1997, at times and prices deemed attractive by management. During April 1997,
the Company repurchased 500,000 shares of Common Stock in open market
transactions, at an average purchase price of $38.94 per share, plus 42,491
shares acquired from the cancellation of warrants issued during 1996. In
December 1997, the Board of Directors authorized the open market repurchase of
an additional 500,000 shares of Common Stock during 1998, however, no such
repurchase occurred during 1998.
Put Options
In May 1997, the Company sold put options on its Common Stock to a third
party. The options gave the purchaser the right to sell to the Company 500,000
shares of its Common Stock at prices ranging from $40.26 to $41.04 per share
through December 31, 1997. The contract gave the Company the choice of net cash,
net shares, or physical settlement. Any repurchased shares would have been
treated as Treasury Stock. The Company generated $1.6 million in option premium
from these transactions, which is reflected in additional paid-in capital on the
balance sheet. As of December 31, 1997, 400,000 of these options had expired
with the Company's share prices above the strike price, and 100,000 of these
options were settled on December 31, 1997, for a nominal amount of net cash.
F-25
<PAGE> 155
Shareholder Rights Plan
In March 1997, the Company adopted a Shareholder Rights Plan to protect the
Company's shareholders from coercive or unfair takeover tactics. Under the
Shareholder Rights Plan, each outstanding share and each share of subsequently
issued Common Stock has attached to it one Right. Generally, in the event a
person or group ("Acquiring Person") acquires or announces an intention to
acquire beneficial ownership of 15% or more of the outstanding shares of Common
Stock without the prior consent of the Company, or the Company is acquired in a
merger or other business combination, or 50% or more of its assets or earning
power is sold, each holder of a Right will have the right to receive, upon
exercise 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 price of two
times the exercise price of the Right. The Company may redeem the Right for $.01
at any time before a person or group becomes an Acquiring Person without prior
approval. The Rights will expire on March 21, 2007, subject to earlier
redemption by the Board of Directors of the Company.
Executive Compensation Plan
During July 1997, the Board of Directors of the Company adopted a plan to
encourage senior executives to personally invest in the shares of the Company,
and to regularly review executives' ownership versus targeted ownership
objectives. These incentives include a deferred compensation plan (the "Plan")
that gives key executives the ability to defer all or a portion of their
salaries and bonuses and invest in Common Stock of the Company at a discount to
market prices or make other investments at the employee's discretion. Stock
acquired at a discount will be held in a benefit trust and restricted for a two-
year period. The stock held in the benefit trust is accounted for as a liability
of the Company and is marked-to-market, with any necessary adjustment to general
and administrative expense. The Company recorded a benefit related to deferred
compensation of $0.6 million in 1998 and an expense of $0.8 million in 1997. The
Plan does not permit investment in a diversified equity portfolio until and
unless targeted levels of Common Stock ownership in the Company are achieved and
maintained. Target levels of ownership are based on multiples of base salary and
are administered by the Compensation Committee of the Board of Directors. The
Plan applies to all executives at a level of Vice-President and above.
Stock Incentive Plan
In 1990, the Company established its 1990 Stock Option Plan ("Stock Option
Plan"), with respect to its Common Stock, and in 1993, the Board of Directors
adopted the Nuevo Energy Company 1993 Stock Incentive Plan ("Stock Incentive
Plan"). The purpose of the Stock Option Plan and the Stock Incentive Plan is to
provide directors and key employees of the Company and its subsidiaries
performance incentives and to provide a means of encouraging stock ownership in
the Company by such persons.
The maximum number of shares subject to options under the Stock Incentive
Plan is 2,500,000 shares. Options are granted under the Stock Incentive Plan on
the basis of the optionee's contribution to the Company. No option may exceed a
term of more than ten years. Options granted under the Stock Incentive Plan may
be either incentive stock options or options that do not qualify as incentive
stock options. The Company's compensation committee is authorized to designate
the recipients of options, the dates of grants, the number of shares subject to
options, the option price, the terms of payment upon exercise of the options,
and the time during which the options may be exercised. Options granted are
exercisable, in full, six months following the date of the grant.
F-26
<PAGE> 156
A summary of activity in the stock option plans during the three years
ended 1998 is set forth below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at January 1, 1996 ............................. 1,835,837 $17.97
Granted .................................................. 518,100 $38.10
Exercised ................................................ (587,799) $17.03
---------
Outstanding at December 31, 1996 ........................... 1,766,138 $24.24
Granted .................................................. 652,875 $41.89
Exercised ................................................ (328,550) $18.59
Canceled ................................................. (1,000) $47.88
---------
Outstanding at December 31, 1997 ........................... 2,089,463 $30.61
Granted .................................................. 1,124,800* $16.27
Exercised ................................................ (70,925) $18.35
Canceled ................................................. (466,975)* $36.19
---------
Outstanding at December 31, 1998 ........................... 2,676,363 $23.94
=========
</TABLE>
- ------------
* Reflects the cancellation and re-issuance of 401,850 non-executive employee
stock options on December 14, 1998.
The Company had 1,756,263 options and 1,493,088 options exercisable at
December 31, 1998 and 1997, respectively. Detail of stock options outstanding
and options exercisable at December 31, 1998 follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------ ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
RANGE OF EXERCISE PRICES NUMBER LIFE (YEARS) PRICE NUMBER PRICE
- ------------------------------ --------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$11.00 to $12.38 ............. 738,934 9.54 $ 11.18 43,334 $ 11.64
$16.13 to $22.13 ............. 1,046,429 4.84 $ 19.52 821,929 $ 19.21
$29.00 to $39.93 ............. 322,000 6.46 $ 32.73 322,000 $ 32.73
$41.50 to $47.88 ............. 569,000 7.83 $ 43.70 569,000 $ 43.70
--------- ---------
Total .............. 2,676,363 1,756,263
========= =========
</TABLE>
F-27
<PAGE> 157
The weighted-average fair value of options granted during 1998, 1997 and
1996, was $7.55, $12.89 and $11.52, respectively. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: expected stock price
volatility of 50.9% in 1998, 35.2% in 1997 and 33.6% in 1996; risk free interest
of 5% in 1998, 5.75% in 1997, and 6% in 1996, and average expected option lives
of 3 years. Had compensation expense for stock-based compensation been
determined based on the fair value at the date of grant, the Company's net
income, earnings available to Common Stockholders and earnings per share would
have been reduced to the pro forma amounts indicated below (amounts in
thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997* 1996*
----------- ----------- -----------
<S> <C> <C> <C> <C>
Net (loss) income ..................................... As reported $ (94,272) $ (13,700) $ 34,278
Pro forma $ (103,434) $ (16,315) $ 32,028
Net (loss) income available to Common
Stockholders ........................................ As reported $ (94,272) $ (13,700) $ 33,339
Pro forma $ (103,434) $ (16,315) $ 31,089
(Loss) earnings per Common share --
Basic ............................................... As reported $ (4.76) $ (0.69) $ 1.99
Pro forma $ (5.23) $ (0.82) $ 1.86
(Loss) earnings per Common share --
Diluted ............................................. As reported $ (4.76) $ (0.69) $ 1.84
Pro forma $ (5.23) $ (0.82) $ 1.72
</TABLE>
- ----------------
* Restated
9. COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES
OF NUEVO FINANCING I
On December 23, 1996, the Company and Nuevo Financing I, a statutory
business trust formed under the laws of the state of Delaware, (the "Trust"),
closed the offering of 2,300,000 Term Convertible Securities, Series A,
("TECONS") on behalf of the Trust. The price to the public of the TECONS was
$50.00 per TECONS. Distributions on the TECONS began to accumulate from December
23, 1996, and are payable quarterly on March 15, June 15, September 15, and
December 15, at an annual rate of $2.875 per TECONS. Each TECONS is convertible
at any time prior to the close of business on December 15, 2026, at the option
of the holder into shares of Common Stock at the rate of .8421 shares of Common
Stock for each TECONS, subject to adjustment. The sole asset of the Trust as the
obligor on the TECONS is $115.0 million aggregate principal amount of 5.75%
Convertible Subordinated Debentures of the Company due December 15, 2026.
F-28
<PAGE> 158
10. LONG-TERM DEBT
Long-term debt is comprised of the following at December 31, 1998 and 1997
(amounts in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
8 7/8% Senior Subordinated Notes, net of discount (a) .......... $ 100,000 $ --
9 1/2% Senior Subordinated Notes (b) ............................ 160,000 160,000
OPIC credit facility (at 5.55% and 6.04% at December 31,
1998 and 1997, respectively, plus a guaranty fee of 2.75%)
(c) ........................................................... 3,902 7,605
Bank credit facility (at 5.94% and 6.125%) at December 31,
1998 and 1997)(d) ............................................. 158,400 142,000
Other ........................................................... -- 51
--------- ---------
Total debt ............................................ 422,302 309,656
Less current maturities ......................................... (3,152) (3,716)
--------- ---------
Long-term debt .................................................. $ 419,150 $ 305,940
========= =========
</TABLE>
- ----------
(a) In June 1998, the Company issued $100.0 million, 8 7/8% Senior Subordinated
Notes due June 1, 2008 (the "8 7/8% Notes"). Interest on the 8 7/8% Notes
accrues at the rate of 8 7/8% per annum and is payable semi-annually in
arrears on June 1 and December 1. The 8 7/8% Notes are redeemable, in whole
or in part, at the option of the Company, on or after June 1, 2003, under
certain conditions. The Company is not required to make mandatory
redemption or sinking fund payments with respect to the 8 7/8% Notes. The
indenture contains covenants that, among other things, limit the Company's
ability to incur additional indebtedness, limits restricted payments, limit
issuances and sales of capital stock by restricted subsidiaries, limit
dispositions of proceeds of asset sales, limit dividends and other payment
restrictions affecting restricted subsidiaries, and restricts mergers,
consolidations or sales of assets. The 8 7/8% Notes are guaranteed by
certain of Nuevo's subsidiaries. The 8 7/8% Notes are unsecured general
obligations of the Company, and are subordinated in right of payment to all
existing and future senior indebtedness of the Company. In the event of a
defined change in control, the Company will be required to make an offer to
repurchase all outstanding 8 7/8% Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of redemption.
(b) In April 1996, the Company financed a portion of the purchase price of the
Unocal Properties with proceeds from the sale to the public of a principal
amount of $160.0 million, 9 1/2% Senior Subordinated Notes due April 15,
2006 (the "9 1/2% Notes"). Interest on the 9 1/2% Notes accrues at the rate
of 9 1/2% per annum and is payable semi-annually in arrears on April 15 and
October 15. The 9 1/2% Notes are redeemable, in whole or in part, at the
option of the Company, on or after April 15, 2001, under certain
conditions. The Company is not required to make mandatory redemption or
sinking fund payments with respect to the 9 1/2% Notes. The indenture
contains covenants that, among other things, limit the Company's ability to
incur additional indebtedness, limits restricted payments, limit issuances
and sales of capital stock by restricted subsidiaries, limit dispositions
of proceeds of asset sales, limit dividends and other payment restrictions
affecting restricted subsidiaries, and restricts mergers, consolidations or
sales of assets. The 9 1/2% Notes were guaranteed by certain of Nuevo's
subsidiaries until February 1998, at which time such subsidiaries were
released as guarantors. The 9 1/2% Notes are unsecured general obligations
of the Company, and are subordinated in right of payment to all existing
and future senior indebtedness of the Company. In the event of a defined
change in control, the Company will be required to make an offer to
repurchase all outstanding 9 1/2% Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of redemption.
(c) In February 1995, in connection with the purchase of the stock of Amoco
Congo Production Company, the Company negotiated with the Overseas Private
Investment Corporation ("OPIC") and an agent bank for a non-recourse credit
facility in the amount of $25.0 million. The security for such facility is
the assets and stock of the Nuevo Congo Company ("NCC"). The initial
drawdown on the facility was $8.8 million to finance a portion of the
purchase price. The remaining funds under the credit facility will be used
to finance 75% of the development drilling program in the Congo. 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 Congo. The interest rate associated with such credit facility is the
London Interbank Offered Rate ("LIBOR") plus 20 basis points and a guaranty
fee of 2.75% of the outstanding loan balance, payable quarterly. At
December 31, 1998, the interest rate was 5.55%, plus the guarantee fee of
2.75%. The loan agreement requires a sixteen-quarter repayment period.
F-29
<PAGE> 159
(d) Nuevo's Amended and Restated Credit Agreement, (the "Agreement"), dated as
of February 13, 1998, provides for unsecured revolving credit availability
of up to $400 million (subject to a periodic borrowing base determination)
from a bank group led by NationsBank of Texas, N.A. and Morgan Guaranty
Trust Company of New York, until its expiration on April 1, 2003.
The borrowing base determination establishes the maximum borrowings that
may be outstanding under the credit facility, and is determined by a
two-thirds vote of the banks (three-fourths in the event of an increase in
the borrowing base), each of which bases its judgment on (i) the present
value of the Company's oil and gas reserves based on its own assumptions
regarding future prices, production, costs, risk factors and discount
rates, and (ii) on projected cash flow coverage ratios calculated under
varying scenarios. If amounts outstanding under the credit facility exceed
the borrowing base, as redetermined from time to time, the Company would be
required to repay such excess over a defined period of time.
Effective January 6, 1999 the borrowing base was reduced from $380 million
to $200 million, reflecting the sale on that date of the Company's East
Texas natural gas reserves, and also reflecting a significant decline in
projected oil prices since the previous determination.
Amounts outstanding under the credit facility bear interest at a rate equal
to the London Interbank Offered Rate ("LIBOR") plus an amount which
increases as borrowing base utilization increases. At December 31, 1998 the
Company's interest rate under the credit facility was LIBOR plus .375%, or
5.94%. Outstandings under this facility at year end were $158.4 million,
and at January 6, 1999 were reduced by $82.6 million from a portion of the
proceeds of the East Texas sale.
The Credit Agreement has customary covenants including, but not limited to,
covenants with respect to the following matters: (i) limitations on certain
restricted payments and investments; (ii) limitations on guarantees and
indebtedness; (iii) limitations on prepayments of subordinated and certain
other indebtedness; (iv) limitations on mergers and consolidations, on
certain types of acquisitions and on the issuance of certain securities by
subsidiaries; (v) limitations on liens; (vi) limitations on sales of
properties; (vii) limitations on transactions with affiliates; (viii)
limitations on derivative contracts; and (ix) limitations on debt in
subsidiaries. The Company is also required to maintain certain financial
ratios and conditions, including without limitation an EBITDA (earnings
before interest, taxes, depreciation, depletion, amortization and
exploration expenses) to fixed charge coverage ratio, a net worth
requirement, and a funded debt to capitalization ratio. As a result of
reduced revenues due to falling oil prices, the Company has obtained
amendments for relief from the EBITDA fixed charge coverage test through
March 31, 2000. The Company is in compliance with this test and all other
covenants of the Agreement at December 31, 1998. The Company is currently
in negotiation with its banks regarding other terms of the Agreement,
including pricing, security, the frequency of borrowing base determinations
and certain other covenants. Management believes the outcome of such
negotiations will result, over time, in improved borrowing base
availability and greater certainty of the commitment of this facility
during difficult periods in the oil and gas industry.
In June 1997, the Company redeemed its 12 1/2% Senior Subordinated Notes at
a total cost of $78.0 million, representing $75.0 million face value of the
debt plus a 4% premium of $3.0 million. In addition to the premium, the
Company wrote off approximately $2.0 million of unamortized discount and
deferred financing costs. The redemption resulted in an extraordinary loss
on early extinguishment of debt in the amount of $3.0 million, net of the
related tax benefit of $2.0 million. The Company used proceeds from its
bank facility to fund the redemption.
The amount of scheduled debt maturities during the next five years and
thereafter is as follows (amounts in thousands):
<TABLE>
<S> <C>
1999................ $ 3,152
2000................ 750
2001................ --
2002................ --
2003................ 158,400
Thereafter.......... 260,000
---------
Total Debt $ 422,302
=========
</TABLE>
Based upon the quoted market price, the fair value of the 8 7/8% Notes
was estimated to be $90.6 million at December 31, 1998, and the fair
value of the 9 1/2% Notes was estimated to be $160.2 million and $170.3
million at December 31, 1998 and 1997, respectively. For the OPIC
credit facility and other debt, for which no quoted prices are
available, management believes the carrying value of the debt
materially represents the fair value of the debt at December 31, 1998
and 1997.
F-30
<PAGE> 160
11. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
NCC is a U.S. corporation with foreign branch operations in the Congo. The
functional currency of NCC is the U.S. Dollar and its income is taxed in the
United States. The Company's Congo investment involves risks typically
associated with investments in emerging markets such as an uncertain political,
economic, legal and tax environment, and expropriation and nationalization of
assets. The Company's investment is insured through political risk insurance
provided by OPIC.
The OPIC credit facility, discussed in Note 10, requires the Company to
provide consolidating financial statements that separately show NCC. Also shown
separately is Nuevo Congo LTD. ("NCL") which is the company that holds Nuevo's
additional interest in the Yombo field in the Congo (see Note 3) that was
acquired in 1998. These condensed consolidating financial statements are
presented below:
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO NCC NCL CONSOLIDATED
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Total current assets ................... $145,906 $ 12,870 $ 2,476 $161,252
Net property and equipment ............. 568,509 39,112 8,951 616,572
Deferred tax assets, net ............... 27,059 475 -- 27,534
Total other assets ..................... 12,308 19 -- 12,327
-------- -------- -------- --------
Total assets ................. $753,782 $ 52,476 $ 11,427 $817,685
======== ======== ======== ========
Total current liabilities .............. $ 18,006 $ 31,163 $ 454 $ 49,623
Long-term debt ......................... 418,400 750 -- 419,150
Other long-term liabilities ............ 2,034 -- -- 2,034
Mandatorily Redeemable Convertible
Preferred Securities of Nuevo
Financing I .......................... 115,000 -- -- 115,000
Total stockholders' equity ............. 200,342 20,563 10,973 231,878
-------- -------- -------- --------
Total liabilities and
stockholders' equity ....... $753,782 $ 52,476 $ 11,427 $817,685
======== ======== ======== ========
</TABLE>
F-31
<PAGE> 161
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO* NCC* CONSOLIDATED*
--------- --------- -------------
<S> <C> <C> <C>
Total current assets ............................. $ 51,318 $ 7,542 $ 58,860
Net property and equipment ....................... 701,000 33,111 734,111
Total other assets ............................... 11,220 95 11,315
--------- --------- ---------
Total assets ........................... $ 763,538 $ 40,748 $ 804,286
========= ========= =========
Total current liabilities ........................ $ 44,177 $ 5,426 $ 49,603
Long-term debt ................................... 302,038 3,902 305,940
Deferred tax liabilities ......................... 4,771 215 4,986
Other long-term liabilities ...................... (5,642) 9,660 4,018
Mandatorily Redeemable Convertible Preferred
Securities of Nuevo Financing I ................ 115,000 -- 115,000
Total stockholders' equity ....................... 303,194 21,545 324,739
--------- --------- ---------
Total liabilities and stockholders'
equity ............................... $ 763,538 $ 40,748 $ 804,286
========= ========= =========
</TABLE>
- ----------------
* Restated
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO NCC NCL CONSOLIDATED
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Revenues .......................... $ 236,758 $ 14,607 $ 1,338 $ 252,703
Expenses .......................... 362,103 16,279 1,218 379,600
--------- --------- --------- ---------
(Loss) income before income
taxes ........................... (125,345) (1,672) 120 (126,897)
Income tax benefit ................ (31,935) (690) -- (32,625)
--------- --------- --------- ---------
Net (loss) income ................. $ (93,410) $ (982) $ 120 $ (94,272)
========= ========= ========= =========
</TABLE>
F-32
<PAGE> 162
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO* NCC* CONSOLIDATED*
--------- --------- -------------
<S> <C> <C> <C>
Revenues .............................................. $ 334,446 $ 22,832 $ 357,278
Expenses .............................................. 358,079 16,531 374,610
--------- --------- ---------
(Loss) income before income taxes and extraordinary
item ................................................ (23,633) 6,301 (17,332)
Income tax (benefit) expense .......................... (6,883) 227 (6,656)
--------- --------- ---------
(Loss) income before extraordinary item ............... (16,750) 6,074 (10,676)
Extraordinary loss on early extinguishment of debt,
net of tax benefit .................................. 3,024 -- 3,024
--------- --------- ---------
Net (loss) income ..................................... $ (19,774) $ 6,074 $ (13,700)
========= ========= =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO* NCC* CONSOLIDATED*
-------- -------- -------------
<S> <C> <C> <C>
Revenues ......................................... $308,380 $ 20,677 $329,057
Expenses ......................................... 256,568 14,246 270,814
-------- -------- --------
Income before income taxes ....................... 51,812 6,431 58,243
Income tax expense (benefit) ..................... 23,969 (4) 23,965
-------- -------- --------
Net income ....................................... 27,843 6,435 34,278
Dividends on preferred stock ..................... 939 -- 939
-------- -------- --------
Net earnings available to common stockholders .... $ 26,904 $ 6,435 $ 33,339
======== ======== ========
</TABLE>
- ------------
* Restated
F-33
<PAGE> 163
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO NCC NCL CONSOLIDATED
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ................................... $ (93,410) $ (982) $ 120 $ (94,272)
Non-cash adjustments ................................ 119,473 4,281 -- 123,754
Change in assets and liabilities .................... (8,015) 14,923 (557) 6,351
--------- --------- --------- ---------
Net cash provided by (used
in) operating activities .................. 18,048 18,222 (437) 35,833
--------- --------- --------- ---------
Cash flows from investing activities:
additions to oil and gas properties ................. (137,430) (10,971) (8,951) (157,352)
Proceeds from sale of properties .................... 11,830 -- -- 11,830
Additions to other properties and other ............. (2,813) -- -- (2,813)
--------- --------- --------- ---------
Net cash used in investing activities ....... (128,413) (10,971) (8,951) (148,335)
--------- --------- --------- ---------
Cash flows from financing activities:
proceeds from borrowings ............................ 240,900 -- -- 240,900
Payments of long-term debt .......................... (124,551) (3,703) -- (128,254)
Contribution to (from) Nuevo ........................ (10,852) -- 10,852 --
Other ............................................... (1,949) -- -- (1,949)
--------- --------- --------- ---------
Net cash provided by (used
in) financing activities .................. 103,548 (3,703) 10,852 110,697
--------- --------- --------- ---------
Net increase (decrease) in cash & cash
equivalents ......................................... (6,817) 3,548 1,464 (1,805)
Cash and cash equivalents at beginning
of year ............................................. 7,417 1,791 -- 9,208
--------- --------- --------- ---------
Cash and cash equivalents at end of
year ................................................ $ 600 $ 5,339 $ 1,464 $ 7,403
========= ========= ========= =========
</TABLE>
F-34
<PAGE> 164
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO* NCC* CONSOLIDATED*
--------- --------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ................................... $ (19,774) $ 6,074 $ (13,700)
Non-cash adjustments ................................ 155,749 3,612 159,361
Change in assets and liabilities .................... 12,846 6,955 19,801
--------- --------- ---------
Net cash provided by operating
activities ................................ 148,821 16,641 165,462
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties ................. (182,261) (12,847) (195,108)
Proceeds from sale of properties .................... 27,377 -- 27,377
Additions to other properties and other ............. (1,747) -- (1,747)
--------- --------- ---------
Net cash used in investing activities ....... (156,631) (12,847) (169,478)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings ............................ 234,000 -- 234,000
Payments of long-term debt .......................... (213,800) (3,703) (217,503)
Other ............................................... (16,909) -- (16,909)
--------- --------- ---------
Net cash provided by (used in) financing
activities ................................ 3,291 (3,703) (412)
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents ......................................... (4,519) 91 (4,428)
Cash and cash equivalents at beginning of year ........ 11,936 1,700 13,636
--------- --------- ---------
Cash and cash equivalents at end of year .............. $ 7,417 $ 1,791 $ 9,208
========= ========= =========
</TABLE>
- ----------
* Restated
F-35
<PAGE> 165
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO* NCC* CONSOLIDATED*
--------- --------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................... $ 27,843 $ 6,435 $ 34,278
Non-cash adjustments ..................................... 89,792 2,469 92,261
Change in assets and liabilities ......................... (6,483) 6,865 382
--------- --------- ---------
Net cash provided by operating activities ........ 111,152 15,769 126,921
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties ...................... (496,516) (19,469) (515,985)
Proceeds from sale of properties ......................... 42,700 -- 42,700
Additions to other properties and other .................. (72,717) -- (72,717)
--------- --------- ---------
Net cash used in investing activities ............ (526,533) (19,469) (546,002)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings ................................. 402,000 6,000 408,000
Proceeds from issuance of Company-Obligated
Mandatorily Redeemable Convertible Preferred
Securities of Nuevo Financing I ....................... 115,000 -- 115,000
Payments of long-term debt ............................... (229,406) (2,953) (232,359)
Other .................................................... 136,311 -- 136,311
--------- --------- ---------
Net cash provided by financing
activities ..................................... 423,905 3,047 426,952
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ....... 8,524 (653) 7,871
Cash and cash equivalents at beginning of year ............. 3,412 2,353 5,765
--------- --------- ---------
Cash and cash equivalents at end of year ................... $ 11,936 $ 1,700 $ 13,636
========= ========= =========
</TABLE>
12. INCOME TAXES
Income tax (benefit) expense is summarized as follows (amounts in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997* 1996*
-------- -------- --------
<S> <C> <C> <C>
Current
Federal ............................................. $ (105) $ (135) $ 1,200
State ............................................... -- 421 300
-------- -------- --------
(105) (556) 1,500
-------- -------- --------
Deferred
Federal ............................................. (24,172) (7,449) 17,465
State ............................................... (8,348) (1,800) 5,000
-------- -------- --------
(32,520) (9,249) 22,465
-------- -------- --------
Total income tax (benefit) expense .......... $(32,625) $ (8,693) $ 23,965
======== ======== ========
</TABLE>
- --------------
* Restated
A deferred tax benefit related to the exercise of employee stock options of
approximately $5.3 million and $4.7 million was allocated directly to additional
paid-in capital in 1997 and 1996, respectively. A current tax benefit of $2.0
million was allocated to the extraordinary loss in 1997.
F-36
<PAGE> 166
Total income tax (benefit) expense differs from the amount computed by
applying the Federal income tax rate to (loss) income before income taxes,
minority interest and extraordinary item. The reasons for these differences are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997* 1996*
----- ----- -----
<S> <C> <C> <C>
Statutory Federal income tax rate ............................... (35.0)% (35.0)% 35.0%
(Decrease) increase in tax rate resulting from:
State income taxes, net of Federal benefit .................... (4.3) (4.0) 5.9
Non-realization of tax benefits related to provision for
impairment on assets held for sale ......................... -- 3.60 --
Increase in valuation allowance ............................... 13.4 -- --
Nondeductible travel and entertainment and other .............. 0.2 (3.4) 0.4
------ ------ ------
(25.7)% (38.8)% 41.3%
====== ====== ======
</TABLE>
The tax effects of temporary differences that result in significant
portions of the deferred income tax assets and liabilities and a description of
the financial statement items creating these differences are as follows (amounts
in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1998 1997*
-------- --------
<S> <C> <C>
Net operating loss carryforwards ...................... $ 45,610 $ 10,267
Alternative minimum tax credit carryforwards .......... 1,054 1,337
State income taxes .................................... 1,520 --
Capital loss carryforwards ............................ 2,365 700
-------- --------
Total deferred income tax assets ............ 50,549 12,304
Less: valuation allowance ................... (17,646) (700)
-------- --------
Net deferred income tax assets .............. 32,903 11,604
-------- --------
Property and equipment ................................ (5,369) (12,694)
State income taxes .................................... -- (3,896)
-------- --------
Total deferred income tax liabilities ....... (5,369) (16,590)
-------- --------
Net deferred income tax asset (liability) ............. $ 27,534 $ (4,986)
======== ========
</TABLE>
- ---------------
* Restated
At December 31, 1998, the Company had a net operating loss carry forward
for regular tax of approximately $130.3 million, which will expire in future
years beginning in 2006 through 2012. The alternative minimum tax credit carry
forward of $1.1 million does not expire and may be applied to reduce regular
income tax to an amount not less than the alternative minimum tax payable in any
one year. At December 31, 1998, the Company determined that it was more likely
than not that a portion of the deferred tax assets will not be realized and the
valuation allowance was increased by $16.9 million to a total valuation
allowance of $17.6 million.
13. INDUSTRY SEGMENT INFORMATION
As of December 31, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information", which was issued by
the FASB in June 1997. This statement establishes standards for reporting
information about operating segments in annual financial statements and requires
that enterprises report selected information about operating segments in interim
reports.
F-37
<PAGE> 167
The Company's operations are concentrated primarily in two segments:
exploration and production of oil and natural gas, and gas plant and other
facilities.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------------
1998 1997* 1996*
--------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Sales to unaffiliated customers:
Oil and gas -- East ............................ $ 46,885 $ 61,456 $ 74,930
Oil and gas -- West ............................ 177,315 247,723 184,261
Oil and gas -- Foreign ......................... 15,810 22,794 20,668
Gas plant, pipeline and other facilities ....... 5,365 20,598 41,576
--------- --------- ---------
Total sales ............................ 245,375 352,571 321,435
Other revenues ....................... 7,328 4,707 7,622
--------- --------- ---------
Total revenues ......................... $ 252,703 $ 357,278 $ 329,057
========= ========= =========
Operating (loss) profit before income taxes:
Oil and gas -- East ............................ $ 22,608 $ 24,745 $ 37,659
Oil and gas -- West ............................ (67,677) 40,369 72,049
Oil and gas -- Foreign ......................... (12,849) 6,172 7,247
Gas plant, pipeline and other facilities(2) .... 3,063 (22,478) 2,619
--------- --------- ---------
(54,855) 48,808 119,574
Unallocated corporate expenses ................. 32,958 32,170 25,157
Interest expense ............................... 32,471 27,357 36,009
Dividends on TECONS ............................ 6,613 6,613 165
--------- --------- ---------
Operating (loss) profit before income taxes .... $(126,897) $ (17,332) $ 58,243
========= ========= =========
Identifiable assets:
Oil and gas -- Domestic(1) ..................... $ 748,695 $ 671,603 $ 682,995
Oil and gas -- Foreign ......................... 40,700 40,139 33,147
Gas plant and other facilities ................. 14,893 17,387 66,329
--------- --------- ---------
804,288 729,129 782,471
Corporate assets and investments ............... 13,397 75,157 35,172
--------- --------- ---------
Total .................................. $ 817,685 $ 804,286 $ 817,643
========= ========= =========
Capital expenditures:
Oil and gas -- East ............................ $ 36,597 $ 32,857 $ 37,480
Oil and gas -- West(1) ......................... 96,179 148,927 525,259
Oil and gas -- Foreign ......................... 30,498 14,111 19,607
Gas plant and other facilities ................. 2,813 1,747 2,717
--------- --------- ---------
$ 166,087 $ 197,642 $ 585,063
========= ========= =========
Depreciation, depletion and amortization:
Oil and gas -- East ............................ $ 10,391 $ 14,252 $ 24,842
Oil and gas -- West ............................ 68,164 81,011 43,964
Oil and gas -- Foreign ......................... 4,971 3,385 2,473
Gas plant and other facilities ................. 812 2,830 3,812
--------- --------- ---------
$ 84,338 $ 101,478 $ 75,091
========= ========= =========
</TABLE>
- ---------------
* Restated
(1) Identifiable assets and capital expenditures for 1996 include $15.0 million
in costs associated with gas plant facilities in California, which
processes immaterial amounts of third party gas, and whose revenues from
the sale of these liquids are included in oil and gas revenues.
F-38
<PAGE> 168
(2) Gas plant and other facilities operations for 1998 include a positive
revision to a prior period charge of $3.7 million and for 1997 include a
charge for $23.9 million to record an impairment on assets held for sale
and a $2.3 million gain on sale. See Note 4.
In 1998, 1997 and 1996, the Company had one customer that accounted for
60%, 62%, and 52% of oil and gas revenues, respectively. Also in 1998, the
Company had another customer who accounted 10% of oil and gas revenues.
14. CONTINGENCIES
The Company has been named as a defendant in the lawsuit Gloria Garcia
Lopez and Husband, Hector S. Lopez, Individually, and as successors to Galo Land
& Cattle Company v. Mobil Producing Texas & New Mexico, et al. currently pending
in the 79th Judicial District Court of Brooks County, Texas. The plaintiffs
allege: (i) underpayment of royalties and claim damages, on a gross basis
against all working interest owners, of $27.7 million plus $26.2 million in
interest for the period from 1985 to date; (ii) that their production was
improperly commingled with gas produced from an adjoining lease, resulting in
damages, including interests of $40.8 million, on a gross basis; (iii) $59.7
million (gross) for alleged failure to develop and $20.0 million (gross) for
interest in the alleged failure to develop; and (iv) numerous other claims that
may result in unspecified damages. Nuevo's working interest in these properties
is 20%. The Company, along with the other defendants in this case, denies these
allegations and is vigorously contesting these claims. Management does not
believe that the outcome of this matter will have a material adverse impact on
the Company's operating results, financial condition or liquidity.
The Company has been named as a defendant in certain other lawsuits
incidental to its business. Management does not believe that the outcome of such
litigation will have a material adverse impact on the Company's operating
results or financial condition. However, these actions and claims in the
aggregate seek substantial damages against the Company and are subject to the
inherent uncertainties in any litigation. The Company is defending itself
vigorously in all such matters.
In March 1999, the Company discovered that an employee had fraudulently
authorized and diverted for personal use Company funds totaling $5.9 million,
$4.3 million in 1998 and the remainder in 1999, that were intended for
international exploration. Accordingly, the Company has reclassified the amounts
lost in 1998 from exploration costs to other expense. Based on its review of the
facts, management is confident that only one employee was involved in the matter
and that all misappropriated funds have been identified. The Board has engaged a
Certified Fraud Examiner to conduct an in-depth review of the fraudulent
transactions to determine the scope of the fraud, the possibility of recovery of
amounts lost from insurance, from the terminated employee and/or from third
parties, and to make recommendations regarding what, if any, new internal
control procedures should be implemented.
In September 1997, there was a spill of crude oil into the Santa Barbara
Channel from a pipeline that connects the Company's Point Pedernales field with
shore-based processing facilities. The volume of the spill was estimated to be
163 barrels of oil. Torch, which operates the platform and pipeline for the
Company, responded immediately by shutting down the pipeline and notified the
National Response Center and all appropriate Federal, state, and local
authorities, as well as petroleum industry environmental response consortia. The
costs of the clean up and the repair either have been or are expected to be
covered by insurance held by the Company, less the Company's deductibles of
$120,000 net to the Company. Repairs were completed by the end of 1997, and
production recommenced in December 1997. Additionally, the Company has exposure
to certain costs that may not be recoverable by insurance, including fines,
penalties, and damages. Such costs are not quantifiable at this time, but are
not expected to be material to the Company's operating results, financial
condition or liquidity.
The Company's international investments involve risks typically associated
with investments in emerging markets such as an uncertain political, economic,
legal and tax environment and expropriation and nationalization of assets. In
addition, if a dispute arises in its foreign operations, the Company may be
subject to the exclusive
F-39
<PAGE> 169
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 that the Company will be successful in
so protecting itself. A portion of the Company's investment in the Congo is
insured through political risk insurance provided by OPIC.
The Company and its partners in the Congo are undergoing a tax examination
related to their ownership interests in the Yombo field offshore Republic of
Congo, for the years 1994 through 1997. The Congolese taxing authorities have
issued a preliminary assessment of approximately $24.0 million in taxes and
penalties for all years, in aggregate for all parties who have ownership in this
field. Nuevo's working interest in this field is 43.75% during the years under
examination. The Company, along with the other partners, is in discussions with
the Congolese taxing authorities refuting this assessment as without merit to
the items being disallowed. Management does not believe that the outcome of this
matter will have a material adverse effect upon the Company.
In connection with their respective acquisitions of two subsidiaries (each
a "Congo subsidiary") owning interests in the Yombo field offshore West Africa,
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 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 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 $50.0 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 $67.0 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.
During 1997, a new government was established in the Congo. Although the
political situation in the Congo has not to date had a material adverse effect
on the Company's operations in the Congo, no assurances can be made that
continued political unrest in West Africa will not have a material adverse
effect on the Company and its operations in the Congo in the future.
15. FINANCIAL INSTRUMENTS
The Company periodically uses derivative financial instruments to manage
oil and natural gas price risk. For 1999, the Company entered into swap
agreements on 4,500 barrels of oil per day ("BOPD") of its Congo production,
hedging the basis differential between No. 6 fuel oil and West Texas
Intermediate ("WTI") at an average differential of $2.28. The Company also
purchased a call option on 2,000 BOPD of its Congo production at a strike price
of $16.00 per barrel of oil ("BBL"), to hedge the Company's potential liability
under a price sharing agreement with a third party. These agreements expose the
Company to counterparty credit risk to the extent that the counterparty is
unable to meet its settlement commitments to the Company.
For 1999, the Company has entered into an agreement under which a portion
of the its fixed rate debt will be converted to floating rate debt. This
agreement is not held for trading purposes. As the swap provider is a major
financial institution, the Company does not anticipate non-performance by the
provider.
F-40
<PAGE> 170
Determination of Fair Values of Financial Instruments
Fair value for cash, short-term investments, receivables and payables
approximates carrying value. The following table details the carrying values and
approximate fair values of the Company's other investments, derivative financial
instruments and long-term debt at December 31, 1998 and 1997.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------- --------------------------
APPROXIMATE APPROXIMATE
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ----------- -------------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Other investments ........................... $ 80 $ 80 $ 434 $ 553
Derivative Instruments:
Option premium ............................ 292 241 -- --
Commodity price swaps ..................... -- (2,636) -- 506
Long-term debt (See Note 10) ............... 419,150 409,938 305,940 316,228
TECONS ...................................... 115,000 71,875 115,000 112,700
</TABLE>
16. SUPPLEMENTAL INFORMATION -- (UNAUDITED)
Oil and Gas Producing Activities:
Included herein is information with respect to oil and gas acquisition,
exploration, development and production activities, which is based on estimates
of year-end oil and gas reserve quantities and estimates of future development
costs and production schedules. Reserve quantities and future production as of
December 31, 1998 are based primarily on reserve reports prepared by the
independent petroleum engineering firm of Ryder Scott Company. Reserve
quantities and future production for previous years are based primarily upon
reserve reports prepared by Ryder Scott Company and the independent petroleum
firm of Poco Oil Company. These estimates are inherently imprecise and subject
to substantial revision.
Estimates of future net cash flows from proved reserves of gas, oil,
condensate and natural gas liquids ("NGL") were made in accordance with SFAS No.
69, "Disclosures about Oil and Gas Producing Activities". The estimates are
based on realized prices at year-end, of $8.03 per BBL and $1.79 per thousand
cubic feet of gas ("MCF"). Estimated future cash inflows are reduced by
estimated future development and production costs based on year-end cost levels,
assuming continuation of existing economic conditions, and by estimated future
income tax expense. Tax expense is calculated by applying the existing statutory
tax rates, including any known future changes, to the pre-tax net cash flows,
less depreciation of the tax basis of the properties and depletion allowances
applicable to the gas, oil, condensate and NGL production. Because the
disclosure requirements are standardized, significant changes can occur in these
estimates based upon oil and gas prices currently in effect. The results of
these disclosures should not be construed to represent the fair market value of
the Company's oil and gas properties. A market value determination would include
many additional factors including: (i) anticipated future increases or decreases
in oil and gas prices and production and development costs; (ii) an allowance
for return on investment; (iii) the value of additional reserves, not considered
proved at the present, which may be recovered as a result of further exploration
and development activities; and (iv) other business risks.
The following tables include the Company's East Texas natural gas assets,
which were sold on January 6, 1999 (see Note 4). Such assets accounted for 54.9
MBOE, or 21%, of the Company's December 31, 1998 net proved reserve estimates.
F-41
<PAGE> 171
Costs incurred (amounts in thousands) --
The following table sets forth the costs incurred in property acquisition
and development activities:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997* 1996*
-------- -------- --------
<S> <C> <C> <C>
DOMESTIC
Property acquisition:
Proved properties(2) ....... $ 200 $ 10,206 $452,603
Unproved properties ........ 1,320 -- 40,000
Exploration .................. 26,706 18,474 7,289
Development(1) ............... 104,550 153,104 62,847
-------- -------- --------
$132,776 $181,784 $562,739
======== ======== ========
FOREIGN
Property acquisition:
Proved properties .......... $ 7,809 $ -- $ --
Unproved properties ........ 1,404 -- --
Exploration .................. 9,204 10,887 8,844
Development .................. 12,081 3,224 10,763
-------- -------- --------
$ 30,498 $ 14,111 $ 19,607
======== ======== ========
TOTAL
Property acquisition:
Proved properties .......... $ 8,009 $ 10,206 $452,603
Unproved properties ........ 2,724 -- 40,000
Exploration .................. 35,910 29,361 16,133
Development .................. 116,631 156,328 73,610
-------- -------- --------
$163,274 $195,895 $582,346
======== ======== ========
</TABLE>
- --------------
* Restated
(1) Includes capitalized interest directly related to development activities of
$0.6 million in 1998 and $2.4 million in 1997.
(2) The acquisition of domestic proved properties for 1996 includes $15.0
million in costs associated with gas plant facilities in California.
F-42
<PAGE> 172
Capitalized costs (amounts in thousands) --
The following table sets forth the capitalized costs relating to oil and
gas activities and the associated accumulated depreciation, depletion and
amortization:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997* 1996*
--------- --------- ---------
<S> <C> <C> <C>
Domestic
Proved properties ................................ $ 877,230 $ 903,096 $ 739,260
Unproved properties .............................. 20,984 41,661 44,661
--------- --------- ---------
Total capitalized costs ........................ 898,214 944,757 783,921
Accumulated depreciation, depletion and
amortization ................................ (401,139) (315,038) (198,024)
--------- --------- ---------
Net capitalized costs .......................... $ 497,075 $ 629,719 $ 585,897
========= ========= =========
FOREIGN
Proved properties ................................ $ 59,774 $ 39,516 $ 26,677
Unproved properties .............................. 1,360 -- --
--------- --------- ---------
Total capitalized costs ........................ 61,134 39,516 26,677
Accumulated depreciation, depletion and
amortization ................................ (11,724) (6,378) (2,993)
--------- --------- ---------
Net capitalized costs .......................... $ 49,410 $ 33,138 $ 23,684
========= ========= =========
TOTAL
Proved properties ................................ $ 937,004 $ 942,612 $ 765,937
Unproved properties .............................. 22,344 41,661 44,661
--------- --------- ---------
Total capitalized costs ........................ 959,348 984,273 810,598
Accumulated depreciation, depletion and
amortization ................................ (412,863) (321,416) (201,017)
--------- --------- ---------
Net capitalized costs .......................... $ 546,485 $ 662,857 $ 609,581
========= ========= =========
</TABLE>
- ------------
* Restated
F-43
<PAGE> 173
Results of operations for producing activities (amounts in thousands) --
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997* 1996*
--------- --------- ---------
<S> <C> <C> <C>
DOMESTIC
Revenues from oil and gas producing activities ........ $ 224,200 $ 309,179 $ 259,191
Production costs ...................................... (122,816) (108,074) (82,119)
Exploration costs ..................................... (5,137) (9,813) (4,566)
Depreciation, depletion and amortization .............. (78,555) (95,263) (68,806)
Provision for impairment of oil and gas
properties .......................................... (68,529) (30,000) --
Income tax benefit (provision) ........................ 13,234 (26,449) (42,828)
--------- --------- ---------
Results of operations from producing activities
(excluding corporate overhead and interest
costs) .............................................. $ (37,603) $ 39,580 $ 60,872
========= ========= =========
FOREIGN
Revenues from oil and gas producing activities ........ $ 15,810 $ 22,794 $ 20,668
Production costs ...................................... (11,888) (11,968) (10,943)
Exploration costs ..................................... (11,425) (1,269) (5)
Depreciation, depletion and amortization .............. (4,971) (3,385) (2,473)
Provision for impairment of oil and gas
properties .......................................... (375) -- --
Income tax benefit (provision) ........................ 3,174 (2,469) (2,993)
--------- --------- ---------
Results of operations from producing activities
(excluding corporate overhead and interest
costs) .............................................. $ (9,675) $ 3,703 $ 4,254
========= ========= =========
TOTAL
Revenues from oil and gas producing activities ........ $ 240,010 $ 331,973 $ 279,859
Production costs ...................................... (134,704) (120,042) (93,062)
Exploration costs ..................................... (16,562) (11,082) (4,571)
Depreciation, depletion and amortization .............. (83,526) (98,648) (71,279)
Provision for impairment of oil and gas
properties .......................................... (68,904) (30,000) --
Income tax benefit (provision) ........................ 16,408 (28,918) (45,821)
--------- --------- ---------
Results of operations from producing activities
(excluding corporate overhead and interest
costs) .............................................. $ (47,278) $ 43,283 $ 65,126
========= ========= =========
</TABLE>
- -----------
* Restated
F-44
<PAGE> 174
Per unit sales prices and costs:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
DOMESTIC
Average sales price:
Oil (per barrel) ......................................... $ 9.10 $ 14.88 $ 15.99
Gas (per MCF) ............................................ $ 2.00 $ 2.06 $ 2.08
Average production cost per equivalent barrel .............. $ 5.33 $ 4.96 $ 4.63
FOREIGN
Average sales price:
Oil (per barrel) ......................................... $ 10.82 $ 14.66 $ 14.56
Average production cost per equivalent barrel ............ $ 8.14 $ 7.70 $ 7.71
TOTAL
Average sales price:
Oil (per barrel) ......................................... $ 9.25 $ 14.86 $ 15.84
Gas (per MCF) ............................................ $ 2.00 $ 2.06 $ 2.08
Average production cost per equivalent barrel .............. $ 5.56 $ 5.14 $ 4.86
</TABLE>
F-45
<PAGE> 175
The Company's estimated total proved and proved developed reserves of oil
and gas are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ---------------------
OIL* GAS OIL* GAS OIL* GAS
(MBbl) (MMcf) (MBbl) (MMcf) (MBbl) (MMcf)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
DOMESTIC
Proved reserves at beginning of
year ................................. 202,771 390,691 165,839 394,630 9,700 301,311
Revisions of previous estimates ........ (41,399) (8,953) 10,177 (5,105) 5,581 (1,388)
Extensions and discoveries ............. 17,694 55,575 39,911 35,682 3,615 18,291
Production ............................. (17,345) (32,521) (15,854) (35,625) (11,924) (34,775)
Sales of reserves in-place ............. (1,595) (1,536) (15) (675) (2,506) (30,588)
Purchase of reserves in-place .......... 4,174 -- 2,713 1,784 161,373 141,779
------- ------- ------- ------- ------- -------
Proved reserves at end of year ......... 164,300 403,256 202,771 390,691 165,839 394,630
======= ======= ======= ======= ======= =======
Proved developed reserves --
Beginning of year .................... 143,486 266,179 122,088 236,013 8,289 142,012
======= ======= ======= ======= ======= =======
End of year .......................... 123,077 308,667 143,486 266,179 122,088 236,013
======= ======= ======= ======= ======= =======
FOREIGN
Proved reserves at beginning of
year ................................. 24,493 -- 20,214 -- 20,826 --
Revisions of previous estimates ........ (420) -- (1,313) -- (107) --
Extensions and discoveries ............. -- -- 7,147 -- 915 --
Production ............................. (1,461) -- (1,555) -- (1,420) --
Sales of reserves in-place ............. -- -- -- -- -- --
Purchase of reserves in-place .......... 3,229 -- -- -- -- --
------- ------- ------- ------- ------- -------
Proved reserves at end of year ......... 25,841 -- 24,493 -- 20,214 --
======= ======= ======= ======= ======= =======
Proved developed reserves --
Beginning of year .................... 9,526 -- 16,727 -- 14,787 --
======= ======= ======= ======= ======= =======
End of year .......................... 10,242 -- 9,526 -- 16,727 --
======= ======= ======= ======= ======= =======
TOTAL
Proved reserves at beginning of
year ................................. 227,264 390,691 186,053 394,630 30,526 301,311
Revisions of previous estimates ........ (41,819) (8,953) 8,864 (5,105) 5,474 (1,388)
Extensions and discoveries ............. 17,694 55,575 47,058 35,682 4,530 18,291
Production ............................. (18,806) (32,521) (17,409) (35,625) (13,344) (34,775)
Sales of reserves in-place ............. (1,595) (1,536) (15) (675) (2,506) (30,588)
Purchase of reserves in-place .......... 7,403 -- 2,713 1,784 161,373 141,779
------- ------- ------- ------- ------- -------
Proved reserves at end of year ......... 190,141 403,256 227,264 390,691 186,053 394,630
======= ======= ======= ======= ======= =======
Proved developed reserves --
Beginning of year .................... 153,012 266,179 138,815 236,013 23,076 142,012
======= ======= ======= ======= ======= =======
End of year .......................... 133,319 308,667 153,012 266,179 138,815 236,013
======= ======= ======= ======= ======= =======
</TABLE>
- -----------------
* Includes estimated NGL reserves.
F-46
<PAGE> 176
Discounted future net cash flows (amounts in thousands) --
The standardized measure of discounted future net cash flows and changes
therein are shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
DOMESTIC
Future cash inflows ................................... $ 1,989,898 $ 3,566,450 $ 4,476,523
Future production costs ............................... (1,061,638) (1,643,774) (1,739,219)
Future development costs .............................. (289,686) (329,997) (309,365)
----------- ----------- -----------
Future net inflows before income tax .................. 638,574 1,592,679 2,427,939
Future income taxes ................................... -- (427,618) (736,788)
----------- ----------- -----------
Future net cash flows ................................. 638,574 1,165,061 1,691,151
10% discount factor ................................... (360,611) (454,023) (702,996)
----------- ----------- -----------
Standardized measure of discounted future net
cash flows .......................................... $ 277,963 $ 711,038 $ 988,155
=========== =========== ===========
FOREIGN
Future cash inflows ................................... $ 260,627 $ 360,959 $ 414,383
Future production costs ............................... (134,549) (171,331) (248,222)
Future development costs .............................. (66,715) (59,985) (2,625)
----------- ----------- -----------
Future net inflows before income tax .................. 59,363 129,643 163,536
Future income taxes ................................... -- (39,243) (55,083)
----------- ----------- -----------
Future net cash flows ................................. 59,363 90,400 108,453
10% discount factor ................................... (37,393) (36,653) (33,659)
----------- ----------- -----------
Standardized measure of discounted future net
cash flows .......................................... $ 21,970 $ 53,747 $ 74,794
=========== =========== ===========
TOTAL
Future cash inflows ................................... $ 2,250,525 $ 3,927,409 $ 4,890,906
Future production costs ............................... (1,196,187) (1,815,105) (1,987,441)
Future development costs .............................. (356,401) (389,982) (311,990)
----------- ----------- -----------
Future net inflows before income tax .................. 697,937 1,722,322 2,591,475
Future income taxes ................................... -- (466,861) (791,871)
----------- ----------- -----------
Future net cash flows ................................. 697,937 1,255,461 1,799,604
10% discount factor ................................... (398,004) (490,676) (736,655)
----------- ----------- -----------
Standardized measure of discounted future net
cash flows .......................................... $ 299,933 $ 764,785 $ 1,062,949
=========== =========== ===========
</TABLE>
F-47
<PAGE> 177
The following are the principal sources of change in the standardized
measure of discounted future net cash flows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
DOMESTIC
Standardized measure -- beginning of year ........ $ 711,038 $ 988,155 $ 236,920
Sales, net of production costs ................... (101,383) (201,198) (177,072)
Purchases of reserves in-place ................... 2,278 18,293 605,210
Net change in prices and production costs ........ (466,018) (581,640) 505,108
Extensions, discoveries and improved
recovery, net of future production and
development costs .............................. 46,713 180,146 38,572
Net changes in estimated future development
costs .......................................... 79,410 87,606 10,151
Revisions of quantity estimates .................. (86,459) 33,358 79,185
Accretion of discount ............................ 83,281 125,138 26,207
Net change in income taxes ....................... 121,770 141,452 (238,071)
Sales of reserves in-place ....................... (356) (1,598) (41,969)
Changes in production rates and other ............ (112,311) (78,674) (56,086)
----------- ----------- -----------
Standardized measure -- end of year ............... $ 277,963 $ 711,038 $ 988,155
=========== =========== ===========
FOREIGN
Standardized measure -- beginning of year ........ $ 53,747 $ 74,794 $ 74,166
Sales, net of production costs ................... (3,923) (10,826) (9,725)
Purchases of reserves in-place ................... 2,750 -- --
Net change in prices and production costs ........ (56,690) (22,193) (1,557)
Extensions, discoveries and improved
recovery, net of future production and
development costs .............................. -- 5,486 4,930
Net changes in estimated future development
costs .......................................... 8,990 (6,212) 3,892
Revisions of quantity estimates .................. (750) (5,609) (598)
Accretion of discount ............................ 6,830 10,720 11,288
Net change in income taxes ....................... 14,552 17,857 6,304
Changes in production rates and other ............ (3,536) (10,270) (13,906)
----------- ----------- -----------
Standardized measure -- end of year .............. $ 21,970 $ 53,747 $ 74,794
=========== =========== ===========
TOTAL
Standardized measure -- beginning of year ........ $ 764,785 $ 1,062,949 $ 311,086
Sales, net of production costs ................... (105,306) (212,024) (186,797)
Purchases of reserves in-place ................... 5,028 18,293 605,210
Net change in prices and production costs ........ (522,708) (603,833) 503,551
Extensions, discoveries and improved
recovery, net of future production and
development costs .............................. 46,713 185,632 43,502
Net changes in estimated future development
costs .......................................... 88,400 81,394 14,043
Revisions of quantity estimates .................. (87,209) 27,749 78,587
Accretion of discount ............................ 90,111 135,858 37,495
Net change in income taxes ....................... 136,322 159,309 (231,767)
Sales of reserves in-place ....................... (356) (1,598) (41,969)
Changes in production rates and other ............ (115,847) (88,944) (69,992)
----------- ----------- -----------
Standardized measure -- end of year .............. $ 299,933 $ 764,785 $ 1,062,949
=========== =========== ===========
</TABLE>
F-48
<PAGE> 178
Selected Quarterly Financial Data (amounts in thousands, except per
share data) (unaudited):
<TABLE>
<CAPTION>
QUARTER ENDED(4)
-----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues ............................... $ 67,661 $ 61,512 $ 65,966 $ 57,564
Operating earnings (loss)(1) ........... $ 4,011 $ 3,317 $ (5,369) $(66,858)
Net loss(1) ............................ $ (6,582) $ (7,622) $(11,245) $(68,823)
Loss per Common Share-- Basic .......... $ (0.33) $ (0.39) $ (0.57) $ (3.47)
Loss per Common Share-- Diluted ........ $ (0.33) $ (0.39) $ (0.57) $ (3.47)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED(4)(5)
-----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues ............................... $102,410 $ 85,976 $ 82,120 $ 86,772
Operating earnings (loss)(2) ........... $ 39,872 $ 26,204 $ 17,410 $(34,688)
Net income (loss)(2)(3) ................ $ 14,609 $ 2,964 $ 352 $(31,625)
Earnings (loss) per Common Share --
Basic ................................ $ 0.73 $ 0.15 $ 0.02 $ (1.60)
Earnings (loss) per Common Share --
Diluted .............................. $ 0.70 $ 0.15 $ 0.02 $ (1.60)
</TABLE>
- ------------------
(1) Includes a fourth quarter charge of $68.9 million to record an impairment
of oil and gas properties and a fourth quarter $3.7 million positive
revision to a prior period impairment on assets held for sale.
(2) Includes fourth quarter charges of $23.9 million to record an impairment on
assets held for sale and $30.0 million to record an impairment of oil and
gas properties and a second quarter gain on sale of $3.0 million that was
adjusted downward by $752,000 in the third quarter (see Note 4).
(3) Includes an extraordinary loss on early extinguishment of debt of $3.0
million, net of income tax benefit, in the second quarter.
(4) Certain reclassifications of prior period amounts have been made to conform
with the current presentation.
(5) Restated.
<PAGE> 179
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware,
pursuant to which the Company is incorporated, provides generally and in
pertinent part that a Delaware corporation may indemnify its directors,
officers, employees and agents (or persons serving at the request of the Company
as a director, officer, employee or agent of another entity) against expenses,
judgments, fines, and settlements actually and reasonably incurred by them in
connection with any civil, criminal, administrative, or investigative suit or
action except actions by or in the right of the corporation if, in connection
with the matters in issue, they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and in connection with any criminal suit or proceeding, if in
connection with the matters in issue, they had no reasonable cause to believe
their conduct was unlawful. Section 145 further provides that in connection with
the defense or settlement of any action by or in the right of the corporation, a
Delaware corporation may indemnify its directors, officers, employees and agents
(or persons serving at the request of the Company as a director, officer,
employee or agent of another entity) against expenses actually and reasonably
incurred by them if, in connection with the matters in issue, they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue, or matter as to which such person has been adjudged
liable to the corporation unless the Delaware Court of Chancery or other court
in which such action or suit is brought approves such indemnification. Section
145 further permits a Delaware corporation to grant its directors and officers
additional rights of indemnification through bylaw provisions and otherwise, and
or purchase indemnity insurance on behalf of its directors and officers. Article
Nine of the Certificate of Incorporation of the Company, as amended, and Article
VII of the Bylaws of the Company, as amended, provide, in general, that the
Company may indemnify its directors, officers, employees and agents (or persons
serving at the request of the Company as a director, officer, employee or agent
of another entity) to the full extent of Delaware law.
The Company has purchased directors and officers liability insurance
policy which insures, among other things, (i) the officers and directors of the
Company from any claim arising out of an alleged wrongful act by such persons
while acting as directors and officers of the Company and (ii) the Company to
the extent that the Company has indemnified the directors and officers for such
loss.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)
EXHIBIT
NUMBER Description
------ -----------
(1) UNDERWRITING AGREEMENT*
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION
OR SUCCESSION*
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4.1 Indenture dated April 1, 1996 among Nuevo Energy Company as
Issuer, various Subsidiaries as the Guarantors, and State
Street Bank and Trust Company as the Trustee - 9 1/2% Senior
Subordinated Notes due 2006. (Incorporated by reference from
Registration Statement on Form S-3 (No. 333-1504)).
- 2 -
<PAGE> 180
EXHIBIT
NUMBER Description
------ -----------
4.2 Form of Amended and Restated Declaration of Trust dated
December 23, 1996, among the Company, as Sponsor, Wilmington
Trust Company, as Institutional Trustee and Delaware Trustee,
and Michael D. Watford, Robert L. Gerry, III and Robert M.
King, as Regular Trustees. (Incorporated by reference from
Exhibit 4.1 to Current Report on Form 8-K filed on January 6,
1997).
4.3 Form of Subordinated Indenture dated as of November 25, 1996,
between the Company and Wilmington Trust Company, as Indenture
Trustee. (Incorporated by reference from Exhibit 4.2 to
Current Report on Form 8-K filed on January 6, 1997).
4.4 Form of First Supplemental Indenture dated December 23, 1996,
between the Company and Wilmington Trust Company, as Indenture
Trustee. (Incorporated by reference from Exhibit 4.3 to
Current Report on Form 8-K filed on January 6, 1997).
4.5 Form of Preferred Securities Guarantee Agreement dated as of
December 23, 1996, between the Company and Wilmington Trust
Company, as Guarantee Trustee. (Incorporated by reference from
Exhibit 4.4 to Current Report on Form 8-K filed on January 6,
1997).
4.6 Form of Certificate representing TECONS. (Incorporated by
reference from Exhibit 4.5 to Current Report on Form 8-K filed
on January 6, 1997).
4.7 Release and Termination of Subsidiary Guarantees with respect
to the 9 1/2% Senior Subordinated Notes due 2006.
(Incorporated by reference from Exhibit 4.11 to Annual Report
on Form 10-K for the year ended December 31, 1997).
4.8 Indenture dated June 8, 1998 among Nuevo Energy Company as
Issuer, various Subsidiaries as the Guarantors, and State
Street Bank and Trust Company as the Trustee - 8 7/8% Senior
Subordinated Notes due 2008. (Incorporated by reference from
Exhibit 4.1 to Registration Statement on Form S-4 (No.
333-60655) filed on August 5, 1998).
4.9 First Supplemental Indenture to the Indenture dated June 8,
1998, dated August 9, 1999 between Nuevo Energy Company and
State Street Bank and Trust Company - 8 7/8% Senior
Subordinated Notes due 2008
4.10 Second Supplemental Indenture to the Indenture dated April 1,
1996, dated August 9, 1999 between Nuevo Energy Company and
State Street Bank and Trust Company - 9 1/2% Senior
Subordinated Notes due 2006
4.11 Indenture, dated as of August 20, 1999, between Nuevo Energy
Company and State Street Bank and Trust Company, as Trustee.
4.12 Registration Agreement dated August 20, 1999, between Nuevo
Energy Company, Banc of America Securities LLC and Salomon
Smith Barney Inc.
- 3 -
<PAGE> 181
EXHIBIT
NUMBER Description
------ -----------
(5) OPINION REGARDING LEGALITY
5.1 Opinion of Haynes and Boone, L.L.P.
(8) OPINION REGARDING TAX MATTERS*
(12) STATEMENTS REGARDING COMPUTATION OF RATIOS
12.1 Computation of ratio of earnings to fixed charges.
(15) LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION*
(23) CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Haynes and Boone, L.L.P. (included in Exhibit 5.1).
23.2 Consent of KPMG LLP.
23.3 Consent of Ryder Scott Company.
23.4 Consent of Poco Oil Co.
(25) STATEMENT OF ELIGIBILITY OF TRUSTEE
25.1 Statement of Eligibility and Qualification on Form T-1 of
Trustee.
(27) FINANCIAL DATA SCHEDULE*
(99) ADDITIONAL EXHIBITS
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
- ----------
* Inapplicable to this filing.
- 4 -
<PAGE> 182
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by section 10(a)(3) of the Securities Act
of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-effective
amendment hereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange Commission pursuant to rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in this Registration Statement when it becomes
effective;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
(2) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
- 5 -
<PAGE> 183
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
- 6 -
<PAGE> 184
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on the 2nd day of November, 1999.
NUEVO ENERGY COMPANY
By: /s/ Douglas L. Foshee
---------------------------------------
Douglas L. Foshee
Chairman of the Board, Chief Executive Officer and
President
- 7 -
<PAGE> 185
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Douglas L. Foshee and Robert M. King, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Commission, and any other regulatory authority, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, thereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITIES DATE
--------- ---------- ----
<S> <C> <C>
/s/ Douglas L. Foshee Chairman of the Board, Chief Executive Officer and November 2, 1999
- --------------------------- President (Principal Executive Officer)
Douglas L. Foshee
/s/ Robert M. King Senior Vice President and Chief Financial Officer November 2, 1999
- --------------------------- (Principal Accounting and Financial Officer)
Robert M. King
/s/ Isaac Arnold, Jr. Director November 2, 1999
- ---------------------------
Isaac Arnold, Jr.
/s/ Thomas D. Barrow Director November 2, 1999
- ---------------------------
Thomas D. Barrow
/s/ David H. Batchelder Director November 2, 1999
- ---------------------------
David H. Batchelder
/s/ Charles M. Elson Director November 2, 1999
- ---------------------------
Charles M. Elson
/s/ Robert L. Gerry III Director November 2, 1999
- ---------------------------
Robert L. Gerry III
</TABLE>
- 8 -
<PAGE> 186
<TABLE>
<S> <C> <C>
/s/ Gary R. Petersen Director November 2, 1999
- ---------------------------
Gary R. Petersen
/s/ David Ross III Director November 2, 1999
- ---------------------------
David Ross III
/s/ Robert W. Shower Director November 2, 1999
- ---------------------------
Robert W. Shower
</TABLE>
- 9 -
<PAGE> 187
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER Description
------ -----------
<S> <C>
(1) UNDERWRITING AGREEMENT*
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION
OR SUCCESSION*
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4.1 Indenture dated April 1, 1996 among Nuevo Energy Company as
Issuer, various Subsidiaries as the Guarantors, and State
Street Bank and Trust Company as the Trustee - 9 1/2% Senior
Subordinated Notes due 2006. (Incorporated by reference from
Registration Statement on Form S-3 (No. 333-1504)).
4.2 Form of Amended and Restated Declaration of Trust dated
December 23, 1996, among the Company, as Sponsor, Wilmington
Trust Company, as Institutional Trustee and Delaware Trustee,
and Michael D. Watford, Robert L. Gerry, III and Robert M.
King, as Regular Trustees. (Incorporated by reference from
Exhibit 4.1 to Current Report on Form 8-K filed on January 6,
1997).
4.3 Form of Subordinated Indenture dated as of November 25, 1996,
between the Company and Wilmington Trust Company, as Indenture
Trustee. (Incorporated by reference from Exhibit 4.2 to
Current Report on Form 8-K filed on January 6, 1997).
4.4 Form of First Supplemental Indenture dated December 23, 1996,
between the Company and Wilmington Trust Company, as Indenture
Trustee. (Incorporated by reference from Exhibit 4.3 to
Current Report on Form 8-K filed on January 6, 1997).
4.5 Form of Preferred Securities Guarantee Agreement dated as of
December 23, 1996, between the Company and Wilmington Trust
Company, as Guarantee Trustee. (Incorporated by reference from
Exhibit 4.4 to Current Report on Form 8-K filed on January 6,
1997).
4.6 Form of Certificate representing TECONS. (Incorporated by
reference from Exhibit 4.5 to Current Report on Form 8-K filed
on January 6, 1997).
4.7 Release and Termination of Subsidiary Guarantees with respect
to the 9 1/2% Senior Subordinated Notes due 2006.
(Incorporated by reference from Exhibit 4.11 to Annual Report
on Form 10-K for the year ended December 31, 1997).
4.8 Indenture dated June 8, 1998 among Nuevo Energy Company as
Issuer, various Subsidiaries as the Guarantors, and State
Street Bank and Trust Company as the Trustee - 8 7/8% Senior
Subordinated Notes due 2008. (Incorporated by reference from
Exhibit 4.1 to Registration Statement on Form S-4 (No.
333-60655) filed on August 5, 1998).
</TABLE>
<PAGE> 188
<TABLE>
<CAPTION>
EXHIBIT
NUMBER Description
------ -----------
<S> <C>
4.9 First Supplemental Indenture to the Indenture dated June 8,
1998, dated August 9, 1999 between Nuevo Energy Company and
State Street Bank and Trust Company - 8 7/8% Senior
Subordinated Notes due 2008
4.10 Second Supplemental Indenture to the Indenture dated April 1,
1996, dated August 9, 1999 between Nuevo Energy Company and
State Street Bank and Trust Company - 9 1/2% Senior
Subordinated Notes due 2006
4.11 Indenture, dated as of August 20, 1999, between Nuevo Energy
Company and State Street Bank and Trust Company, as Trustee.
4.12 Registration Agreement dated August 20, 1999, between Nuevo
Energy Company, Banc of America Securities LLC and Salomon
Smith Barney Inc.
(5) OPINION REGARDING LEGALITY
5.1 Opinion of Haynes and Boone, L.L.P.
(8) OPINION REGARDING TAX MATTERS*
(12) STATEMENTS REGARDING COMPUTATION OF RATIOS
12.1 Computation of ratio of earnings to fixed charges.
(15) LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION*
(23) CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Haynes and Boone, L.L.P. (included in Exhibit 5.1).
23.2 Consent of KPMG LLP.
23.3 Consent of Ryder Scott Company.
23.4 Consent of Poco Oil Co.
(25) STATEMENT OF ELIGIBILITY OF TRUSTEE
25.1 Statement of Eligibility and Qualification on Form T-1 of
Trustee.
(27) FINANCIAL DATA SCHEDULE*
</TABLE>
<PAGE> 189
<TABLE>
<CAPTION>
EXHIBIT
NUMBER Description
------ -----------
<S> <C>
(99) ADDITIONAL EXHIBITS
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ----------
* Inapplicable to this filing.
<PAGE> 1
EXHIBIT 4.9
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE dated as of August 9, 1999 (this
"Supplemental Indenture"), between Nuevo Energy Company, a Delaware corporation
(the "Company"), and State Street Bank and Trust Company, a Massachusetts trust
company, as trustee (the "Trustee").
WHEREAS, there has heretofore been executed and delivered to the
Trustee an Indenture dated as of June 8, 1998 between the Company and the
Trustee (as the same has been amended or supplemented from time to time by one
or more indentures supplemental thereto entered into pursuant to the applicable
provisions thereof, the "Indenture"), providing for the issuance of the
Company's 8 7/8% Senior Subordinated Notes due 2008 (the "Securities");
WHEREAS, there are now outstanding under the Indenture Securities in
the aggregate principal amount of $100 million;
WHEREAS, the Company has offered to exchange new notes for all of the
Securities (the "Exchange Offer") and has solicited the consents (the
"Solicitations") to certain amendments (the "Amendments") to the Indenture
pursuant to the Company's Confidential Memorandum dated July 13, 1999, as
supplemented by press releases dated July 26, 1999 and August 5, 1999,
respectively, and by Supplement to Confidential Memorandum dated August 9, 1999;
WHEREAS, Section 9.2 of the Indenture provides that the Company and the
Trustee may amend the Indenture with the written consent of the Holders of at
least a majority in principal amount of the Securities then outstanding;
WHEREAS, the Company desires to amend certain provisions of the
Indenture, as set forth in Article II hereof;
WHEREAS, the holders of at least a majority in aggregate principal
amount of the Securities outstanding have consented to the amendments effected
by this Supplemental Indenture; and
WHEREAS, all matters necessary to make this Supplemental Indenture a
valid agreement, in accordance with its terms, have been done.
NOW THEREFORE, this Supplemental Indenture witnesseth that, for and in
consideration of the premises, the Company and the Trustee agree as follows for
the equal and ratable benefit of the Holders of the Securities:
ARTICLE I
EFFECTIVENESS AND OPERATIVE DATE
SECTION 1.1. Effectiveness; Operative Date. This Supplemental Indenture
shall become effective as of the date hereof. The terms of this Supplemental
Indenture will become operative only upon acceptance for exchange by the Company
of Securities validly tendered (and not withdrawn) pursuant to the terms of the
Exchange Offer. The date that this Supplemental Indenture becomes operative
shall be denominated herein as the "Operative Date."
ARTICLE II
AMENDMENTS TO INDENTURE
SECTION 2.1. Amendments to Indenture.
(a) The Indenture is hereby amended by deleting therefrom the following
provisions in their entirety and any references to those provisions: Sections
5.1(e), 5.1(g), 8.1(b), 8.1(c), 8.1(d), 8.1(f),
-1-
<PAGE> 2
8.1(g), 10.5, 10.6, 10.7, 10.9, 10.10, 10.11, 10.12, 10,14, 10.15, 10.16, 10.17,
10.18, and 10.19 including without limitation all references, direct or
indirect, thereto in Section 5.1, "Events of Default."
(b) Section 10.8(a) of the Indenture is hereby amended in its entirety
to read as follows:
"(a) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company, an Officers'
Certificate stating that a review of the activities of the Company
and its Restricted Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a
view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and
further stating, as to each such Officer signing such certificate,
that to the best of such Officer's knowledge the Company has kept,
observed, performed and fulfilled each and every covenant contained
in this Indenture and no Default or Event of Default has occurred
and is continuing (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of
which such Officer may have knowledge and what action the Company
is taking or proposes to take with respect thereto). Such Officers'
Certificate shall comply with TIA Section 314(a)(4). For purposes
of this Section 10.8(a), such compliance shall be determined
without regard to any period of grace or requirement of notice
under this Indenture."
(c) Any definitions used exclusively in the deleted provisions of the
Indenture set forth in paragraph (a) of this Section 2.1 are hereby deleted in
their entirety from the Indenture.
ARTICLE III
MISCELLANEOUS
SECTION 3.1 Instruments To Be Read Together. This Supplemental
Indenture is an indenture supplemental to and in implementation of the
Indenture, and said Indenture and this Supplemental Indenture shall henceforth
be read together:
SECTION 3.2 Confirmation. The Indenture as amended and supplemented by
this Supplemental Indenture is in all respects confirmed and preserved.
SECTION 3.3 Terms Defined. Capitalized terms used in this Supplemental
Indenture and otherwise defined herein shall have the respective meanings set
forth in the Indenture.
SECTION 3.4 Headings. The headings of the Articles and Sections of this
Supplemental Indenture have been inserted for convenience of reference only, and
are not to be considered a part hereof and shall in no way modify or restrict
any of the terms and provisions hereof.
SECTION 3.5 Governing Laws. The laws of the State of New York shall
govern this Supplemental Indenture.
SECTION 3.6 Counterparts. This Supplemental Indenture may be executed
in any number of counterparts, each of which so executed shall be deemed to be
an original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 3.7 Compliance with the Trust Indenture Act. This Supplemental
Indenture shall be interpreted to comply in every respect with the Trust
Indenture Act of 1939, as amended (the "TIA"). If any provision of this
Supplemental Indenture limits, qualifies or conflicts with the duties imposed by
the TIA, the imposed duties shall control.
-2-
<PAGE> 3
SECTION 3.8 Acceptance by Trustee. The Trustee accepts the amendments
to the Indenture effected by this Supplemental Indenture and agrees to execute
the trusts created by the Indenture as hereby amended, but upon the terms and
conditions set forth in the Indenture.
SECTION 3.9 Responsibility of Trustee. The recitals contained herein
shall be taken as the statements of the Company, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Supplemental Indenture, except that the
Trustee is duly authorized to execute and deliver this Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, all as of the date first written
above.
NUEVO ENERGY COMPANY
By: /s/ ROBERT M. KING
----------------------------------------------
Name: Robert M. King
Title: Senior Vice President and Chief
Financial Officer
STATE STREET BANK AND TRUST COMPANY
By: /s/ JULIE A. BALEMA
-----------------------------------------------
Name: Julie A. Balema
Title: Assistant Vice President
-3-
<PAGE> 1
EXHIBIT 4.10
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE dated as of August 9, 1999 (this
"Supplemental Indenture"), between Nuevo Energy Company, a Delaware corporation
(the "Company"), and State Street Bank and Trust Company, a Massachusetts trust
company, as trustee (the "Trustee").
WHEREAS, there has heretofore been executed and delivered to the Trustee an
Indenture dated as of April 1, 1996 between the Company and the Trustee (as the
same has been amended or supplemented from time to time by one or more
indentures supplemental thereto entered into pursuant to the applicable
provisions thereof, the "Indenture"), providing for the issuance of the
Company's 9 1/2% Senior Subordinated Notes due 2006 (the "Securities");
WHEREAS, there are now outstanding under the Indenture Securities in the
aggregate principal amount of $160 million;
WHEREAS, the Company has offered to exchange new notes for all of the
Securities (the "Exchange Offer") and has solicited the consents (the
"Solicitations") to certain amendments (the "Amendments") to the Indenture
pursuant to the Company's Confidential Memorandum dated July 13, 1999, as
supplemented by press releases dated July 26, 1999 and August 5, 1999,
respectively, and by Supplement to Confidential Memorandum dated August 9, 1999;
WHEREAS, Section 9.2 of the Indenture provides that the Company and the
Trustee may amend the Indenture with the written consent of the Holders of at
least a majority in principal amount of the Securities then outstanding;
WHEREAS, the Company desires to amend certain provisions of the Indenture,
as set forth in Article II hereof;
WHEREAS, the holders of at least a majority in aggregate principal amount
of the Securities outstanding have consented to the amendments effected by this
Supplemental Indenture; and
WHEREAS, all matters necessary to make this Supplemental Indenture a valid
agreement, in accordance with its terms, have been done.
NOW THEREFORE, this Supplemental Indenture witnesseth that, for and in
consideration of the premises, the Company and the Trustee agree as follows for
the equal and ratable benefit of the Holders of the Securities:
ARTICLE I
EFFECTIVENESS AND OPERATIVE DATE
SECTION 1.1. Effectiveness; Operative Date. This Supplemental Indenture
shall become effective as of the date hereof. The terms of this Supplemental
Indenture will become operative only upon acceptance for exchange by the Company
of Securities validly tendered (and not withdrawn) pursuant to the terms of the
Exchange Offer. The date that this Supplemental Indenture becomes operative
shall be denominated herein as the "Operative Date."
ARTICLE II
AMENDMENTS TO INDENTURE
SECTION 2.1. Amendments to Indenture.
(a) The Indenture is hereby amended by deleting therefrom the following
provisions in their entirety and any references to those provisions: Sections
5.1(e), 5.1(g), 8.1(b), 8.1(c), 8.1(d), 8.1(f),
-1-
<PAGE> 2
8.1(g), 10.5, 10.6, 10.7, 10.9, 10.10, 10.11, 10.12, 10,14, 10.15, 10.16, 10.17,
10.18, and 10.19 including without limitation all references, direct or
indirect, thereto in Section 5.1, "Events of Default."
(b) Section 10.8(a) of the Indenture is hereby amended in its entirety to
read as follows:
"(a) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year of the Company, an Officers' Certificate
stating that a review of the activities of the Company and its Restricted
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under
this Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of such Officer's knowledge the Company has
kept, observed, performed and fulfilled each and every covenant contained
in this Indenture and no Default or Event of Default has occurred and is
continuing (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which such Officer may
have knowledge and what action the Company is taking or proposes to take
with respect thereto). Such Officers' Certificate shall comply with TIA
Section 314(a)(4). For purposes of this Section 10.8(a), such compliance
shall be determined without regard to any period of grace or requirement of
notice under this Indenture."
(c) Any definitions used exclusively in the deleted provisions of the
Indenture set forth in paragraph (a) of this Section 2.1 are hereby deleted in
their entirety from the Indenture.
ARTICLE III
MISCELLANEOUS
SECTION 3.1 Instruments To Be Read Together. This Supplemental Indenture is
an indenture supplemental to and in implementation of the Indenture, and said
Indenture and this Supplemental Indenture shall henceforth be read together:
SECTION 3.2 Confirmation. The Indenture as amended and supplemented by this
Supplemental Indenture is in all respects confirmed and preserved.
SECTION 3.3 Terms Defined. Capitalized terms used in this Supplemental
Indenture and otherwise defined herein shall have the respective meanings set
forth in the Indenture.
SECTION 3.4 Headings. The headings of the Articles and Sections of this
Supplemental Indenture have been inserted for convenience of reference only, and
are not to be considered a part hereof and shall in no way modify or restrict
any of the terms and provisions hereof.
SECTION 3.5 Governing Laws. The laws of the State of New York shall govern
this Supplemental Indenture.
SECTION 3.6 Counterparts. This Supplemental Indenture may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 3.7 Compliance with the Trust Indenture Act. This Supplemental
Indenture shall be interpreted to comply in every respect with the Trust
Indenture Act of 1939, as amended (the "TIA"). If any provision of this
Supplemental Indenture limits, qualifies or conflicts with the duties imposed by
the TIA, the imposed duties shall control.
-2-
<PAGE> 3
SECTION 3.8 Acceptance by Trustee. The Trustee accepts the amendments to
the Indenture effected by this Supplemental Indenture and agrees to execute the
trusts created by the Indenture as hereby amended, but upon the terms and
conditions set forth in the Indenture.
SECTION 3.9 Responsibility of Trustee. The recitals contained herein shall
be taken as the statements of the Company, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Supplemental Indenture, except that the
Trustee is duly authorized to execute and deliver this Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, all as of the date first written above.
NUEVO ENERGY COMPANY
By: /s/ ROBERT M. KING
----------------------------------
Name: Robert M. King
Title: Senior Vice President and Chief
Financial Officer
STATE STREET BANK AND TRUST COMPANY
By: /s/ JULIE A. BALEMA
----------------------------------
Name: Julie A. Balema
Title: Assistant Vice President
-3-
<PAGE> 1
EXHIBIT 4.11
- -------------------------------------------------------------------------------
NUEVO ENERGY COMPANY,
ANY SUBSIDIARY GUARANTORS
Named in Supplements Hereto
and
STATE STREET BANK AND TRUST COMPANY
Trustee
---------------
INDENTURE
Dated as of August 20, 1999
---------------
Series A and Series B
9 1/2% Senior Subordinated Notes due 2008
- -------------------------------------------------------------------------------
<PAGE> 2
Reconciliation and Tie between Trust Indenture Act
of 1939 and Indenture, dated as of August 20, 1999
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C> <C>
Section 310(a)(1) .................................................. 6.7
(a)(2) .................................................. 6.7
(b) .................................................. 6.7, 6.8, 6.9
Section 311(a) .................................................. 6.12
(b) .................................................. 6.12
Section 312 .................................................. 7.1
Section 313 .................................................. 7.2
Section 314(a) .................................................. 7.3
(a)(4) .................................................. 10.8(a)
(c)(1) .................................................. 15.1
(c)(2) .................................................. 15.1
(e) .................................................. 15.1
Section 315(a) .................................................. 6.1
(b) .................................................. 6.13
(c) .................................................. 6.1
(d) .................................................. 6.1
Section 316(a) (last sentence) ..................................................
1.1 ("Outstanding")
(a)(1)(A) .................................................. 5.2, 5.12
(a)(1)(B) .................................................. 5.13
(b) .................................................. 5.8
(c) .................................................. 15.3(d)
Section 317(a)(1) .................................................. 5.3
(a)(2) .................................................. 5.4
(b) .................................................. 10.3
Section 318(a) .................................................. 15.10(b)
</TABLE>
Note: This reconciliation and tie shall not, for any purpose,
be deemed to be a part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.................................................2
Section 1.1 Definitions........................................................................................2
Section 1.2 Other Definitions.................................................................................26
Section 1.3 Incorporation by Reference of Trust Indenture Act.................................................27
Section 1.4 Rules of Construction.............................................................................28
ARTICLE II SECURITY FORMS........................................................................................28
Section 2.1 Forms Generally...................................................................................28
Section 2.2 Form of Face of Security..........................................................................29
Section 2.3 Form of Reverse of Security.......................................................................31
Section 2.4 Form of Notation Relating to Subsidiary Guarantees................................................37
Section 2.5 Form of Trustee's Certificate of Authentication...................................................38
ARTICLE III THE SECURITIES.......................................................................................40
Section 3.1 Title and Terms...................................................................................40
Section 3.2 Denominations.....................................................................................41
Section 3.3 Execution, Authentication, Delivery and Dating....................................................41
Section 3.4 Temporary Securities..............................................................................42
Section 3.5 Registration of Transfer and Exchange.............................................................43
Section 3.6 Book-Entry Provisions for Global Securities.......................................................47
Section 3.7 Mutilated, Destroyed, Lost and Stolen Securities..................................................47
Section 3.8 Payment of Interest; Interest Rights Preserved....................................................48
Section 3.9 Persons Deemed Owners.............................................................................49
Section 3.10 Cancellation.....................................................................................49
Section 3.11 Computation of Interest..........................................................................50
Section 3.12 Private Placement Legend.........................................................................50
ARTICLE IV SATISFACTION AND DISCHARGE............................................................................50
Section 4.1 Satisfaction and Discharge of Indenture...........................................................50
Section 4.2 Application of Trust Money........................................................................51
ARTICLE V REMEDIES...............................................................................................52
Section 5.1 Events of Default.................................................................................52
Section 5.2 Acceleration of Maturity: Rescission and Annulment................................................53
Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee...................................55
Section 5.4 Trustee May File Proofs of Claim..................................................................55
Section 5.5 Trustee May Enforce Claims Without Possession of Securities.......................................56
Section 5.6 Application of Money Collected....................................................................56
Section 5.7 Limitation on Suits...............................................................................57
Section 5.8 Unconditional Right of Holders to Receive Principal Premium and Interest..........................57
Section 5.9 Restoration of Rights and Remedies................................................................58
Section 5.10 Rights and Remedies Cumulative...................................................................58
Section 5.11 Delay or Omission Not Waiver.....................................................................58
Section 5.12 Control by Holders...............................................................................58
Section 5.13 Waiver of Past Defaults..........................................................................59
Section 5.14 Waiver of Stay, Extension or Usury Laws..........................................................59
ARTICLE VI THE TRUSTEE...........................................................................................59
Section 6.1 Duties of Trustee.................................................................................59
Section 6.2 Certain Rights of Trustee.........................................................................60
Section 6.3 Trustee Not Responsible for Recitals or Issuance of Securities....................................61
Section 6.4 May Hold Securities...............................................................................61
Section 6.5 Money Held in Trust...............................................................................62
Section 6.6 Compensation and Reimbursement....................................................................62
Section 6.7 Corporate Trustee Required; Eligibility...........................................................63
Section 6.8 Conflicting Interests.............................................................................63
Section 6.9 Resignation and Removal; Appointment of Successor.................................................63
Section 6.10 Acceptance of Appointment by Successor...........................................................64
Section 6.11 Merger, Conversion, Consolidation or Succession to Business......................................65
Section 6.12 Preferential Collection of Claims Against Company................................................65
Section 6.13 Notice of Defaults...............................................................................65
ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY....................................................65
Section 7.1 Holders' Lists; Holder Communications; Disclosures Respecting Holders............................65
Section 7.2 Reports By Trustee................................................................................66
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
Section 7.3 Reports by Company................................................................................66
ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE................................................67
Section 8.1 Company May Consolidate, etc., Only on Certain Terms..............................................67
Section 8.2 Successor Substituted.............................................................................68
ARTICLE IX SUPPLEMENTAL INDENTURES...............................................................................69
Section 9.1 Supplemental Indentures Without Consent of Holders................................................69
Section 9.2 Supplemental Indentures with Consent of Holders...................................................70
Section 9.3 Execution of Supplemental Indentures..............................................................71
Section 9.4 Effect of Supplemental Indentures.................................................................71
Section 9.5 Conformity with Trust Indenture Act...............................................................71
Section 9.6 Reference in Securities to Supplemental Indentures................................................71
Section 9.7 Notice of Supplemental Indentures and Waivers.....................................................71
Section 9.8 Effect on Senior Indebtedness.....................................................................71
ARTICLE X COVENANTS..............................................................................................72
Section 10.1 Payment of Principal, Premium, if any, and Interest..............................................72
Section 10.2 Maintenance of Office or Agency.................................................................72
Section 10.3 Money for Security Payments to Be Held in Trust..................................................73
Section 10.4 Corporate Existence..............................................................................74
Section 10.5 Payment of Taxes and Other Claims................................................................74
Section 10.6 Maintenance of Properties........................................................................75
Section 10.7 Insurance........................................................................................75
Section 10.8 Statement by Officers as to Default..............................................................75
Section 10.9 Provision of Financial Information...............................................................76
Section 10.10 Limitation on Restricted Payments...............................................................76
Section 10.11 Limitation on Other Senior Subordinated Indebtedness............................................80
Section 10.12 Incurrence of Indebtedness......................................................................80
Section 10.13 Subsidiary Guarantors...........................................................................80
Section 10.14 Limitation on Issuance and Sale of Capital Stock by Restricted Subsidiaries.....................81
Section 10.15 Limitation on Liens.............................................................................81
Section 10.16 Purchase of Securities Upon Change of Control...................................................82
Section 10.17 Disposition of Proceeds of Asset Sales..........................................................84
Section 10.18 Limitation on Transactions with Affiliates......................................................86
Section 10.19 Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries........87
Section 10.20 Waiver of Certain Covenants.....................................................................88
Section 10.21 Qualification of Indenture......................................................................88
ARTICLE XI REDEMPTION OF SECURITIES..............................................................................88
Section 11.1 Right of Redemption..............................................................................88
Section 11.2 Applicability of Article.........................................................................89
Section 11.3 Election to Redeem; Notice to Trustee............................................................89
Section 11.4 Selection by Trustee of Securities to Be Redeemed................................................89
Section 11.5 Notice of Redemption.............................................................................90
Section 11.6 Deposit of Redemption Price......................................................................90
Section 11.7 Securities Payable on Redemption Date............................................................90
Section 11.8 Securities Redeemed in Part......................................................................91
Section 11.9 Purchase of Securities...........................................................................91
ARTICLE XII DEFEASANCE AND COVENANT DEFEASANCE...................................................................91
Section 12.1 Company's Option to Effect Defeasance or Covenant Defeasance.....................................91
Section 12.2 Defeasance and Discharge.........................................................................91
Section 12.3 Covenant Defeasance..............................................................................92
Section 12.4 Conditions to Defeasance or Covenant Defeasance..................................................93
Section 12.5 Deposited Money and U.S. Government Obligations to Be Held in Trust:
Other Miscellaneous Provisions...................................................................94
Section 12.6 Reinstatement....................................................................................95
ARTICLE XIII SUBSIDIARY GUARANTEES...............................................................................95
Section 13.1 Unconditional Guarantee..........................................................................95
Section 13.2 Subsidiary Guarantors May Consolidate, etc., on Certain Terms...................................96
Section 13.3 Release of Subsidiary Guarantors.................................................................97
Section 13.4 Limitation of Subsidiary Guarantors' Liability...................................................98
Section 13.5 Contribution.....................................................................................98
Section 13.6 Execution and Delivery of Notations of Subsidiary Guarantees.....................................98
Section 13.7 Severability.....................................................................................99
</TABLE>
-ii-
<PAGE> 5
<TABLE>
<S> <C>
Section 13.8 Subsidiary Guarantees Subordinated to Guarantor Senior Indebtedness..............................99
Section 13.9 Subsidiary Guarantors Not to Make Payments with Respect to Subsidiary Guarantees in
Certain Circumstances...........................................................................100
Section 13.10 Subsidiary Guarantees Subordinated to Prior Payment of All Guarantor Senior Indebtedness
upon Dissolution, etc. ........................................................................101
Section 13.11 Holders to be Subrogated to Rights of Holders of Guarantor Senior Indebtedness.................102
Section 13.12 Obligations of Subsidiary Guarantors Unconditional.............................................102
Section 13.13 Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice........................103
Section 13.14 Application by Trustee of Money Deposited with it..............................................103
Section 13.15 Subordination Rights Not Impaired by Acts or Omissions of Subsidiary Guarantors or
Holders of Guarantor Senior Indebtedness.......................................................104
Section 13.16 Holders Authorize Trustee to Effectuate Subordination of Subsidiary Guarantees.................104
Section 13.17 Right of Trustee to Hold Guarantor Senior Indebtedness.........................................104
Section 13.18 Article XIII Not to Prevent Events of Default..................................................105
Section 13.19 Payment........................................................................................105
Section 13.20 Payment Permitted If No Default................................................................105
ARTICLE XIV SUBORDINATION OF SECURITIES.........................................................................105
Section 14.1 Securities Subordinate to Senior Indebtedness...................................................105
Section 14.2 Payment over of Proceeds upon Dissolution, etc. ................................................106
Section 14.3 Suspension of Payment When Senior Indebtedness in Default.......................................107
Section 14.4 Payment Permitted If No Default.................................................................108
Section 14.5 Subrogation to Rights of Holders of Senior Indebtedness.........................................108
Section 14.6 Provisions Solely to Define Relative Rights.....................................................108
Section 14.7 Trustee to Effectuate Subordination.............................................................108
Section 14.8 No Waiver of Subordination Provision............................................................109
Section 14.9 Notice to Trustee...............................................................................109
Section 14.10 Reliance on Judicial Order or Certificate of Liquidating Agent Bank............................110
Section 14.11 Rights of Trustee as a Holder of Senior Indebtedness; Preservation of Trustee's Rights.........110
Section 14.12 Article Applicable to Paying Agents............................................................110
Section 14.13 No Suspension of Remedies......................................................................111
Section 14.14 Trust Money Not Subordinated...................................................................111
ARTICLE XV MISCELLANEOUS........................................................................................111
Section 15.1 Compliance Certificates and Opinions............................................................111
Section 15.2 Form of Documents Delivered to Trustee..........................................................112
Section 15.3 Acts of Holders.................................................................................112
Section 15.4 Notices, etc. to Trustee, Company and Subsidiary Guarantors.....................................113
Section 15.5 Notice to Holders; Waiver.......................................................................114
Section 15.6 Effect of Headings and Table of Contents........................................................114
Section 15.7 Successors and Assigns..........................................................................114
Section 15.8 Separability Clause.............................................................................114
Section 15.9 Benefits of Indenture...........................................................................114
Section 15.10 Governing Law; Trust Indenture Act Controls....................................................115
Section 15.11 Legal Holidays.................................................................................115
Section 15.12 No Recourse Against Others.....................................................................115
Section 15.13 Duplicate Originals............................................................................116
Section 15.14 No Adverse Interpretation of Other Agreements..................................................116
</TABLE>
Exhibit A - Form of Legend for Global Securities
Exhibit B - Transfer or Exchange Certificate
Exhibit C - Transferee Certificate for Institutional Accredited Investors
Exhibit D - Transferee Certificate for Regulation S Transfers
Exhibit E - Form of Supplemental Indenture
Annex A - Registration Rights Agreement
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THIS INDENTURE, dated as of August 20, 1999, is between NUEVO ENERGY
COMPANY, a Delaware corporation (hereinafter called the "Company"), any
SUBSIDIARY GUARANTORS (as defined hereinafter) that may become parties hereto
and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
(hereinafter called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of a series of its debt
securities denominated as its 9 1/2% Senior Subordinated Notes due 2008, Series
A ( the "Series A Securities") and a second series of such debt securities
denominated as its 9 1/2% Senior Subordinated Notes due 2008, Series B (the
"Series B Securities" and, together with the Series A Securities, the
"Securities"), of substantially the tenor and principal amounts hereinafter set
forth, and to provide therefor the Company has duly authorized the execution
and delivery of this Indenture.
The Series A Securities are to be originally issued in an aggregate
principal amount of up to $260,000,000 on the date hereof pursuant to the
Refinancing; additional Series A Securities may be originally issued from time
to time thereafter in an aggregate principal amount of up to $140,000,000; and
Series B Securities may also be originally issued from time to time hereafter,
but only in exchange for Series A Securities then outstanding, in each case
pursuant to a Registration Rights Agreement in an Exchange Offer.
The Company shall cause each of its Restricted Subsidiaries (as
defined herein), prior to, or contemporaneously with, such Restricted
Subsidiary's incurrence of certain obligations as set forth in this Indenture,
to execute and deliver a supplement hereto pursuant to which such Restricted
Subsidiary shall agree to be bound by the terms of this Indenture, as if it
were an original party hereto, and to guarantee the Company's obligations under
this Indenture and the Securities, thereby becoming a Subsidiary Guarantor for
purposes of this Indenture.
All things necessary have been done on the part of the Company to make
the Securities, when issued and executed by the Company and authenticated and
delivered by the Trustee as herein provided, the valid obligations of the
Company, in accordance with their respective terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, without
preference of one series of Securities over the other and without preference of
any Securities of one series over any other Securities of the same series as a
result of any different dates of their original issuance, as follows:
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ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an acquisition of Properties from such Person or (b)
outstanding at the time such Person becomes a Subsidiary of any other Person
(other than any Indebtedness incurred in connection with, or in contemplation
of, such acquisition or such Person becoming such a Subsidiary). Acquired
Indebtedness shall be deemed to be incurred on the date of the related
acquisition of Properties from any Person or the date the acquired Person
becomes a Subsidiary.
"Act," when used with respect to any Holder, has the meaning specified
in Section 15.3.
"Adjusted Consolidated Net Tangible Assets" means (without
duplication), as of the date of determination, (a) the sum of (i) discounted
future net cash flows from proved oil and gas reserves of the Company and its
Restricted Subsidiaries calculated in accordance with SEC guidelines but before
any state or federal income taxes, as estimated by a nationally recognized firm
of independent petroleum engineers in a reserve report prepared as of the end
of the Company's most recently completed fiscal year, as increased by, as of
the date of determination, the estimated discounted future net cash flows from
(A) estimated proved oil and gas reserves acquired since the date of such
year-end reserve report, and (B) estimated oil and gas reserves attributable to
extensions, discoveries and other additions and upward revisions of estimates
of proved oil and gas reserves since the date of such year-end reserve report
due to exploration, development, exploitation, production or other activities,
in each case calculated in accordance with SEC guidelines (but before any state
or federal income taxes and utilizing the prices utilized in such year-end
reserve report), and decreased by, as of the date of determination, the
estimated discounted future net cash flows from (C) estimated proved oil and
gas reserves produced or disposed of since the date of such year-end reserve
report and (D) estimated oil and gas reserves attributable to downward
revisions of estimates of proved oil and gas reserves since the date of such
year-end reserve report due to exploration, development, exploitation,
production or other activities, in each case calculated in accordance with SEC
guidelines (but before any state or federal income taxes and utilizing the
prices utilized in such year-end reserve report); provided, that in the case of
each of the determinations made pursuant to clauses (A) through (D), such
increases and decreases shall be as estimated by the Company's petroleum
engineers, except that in the event there is a Material Change as a result of
such acquisitions, dispositions, or revisions, then the discounted future net
cash flows utilized for purposes of this clause (a)(i) shall be confirmed in
writing by a nationally recognized firm of independent petroleum engineers,
(ii) the capitalized costs that are attributable to oil and gas properties of
the Company and its Restricted Subsidiaries to which no proved oil and gas
reserves are attributable, based on the Company's books and records as of a
date no earlier than the date of the Company's latest annual or quarterly
financial statements, (iii) the Net Working Capital on a date no earlier than
the date of the Company's latest annual or quarterly financial statements and
(iv) the greater of (A) the net book value on a date no earlier than the date
of the Company's latest annual or quarterly financial statements or (B) the
appraised value, as estimated by independent appraisers, of other tangible
assets (including, without
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duplication, Investments in unconsolidated Restricted Subsidiaries) of the
Company and its Restricted Subsidiaries, as of the date no earlier than the
date of the Company's latest audited financial statements, minus (b) the sum of
(i) minority interests (other than a minority interest in a Finance Person),
(ii) any net gas balancing liabilities of the Company and its Restricted
Subsidiaries reflected in the Company's latest audited financial statements,
(iii) to the extent included in (a)(i) above, the discounted future net cash
flows, calculated in accordance with SEC guidelines (but before any state or
federal income taxes and utilizing the prices utilized in the Company's
year-end reserve report), attributable to reserves which are required to be
delivered to third parties to fully satisfy the obligations of the Company and
its Restricted Subsidiaries with respect to Volumetric Production Payments on
the schedules specified with respect thereto and (iv) the discounted future net
cash flows, calculated in accordance with SEC guidelines but before any state
or federal income taxes, attributable to reserves subject to Dollar-Denominated
Production Payments which, based on the estimates of production and price
assumptions included in determining the discounted future net cash flows
specified in (a)(i) above, would be necessary to fully satisfy the payment
obligations of the Company and its Restricted Subsidiaries with respect to
Dollar-Denominated Production Payments on the schedules specified with respect
thereto.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean
the amount by which the fair value of the Properties of such Subsidiary
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under its Subsidiary Guarantee, of such Subsidiary Guarantor at
such date.
"Affiliate" of any specified Person means (i) any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person or (ii) any other Person who is a
director or executive officer of (a) such specified Person or (b) any Person
described in the preceding clause (i). For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by way of merger or consolidation)
(collectively, for purposes of this definition, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (a) any Capital
Stock of any Restricted Subsidiary held by the Company or any Restricted
Subsidiary (other than directors' qualifying shares and shares owned by foreign
shareholders to the extent required by applicable local laws in the foreign
countries), (b) all or substantially all of the Properties of the Company or
any of its Restricted Subsidiaries or (c) any other Properties of the Company
or any of its Restricted Subsidiaries other than (i) a disposition of
hydrocarbons or other mineral products, inventory, accounts receivable, cash,
Cash Equivalents or other Property in the ordinary course of business, (ii) any
lease, abandonment, disposition, relinquishment or farm-out of any oil and gas
Property in the ordinary course of business, (iii) the liquidation of Property
received in settlement of debts owing to the Company or any Restricted
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<PAGE> 9
Subsidiary as a result of foreclosure, perfection or enforcement of any Lien or
debt, which debts were owing to the Company or any Restricted Subsidiary in the
ordinary course of business of the Company or such Restricted Subsidiary or
(iv) the issuance and sale of Qualified Capital Stock by a Finance Person. For
the purposes of this definition, the term "Asset Sale" shall not include (i)
any transfer of Properties which is governed by, and made in accordance with,
the provisions of Article VIII hereof; (ii) any transfer of Properties to an
Unrestricted Subsidiary, if permitted under Section 10.10 hereof; or (iii) any
transfer, in one or a series of related transactions, of Properties having a
Fair Market Value of less than $2,500,000.
"Average Life" means, with respect to any Indebtedness, as at any date
of determination, the quotient obtained by dividing (a) the sum of the products
of (i) the number of years (and any portion thereof) from the date of
determination to the date or dates of each successive scheduled principal
payment (including, without limitation, any sinking fund or mandatory
redemption payment requirements) of such Indebtedness multiplied by (ii) the
amount of each such principal payment by (b) the sum of all such principal
payments.
"Board of Directors" means, with respect to the Company, either the
board of directors of the Company or any duly authorized committee of such
board of directors, and, with respect to any Subsidiary, either the board of
directors of such Subsidiary or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
its Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee, and with respect to a Subsidiary,
a copy of a resolution certified by the Secretary or an Assistant Secretary of
such Subsidiary to have been duly adopted by its Board of Directors and to be
in full force and effect on the date of such certification, and delivered to
the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the Borough of
Manhattan, The City of New York, New York or the City of Boston, Massachusetts,
are authorized or obligated by law or executive order to close.
"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, and any rights (other than debt
securities convertible into an equity interest that do not constitute Eligible
Convertible Securities), warrants or options exercisable for, exchangeable for
or convertible into such an equity interest in such Person. (For avoidance of
doubt, the Capital Stock of the Company includes any Qualifying TECONS and any
Eligible Convertible Securities.)
"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, and, for
the purpose of this Indenture, the amount of such obligation at any date shall
be the capitalized amount thereof at such date, determined in accordance with
GAAP.
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"Cash Equivalents" means (i) any evidence of Indebtedness with a
maturity of 180 days or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) demand and time deposits and certificates of
deposit or acceptances with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500,000,000; (iii)
commercial paper with a maturity of 180 days or less issued by a corporation
that is not an Affiliate of the Company and is organized under the laws of any
state of the United States or the District of Columbia and rated at least A-l
by S&P or at least P-l by Moody's; (iv) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (i) above entered into with any commercial bank meeting the
specifications of clause (ii) above; (v) overnight bank deposits and bankers'
acceptances at any commercial bank meeting the qualifications specified in
clause (ii) above; (vi) deposits available for withdrawal on demand with any
commercial bank not meeting the qualifications specified in clause (ii) above
but which is organized under the laws of any country in which the Company or
any Restricted Subsidiary maintains an office or is engaged in the Oil and Gas
Business, provided that (A) all such deposits are required to be made in such
accounts in the ordinary course of business, (B) such deposits do not at any
one time exceed $5,000,000 in the aggregate and (C) no funds so deposited
remain on deposit in such bank for more than 30 days; (vii) deposits available
for withdrawal on demand with any commercial bank not meeting the
qualifications specified in clause (ii) above but which is a lending bank under
any of the Company's or any Restricted Subsidiary's credit facilities, provided
all such deposits do not exceed $5,000,000 in the aggregate at any one time;
and (viii) investments in money market funds substantially all of whose assets
comprise securities of the types described in clauses (i) through (v).
"Change of Control" means the occurrence of any of the following
events: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more
than 50% of the total Voting Stock of the Company; (b) the Company is merged
with or into or consolidated with another Person and, immediately after giving
effect to the merger or consolidation, (A) less than 50% of the total voting
power of the outstanding Voting Stock of the surviving or resulting Person is
then "beneficially owned" (within the meaning of Rule 13d-3 under the Exchange
Act) in the aggregate by the stockholders of the Company immediately prior to
such merger or consolidation, and (B) any "person" or "group" (as defined in
Section 13(d)(3) or 14(d)(2) of the Exchange Act) has become the direct or
indirect "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
of more than 50% of the total voting power of the Voting Stock of the surviving
or resulting Person; (c) the Company, either individually or in conjunction
with one or more Restricted Subsidiaries, sells, assigns, conveys, transfers,
leases or otherwise disposes of, or the Restricted Subsidiaries sell, assign,
convey, transfer, lease or otherwise dispose of, all or substantially all of
the Properties of the Company and the Restricted Subsidiaries, taken as a whole
(either in one transaction or a series of related transactions), including
Capital Stock of the Restricted Subsidiaries, to any Person (other than the
Company or a Wholly Owned Restricted Subsidiary); (d) during any consecutive
two-year period, individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors then still in office
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<PAGE> 11
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
(e) the liquidation or dissolution of the Company; or (f) so long as any
Existing Notes are outstanding, any other event constituting a Change of
Control pursuant to the applicable Existing Indenture.
"Code" shall mean the Internal Revenue Code of 1986, as amended, as
now or hereafter in effect, together with all regulations thereunder issued by
the Internal Revenue Service.
"Commission" or "SEC" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution
of assets upon any voluntary or involuntary liquidation, dissolution or
winding-up of such Person, to shares of Capital Stock of any other class of
such Person.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Exploration Expenses" means, for any period, exploration
expenses of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the
ratio of (a) the sum of Consolidated Net Income, Consolidated Interest Expense,
the portion of Consolidated Exploration Expenses deducted in computing
Consolidated Net Income, Consolidated Income Tax Expense and Consolidated
Non-cash Charges deducted in computing Consolidated Net Income, in each case,
for such period, of the Company and its Restricted Subsidiaries on a
consolidated basis, all determined in accordance with GAAP, decreased (to the
extent included in determining Consolidated Net Income) by the sum of (x) the
amount of deferred revenues that are amortized during such period and are
attributable to reserves that are subject to Volumetric Production Payments and
(y) amounts recorded in accordance with GAAP as repayments of principal and
interest pursuant to Dollar-Denominated Production Payments, to (b) the sum of
such Consolidated Interest Expense for such period; provided, however, that (i)
the Consolidated Fixed Charge Coverage Ratio shall be calculated on the
assumption that (A) the Indebtedness to be incurred (and all other Indebtedness
incurred after the first day of the relevant period of fiscal quarters under
Section 10.12 hereof through and including the date of determination) and (if
applicable) the application of the net proceeds therefrom (and from any other
such Indebtedness), including to refinance other Indebtedness, had been
incurred on the first day of such period and, in the case of Acquired
Indebtedness, on
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<PAGE> 12
the assumption that the related transaction (whether by means of purchase,
merger or otherwise) also had occurred on such date with the appropriate
adjustments with respect to such acquisition being included in such pro forma
calculation and (B) any acquisition or disposition by the Company or any
Restricted Subsidiary of any Properties outside the ordinary course of
business, or any repayment of any principal amount of any Indebtedness of the
Company or any Restricted Subsidiary prior to the Stated Maturity thereof, in
either case since the first day of such period through and including the date
of determination, had been consummated on such first day of such period, (ii)
in making such computation, the Consolidated Interest Expense attributable to
interest on any Indebtedness required to be computed on a pro forma basis in
accordance with Section 10.12 hereof and (A) bearing a floating interest rate
shall be computed as if the rate in effect on the date of computation had been
the applicable rate for the entire period and (B) which was not outstanding
during the period for which the computation is being made but which bears, at
the option of the Company, a fixed or floating rate of interest, shall be
computed by applying, at the option of the Company, either the fixed or
floating rate, (iii) in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness under a revolving credit
facility required to be computed on a pro forma basis in accordance with
Section 10.12 hereof shall be computed based upon the average daily balance of
such Indebtedness during the applicable period, provided that such average
daily balance shall be reduced by the amount of any repayment of Indebtedness
under a revolving credit facility during the applicable period, which repayment
permanently reduced the commitments or amounts available to be reborrowed under
such facility, (iv) notwithstanding clauses (ii) and (iii) of this proviso,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to Interest Rate Protection
Obligations, shall be deemed to have accrued at the rate per annum resulting
after giving effect to the operation of such agreements, (v) in making such
calculation, Consolidated Interest Expense shall exclude interest attributable
to Dollar-Denominated Production Payments, and (vi) if after the first day of
the period referred to in clause (a) of this definition the Company has retired
any Indebtedness out of the net cash proceeds of the issue and sale of
Qualified Capital Stock of the Company within 30 days of such issuance and
sale, Consolidated Interest Expense shall be calculated on a pro forma basis as
if such Indebtedness had been retired on the first day of such period. For the
purposes of Section 10.12 hereof, if the Company incurs, or permits any of its
Restricted Subsidiaries to incur, any Indebtedness (including Acquired
Indebtedness), other than Permitted Indebtedness: (x) on any date which is on
or before March 31, 2000, the Company will determine its Consolidated Fixed
Charge Coverage Ratio for the full fiscal quarter or quarters, as the case may
be, commencing on April 1, 1999 and ending on or before such date; and (y) on
any date which is after March 31, 2000, the Company will determine its
Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters
immediately preceding such date.
"Consolidated Income Tax Expense" means, for any period, the provision
for federal, state, local and foreign income taxes (including state franchise
taxes accounted for as income taxes in accordance with GAAP) of the Company and
its Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without
duplication, (i) the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP, including, without limitation, (A) any amortization of
debt discount, (B) the net cost under Interest
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Rate Protection Obligations (including any amortization of discounts), (C) the
interest portion of any deferred payment obligation constituting Indebtedness,
(D) all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and (E) all accrued
interest, in each case to the extent attributable to such period, (b) to the
extent any Indebtedness of any Person (other than the Company or a Restricted
Subsidiary) is guaranteed by the Company or any Restricted Subsidiary, the
aggregate amount of interest paid (to the extent not accrued in a prior period)
or accrued by such other Person during such period attributable to any such
Indebtedness, in each case to the extent attributable to that period, (c) the
aggregate amount of the interest component of Capitalized Lease Obligations
paid (to the extent not accrued in a prior period), accrued or scheduled to be
paid or accrued by the Company and its Restricted Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP and (d)
the aggregate amount of dividends paid (to the extent not accrued in a prior
period) or accrued on Redeemable Capital Stock of the Company and its
Restricted Subsidiaries, to the extent such Redeemable Capital Stock is owned
by Persons other than the Company or its Restricted Subsidiaries and to the
extent such dividends are not paid in Common Stock, less (ii) to the extent
included in clause (i), (a) fees and expenses associated with the Refinancing,
(b) amortization of capitalized debt issuance costs of the Company and its
Restricted Subsidiaries during such period, (c) dividends on Qualifying TECONS,
and (d) non-cash interest on Eligible Convertible Securities.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto),
(b) net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (c) the net income (or net loss) of any Person
(other than the Company or any of its Restricted Subsidiaries), in which the
Company or any of its Restricted Subsidiaries has an ownership interest, except
to the extent of the amount of dividends or other distributions or interest on
indebtedness actually paid to the Company or any of its Restricted Subsidiaries
in cash by such other Person during such period (regardless of whether such
cash dividends, distributions or interest on indebtedness is attributable to
net income (or net loss) of such Person during such period or during any prior
period), (d) net income (or net loss) of any Person combined with the Company
or any of its Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (e) the net income
of any Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary is not at the
date of determination permitted, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (f) dividends paid on Qualifying TECONS, (g)
non-cash interest on Eligible Convertible Securities, to the extent deducted in
determining consolidated net income (or loss), (h) fees and expenses associated
with the Refinancing, to the extent deducted in determining consolidated net
income (or loss), (i) Consolidated Exploration Expenses and any writedowns or
impairments of non-current assets (less an amount equal to the amortization on
a quarterly basis of the cumulative Consolidated Exploration Expenses and
writedowns or impairments of non-current assets, calculated as two and one-half
percent of the cumulative net balance of such costs); and (j) solely for
purposes of calculating the Consolidated Fixed Charge Coverage Ratio at any
time, net gains or losses on oil and natural gas price hedging arrangements
during periods ending on or prior to March 31, 2000.
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"Consolidated Net Worth" means, at any date, the consolidated
stockholders' equity of the Company and its Restricted Subsidiaries less the
amount of such stockholders' equity attributable to Redeemable Capital Stock or
treasury stock of the Company and its Restricted Subsidiaries, as determined in
accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses of the
Company and its Restricted Subsidiaries reducing Consolidated Net Income for
such period, determined on a consolidated basis in accordance with GAAP
(excluding any such non-cash charge to the extent required as an accrual of or
reserve for cash charges for any future period).
"Corporate Trust Office" means the principal corporate trust office of
the Trustee at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at 2 Avenue de Lafayette, Boston, Massachusetts 02111-1724.
"Credit Facility" means that certain Second Restated Credit Agreement
among the Company, certain Subsidiaries of the Company, Bank of America, N.A.,
as Administrative Agent, Morgan Guaranty Trust Company of New York, as
Documentation Agent, and certain lenders named therein, as the same may be
amended, modified, supplemented, extended, restated, replaced, renewed or
refinanced from time to time.
"Default" means any event that is or with the passage of time or
giving of notice or both would be an Event of Default.
"Defaulted Interest" has the meaning specified in Section 3.8 hereof.
"Depository" means The Depository Trust Company, its nominees and
their respective successors.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors of the
Company is required to deliver a Board Resolution hereunder, a member of the
Board of Directors of the Company who does not have any material direct or
indirect financial interest (other than an interest arising solely from the
beneficial ownership of Capital Stock of the Company) in or with respect to
such transaction or series of transactions.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Eligible Convertible Securities" means any security issued by the
Company that (a) is subordinated in right of payment to the Securities, (b) has
a final Stated Maturity at least 91 days after the final Stated Maturity of the
Securities, and (c) by its terms or by the terms of any security into which it
is convertible or by contract or otherwise requires no scheduled payments,
including principal, premium, interest and fees, prior to its final Stated
Maturity, other than payments payable only in shares of Common Stock issued by
the Company or in options, warrants or other rights to purchase Common Stock
issued by the Company.
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"Equity Offering" means a bona fide underwritten sale to the public of
Common Stock of the Company pursuant to a registration statement (other than on
Form S-8 or any other form relating to securities issuable under any employee
benefit plan of the Company) that is declared effective by the Commission
following the Issue Date.
"Event of Default" has the meaning specified in Section 5.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor act thereto.
"Exchange Offer" means the offer that may be made by the Company
pursuant to a Registration Rights Agreement to exchange Series B Securities for
Series A Securities.
"Exchanged Properties" means Properties used or useful in the Oil and
Gas Business received by the Company or a Restricted Subsidiary in exchange for
other Properties owned by it, whether directly or indirectly through the
acquisition of the Capital Stock of a Person holding such Properties so that
such Person becomes a Wholly Owned Restricted Subsidiary of the Company, in
trade or as a portion of the total consideration for such other Properties.
"Existing 8 7/8% Indenture" means that certain indenture dated as of
June 8, 1998, among the Company, its Subsidiaries party thereto and State
Street Bank and Trust Company, as Trustee, as the same may have been amended or
supplemented from time to time prior to the date hereof.
"Existing 8 7/8% Notes" means the 8 7/8% Senior Subordinated Notes due
2008, Series B issued pursuant to the Existing 8 7/8% Indenture.
"Existing 9 1/2% Indenture" means that certain indenture dated as of
April 1, 1996 among the Company, its Subsidiaries party thereto and State
Street Bank and Trust Company, as Trustee, as the same may have been amended or
supplemented from time to time prior to the date hereof.
"Existing 91/2% Notes" means the 9 1/2% Senior Subordinated Notes due
2006 issued pursuant to the Existing 9 1/2% Indenture.
"Existing Notes" means the Existing 8 7/8% Notes and the Existing 9
1/2% Notes.
"Existing Indentures" means the Existing 8 7/8% Indenture and the
Existing 9 1/2% Indenture.
"Existing TECONS" means the Company-Obligated Mandatorily Redeemable
Convertible Preferred Securities issued by Nuevo Financing I, a statutory
business trust wholly owned by the Company, on December 23, 1996, in an
aggregate liquidation amount of $115,000,000.
"Fair Market Value" means the fair market value of a Property
(including shares of Capital Stock) as determined in good faith by the Board of
Directors of the Company and evidenced by a Board Resolution, which
determination shall be conclusive for purposes of this Indenture; provided,
however, that unless otherwise specified herein, the Board of
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<PAGE> 16
Directors shall be under no obligation to obtain any valuation or assessment
from any investment banker, appraiser or other third party.
"Federal Bankruptcy Code" means the United States Bankruptcy Code of
Title 11 of the United States Code, as amended from time to time.
"Finance Person" means a Subsidiary of the Company, the Common Stock
of which is owned by the Company, that does not engage in any activity other
than (i) the holding of Subordinated Indebtedness with respect to which
payments of interest on such Subordinated Indebtedness can, at the election of
the issuer thereof, be deferred for one or more payment periods, (ii) the
issuance of Qualifying TECONS and Common Stock and/or debt securities and (iii)
any activity necessary, incidental or related to the foregoing.
"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 June 8, 1998.
The term "guarantee" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments or documents for
collection in the ordinary course of business), direct or indirect, in any
manner, of any part or all of such obligation and (ii) an agreement, direct or
indirect, contingent or otherwise, the practical effect of which is to assure
in any way the payment or performance (or payment of damages in the event of
non-performance) of all or any part of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by letters of credit;
provided, however, that a guarantee by any Person shall not include a
contractual commitment by one Person to invest in another Person provided that
such Investment is otherwise permitted by this Indenture. When used as a verb,
"guarantee" shall have a corresponding meaning.
"Guarantor Senior Indebtedness" means the principal of (and premium,
if any, on) and interest on (including interest accruing after the filing of a
petition initiating any proceeding pursuant to any bankruptcy law) and other
amounts due on or in connection with (including any fees, premiums, expenses,
including costs of collection, and indemnities) any Indebtedness of a
Subsidiary Guarantor, whether outstanding on the date of this Indenture or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness will be
pari passu with or subordinated in right of payment to its Subsidiary
Guarantee. Notwithstanding the foregoing, Guarantor Senior Indebtedness of a
Subsidiary Guarantor shall not include (i) Indebtedness of such Subsidiary
Guarantor evidenced by its Subsidiary Guarantee, (ii) Indebtedness of such
Subsidiary Guarantor that is expressly pari passu with its Subsidiary Guarantee
or is expressly subordinated in right of payment to any Guarantor Senior
Indebtedness of such Subsidiary Guarantor or its Subsidiary Guarantee, (iii)
Indebtedness of such Subsidiary Guarantor to the extent incurred in violation
of Section 10.12 hereof, (iv) Indebtedness of such Subsidiary Guarantor to the
Company or any of the Company's other Subsidiaries or to any Affiliate of the
Company or any Subsidiary of such Affiliate and (v) Indebtedness which when
incurred and without
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<PAGE> 17
regard to any election under Section 1111(b) of the Federal Bankruptcy Code is
without recourse to such Subsidiary Guarantor.
"Holder" means a Person in whose name a Security is registered in a
Security Register.
"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 this Indenture or
thereafter, if, and to the extent, any of the foregoing would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
(b) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, (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 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 Payment, any warranties or
guaranties of production or payment by such Person with respect to a Production
Payment but excluding other contractual obligations of such Person with respect
to such Production Payment), (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 and natural gas price hedging
arrangements and Interest Rate Protection Obligations; provided, however, that
Indebtedness shall not include (i) Eligible Convertible Securities, (ii)
Qualifying TECONS and (iii) Indebtedness (including guarantees thereof)
relating to Qualifying TECONS and held by a Finance Person; provided further,
that Indebtedness shall include debt securities issued in connection with
Existing TECONS and, for purposes of Section 5.1(e) hereof only, Indebtedness
shall include debt securities issued in connection with Qualifying TECONS and
debt securities issued in connection with Eligible Convertible Securities. 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 this 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,
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<PAGE> 18
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, neither
Dollar-Denominated Production Payments nor Volumetric Production Payments shall
be deemed to be Indebtedness.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Insolvency or Liquidation Proceeding" means, with respect to any
Person, (a) an insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or similar case or proceeding in
connection therewith, relative to such Person or its creditors, as such, or its
assets or (b) any liquidation, dissolution or other winding-up proceeding of
such Person, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy or (c) any assignment for the benefit of creditors or
any other marshaling of assets and liabilities of such Person.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"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.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or
capital contribution to (by means of any transfer of cash or other Property to
others or any payment for Property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities (including derivatives) or
evidences of Indebtedness issued by, any other Person. In addition, the Fair
Market Value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by the Company in such Unrestricted
Subsidiary at such time. In addition, in the event an Unrestricted Subsidiary
is designated as a Restricted Subsidiary, then there shall be deemed to be a
return of an "Investment" in the amount of the lesser of (i) the book value of
the Investments previously made in such Unrestricted Subsidiary that were
treated as Restricted Payments, and (ii) the Fair Market Value of the net
assets of such Unrestricted Subsidiary at such time. "Investments" shall
exclude (a) extensions of trade credit under a joint operating agreement or
otherwise in the ordinary course of business, workers' compensation, utility,
lease and similar deposits and prepaid expenses in the ordinary course of
business, (b) Interest Rate Protection Obligations entered into in the ordinary
course of business or as required by any Permitted Indebtedness or any other
Indebtedness incurred in compliance with Section 10.12 hereof, but only to the
extent that the stated aggregate notional amounts of such Interest Rate
Protection Obligations do not exceed
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<PAGE> 19
105% of the aggregate principal amount of such Indebtedness to which such
Interest Rate Protection Obligations relate, (c) bonds, notes, debentures or
other securities received as a result of Asset Sales permitted under Section
10.17 hereof and (d) endorsements of negotiable instruments and documents in
the ordinary course of business.
"Issue Date" means the date on which the Offered Securities were first
issued under this Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
any agreement to give or grant a Lien or any lease, conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing) upon or with respect to any Property of any kind. A Person
shall be deemed to own subject to a Lien any Property which such Person has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Liquid Securities" means securities (i) of an issuer that is not an
Affiliate of the Company and (ii) that are publicly traded on the New York
Stock Exchange, the American Stock Exchange, the Toronto Stock Exchange, the
Australian Stock Exchange, the London Stock Exchange or the Nasdaq National
Market; provided that securities meeting the requirements of clauses (i) and
(ii) above shall be treated as Liquid Securities from the date of receipt
thereof until and only until the earlier of (x) the date on which such
securities (or securities exchangeable for, or convertible into, such
securities) are sold or exchanged for cash or Cash Equivalents and (y) 180 days
following the date of receipt of such securities. If such securities (or
securities exchangeable for, or convertible into, such securities) are not sold
or exchanged for cash or Cash Equivalents within 180 days of receipt thereof,
for purposes of determining whether the transaction pursuant to which the
Company or a Restricted Subsidiary received the securities was in compliance
with the provisions of Section 10.17(a) hereof, such securities shall be deemed
not to have been Liquid Securities until 181 days following the date of receipt
of such securities.
"Material Change" means an increase or decrease (excluding changes
that result solely from changes in prices) of more than 30% during a fiscal
quarter in the estimated discounted future net cash flows from proved oil and
gas reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (a)(i) of the definition of Adjusted Consolidated Net
Tangible Assets; provided, however, that the following will be excluded from
the calculation of Material Change: (i) any acquisitions during the quarter of
oil and gas reserves that have been estimated by a nationally recognized firm
of independent petroleum engineers and on which a report or reports exist and
(ii) any disposition of properties held at the beginning of such quarter that
have been disposed of in compliance with Section 10.17 hereof.
"Material Subsidiary" means, at any particular time, any Restricted
Subsidiary that, together with its Subsidiaries, (a) accounted for more than 5%
of the consolidated revenues of the Company and its Restricted Subsidiaries for
the most recently completed fiscal year of the Company, or (b) was the owner of
more than 5% of the consolidated assets of the Company and its Restricted
Subsidiaries at the end of such fiscal year, all as shown in the case of (a)
and (b) on the consolidated financial statements of the Company and its
Restricted Subsidiaries for such fiscal year.
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"Maturity" means, with respect to any Security, the date on which any
principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the Property subject to the Asset
Sale and (iv) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP consistently applied against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the
case may be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee; provided, however, that any amounts remaining after adjustments,
revaluations or liquidations of such reserves shall constitute Net Cash
Proceeds.
"Net Working Capital" means (i) all current assets of the Company and
its Restricted Subsidiaries, less (ii) all current liabilities of the Company
and its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in consolidated financial statements of
the Company prepared in accordance with GAAP.
"Non-payment Event of Default" means any event (other than a Payment
Event of Default), the occurrence of which (with or without notice or the
passage of time) entitles one or more Persons to accelerate the maturity of any
Specified Senior Indebtedness.
"Non-Recourse Purchase Money Indebtedness" means (i) Indebtedness
(other than Capital Lease Obligations) of the Company or any Restricted
Subsidiary incurred in connection with the acquisition by the Company or such
Restricted Subsidiary in the ordinary course of business of fixed assets used
in the Oil and Gas Business (including office buildings and other real property
used by the Company or such Restricted Subsidiary in conducting its operations)
and (ii) any renewals and refinancings of such Indebtedness; provided that the
holders of such Indebtedness described in clauses (i) and (ii) agree that they
will look solely to the fixed assets so acquired which secure such Indebtedness
(subject to customary exceptions such as indemnifications for environmental,
title, fraud and other matters), and neither the Company nor any Restricted
Subsidiary (a) is directly or indirectly liable for such Indebtedness or (b)
provides credit support, including any undertaking, guarantee, agreement or
instrument that would constitute Indebtedness (other than the grant of a Lien
on such acquired fixed assets).
"Offered Securities" has the meaning set forth in Section 3.1 hereof.
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"Officer" means, with respect to any Person, the Chairman of the
Board, the President, any Vice President, the Chief Financial Officer or the
Treasurer of such Person.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of the Company,
and delivered to the Trustee.
"Oil and Gas Business" means (i) the acquisition, exploration,
development, operation and disposition of interests in oil, gas and other
hydrocarbon Properties, (ii) the gathering, marketing, treating, processing,
storage, selling and transporting of any production from such interests or
Properties, (iii) any business relating to or arising from exploration for or
development, production, treatment, processing, storage, transportation or
marketing of oil, gas and other minerals and products produced in association
therewith, (iv) any power generation and electrical transmission business in a
jurisdiction outside of North America where fuel required by such business is
supplied, directly or indirectly, from production reserves substantially from
blocks in which the Company or its Restricted Subsidiaries participate and (v)
any activity necessary, appropriate or incidental to the activities described
in the foregoing clauses (i) through (iv) of this definition.
"OPIC Facility" means that certain Finance Agreement dated December
28, 1994, among The Nuevo Congo Company, The Congo Holding Company, and the
Overseas Private Investment Corporation, as such agreement may be amended,
modified, supplemented, extended, restated, replaced, renewed or refinanced
from time to time in one or more credit agreements, loan agreements,
instruments or similar agreements, as such may be further amended, modified,
extended, restated, replaced, renewed or refinanced.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company (or any Subsidiary Guarantor), including an employee of
the Company (or any Subsidiary Guarantor), and who shall be reasonably
acceptable to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company
(if the Company shall act as its own Paying Agent) for the Holders of
such Securities, provided that, if such Securities are to be redeemed,
notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been
made;
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(iii) Securities, except to the extent provided in Sections
12.2 and 12.3 hereof, with respect to which the Company has effected
legal defeasance or covenant defeasance as provided in Article XII
hereof; and
(iv) Securities which have been paid pursuant to Section 3.7
hereof or in exchange for or in lieu of which other Securities have
been authenticated and delivered pursuant to this Indenture, other
than any such Securities in respect of which there shall have been
presented to the Trustee proof satisfactory to it that such securities
are held by a bona fide purchaser in whose hands the Securities are
valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities
owned by the Company, any Subsidiary Guarantor or any other obligor upon the
Securities or any Affiliate of the Company, any Subsidiary Guarantor or such
other obligor shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in making such
calculation or in relying upon any such request, demand, authorization,
direction, consent, notice or waiver, only Securities which the Trustee knows
to be so owned shall be so disregarded. Securities so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect
to such Securities and that the pledgee is not the Company, any Subsidiary
Guarantor or any other obligor upon the Securities or any Affiliate of the
Company, any Subsidiary Guarantor or such other obligor.
"Pari Passu Indebtedness" means any Indebtedness of the Company that
is pari passu in right of payment to the Securities, including, without
limitation, the Existing Notes.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium,
if any, on) or interest on any Securities on behalf of the Company.
"Payment Event of Default" means any default in the payment or
required prepayment of principal of (or premium, if any, on) or interest on any
Specified Senior Indebtedness when due (whether at final maturity, upon
scheduled installment, upon acceleration or otherwise).
"Permitted Guarantor Junior Securities" means with respect to any
Subsidiary Guarantor, equity securities or subordinated debt securities of such
Subsidiary Guarantor or any successor obligor with respect to its Guarantor
Senior Indebtedness provided for by a plan of reorganization or readjustment
that, in the case of any such subordinated debt securities, are subordinated in
right of payment to all Guarantor Senior Indebtedness of such Subsidiary
Guarantor or successor obligor that may at the time be outstanding to
substantially the same extent as, or to a greater extent than, the Subsidiary
Guarantee of such Subsidiary Guarantor is so subordinated as provided in this
Indenture.
"Permitted Indebtedness" means any of the following:
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(i) Indebtedness under the Credit Facility in an aggregate
principal amount at any one time outstanding not to exceed the greater
of (A) $400,000,000, less (1) any amounts of principal of such
Indebtedness repaid pursuant to clause (b)(i)(A) of Section 10.17
hereof, and (2) any amount of principal of such Indebtedness that was
refinanced pursuant to, and that could only be refinanced pursuant to,
clause (x) of this definition; or (B) the borrowing base thereunder,
less, in the event that the Company incurs additional Indebtedness by
refinancing Indebtedness under the Credit Facility on any date,
pursuant to, and that could only be refinanced pursuant to, clause (x)
of this definition, twenty-five percent of the aggregate amount of
principal of such Indebtedness, until, and only until, the
Consolidated Fixed Charge Coverage Ratio for any period of four full
fiscal quarters ending after such date is at least 2.5 to 1.0,
provided that both subclauses (A) and (B) shall include any guarantee
of any such Indebtedness and any fees, premiums, expenses (including
costs of collection), indemnities and other amounts payable in
connection with such Indebtedness;
(ii) Indebtedness under the Offered Securities and any
Subsidiary Guarantees relating thereto or to any other Securities;
(iii) Indebtedness outstanding on June 8, 1998, including,
without limitation, the Existing Notes (and not repaid or defeased
with the proceeds of the offering of the Securities) and additional
Indebtedness permitted to be incurred pursuant to commitments existing
under the OPIC Facility on June 8, 1998;
(iv) obligations of the Company or a Restricted Subsidiary
pursuant to Interest Rate Protection Obligations, but only to the
extent that the stated aggregate notional amounts of such obligations
do not exceed 105% of the aggregate principal amount of the
Indebtedness covered by such Interest Rate Protection Obligations;
obligations under currency exchange contracts entered into in the
ordinary course of business; and hedging arrangements that the Company
or a Restricted Subsidiary enters into in the ordinary course of
business for the purpose of protecting its production against
fluctuations in oil or natural gas prices;
(v) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary or a Finance Person and Indebtedness of a Restricted
Subsidiary to the Company or a Wholly Owned Restricted Subsidiary or a
Finance Person; provided, however, that upon any subsequent issuance
or transfer of any Capital Stock or any other event which results in
any such Wholly Owned Restricted Subsidiary ceasing to be a Wholly
Owned Restricted Subsidiary or such Finance Person ceasing to be a
Finance Person, as the case may be, or any other subsequent transfer
of any such Indebtedness (except to the Company or a Wholly Owned
Restricted Subsidiary or a Finance Person), such Indebtedness shall be
deemed, in each case, to be incurred and shall be treated as an
incurrence for purposes of Section 10.12 at the time the Wholly Owned
Restricted Subsidiary or Finance Person in question ceased to be a
Wholly Owned Restricted Subsidiary or Finance Person, as the case may
be;
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<PAGE> 24
(vi) in-kind obligations relating to net gas balancing
positions arising in the ordinary course of business and consistent
with past practice;
(vii) Indebtedness in respect of bid, performance or surety
bonds issued for the account of the Company or any Restricted
Subsidiary in the ordinary course of business, including guaranties
and letters of credit supporting such bid, performance or surety
obligations (in each case other than for an obligation for money
borrowed);
(viii) any guarantee of Senior Indebtedness or Guarantor
Senior Indebtedness incurred in compliance with Section 10.12 hereof,
by a Restricted Subsidiary or the Company;
(ix) Non-Recourse Purchase Money Indebtedness;
(x) any renewals, substitutions, exchanges, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by
the Company or a Restricted Subsidiary of any Indebtedness incurred
pursuant to the provisions of Section 10.12 (excluding Permitted
Indebtedness) or pursuant to clause (i), (ii) or (iii) of this
definition, including any successive refinancings by the Company or
such Restricted Subsidiary, so long as (A) any such new Indebtedness
shall be in a principal amount that does not exceed the principal
amount (or, if such Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration thereof, such lesser amount as of
the date of determination) so refinanced plus the amount of any
premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness refinanced or the amount of
any premium reasonably determined by the Company or such Restricted
Subsidiary as necessary to accomplish such refinancing, plus the
amount of expenses of the Company or such Restricted Subsidiary
incurred in connection with such refinancing, (B) in the case of any
refinancing of Indebtedness of the Company that is not Senior
Indebtedness, such new Indebtedness is either pari passu with the
Securities or subordinated to the Securities at least to the same
extent as the Indebtedness being refinanced, (C) in the case of any
refinancing of Indebtedness pursuant to clause (i) of this definition,
such new Indebtedness is either Pari Passu Indebtedness or
Subordinated Indebtedness and has a final Stated Maturity of at least
91 days after the final Stated Maturity of the Securities and (D) such
new Indebtedness has an Average Life equal to or longer than the
Average Life of the Indebtedness being refinanced and a final Stated
Maturity equal to or later than the final Stated Maturity of the
Indebtedness being refinanced; and
(xi) any additional Indebtedness in an aggregate principal
amount not in excess of $25,000,000 at any one time outstanding.
"Permitted Investments" means any of the following: (i) Investments in
Cash Equivalents; (ii) Investments in the Company or any of its Restricted
Subsidiaries; (iii) Investments in an amount not to exceed $10,000,000 at any
one time outstanding; (iv) Investments by the Company or any of its Restricted
Subsidiaries in another Person, if as a result of such Investment (A) such
other Person becomes a Restricted Subsidiary or
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<PAGE> 25
(B) such other Person is merged or consolidated with or into, or transfers or
conveys all or substantially all of its Properties to, the Company or a
Restricted Subsidiary; (v) Investments and expenditures made in the ordinary
course of, and of a nature that is or shall have become customary in, the Oil
and Gas Business as a means of actively exploiting, exploring for, acquiring,
developing, processing, gathering, marketing or transporting oil and gas
through agreements, transactions, interests or arrangements which permit a
Person to share risks or costs, comply with regulatory requirements regarding
local ownership or satisfy other objectives customarily achieved through the
conduct of the Oil and Gas Business jointly with third parties, including,
without limitation, (A) ownership interests in oil and gas properties or
gathering systems and (B) Investments and expenditures in the form of or
pursuant to operating agreements, processing agreements, farm-in agreements,
farm-out agreements, development agreements, area of mutual interest
agreements, unitization agreements, pooling arrangements, joint bidding
agreements, service contracts, joint venture agreements, partnership agreements
(whether general or limited), subscription agreements, stock purchase
agreements and other similar agreements with third parties (including
Unrestricted Subsidiaries); (vi) entry into any hedging arrangements in the
ordinary course of business for the purpose of protecting the Company's or any
Restricted Subsidiary's production against fluctuations in oil or natural gas
prices; (vii) entry into any currency exchange contract in the ordinary course
of business; (viii) Investments in obligations or securities received as a
result of any Asset Sale; (ix) advances and loans to officers, directors and
employees of the Company or any Restricted Subsidiary in the ordinary course of
business; (x) Investments pursuant to any agreement or obligation in effect on
June 8, 1998; (xi) Investments in obligations or securities received in
settlement of debts owing to the Company or a Restricted Subsidiary as a result
of bankruptcy or insolvency proceedings or upon the foreclosure, perfection or
enforcement of any Lien in favor of the Company or a Restricted Subsidiary, in
each case as to debt owing to the Company or a Restricted Subsidiary that arose
in the ordinary course of business of the Company or any such Restricted
Subsidiary; and (xii) contributions to Unrestricted Subsidiaries of the
Company's interests in 24 undeveloped federal leases offshore California, known
as the COOGER acreage, included in seven units (Bonita, Sword, Point Sal, Gato
Canyon, Lion Rock, Purisina Point and Santa Maria).
"Permitted Junior Securities" means any equity securities or
subordinated debt securities of the Company or any successor obligor with
respect to the Senior Indebtedness provided for by a plan of reorganization or
readjustment that, in the case of any such subordinated debt securities, are
subordinated in right of payment to all Senior Indebtedness that may at the
time be outstanding to substantially the same degree as, or to a greater extent
than, the Securities are so subordinated as provided in this Indenture.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of June 8, 1998 (except to the extent
such Liens secure Indebtedness that was repaid or defeased with proceeds of the
offering of the Existing 8 7/8% Notes), and any renewal, extension, refunding,
exchange or refinancing of any such Lien provided that thereafter such Lien
extends only to the Properties that were subject to such Lien prior to the
renewal, extension, refunding, exchange or refinancing thereof;
(b) Liens securing the Securities or the Subsidiary
Guarantees; and
(c) Liens in favor of the Company.
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<PAGE> 26
"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.
"Predecessor Security" of any particular Security means every previous
Security, including any Security of a different series, evidencing all or a
portion of the same debt as that evidenced by such particular Security; and,
for the purposes of this definition, any Security authenticated and delivered
under Section 3.7 hereof in exchange for a mutilated security or in lieu of a
lost, destroyed or stolen Security shall be deemed to evidence the same debt as
the mutilated, lost, destroyed or stolen Security.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock, whether now outstanding or issued
after the date of this Indenture, including, without limitation, all classes
and series of preferred or preference stock of such Person.
"Private Placement Legend" means the legend initially set forth in
Section 2.2 hereof.
"Production Payments" means, collectively, Dollar-Denominated
Production Payments and Volumetric Production Payments.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock in any
other Person.
"Qualified Capital Stock" of any Person means any and all Capital
Stock of such Person other than Redeemable Capital Stock and, with respect to
the Company, Qualified Capital Stock includes, without limitation, any
Qualifying TECONS and any Eligible Convertible Securities.
"Qualified Institutional Buyer" has the meaning attributed thereto in
Rule 144A under the Securities Act.
"Qualifying TECONS" means preferred trust securities or similar
securities issued by a Finance Person after June 8, 1998.
"Record Date" means a Regular Record Date or a Special Record Date.
"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 Stated
Maturity of the Securities 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; provided, that Redeemable Capital Stock shall not include any
security by virtue of the fact that it may be exchanged or converted at the
option of the holder, or at the option of the Company, into Common Stock of the
Company.
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<PAGE> 27
"Redemption Date," when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Refinancing" means the exchange offers, consent solicitations and
related transactions involved in the exchange of the Offered Securities for
Existing 9 1/2% Notes and Existing 8 7/8% Notes pursuant to the Company's
Confidential Memorandum dated July 13, 1999, as supplemented.
"Registration Default" has the meaning ascribed thereto in a
Registration Rights Agreement.
"Registration Rights Agreement" means (a) the Registration Agreement,
dated as of August 20, 1999, by and among the Company and Bank of America
Securities LLC and Salomon Smith Barney Inc., as co-dealer managers, relating
to the Offered Securities, a copy of which is attached hereto as Annex A, and
(b) any similar agreement that the Company may enter into in relation to any
other Series A Securities, in each case as such agreement may be amended,
modified or supplemented from time to time.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the May 15 or November 15 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Resale Restriction Termination Date" means, in relation to any
particular Series A Securities, the date which is two years after the later of
the date of original issue of such Series A Securities and the last date that
the Company or any Affiliate thereof was the owner of such Series A Securities
(or any Predecessor Securities).
"Responsible Officer," when used with respect to the Trustee, means
any officer in the Corporate Trust Department of the Trustee, and also means,
with respect to a particular corporate trust matter, any other officer of the
Trustee to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of this Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of this Indenture.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard and Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Series A Securities or Series B
Securities authenticated and delivered under this Indenture.
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<PAGE> 28
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor act thereto.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 3.5 hereof.
"Senior Indebtedness" means the principal of (and premium, if any, on)
and interest on (including interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law) and other amounts due
on or in connection with (including any fees, premiums, expenses, including
costs of collection, and indemnities) any Indebtedness of the Company, whether
outstanding on the date of this Indenture or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness will be pari passu with or expressly
subordinated in right of payment to the Securities. Notwithstanding the
foregoing, "Senior Indebtedness" will not include (A) Indebtedness evidenced by
the Securities, (B) Indebtedness of the Company that is Pari Passu Indebtedness
or is expressly subordinated in right of payment to any other Indebtedness of
the Company, (C) Indebtedness that is represented by Redeemable Capital Stock,
(D) Indebtedness of the Company to the extent incurred in violation of Section
10.12 hereof, (E) Indebtedness of the Company to any Subsidiary of the Company
or any other Affiliate of the Company or any subsidiary of such Affiliate and
(F) Indebtedness which when incurred and without regard to any election under
Section 1111(b) of the Federal Bankruptcy Code is without recourse to the
Company.
"Series A Securities" has the meaning stated in the first recital of
this Indenture and includes the Offered Securities.
"Series B Securities" has the meaning stated in the first recital of
this Indenture.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 3.8 hereof.
"Specified Guarantor Senior Indebtedness" means, with respect to a
Subsidiary Guarantor, (a) all Guarantor Senior Indebtedness of such Subsidiary
Guarantor in respect of the Credit Facility and any renewals, amendments,
extensions, supplements, modifications, deferrals, refinancings or replacements
(each, for purposes of this definition, a "refinancing") thereof by such
Subsidiary Guarantor, including any successive refinancings thereof by such
Subsidiary Guarantor, and (b) any other Guarantor Senior Indebtedness and any
refinancings thereof having a principal amount of at least $10,000,000 as of
the date of determination and provided that the agreements, indentures or other
instruments evidencing such Guarantor Senior Indebtedness or pursuant to which
such Guarantor Senior Indebtedness was issued specifically designates such
Guarantor Senior Indebtedness as "Specified Guarantor Senior Indebtedness" for
purposes of this Indenture. For purposes of this definition, a refinancing of
any Specified Guarantor Senior Indebtedness shall be treated as Specified
Guarantor Senior Indebtedness only if the Indebtedness issued in such
refinancing ranks or would rank pari passu with the Specified Guarantor Senior
Indebtedness refinanced and only if the Indebtedness issued in such refinancing
is permitted under Section 10.12 hereof.
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<PAGE> 29
"Specified Property Sales" means the sales of any of the Company's and
its Restricted Subsidiaries', (i) East Texas oil and gas properties sold in
January, 1999 for approximately $192,000,000, and (ii) real properties, other
than the Company's and its Restricted Subsidiaries' mineral interests, owned on
the date of this Indenture and located in the Counties of Fresno, Kern, Kings,
Los Angeles, Orange, Santa Barbara and Ventura in the State of California.
"Specified Senior Indebtedness" means (a) all Senior Indebtedness of
the Company in respect of the Credit Facility and any renewals, amendments,
extensions, supplements, modifications, deferrals, refinancings, or
replacements (each, for purposes of this definition, a "refinancing") thereof
by the Company, including any successive refinancings thereof by the Company
and (b) any other Senior Indebtedness and any refinancings thereof by the
Company having a principal amount of at least $10,000,000 as of the date of
determination and provided that the agreements, indentures or other instruments
evidencing such Senior Indebtedness or pursuant to which such Senior
Indebtedness was issued specifically designates such Senior Indebtedness as
"Specified Senior Indebtedness" for purposes of this Indenture. For purposes of
this definition, a refinancing of any Specified Senior Indebtedness shall be
treated as a Specified Senior Indebtedness only if the Indebtedness issued in
such refinancing ranks or would rank pari passu with the Specified Senior
Indebtedness refinanced and only if Indebtedness issued in such refinancing is
permitted by Section 10.12 hereof.
"Stated Maturity" means, when used with respect to any Security or any
installment of interest thereon, the date specified in such Security as the
fixed date on which the principal of such Security or such installment of
interest is due and payable, and, when used with respect to any other
Indebtedness or any installment of interest thereon, means the date specified
in the instrument evidencing or governing such Indebtedness as the fixed date
on which the principal of such Indebtedness or such installment of interest is
due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is
expressly subordinated in right of payment to the Securities.
"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, have at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Persons
performing similar functions).
"Subsidiary Guarantee" has the meaning specified in Section 13.1
hereof.
"Subsidiary Guarantor" means, unless and until released from its
Subsidiary Guarantor pursuant to Section 13.3 hereof, each of (i) the Company's
Restricted Subsidiaries, if any, executing a supplemental indenture in
compliance with the provisions of Section 10.13(a) hereof and (ii) any Person
that becomes a successor guarantor of the Securities in compliance with the
provisions of Section 13.2 hereof.
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<PAGE> 30
"Torch Agreement" means, collectively, (i) Master Services Agreement
among the Company and Torch Energy Advisors Incorporated, Torch Operating
Company, Torch Energy Marketing, Inc., and Novistar, Inc., effective January 1,
1999; (ii) Field Operating Services Agreement between the Company and Torch
Operating Company, effective January 1, 1999; (iii) Oil and Gas Administration
Services Agreement between the Company and Novistar, Inc., effective January 1,
1999; (iv) Land Leasing Services Agreement between the Company and Torch Energy
Advisors Incorporated, effective January 1, 1999; (v) Natural Gas Marketing
Services Agreement between the Company and Torch Energy Marketing, Inc.,
effective January 1, 1999; (vi) Crude Oil Marketing Services Agreement between
the Company and Torch Energy Marketing, Inc., effective January 1, 1999; (vii)
Human Resources and Office Administration Services Agreement between the
Company and Torch Energy Advisors Incorporated, effective January 1, 1999; and
(viii) Corporate Administration Services Agreement between the Company and
Torch Energy Advisors Incorporated, effective January 1, 1999, in each case, as
the same may have been modified or amended from time to time prior to the date
of this Indenture.
"Transfer Restricted Security" has the meaning attributed thereto in a
Registration Rights Agreement; provided, however, that the Trustee shall be
entitled to request and conclusively rely upon an Opinion of Counsel with
respect to whether or not any Security is a Transfer Restricted Security.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended and in force at the date as of which this Indenture is qualified
under the TIA, except as provided in Section 9.5 hereof.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (i) The Congo Holding Company, The
Nuevo Congo Company, Nuevo Tunisia Ltd. and Nuevo Congo Ltd., (ii) any
Subsidiary of the Company that at the time of determination will be designated
an Unrestricted Subsidiary by the Board of Directors of the Company as provided
below and (iii) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors of the Company may designate any Subsidiary of the Company as an
Unrestricted Subsidiary so long as (a) neither the Company nor any Restricted
Subsidiary is directly or indirectly liable pursuant to the terms of any
Indebtedness of such Subsidiary; (b) no default with respect to any
Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its Stated Maturity;
(c) neither the Company nor any Restricted Subsidiary has made an Investment in
such Subsidiary unless such Investment was made pursuant to, and in accordance
with, Section 10.10 hereof (other than Investments of the type described in
clauses (iv) or (xii) of the definition of Permitted Investments); and (d) such
designation shall not result in the creation or imposition of any Lien on any
of the Properties of the Company or any Restricted Subsidiary (other than any
Permitted Lien or any Lien the creation or imposition of which shall have been
in compliance with Section 10.15 hereof); provided, however, that with respect
to clause (a), the Company or a Restricted Subsidiary may be liable for
Indebtedness of an Unrestricted Subsidiary if (x) such liability constituted a
Permitted Investment or a Restricted Payment permitted by Section 10.10 hereof,
in each case at the time of incurrence, or (y) the
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<PAGE> 31
liability would be a Permitted Investment at the time of designation of such
Subsidiary as an Unrestricted Subsidiary. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing a Board
Resolution with the Trustee giving effect to such designation. The Board of
Directors of the Company may designate any Unrestricted Subsidiary as a
Restricted Subsidiary if, immediately after giving effect to such designation,
(i) no Default or Event of Default shall have occurred and be continuing, (ii)
the Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under Section 10.12 hereof and (iii) if any of the Properties of
the Company or any of its Restricted Subsidiaries would upon such designation
become subject to any Lien (other than a Permitted Lien), the creation or
imposition of such Lien shall have been in compliance with Section 10.15
hereof.
"Vice President," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president."
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock
of any other class or classes shall have, or might have, voting power by reason
of the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
to the extent (i) all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company or (ii) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be
partially owned by the government of such foreign jurisdiction or individual or
corporate citizens of such foreign jurisdiction in order for such Restricted
Subsidiary to transact business in such foreign jurisdiction, provided that the
Company, directly or indirectly, owns the remaining Capital Stock or ownership
interest in such Restricted Subsidiary and, by contract or otherwise, controls
the management and business of such Restricted Subsidiary and derives the
economic benefits of ownership of such Restricted Subsidiary to substantially
the same extent as if such Restricted Subsidiary were a wholly owned
Subsidiary.
Section 1.2 Other Definitions.
<TABLE>
<CAPTION>
Defined
Term in Section
---- ----------
<S> <C>
"Agent Members".............................................................. 3.6
"Change of Control Notice"................................................... 10.16(b)
"Change of Control Offer".................................................... 10.16(a)
"Change of Control Purchase Date"............................................ 10.16(a)
"Change of Control Purchase Price"........................................... 10.16(a)
"Defaulted Interest"......................................................... 3.8
</TABLE>
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<PAGE> 32
<TABLE>
<CAPTION>
Defined
Term in Section
---- ----------
<S> <C>
"Excess Proceeds"............................................................ 10.17(b)
"Funding Guarantor".......................................................... 13.5
"Global Security"............................................................ 2.1
"Net Proceeds Deficiency".................................................... 10.17(c)
"Net Proceeds Offer"......................................................... 10.17(c)
"Net Proceeds Payment Date".................................................. 10.17(c)
"Offered Price".............................................................. 10.17(c)
"Pari Passu Indebtedness Amount"............................................. 10.17(c)
"Pari Passu Offer"........................................................... 10.17(c)
"Payment Amount"............................................................. 10.17(c)
"Payment Blockage Notice".................................................... 14.3(b)
"Payment Blockage Period".................................................... 14.3(b)
"Permitted Consideration".................................................... 10.17(a)
"Physical Securities"........................................................ 2.1
"Purchase Notice"............................................................ 10.17(c)
"Restricted Payment"......................................................... 10.10(a)
"Special Interest"........................................................... 3.1
"Subsidiary Guarantor Non-Payment Default"................................... 13.9(b)
"Subsidiary Guarantor Payment Default"....................................... 13.9(a)
"Subsidiary Guarantor Payment Notice"........................................ 13.9(b)
"Surviving Entity"........................................................... 8.1(a)
"Trigger Date"............................................................... 10.17(c)
"U.S. Government Obligations"................................................ 12.4(a)
</TABLE>
Section 1.3 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities,
"indenture security holder" means a Holder,
"indenture to be qualified" means this Indenture,
"indenture trustee" or "institutional trustee" means the Trustee, and
"obligor" on the indenture securities means the Company or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings assigned to them therein.
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<PAGE> 33
Section 1.4 Rules of Construction.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(c) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(d) the masculine gender includes the feminine and the neuter;
(e) when used with reference to the Securities, the expression "of
like tenor" refers to Securities of the same series; and
(f) references to agreements and other instruments include subsequent
amendments and waivers but only to the extent not prohibited by this Indenture.
ARTICLE II
SECURITY FORMS
Section 2.1 Forms Generally.
The definitive Securities shall be printed, lithographed or engraved
on steel-engraved borders or may be produced in any other manner, all as
determined by the officers executing such Securities or notations of Subsidiary
Guarantees, as the case may be, as evidenced by their execution of such
Securities or notations of Subsidiary Guarantees, as the case may be.
Securities (including the notations thereon relating to the Subsidiary
Guarantees, if any, and the Trustee's certificate of authentication) offered
and sold shall be issued initially in the form of one or more permanent global
Securities substantially in the form set forth in Sections 2.2 through 2.5
hereof (each being herein called a "Global Security") deposited with the
Trustee, as custodian for the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. To the extent required by
the rules and procedures of the Depository, Series A Securities initially
issued in reliance on Regulation S, Rule 144A or another exemption from the
registration requirements of the Securities Act shall be represented by
separate Global Securities. Subject to the limitation set forth in Section 3.1,
the principal amounts of the Global Securities may be increased or decreased
from time to time by adjustments made on the records of the Trustee as
custodian for the Depository, as hereinafter provided.
Securities (including the notations thereon relating to the Subsidiary
Guarantees, if any, and the Trustee's certificate of authentication) exchanged
for beneficial interests in a Global Security as described in Section 3.6 shall
be issued in the form of permanent
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<PAGE> 34
certificated securities in registered form in substantially the form set forth
in Sections 2.2 through 2.5 hereto ("Physical Securities").
The Series A Securities and the Series B Securities, the notations
thereon relating to the Subsidiary Guarantees, if any, and the Trustee's
certificate of authentication shall be in substantially the respective forms
set forth in this Article, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, CUSIP or other numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities
or notations of Subsidiary Guarantees, as the case may be, as evidenced by
their execution of the Securities or notations of Subsidiary Guarantees, as the
case may be. Any portion of the text of any Security may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the
Security. In addition to the requirements of Section 2.3, the Securities may
also have set forth on the reverse side thereof a form of assignment and forms
to elect purchase by the Company pursuant to Section 10.16 or 10.17 hereof.
Section 2.2 Form of Face of Security.
[THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE RE-OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF
RULE 501 (a)(1), (2), (3) or (7) UNDER THE SECURITIES ACT THAT IS AN
INSTITUTIONAL INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM
PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES
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<PAGE> 35
ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S, THE INITIAL
PURCHASERS' AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER
PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM.
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.](1)
NUEVO ENERGY COMPANY
9 1/2% Senior Subordinated Note due 2008, Series ____
No._____ $____________
CUSIP No. 670509 ______
Nuevo Energy Company, a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_________ or registered assigns the principal sum of _________ Dollars [(or
such lesser amount as may be shown on the Schedule of Exchanges attached
hereto)](2) on June 1, 2008, at the office or agency of the Company referred to
below, and to pay interest thereon, commencing on ______________ and continuing
semiannually thereafter, on June 1 and December 1 in each year, from
_____________, or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, at the rate of 9 1/2 % per annum, until the
principal hereof is paid or duly provided for, and (to the extent lawful) to
pay on demand interest on any overdue interest at the rate borne by the
Securities from the date on which such overdue interest becomes payable to the
date payment of such interest has been made or duly provided for. [The Company
also promises to pay any Special Interest required by a Registration Rights
Agreement, upon the conditions, at the rates and for the periods specified
therein.](3) The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such Indenture, be paid to
the Person in whose name this Security (or one or more Predecessor Securities)
is registered on the Security Register at the close of business on the Regular
Record Date for such interest, which shall be the May 15 or November 15
(whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for shall forthwith cease to be payable to the Holder on such Regular
Record Date, and such Defaulted Interest, and (to the extent lawful) interest
on such Defaulted Interest at the rate borne by the Securities, may be paid to
the Person in whose name this Security (or one or more Predecessor Securities)
is registered on the Security Register at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities not less than
10 days prior to such Special Record Date, or may be paid at any time in any
other
- ---------------------
(1) This legend should only be included on a Transfer Restricted
Security.
(2) This clause should be included only in a Global Security.
(3) This sentence should be included only in a Series A Security.
-30-
<PAGE> 36
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture. [Accrued but
unpaid interest on any Series A Security that is exchanged for a Series B
Security pursuant to an Exchange Offer should be paid on the first Interest
Payment Date on the Series B Securities.](4)
Payment of the principal of (and premium, if any, on) and interest on
this Security will be made at the office or agency of the Company maintained
for that purpose in The City of New York, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that payment of interest may be
made on Physical Securities at the option of the Company on or before the due
date by check mailed to the address of the Person entitled thereto as such
address shall appear on the Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
NUEVO ENERGY COMPANY
[SEAL]
By:
--------------------------------------
Title:
Attest:
- ------------------------------------
Title:
Section 2.3 Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Company designated as its 9 1/2% Senior Subordinated Notes due 2008, Series ___
(herein called the "Series ___ Securities" and, together with the Series ___
Securities, the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount to $400,000,000 at
any time Outstanding, which may be issued under an indenture (herein called the
"Indenture") dated as of August [ - ], 1999, between the Company and State
Street Bank and Trust Company (herein called the "Trustee," which term includes
any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, any Subsidiary Guarantors party thereto, the Trustee
and the Holders of the
- --------------------------
(4) This sentence should be included only in a Series A Security.
-31-
<PAGE> 37
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Indebtedness evidenced by the Securities is, to the extent and in
the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness (as defined in
the Indenture) and this Security is issued subject to such provisions. Each
Holder of this Security, by accepting the same, (i) agrees to and shall be
bound by such provisions, (ii) authorizes and directs the Trustee on his behalf
to take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (iii) appoints the Trustee as
his attorney-in-fact for such purpose.
The Securities are subject to redemption, at the option of the
Company, in whole or in part, at any time on or after June 1, 2003, upon not
less than 30 or more than 60 days' notice at the following Redemption Prices
(expressed as percentages of principal amount) set forth below if redeemed
during the 12-month period beginning June 1, of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption
---- Price
----------
<S> <C>
2003........................................................ 104.750
2004........................................................ 103.167
2005........................................................ 101.583
2006 and thereafter......................................... 100.000%
</TABLE>
together in the case of any such redemption with accrued and unpaid interest,
if any, to the Redemption Date, all as provided in the Indenture.
Notwithstanding the foregoing, prior to June 1, 2001 the Company may,
at any time or from time to time, redeem up to 33 1/3% of the aggregate
principal amount of the Securities originally issued (excluding, for this
purpose, any Series B Securities issued in exchange for Series A Securities) at
a Redemption Price of 109.5% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the Redemption Date, with the net proceeds of one
or more Equity Offerings of the Company, provided that at least 66 2/3% of the
aggregate principal amount of the Securities originally issued (excluding, for
this purpose, any Series B Securities issued in exchange for Series A
Securities) remains Outstanding after the occurrence of such redemption and
provided, further, that such redemption shall occur not later than 90 days
after the date of the closing of any such Equity Offering.
In the case of any redemption of Securities, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
Holders of such Securities, or one or more Predecessor Securities, of record at
the close of business on the relevant Record Date referred to on the face
hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the Redemption Date.
The Securities do not have the benefit of any mandatory redemption or
sinking fund obligations.
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<PAGE> 38
In the event of a Change of Control of the Company, and subject to
certain conditions and limitations provided in the Indenture, the Company will
be obligated to make an offer to purchase, on a Business Day not more than 60
or less than 30 days following the mailing of a notice of the occurrence of a
Change of Control of the Company, all of the then Outstanding Securities at a
purchase price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest to the Change of Control Purchase Date, all as
provided in the Indenture.
In the event of Asset Sales, under certain circumstances, the Company
will be obligated to make a Net Proceeds Offer to purchase all or a specified
portion of each Holder's Securities at a purchase price equal to 100% of the
principal amount of the Securities, together with accrued and unpaid interest
to the Net Proceeds Payment Date.
Holders of Securities that are the subject of an offer to purchase
their securities from the Company may elect to have such Securities purchased
by completing the form entitled "Option of Holder to Elect Purchase" below.
As set forth in the Indenture, an Event of Default is generally (i)
failure to pay principal upon maturity, redemption or otherwise (including
pursuant to a Change of Control Offer or a Net Proceeds Offer); (ii) default
for 30 days in payment of interest on any of the Securities; (iii) default in
the performance of agreements relating to mergers, consolidations and sales of
all or substantially all assets or the failure to make or consummate a Change
of Control Offer or a Net Proceeds Offer; (iv) failure for 60 days after notice
to comply with any other covenants in the Indenture, any Subsidiary Guarantee
or the Securities; (v) certain payment defaults under, and the acceleration
prior to the maturity of, certain Indebtedness of the Company or any Restricted
Subsidiary in an aggregate principal amount in excess of $10,000,000 (or
$40,000,000 in the case of Non-Recourse Purchase Money Indebtedness); (vi) the
failure of any Subsidiary Guarantee to be in full force and effect or otherwise
to be enforceable (except as permitted by the Indenture); (vii) certain final
judgments or orders against the Company or any Restricted Subsidiary in an
aggregate amount of more than $10,000,000 over the coverage under applicable
insurance policies which remain unsatisfied and either become subject to
commencement of enforcement proceedings or remain unstayed for a period of 60
days; and (viii) certain events of bankruptcy, insolvency or reorganization of
the Company or any Material Subsidiary. If any Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the Outstanding Securities may declare the principal amount of all
the Securities to be due and payable immediately, except that (i) in the case
of an Event of Default arising from certain events of bankruptcy, insolvency or
reorganization of the Company or any Material Subsidiary, the principal amount
of the Securities will become due and payable immediately without further
action or notice, and (ii) in the case of an Event of Default which relates to
certain payment defaults or acceleration with respect to certain Indebtedness,
any such Event of Default and any consequential acceleration of the Securities
will be automatically rescinded if any such Indebtedness is repaid or if the
default relating to such Indebtedness is cured or waived and if the holders
thereof have accelerated such Indebtedness then such holders have rescinded
their declaration of acceleration. No Holder may pursue any remedy under the
Indenture unless the Trustee shall have failed to act after notice from such
Holder of an Event of Default and written request by Holders of at least 25% in
aggregate principal amount of the Outstanding Securities, and the offer to the
Trustee of indemnity reasonably satisfactory to it; however, such provision
does not affect the right to sue for enforcement of any overdue payment on a
Security by the Holder thereof. Subject to certain
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<PAGE> 39
limitations, Holders of a majority in aggregate principal amount of the
Outstanding Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders notice of any continuing default
(except default in payment of principal, premium or interest) if it determines
in good faith that withholding the notice is in the interest of the Holders.
The Company is required to file annual and quarterly reports with the Trustee
as to the absence or existence of defaults.
The Indenture contains provisions for (i) defeasance at any time of
the entire indebtedness of the Company on this Security and (ii) discharge from
certain restrictive covenants and the related Defaults and Events of Default,
upon compliance by the Company with certain conditions set forth therein, which
provisions apply to this Security.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and any Subsidiary Guarantors and the rights of the Holders under the
Indenture at any time by the Company, such Subsidiary Guarantors and the
Trustee with the consent of the Holders of a majority in aggregate principal
amount of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all the Securities, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by or on behalf of the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof
whether or not notation of such consent or waiver is made upon this Security.
Without the consent of any Holder, the Company, any Subsidiary Guarantors and
the Trustee may amend or supplement the Indenture or the Securities to cure any
ambiguity, defect or inconsistency, to add or release any Subsidiary Guarantor
pursuant to the Indenture, to provide for uncertificated Securities in addition
to or in place of certificated Securities and to make certain other specified
changes and other changes that do not adversely affect the interests of any
Holder in any material respect.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any,
on) and interest on this Security at the times, place, and rate, and in the
coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registerable on the
Security Register of the Company, upon surrender of this Security for
registration of transfer at the office or agency of the Company maintained for
such purpose duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of like tenor and of authorized
denominations and for the same aggregate principal amount, will be issued to
the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $10 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like
-34-
<PAGE> 40
aggregate principal amount of Securities of like tenor and of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
A director, officer, employee, incorporator, stockholder or Affiliate
of the Company or any Subsidiary Guarantor, as such, past, present or future
shall not have any personal liability under this Security or the Indenture by
reason of his or its status as such director, officer, employee, incorporator,
stockholder or Affiliate, or any liability for any obligations of the Company
or any Subsidiary Guarantor under the Securities or the Indenture or for any
claim based on, in respect of, or by reason of such obligations or their
creation. Each Holder, by accepting this Security with the notation of
Subsidiary Guarantee endorsed hereon, waives and releases all such liability.
Such waiver and release are part of the consideration for the issuance of this
Security with the notation of Subsidiary Guarantee endorsed hereon.
Prior to the time of due presentment of this Security for registration
of transfer, the Company, any Subsidiary Guarantors, the Trustee and any agent
of the Company or the Trustee may treat the Person in whose name this Security
is registered as the owner hereof for all purposes, whether or not this
Security is overdue, and neither the Company, any Subsidiary Guarantors, the
Trustee nor any agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture. The Company will
furnish to any Holder upon written request and without charge a copy of the
Indenture. Requests may be made to the Company at 1021 Main Street, Suite 2100,
Houston, Texas 77002.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders thereof. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identifying information
printed hereon.
Interest on this Security shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
This Security shall be governed by and construed in accordance with
the laws of the State of New York.
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
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<PAGE> 41
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint___________________________________to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
- -------------------------------------------------------------------------------
Date:
------------------------
Your Signature:
----------------------------------
(Sign exactly as your name appears on the face of
this Security)
Signature Guarantee:
-----------------------------
(By an institution that is a
member of the Signature
Guarantee Medallion program)
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 10.16 or 10.17 of the Indenture, check the box below:
Section 10.16 Section 10.17
If you want to elect to have only part of the Security purchased by
the Company pursuant to Section 10.16 or Section 10.17 of the Indenture, state
the amount you elect to have purchased: $___________
Date:
------------------------
Your Signature:
----------------------------------
(Sign exactly as your name appears on the face of
this Security)
Soc. Sec. or Tax Identification No.:
-------------
Signature Guarantee:
-----------------------------
(By an institution that is a
member of the Signature
Guarantee Medallion program)
-36-
<PAGE> 42
SCHEDULE OF EXCHANGES OF SECURITIES(5)
THE FOLLOWING EXCHANGES OF A PART OF THIS GLOBAL SECURITY FOR OTHER SECURITIES
HAVE BEEN MADE:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease Amount of increase of this Global Signature of
in Principal in Principal Security following authorized officer
Amount of this Amount of this such decrease (or of Trustee or
Date of Exchange Global Security Global Security increase) Security Custodian
- ------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
</TABLE>
Section 2.4 Form of Notation Relating to Subsidiary Guarantees.
The form of notation to be set forth on each Security relating to the
Subsidiary Guarantees, if any, shall be in substantially the following form:
SUBSIDIARY GUARANTEES
Subject to the limitations set forth in the Indenture, all Subsidiary
Guarantors (as defined in the Indenture referred to in the Security upon which
this notation is endorsed and each being hereinafter referred to as a
"Subsidiary Guarantor," which term includes any successor Subsidiary Guarantor
under the Indenture) that may become party to the Indenture after the execution
and delivery thereof, have, jointly and severally, unconditionally guaranteed
(a) the due and punctual payment of the principal (and premium, if any) of and
interest on the Securities, whether at maturity, acceleration, redemption or
otherwise, (b) the due and punctual payment of interest on the overdue
principal of and interest on the Securities, if any, to the extent lawful, (c)
the due and punctual performance of all other obligations of the Company to the
Holders or the Trustee, all in accordance with the terms set forth in the
Indenture, and (d) in case of any extension of time of payment or renewal of
any Securities or any of such other obligations, the same will be promptly paid
in full when due or performed in accordance with the terms of the extension or
renewal, whether at Stated Maturity, by acceleration or otherwise.
The obligations of each Subsidiary Guarantor are limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor
under its Subsidiary Guarantee or pursuant to its contribution obligations
under the Indenture, result in the obligations of such Subsidiary Guarantor
under the Subsidiary Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. Each Subsidiary Guarantor that
makes a payment or distribution under a Subsidiary Guarantee shall be entitled
to a contribution from each other Subsidiary Guarantor in a pro rata amount
based on the Adjusted Net Assets of each Subsidiary Guarantor.
- -----------------------
(5) This should be included only if the Security is issued in global
form.
-37-
<PAGE> 43
The obligations of the Subsidiary Guarantors to the Holders or the
Trustee pursuant to the Subsidiary Guarantees and the Indenture are expressly
subordinate to all Guarantor Senior Indebtedness to the extent set forth in
Article XIII of the Indenture and reference is made to such Indenture for the
precise terms of such subordination.
No stockholder, officer, director, employee, incorporator or Affiliate
as such, past, present or future, of any Subsidiary Guarantor shall have any
personal liability under its Subsidiary Guarantee by reason of his or its
status as such stockholder, officer, director, employee, incorporator or
Affiliate, or any liability for any obligations of any Subsidiary Guarantor
under the Securities or the Indenture or for any claim based on, in respect of,
or by reason of such obligations or their creation.
Any Subsidiary Guarantor may be released from its Subsidiary Guarantee
upon the terms and subject to the conditions provided in the Indenture.
All terms used in this notation of Subsidiary Guarantee which are
defined in the Indenture referred to in this Security upon which this notation
of Subsidiary Guarantees is endorsed shall have the meanings assigned to them
in such Indenture.
The Subsidiary Guarantees shall be binding upon the Subsidiary
Guarantors and shall inure to the benefit of the Trustee and the Holders and,
in the event of any transfer or assignment of rights by any Holder or the
Trustee respecting the Security upon which the foregoing Subsidiary Guarantees
are noted, the rights and privileges herein conferred upon that party shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof and in the Indenture.
The Subsidiary Guarantees shall not be valid or obligatory for any
purpose until the certificate of authentication on the Security upon which the
foregoing Subsidiary Guarantees are noted shall have been executed by the
Trustee under the Indenture by the manual signature of one of its authorized
signatories.
[SUBSIDIARY GUARANTORS]
By:
------------------------------------
Section 2.5 Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in substantially
the following form:
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<PAGE> 44
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within mentioned
Indenture.
Dated: State Street Bank and Trust Company, as Trustee
--------------------
By:
------------------------------------
Authorized Signatory
-39-
<PAGE> 45
ARTICLE III
THE SECURITIES
Section 3.1 Title and Terms.
The aggregate principal amount of Series A Securities which may be
authenticated and delivered under this Indenture for original issue on the
Issue Date is limited to $260,000,000 (such Series A Securities being herein
called the "Offered Securities"), and from time to time after the Issue Date up
to an additional $140,000,000 aggregate principal amount of Series A Securities
may be issued, authenticated and delivered hereunder. The aggregate principal
amount of Series B Securities which may be authenticated and delivered under
this Indenture for original issue is limited to $400,000,000. The aggregate
principal amount of Securities Outstanding at any one time may not exceed
$400,000,000 except as provided in Section 3.7 hereof.
The Series A Securities shall be known and designated as the "9 1/2%
Senior Subordinated Notes due 2008, Series A" of the Company. Their Stated
Maturity shall be June 1, 2008, and they shall bear interest at the rate of 9
1/2% per annum from the date of their original issuance, or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, payable semiannually on June 1 and December 1 in each year, commencing, in
the case of the Offered Securities, December 1, 1999, and at said Stated
Maturity, until the principal thereof is paid or duly provided for.
The Series B Securities shall be known and designated as the "9 1/2%
Senior Subordinated Notes due 2008, Series B" of the Company. Their Stated
Maturity shall be June 1, 2008, and they shall bear interest at the rate of 9
1/2% per annum from the date of their original issuance, or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, payable semiannually on June 1 and December 1 in each year, commencing on
the first June 1 or December 1 following the original issuance of the Series B
Securities, and at said Stated Maturity, until the principal thereof is paid or
duly provided for.
Upon the occurrence of a Registration Default, the interest rate on
Transfer Restricted Securities shall increase ("Special Interest"), with
respect to the first 90-day period immediately following the occurrence of such
Registration Default, by 0.50% per annum and shall increase by an additional
0.25% per annum with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of 1.0% per annum
with respect to all Registration Defaults. Following the cure of a Registration
Default, the accrual of Special Interest with respect to such Registration
Default shall cease and upon the cure of all Registration Defaults the interest
rate shall revert to the original rate. Any Special Interest due on any
Security shall be payable on the appropriate Interest Payment Date to the
Holder entitled to receive the interest payment to be made on such date. Each
obligation to pay Special Interest shall be deemed to accrue from and including
the date of the first applicable Registration Default to but excluding the date
on which all Registration Defaults have been cured.
Accrued but unpaid interest on any Series A Security that is exchanged
for a Series B Security pursuant to a Registration Rights Agreement shall be
paid on the first Interest Payment Date on the Series B Securities.
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The Series A Securities and the Series B Securities shall be
considered collectively to be a single class for all purposes of this
Indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase.
As provided in the applicable Registration Rights Agreement and
subject to the limitations set forth therein, at the option of the Holders, the
Series A Securities shall be exchangeable for Series B Securities of like
aggregate principal amount pursuant to an Exchange Offer.
The principal of (and premium, if any, on) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York; provided, however, that, at the
option of the Company, interest may be paid on Physical Securities by check
mailed on or before the due date to addresses of the Persons entitled thereto
as such addresses shall appear on the Security Register.
The Securities shall be redeemable as provided in Article XI hereof.
The Securities shall be subject to defeasance at the option of the
Company as provided in Article XII hereof.
The Securities shall be guaranteed by the Subsidiary Guarantors, if
any, as provided in Article XIII hereof.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIV hereof.
Section 3.2 Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $10 and any integral multiple thereof.
Section 3.3 Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its President or a Vice President of the Company, under
its corporate seal reproduced thereon and attested by its Secretary or an
Assistant Secretary of the Company. The signature of any of these officers on
the Securities may be manual or facsimile signatures of the present or any
future such authorized officer and may be imprinted or otherwise reproduced on
the Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time after the execution and delivery of this Indenture, the
Company may deliver Series A Securities executed by the Company (and if at such
time there are any Subsidiary Guarantors, then having the notations of
Subsidiary Guarantees executed by such Subsidiary Guarantors) to the Trustee
for authentication, together with a Company Order for the authentication and
delivery of such Series A Securities, and the Trustee in
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accordance with such Company Order shall authenticate and deliver such Series A
Securities with the notations of Subsidiary Guarantees, if any, thereon as
provided in this Indenture. Such Company Order shall specify the principal
amount of the Series A Securities to be authenticated and the date on which the
original issue of Series A Securities is to be authenticated. In addition, on
or prior to the date of consummation of any Exchange Offer, the Company may
deliver Series B Securities executed by the Company (and if at such time there
are any Subsidiary Guarantors, then having the notations of Subsidiary
Guarantees executed by such Subsidiary Guarantors) to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Series B Securities, and the Trustee in accordance with such
Company Order shall authenticate and deliver such Series B Securities with the
notations of Subsidiary Guarantees, if any, thereon as provided in this
Indenture. Such Company Order shall specify the principal amount of the Series
B Securities to be authenticated and the date on which the Series B Securities
are to be exchanged for an equal principal amount of Series A Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
duly executed by the Trustee by manual signature of an authorized signatory,
and such certificate upon any Security shall be conclusive evidence, and the
only evidence, that such Security has been duly authenticated and delivered
hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to and in compliance with Article VIII
hereof, shall be consolidated or merged with or into any other Person or shall
sell, convey, transfer, lease or otherwise dispose of all or substantially all
of its Properties to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a sale, conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee pursuant to Article VIII hereof,
any of the Securities authenticated or delivered prior to such sale,
consolidation, merger, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person be exchanged for
other Securities executed in the name of the successor Person with such changes
in phraseology and form as may be appropriate, but otherwise in substance of
like tenor as the Securities surrendered for such exchange and of like
principal amount; and the Trustee, upon Company Request of the successor
Person, shall authenticate and deliver Securities as specified in such request
for the purpose of such exchange. If Securities shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer
of any Securities, such successor Person, at the option of the Holders but
without expense to them, shall provide for the exchange of all Securities at
the time Outstanding for Securities authenticated and delivered in such new
name.
Section 3.4 Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of
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which they are issued (and if at such time there are any Subsidiary Guarantors,
then having the notations of Subsidiary Guarantees thereon) and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities (and notations of Subsidiary Guarantees, if
any) may determine, as conclusively evidenced by their execution of such
Securities (and notations of Subsidiary Guarantees, if any).
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 10.2
hereof, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Securities, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of like tenor and of authorized denominations (and if at
such time there are any Subsidiary Guarantors, then having the notations of
Subsidiary Guarantees thereon). Until so exchanged, the temporary Securities
shall in all respects be entitled to the same benefits under this Indenture as
definitive Securities.
Section 3.5 Registration of Transfer and Exchange.
The Company shall cause to be kept a register (the "Security
Register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Securities and of
transfers of Securities. The Security Register shall be in written form or any
other form capable of being converted into written form within a reasonable
time. At all reasonable times and during normal business hours, the Security
Register shall be open to inspection by the Trustee. The Trustee is hereby
initially appointed as security registrar (the "Security Registrar") for the
purpose of registering Securities and transfers of Securities as herein
provided.
Subject to the provisions of this Section 3.5 and Section 3.6 hereof,
upon surrender for registration of transfer of any Security at the office or
agency of the Company designated pursuant to Section 10.2 hereof, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of like
tenor and of any authorized denominations and of a like aggregate principal
amount, each such Security having the notation of Subsidiary Guarantees thereon
if there are then any Subsidiary Guarantors.
Furthermore, any Holder of a Global Security shall, by acceptance of
such Global Security, be deemed to have agreed that transfers of beneficial
interests in such Global Security may be effected only through a book-entry
system maintained by the Depository (or its agent), and that ownership of a
beneficial interest in a Global Security shall be required to be reflected in a
book entry.
At the option of any Holder, Securities may be exchanged for other
Securities of like tenor or of any authorized denomination and of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
the office or agency of the Company designated pursuant to Section 10.2 hereof.
Further, at the option of any Holder, Series A Securities may be exchanged,
pursuant to an Exchange Offer and subject to the terms and conditions thereof,
for Series B Securities of like aggregate principal amount, upon surrender of
the Series A Securities to be exchanged at such office or agency. Whenever
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any Securities are so surrendered for exchange, the Company shall execute, the
Subsidiary Guarantors, if any, shall execute notations of Subsidiary Guarantees
on, and the Trustee shall authenticate and deliver, the Securities which the
Holder making the exchange is entitled to receive.
All Securities and the Subsidiary Guarantees noted thereon, if any,
issued upon any registration of transfer or exchange of Securities shall be the
valid obligations of the Company and the respective Subsidiary Guarantors, if
any, evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Securities surrendered upon such registration of transfer or
exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Security Registrar)
be duly endorsed, or be accompanied by a written instrument of transfer, in
form satisfactory to the Company and the Security Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing. As a special
condition to registration of transfer or exchange of any Transfer Restricted
Securities involving removal of a Private Placement Legend (other than pursuant
to an effective registration statement under the Securities Act), the Holder
requesting such registration of transfer or exchange shall furnish the Opinion
of Counsel called for by Section 3.12 hereof. The following additional special
conditions shall apply to the indicated types of transfers or exchanges:
(a) Respecting any requested registration of transfer or
exchange of Transfer Restricted Securities in the form of Physical Securities,
such Physical Securities shall be accompanied, in the sole discretion of the
Company, by the following additional information and documents, as applicable:
(1) if such Physical Security is being delivered to the
Security Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that
effect (in substantially the form of Exhibit B hereto); or
(2) if such Physical Security is being transferred to a
Qualified Institutional Buyer in accordance with Rule 144A, a
certification to that effect (in substantially the form of Exhibit B
hereto); or
(3) if such Physical Security is being transferred to an
Institutional Accredited Investor, delivery of a certification to that
effect (in substantially the form of Exhibit B hereto), a Transferee
Certificate for Institutional Accredited Investors in the form of
Exhibit C hereto and an Opinion of Counsel to the effect that such
transfer is in compliance with the Securities Act; or
(4) if such Physical Security is being transferred in
reliance on Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit B hereto), a Transferor
Certificate for Regulation S Transfers in the form of Exhibit D hereto
and an Opinion of Counsel to the effect that such transfer is in
compliance with the Securities Act; or
(5) if such Physical Security is being transferred in
reliance on Rule 144, delivery of a certification to that effect
(substantially in the form of Exhibit B
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hereto) and an Opinion of Counsel to the effect that such transfer is
in compliance with the Securities Act; or
(6) if such Physical Security is being transferred in
reliance on another exemption from the registration requirements of
the Securities Act, a certification to that effect (in substantially
the form of Exhibit B hereto) and an Opinion of Counsel to the effect
that such transfer is in compliance with the Securities Act.
Any Physical Security issued upon any such registration of transfer or exchange
shall be in a minimum principal amount of $250,000.
(b) Respecting any requested exchange of a Physical Security
for a beneficial interest in a Global Security, such Physical Security shall be
accompanied, in the sole discretion of the Company, by the following additional
information and documents:
(1) a certification, substantially in the form of Exhibit B
hereto, that such Physical Security is being transferred to a Person
reasonably believed to be a Qualified Institutional Buyer; and
(2) written instructions directing the Security Registrar to
make, or to direct the Depository to make, an endorsement on the
Global Security to reflect an increase in the aggregate amount of the
Securities represented by the Global Security;
whereupon the Security Registrar shall cancel such Physical Security and cause,
or direct the Depository to cause, in accordance with the standing instructions
and procedures existing between the Depository and the Security Registrar, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly. If no Global Security is then outstanding, the
Company shall issue and the Trustee shall upon Company Order authenticate a new
Global Security in the appropriate amount.
(c) With the prior approval of the Company, any Person having
a beneficial interest in a Global Security may upon request to the Security
Registrar exchange such beneficial interest for a Physical Security. Upon
receipt by the Security Registrar of written instructions (or such other form
of instructions as is customary for the Depository) from the Depository or its
nominee on behalf of any Person having a beneficial interest in a Global
Security and upon receipt by the Security Registrar of a written order or such
other form of instructions as is customary for the Depository or the Person
designated by the Depository as having such a beneficial interest containing
registration instructions and, in the case of any such transfer or exchange of
a beneficial interest in Transfer Restricted Securities, the following
additional information and documents:
(1) if such beneficial interest is being transferred to the
Person designated by the Depository as being the beneficial owner, a
certification from such Person to that effect (in substantially the
form of Exhibit B hereto); or
(2) if such beneficial interest is being transferred to a
Qualified Institutional Buyer in accordance with Rule 144A under the
Securities Act, a certification to that effect (in substantially the
form of Exhibit B hereto); or
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(3) if such beneficial interest is being transferred to an
Institutional Accredited Investor, delivery of a certification to that
effect (substantially in the form of Exhibit B hereto), a Transferee
Certificate for Institutional Accredited Investors in the form of
Exhibit C hereto and an Opinion of Counsel to the effect that such
transfer is in compliance with the Securities Act; or
(4) if such beneficial interest is being transferred in
reliance on Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit B hereto), a Transferor
Certificate for Regulation S Transfers in the form of Exhibit D hereto
and an Opinion of Counsel to the effect that such transfer is in
compliance with the Securities Act; or
(5) if such beneficial interest is being transferred in
reliance on Rule 144 under the Securities Act, delivery of a
certification to that effect (substantially in the form of Exhibit B
hereto) and an Opinion of Counsel to the effect that such transfer is
in compliance with the Securities Act; or
(6) if such beneficial interest is being transferred in
reliance on another exemption from the registration requirements of
the Securities Act, a certification to that effect (in substantially
the form of Exhibit B hereto) and an Opinion of Counsel to the effect
that such transfer is in compliance with the Securities Act,
then the Security Registrar will cause, in accordance with the standing
instructions and procedures existing between the Depository and the Security
Registrar, the aggregate principal amount of the Global Security to be reduced
and, following such reduction, the Company will execute and, upon receipt of a
Company Order, the Trustee will authenticate and deliver to the transferee a
Physical Security. Securities issued in exchange for a beneficial interest in a
Global Security pursuant to this Section 3.5(c) shall be registered in such
names and in such authorized denominations as the Depository, pursuant to
instructions from Agent Members or otherwise, shall instruct the Security
Registrar in writing; provided, however, that any Transfer Restricted Security
shall be issued in a minimum denomination of $250,000. The Security Registrar
shall deliver such Physical Securities to the Persons in whose names such
Physical Securities are so registered.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to an Exchange Offer or Section 3.4,
9.6 or 11.8 hereof not involving any transfer.
Neither the Trustee, the Security Registrar nor the Company shall be
required (i) to issue, register the transfer of or exchange any Physical
Security during a period beginning at the opening of business 15 days before
the mailing of a notice of redemption of Securities selected for redemption
under Section 11.4 hereof and ending at the close of business on the day of
such mailing of the relevant notice of redemption, or (ii) to register the
transfer of or exchange any Physical Security so selected for redemption in
whole or in part, except the unredeemed portion of any Physical Security being
redeemed in part.
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Section 3.6 Book-Entry Provisions for Global Securities.
Each Global Security shall (i) be registered in the name of the
Depository for such Global Security or the nominee of such Depository, (ii) be
delivered to the Trustee as custodian for such Depository and (iii) bear the
legend set forth in Exhibit A hereto.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under such
Global Security, and the Depository may be treated by the Company, the
Subsidiary Guarantors, if any, the Trustee and any agent of the Company, the
Subsidiary Guarantors, if any, or the Trustee as the absolute owner of such
Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Subsidiary Guarantors, if any,
the Trustee or any agent of the Company, the Subsidiary Guarantors, if any, or
the Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or shall impair, as between the
Depository and its Agent Members, the operation of customary practices
governing the exercise of the rights of a holder of any Security.
Transfers of a Global Security shall be limited to transfers of such
Global Security in whole, but not in part, to the Depository, its successors or
their respective nominees. Interests of beneficial owners in a Global Security
may be transferred or exchanged for Physical Securities in accordance with the
rules and procedures of the Depository and the provisions of Section 3.5
hereof. In addition, Physical Securities shall be transferred to all beneficial
owners in exchange for their beneficial interests in a Global Security if, and
only if, either (1) the Depository notifies the Company that it is unwilling or
unable to continue as depositary for the Global Security and a successor
depositary is not appointed by the Company within 90 days of such notice, or
(2) an Event of Default has occurred and is continuing and the Security
Registrar has received a request from the Depository to issue Physical
Securities in lieu of all or a portion of the Global Security (in which case
the Company shall deliver Physical Securities within 30 days of such request).
In connection with the transfer of an entire Global Security to
beneficial owners pursuant to this Section, the Global Security shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall upon Company Order authenticate and deliver, to
each beneficial owner identified by the Depository, in exchange for its
beneficial interest in the Global Security, an equal aggregate principal amount
of Physical Securities of authorized denominations.
The Holder of the Global Security may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
Section 3.7 Mutilated, Destroyed, Lost and Stolen Securities.
If (i) any mutilated Security is surrendered to the Trustee or (ii)
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company, the Subsidiary Guarantors, if any, and the Trustee such security or
indemnity as may be required by them to save each of them harmless, then, in
the absence of notice to the Company or the Trustee that such Security
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has been acquired by a bona fide purchaser, the Company shall execute, the
Subsidiary Guarantors, if any, shall execute the notation of Subsidiary
Guarantees, and upon Company Order the Trustee shall authenticate and deliver,
in exchange for any such mutilated Security or in lieu of any such destroyed,
lost or stolen Security, a new Security of like tenor and principal amount,
having the notation of Subsidiary Guarantees thereon if at such time there are
any Subsidiary Guarantors, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company and the respective Subsidiary
Guarantors, if any, whether or not the mutilated, destroyed, lost or stolen
Security shall be at any time enforceable by anyone, and shall be entitled to
all benefits of this Indenture equally and proportionately with any and all
other Securities of like tenor duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 3.8 Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company maintained for such purpose pursuant to Section
10.2 hereof.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease
to be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the extent lawful) interest on
such defaulted interest at the rate borne by the Securities (such defaulted
interest and interest thereon herein collectively called "Defaulted Interest")
may be paid by the Company, at its election in each case, as provided in clause
(a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Security and the date
of the proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount
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proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, and such money when deposited shall be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Company of such Special Record Date, and
in the name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor to be given in the manner provided for in Section 15.5 hereof, not
less than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor having
been so given, such Defaulted Interest shall be paid to the Persons in whose
names the Securities (or their respective Predecessor Securities) are
registered at the close of business on such Special Record Date and shall no
longer be payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Company to
the Trustee of the proposed payment pursuant to this clause, such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Section 3.9 Persons Deemed Owners.
Prior to the due presentment of a Security for registration of
transfer, the Company, the Subsidiary Guarantors, if any, the Security
Registrar, the Trustee and any agent of the Company, the Subsidiary Guarantors,
if any, or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment
of principal of (and premium, if any, on) and (subject to Section 3.8 hereof)
interest on such Security and for all other purposes whatsoever, whether or not
such Security be overdue, and none of the Company, the Subsidiary Guarantors,
if any, the Security Registrar, the Trustee or any agent of the Company, the
Subsidiary Guarantors, if any, or the Trustee shall be affected by notice to
the contrary.
Section 3.10 Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly canceled by it. The
Company may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All canceled Securities held by
the Trustee shall be
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disposed of as directed by a Company Order or in accordance with the Trustee's
usual practice; provided, however, that the Trustee shall not be required to
destroy canceled Securities.
Section 3.11 Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
Section 3.12 Private Placement Legend.
(a) All Transfer Restricted Securities shall bear the Private
Placement Legend upon the original issuance thereof. Upon the transfer,
exchange or replacement of Securities bearing the Private Placement Legend, the
Security Registrar shall deliver only Securities that bear the Private
Placement Legend unless, and the Trustee is hereby authorized to deliver
Securities without the Private Placement Legend if, (i) there is delivered to
the Trustee an Opinion of Counsel to the effect that neither such legend nor
the related restrictions on transfer are required in order to maintain
compliance with the provisions of the Securities Act or (ii) such Security has
been sold pursuant to an effective registration statement under the Securities
Act. Upon the transfer, exchange or replacement of Securities not bearing the
Private Placement Legend, the Security Registrar shall deliver Securities that
do not bear the Private Placement Legend.
(b) Notwithstanding the provisions of the preceding paragraph
of this Section 3.12, the Private Placement Legend on any Transfer Restricted
Security shall be removed upon the request of the Holder thereof upon delivery
of such Security to the Security Registration for exchange at any time after
the Resale Restriction Termination Date.
(c) By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1 Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange
of Securities, as expressly provided for in this Indenture) as to all
Outstanding Securities, and the Trustee, at the expense of the Company, shall,
upon payment of all amounts due the Trustee under Section 6.6 hereof, execute
proper instruments acknowledging satisfaction and discharge of this Indenture
when
(a) either
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(1) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 3.7 hereof
and (ii) Securities for whose payment money or United States
governmental obligations of the type described in clause (i) of the
definition of Cash Equivalents have theretofore been deposited in
trust with the Trustee or any Paying Agent or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 10.3 hereof) have
been delivered to the Trustee for cancellation, or
(2) all such Securities not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense,
of the Company,
and the Company, in the case of clause (2)(i), (2)(ii) or (2)(iii)
above, has irrevocably deposited or caused to be deposited with the
Trustee funds in an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Securities which
have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be, together with instructions from the Company
irrevocably directing the Trustee to apply such funds to the payment
thereof at maturity or redemption, as the case may be;
(b) the Company has paid or caused to be paid all other sums
then due and payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, which, taken together, state that all
conditions precedent herein relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.6 hereof and, if
money shall have been deposited with the Trustee pursuant to this Section, the
obligations of the Trustee under Section 4.2 hereof and the last paragraph of
Section 10.3 hereof shall survive.
Section 4.2 Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3
hereof, all money deposited with the Trustee pursuant to Section 4.1 hereof
shall be held in trust and applied by it, in accordance with the provisions of
the Securities and this Indenture, to the payment, either directly or through
any Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the
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principal (and premium, if any) and interest for whose payment such money has
been deposited with the Trustee.
ARTICLE V
REMEDIES
Section 5.1 Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article XIV or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of the principal of or premium, if
any, on any of the Securities when the same becomes due and payable, whether
such payment is due at Stated Maturity, upon redemption, upon repurchase
pursuant to a Change of Control Offer or a Net Proceeds Offer, upon
acceleration or otherwise; or
(b) default in the payment of any installment of interest on
any of the Securities, when it becomes due and payable, and the continuance of
such default for a period of 30 days; or
(c) default in the performance or breach of the provisions of
Article VIII hereof, the failure to make or consummate a Change of Control
Offer in accordance with the provisions of Section 10.16 or the failure to make
or consummate a Net Proceeds Offer in accordance with the provisions of Section
10.17; or
(d) failure of the Company or any Subsidiary Guarantor to
comply with any other term, covenant or agreement contained in the Securities,
any Subsidiary Guarantee or this Indenture (other than a default specified in
subparagraph (a), (b) or (c) above) for a period of 60 days after written
notice of such failure stating that it is a "notice of default" hereunder and
requiring the Company or such Subsidiary Guarantor, as the case may be, to
remedy the same shall have been given (x) to the Company by the Trustee or (y)
to the Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the Securities then Outstanding; or
(e) the occurrence and continuation beyond any applicable
grace period of any default in the payment of the principal of (or premium, if
any, on) or interest on any Indebtedness of the Company (other than the
Securities) or any Restricted Subsidiary for money borrowed when due, or any
other default resulting in acceleration of any Indebtedness of the Company or
any Restricted Subsidiary for money borrowed, provided that the aggregate
principal amount of such Indebtedness shall exceed $10,000,000 (or $40,000,000
in the case of Non-Recourse Purchase Money Indebtedness); or
(f) any Subsidiary Guarantee shall for any reason cease to
be, or be asserted by the Company or any Subsidiary Guarantor, as applicable,
not to be, in full force and effect, enforceable in accordance with its terms
(except pursuant to the release or termination of any such Subsidiary Guarantee
in accordance with this Indenture); or
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(g) final judgments or orders rendered against the Company or
any Restricted Subsidiary that are unsatisfied and that require the payment in
money, either individually or in an aggregate amount, that is more than
$10,000,000 over the coverage under applicable insurance policies and either
(A) commencement by any creditor of an enforcement proceeding upon such
judgment (other than a judgment that is stayed by reason of pending appeal or
otherwise) or (B) the occurrence of a 60-day period during which a stay of such
judgment or order, by reason of pending appeal or otherwise, was not in effect;
or
(h) the entry of a decree or order by a court having
jurisdiction in the premises (A) for relief in respect of the Company or any
Material Subsidiary in an involuntary case or proceeding under the Federal
Bankruptcy Code or any other applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or (B) adjudging the Company or
any Material Subsidiary bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of the Company or a
Material Subsidiary under the Federal Bankruptcy Code or any applicable federal
or state law, or appointing under any such law a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or any Material Subsidiary or of a substantial part of its consolidated
assets, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other decree or
order unstayed and in effect for a period of 60 consecutive days; or
(i) the commencement by the Company or any Material
Subsidiary of a voluntary case or proceeding under the Federal Bankruptcy Code
or any applicable federal or state bankruptcy, insolvency, reorganization or
other similar law or any other case or proceeding to be adjudicated a bankrupt
or insolvent, or the consent by the Company or any Material Subsidiary to the
entry of a decree or order for relief in respect thereof in an involuntary case
or proceeding under the Federal Bankruptcy Code or any applicable federal or
state bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing by the Company or any Material Subsidiary of a petition or consent
seeking reorganization or relief under any applicable federal or state law, or
the consent by it under any such law to the filing of any such petition or to
the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or other similar official) of the Company or
any Material Subsidiary or of any substantial part of its consolidated assets,
or the making by it of an assignment for the benefit of creditors under any
such law, or the admission by it in writing of its inability to pay its debts
generally as they become due or taking of corporate action by the Company or
any Material Subsidiary in furtherance of any such action.
Section 5.2 Acceleration of Maturity: Rescission and Annulment.
If any Event of Default (other than an Event of Default specified in
Section 5.1(h) or (i) hereof) occurs and is continuing, the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Securities
then Outstanding, by written notice to the Company (and to the Trustee if such
notice is given by the Holders), may, and the Trustee upon the request of the
Holders of not less than 25% in aggregate principal amount of the Outstanding
Securities shall, by a notice in writing to the Company, declare all unpaid
principal of, premium, if any, and accrued and unpaid interest on all the
Securities to be due and payable immediately, upon which declaration all
amounts payable in respect of
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the Securities shall be immediately due and payable. If an Event of Default
specified in Section 5.1(h) or (i) hereof occurs and is continuing, the amounts
described above shall become and be immediately due and payable without any
declaration, notice or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in aggregate principal amount of the Securities Outstanding, by written notice
to the Company, the Subsidiary Guarantors, if any, and the Trustee, may rescind
and annul such declaration and its consequences if
(a) the Company or any Subsidiary Guarantor has paid or
deposited with the Trustee a sum sufficient to pay,
(1) all overdue interest on all Outstanding Securities,
(2) all unpaid principal of (and premium, if any, on) any
Outstanding Securities which have become due otherwise than by such
declaration of acceleration, including any Securities required to have
been purchased on a Change of Control Purchase Date or a Net Proceeds
Payment Date pursuant to a Change of Control Offer or a Net Proceeds
Offer, as applicable, and interest on such unpaid principal at the
rate borne by the Securities,
(3) to the extent that payment of such interest is lawful,
interest on overdue interest and overdue principal at the rate borne
by the Securities (without duplication of any amount paid or deposited
pursuant to clauses (1) and (2) above), and
(4) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel;
(b) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction as certified to the Trustee by the
Company; and
(c) all Events of Default, other than the non-payment of
amounts of principal of (or premium, if any, on) or interest on Securities
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 5.13 hereof.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
Notwithstanding the foregoing, if an Event of Default specified in
Section 5.1(e) hereof shall have occurred and be continuing, such Event of
Default and any consequential acceleration shall be automatically rescinded if
the Indebtedness that is the subject of such Event of Default has been repaid,
or if the default relating to such Indebtedness is waived or cured and if such
Indebtedness has been accelerated, then the holders thereof have rescinded
their declaration of acceleration in respect of such Indebtedness (provided, in
each case, that such repayment, waiver, cure or rescission is effected within a
period of 10
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days from the continuation of such default beyond the applicable grace period
or the occurrence of such acceleration), and written notice of such repayment,
or cure or waiver and rescission, as the case may be, shall have been given to
the Trustee by the Company and countersigned by the holders of such
Indebtedness or a trustee, fiduciary or agent for such holders or other
evidence satisfactory to the Trustee of such events is provided to the Trustee,
within 30 days after any such acceleration in respect of the Securities, and so
long as such rescission of any such acceleration of the Securities does not
conflict with any judgment or decree as certified to the Trustee by the
Company.
Section 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(a) default is made in the payment of any installment of
interest on any Security when such interest becomes due and payable and such
default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof or with respect to
any Security required to have been purchased by the Company on the Change of
Control Purchase Date or the Net Proceeds Payment Date pursuant to a Change of
Control Offer or Net Proceeds Offer, as applicable, the Company will, upon
demand of the Trustee, pay to the Trustee for the benefit of the Holders of
such Securities, the whole amount then due and payable on such Securities for
principal (and premium, if any) and interest, and interest on any overdue
principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of
interest, at the rate borne by the Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
money adjudged or decreed to be payable in the manner provided by law out of
the Property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 5.4 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, any Subsidiary Guarantor or any
other obligor upon the Securities, their creditors or the Property of the
Company, any Subsidiary Guarantor or of such other
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obligor, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company, the Subsidiary Guarantors, if any, or such other obligor for the
payment of overdue principal, premium, if any, or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in respect of the
Securities and to file such other papers or documents and take any other
actions including participation as a full member of any creditor or other
committee as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of the
Holders allowed in such judicial proceeding, and
(b) subject to Article XIV, to collect and receive any money
or other Property payable or deliverable on any such claims and to distribute
the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 6.6 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the Subsidiary Guarantees, if any, or the rights of any Holder thereof, or
to authorize the Trustee to vote in respect of the claim of any Holder in any
such proceeding.
Section 5.5 Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the Securities
or the Subsidiary Guarantees, if any, may be prosecuted and enforced by the
Trustee without the possession of any of the Securities or the production
thereof in any proceeding relating thereto, and any such proceeding instituted
by the Trustee shall be brought in its own name and as trustee of an express
trust, and any recovery of judgment shall, after provision for the payment of
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, be for the ratable benefit of the Holders of
the Securities in respect of which such judgment has been recovered.
Section 5.6 Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in the case of the distribution of such money on account of principal (or
premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: to the payment of all amounts due the Trustee under Section 6.6
hereof;
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SECOND: subject to Article XIV, to the payment of the amounts then due
and unpaid for principal of (and premium, if any, on) and interest on the
Securities in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according to
the amounts due and payable on such Securities for principal (and premium, if
any) and interest, respectively; and
THIRD: subject to Article XIV, the balance, if any, to the Company.
Section 5.7 Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% in aggregate principal
amount of the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in aggregate principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
Section 5.8 Unconditional Right of Holders to Receive Principal
Premium and Interest.
Notwithstanding any other provision in this Indenture (but subject to
Articles XIII and XIV hereof), the Holder of any Security shall have the right,
which is absolute and unconditional, to receive payment, as provided herein
(including, if applicable, Article XII hereof) and in such Security of the
principal of (and premium if any, on) and (subject to Section 3.8 hereof)
interest on, such Security on the respective Stated Maturities expressed in
such Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
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Section 5.9 Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Subsidiary Guarantors, if
any, the Trustee and the Holders shall be restored severally and respectively
to their former positions hereunder and thereunder and all rights and remedies
of the Trustee and the Holders shall continue as though no such proceeding had
been instituted.
Section 5.10 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 3.7 hereof, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
Section 5.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
Section 5.12 Control by Holders.
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee, provided that
(a) such direction shall not be in conflict with any rule of
law or with this Indenture,
(b) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might involve
it in personal liability or be unduly prejudicial to the Holders not joining
therein.
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Section 5.13 Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities may on behalf of the Holders of all the
Securities waive any existing Default or Event of Default hereunder and its
consequences, except a Default or Event of Default,
(a) in respect of the payment of the principal of (or
premium, if any, on) or interest on any Security, or
(b) in respect of a covenant or provision hereof which under
Article IX hereof cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected thereby.
Upon any such waiver, such Default or Event of Default shall cease to
exist for every purpose under this Indenture, but no such waiver shall extend
to any subsequent or other fault or Event of Default or impair any right
consequent thereon. Any such waiver may (but need not) be given in connection
with a tender offer or exchange offer for the Securities.
Section 5.14 Waiver of Stay, Extension or Usury Laws.
Each of the Company and the Subsidiary Guarantors, if any, covenants
(to the extent that each may lawfully do so) that it will not at any time
insist upon, plead or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension, or usury law or other law wherever enacted,
now or at any time hereafter in force, which would prohibit or forgive the
Company or any Subsidiary Guarantor from paying all or any portion of the
principal of (premium, if any, on) or interest on the Securities as
contemplated herein, or which may affect the covenants or the performance of
this Indenture; and (to the extent that it may lawfully do so) each of the
Company and the Subsidiary Guarantors, if any, hereby expressly waives all
benefit or advantage of any such law, and covenant that they will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
ARTICLE VI
THE TRUSTEE
Section 6.1 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing,
the Trustee shall exercise the rights and powers vested in it by this Indenture
and use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of his own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture
and no implied
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covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, and shall be fully protected in so
relying, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture;
provided, however, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(i) this paragraph shall not limit the effect of
Section 6.1(b);
(ii) the Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in accordance
with a direction received by it pursuant to Section 5.12.
Section 6.2 Certain Rights of Trustee.
Subject to the provisions of Section 6.1 hereof:
(a) the Trustee may conclusively rely and shall be protected
in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders
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pursuant to this Indenture, unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may reasonably see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(h) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Indenture;
and
(i) the Trustee shall not be deemed to have notice or
knowledge of any matter unless a Responsible Officer has actual knowledge
thereof or unless written notice thereof is received by the Trustee at its
Corporate Trust Office and such notice references the Securities generally, the
Company or this Indenture.
The Trustee shall not be required to advance, expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
Section 6.3 Trustee Not Responsible for Recitals or Issuance of
Securities.
The recitals contained herein and in the Securities and the notations
of Subsidiary Guarantees thereon, if any, except for the Trustee's certificates
of authentication, shall be taken as the statements of the Company or the
Subsidiary Guarantors, as the case may be, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture, the Subsidiary Guarantees, if
any, or the Securities, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Securities
and perform its obligations hereunder. The Trustee shall not be accountable for
the use or application by the Company of any Securities or the proceeds
thereof.
Section 6.4 May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any other
agent of the Company, the Subsidiary Guarantors, if any, or of the Trustee, in
its individual or any other capacity, may become the owner or pledgee of
Securities and, subject to TIA Sections 310(b) and 311 in the case of the
Trustee, may otherwise deal with the Company
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and the Subsidiary Guarantors, if any, with the same rights it would have if it
were not the Trustee, Paying Agent, Security Registrar or such other agent.
Section 6.5 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company or any Subsidiary Guarantor.
Section 6.6 Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to the Trustee's willful
misconduct, negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without willful misconduct,
negligence or bad faith on its part, (i) arising out of or in connection with
the acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder or (ii) in
connection with enforcing this indemnification provision.
The obligations of the Company under this Section 6.6 to compensate
the Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall not be
subordinated to the payment of Senior Indebtedness pursuant to Article XIV
hereof and shall constitute additional indebtedness hereunder and shall survive
the satisfaction and discharge of this Indenture or any other termination under
any Insolvency or Liquidation Proceeding. As security for the performance of
such obligations of the Company, the Trustee shall have a claim and lien prior
to the Securities upon all property and funds held or collected by the Trustee
as such, except funds held in trust for payment of principal of (and premium,
if any, on) or interest on particular Securities. Such lien shall survive the
satisfaction and discharge of this Indenture or any other termination under any
Insolvency or Liquidation Proceeding.
When the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in paragraph (h) or (i) of Section
5.1 of this Indenture, such expenses and the compensation for such services are
intended to constitute expenses of administration under any Insolvency or
Liquidation Proceeding.
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Section 6.7 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be eligible
to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital
and surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of federal,
state, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section 6.7, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 6.8 Conflicting Interests.
The Trustee shall comply with the provisions of Section 310(b) of the
Trust Indenture Act; provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) the Existing Indentures and any other
indenture or indentures under which other securities or certificates of interest
or participation in other securities of the Company are outstanding if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
Section 6.9 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 6.10 hereof.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 6.10 hereof shall not have been delivered to the
Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in aggregate principal amount of the
Outstanding Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least
six months, or
(2) the Trustee shall cease to be eligible under Section 6.7
hereof and shall fail to resign after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Security
for at least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be
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appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in aggregate principal amount of
the Outstanding Securities delivered to the Company and the retiring Trustee,
the successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
The evidence of such successorship may, but need not be, evidenced by a
supplemental indenture.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the manner provided for in Section 15.5 hereof. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Section 6.10 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of all amounts due
it under Section 6.6 hereof, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the retiring Trustee
and shall duly assign, transfer and deliver to such successor Trustee all money
and other Property held by such retiring Trustee hereunder. Upon request of any
such successor Trustee, the Company shall execute any and all instruments for
more fully and certainly vesting in and confirming to such successor Trustee all
such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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Section 6.11 Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities;
and in case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee;
and in all such cases such certificates shall have the full force which it is
anywhere in the Securities of like tenor or in this Indenture provided;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Securities in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
Section 6.12 Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor under the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
Section 6.13 Notice of Defaults.
Within 60 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder known to the Trustee, unless such
Default shall have been cured or waived; provided, however, that, except in the
case of a Default in the payment of the principal of (or premium, if any, on) or
interest on any Security, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1 Holders' Lists; Holder Communications; Disclosures
Respecting Holders.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders. Neither the Company, any Subsidiary Guarantor nor the Trustee shall
be under any responsibility with regard to the accuracy of such list. If the
Trustee is not the Security Registrar, the Company shall furnish to the Trustee
semi-annually before each Regular Record Date, and
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at such other times as the Trustee may reasonably request in writing, a list, in
such form as the Trustee may reasonably request, as of such date of the names
and addresses of the Holders then known to the Company. The Company and the
Trustee shall also satisfy any other requirements imposed upon each of them by
TIA Section 312(a).
Holders may communicate pursuant to Section 312(b) of the TIA with
other Holders with respect to their rights under this Indenture or the
Securities.
Every Holder of Securities, by receiving and holding the same, agrees
with the Company, the Subsidiary Guarantors, if any, the Security Registrar and
the Trustee that none of the Company, the Subsidiary Guarantors, if any, the
Security Registrar or the Trustee, or any agent of any of them, shall be held
accountable by reason of the disclosure of any information as to the names and
addresses of the Holders in accordance with TIA Section 312, regardless of the
source from which such information was derived, that each of such Persons shall
have the protection of TIA Section 312(c) and that the Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under
TIA Section 312(b).
Section 7.2 Reports By Trustee.
Within 60 days after May 15 of each year commencing with May 15, 2000,
the Trustee shall transmit by mail to the Holders, as their names and addresses
appear in the Security Register, a brief report dated as of such May 15 in
accordance with and to the extent required under TIA Section 313(a). The Trustee
shall also comply with TIA Sections 313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or automatic quotation system.
Commencing at the time this Indenture is qualified under the Trust
Indenture Act, a copy of each Trustee's report, at the time of its mailing to
Holders of Securities, shall be mailed to the Company and filed with the
Commission and each stock exchange, if any, on which the Securities are listed.
Section 7.3 Reports by Company.
The Company shall:
(a) file with the Trustee, within 30 days after the Company is
required to file the same with the Commission, copies of the annual reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if
the Company is not required to file information, documents or reports pursuant
to either of said Sections, then the Company shall file with the Trustee such
information, documents or reports as required pursuant to Section 10.9 hereof;
(b) file with the Trustee and the Commission, in accordance
with rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by the
Company with the
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conditions and covenants of this Indenture as may be required from time to time
by such rules and regulations; and
(c) transmit by mail to all Holders, in the manner and to the
extent provided in TIA Section 313(c), such summaries of any information,
documents and reports (without exhibits except to the extent required by TIA
Section 313(c)) required to be filed by the Company pursuant to paragraph (a) or
(b) of this Section as may be required by rules and regulations prescribed from
time to time by the Commission.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1 Company May Consolidate, etc., Only on Certain Terms.
The Company shall not, in any single transaction or a series of related
transactions, merge or consolidate with or into any other Person, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
the Properties of the Company and its Restricted Subsidiaries on a consolidated
basis to any Person or group of Affiliated Persons, and the Company shall not
permit any of its Restricted Subsidiaries to enter into any such transaction or
series of transactions if such transaction or series of transactions, in the
aggregate, would result in a sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of the Properties of the Company
and its Restricted Subsidiaries on a consolidated basis to any other Person or
group of Affiliated Persons, unless at the time and after giving affect thereto:
(a) either (i) if the transaction is a merger or
consolidation, the Company shall be the surviving Person of such merger or
consolidation, or (ii) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or to which the Properties of
the Company or its Restricted Subsidiaries, as the case may be, are sold,
assigned, conveyed, transferred, leased or otherwise disposed of (any such
surviving Person or transferee Person being called the "Surviving Entity") shall
be a corporation organized and existing under the laws of the United States of
America, any state thereof or the District of Columbia and shall, in either
case, expressly assume by a supplemental indenture to this Indenture executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Securities and this Indenture, and, in each
case, this Indenture shall remain in full force and effect;
(b) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (and treating any Indebtedness not
previously an obligation of the Company or any of its Restricted Subsidiaries
which becomes the obligation of the Company or any of its Restricted
Subsidiaries in connection with or as a result of such transaction or
transactions as having been incurred at the time of such transaction or
transactions), no Default or Event of Default shall have occurred and be
continuing;
(c) except in the case of the consolidation or merger of any
Restricted Subsidiary with or into the Company, immediately after giving effect
to such transaction or transactions on a pro forma basis, the Consolidated Net
Worth of the Company (or the Surviving Entity if the Company is not the
continuing obligor under this Indenture) is at
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least equal to the Consolidated Net Worth of the Company immediately before such
transaction or transactions;
(d) except in the case of the consolidation or merger of the
Company with or into a Wholly Owned Restricted Subsidiary or any Restricted
Subsidiary with or into the Company or any Wholly Owned Restricted Subsidiary,
immediately after giving effect to such transaction or transactions on a pro
forma basis (on the assumption that the transaction or transactions occurred on
the first day of the applicable period under Section 10.12 ending immediately
prior to the consummation of such transaction or transactions, with the
appropriate adjustments with respect to the transaction or transactions being
included in such pro forma calculation), the Company (or the Surviving Entity if
the Company is not the continuing obligor under this Indenture) could incur
$1.00 of additional Indebtedness (excluding Permitted Indebtedness) under
Section 10.12 hereof;
(e) if the Company is not the continuing obligor under this
Indenture, then any Subsidiary Guarantor, unless it is the Surviving Entity,
shall have by supplemental indenture confirmed that its Subsidiary Guarantee of
the Securities shall apply to the Surviving Entity's obligations under this
Indenture and the Securities:
(f) if any of the Properties of the Company or any of its
Restricted Subsidiaries would upon such transaction or series of related
transactions become subject to any Lien (other than a Permitted Lien), the
creation or imposition of such Lien shall have been in compliance with Section
10.15 hereof; and
(g) the Company (or the Surviving Entity if the Company is not
the continuing obligor under this Indenture) shall have delivered to the
Trustee, in form and substance reasonably satisfactory to the Trustee, (i) an
Officers' Certificate stating that such consolidation, merger, conveyance,
transfer, lease or other disposition and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
comply with this Indenture and (ii) an Opinion of Counsel stating that the
requirements of Section 8.1(a) have been satisfied.
Section 8.2 Successor Substituted.
Upon any consolidation of the Company with or merger of the Company
into any other corporation or any sale, assignment, lease, conveyance, transfer
or other disposition of all or substantially all of the Properties of the
Company and its Restricted Subsidiaries on a consolidated basis in accordance
with Section 8.1 hereof, the Surviving Entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such Surviving Entity had been named
as the Company herein, and in the event of any such sale, assignment, lease,
conveyance, transfer or other disposition, the Company (which term shall for
this purpose mean the Person named as the "Company" in the first paragraph of
this Indenture or any successor Person which shall theretofore become such in
the manner described in Section 8.1 hereof), except in the case of a lease,
shall be discharged from all obligations and covenants under this Indenture and
the Securities, and the Company may be dissolved and liquidated and such
dissolution and liquidation shall not cause a Change of Control under clause (e)
of the definition thereof to occur unless the sale, assignment, lease,
conveyance, transfer or other disposition of all or substantially all of the
Properties of the Company and its Restricted Subsidiaries on a consolidated
basis to any Person otherwise results in a Change of Control.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1 Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, each of the Subsidiary Guarantors, if any, when authorized by
a Board Resolution, and the Trustee upon Company Request, at any time and from
time to time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of the Company
contained herein and in the Securities; or
(b) to add to the covenants of the Company for the benefit of
the Holders, to provide any additional rights or benefits to the Holders or to
surrender any right or power herein conferred upon the Company; or
(c) to add any additional Events of Default; or
(d) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Sections 6.9
and 6.10 hereof; or
(e) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or questions
arising under this Indenture provided that such action shall not adversely
affect the interests of the Holders in any material respect; or
(f) to secure the Securities pursuant to the requirements of
Section 10.15 hereof or otherwise; or
(g) to add any Restricted Subsidiary as a Subsidiary Guarantor
as provided in Section 10.13(a) hereof or to evidence the succession of another
Person to any Subsidiary Guarantor pursuant to Section 13.2(b) hereof and the
assumption by any such successor of the covenants and agreements of such
Subsidiary Guarantor contained herein, in the Securities and in the Subsidiary
Guarantee of such Subsidiary Guarantor; or
(h) to release a Subsidiary Guarantor from its Subsidiary
Guarantee pursuant to Section 13.3 hereof; or
(i) to provide for uncertificated Securities in addition to or
in place of certificated Securities; or
(j) to comply with the requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA.
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Section 9.2 Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities (which consent may, but
need not, be given in connection with any tender offer or exchange offer for the
Securities), by Act of said Holders delivered to the Company and the Trustee,
the Company, when authorized by a Board Resolution, each of the Subsidiary
Guarantors, if any, when authorized by a Board Resolution, and the Trustee upon
Company Request may enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders under this Indenture; provided, however, that
no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby:
(a) reduce the principal amount of Securities whose Holders
must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the Stated Maturity of
the principal of, or any installment of interest on, any Security or alter or
waive any of the provisions with respect to the redemption of the Securities,
except as provided below with respect to Sections 10.16 and 10.17 hereof;
(c) reduce the rate of or change the time for payment of
interest, including Defaulted Interest, on any Security;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Securities (except a
rescission of acceleration of the Securities by the Holders of at least a
majority in aggregate principal amount of the then Outstanding Securities and a
waiver of the payment default that resulted from such acceleration);
(e) make any Security payable in money other than that stated
in the Securities;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of Securities to
receive payments of principal of, premium, if any, on or interest on the
Securities;
(g) waive a redemption payment with respect to any Security
(other than a payment required by Section 10.16 or Section 10.17 hereof); or
(h) modify any provisions of this Indenture relating to the
relative ranking of the Securities or the Subsidiary Guarantees, if any, in a
manner adverse to the Holders thereof; or
(i) make any change in Section 5.8, 5.13 or 10.20 hereof or in
the foregoing amendment and waiver provisions.
It shall not be necessary for any Act of the Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
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Section 9.3 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Section 9.4 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 9.5 Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.6 Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company, with the notations of Subsidiary Guarantees thereon executed by the
Subsidiary Guarantors, if there are then any Subsidiary Guarantors, and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
Section 9.7 Notice of Supplemental Indentures and Waivers.
Promptly after (i) the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 9.2 hereof or (ii)
a waiver under Section 5.13 or 10.20 hereof becomes effective, the Company shall
give notice thereof to the Holders of each Outstanding Security affected, in the
manner provided for in Section 15.5 hereof, setting forth in general terms the
substance of such supplemental indenture or waiver, as the case may be.
Section 9.8 Effect on Senior Indebtedness.
No supplemental indenture shall adversely affect the rights of the
holders of Senior Indebtedness under Article XIV hereof or the holders of
Guarantor Senior Indebtedness under Sections 13.8, 13.9, 13.10, 13.11, 13.13,
13.14, 13.15, 13.16 and 13.19 hereof unless expressly consented to in writing by
or on behalf of such holders (or by any specified percentage of holders of a
class of Senior Indebtedness or Guarantor Senior
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Indebtedness, as the case may be, required to consent thereto pursuant to the
terms of the agreement or instrument creating, evidencing or governing such
Senior Indebtedness or Guarantor Senior Indebtedness, as the case may be), in
which event such supplemental indenture shall be binding on all successors and
assigns of such holders and on all Persons who become holders of such Senior
Indebtedness or Guarantor Senior Indebtedness issued after the date of such
amendment or modification.
ARTICLE X
COVENANTS
Section 10.1 Payment of Principal, Premium, if any, and Interest.
The Company covenants and agrees for the benefit of the Holders that it
will duly and punctually pay the principal of (and premium, if any, on) and
interest (including Special Interest) on the Securities in accordance with the
terms of the Securities and this Indenture. Principal, premium, if any, and
interest shall be considered paid on the date due if by 11:00 a.m., Eastern
time, on such date the Trustee or a Paying Agent (other than the Company or its
Affiliates, except any such Affiliate providing commercial banking services to
the Company or its Subsidiaries upon commercially reasonable terms in the
ordinary course of such Affiliate's business) holds in accordance with this
Indenture money sufficient to pay all principal, premium, if any, and interest
then due and the Trustee or such Paying Agent, as the case may be, is not
prohibited from paying such money to the Holders of Securities on that date
pursuant to the terms of this Indenture. The Company shall notify the Trustee
and any Paying Agent immediately upon the occurrence of any Registration Default
and, with respect to Special Interest payments pursuant to a Registration Rights
Agreement, the Company shall notify the Trustee and any Paying Agent prior to
any Interest Payment Date of the amount of Special Interest payable to each
Holder.
Section 10.2 Maintenance of Office or Agency.
The Company shall maintain an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Securities, the Subsidiary Guarantees and this
Indenture may be served. The Corporate Trust Office shall be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company will give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind any such designation.
Further, if at any time there shall be no such office or agency in The City of
New York where the Securities may be presented or surrendered for payment, the
Company shall forthwith designate
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and maintain such an office or agency in The City of New York, in order that the
Securities shall at all times be payable in The City of New York. (The office of
State Street Bank and Trust Company National Association, located at 61
Broadway, 15th floor, New York, New York 10006, is hereby designated as such
agency.) The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
Section 10.3 Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it shall,
on or before 11:00 a.m., Eastern time, on each due date of the principal of (and
premium, if any, on) or interest on any of the Securities, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due until such sum
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will on or before 11:00 a.m., Eastern time, on each due date of
the principal of (and premium, if any, on), or interest on, any Securities,
deposit with a Paying Agent immediately available funds in a sum sufficient to
pay the principal (and premium, if any) or interest so becoming due, such funds
to be held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Company
shall promptly notify the Trustee of such action or any failure so to act.
The Company shall cause each Paying Agent (other than the Trustee or
itself) to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal
of (and premium, if any, on) or interest on Securities in trust for the benefit
of the Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities) in the making of any payment of principal
(and premium, if any) or interest; and
(c) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent.
Initially, the Company shall act as its own Paying Agent, and it shall
be deemed to have agreed with the Trustee that it will adhere to the agreement
described in the immediately preceding paragraph. Further, the Company shall
give the Trustee notice within 30 days of the making of any payment of principal
(and premium, if any) or interest hereunder by any Paying Agent (including the
Company if acting as its own Paying Agent, but excluding the Trustee), which
notice shall specify the amounts of principal (and premium, if any) and interest
so paid and, in the event of any payment of principal, the aggregate unpaid
principal amount of all Securities then Outstanding.
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The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums. The Trustee and each Paying Agent shall promptly pay to the Company
upon Company Request any money held by them (other than pursuant to Article XII)
at any time in excess of amounts required to pay principal of, premium, if any,
or interest on the Securities.
Subject to applicable escheat and abandoned property laws, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of (and premium, if any, on) or interest
on any Security and remaining unclaimed for one year after such principal (and
premium, if any) or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
Section 10.4 Corporate Existence.
Except as expressly permitted by Article VIII hereof, Section 10.17
hereof or other provisions of this Indenture, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Restricted Subsidiary; provided, however, that the Company
shall not be required to preserve any such existence of its Restricted
Subsidiaries, rights or franchises, if the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries, taken as a whole, and that the loss thereof is not disadvantageous
in any material respect to the Holders.
Section 10.5 Payment of Taxes and Other Claims.
The Company shall, or, as applicable, shall cause its Restricted
Subsidiaries to, pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or Property of the Company or any
Restricted Subsidiary and (b) all lawful claims for labor, materials and
supplies, which, if unpaid, might by law become a Lien upon the Property of the
Company or any Restricted Subsidiary; provided, however, that the Company and
its Restricted Subsidiaries shall not be required to pay or discharge or cause
to be paid or discharged
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any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and for
which appropriate provision has been made in accordance with GAAP.
Section 10.6 Maintenance of Properties.
The Company shall, or, as applicable, shall cause its Restricted
Subsidiaries to, cause all material Properties owned by the Company or any
Restricted Subsidiary and used or held for use in the conduct of its business or
the business of any Restricted Subsidiary to be maintained and kept in good
condition, repair and working order (ordinary wear and tear excepted), all as in
the judgment of the Company or such Restricted Subsidiary may be necessary so
that its or its Restricted Subsidiary's business may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section shall prevent the Company or any Restricted Subsidiary from
discontinuing the maintenance of any of such Properties if such discontinuance
is, in the judgment of the Company or such Restricted Subsidiary, as the case
may be, desirable in the conduct of the business of the Company or such
Restricted Subsidiary and not disadvantageous in any material respect to the
Holders. Notwithstanding the foregoing, nothing contained in this Section 10.6
shall limit or impair in any way the right of the Company and its Restricted
Subsidiaries to sell, divest and otherwise to engage in transactions that are
otherwise permitted by this Indenture.
Section 10.7 Insurance.
The Company shall at all times keep all of its, and cause its
Restricted Subsidiaries to keep their, Properties which are of an insurable
nature insured with insurers, believed by the Company to be responsible, against
loss or damage to the extent that property of similar character and in a similar
location is usually so insured by corporations similarly situated and owning
like Properties.
The Company or any Restricted Subsidiary may adopt such other plan or
method of protection, in lieu of or supplemental to insurance with insurers,
whether by the establishment of an insurance fund or reserve to be held and
applied to make good losses from casualties, or otherwise, conforming to the
systems of self-insurance maintained by corporations similarly situated and in a
similar location and owning like Properties, as may be determined by the Board
of Directors of the Company or such Restricted Subsidiary.
Section 10.8 Statement by Officers as to Default.
(a) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company and within 45 days of the end
of each of the first, second and third quarters of each fiscal year of the
Company, an Officers' Certificate stating that a review of the activities of the
Company and its Restricted Subsidiaries during the preceding fiscal quarter or
fiscal year, as applicable, has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
such Officer's knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and no Default or Event of
Default has occurred and is continuing (or, if a Default or Event of Default
shall have occurred, describing all such
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Defaults or Events of Default of which such Officer may have knowledge and what
action the Company is taking or proposes to take with respect thereto). Such
Officers' Certificate shall comply with TIA Section 314(a)(4). For purposes of
this Section 10.8(a), such compliance shall be determined without regard to any
period of grace or requirement of notice under this Indenture.
(b) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee forthwith upon any of its Officers becoming
aware of any Default or Event of Default an Officers' Certificate specifying
such Default or Event of Default and what action the Company proposes to take
with respect thereto.
Section 10.9 Provision of Financial Information.
The Company shall file on a timely basis with the SEC, to the extent
such filings are accepted by the Commission and whether or not the Company has a
class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that the Company would be required to file
if it were subject to Section 13 or 15 of the Exchange Act. The Company shall
also file with the Trustee (with exhibits), and provide to each Holder of
Securities (without exhibits), without cost to such Holder, copies of such
reports and documents within 30 days after the date on which the Company files
such reports and documents with the Commission or the date on which the Company
would be required to file such reports and documents if the Company were so
required and, if filing such reports and documents with the Commission is not
accepted by the Commission or is prohibited under the Exchange Act, the Company
shall supply at its cost copies of such reports and documents (including any
exhibits thereto) to any Holder of Securities, securities analyst or prospective
purchaser of any Securities promptly upon written request given in accordance
with Section 15.4 hereof.
Section 10.10 Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, take the following actions:
(i) declare or pay any dividend or make any
distribution on account of the Company's Capital Stock (other than
dividends or distributions payable solely in shares of Qualified
Capital Stock of the Company or in options, warrants or other rights to
purchase Qualified Capital Stock of the Company);
(ii) purchase, redeem or otherwise acquire or retire
for value any Capital Stock of the Company or any Affiliate thereof
(other than any Wholly Owned Restricted Subsidiary) or any options,
warrants or other rights to acquire such Capital Stock;
(iii) make any principal payment on, or repurchase,
redeem, defease or otherwise acquire or retire for value, prior to any
scheduled principal payment, scheduled sinking fund payment or
maturity, any Subordinated Indebtedness, except that this clause (iii)
shall not include any such payment with respect to any such
Subordinated Indebtedness (A) to the extent of Excess Proceeds
remaining after compliance with the provisions of Section 10.17(c)
hereof and (B) to the extent (and only to the extent)
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required by the indenture or other agreement or instrument pursuant to
which such Subordinated Indebtedness was issued;
(iv) declare or pay any dividend on, or make any
distribution to the holders of, any shares of Capital Stock of any
Restricted Subsidiary (other than to the Company or any of its Wholly
Owned Restricted Subsidiaries) or purchase, redeem or otherwise acquire
or retire for value any Capital Stock of any Restricted Subsidiary or
any options, warrants or other rights to acquire any such Capital Stock
(other than with respect to any such Capital Stock held by the Company
or any Wholly Owned Restricted Subsidiary of the Company); or
(v) make any Investment (other than any Permitted
Investment);
(such payments or other actions described in (but not excluded from) clauses (i)
through (v) are collectively referred to as "Restricted Payments"), unless at
the time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, shall be the amount
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a Board Resolution), (A) no Default or Event of
Default shall have occurred and be continuing, (B) the Company could incur $1.00
of additional Indebtedness (excluding Permitted Indebtedness) in accordance with
Section 10.12 hereof and (C) the aggregate amount of all Restricted Payments
declared or made after June 8, 1998 shall not exceed the sum (without
duplication) of the following:
(1) 50% of the aggregate Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on
April 1, 1998 and ending on the last day of the Company's last fiscal
quarter ending prior to the date of such proposed Restricted Payment
(or, if such aggregate Consolidated Net Income shall be a loss, minus
100% of such loss), plus
(2) the aggregate net cash proceeds or the Fair Market Value
of any Property other than cash, received after June 8, 1998 by the
Company as capital contributions to the Company (other than from any
Restricted Subsidiary), plus
(3) the aggregate net cash proceeds or the Fair Market Value
of any Property other than cash, received after June 8, 1998 by the
Company from the issuance or sale (other than to any of its Restricted
Subsidiaries) of Qualified Capital Stock of the Company or any option,
warrants or rights to purchase such Qualified Capital Stock of the
Company, plus
(4) the aggregate net cash proceeds received after June 8,
1998 by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase Qualified Capital Stock of the Company, plus
(5) the aggregate net cash proceeds received after June 8,
1998 by the Company from the issuance or sale (other than to any of its
Restricted Subsidiaries) of debt securities or shares of Redeemable
Capital Stock that have been converted into or exchanged for Qualified
Capital Stock of the Company, together with the
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aggregate cash received by the Company at the time of such conversion
or exchange, plus
(6) the aggregate net cash proceeds or the Fair Market Value
of any Property other than cash, received (or deemed to have been
received) after June 8, 1998 by the Company or its Restricted
Subsidiaries, computed on a consolidated basis, constituting a return
of capital on an Investment (other than a Permitted Investment) made by
the Company or any Restricted Subsidiary after June 8, 1998, plus
(7) $25,000,000.
(b) Notwithstanding paragraph (a) above, the Company and its
Restricted Subsidiaries may take the following actions so long as, at the time
thereof, no Default or Event of Default shall have occurred and be continuing
(except in the case of clause (i) below) and (in the case of clause (vi) below)
the Company could incur $1.00 of additional Indebtedness (excluding Permitted
Indebtedness) in accordance with Section 10.12 hereof:
(i) the payment of any dividend on any Capital Stock
of the Company or any Restricted Subsidiary within 60 days after the
date of declaration thereof, if at such declaration date such
declaration complied with the provisions of paragraph (a) above (and
such payment shall be deemed to have been paid on such date of
declaration for purposes of any calculation required by the provisions
of paragraph (a) above);
(ii) the repurchase, redemption or other acquisition
or retirement of any shares of any class of Capital Stock of the
Company or any Restricted Subsidiary, in exchange for, or out of the
aggregate net cash proceeds of, a substantially concurrent issue and
sale (other than to a Restricted Subsidiary) of Qualified Capital Stock
of the Company;
(iii) the repurchase, redemption, repayment,
defeasance or other acquisition or retirement for value of any
Subordinated Indebtedness (other than Redeemable Capital Stock) in
exchange for or out of the aggregate net cash proceeds of, a
substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of Qualified Capital Stock of the Company;
(iv) the purchase, redemption, repayment, defeasance
or other acquisition or retirement for value of Subordinated
Indebtedness in exchange for, or out of the aggregate net cash proceeds
of, a substantially concurrent incurrence (other than to a Restricted
Subsidiary) of, Subordinated Indebtedness so long as (A) the principal
amount of such new Indebtedness does not exceed the principal amount
(or, if such Subordinated Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration thereof, such lesser amount as of
the date of determination) of the Indebtedness being so purchased,
redeemed, repaid, defeased, acquired or retired, plus the amount of any
premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness refinanced or the amount of
any premium reasonably determined by the Company as
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necessary to accomplish such refinancing, plus the amount of expenses
of the Company incurred in connection with such refinancing, (B) such
new Indebtedness is subordinated to the Securities at least to the same
extent as such Indebtedness so purchased, redeemed, repaid, defeased,
acquired or retired, (C) such new Indebtedness has an Average Life to
Stated Maturity that is longer than the Average Life to Stated Maturity
of the Securities and (D) such new Indebtedness has a Stated Maturity
for its final scheduled principal payment that is at least 91 days
later than the Stated Maturity for the final scheduled principal
payment of the Securities;
(v) the repurchase, redemption or other acquisition
or retirement for value of any Qualified Capital Stock of the Company
or any of its Subsidiaries held by any current or former officers,
directors or employees of the Company or any of its Subsidiaries
pursuant to the terms of agreements (including employment agreements)
or plans approved by the Company's Board of Directors, including any
such repurchase, redemption, acquisition or retirement of such
Qualified Capital Stock that is deemed to occur upon the exercise of
stock options or similar rights if such shares represent all or a
portion of the exercise price or are surrendered in connection with
satisfying Federal income tax obligations; provided, however, that the
aggregate amount of such repurchases, redemptions, acquisitions and
retirements shall not exceed the sum of (a) $1,000,000 in any
twelve-month period and (b) the aggregate net proceeds, if any,
received by the Company during such twelve-month period from any
issuance of such Qualified Capital Stock pursuant to such agreements or
plans; and
(vi) the repurchase or other acquisition of any
Qualified Capital Stock of the Company in an amount not to exceed 50%
of the net after-tax gain from Specified Property Sales.
The actions described in clause (i) of this paragraph (b) shall be Restricted
Payments that shall be permitted to be taken in accordance with this paragraph
(b) but shall reduce the amount that would otherwise be available for Restricted
Payments under clause (C) of paragraph (a) (provided that any dividend paid
pursuant to clause (i) of this paragraph (b) shall reduce the amount that would
otherwise be available under clause (C) of paragraph (a) when declared, but not
also when subsequently paid pursuant to such clause (i)), and the actions
described in clauses (ii), (iii), (iv), (v) and (vi) of this paragraph (b) shall
be Restricted Payments that shall be permitted to be taken in accordance with
this paragraph (b) and shall not reduce the amount that would otherwise be
available for Restricted Payments under clause (C) of paragraph (a). Further,
the Company or any Restricted Subsidiary may make a Restricted Payment, if at
the time the Company or any Restricted Subsidiary first incurred a commitment
for such Restricted Payment such Restricted Payment could have been made;
provided that all commitments incurred and outstanding shall be treated as if
such commitments were Restricted Payments expended by the Company or a
Restricted Subsidiary at the time the commitments were incurred, except that
commitments incurred and outstanding which are treated as a Restricted Payment
expended by the Company or a Restricted Subsidiary and which are terminated
shall no longer be treated as a Restricted Payment expended by the Company or a
Restricted Subsidiary upon the termination of such commitment for such purposes;
and provided, further, that at the time such Restricted Payment is made no
Default or Event of Default
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shall have occurred and be continuing and the Company could incur $1.00 of
additional Indebtedness (excluding Permitted Indebtedness) in accordance with
Section 10.12 hereof.
(c) In computing Consolidated Net Income of the Company under
paragraph (a) above, (1) the Company shall use audited financial statements for
the portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (2) the Company shall be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment would in the good faith determination of
the Company be permitted under the requirements of this Indenture, such
Restricted Payment shall be deemed to have been made in compliance with this
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the Company
for any period.
Section 10.11 Limitation on Other Senior Subordinated Indebtedness.
The Company shall not incur (as such term is defined in Section 10.12
hereof), or permit to remain outstanding, any Indebtedness (including Acquired
Indebtedness and Permitted Indebtedness) other than the Securities, that is
subordinated in right of payment to any Senior Indebtedness, unless such
Indebtedness is also pari passu with, or subordinated in right of payment to,
the Securities pursuant to subordination provisions substantially similar to
those contained in this Indenture.
Section 10.12 Incurrence of Indebtedness.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, create, incur, assume, guarantee or otherwise become
directly or indirectly liable for (collectively, "incur") any Indebtedness
(including any Acquired Indebtedness), other than Permitted Indebtedness, unless
at the time of such event and after giving effect thereto on a pro forma basis:
(i) if such incurrence occurs on or before March 31,
2000, the Consolidated Fixed Charge Coverage Ratio for the applicable
period would have been at least 2.0 to 1.0; and
(ii) if such incurrence occurs after March 31, 2000,
the Consolidated Fixed Charge Coverage Ratio for the applicable period,
would have been at least equal to 2.5 to 1.0.
(b) The amount of any guarantees by the Company or any
Restricted Subsidiary of any Indebtedness of the Company or one or more
Restricted Subsidiaries shall not be deemed to be outstanding or incurred for
purposes of this Section 10.12 hereof in addition to the amount of Indebtedness
which it guarantees.
Section 10.13 Subsidiary Guarantors.
(a) The Company shall cause each Restricted Subsidiary, prior
to, or contemporaneously with, its incurrence of any obligations that guarantee
or secure any
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Pari Passu Indebtedness or Subordinated Indebtedness of the Company, to execute
and deliver a supplemental indenture to this Indenture, substantially in the
form of Exhibit E hereto, agreeing to be bound by its terms applicable to a
Subsidiary Guarantor and providing for a Subsidiary Guarantee of the Securities
by such Restricted Subsidiary.
(b) Notwithstanding the foregoing and the other provisions of
this Indenture, any Subsidiary Guarantee incurred by a Restricted Subsidiary
pursuant to this Section 10.13 shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon the terms and
conditions set forth in Section 13.3 hereof.
Section 10.14 Limitation on Issuance and Sale of Capital Stock by
Restricted Subsidiaries.
The Company (a) shall not permit any Restricted Subsidiary to issue any
Capital Stock (other than to the Company or a Wholly Owned Restricted
Subsidiary) and (b) shall not permit any Person (other than the Company or a
Wholly Owned Restricted Subsidiary) to own any Capital Stock of any Restricted
Subsidiary, except, in each case, for (i) directors' qualifying shares, (ii)
Capital Stock of a Restricted Subsidiary organized in a foreign jurisdiction
required to be issued to, or owned by, the government of such foreign
jurisdiction or individual or corporate citizens of such foreign jurisdiction in
order for such Restricted Subsidiary to transact business in such foreign
jurisdiction, (iii) a sale of all or substantially all the Capital Stock of a
Restricted Subsidiary effected in accordance with Section 10.17, (iv) Qualifying
TECONS and (v) the Capital Stock of a Restricted Subsidiary owned by a Person at
the time such Restricted Subsidiary became a Restricted Subsidiary or acquired
by such Person in connection with the formation of the Restricted Subsidiary;
provided, however, that any Capital Stock retained by the Company or a
Restricted Subsidiary shall be treated as an Investment for purposes of Section
10.10, if the amount of such Capital Stock represents less than a majority of
the Voting Stock of such Restricted Subsidiary.
Section 10.15 Limitation on Liens.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume or suffer to exist any Lien of
any kind, except for Permitted Liens, upon any of their respective Properties,
whether now owned or acquired after the date of this Indenture, or any income or
profits therefrom to secure any Pari Passu Indebtedness or Subordinated
Indebtedness, unless prior to or contemporaneously therewith the Securities are
directly secured equally and ratably, provided that (1) if such secured
Indebtedness is Pari Passu Indebtedness, the Lien securing such Pari Passu
Indebtedness shall be subordinate and junior to, or pari passu with, the Lien
securing the Securities and (2) if such secured Indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Securities at least to the same
extent as such Subordinated Indebtedness is subordinated to the Securities. The
foregoing covenant shall not apply to any Lien securing Acquired Indebtedness,
provided that any such Lien extends only to the Properties that were subject to
such Lien prior to the related acquisition by the Company or such Restricted
Subsidiary and was not created, incurred or assumed in contemplation of such
transaction.
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Section 10.16 Purchase of Securities Upon Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder of
Securities shall have the right to require the Company to purchase such Holder's
Securities, in whole or in part, in a principal amount that is an integral
multiple of $10, pursuant to the offer described in Section 10.16(b) hereof (the
"Change of Control Offer") at a purchase price (the "Change of Control Purchase
Price") in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest, if any, thereon to the date of purchase (the
"Change of Control Purchase Date"). The Company will not be required to make a
Change of Control Offer upon a Change of Control if a third party makes the
Change of Control Offer at the same purchase price, at the same times and
otherwise in substantial compliance with the requirements applicable to a Change
of Control Offer made by the Company and purchases all Securities validly
tendered and not withdrawn under such Change of Control Offer.
(b) Within 30 calendar days after the date of any Change of
Control, the Company, or the Trustee at the request and expense of the Company,
shall send to each Holder, in the manner provided in Section 15.5, a notice (the
"Change of Control Notice") prepared by the Company describing the transaction
or transactions that constitute the Change of Control and stating:
(i) that a Change of Control has occurred and a
Change of Control Offer is being made pursuant to this Section 10.16,
and that all Securities that are timely tendered will be accepted for
payment;
(ii) the Change of Control Purchase Price, and the
Change of Control Purchase Date, which date shall be a Business Day no
earlier than 30 calendar days nor later than 60 calendar days
subsequent to the date such notice is mailed;
(iii) that any Securities or portions thereof not
tendered or accepted for payment will continue to accrue interest;
(iv) that, unless the Company defaults in the payment
of the Change of Control Purchase Price with respect thereto, all
Securities or portions thereof accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest from and after
the Change of Control Purchase Date;
(v) that any Holder electing to have any Securities
or portions thereof purchased pursuant to a Change of Control Offer
will be required to surrender such Securities, with the form to elect
purchase by the Company pursuant to this Section 10.16 completed, to
the Paying Agent at the address specified in the notice, prior to the
close of business on the third Business Day preceding the Change of
Control Purchase Date;
(vi) that any Holder shall be entitled to withdraw
such election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Change of Control
Purchase Date, a facsimile transmission or letter, setting forth the
name of the Holder, the principal amount of Securities delivered for
purchase, and a statement that
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such Holder is withdrawing such Holder's election to have such
Securities or portions thereof purchased pursuant to the Change of
Control Offer;
(vii) that any Holder electing to have Securities
purchased pursuant to the Change of Control offer must specify the
principal amount that is being tendered for purchase, which principal
amount must be $10 or an integral multiple thereof;
(viii) if Physical Securities have been issued
pursuant to Section 2.1, that any Holder of Physical Securities whose
Physical Securities are being purchased only in part will be issued new
Physical Securities equal in principal amount to the unpurchased
portion of the Physical Securities surrendered, which unpurchased
portion will be equal in principal amount to $10 or an integral
multiple thereof; and
(ix) any other information necessary to enable any
Holder to tender Securities and to have such Securities purchased
pursuant to this Section 10.16.
If any of the Securities subject to a Change of Control Offer is in the form of
a Global Security, then the Company shall modify the Change of Control Notice to
the extent necessary to accord with the procedures of the Depository applicable
to repurchases.
(c) On the Change of Control Purchase Date, the Company shall
(1) accept for payment all Securities or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) irrevocably deposit with the Paying
Agent, by 11:00 a.m., Eastern time, on such date, in immediately available
funds, an amount equal to the Change of Control Purchase Price in respect of all
Securities or portions thereof so accepted and (3) deliver or cause to be
delivered to the Trustee the Securities so accepted together with an Officers'
Certificate stating the aggregate principal amount of Securities or portions
thereof being purchased by the Company. The Paying Agent shall promptly send, in
the manner provided in Section 15.5, to each Holder of Securities or portions
thereof so accepted for payment the Change of Control Purchase Price for such
Securities or portions thereof. The Company shall publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Purchase Date. For purposes of this Section 10.16, the Trustee shall act
as the Paying Agent.
(d) Upon surrender and cancellation of a Physical Security
that is purchased in part pursuant to the Change of Control Offer, the Company
shall promptly issue and the Trustee shall authenticate and deliver to the
surrendering Holder of such Physical Security a new Physical Security equal in
principal amount to the unpurchased portion of such surrendered Physical
Security; provided that each such new Physical Security shall be in a principal
amount of $10 or an integral multiple thereof.
(e) The Company shall comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that a Change of
Control occurs and the Company is required to purchase Securities as described
in this Section 10.16. To the extent that the provisions of any securities laws
or regulations conflict with the provisions relating to the Change of Control
Offer, the Company will comply with the applicable securities laws
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and regulations and will not be deemed to have breached its obligations under
this Section 10.16 by virtue thereof.
(f) Prior to complying with the provisions of this Section
10.16, but in any event within 30 days following a Change of Control, the
Company shall either repay all outstanding Senior Indebtedness or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Indebtedness to permit the repurchase of Securities required by this Section
10.16.
Section 10.17 Disposition of Proceeds of Asset Sales.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the Fair Market Value of the Properties sold
or otherwise disposed of pursuant to the Asset Sale, (ii) all of the
consideration received by the Company or the Restricted Subsidiary, as the case
may be, in respect of such Asset Sale consists of cash, Cash Equivalents, Liquid
Securities or Exchanged Properties ("Permitted Consideration"); provided,
however, that the Company and its Restricted Subsidiaries shall be permitted to
receive any Property other than Permitted Consideration, so long as the
aggregate Fair Market Value (determined on the date of each Asset Sale) of such
Property other than Permitted Consideration received from Asset Sales and held
by the Company or any Restricted Subsidiary at any one time shall not exceed
10.0% of Adjusted Consolidated Net Tangible Assets and (iii) the Company
delivers to the Trustee an Officers' Certificate (which Officers' Certificate
shall be conclusive) certifying that such Asset Sale complies with clauses (i)
and (ii) of this Section 10.17(a). The amount (without duplication) of any
Indebtedness (other than Subordinated Indebtedness or Pari Passu Indebtedness)
of the Company or such Restricted Subsidiary that is expressly assumed by the
transferee in such Asset Sale and with respect to which the Company or such
Restricted Subsidiary, as the case may be, is unconditionally released by the
holder of such Indebtedness, shall be deemed to be cash or Cash Equivalents for
purposes of clause (ii) and shall also be deemed to constitute a repayment of,
and a permanent reduction in, the amount of such Indebtedness for purposes of
the next following paragraph.
(b) If the Company or any Restricted Subsidiary engages in an
Asset Sale after the date of this Indenture, the Company or such Restricted
Subsidiary may either, no later than 365 days after such Asset Sale, (i) apply
all or any of the Net Cash Proceeds therefrom to (A) repay Indebtedness under
the Credit Facility or (B) repay or purchase other Indebtedness (other than
Subordinated Indebtedness or Pari Passu Indebtedness) of the Company or any
Restricted Subsidiary, provided, in the case of clause (B), that the related
loan commitment (if any) is thereby permanently reduced by the amount of such
Indebtedness so repaid or purchased, or (ii) invest all or any part of the Net
Cash Proceeds thereof in Properties that will be used in the Oil and Gas
Business of the Company or its Restricted Subsidiaries, as the case may be. The
amount of such Net Cash Proceeds not applied or invested as provided in this
paragraph (after the periods specified in this paragraph) shall constitute
"Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or
exceeds $10,000,000 (the "Trigger Date"), the Company shall make an offer to
purchase, from all Holders of the Securities and holders of any then outstanding
Pari Passu Indebtedness required to be repurchased or repaid on a permanent
basis in connection with an Asset
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Sale, an aggregate principal amount of Securities and any such Pari Passu
Indebtedness equal to such Excess Proceeds as follows:
(1) Not later than the 30th day following the Trigger Date,
the Company shall (i) give to the Trustee in the manner provided in
Section 15.4 hereof and each Holder of the Securities in the manner
provided in Section 15.5 hereof, a notice (a "Purchase Notice")
offering to purchase (a "Net Proceeds Offer") from all Holders of the
Securities the maximum principal amount (expressed as a multiple of
$10) of Securities that may be purchased out of an amount (the "Payment
Amount") equal to the product of such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount of
the Securities and the denominator of which is the sum of the
outstanding principal amount of the Securities and any such Pari Passu
Indebtedness (subject to proration in the event such amount is less
than the aggregate Offered Price (as hereinafter defined) of all
Securities tendered), and (ii) to the extent required by any Pari Passu
Indebtedness and provided there is a permanent reduction in the
principal amount of such Pari Passu Indebtedness, the Company shall
make an offer to purchase such Pari Passu Indebtedness (a "Pari Passu
Offer") in an amount (the "Pari Passu Indebtedness Amount") equal to
the excess of the Excess Proceeds over the Payment Amount.
(2) The offer price for the Securities shall be payable in
cash in an amount equal to 100% of the aggregate principal amount of
the Securities tendered pursuant to a Net Proceeds Offer, plus accrued
and unpaid interest, if any, to the date such Net Proceeds Offer is
consummated (the "Offered Price"), in accordance with paragraph (d) of
this Section. To the extent that the aggregate Offered Price of the
Securities tendered pursuant to a Net Proceeds Offer is less than the
Payment Amount relating thereto or the aggregate amount of the Pari
Passu Indebtedness that is purchased or repaid pursuant to the Pari
Passu Offer is less than the Pari Passu Indebtedness Amount (such
shortfall constituting a "Net Proceeds Deficiency"), the Company may
use such Net Proceeds Deficiency, or a portion thereof, for general
corporate purposes, subject to the limitations of Section 10.10 hereof.
(3) If the aggregate Offered Price of Securities validly
tendered and not withdrawn by Holders thereof exceeds the Payment
Amount, Securities to be purchased will be selected on a pro rata basis
by the Trustee based on the aggregate principal amount of Securities so
tendered. Upon completion of a Net Proceeds Offer and a Pari Passu
Offer, the amount of Excess Proceeds shall be reset to zero.
(4) The Purchase Notice shall set forth a purchase date (the
"Net Proceeds Payment Date"), which shall be on a Business Day no
earlier than 30 days nor later than 60 days from the Trigger Date. The
Purchase Notice shall also state (i) that a Trigger Date with respect
to one or more Asset Sales has occurred and that such Holder has the
right to require the Company to repurchase such Holder's Securities at
the Offered Price, subject to the limitations described in the forgoing
paragraph (3), (ii) any information regarding such Net Proceeds Offer
required to be furnished pursuant to Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder, (iii) that
any Security, or portion thereof, not tendered or accepted for payment
will continue to accrue interest, (iv) that, unless the Company
defaults in depositing money with the Paying Agent in accordance with
the last paragraph of clause (d) of this Section 10.17, or
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payment is otherwise prevented, any Security, or portion thereof,
accepted for payment pursuant to the Net Proceeds Offer shall cease to
accrue interest after the Net Proceeds Payment Date, and (v) the
instructions a Holder must follow in order to have his Securities
repurchased in accordance with paragraph (d) of this Section.
(d) Holders electing to have Securities purchased will be
required to surrender such Securities to the Paying Agent at the address
specified in the Purchase Notice prior to the close of business on the third
Business Days prior to the Net Proceeds Payment Date. Holders will be entitled
to withdraw their election if the Paying Agent receives, not later than the
close of business on the second Business Days prior to the Net Proceeds Payment
Date, a facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Securities delivered for purchase by the Holder as
to which his election is to be withdrawn and a statement that such Holder is
withdrawing his election to have such Securities purchased. Holders of Physical
Securities whose Securities are purchased only in part will be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered, which unpurchased portion will be equal to $10 or an
integral multiple thereof.
On the Net Proceeds Payment Date, the Company shall (i) accept for
payment Securities or portions thereof validly tendered pursuant to a Net
Proceeds Offer in an aggregate principal amount equal to the Payment Amount or
such lesser amount of Securities as has been tendered, (ii) irrevocably deposit
with the Paying Agent, by 11:00 a.m., Eastern time, immediately available funds
sufficient to pay the purchase price of all Securities or portions thereof so
tendered in an aggregate principal amount equal to the Payment Amount or such
lesser amount and (iii) deliver or cause to be delivered to the Trustee the
Securities so accepted. The Paying Agent shall promptly send, in the manner
provided in Section 15.5, to Holders of the Securities so accepted payment in an
amount equal to the purchase price, and the Company shall execute and the
Trustee shall authenticate and mail or make available for delivery to such
Holders a new Security equal in principal amount to any unpurchased portion of
the Security which any such Holder did not surrender for purchase. Any
Securities not so accepted will be promptly mailed or delivered to the Holder
thereof. The Company shall announce the results of a Net Proceeds Offer on or as
soon as practicable after the Net Proceeds Payment Date. For purposes of this
Section 10.17, the Trustee will act as the Paying Agent.
(e) The Company shall not permit any Restricted Subsidiary to
enter into or suffer to exist any agreement that would place any restriction of
any kind (other than pursuant to law or regulation) on the ability of the
Company to make a Net Proceeds Offer following any Asset Sale. The Company shall
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder, if applicable, in the event that an Asset Sale occurs
and the Company is required to purchase Securities as described in this Section
10.17. To the extent that the provisions of any securities laws or regulations
conflict with the provisions relating to the Net Proceeds Offer, the Company
will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this Section 10.17 by virtue
thereof.
Section 10.18 Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of
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Property or services) with any Affiliate of the Company (other than the Company
or a Restricted Subsidiary) unless (i) such transaction or series of related
transactions is on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than would be available in a
comparable transaction in arm's-length dealings with an unrelated third party,
(ii) with respect to a transaction or series of related transactions involving
payments in excess of $1,000,000 in the aggregate, the Company delivers an
Officers' Certificate to the Trustee certifying that such transaction complies
with clause (i) above, (iii) with respect to a transaction or series of related
transactions involving payments in excess of $5,000,000 but less than
$25,000,000 in the aggregate, the Company delivers an Officers' Certificate to
the Trustee certifying that (A) such transaction or series of related
transactions complies with clause (i) above and (B) such transaction or series
of related transactions shall have been approved by a majority of the
Disinterested Directors of the Company and (iv) with respect to a transaction or
series of related transactions involving payments of $25,000,000 or more in the
aggregate, the Company delivers an Officers' Certificate to the Trustee
certifying that (A) such transaction or series of related transactions complies
with clause (i) above, (B) such transaction or series of related transactions
shall have been approved by a majority of the Disinterested Directors of the
Company and (C) the Company shall have received the written opinion of a
nationally recognized investment banking firm or appraisal firm in the United
States that such transaction or series of related transactions is fair, from a
financial point of view, to the Company or such Restricted Subsidiary; provided,
however, that the foregoing restriction shall not apply to (s) the provision of
services and payments under the Torch Agreement, so long as the Torch Agreement
(including any modifications, renewals, replacements or substitutions thereof or
amendments thereto entered into on or after the date of this Indenture) has been
approved by a majority of the Disinterested Directors of the Company, (t) loans
or advances to officers, directors and employees of the Company or any
Restricted Subsidiary made in the ordinary course of business and consistent
with past practices of the Company and its Restricted Subsidiaries in an
aggregate amount not to exceed $3,000,000 outstanding at any one time, (u) the
payment of reasonable and customary regular fees to directors of the Company or
any of its Restricted Subsidiaries who are not employees of the Company or any
Affiliate, (v) the Company's employee compensation and other benefit
arrangements, (w) indemnities of officers and directors of the Company or any
Subsidiary consistent with such Person's bylaws and applicable statutory
provisions or (x) Restricted Payments permitted by Section 10.10 hereof.
Section 10.19 Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distributions on or in respect of its Capital Stock to the
Company or any other Restricted Subsidiary, (b) pay any Indebtedness owed to the
Company or any other Restricted Subsidiary, (c) make an Investment in the
Company or any other Restricted Subsidiary or (d) transfer any of its Properties
to the Company or any other Restricted Subsidiary, except in each instance for
such encumbrances or restrictions pursuant to (i) this Indenture, the Credit
Facility or any other agreement in effect on the date of this Indenture, (ii)
any agreement or other instrument of a Person acquired by the Company or any
Restricted Subsidiary in existence at the time of such acquisition (but not
created in contemplation thereof), which
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encumbrance or restriction is not applicable to any other Person, or the
Properties of any other Person, other than the Person, or the Property of the
Person, so acquired, (iii) customary restrictions in leases and licenses
relating to the Property covered thereby and entered into in the ordinary course
of business or (iv) any agreement that extends, renews, refinances or replaces
the agreements containing the restrictions in the foregoing clauses (i), (ii)
and (iii), provided that the terms and conditions of any such restrictions are
not materially less favorable to the Holders of the Securities than those under
or pursuant to the agreement so extended, renewed, refinanced or replaced, and
except with respect to clause (d) only, (i) restrictions in the form of Liens
which are not prohibited under Section 10.15 and which contain customary
limitations on the transfer of collateral and (ii) with respect to clause (d)
only, customary restrictions contained in asset sale agreements limiting the
transfer of such assets pending the closing of such sale.
Section 10.20 Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Sections 10.5 through 10.19 (excluding
Section 10.13) hereof if, before or after the time for such compliance, the
Holders of at least a majority in aggregate principal amount of the Outstanding
Securities, by Act of such Holders, waive such compliance in such instance with
such term, provision or condition, but no such waiver shall extend to or affect
such term, provision or condition except to the extent so expressly waived, and,
until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect.
Section 10.21 Qualification of Indenture.
The Company shall qualify this Indenture under the TIA in accordance
with the terms and conditions of the initial Registration Rights Agreement and
shall pay all costs and expenses (including attorneys' fees for the Company and
the Trustee) incurred in connection therewith. In connection with any such
qualification of this Indenture under the TIA, the Trustee shall be entitled to
receive from the Company any such Officers' Certificates, Opinions of Counsel or
other documentation as it may reasonably request.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1 Right of Redemption.
The Securities may be redeemed, at the election of the Company, as a
whole or from time to time in part, at any time on or after June 1, 2003, upon
not less than 30 or more than 60 days' notice to each Holder of Securities to be
redeemed, subject to the conditions and at the Redemption Prices (expressed as
percentages of principal amount) specified in the form of Security, together
with accrued and unpaid interest, if any, to the Redemption Date.
Notwithstanding the foregoing, prior to June 1, 2001 the Company may,
at any time or from time to time, redeem up to 33 1/3% of the aggregate
principal amount of the Securities originally issued (excluding, for this
purpose, any Series B Securities issued in exchange for Series A Securities) at
a Redemption Price of 109.5% of the principal
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amount thereof, plus accrued and unpaid interest, if any, to the Redemption
Date, with the net proceeds of one or more Equity Offerings of the Company,
provided that at least 66 2/3% of the aggregate principal amount of the
Securities originally issued at any time prior to such redemption (excluding,
for this purpose, any Series B Securities issued in exchange for Series A
Securities) remains Outstanding after the occurrence of such redemption and
provided, further, that such redemption shall occur not later than 90 days after
the date of the closing of any such Equity Offering.
Section 11.2 Applicability of Article.
Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
Section 11.3 Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to
Section 11.1 hereof shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 60 days
(or, in the case of a full redemption of all Outstanding Securities, at least 45
days) prior to the Redemption Date fixed by the Company (unless a shorter notice
shall be satisfactory to the Trustee), notify the Trustee of such Redemption
Date and of the principal amount of Securities to be redeemed and shall deliver
to the Trustee such documentation and records as shall enable the Trustee to
select the Securities to be redeemed pursuant to Section 11.4 hereof. Any
election to redeem Securities shall be revocable until the Company gives a
notice of redemption pursuant to Section 11.5 hereof to the Holders of
Securities to be redeemed.
Section 11.4 Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not less than 30 days nor more than
60 days prior to the Redemption Date by the Trustee, from the Outstanding
Securities not previously called for redemption, pro rata or by any other method
as the Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions of the principal of Securities; provided,
however, that any such partial redemption shall be in integral multiples of $10.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
The provisions of the two preceding paragraphs shall not apply with
respect to any redemption affecting only a Global Security, whether such Global
Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the Global
Security shall be in an authorized denomination.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
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Section 11.5 Notice of Redemption.
Notice of redemption shall be given in the manner provided for in
Section 15.5 hereof not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) in the case of a partial redemption of Physical
Securities, the identification of the particular Securities to be redeemed, and,
if any Global Security or Physical Security is to be redeemed in part, the
portion of the principal amount thereof to be redeemed;
(d) that on the Redemption Date the Redemption Price (together
with accrued interest, if any, to the Redemption Date payable as provided in
Section 11.7 hereof) will become due and payable upon each such Security, or the
portion thereof, to be redeemed, and that, unless the Company shall default in
the payment of the Redemption Price and any applicable accrued and unpaid
interest, interest thereon will cease to accrue on and after said date; and
(e) the place or places where such Securities are to be
surrendered for payment of the Redemption Price.
If any Security to be redeemed is in global form, then the Company
shall modify such notice to the extent necessary to accord with the procedures
of the Depository applicable to repurchases.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. Failure to give such
notice by mailing to any Holder of Securities or any defect therein shall not
affect the validity of any proceedings for the redemption of other Securities.
Section 11.6 Deposit of Redemption Price.
On or before 11:00 a.m., Eastern time, on any Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.3 hereof) immediately available funds in an amount
sufficient to pay the Redemption Price of, and any accrued and unpaid interest
on, all the Securities which are to be redeemed on such Redemption Date.
Section 11.7 Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption
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Price therein specified (together with accrued and unpaid interest,
if any, to the Redemption Date), and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued and
unpaid interest) such Securities shall cease to bear interest. Upon surrender of
any such Security for redemption in accordance with said notice, such Security
shall be paid by the Company at the Redemption Price, together with accrued and
unpaid interest, if any, to the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section 3.8
hereof.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Securities.
Section 11.8 Securities Redeemed in Part.
Any Physical Security which is to be redeemed only in part shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 10.2 hereof (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or such Holder's attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Physical Security or Securities, of like
tenor and of any authorized denomination as requested by such Holder, in
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal amount of the Security so surrendered.
Section 11.9 Purchase of Securities.
The Company shall have the right at any time and from time to time to
purchase Securities in the open market or otherwise at any price.
ARTICLE XII
DEFEASANCE AND COVENANT DEFEASANCE
Section 12.1 Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 12.2 or Section 12.3
hereof be applied to all Outstanding Securities upon compliance with the
conditions set forth below in this Article XII.
Section 12.2 Defeasance and Discharge.
Upon the Company's exercise under Section 12.1 hereof of the option
applicable to this Section 12.2, the Company and the Subsidiary Guarantors, if
any, shall be deemed to have been discharged from their respective obligations
with respect to all Outstanding Securities on the date the conditions set forth
in Section 12.4 hereof are satisfied (hereinafter, "legal defeasance"). For this
purpose, such legal defeasance means that the
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Company and the Subsidiary Guarantors, if any, shall be deemed (i) to have paid
and discharged their respective obligations under the Outstanding Securities;
provided, however, that the Securities shall continue to be deemed to be
"Outstanding" for purposes of Section 12.5 hereof and the other Sections of this
Indenture referred to in clauses (A) and (B) below, and (ii) to have satisfied
all their other obligations with respect to such Securities and this Indenture
(and the Trustee, at the expense and direction of the Company, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Securities to receive, solely from the trust fund
described in Section 12.4 hereof and as more fully set forth in such Section,
payments in respect of the principal of (and premium if any, on) and interest on
such Securities when such payments are due (or at such time as the Securities
would be subject to redemption at the option of the Company in accordance with
this Indenture), (B) the respective obligations of the Company and the
Subsidiary Guarantors, if any, under Sections 3.3, 3.4, 3.5, 3.6, 3.7, 5.8, 6.6,
6.9, 6.10, 10.2, 10.3, 10.21, 13.1 (to the extent it relates to the foregoing
Sections and this Article XII), 13.4 and 13.5 hereof, (C) the rights, powers,
trusts, duties and immunities of the Trustee hereunder, and (D) the obligations
of the Company and the Subsidiary Guarantors, if any, under this Article XII.
Subject to compliance with this Article XII, the Company may exercise its option
under this Section 12.2 notwithstanding the prior exercise of its option under
Section 12.3 hereof with respect to the Securities.
Section 12.3 Covenant Defeasance.
Upon the Company's exercise under Section 12.1 hereof of the option
applicable to this Section 12.3, (i) the Company and each Subsidiary Guarantor,
if any, shall be released from their respective obligations under any covenant
contained in Article VIII, in Sections 10.5 through 10.19 and in Section 13.2
hereof, and any covenant added to this Indenture pursuant to Section 9.1(b), and
(ii) the occurrence of any event specified in Section 5.1(c) or 5.1(d) hereof
(with respect to any of Article VIII, Sections 10.5 through 10.19, Section 13.2
and any covenant added to this Indenture pursuant to Section 9.1(b)) shall be
deemed not to be or result in an Event of Default, in each case with respect to
the Outstanding Securities on and after the date the conditions set forth below
are satisfied (hereinafter, "covenant defeasance"), and the Securities shall
thereafter be deemed not to be "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to the Outstanding Securities, the Company
and each Subsidiary Guarantor, if any, may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
Article or Section (to the extent so specified in the case of Sections 5.1(c)
and 5.1(d) hereof), whether directly or indirectly, by reason of any reference
elsewhere herein to any such Article or Section or by reason of any reference in
any such Article or Section to any other provision herein or in any other
document, but, except as specified above, the remainder of this Indenture and
such Securities shall be unaffected thereby. In addition, upon the Company's
exercise under Section 12.1 hereof of the option applicable to this Section
12.3, subject to the satisfaction of the conditions set forth in Section 12.4
hereof, Sections 5.1(e) and 5.1(g) hereof shall thereafter not constitute Events
of Default.
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Section 12.4 Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
12.2 or Section 12.3 hereof to the Outstanding Securities:
(a) The Company or any Subsidiary Guarantor shall irrevocably
have deposited or caused to be deposited with the Trustee (or another trustee
satisfying the requirements of Section 6.7 hereof who shall agree to comply with
the provisions of this Article XII applicable to it) as trust funds in trust for
the purpose of making the following payments, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of such Securities, (A)
cash in U.S. Dollars in an amount, or (B) U.S. Government Obligations which
through the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the due
date of any payment, money in an amount, or (C) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by the Trustee (or
other qualifying trustee) to pay and discharge, the principal of (and premium,
if any, on) and interest on the Outstanding Securities on the Stated Maturity
thereof (or Redemption Date, if applicable), provided that the Trustee shall
have been irrevocably instructed in writing by the Company to apply such money
or the proceeds of such U.S. Government Obligations to said payments with
respect to the Securities. Before such a deposit, the Company may give to the
Trustee, in accordance with Section 11.3 hereof, a notice of its election to
redeem all of the Outstanding Securities at a future date in accordance with
Article XI hereof, which notice shall be irrevocable. Such irrevocable
redemption notice, if given, shall be given effect in applying the foregoing.
For this purpose, "U.S. Government Obligations" means securities that are (x)
direct obligations of the United States of America for the timely payment of
which its full faith and credit is pledged or (y) obligations of a Person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America, which, in either case, are not callable or redeemable at the option of
the issuer thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any such U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for the
account of the holder of such depository receipt, provided that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation evidenced
by such depository receipt.
(b) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such deposit or,
insofar as Sections 5.1(h) and 5.1(i) are concerned, at any time during the
period ending on the 91st day after the date of such deposit.
(c) Such legal defeasance or covenant defeasance shall not
cause the Trustee to have a conflicting interest under this Indenture or the
Trust Indenture Act with respect to any securities of the Company or any
Subsidiary Guarantor.
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(d) Such legal defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default under any other
material agreement or instrument to which the Company or any Subsidiary
Guarantor is a party or by which it is bound, as evidenced to the Trustee in an
Officers' Certificate delivered to the Trustee concurrently with such deposit.
(e) In the case of an election under Section 12.2 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel stating that
(i) the Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of this Indenture there has
been a change in the applicable federal income tax laws, in either case
providing that the Holders of the Outstanding Securities will not recognize
income, gain or loss for federal income tax purposes as a result of such legal
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such legal
defeasance had not occurred (it being understood that (x) such Opinion of
Counsel shall also state that such ruling or applicable law is consistent with
the conclusions reached in such Opinion of Counsel and (y) the Trustee shall be
under no obligation to investigate the basis or correctness of such ruling).
(f) In the case of an election under Section 12.3 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders of the Outstanding Securities will not recognize income, gain
or loss for federal income tax purposes as a result of such covenant defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred.
(g) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, which, taken together, state
that all conditions precedent provided for relating to either the legal
defeasance under Section 12.2 hereof or the covenant defeasance under Section
12.3 (as the case may be) have been complied with.
Section 12.5 Deposited Money and U.S. Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 10.3 hereof,
all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee--collectively for
purposes of this Section 12.5, the "Trustee") pursuant to Section 12.4 hereof in
respect of the Outstanding Securities shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 12.4 hereof or the principal and interest received
in respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the Outstanding Securities.
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Anything in this Article XII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 12.4 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent legal defeasance or covenant
defeasance, as applicable, in accordance with this Article.
Section 12.6 Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 12.5 hereof by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's and any Subsidiary Guarantors' obligations
under this Indenture and the Securities shall be revived and reinstated as
though no deposit had occurred pursuant to Section 12.2 or 12.3 hereof, as the
case may be, until such time as the Trustee or Paying Agent is permitted to
apply all such money in accordance with Section 12.5 hereof; provided, however,
that if the Company or any Subsidiary Guarantor makes any payment of principal
of (or premium, if any, on) or interest on any Security following the
reinstatement of its obligations, the Company or such Subsidiary Guarantor shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE XIII
SUBSIDIARY GUARANTEES
Section 13.1 Unconditional Guarantee.
Each Subsidiary Guarantor, if any, hereby unconditionally, jointly and
severally, guarantees (each such guarantee being referred to herein as this
"Subsidiary Guarantee," with all such guarantees being referred to herein as the
"Subsidiary Guarantees") to each Holder of Securities authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns, the
full and prompt performance of the Company's obligations under this Indenture
and the Securities and that:
(a) the principal of (and premium, if any, on) and interest on
the Securities will be promptly paid in full when due (subject to any applicable
grace periods), whether at maturity, by acceleration, redemption or otherwise,
and interest on the overdue principal of and interest on the Securities, if any,
to the extent lawful, and all other obligations of the Company to the Holders or
the Trustee hereunder or thereunder will be promptly paid in full or performed,
all in accordance with the terms hereof and thereof; and
(b) in case of any extension of time of payment or renewal of
any Securities or of any such other obligations, the same will be promptly paid
in full when due or performed in accordance with the terms of the extension or
renewal, whether at Stated Maturity by acceleration or otherwise;
subject, however, in the case of clauses (a) and (b) above, to the
limitations set forth in Section 13.4 hereof.
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Failing payment when due of any amount so guaranteed or any performance
so guaranteed for whatever reason, the Subsidiary Guarantors will be jointly and
severally obligated to pay the same immediately. Each Subsidiary Guarantor
hereby agrees that its obligations hereunder shall, to the extent permitted by
law, be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Securities with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each Subsidiary Guarantor hereby waives, to the extent permitted by
law, diligence, presentment, demand of payment, filing of claims with a court in
the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that its Subsidiary Guarantee will not be discharged except by
complete performance of the obligations contained in the Securities, this
Indenture and in this Subsidiary Guarantee. If any Holder or the Trustee is
required by any court or otherwise to return to the Company, any Subsidiary
Guarantor, or any custodian, trustee, liquidator or other similar official
acting in relation to the Company or any Subsidiary Guarantor, any amount paid
by the Company or any Subsidiary Guarantor to the Trustee or such Holder, this
Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect. Each Subsidiary Guarantor agrees it shall not be
entitled to enforce any right of subrogation in relation to the Holders in
respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby. Each Subsidiary Guarantor further agrees that, as
between each Subsidiary Guarantor, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article V hereof for the purposes of
this Subsidiary Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article V hereof, such obligations (whether or not due and
payable) shall forthwith become due and payable by each Subsidiary Guarantor for
the purpose of this Subsidiary Guarantee.
Section 13.2 Subsidiary Guarantors May Consolidate, etc., on Certain
Terms.
(a) Except as set forth in Article VIII hereof, nothing
contained in this Indenture or in any of the Securities shall prevent any
consolidation or merger of a Subsidiary Guarantor with or into the Company or
another Subsidiary Guarantor or shall prevent any sale, conveyance or other
disposition of all or substantially all the Properties of a Subsidiary Guarantor
to the Company or another Subsidiary Guarantor.
(b) Except as set forth in Article VIII hereof, nothing
contained in this Indenture or in any of the Securities shall prevent any
consolidation or merger of a Subsidiary Guarantor with or into a Person other
than the Company or another Subsidiary Guarantor (whether or not Affiliated with
the Subsidiary Guarantor), or successive consolidations or mergers in which a
Subsidiary Guarantor or its successor or successors shall be a party or parties,
or shall prevent any sale, conveyance or other disposition of all or
substantially all the Properties of a Subsidiary Guarantor to a Person other
than the Company or another Subsidiary Guarantor (whether or not Affiliated with
the Subsidiary Guarantor) authorized to acquire and operate the same; provided,
however, that (i) immediately after such transaction, and giving effect thereto,
no Default or Event of
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Default shall have occurred as a result of such transaction and be continuing,
(ii) such transaction shall not violate any of the covenants of Sections 10.1
through 10.19 hereof, and (iii) each Subsidiary Guarantor hereby covenants and
agrees that, upon any such consolidation, merger, sale, conveyance or other
disposition, such Subsidiary Guarantor's Subsidiary Guarantee set forth in this
Article XIII and in a notation to the Securities, and the due and punctual
performance and observance of all of the covenants and conditions of this
Indenture to be performed by such Subsidiary Guarantor, shall be expressly
assumed (in the event that the Subsidiary Guarantor is not the surviving
corporation in a merger), by supplemental indenture substantially in the form of
Exhibit E hereto, executed and delivered to the Trustee, by such Person formed
by such consolidation, or into which the Subsidiary Guarantor shall have merged,
or by the Person that shall have acquired such Property (except to the extent
the following Section 13.3 would result in the release of such Subsidiary
Guarantee, in which case such surviving Person or transferee of such Property
shall not have to execute any such supplemental indenture and shall not have to
assume such Subsidiary Guarantor's Subsidiary Guarantee). In the case of any
such consolidation, merger, sale, conveyance or other disposition and upon the
assumption by the successor Person, by supplemental indenture executed and
delivered to the Trustee substantially in the form of Exhibit E hereto of the
due and punctual performance of all of the covenants and conditions of this
Indenture to be performed by the Subsidiary Guarantor, such successor Person
shall succeed to and be substituted for the Subsidiary Guarantor with the same
effect as if it had been named herein as the initial Subsidiary Guarantor.
Section 13.3 Release of Subsidiary Guarantors.
Upon the sale or disposition (by merger or otherwise) of a Subsidiary
Guarantor (or all or substantially all of its Properties) to a Person other than
the Company or another Subsidiary Guarantor and pursuant to a transaction that
is otherwise in compliance with the terms of this Indenture, including but not
limited to the provisions of Section 13.2 hereof or pursuant to Article VIII
hereof, such Subsidiary Guarantor shall be deemed released from its Subsidiary
Guarantee and all related obligations under this Indenture; provided, however,
that any such termination shall occur only to the extent that all obligations of
such Subsidiary Guarantor under all of its guarantees of, and under all of its
pledges of assets or other security interests which secure, other Indebtedness
of the Company or any other Restricted Subsidiary shall also terminate upon such
sale or other disposition. The Trustee shall deliver an appropriate instrument
evidencing such release upon receipt of a Company Request accompanied by an
Officers' Certificate and an Opinion of Counsel certifying that such sale or
other disposition was made by the Company in accordance with the provisions of
this Indenture.
Each Subsidiary Guarantor that is designated as an Unrestricted
Subsidiary in accordance with the provisions of this Indenture shall be released
from its Subsidiary Guarantee and all related obligations under this Indenture
for so long as it remains an Unrestricted Subsidiary. The Trustee shall deliver
an appropriate instrument evidencing such release upon its receipt of the Board
Resolution designating such Unrestricted Subsidiary.
Notwithstanding any other provision of this Indenture, all of the
Subsidiary Guarantors shall be deemed released from their respective Subsidiary
Guarantees and all related obligations under this Indenture in the event that
all obligations of the Subsidiary Guarantors under all of their guarantees of,
and under all of their pledges of assets or other
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security interests which secure, other Indebtedness of the Company (excluding
any Senior Indebtedness) shall also terminate. The Trustee shall deliver an
appropriate instrument evidencing such release upon receipt of a Company Request
accompanied by an Officer's Certificate and Opinion of Counsel certifying that
all such obligations of the Subsidiary Guarantors have terminated.
Any Subsidiary Guarantor not released in accordance with this Section
13.3 shall remain liable for the full amount of principal of (and premium, if
any, on) and interest on the Securities as provided in this Article XIII.
Section 13.4 Limitation of Subsidiary Guarantors' Liability.
Each Subsidiary Guarantor, and by its acceptance hereof each Holder,
hereby confirm that it is the intention of all such parties that the guarantee
by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute
a fraudulent transfer or conveyance for purposes of the Federal Bankruptcy Code,
the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or
any similar federal or state law. To effectuate the foregoing intention, the
Holders and each Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee shall be
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities (including, but not limited to, Guarantor
Senior Indebtedness) of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to Section 13.5 hereof, result in the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not
constituting such a fraudulent conveyance or fraudulent transfer. This Section
13.4 is for the benefit of the creditors of each Subsidiary Guarantor, and, for
purposes of the Federal Bankruptcy Code, the Uniform Fraudulent Conveyance Act,
the Uniform Fraudulent Transfer Act any each other similar federal or state law,
any Indebtedness of a Subsidiary Guarantor incurred from time to time pursuant
to the Credit Facility shall be deemed to have been incurred prior to the
incurrence by such Subsidiary Guarantor of liability under its Subsidiary
Guarantee.
Section 13.5 Contribution.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under its Subsidiary Guarantee, such Funding Guarantor
shall be entitled to a contribution from each other Subsidiary Guarantor (if
any) in a pro rata amount based on the Adjusted Net Assets of each Subsidiary
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Securities or any other Subsidiary Guarantor's
obligations with respect to its Subsidiary Guarantee.
Section 13.6 Execution and Delivery of Notations of Subsidiary
Guarantees.
To evidence its Subsidiary Guarantee set forth in Section 13.1 hereof,
each Subsidiary Guarantor hereby agrees to execute the notations of Subsidiary
Guarantees in substantially the form set forth in Section 2.4 hereof to be
endorsed on all Securities ordered to be authenticated and delivered by the
Trustee, unless at such time there are no
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Subsidiary Guarantors, and each Subsidiary Guarantor agrees that any supplement
to this Indenture shall be executed on behalf of such Subsidiary Guarantor by
its President or one of its Vice Presidents. Each Subsidiary Guarantor hereby
agrees that its Subsidiary Guarantee set forth in Section 13.1 hereof shall
remain in full force and effect notwithstanding any failure to endorse on each
Security a notation of such Subsidiary Guarantee. Each such notation of
Subsidiary Guarantee shall be signed on behalf of each Subsidiary Guarantor by
its President or one of its Vice Presidents (each of whom shall, in each case,
have been duly authorized by all requisite corporate action) prior to the
authentication of the Security on which it is endorsed, and the delivery of such
Security by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of the Subsidiary Guarantee set forth in this Indenture
on behalf of such Subsidiary Guarantor. Such signatures upon the notation of
Subsidiary Guarantee may be by manual or facsimile signature of such officers
and may be imprinted or otherwise reproduced on the Subsidiary Guarantee, and in
case any such officer who shall have signed the notation of Subsidiary Guarantee
shall cease to be such officer before the Security on which such notation of
Subsidiary Guarantee is endorsed shall have been authenticated and delivered by
the Trustee or disposed of by the Company, such Security nevertheless may be
authenticated and delivered or disposed of as though the person who signed the
notation of Subsidiary Guarantee had not ceased to be such officer of the
Subsidiary Guarantor.
Section 13.7 Severability.
In case any provision of this Subsidiary Guarantee shall be invalid,
illegal or unenforceable, that portion of such provision that is not invalid,
illegal or unenforceable shall remain in effect, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 13.8 Subsidiary Guarantees Subordinated to Guarantor Senior
Indebtedness.
Each Subsidiary Guarantor covenants and agrees, and each Holder of a
Security, by his acceptance of the Subsidiary Guarantees, likewise covenants and
agrees, for the benefit of the holders, from time to time, of Guarantor Senior
Indebtedness, that the indebtedness, obligations and liabilities of such
Subsidiary Guarantor in respect of its Subsidiary Guarantee are subordinated and
subject in right of payment, to the extent and in the manner provided in this
Article XIII, to the prior payment in full of all Guarantor Senior Indebtedness
of such Subsidiary Guarantor, whether outstanding on the date of this Indenture
or thereafter created, incurred, assumed or guaranteed; provided, however, that
the Subsidiary Guarantee of such Subsidiary Guarantor, the Indebtedness
represented thereby and the payment of the principal of (and premium, if any,
on) and the interest on the Securities pursuant to such Subsidiary Guarantee in
all respects shall rank pari passu with, or prior to, all existing and future
unsecured indebtedness (including, without limitation, Indebtedness) of such
Subsidiary Guarantor that is subordinated to its Guarantor Senior Indebtedness.
This Article XIII shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Guarantor Senior Indebtedness, and such provisions are made for the benefit of
the holders of Guarantor Senior Indebtedness, and such holders are made obligees
hereunder and any of them may enforce such provisions.
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Section 13.9 Subsidiary Guarantors Not to Make Payments with Respect to
Subsidiary Guarantees in Certain Circumstances.
(a) No payment or distribution of any Property of any
Subsidiary Guarantor of any kind or character (other than Permitted Guarantor
Junior Securities) may be made by such Subsidiary Guarantor in respect of its
Subsidiary Guarantee upon (i) the happening of any default in respect of the
payment or required prepayment of any of its Guarantor Senior Indebtedness when
the same becomes due and payable (a "Subsidiary Guarantor Payment Default") and
(ii) receipt by the Trustee of written notice thereof, unless and until such
Subsidiary Guarantor Payment Default shall have been cured or waived in writing
or shall have ceased to exist or such Guarantor Senior Indebtedness shall have
been paid in full or otherwise discharged, after which (unless otherwise
prohibited pursuant to Section 13.10 hereof) such Subsidiary Guarantor shall
resume making any and all required payments in respect of its Subsidiary
Guarantee, including any missed payments.
(b) Upon the happening of any event (other than a Subsidiary
Guarantor Payment Default) the occurrence of which entitles one or more Persons
to accelerate the maturity of any Specified Guarantor Senior Indebtedness (a
"Subsidiary Guarantor Non-payment Default"), and receipt by the applicable
Subsidiary Guarantor and the Trustee of written notice thereof from one or more
of the holders of such Specified Guarantor Senior Indebtedness or their
representative (a "Subsidiary Guarantor Payment Notice"), then, unless and until
such Subsidiary Guarantor Non-payment Default shall have been cured or waived in
writing or shall have ceased to exist or such Specified Guarantor Senior
Indebtedness is paid in full or otherwise discharged or the holders (or a
representative of the holders) of such Specified Guarantor Senior Indebtedness
give their written approval, no payment or distribution shall be made by such
Subsidiary Guarantor in respect of its Subsidiary Guarantee (other than
Permitted Guarantor Junior Securities); provided, however, that these provisions
will not prevent the making of any payment for more than 179 days after a
Subsidiary Guarantor Payment Notice shall have been given after which such
Subsidiary Guarantor will resume (unless otherwise prohibited pursuant to the
immediately preceding paragraph or Section 13.10 hereof) making any and all
required payments in respect of its Subsidiary Guarantee, including any missed
payments. Notwithstanding the foregoing, not more than one Subsidiary Guarantor
Payment Notice shall be given with respect to any Subsidiary Guarantee within a
period of 360 consecutive days. No Subsidiary Guarantor Non-payment Default that
existed or was continuing on the date of delivery of any Subsidiary Guarantor
Payment Notice with respect to the Specified Guarantor Senior Indebtedness
initiating such Subsidiary Guarantor Payment Notice will be, or can be, made the
basis for the commencement of a subsequent Subsidiary Guarantor Payment Notice
with respect to such Subsidiary Guarantee.
(c) In the event that, notwithstanding the foregoing, a
Subsidiary Guarantor shall make any payment in respect of its Subsidiary
Guarantee to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section 13.9, then and in such event such payment
shall be paid over and delivered forthwith to the Company. In the event that a
Subsidiary Guarantor shall make any payment in respect of its Subsidiary
Guarantee to the Trustee and the Trustee shall receive written notice of a
Subsidiary Guarantor Payment Default or a Subsidiary Guarantor Nonpayment
Default from one or more of the holders of Specified Guarantor Senior
Indebtedness (or their representative) prior to making any payment to Holders in
respect of the Subsidiary
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Guarantee and prior to 11:00 a.m. Eastern Time on the date which is two Business
Days prior to the date upon which by the terms hereof any money may become
payable for any purpose, such payments shall be paid over by the Trustee and
delivered forthwith to the Company. Each Subsidiary Guarantor shall give prompt
written notice to the Trustee of any default under any of its Guarantor Senior
Indebtedness or under any agreement pursuant to which its Guarantor Senior
Indebtedness may have been issued.
Section 13.10 Subsidiary Guarantees Subordinated to Prior Payment of
All Guarantor Senior Indebtedness upon Dissolution, etc.
Upon any distribution of Properties of any Subsidiary Guarantor or
payment on behalf of a Subsidiary Guarantor in the event of any Insolvency or
Liquidation Proceeding with respect to such Subsidiary Guarantor:
(a) the holders of such Subsidiary Guarantor's Guarantor
Senior Indebtedness shall be entitled to receive payment in full of such
Guarantor Senior Indebtedness, or provision must be made for such payment,
before the Holders are entitled to receive any direct or indirect payment or
distribution of any kind or character, whether in cash, property or securities
(other than Permitted Guarantor Junior Securities), on account of any payment in
respect of such Subsidiary Guarantor's Subsidiary Guarantee;
(b) any direct or indirect payment or distribution of
Properties of such Subsidiary Guarantor of any kind or character, whether in
cash, property or securities (other than a payment or distribution in the form
of Permitted Guarantor Junior Securities), by set-off or otherwise, to which the
Holders or the Trustee, on behalf of the Holders, would be entitled except for
the provisions of this Article XIII, shall be paid by the Subsidiary Guarantor
or by any liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise, directly to the holders of such Guarantor Senior Indebtedness or
their representative or representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Guarantor
Indebtedness may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of such Senior Guarantor Indebtedness held or
represented by each, to the extent necessary to make payment in full of all such
Guarantor Senior Indebtedness, after giving effect to any concurrent payment or
distribution to the holders of such Guarantor Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing
provisions of this Section 13.10, any direct or indirect payment or distribution
of Properties of such Subsidiary Guarantor of any kind or character, whether in
cash, property or securities (other than a payment or distribution in the form
of Permitted Guarantor Junior Securities), shall be received by the Trustee or
the Holders before all such Guarantor Senior Indebtedness is paid in full or
otherwise discharged, such Properties shall be received and held in trust for
and shall be paid over to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other Person making payment or
distribution of assets of such Subsidiary Guarantor, for application to the
payment of such Guarantor Senior Indebtedness until all such Guarantor Senior
Indebtedness shall have been paid or provided for in full, after giving effect
to any concurrent payment or distribution to the holders of such Guarantor
Senior Indebtedness.
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The Company or a Subsidiary Guarantor shall give prompt written notice
to the Trustee of the occurrence of any Insolvency or Liquidation Proceeding
with respect to such Subsidiary Guarantor.
Section 13.11 Holders to be Subrogated to Rights of Holders of
Guarantor Senior Indebtedness.
After the payment in full of all Guarantor Senior Indebtedness of a
Subsidiary Guarantor, the Holders shall be subrogated (equally and ratably with
the holders of all other Indebtedness of such Subsidiary Guarantor which by its
express terms is subordinated to such Guarantor Senior Indebtedness to
substantially the same extent as such Subsidiary Guarantee is so subordinated
and which is entitled to like rights of subrogation as a result of payments made
to the holders of such Guarantor Senior Indebtedness) to the rights of the
holders of such Guarantor Senior Indebtedness to receive payments or
distributions of cash, property and securities of such Subsidiary Guarantor
applicable to such Guarantor Senior Indebtedness until all amounts owing on the
Securities shall be paid in full, and for the purpose of such subrogation no
payments or distributions to the holders of such Guarantor Senior Indebtedness
by or on behalf of such Subsidiary Guarantor or by or on behalf of the Holders
by virtue of this Article XIII which otherwise would have been made to the
Holders shall, as between such Subsidiary Guarantor, its creditors other than
the holders of Guarantor Senior Indebtedness, and the Holders of the Securities,
be deemed to be a payment or distribution by such Subsidiary Guarantor to or on
account of such Guarantor Senior Indebtedness, it being understood that the
subordination provisions of this Article XIII are, and are intended solely for,
the purpose of defining the relative rights of the Holders, on the one hand, and
the holders of Guarantor Senior Indebtedness, on the other hand.
Section 13.12 Obligations of Subsidiary Guarantors Unconditional.
Nothing contained in this Article XIII or elsewhere in this Indenture
or in any Security is intended to or shall impair, as between the Subsidiary
Guarantors and the Holders, the obligation of the Subsidiary Guarantors under
the Subsidiary Guarantees, or is intended to or shall affect the relative rights
of the Holders and creditors of the Subsidiary Guarantors, nor shall anything
herein or therein prevent the Trustee or any Holder from exercising all remedies
otherwise permitted by applicable law upon Default under this Indenture, subject
to the rights, if any, under this Article XIII of the holders of Guarantor
Senior Indebtedness in respect of cash, property or securities of any Subsidiary
Guarantor received upon the exercise of any such remedy. Upon any distribution
of Properties of a Subsidiary Guarantor referred to in this Article XIII, the
Trustee, subject to the provisions of Section 6.2 hereof, and the Holders of the
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which such dissolution, winding-up, liquidation or
reorganization proceedings are pending, or a certificate of a trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, or agent or other Person making any distribution to the Trustee or
to the Holders of the Securities, for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the related
Guarantor Senior Indebtedness and other indebtedness of such Subsidiary
Guarantor, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
XIII.
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Section 13.13 Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts that would prohibit the making of any payment to or by
the Trustee, unless it shall have received at its Corporate Trust Office written
notice thereof from a Subsidiary Guarantor or from one or more holders of
Guarantor Senior Indebtedness or Specified Guarantor Senior Indebtedness, in the
case of a Subsidiary Guarantor Non-payment Default, or from any representative
thereof; and, prior to the receipt of any such written notice, the Trustee,
subject to TIA Sections 315(a) through 315(d), shall be entitled to assume
conclusively that no such facts exist. The Trustee shall be entitled to rely on
the delivery to it of a written notice by a Person representing himself to be a
holder of Guarantor Senior Indebtedness or Specified Guarantor Senior
Indebtedness, in the case of a Subsidiary Guarantor Non-payment Default (or a
representative on behalf of such holder), to establish that such notice has been
given by a holder of Guarantor Senior Indebtedness or Specified Guarantor Senior
Indebtedness, in the case of a Subsidiary Guarantor Non-payment Default, or a
representative on behalf of any such holder or holders.
Section 13.14 Application by Trustee of Money Deposited with it.
Except as provided in Article XIV, any deposit of money by a Subsidiary
Guarantor with the Trustee or any Paying Agent (whether or not in trust) for any
payment in respect of the related Subsidiary Guarantee shall be subject to the
provisions of Sections 13.8, 13.9, 13.10 and 13.11 hereof except that, if prior
to 11:00 a.m. Eastern time on the date which is two Business Days prior to the
date on which by the terms of this Indenture any such money may become payable
for any purpose, the Trustee or, in the case of any such deposit of money with a
Paying Agent, the Paying Agent shall not have received with respect to such
money the notice provided for in Section 13.13 hereof, then the Trustee or such
Paying Agent, as the case may be, shall have full power and authority to receive
such money and to apply the same to the purpose for which it was received, and
shall not be affected by any notice to the contrary which may be received by it
on or after 11:00 a.m., Eastern time, two Business Days prior to such payment
date. In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article XIII, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article XIII, and if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
The Trustee, however, shall not be deemed to owe any fiduciary duty to
the holders of Guarantor Senior Indebtedness but shall have only such
obligations to such holders as are expressly set forth in this Article XIII.
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Section 13.15 Subordination Rights Not Impaired by Acts or Omissions of
Subsidiary Guarantors or Holders of Guarantor Senior
Indebtedness.
No right of any present or future holders of any Guarantor Senior
Indebtedness of a Subsidiary Guarantor to enforce subordination as provided
herein shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of such Subsidiary Guarantor or by any act or failure
to act by any such holder, or by any noncompliance by such Subsidiary Guarantor
with the terms of this Indenture, regardless of any knowledge thereof which any
such holder may have or be otherwise charged with.
Without in any way limiting the generality of the preceding paragraph
of this Section, the holders of Guarantor Senior Indebtedness may, at any time
and from time to time, without the consent of or notice to the Trustee or the
Holders of the Securities, without incurring responsibility to the Holders of
the Securities and without impairing or releasing the subordination or other
benefits provided in this Article, or the obligations hereunder of the Holders
of the Securities to the holders of Guarantor Senior Indebtedness, do any one or
more of the following: (1) change the manner, place or terms of payment or
extend the time of payment of, or renew, exchange, amend, increase or alter,
Guarantor Senior Indebtedness or the term of any instrument evidencing the same
or any agreement under which Guarantor Senior Indebtedness is outstanding or any
liability of any obligor thereon (unless such change, extension or alteration
results in such Indebtedness no longer being Guarantor Senior Indebtedness as
defined in this Indenture); (2) sell, exchange, release or otherwise deal with
any Property pledged, mortgaged or otherwise securing Guarantor Senior
Indebtedness; (3) settle or compromise any Guarantor Senior Indebtedness or any
liability of any obligor thereon or release any Person liable in any manner for
the collection of Guarantor Senior Indebtedness; and (4) exercise or refrain
from exercising any rights against the Company and any other Person.
Section 13.16 Holders Authorize Trustee to Effectuate Subordination of
Subsidiary Guarantees.
Each Holder, by his acceptance thereof, authorizes and expressly
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article XIII and
appoints the Trustee as his attorney-in-fact for such purpose, including, in the
event of any Insolvency or Liquidation Proceeding with respect to any Subsidiary
Guarantor, the immediate filing of a claim for the unpaid balance of his
Securities pursuant to the related Subsidiary Guarantee in the form required in
said proceedings and the causing of said claim to be approved.
Section 13.17 Right of Trustee to Hold Guarantor Senior Indebtedness.
The Trustee shall be entitled to all of the rights set forth in this
Article XIII in respect of any Guarantor Senior Indebtedness at any time held by
it to the same extent as any other holder of Guarantor Senior Indebtedness, and
nothing in this Indenture shall be construed to deprive the Trustee of any of
its rights as such holder.
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Section 13.18 Article XIII Not to Prevent Events of Default.
The failure to make a payment on account of the Subsidiary Guarantees
by reason of any provision in this Article XIII shall not be construed as
preventing the occurrence of an Event of Default under this Indenture.
Section 13.19 Payment.
For purposes of this Article XIII, a payment with respect to any
Subsidiary Guarantee or with respect to principal of or interest on the Security
or any Subsidiary Guarantee shall include, without limitation, payment of
principal of and interest on any Security, any depositing of funds under Article
IV hereof, any payment on account of any repurchase or redemption of any
Security and any payment or recovery on any claim (whether for rescission or
damages and whether based on contract, tort, duty imposed by law, or any other
theory of liability) relating to or arising out of the offer, sale or purchase
of any Security.
Section 13.20 Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent any Subsidiary Guarantor, at any time except
during the pendency of any Insolvency or Liquidation Proceeding referred to in
Section 13.10 hereof or under the conditions described in Section 13.9 hereof,
from making payments at any time on its Subsidiary Guarantee.
ARTICLE XIV
SUBORDINATION OF SECURITIES
Section 14.1 Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, for the benefit of the
holders, from time to time, of Senior Indebtedness, that, to the extent and in
the manner hereinafter set forth in this Article, the Indebtedness represented
by the Securities and the payment of the principal of (and premium, if any, on)
and interest on each and all of the Securities are hereby expressly made
subordinate and subject in right of payment as provided in this Article to the
prior payment in full of all Senior Indebtedness, whether outstanding on the
date of this Indenture or thereafter created, incurred, assumed or guaranteed;
provided, however, that the Securities, the Indebtedness represented thereby and
the payment of the principal of (and premium, if any, on) and interest on the
Securities in all respects shall rank equally with, or prior to, all existing
and future unsecured indebtedness (including, without limitation, Indebtedness)
of the Company that is subordinated to Senior Indebtedness.
This Article XIV shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness, and such holders are made obligees hereunder and any one
or more of them may enforce such provisions.
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Section 14.2 Payment over of Proceeds upon Dissolution, etc.
Upon any distribution of Properties of the Company or payment on behalf
of the Company with respect to the Securities in the event of any Insolvency or
Liquidation Proceeding with respect to the Company:
(a) the holders of Senior Indebtedness shall be entitled to
receive payment in full of such Senior Indebtedness, or provision must be made
for such payment, before the Holders of the Securities are entitled to receive
any direct or indirect payment or distribution of any kind or character, whether
in cash, property or securities (other than Permitted Junior Securities) on
account of principal of (or premium, if any, on) or interest on the Securities
or on account of the purchase or redemption or other acquisition of Securities
(including pursuant to a Change of Control Offer or a Net Proceeds Offer); and
(b) any direct or indirect payment or distribution of
Properties of the Company of any kind or character, whether in cash, property or
securities (other than a payment or distribution in the form of Permitted Junior
Securities), by set-off or otherwise, to which the Holders or the Trustee, on
behalf of the Holders, would be entitled but for the provisions of this Article
shall be paid by the Company or by any liquidating trustee or agent or other
Person making such payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or otherwise, directly to the holders of Senior
Indebtedness or their representative or representatives or to the trustee or
trustees under any indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, ratably according to the aggregate
amounts remaining unpaid on account of the Senior Indebtedness held or
represented by each, to the extent necessary to make payment in full of all
Senior Indebtedness after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing
provisions of this Section, the Trustee or the Holder of any Security shall have
received any payment or distribution of Properties of the Company of any kind or
character, whether in cash, property or securities, by set-off or otherwise, in
respect of principal of (and premium, if any, on) or interest on the Securities
before all Senior Indebtedness is paid or provided for in full, then and in such
event such payment or distribution (other than a payment or distribution in the
form of Permitted Junior Securities) shall be received and held in trust for and
shall be paid over or delivered forthwith to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent or other Person making
payment or distribution of assets of the Company, to the extent necessary to pay
all Senior Indebtedness in full, after giving effect to any concurrent payment
or distribution to or for the holders of Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all its Properties on a consolidated basis to another Person or
group of Affiliated Persons pursuant to, and in compliance with, the terms and
conditions set forth in Article VIII hereof shall not be deemed an Insolvency or
Liquidation Proceeding (requiring the repayment of all Senior Indebtedness in
full as a prerequisite to any payments being made to the Holders) for the
purposes of this Section.
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Section 14.3 Suspension of Payment When Senior Indebtedness in Default.
(a) Upon (1) the occurrence of a Payment Event of Default and
(2) receipt by the Trustee of written notice of such occurrence, then no payment
or distribution of any Properties of the Company of any kind or character (other
than Permitted Junior Securities) shall be made by the Company on account of
principal of (or premium, if any, on) or interest on the Securities or on
account of the purchase or redemption or other acquisition of Securities unless
and until such Payment Event of Default shall have been cured or waived in
writing or shall have ceased to exist or such Specified Senior Indebtedness
shall have been paid in full or otherwise discharged, after which (unless
otherwise prohibited by Section 14.2 hereof) the Company shall resume making any
and all required payments in respect of the Securities, including any missed
payments.
(b) Upon (1) the occurrence of a Non-payment Event of Default
and (2) receipt by the Trustee and the Company of written notice of such
occurrence from one or more of the holders of Specified Senior Indebtedness (or
their representative), then no payment or distribution of any Properties of the
Company of any kind or character (other than Permitted Junior Securities) shall
be made by the Company on account of any principal of (or premium, if any, on)
or interest on the Securities or on account of the purchase or redemption or
other acquisition of Securities for the period specified below (the "Payment
Blockage Period"). The Payment Blockage Period will commence upon the earlier of
the dates of receipt by the Trustee or the Company of such notice (the "Payment
Blockage Notice") from one or more of the holders of Specified Senior
Indebtedness (or their representative) and shall end on the earliest of (i) 179
days thereafter, (ii) the date, as set forth in a written notice from the
holders of the Specified Senior Indebtedness (or their representative) to the
Company or the Trustee, on which such Non-payment Event of Default is cured,
waived in writing or ceases to exist or such Specified Senior Indebtedness is
discharged or (iii) the date on which such Payment Blockage Period shall have
been terminated by written notice to the Company or the Trustee from one or more
of the holders (or their representative) initiating such Payment Blockage
Period, after which the Company will resume (unless otherwise prohibited
pursuant to the immediately preceding paragraph or Section 14.2 hereof) making
any and all required payments in respect of the Securities, including any missed
payments. In any event, not more than one Payment Blockage Period may be
commenced during any period of 360 consecutive days. No Non-payment Event of
Default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee will be, or can be, made the basis for the
commencement of a subsequent Payment Blockage Period.
(c) In the event that, notwithstanding the foregoing, the
Company shall make any payment to the Trustee or the Holder of any Security
prohibited by the foregoing provisions of this Section 14.3, then and in such
event such payment shall be paid over and delivered forthwith to the Company. In
the event that the Company shall make any payment in respect of the Securities
to the Trustee and the Trustee shall receive written notice of a Payment Event
of Default or a Non-payment Event of Default from one or more of the holders of
Specified Senior Indebtedness (or their representative) prior to making any
payment to Holders in respect of the Securities and prior to 11:00 a.m. Eastern
time on the date which is two Business Days prior to the date upon which by the
terms hereof any money may become payable for any purpose, such payments shall
be paid over by the Trustee and delivered forthwith to the Company.
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Section 14.4 Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent the Company, at any time except during the
pendency of any Insolvency or Liquidation Proceeding referred to in Section 14.2
hereof or under the conditions described in Section 14.3 hereof, from making
payments at any time of principal of (and premium, if any, on) or interest on
the Securities.
Section 14.5 Subrogation to Rights of Holders of Senior Indebtedness.
After the payment in full of all Senior Indebtedness, the Holders of
the Securities shall be subrogated (equally and ratably with the holders of all
indebtedness of the Company which by its express terms is subordinated to Senior
Indebtedness to substantially the same extent as the Securities are so
subordinated and which is entitled to like rights of subrogation as a result of
the payments made to the holders of Senior Indebtedness) to the rights of the
holders of Senior Indebtedness to receive payments and distributions of cash,
property and securities applicable to Senior Indebtedness until all amounts
owing on the Securities shall be paid in full. For purposes of such subrogation,
no payments or distributions to the holders of Senior Indebtedness by or on
behalf of the Company or by or on behalf of the Holders by virtue of this
Article which otherwise would have been made to the Holders shall, as between
the Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Securities, be deemed to be a payment or distribution by the
Company to or on account of the Senior Indebtedness.
Section 14.6 Provisions Solely to Define Relative Rights.
The provisions of this Article are, and are intended solely, for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as between the Company and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of (and premium, if any,
on) and interest on the Securities as and when the same shall become due and
payable in accordance with their terms; or (b) affect the relative rights
against the Company of the Holders of the Securities and creditors of the
Company other than the holders of Senior Indebtedness; or (c) prevent the
Trustee or the Holder of any Security from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article of the holders of Senior Indebtedness.
Section 14.7 Trustee to Effectuate Subordination.
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee as his attorney-in-fact for any and all such purposes,
including, in the event of any Insolvency or Liquidation Proceeding with respect
to the Company, the immediate filing of a claim for the unpaid balance of his
Securities pursuant to this Indenture in the form required in said proceedings
and the causing of said claim to be approved.
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Section 14.8 No Waiver of Subordination Provision.
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act by any such holder, or by any
non-compliance by the Company with the terms of this Indenture, regardless of
any knowledge thereof which any such holder may have or be otherwise charged
with.
(b) Without in any way limiting the generality of paragraph
(a) of this Section, the holders of any Senior Indebtedness, in accordance with
the terms of the instrument or agreement evidencing their Senior Indebtedness,
may, at any time and from time to time, without the consent of or notice to the
Trustee or the Holders of the Securities, without incurring responsibility to
the Holders of the Securities and without impairing or releasing the
subordination or other benefits provided in this Article, or the obligations
hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (1) change the manner, place
or terms of payment or extend the time of payment of, or renew, exchange, amend,
increase or alter, Senior Indebtedness or the terms of any instrument evidencing
the same or any agreement under which Senior Indebtedness is outstanding or any
liability of any obligor thereon (unless such change, extension, amendment,
increase or other alteration results in such Indebtedness no longer being Senior
Indebtedness as defined in this Indenture); (2) sell, exchange, release or
otherwise deal with any Property pledged, mortgaged or otherwise securing Senior
Indebtedness; (3) settle or compromise any Senior Indebtedness or any liability
of any obligor thereon or release any Person liable in any manner for the
collection of Senior Indebtedness; and (4) exercise or refrain from exercising
any rights against the Company and any other Person.
Section 14.9 Notice to Trustee.
(a) The Company shall give prompt written notice to the
Trustee of any fact known to the Company which would prohibit the making of any
payment to or by the Trustee in respect of the Securities. Notwithstanding the
provisions of this Article or any other provision of this Indenture, the Trustee
shall not be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until the Trustee shall have received written notice
thereof from the Company or one or more of the holders of Senior Indebtedness
(or their representative), with respect to a Payment Default, or one or more of
the holders of Specified Senior Indebtedness (or their representative), with
respect to a Non-payment Event of Default, or from any trustee, fiduciary or
agent therefor; and, prior to the receipt of any such written notice, the
Trustee, subject to TIA Sections 315(a) through 315(d), shall be entitled in all
respects to assume that no such facts exist; provided, however, that, if the
Trustee shall not have received the notice provided for in this Section prior to
11:00 a.m. Eastern time on the date which is two Business Days prior to the date
upon which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of (and premium, if
any, on) or interest on any Security), then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it on or after 11:00 a.m. Eastern time two Business Days prior to
such payment date.
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(b) Subject to TIA Sections 315(a) through 315(d), the Trustee
shall be entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor). In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
Section 14.10 Reliance on Judicial Order or Certificate of Liquidating
Agent Bank.
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee, subject to TIA Sections 315(a) through 315(d), and
the Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Insolvency or
Liquidation Proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article.
Section 14.11 Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness, which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.6 hereof.
Section 14.12 Article Applicable to Paying Agents.
In case at any time a Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; provided,
however, that Section 14.11 hereof shall not apply to the Company or any
Affiliate of the Company if it or such Affiliate acts as Paying Agent.
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Section 14.13 No Suspension of Remedies.
Nothing contained in this Article shall limit the right of the Trustee
or the Holders of Securities to take any action to accelerate the maturity of
the Securities pursuant to Article V hereof or to pursue any rights or remedies
hereunder or under applicable law, except as provided in Article V hereof.
Section 14.14 Trust Money Not Subordinated.
Notwithstanding anything contained herein to the contrary, payments
from cash or the proceeds of U.S. Government Obligations held in trust under
Article XII hereof by the Trustee (or other qualifying trustee) and which were
deposited in accordance with the terms of Article XII hereof and not in
violation of Section 14.2 or 14.3 hereof for the payment of principal of (and
premium, if any, on) and interest on the Securities shall not be subordinated to
the prior payment of any Senior Indebtedness or subject to the restrictions set
forth in this Article XIV, and none of the Holders shall be obligated to pay
over any such amount to the Company or any holder of Senior Indebtedness or any
other creditor of the Company.
ARTICLE XV
MISCELLANEOUS
Section 15.1 Compliance Certificates and Opinions.
Upon any application or request by the Company or any Subsidiary
Guarantor to the Trustee to take any action under any provision of this
Indenture, the Company or such Subsidiary Guarantor, as the case may be, shall
furnish to the Trustee such certificates and opinions as may be required under
the Trust Indenture Act or this Indenture. Each such certificate and each such
opinion shall be in the form of an Officers' Certificate or an Opinion of
Counsel, as applicable, and shall comply with the requirements of this
Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
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The certificates and opinions provided pursuant to this Section 15.1
and the statements required by this Section 15.1 shall comply in all respects
with TIA Sections 314(c) and (e).
Section 15.2 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless such officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous. Any
such Opinion of Counsel may be based, insofar as it relates to factual matters,
upon an officers' certificate, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate with respect to such matters
is erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 15.3 Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
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(c) The ownership, principal amount and serial numbers of
Securities held by any Person, and the date of holding the same, shall be proved
by the Security Register.
(d) If the Company shall solicit from the Holders of
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, by or pursuant to a Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do so.
Notwithstanding TIA Section 316(c), such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such solicitation
is completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close of
business on such record date shall be deemed to be Holders for the purposes of
determining whether Holders of the requisite proportion of Outstanding
Securities have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for that
purpose the Outstanding Securities shall be computed as of such record date,
provided that no such authorization, agreement or consent by the Holders on such
record date shall be deemed effective unless it shall become effective pursuant
to the provisions of this Indenture not later than eleven months after the
record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof,
including, without limitation, any Series B Security exchanged for a Series A
Security, in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
Section 15.4 Notices, etc. to Trustee, Company and Subsidiary
Guarantors.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to or filed with,
(1) the Trustee by any Holder, the Company, any Subsidiary
Guarantor or any holder of Senior Indebtedness or Guarantor Senior
Indebtedness shall be sufficient for every purpose hereunder if made,
given, furnished or filed in writing (in the English language) and
delivered in person or mailed by certified or registered mail (return
receipt requested) to the Trustee at its Corporate Trust Office; or
(2) the Company or any Subsidiary Guarantor by the Trustee or
by any Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing (in the English
language) and delivered in person or mailed by certified or registered
mail (return receipt requested) to the Company or such Subsidiary
Guarantor, as applicable, addressed to it at the Company's
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principal office located at 1021 Main Street, Suite 2100, Houston,
Texas 77002, or at any other address otherwise furnished in writing to
the Trustee by the Company.
Section 15.5 Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders by the
Company, the Trustee or any Paying Agent, such notice shall be sufficiently
given (unless otherwise herein expressly provided) if in writing (in the English
language) and mailed, first-class postage prepaid, to each Holder affected by
such event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Any notice mailed to a Holder in the manner herein
prescribed shall be conclusively deemed to have been received by such Holder,
whether or not such Holder actually receives such notice. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
Section 15.6 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 15.7 Successors and Assigns.
All covenants and agreements in this Indenture by the Company and the
Subsidiary Guarantors, if any, shall bind their respective successors and
assigns, whether so expressed or not. All agreements of the Trustee in this
Indenture shall bind its successor.
Section 15.8 Separability Clause.
In case any provision in this Indenture or in the Securities or the
Subsidiary Guarantees, if any, shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby, and a Holder shall have no claim
therefor against any party hereto.
Section 15.9 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person (other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder, the Holders and, to the
extent set forth in Section 13.4 hereof, creditors of any Subsidiary Guarantor,
the holders of Senior Indebtedness and the holders
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of Guarantor Senior Indebtedness) any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 15.10 Governing Law; Trust Indenture Act Controls.
(a) THIS INDENTURE, THE SUBSIDIARY GUARANTEES, IF ANY, AND THE
SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK. THE COMPANY AND EACH SUBSIDIARY GUARANTOR, IF ANY,
IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN, THE CITY OF
NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE, THE SECURITIES OR THE SUBSIDIARY GUARANTEES, IF ANY, AND THE COMPANY
AND EACH SUBSIDIARY GUARANTOR, IF ANY, IRREVOCABLY AGREE THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED BY ANY SUCH
COURT.
(b) Effective upon and subject to the qualification of this
Indenture pursuant to the provisions of the Trust Indenture Act, if and to the
extent that any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by operation of Section 318(c) of the Trust Indenture Act, or
conflicts with any provision (an "incorporated provision") required by or deemed
to be included in this Indenture by operation of such Trust Indenture Act
section, such imposed duties or incorporated provision shall control.
Section 15.11 Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, or Stated
Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities or
any Subsidiary Guarantee) payment of interest or principal (and premium, if any)
need not be made on such date, but may be made on the next succeeding Business
Day with the same force and effect as if made on the Interest Payment Date,
Redemption Date or at the Stated Maturity or Maturity; provided, however, that
no interest shall accrue for the period from and after such Interest Payment
Date, Redemption Date, Stated Maturity or Maturity, as the case may be.
Section 15.12 No Recourse Against Others.
A director, officer, employee, stockholder, incorporator or Affiliate,
as such, past, present or future, of the Company or any Subsidiary Guarantor
shall not have any personal liability under the Securities or this Indenture by
reason of his or its status as a director, officer, employee, stockholder,
incorporator or Affiliate or any liability for any obligations of the Company or
any Subsidiary Guarantor under the Securities or this Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation. Each
Holder, by accepting any of the Securities, waives and releases all such
liability to the extent permitted by applicable law.
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Section 15.13 Duplicate Originals.
The parties may sign any number of copies or counterparts of this
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
Section 15.14 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
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<PAGE> 122
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
ISSUER:
NUEVO ENERGY COMPANY
By: /s/ ROBERT M. KING
--------------------------------------
Name: Robert M. King
Title: Senior Vice President and
Chief Financial Officer
TRUSTEE:
STATE STREET BANK AND TRUST
COMPANY
By: /s/ CHI C. MA
--------------------------------------
Name: Chi C. Ma
Title: Vice President
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<PAGE> 123
EXHIBIT A
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend in addition to the Private Placement Legend, if required by Section 3.12
hereof, in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITORY OF ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY
BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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<PAGE> 124
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 9 1/2% Senior Subordinated Notes due 2008, Series A, and
9 1/2% Senior Subordinated Notes due 2008, Series B
(the "Securities"), of Nuevo Energy Company
This Certificate relates to $_________ principal amount of Securities
held in the form of *[ ] a beneficial interest in a Global Security or *[ ]
Physical Securities by _________________ (the "Transferor").
The Transferor:*
[ ] has requested by written order that the Security Registrar deliver
in exchange for its beneficial interest in the Global Security held by the
Depository a Physical Security or Physical Securities in definitive, registered
form of authorized denominations and in an aggregate principal amount equal to
its beneficial interest in such Global Security (or the portion thereof
indicated above); or
[ ] has requested that the Security Registrar by written order exchange
or register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Indenture relating to the above captioned Securities and the
restrictions on transfers thereof as provided in Section 3.5 of such Indenture,
and that the transfer of these Securities does not require registration under
the Securities Act of 1933, as amended (the "Act") because *:
[ ] Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of subparagraph (a)(1) or (c)(1) of Section
3.5 of the Indenture).
[ ] Such Security is being transferred to a person whom the Transferor
reasonably believes is a "qualified institutional buyer" (as defined in Rule
144A under the Act), in reliance on Rule 144A.
[ ] Such Security is being transferred to an institutional "accredited
investor" (within the meaning of subparagraphs (a)(1), (2), (3) or (7) of Rule
501 under the Act).
[ ] Such Security is being transferred in reliance on Regulation S
under the Act.
[ ] Such Security is being transferred in reliance on Rule 144 under
the Act.
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<PAGE> 125
[ ] Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act other than Rule
144A or Rule 144 or Regulation S under the Act to a person other than an
institutional "accredited investor."
----------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
-------------------------------------
[Authorized Signatory]
Date:
------------------------------------
*Check applicable box.
B-2
<PAGE> 126
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
---------------, -----
State Street Bank and
Trust Company, Trustee
2 Avenue de Lafayette
Boston, MA 02111-1724
Re: Nuevo Energy Company Indenture (the "Indenture") relating to 9 1/2%
Senior Subordinated Notes due 2008, Series A, or 9 1/2% Senior
Subordinated Notes due 2008, Series B
Ladies and Gentlemen:
In connection with our proposed purchase of 9 1/2% Senior Subordinated
Notes due 2008, Series A, or 9 1/2% Series Notes due 2008, Series B (the
"Securities"), of Nuevo Energy Company (the "Company"), we confirm that:
1. We have received such information as we deem necessary in order to
make our investment decision.
2. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture and
the undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Securities except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities, we will do so only (A) to the
Company or any subsidiary thereof, (B) inside the United States in accordance
with Rule 144A under the Securities Act to a "qualified institutional buyer" (as
defined therein), (C) inside the United States to an institutional "accredited
investor" (as defined below) that, prior to such transfer, furnishes (or has
furnished on its behalf by a U.S. broker-dealer) to the Trustee a signed letter
substantially in the form hereof, (D) outside the United States in accordance
with Regulation S under the Securities Act, (E) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act (if available), or
(F) pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing Securities from us a
notice advising such purchaser that resales of the Securities are restricted as
stated herein.
4. We understand that, on any proposed resale of Securities, we will be
required to furnish to you and the Company, such certification, legal opinions
and other
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<PAGE> 127
information as you and the Company may reasonably require to confirm that the
proposed sale complies with the foregoing restrictions. We further understand
that the Securities purchased by us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be, for an indefinite period.
6. We are acquiring the Securities purchased by us for our account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion, for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act.
You and the Company and yours and their respective counsel are entitled
to rely upon this letter and are irrevocably authorized to produce this letter
or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
---------------------------------
[Authorized Signatory]
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<PAGE> 128
EXHIBIT D
Form of Certificate to Be
Delivered in Connection
with Regulation S Transfers
---------------, -----
State Street Bank and
Trust Company, Trustee
2 Avenue de Lafayette
Boston, MA 02111-1724
Re: Nuevo Energy Company ("the Company") 9 1/2% Senior Subordinated Notes
due 2008, Series A, and 9 1/2% Senior Subordinated Notes due 2008,
Series B (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $______________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in
the United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knew that the transaction had
been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities.
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<PAGE> 129
You and the Company and yours and their respective counsel are entitled
to rely upon this letter and are irrevocably authorized to produce this letter
or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
Defined terms used herein without definition have the respective meanings
provided in Regulation S.
Very truly yours,
[Name of Transferor]
By:
-------------------------------------
[Authorized Signatory]
D-2
<PAGE> 130
EXHIBIT E
================================================================================
NUEVO ENERGY COMPANY
and
the Guarantors named herein
----------------------------------------
SERIES A AND SERIES B
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
----------------------------------------
-------------------
FORM OF SUPPLEMENTAL INDENTURE
AND AMENDMENT -- SUBSIDIARY GUARANTEE
DATED AS OF ________ ___, ____
-------------------
STATE STREET BANK AND TRUST COMPANY
Trustee
-------------------
================================================================================
E-1
<PAGE> 131
This SUPPLEMENTAL INDENTURE, dated as of __________ ___, ____, is among
Nuevo Energy Company, a Delaware corporation (the "Company"), each of the
parties identified under the caption "Subsidiary Guarantors" on the signature
page hereto (the "Subsidiary Guarantors") and State Street Bank and Trust
Company, as Trustee.
RECITALS
WHEREAS, the Company and the Trustee entered into an Indenture, dated
as of August 20, 1999 (the "Indenture"), pursuant to which the Company has
originally issued $______________ in principal amount of 9 1/2% Senior
Subordinated Notes due 2008 (the "Securities"); and
WHEREAS, Section 9.1(g) of the Indenture provides that the Company and
the Trustee may amend or supplement the Indenture in order to execute and
deliver a guarantee (a "Subsidiary Guarantee") to comply with Section 10.13 or
13.2 thereof without the consent of the Holders of the Securities; and
WHEREAS, all acts and things prescribed by the Indenture, by law and by
the Certificate of Incorporation and the Bylaws (or comparable constituent
documents) of the Company, of the Subsidiary Guarantors and of the Trustee
necessary to make this Supplemental Indenture a valid instrument legally binding
on the Company, the Subsidiary Guarantors and the Trustee, in accordance with
its terms, have been duly done and performed;
NOW, THEREFORE, to comply with the provisions of the Indenture and in
consideration of the above premises, the Company, the Subsidiary Guarantors and
the Trustee covenant and agree for the equal and proportionate benefit of the
respective Holders of the Securities as follows:
ARTICLE 1
SECTION 1.01. This Supplemental Indenture is supplemental to the
Indenture and does and shall be deemed to form a part of, and shall be construed
in connection with and as part of, the Indenture for any and all purposes.
SECTION 1.02. This Supplemental Indenture shall become effective
immediately upon its execution and delivery by each of the Company, the
Subsidiary Guarantors and the Trustee.
ARTICLE 2
From this date, in accordance with Section 10.13 or 13.2, as
applicable, and by executing this Supplemental Indenture and the accompanying
notation of Subsidiary Guarantee, the Subsidiary Guarantors whose signatures
appear below are subject to the provisions of the Indenture to the extent
provided for in Article XIII thereunder.
ARTICLE 3
SECTION 3.01. Except as specifically modified herein, the Indenture and
the Securities are in all respects ratified and confirmed (mutatis mutandis) and
shall remain in full force and effect in accordance with their terms with all
capitalized terms used herein
E-2
<PAGE> 132
without definition having the same respective meanings ascribed to them as in
the Indenture.
SECTION 3.02. Except as otherwise expressly provided herein, no duties,
responsibilities or liabilities are assumed, or shall be construed to be
assumed, by the Trustee by reason of this Supplemental Indenture. This
Supplemental Indenture is executed and accepted by the Trustee subject to all
the terms and conditions set forth in the Indenture with the same force and
effect as if those terms and conditions were repeated at length herein and made
applicable to the Trustee with respect hereto.
SECTION 3.03. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE AND ENFORCE THIS SUPPLEMENTAL INDENTURE.
SECTION 3.04. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of such
executed copies together shall represent the same agreement.
[NEXT PAGE IS SIGNATURE PAGE]
E-3
<PAGE> 133
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
NUEVO ENERGY COMPANY
By
-------------------------------------
Name:
Title:
SUBSIDIARY GUARANTORS
[ ]
-----------------------------
By
-------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By
-------------------------------------
Name:
Title:
E-4
<PAGE> 1
EXHIBIT 4.12
NUEVO ENERGY COMPANY
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
REGISTRATION AGREEMENT
New York, New York
August 20, 1999
Banc of America Securities LLC
Bank of America Corporate Center
100 North Tryon Street, 6th Floor
Charlotte, North Carolina 28255
Salomon Smith Barney Inc.
Seven World Trade Center
New York, New York 10048
Dear Sirs:
Nuevo Energy Company, a Delaware corporation (the "Company"), proposes
to issue upon the terms set forth in its Confidential Memorandum dated July 13,
1999, up to $260 million principal amount of its 9 1/2% Senior Subordinated
Notes due 2008 (the "Securities"), in exchange for all of the Company's
outstanding 8 7/8% Senior Subordinated Notes due 2008 and its 9 1/2% Senior
Subordinated Notes due 2006. The Company has retained you to act as its
exclusive dealer managers and solicitation agents with respect to such exchange
offers and the related consent solicitations, pursuant to the Dealer Manager
Agreement (herein so called), dated July 13, 1999, among you and the Company. As
an inducement to you to enter into the Dealer Manager Agreement, the Company
agrees with you, for the benefit of the holders from time to time of the
Securities and the New Securities (as defined in Section 1 hereof), as follows:
1. Definitions. Capitalized terms used herein without definition shall
have their respective meanings set forth in the Dealer Manager Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
<PAGE> 2
"Affiliate" of any specified person means any other person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control of
a person means the power, direct or indirect, to direct or cause the direction
of the management and policies of such person whether by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement" means this Registration Agreement as the same may be
amended from time to time in accordance with the terms hereof.
"Closing Date" has the same meaning as is attributed to the term
"Exchange Date" in the Dealer Manager Agreement.
"Commission" means the Securities and Exchange Commission.
"Dealer Manager Agreement" has the meaning set forth in the preamble
hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Exchange Offer Registration Period" means the 90 day period following
the consummation of the Registered Exchange Offer, exclusive of any period
during which any stop order shall be in effect suspending the effectiveness of
the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration statement
of the Company on an appropriate form under the Act with respect to the
Registered Exchange Offer, all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Exchanging Dealer" means any Holder (which may include the Dealer
Managers) which is a broker-dealer, electing to exchange Securities acquired for
its own account as a result of market-making activities or other trading
activities, for New Securities.
"Holder" means a holder of either the Securities or the New Securities.
"Indenture" means the Indenture relating to the Securities and the New
Securities dated as of even date herewith, between the Company and State Street
Bank and Trust Company, as trustee, as the same may be amended from time to time
in accordance with the terms thereof.
"Majority Holders" means the Holders of a majority of the aggregate
principal amount of securities registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten offering.
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<PAGE> 3
"New Securities" means debt securities of the Company identical in all
material respects to the Securities (except that interest rate step-up
provisions and the transfer restrictions will be modified or eliminated, as
appropriate), to be issued under the Indenture.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Securities or the New Securities, covered by such
Registration Statement, and all amendments and supplements to the Prospectus,
including post-effective amendments.
"Registered Exchange Offer" means the proposed offer to the Holders to
issue and deliver to such Holders, in exchange for the Securities, a like
principal amount of the New Securities.
"Registration Statement" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Securities or
the New Securities pursuant to the provisions of this Agreement, amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"Securities" has the meaning set forth in the preamble hereto.
"Shelf Registration" means a registration effected pursuant to Section
3 hereof.
"Shelf Registration Period" has the meaning set forth in Section 3(b)
hereof.
"Shelf Registration Statement" means a "shelf" registration statement
of the Company pursuant to the provisions of Section 3 hereof which covers some
or all of the Securities or New Securities, as applicable, on an appropriate
form under Rule 415 under the Act, or any similar rule that may be adopted by
the Commission, amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Transfer Restricted Securities" means each Security until (i) the date
on which such Security has been exchanged for a freely transferable New Security
in the Exchange Offer, (ii) the date on which such Security has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iii) the date on which such Security is distributed
to the public pursuant to Rule 144 under the Securities Act or is saleable
pursuant to Rule 144(k) under the Securities Act.
"Trustee" means the trustee with respect to the Securities and the New
Securities under the Indenture.
"underwriter" means any underwriter of Securities in connection with an
offering thereof under a Shelf Registration Statement.
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<PAGE> 4
2. Registered Exchange Offer; Resales of New Securities by Exchanging
Dealers; Private Exchange.
(a) The Company shall prepare and, not later than 90 days
following the Closing Date, shall file with the Commission the Exchange
Offer Registration Statement with respect to the Registered Exchange
Offer. The Company shall use its reasonable best efforts to cause the
Exchange Offer Registration Statement to become effective under the Act
as promptly as practicable after the filing thereof, but in any event
on or prior to 150 days after the Closing Date.
(b) Unless the Registered Exchange Offer would not be
permitted by a policy of the Commission, the Company will commence the
Registered Exchange Offer and will use its reasonable best efforts to
consummate the Registered Exchange Offer as promptly as practicable,
but in any event on or prior to 180 days after the Closing Date.
(c) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange
Offer, it being the objective of such Registered Exchange Offer to
enable each Holder electing to exchange Securities for New Securities
(assuming that such Holder is not an affiliate of the Company within
the meaning of the Act, acquires the New Securities in the ordinary
course of such Holder's business and has no arrangements with any
person to participate in the distribution of the New Securities) to
trade such New Securities from and after their receipt without any
limitations or restrictions under the Act.
(d) In connection with the Registered Exchange Offer, the
Company shall:
(i) mail to each Holder a copy of the Prospectus
forming part of the Exchange Offer Registration Statement,
together with an appropriate letter of transmittal and related
documents;
(ii) keep the Registered Exchange Offer open for not
less than 30 days (or longer if required by applicable law)
after the date notice thereof is mailed to the Holders;
(iii) utilize the services of a depositary for the
Registered Exchange Offer with an address in the Borough of
Manhattan, The City of New York; and
(iv) comply in all respects with all applicable laws.
(e) As soon as practicable after the close of the Registered
Exchange Offer, the Company shall:
(i) accept for exchange all Securities tendered and
not validly withdrawn pursuant to the Registered Exchange
Offer;
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<PAGE> 5
(ii) deliver to the Trustee for cancellation all
Securities so accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and
deliver to each Holder of Securities New Securities equal in
principal amount to the Securities of such Holder so accepted
for exchange.
(f) The Dealer Managers and the Company acknowledge that,
pursuant to interpretations by the Commission's staff of Section 5 of
the Act, and in the absence of an applicable exemption therefrom, each
Exchanging Dealer is required to deliver a Prospectus in connection
with a sale of any New Securities received by such Exchanging Dealer
pursuant to the Registered Exchanger Offer in exchange for Securities
acquired for its own account as a result of market-making activities or
other trading activities. Accordingly, the Company shall:
(i) include the substance of the information set
forth in Annex A hereto on the cover of the Exchange Offer
Registration Statement, in Annex B hereto in the forepart of
the Exchange Offer Registration Statement in a section setting
forth details of the Exchange Offer, and in Annex C hereto in
the underwriting or plan of distribution section of the
Prospectus forming a part of the Exchange Offer Registration
Statement, and include the information set forth in Annex D
hereto in the Letter of Transmittal delivered pursuant to the
Registered Exchange Offer; and
(ii) use its best efforts to keep the Exchange Offer
Registration Statement continuously effective under the Act
during the Exchange Offer Registration Period for delivery by
Exchanging Dealers in connection with sales of New Securities
received pursuant to the Registered Exchange Offer, as
contemplated by Section 4(h) below.
(g) In the event that any Initial Purchaser determines that it
is not eligible to participate in the Registered Exchange Offer with
respect to the exchange of Securities constituting any portion of an
unsold allotment, at the request of such Initial Purchaser, the Company
shall issue and deliver to such Initial Purchaser or the party
purchasing New Securities registered under a Shelf Registration
Statement as contemplated by Section 3 hereof from such Initial
Purchaser, in exchange for such Securities, a like principal amount of
New Securities. The Company shall seek to cause the CUSIP Service
Bureau to issue the same CUSIP number for such New Securities as for
New Securities issued pursuant to the Registered Exchange Offer.
3. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to effect
the Registered Exchange Offer as contemplated by Section 2 hereof, or (ii) for
any other reason the Exchange Offer Registration Statement is not declared
effective within 150 days after the Closing Date or the Registered Exchange
Offer is not consummated within 180 days after the Closing Date, or (iii) if
either Dealer Manager so requests with respect to Securities (or any New
Securities received pursuant to Section 2(f)) not eligible to be exchanged for
New
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<PAGE> 6
Securities in a Registered Exchange Offer or, in the case of a Dealer Manager
that participates in any Registered Exchange Offer, such Dealer Manager does not
receive freely tradeable New Securities, or (iv) if any Holder (other than a
Dealer Manager) is not eligible to participate in the Registered Exchange Offer
or such Holder does not receive freely tradeable New Securities in the
Registered Exchange Offer other than by reason of such Holder being an affiliate
of the Company (it being understood that, for purposes of this Section 3, (x)
the requirement that a Dealer Manager deliver a Prospectus containing the
information required by Items 507 and/or 508 of Regulation S-K under the Act in
connection with sales of New Securities acquired in exchange for such Securities
shall result in such New Securities being not "freely tradeable" but (y) the
requirement that an Exchanging Dealer deliver a Prospectus in connection with
sales of New Securities acquired in the Registered Exchange Offer in exchange
for Securities acquired as a result of market-making activities or other trading
activities shall not result in such New Securities being not "freely
tradeable"), or (v) any applicable law or interpretations do not permit any
Holder of Securities to participate in the Registered Exchange Offer, or (vi)
the Company so elects, the following provisions shall apply:
(a) The Company shall as promptly as practicable (but in no
event more than 30 days after so required or requested pursuant to this
Section 3) file with the Commission and thereafter shall use its
reasonable best efforts to cause to be declared effective under the Act
as promptly as practicable after the filing thereof, a Shelf
Registration Statement relating to Transfer Restricted Securities by
the Holders from time to time in accordance with the methods of
distribution elected by such Holders and set forth in such Shelf
Registration Statement; provided, that the Company may, if permitted by
current interpretations by the Commission's staff, file a
post-effective amendment to the Exchange Offer Registration Statement
containing the information required by Regulation S-K Items 507 and/or
508, as applicable, in satisfaction of its obligations under this
paragraph (a) and any such Exchange Offer Registration Statement, as so
amended, shall be referred to herein as, and governed by the provisions
herein applicable to, a Shelf Registration Statement.
(b) The Company shall use its reasonable best efforts to keep
the Shelf Registration Statement continuously effective in order to
permit the Prospectus forming part thereof to be usable by Holders for
a period of two years after the Closing Date or such shorter period
that will terminate when all the Transfer Restricted Securities covered
by the Shelf Registration Statement have been sold pursuant to the
Shelf Registration Statement (in any such case, such period being
called the "Shelf Registration Period"). The Company shall be deemed
not to have used its reasonable best efforts to keep the Shelf
Registration Statement effective during the requisite period if it
voluntarily takes any action that would result in Holders of Transfer
Restricted Securities covered thereby not being able to offer and sell
such Transfer Restricted Securities during that period, unless (i) such
action is required by applicable law, or (ii) such action is taken by
the Company in good faith and for valid business reasons (not including
avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company promptly
thereafter complies with the requirements of Section 4(k) hereof, if
applicable.
For so long as any Transfer Restricted Securities are outstanding, the Company
will continue to provide to holders of the Securities and to prospective
purchasers of the Securities the information required by Rule 144A(d)(4) under
the Securities Act.
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<PAGE> 7
4. Registration Procedures. In connection with any Shelf Registration
Statement and, to the extent applicable, any Exchange Offer Registration
Statement, the following provisions shall apply:
(a) The Company shall furnish to you, prior to the filing
thereof with the Commission, a copy of any Shelf Registration Statement
and any Exchange Offer Registration Statement, and each amendment
thereof and each amendment or supplement, if any, to the Prospectus
included therein and shall use its best efforts to reflect in each such
document, when so filed with the Commission, such comments as you
reasonably may propose.
(b) The Company shall ensure that (i) any Registration
Statement and any amendment thereto and any Prospectus forming part
thereof and any amendment or supplement thereto complies in all
material respects with the Act and the rules and regulations
thereunder, (ii) any Registration Statement and any amendment thereto
does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and
(iii) any Prospectus forming part of any Registration Statement, and
any amendment or supplement to such Prospectus, does not include an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
(c) (1) The Company shall advise you and, in the case of a
Shelf Registration Statement, the Holders of securities covered
thereby, and, if requested by you or any such Holder, confirm such
advice in writing:
(i) when a Registration Statement and any
amendment thereto has been filed with the Commission
and when the Registration Statement or any
post-effective amendment thereto has become
effective; and
(ii) of any request by the Commission for
amendments or supplements to the Registration
Statement or the Prospectus included therein or for
additional information.
(2) The Company shall advise you and, in the case of
a Shelf Registration Statement, the Holders of securities
covered thereby, and, in the case of an Exchange Offer
Registration Statement, any Exchanging Dealer which has
provided in writing to the Company a telephone or facsimile
number and address for notices, and, if requested by you or
any such Holder or Exchanging Dealer, confirm such advice in
writing:
(i) of the issuance by the Commission of any
stop order suspending the effectiveness of the
Registration Statement or the initiation of any
proceedings for that purpose;
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<PAGE> 8
(ii) of the receipt by the Company of any
notification with respect to the suspension of the
qualification of the securities included therein for
sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(iii) of the happening of any event that
requires the making of any changes in the
Registration Statement or the Prospectus so that, as
of such date, the statements therein are not
misleading and do not omit to state a material fact
required to be stated therein or necessary to make
the statements therein (in the case of the
Prospectus, in light of the circumstances under which
they were made) not misleading (which advice shall be
accompanied by an instruction to suspend the use of
the Prospectus until the requisite changes have been
made).
(d) The Company shall use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of any
Registration Statement at the earliest possible time.
(e) The Company shall furnish to each Holder of securities
included within the coverage of any Shelf Registration Statement,
without charge, at least one copy of such Shelf Registration Statement
and any post-effective amendment thereto, including financial
statements and schedules, and, if the Holder so requests in writing,
all exhibits (including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period,
deliver to each Holder of securities included within the coverage of
any Shelf Registration Statement, without charge, as many copies of the
Prospectus (including each preliminary Prospectus) included in such
Shelf Registration Statement and any amendment or supplement thereto as
such Holder may reasonably request; and the Company consents to the use
of the Prospectus or any amendment or supplement thereto by each of the
selling Holders of securities in connection with the offering and sale
of the securities covered by the Prospectus or any amendment or
supplement thereto.
(g) The Company shall furnish to each Exchanging Dealer which
so requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, any documents
incorporated by reference therein, and, if the Exchanging Dealer so
requests in writing, all exhibits (including those incorporated by
reference).
(h) The Company shall, if required under applicable securities
laws, during the Exchange Offer Registration Period, promptly deliver
to each Exchanging Dealer, without charge, as many copies of the
Prospectus included in such Exchange Offer Registration Statement and
any amendment or supplement thereto as such Exchanging Dealer may
reasonably request in writing for delivery by such Exchanging Dealer in
connection with a sale of New Securities received by it pursuant to the
Registered Exchange Offer; and the Company consents to the use of the
Prospectus or any amendment or supplement thereto by any such
Exchanging Dealer, as aforesaid.
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<PAGE> 9
(i) Prior to the Registered Exchange Offer or any other
offering of securities pursuant to any Registration Statement, the
Company shall register or qualify or cooperate with the Holders of
securities included therein and their respective counsel in connection
with the registration or qualification of such securities for offer and
sale under the securities or blue sky laws of such jurisdictions as any
such Holders reasonably request in writing and do any and all other
acts or things necessary or advisable to enable the offer and sale in
such jurisdictions of the securities covered by such Registration
Statement; provided, however, that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action which would subject it to
general service of process or to taxation in any such jurisdiction
where it is not then so subject.
(j) The Company shall cooperate with the Holders of Securities
to facilitate the timely preparation and delivery of certificates
representing Securities to be sold pursuant to any Registration
Statement free of any restrictive legends and in such denominations and
registered in such names as Holders may request prior to sales of
securities pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company shall promptly prepare a post-effective
amendment to any Registration Statement or an amendment or supplement
to the related Prospectus or file any other required document so that,
as thereafter delivered to purchasers of the securities included
therein, the Prospectus will not include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Securities or New Securities, as the case may be, registered under such
Registration Statement, and provide the Trustee with certificates for
such Securities or New Securities, in a form eligible for deposit with
The Depository Trust Company.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make
generally available to its security holders as soon as practicable
after the effective date of the applicable Registration Statement an
earnings statement satisfying the provisions of Section 11(a) of the
Act.
(n) The Company shall cause the Indenture to be qualified
under the Trust Indenture Act of 1939, as amended, in a timely manner.
(o) The Company may require each Holder of securities to be
sold pursuant to any Shelf Registration Statement to furnish to the
Company such information regarding the Holder and the distribution of
such securities as the Company may from time to time reasonably require
for inclusion in such Registration Statement.
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf
Registration Statement, such information
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<PAGE> 10
as the Managing Underwriters and Majority Holders reasonably agree
should be included therein and shall make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified
of the matters to be incorporated in such Prospectus supplement or
post-effective amendment.
(q) In the case of any Shelf Registration Statement, the
Company shall enter into such agreements (including underwriting
agreements) and take all other appropriate actions in order to expedite
or facilitate the registration or the disposition of the securities
registered thereunder, and in connection therewith, if an underwriting
agreement is entered into, cause the same to contain indemnification
provisions and procedures no less favorable than those set forth in
Section 7 (or such other provisions and procedures acceptable to the
Majority Holders and the Managing Underwriters, if any), with respect
to all parties to be indemnified pursuant to Section 7 from Holders of
Securities to the Company.
(r) In the case of any Shelf Registration Statement, the
Company shall (i) make reasonably available for inspection by the
Holders of securities to be registered thereunder, any underwriter
participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by the
Holders or any such underwriter all relevant financial and other
records, pertinent corporate documents and properties of the Company
and its subsidiaries; (ii) cause the Company's officers, directors and
employees to supply all relevant information reasonably requested by
the Holders or any such underwriter, attorney, accountant or agent in
connection with any such Registration Statement as is customary for
similar due diligence examinations; provided, however, that any
information that is designated in writing by the Company, in good
faith, as confidential at the time of delivery of such information
shall be kept confidential by the Holders or any such underwriter,
attorney, accountant or agent, unless such disclosure is made in
connection with a court proceeding or required by law, or such
information becomes available to the public generally or through a
third party without an accompanying obligation of confidentiality;
(iii) make such representations and warranties to the Holders of
securities registered thereunder and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters
in primary underwritten offerings and covering matters including, but
not limited to, those set forth in the Dealer Manager Agreement; (iv)
obtain opinions of counsel to the Company and updates thereof (which
counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the Managing Underwriters, if any) addressed to each
selling Holder and the underwriters, if any, covering such matters as
are customarily covered in opinions requested in underwritten offerings
and such other matters as may be reasonably requested by such Holders
and underwriters; (v) obtain "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and,
if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company
for which financial statements and financial data are, or are required
to be, included in the Registration Statement), addressed to each
selling Holder of securities registered thereunder and the
underwriters, if any, in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
primary underwritten offerings; and (vi) deliver such documents and
certificates as may be reasonably requested by the Majority Holders and
the Managing Underwriters, if any, including those to evidence
compliance with Section 4(k)
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<PAGE> 11
and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company. The foregoing
actions set forth in clauses (iii), (iv), (v) and (vi) of this Section
4(r) shall be performed at (A) the effectiveness of such Registration
Statement and each post-effective amendment thereto and (B) each
closing under any underwriting or similar agreement as and to the
extent required thereunder.
5. Special Interest. The parties hereto agree that the Holders of the
Securities will suffer damages, and that it would not be feasible to ascertain
the extent of such damages with precision, if (i) a Registration Statement is
not filed with the Commission on or prior to 90 days after the Closing Date,
(ii) the Exchange Offer Registration Statement or a Shelf Registration
Statement, if applicable, is not declared effective on or prior to 150 days
after the Closing Date, (iii) the Registered Exchange Offer is not consummated
on or prior to 180 days after the Closing Date or (iv) a Registration Statement
is filed and declared effective on or prior to 150 days after the Closing Date
but shall thereafter cease to be effective or usable (at any time that the
Company is obligated to maintain the effectiveness thereof) in connection with
resales of Securities or New Securities without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective on or prior to the date specified for such
effectiveness in this Agreement (each such event referred to in clauses (i)
through (iv), a "Registration Default"), Special Interest will accrue on the
Securities and the New Securities (in addition to the stated interest on the
Securities and the New Securities) from and including the date on which the
first such Registration Default shall occur to but excluding the date on which
all Registration Defaults have been cured. Special Interest will accrue at a
rate of 0.5% per annum during the 90-day period immediately following the
occurrence of the first such Registration Default and shall increase by 0.25%
per annum at the end of each subsequent 90-day period, but in no event shall
such rate exceed 1.00% per annum. All accrued Special Interest shall be paid to
Holders in the same manner as interest payments on the Securities on semi-annual
payment dates which correspond to interest payment dates for the Securities.
Following the cure of all Registration Defaults, the accrual of Special Interest
will cease.
The parties hereto agree that the Special Interest provided for in this
Section 5 constitutes a reasonable estimate of the damages that may be incurred
by Holders of Securities by reason of the occurrence of a Registration Default.
6. Registration Expenses. The Company shall bear all expenses incurred
in connection with the performance of its obligations under Sections 2, 3 and 4
hereof and, in the event of any Shelf Registration Statement, will reimburse the
Holders for the reasonable fees and disbursements of one firm or counsel
designated by the Majority Holders to act as counsel for the Holders in
connection therewith, and, in the case of any Exchange Offer Registration
Statement, will reimburse the Initial Purchasers for the reasonable fees and
disbursements of counsel acting in connection therewith.
7. Indemnification and Contribution. (a) In connection with any
Registration Statement, the Company agrees to indemnify and hold harmless each
Holder of securities covered thereby (including each Dealer Manager and, with
respect to any Prospectus delivery as contemplated in Section 4(h) hereof, each
Exchanging Dealer), the directors, officers, employees and agents of each such
Holder and each person who controls any such Holder within the meaning of
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<PAGE> 12
either the Act or the Exchange Act against any and all losses, claims, damages
or liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement as originally filed or in any amendment
thereof, or in any preliminary Prospectus or Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any such Holder specifically for inclusion
therein. This indemnity agreement will be in addition to any liability which the
Company may otherwise have.
The Company also agrees to indemnify or contribute to Losses (as
defined below) of, as provided in Section 7(d), any underwriters of securities
registered under a Shelf Registration Statement, their officers and directors
and each person who controls such underwriters on substantially the same basis
as that of the indemnification of the selling Holders provided in this Section
7(a) and shall, if requested by any Holder, enter into an underwriting agreement
reflecting such agreement, as provided in Section 4(q) hereof.
(b) Each Holder of securities covered by a Registration Statement
(including each Dealer Manager and, with respect to any Prospectus delivery as
contemplated in Section 4(h) hereof, each Exchanging Dealer) severally agrees to
indemnify and hold harmless (i) the Company, (ii) each of its directors, (iii)
each of its officers who signs such Registration Statement and (iv) each person
who controls the Company within the meaning of either the Act or the Exchange
Act to the same extent as the foregoing indemnity from the Company to each such
Holder, but only with reference to written information relating to such Holder
furnished to the Company by or on behalf of such Holder specifically for
inclusion in the documents referred to in the foregoing indemnity. This
indemnity agreement will be in addition to any liability which any such Holder
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 7
or notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 7, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except
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<PAGE> 13
as set forth below); provided, however, that such counsel shall be satisfactory
to the indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the indemnified
party shall have the right to employ separate counsel (including local counsel),
and the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel (and local counsel) if (i) the use of counsel chosen by
the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential defendants in,
or targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 7 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall have a joint and several obligation
to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Registration Statement which
resulted in such Losses; provided, however, that in no case shall any
underwriter be responsible for any amount in excess of the underwriting discount
or commission applicable to the securities purchased by such underwriter under
the Registration Statement which resulted in such Losses. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the sum of (x) the aggregate principal amount of Securities issued in the
Exchange Offer and (y) the total amount of additional interest which the Company
was not required to pay as a result of registering the securities covered by the
Registration Statement which resulted in such Losses. Benefits received by the
Dealer Managers shall be deemed to be equal to their respective fees received
from the Company pursuant to Section 3 of the Dealer Manager Agreement, and
benefits received by any other Holders shall be deemed to be equal to the value
of receiving Securities or New Securities, as applicable, registered under the
Act. Benefits received by any underwriter shall be deemed to be equal to the
total underwriting discounts and commissions, as set forth on the cover page of
the Prospectus forming a part of the Registration
-13-
<PAGE> 14
Statement which resulted in such Losses. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the indemnifying party, on the one hand, or by the
indemnified party, on the other hand. The parties agree that it would not be
just and equitable if contribution were determined by the pro rata allocation or
any other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 7, each person who controls a Holder within the meaning of either
the Act or the Exchange Act and each director, officer, employee and agent of
such Holder shall have the same rights to contribution as such Holder, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (d).
(e) The provisions of this Section 7 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder or
the Company or any of the officers, directors or controlling persons referred to
in this Section 7, and will survive the sale by a Holder of securities covered
by a Registration Statement.
8. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not, as of the
date hereof, entered into, nor shall it, on or after the date hereof,
enter into, any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders herein or otherwise
conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended,
qualified, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of the Holders of at least a
majority of the then outstanding aggregate principal amount of
Securities (or, after the consummation of any Exchange Offer in
accordance with Section 2 hereof, of New Securities); provided that,
with respect to any matter that directly or indirectly affects the
rights of either Dealer Manager hereunder, the Company shall obtain the
written consent of such Dealer Manager against which such amendment,
qualification, supplement, waiver or consent is to be effective.
Notwithstanding the foregoing (except the foregoing proviso), a waiver
or consent to departure from the provisions hereof with respect to a
matter that relates exclusively to the rights of Holders whose
securities are being sold pursuant to a Registration Statement and that
does not directly or indirectly affect the rights of other Holders may
be given by the Majority Holders, determined on the basis of securities
being sold rather than registered under such Registration Statement.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery,
first-class mail, telecopier, or air courier guaranteeing overnight
delivery:
-14-
<PAGE> 15
(1) if to a Holder, at the most current address given
by such Holder to the Company in accordance with the
provisions of this Section 8(c), which address initially is,
with respect to each Holder, the address of such Holder
maintained by the registrar under the Indenture;
(2) if to you, initially at the respective addresses
set forth in the Dealer Manager Agreement; and
(3) if to the Company, initially at its address set
forth in the Purchase Agreement.
All such notices and communications shall be deemed to have
been duly given when received.
The Dealer Managers or the Company by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of
the parties, including, without the need for an express assignment or
any consent by the Company thereto, subsequent Holders of Securities
and/or New Securities. The Company hereby agrees to extend the benefits
of this Agreement to any Holder of Securities and/or New Securities and
any such Holder may specifically enforce the provisions of this
Agreement as if an original party hereto.
(e) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and
all of which taken together shall constitute one and the same
agreement.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed in said State.
(h) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions hereof
shall not be in any way impaired or affected thereby, it being intended
that all of the rights and privileges of the parties shall be
enforceable to the fullest extent permitted by law.
(i) Securities Held by the Company, etc. Whenever the consent
or approval of Holders of a specified percentage of principal amount of
Securities or New Securities is required hereunder, Securities or New
Securities, as applicable, held by the Company or its
-15-
<PAGE> 16
Affiliates (other than subsequent Holders of Securities or New
Securities if such subsequent Holders are deemed to be Affiliates
solely by reason of their holdings of such Securities or New
Securities) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
-16-
<PAGE> 17
Please confirm that the foregoing correctly sets forth the
agreement between the Company and you.
Very truly yours,
NUEVO ENERGY COMPANY
By: /s/ ROBERT M. KING
--------------------------------
Name: Robert M. King
Title: Senior Vice President and
Chief Financial Officer
Accepted in New York, New York
August 20, 1999
- --------------
BANC OF AMERICA SECURITIES LLC
By: /s/ Andrew C. Karp
------------------------------
Name: Andrew C. Karp
Title: Managing Director
SALOMON SMITH BARNEY INC.
By: /s/ Michael Zicari
------------------------------
Name: Michael Zicari
Title: Vice President
<PAGE> 18
Annex A
Each broker-dealer that receives New Securities for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Act. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of New
Securities received in exchange for Securities where such New Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, if required under applicable
securities laws and upon prior written request, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale for a
period of 90 days after the consummation of the Exchange Offer. See "Plan of
Distribution."
<PAGE> 19
Annex B
Each broker-dealer that receives New Securities for its own account in exchange
for Securities, where such Securities were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Securities. See "Plan of Distribution."
<PAGE> 20
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after the consummation of the Exchange Offer, it
will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale, if required under
applicable securities laws and upon prior written request. In addition, until
______________, all dealers effecting transactions in the New Securities may be
required to deliver a prospectus.*
The Company will not receive any proceeds from any sale of New
Securities by broker-dealers. New Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Securities. Any broker-dealer that resells New Securities that were received by
it for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of New Securities may be deemed to be an
"underwriter" within the meaning of the Act and any profit of any such resale of
New Securities and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Act.
For a period of 90 days after the consummation of the Exchange Offer,
the Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one counsel
for the holders of the Securities) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Securities (including
any broker-dealers) against certain liabilities, including liabilities under the
Act.
[If applicable, add information required by Regulation S-K Items 507
and/or 508.]
- --------------------------
* In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer Prospectus.
<PAGE> 21
ANNEX D
Rider A
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
-------------------------------------------
Address:
--------------------------------------
--------------------------------------
Rider B
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New
Securities. If the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for Securities that were acquired by
it as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Act.
<PAGE> 1
EXHIBIT 5.1
[HAYNES AND BOONE, LLP LETTERHEAD]
November 2, 1999
Nuevo Energy Company
1021 Main, Suite 2100
Houston, Texas 77002
Re: Registration Statement on Form S-4; Offer to Exchange $257,310,000
Aggregate Principal Amount of 9 1/2% Senior Subordinated Notes due
2008, Series B for an Equal Principal Amount of 9 1/2% Senior
Subordinated Notes due 2008, Series A.
Ladies and Gentlemen:
We have acted as counsel for Nuevo Energy Company, a Delaware
corporation (the "Company"), in connection with the proposed issuance by the
Company of $257,310,000 aggregate principal amount of 9 1/2% Senior Subordinated
Notes due 2008, Series B (the "Exchange Notes") in exchange for an equivalent
amount of the Company's outstanding 9 1/2% Senior Subordinated Notes due 2008,
Series A (the "Existing Notes"). The terms of the offer to exchange are
described in the Registration Statement on Form S-4 (the "Registration
Statement") filed with the Securities and Exchange Commission for the
registration of the Exchange Notes under the Securities Act of 1933, as amended
(the "Act"). The Existing Notes have been, and the Exchange Notes will be,
issued pursuant to an indenture dated as of August 20, 1999 (the "Indenture"),
between the Company and State Street Bank and Trust Company, as Trustee (the
"Trustee").
In connection with the foregoing, we have examined the Indenture, the
Registration Statement and such corporate records and instruments of the Company
as we have deemed necessary or appropriate for purposes of this opinion.
We are opining herein as to the effect on the proposed issuance of the
Exchange Notes of the federal laws of the United States, the laws of the State
of Texas, the General Corporation Law of the State of Delaware and the laws of
the State of New York.
<PAGE> 2
Nuevo Energy Company
October 1, 1999
Page 2
Specific Limitations and Qualifications on
Opinions Regarding Enforceability of the Exchange Notes
The enforceability of the Exchange Notes is subject to the effects of
(i) applicable bankruptcy, insolvency, reorganization, moratorium,
rearrangement, liquidation, conservatorship or similar laws and court decisions
of general application (including, without limitation, statutory or other laws
regarding fraudulent or preferential transfers) now or hereafter in effect
relating to or affecting the rights or remedies of creditors generally, and (ii)
general equity principles (regardless of whether enforcement is sought in a
proceeding in equity or law).
We express no opinion as to the enforceability of provisions of the
Exchange Notes to the extent that such provisions: (i) state that any party's
failure or delay in exercising rights, powers, privileges or remedies under the
Exchange Notes shall not operate as a waiver thereof; (ii) purport to preclude
the amendment, waiver, release or discharge of obligations except by an
instrument in writing; (iii) purport to indemnify any person for (A) such
person's violations of federal or state securities laws or environmental laws,
or (B) any obligation to the extent such obligation arises from or is a result
of such person's own negligence; (iv) purport to establish or satisfy certain
factual standards or conditions; (v) purport to sever unenforceable provisions
from the Exchange Notes, to the extent that the enforcement of remaining
provisions would frustrate the fundamental intent of the parties to such
instrument; (vi) restrict access to legal or equitable remedies; or (vii)
purport to waive any claim arising out of, or in any way related to, the
Exchange Notes.
We express no opinion as to: (i) whether a court would grant specific
performance or any other equitable remedy with respect to enforcement of any
provision contained in the Exchange Notes; or (ii) the enforceability of any
provision contained in the Indenture relating to the appointment of a receiver,
to the extent that appointment of a receiver is governed by applicable statutory
requirements, and to the extent that such provision may not be in compliance
with such requirements.
We express no opinion as to: (a) any provisions of the Exchange Notes
or the Indenture regarding the remedies available to any person (1) to take
action that is arbitrary, unreasonable or capricious or is not taken in good
faith or in a commercially reasonable manner, whether or not such action is
permitted by the Exchange Notes or the Indenture or (2) for violations or
breaches that are determined by a court to be non-material or without
substantially adverse effect upon the ability of the Company to perform its
material obligations under the Exchanges Notes or the Indenture; or (b) the
provisions of the Exchange Notes or the Indenture that may provide for interest
on interest or penalty interest.
<PAGE> 3
Nuevo Energy Company
October 1, 1999
Page 3
Based upon the foregoing and subject to the qualifications stated
herein, it is our opinion that, when (i) the Registration Statement has been
declared effective under the Act, (ii) the Existing Notes have been validly
exchanged by the Company, and (iii) the Exchange Notes have been executed and
delivered by the Company and authenticated by the Trustee, all in accordance
with the terms of the Indenture and the Registration Statement, the Exchange
Notes will constitute binding obligations of the Company.
To the extent that the obligations of the Company under the Indenture
may be dependent upon such matters, we assume for purposes of this opinion that
the Trustee is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization; that the Trustee is duly qualified to
engage in the activities contemplated by the Indenture; that the Indenture has
been duly authorized, executed and delivered by the Trustee and constitutes the
legally valid and binding obligation of the Trustee, enforceable against the
Trustee in accordance with its terms; that the Trustee is in compliance,
generally and with respect to acting as a trustee under the Indenture, with all
applicable laws and regulations; and that the Trustee has the requisite
organizational and legal power and authority to perform its obligations under
the Indenture.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained therein under
the heading "Legal Matters."
Very truly yours,
/s/ Haynes and Boone, L.L.P.
Haynes and Boone, L.L.P.
<PAGE> 1
EXHIBIT 12.1
CALCULATIONS OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS (7,239) 6,730 57,952 (17,340) (126,897) (24,074) 26,305
Pret-tax income (loss) 12,560 15,389 36,009 27,357 32,471 14,444 16,400
Interest expense -- -- 165 6,613 6,613 3,306 3,306
-------- -------- -------- -------- -------- ------- ------
Adjusted earnings (loss) 5,321 22,119 94,126 16,630 (87,813) (6,324) 46,011
-------- -------- -------- -------- -------- ------- ------
FIXED CHARGES
Interest expense 12,560 15,389 36,009 27,357 32,471 14,444 16,400
Capitalized interest 0 0 0 2,143 578 487 125
TECONS dividends 0 0 165 6,613 6,613 3,306 3,306
-------- -------- -------- -------- -------- ------- ------
Fixed Charges 12,560 15,389 36,174 36,113 39,662 18,237 19,831
-------- -------- -------- -------- -------- ------- ------
RATIOS
Deficit of loss to fixed charges (7,239) 0 0 (19,483) (127,475) (24,561) 0
======== ======== ======== ======== ======== ======= ======
Ratio of earnings to fixed charges(1) 0.00 1.44 2.60 0.00 0.00 0.00 2.32
</TABLE>
(1) Earnings were not sufficient to cover fixed charges for 1994, 1997 and
1998 by $7.2 million, $19.5 million and $127.5 million, respectively,
and for the six months ended June 30, 1998 by $24.6 million.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Nuevo Energy Company:
We consent to the use of our reports included herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
Our report dated March 25, 1999, contains an explanatory paragraph that states
that the Company has given retroactive effort to the change in accounting for
oil and gas properties from the full cost method to the successful efforts
method in 1998.
November 2, 1999
/s/ KPMG LLP
<PAGE> 1
EXHIBIT 23.3
[RYDER SCOTT COMPANY LETTERHEAD]
CONSENT OF INDEPENDENT PETROLEUM CONSULTANTS
As independent petroleum consultants, Ryder Scott Company, L.P. consents to
the references to our reports entitled "Nuevo Energy Company, Estimated Future
Reserves and Income Attributable to Certain Leasehold, Royalty, and Gas Plant
Interests", prepared as of December 31, 1996, as of December 31, 1997, and as of
December 31, 1998, and to the reference to Ryder Scott Company, L.P. as experts
in the field of petroleum engineering, which were incorporated in your Form S-4
Registration Statement.
/s/ RYDER SCOTT COMPANY, L.P.
RYDER SCOTT COMPANY, L.P.
Houston, Texas
November 2, 1999
<PAGE> 1
EXHIBIT 23.4
[POCO OIL CO. LETTERHEAD]
November 3, 1999
CONSENT OF INDEPENDENT PETROLEUM AND GEOLOGICAL ENGINEERS
The undersigned hereby consents to the incorporation by reference in the
Prospectus constituting part of this Registration Statement on Form S-4 of our
reserve reports relating to the oil and gas reserves of Nuevo Energy Company at
December 31, 1998. We also consent to the references to us under the heading
"Experts" and elsewhere in such Prospectus and the documents incorporated by
reference therein.
POCO OIL CO.
/s/ ARTHUR BEAR
---------------------------
Arthur Bear
President
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
NUEVO ENERGY COMPANY,
ANY SUBSIDIARY GUARANTORS
(Exact name of obligor as specified in its charter)
DELAWARE 76-0304436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1021 MAIN STREET, SUITE 2100, HOUSTON, TEXAS 77002
(713) 652-0706
(Address of principal executive offices) (Zip Code)
SERIES A AND SERIES B 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the SEPTEMBER 30, 1999.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ruth Smith
------------------------------
RUTH SMITH
VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by NUEVO
ENERGY COMPANY AND ANY SUBSIDIARY GUARANTORS of its SERIES A AND SERIES B 9 1/2%
SENIOR SUBORDINATED NOTES DUE 2008, we hereby consent that reports of
examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ruth Smith
------------------------------
RUTH SMITH
VICE PRESIDENT
DATED: SEPTEMBER 30, 1999
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business March 31, 1999,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ........................................ 1,249,670
Interest-bearing balances ................................................................. 13,236,699
Securities ......................................................................................... 10,970,415
Federal funds sold and securities purchased under agreements
to resell in domestic offices of the bank and its Edge
subsidiary ................................................................................ 9,561,556
Loans and lease financing receivables:
Loans and leases, net of unearned income .................................................. 7,053,580
Allowance for loan and lease losses ....................................................... 85,416
Allocated transfer risk reserve ........................................................... 0
Loans and leases, net of unearned income and allowances ................................... 6,968,164
Assets held in trading accounts .................................................................... 1, 553,354
Premises and fixed assets .......................................................................... 536,535
Other real estate owned ............................................................................ 0
Investments in unconsolidated subsidiaries ......................................................... 606
Customers' liability to this bank on acceptances outstanding ....................................... 71,273
Intangible assets .................................................................................. 207,323
Other assets ....................................................................................... 1,371,043
-----------
Total assets ....................................................................................... 45,726,638
===========
LIABILITIES
Deposits:
In domestic offices ....................................................................... 10,101,297
Noninterest-bearing .............................................................. 6,932,549
Interest-bearing ................................................................. 3,168,748
In foreign offices and Edge subsidiary .................................................... 18,061,721
Noninterest-bearing .............................................................. 54,654
Interest-bearing ................................................................. 18,007,067
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ....................................................... 12,063,069
Demand notes issued to the U.S. Treasury ........................................................... 149,322
Trading liabilities ............................................................... 1,140,080
Other borrowed money ............................................................................... 285,027
Subordinated notes and debentures .................................................................. 0
Bank's liability on acceptances executed and outstanding ........................................... 71,273
Other liabilities .................................................................................. 1,079,470
Total liabilities .................................................................................. 42,951,259
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus ...................................................... 0
Common stock ....................................................................................... 29,931
Surplus ............................................................................................ 480,330
Undivided profits and capital reserves/Net unrealized holding gains (losses) ....................... 2,258,177
Net unrealized holding gains (losses) on available-for-sale securities ............ 15,937
Cumulative foreign currency translation adjustments ................................................ (8,996)
Total equity capital ............................................................................... 2,775,379
-----------
Total liabilities and equity capital ............................................................... 45,726,638
-----------
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE> 1
EXHIBIT 99.1
NUEVO ENERGY COMPANY
LETTER TO CLIENTS
FOR
TENDER OF ALL OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
IN EXCHANGE FOR
9 1/2 % SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON _______________, 1999, UNLESS EXTENDED.
NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
To Our Clients:
We are enclosing herewith a prospectus, dated ______________, 1999, of
Nuevo Energy Company, a Delaware corporation and a related letter of
transmittal, which together constitute Nuevo's offer to exchange its 9 1/2%
Senior Subordinated Notes due 2008, Series B, which have been registered under
the Securities Act of 1933 for a like principal amount of its issued and
outstanding 9 1/2% Senior Subordinated Notes due 2008, Series A (the "Existing
Notes"), upon the terms and subject to the conditions set forth in the
prospectus and letter of transmittal.
The exchange offer is not conditioned upon any minimum number of
Existing Notes being tendered.
We are the holder of record of Existing Notes held by us for your
account. A tender of such Existing Notes can be made only by us as the record
holder and pursuant to your instructions. The letter of transmittal is furnished
to you for your information only and cannot be used by you to tender Existing
Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of
the Existing Notes held by us for your account pursuant to the terms and
conditions of the prospectus and letter of transmittal. We also request that you
confirm that we may on your behalf make the representations and warranties
contained in the letter of transmittal.
Very truly yours,
PLEASE RETURN YOUR INSTRUCTIONS TO US IN THE ENCLOSED ENVELOPE WITHIN
AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE
EXPIRATION DATE.
<PAGE> 2
NUEVO ENERGY COMPANY
LETTER TO REGISTERED HOLDERS AND
DEPOSITORY TRUST COMPANY PARTICIPANTS
FOR
TENDER OF ALL OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
IN EXCHANGE FOR
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
______________________, 1999, UNLESS EXTENDED.
EXISTING NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY
TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
To Registered Holders and Depository Trust Company Participants:
We are enclosing herewith the material listed below relating to our
offer to exchange our 9 1/2% Senior Subordinated Notes due 2008, Series B (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
for a like principal amount of our issued and outstanding 9 1/2% Senior
Subordinated Notes due 2008, Series A (the "Existing Notes") upon the terms and
subject to the conditions set forth in our prospectus, dated _______________,
1999, and the related letter of transmittal.
Enclosed herewith are copies of the following documents:
1. Prospectus dated _________________, 1999;
2. Letter of Transmittal (together with accompanying Substitute
Form W-9 Guidelines);
3. Notice of Guaranteed Delivery;
4. Letter which may be sent to your clients for whose account you
hold Existing Notes in your name or in the name of your
nominee; and
5. Letter which may be sent from your clients to you with such
client's instruction with regard to the exchange offer.
We urge you to contact your clients promptly. Please note that the
exchange offer will expire on the expiration date unless extended.
The exchange offer is not conditioned upon any minimum number of
Existing Notes being tendered.
Pursuant to the letter of transmittal, each holder of Existing Notes
will make certain representations, including but not limited to, representations
that (i) the Exchange Notes acquired in exchange for Existing Notes pursuant to
the exchange offer are being acquired in the ordinary course of business of the
person receiving such Exchange Notes, whether or not the holder, (ii) if the
holder is not a broker-dealer, the holder is not participating in and does not
intend to participate in a distribution of the Exchange Notes, (iii) the holder
does not have any arrangement or understanding with any person to participate in
the distribution of Exchange Notes, (iv) neither the holder nor any such other
person is our "affiliate" within the meaning of Rule 405 under the Securities
Act, and (v) if the holder is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Existing Notes that were acquired as a
result of market-making or other trading activities, it will deliver a
prospectus in connection with any resale of such Exchange Notes.
<PAGE> 3
The enclosed Letter to Clients contains an authorization by the
beneficial owners of the Existing Notes for you to make the foregoing
representations.
The Company will not pay any fee or commission to any broker or dealer
or to any other persons, other than the Exchange Agent, in connection with the
solicitation of tenders of Existing Notes pursuant to the exchange offer.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
NUEVO ENERGY COMPANY
2
<PAGE> 4
INSTRUCTION TO REGISTERED HOLDER AND/OR
DEPOSITORY TRUST COMPANY PARTICIPANT
To Registered Holder and/or Depository Trust Company Participant:
The undersigned hereby acknowledges receipt of the prospectus dated
__________________, 1999 of Nuevo Energy Company, a Delaware corporation and the
accompanying letter of transmittal, that together constitute Nuevo's offer to
exchange its 9 1/2% Senior Subordinated Notes due 2008, Series B, for all of its
outstanding 9 1/2% Senior Subordinated Notes due 2008, Series A (the "Existing
Notes"). Terms used but not defined herein have the meaning given to them in the
prospectus.
This will instruct you, the registered holder and/or Depository Trust
Company participant, as to the action to be taken by you relating to the
exchange offer with respect to the Existing Notes held by you for the account of
the undersigned.
The aggregate face amount of the Existing Notes held by you for the
account of the undersigned is (FILL IN AMOUNT):
$_____________ of the 9 1/2% Senior Subordinated Notes due
2008, Series A.
With respect to the Exchange Offer, the undersigned hereby instructs
you (CHECK APPROPRIATE BOX):
[ ] To TENDER the following Existing Notes held by you for the account of
the undersigned (INSERT PRINCIPAL AMOUNT OF EXISTING NOTES TO BE
TENDERED) (IF ANY);
$_____________ of the 9 1/2% Senior Subordinated Notes due
2008, Series A.
[ ] NOT to TENDER any Existing Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Existing Notes
held by you for the account of the undersigned, it is understood that
you are authorized to make, on behalf of the undersigned, and the
undersigned by its signature below, hereby makes to you, the
representations and warranties contained in the letter of transmittal
that are to be made with respect to the undersigned as a beneficial
owner, including but not limited to the representations, that (i) the
Exchange Notes acquired in exchange for Existing Notes pursuant to the
exchange offer are being acquired in the ordinary course of business of
the person receiving such Exchange Notes, whether or not the
undersigned, (ii) if the undersigned is not a broker-dealer, the
undersigned is not participating in and does not intend to participate
in a distribution of the Exchange Notes, (iii) the undersigned does not
have any arrangement or understanding with any person to participate in
the distribution of Exchange Notes, (iv) neither the undersigned nor
any such other person is an "affiliate," within the meaning of Rule 405
under the Securities Act, of Nuevo Energy Company, and (v) if the
undersigned is a broker-dealer that will receive Exchange Notes for its
own account in exchange for Existing Notes that were acquired as a
result of market-making or other trading activities, it will deliver a
prospectus in connection with any resale of such Exchange Notes.
SIGN HERE
Name of beneficial owner(s):
----------------------------------------------------
Signature(s)
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
Telephone number:
---------------------------------------------------------------
Taxpayer Identification or Social Security Number:
------------------------------
Date:
---------------------------------------------------------------------------
<PAGE> 5
LETTER OF TRANSMITTAL
NUEVO ENERGY COMPANY
OFFER TO EXCHANGE
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 PURSUANT TO
THE PROSPECTUS DATED _________________, 1999
FOR
ALL OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIEs A
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON __________, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE").
EXISTING NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT
ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME,ON THE EXPIRATION DATE.
DELIVER TO STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
<TABLE>
<CAPTION>
by registered or certified mail: by hand or overnight delivery:
<S> <C>
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Two Avenue de Lafayette
Post Office Box 778 Fifth Floor, Corporate Trust Division
Boston, Massachusetts 02110-0778 Boston, Massachusetts 02110-1724
Attention: MacKenzie Elijah Attention: MacKenzie Elijah
</TABLE>
Telephone: (617) 662-1525
Facsimile: (617) 662-1452
(originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand, or by overnight delivery service.)
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THE
INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
The undersigned acknowledges that he or she has received and reviewed
the Prospectus, dated _______________, 1999 (the "Prospectus"), of Nuevo Energy
Company, a Delaware corporation (the "Company"), and this Letter of Transmittal
(the "Letter" or "Letter of Transmittal"), which together constitute the
Company's offer (the "Exchange Offer") to exchange, from the registered holders
(the "holders") thereof an aggregate principal amount of up to $257,310,000 of
the Company's 9 1/2% Senior Subordinated Notes due 2008, Series B (the "Exchange
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for a like principal amount of the issued and outstanding
9 1/2% Senior
<PAGE> 6
Subordinated Notes due 2008, Series A (the "Existing Notes") of the Company.
Terms used but not defined herein have the meaning given to them in the
Prospectus.
For each Existing Note accepted for exchange, the holder of such
Existing Note will receive an Exchange Note having a principal amount equal to
that of the surrendered Existing Note. Accordingly, registered holders of
Exchange Notes on the relevant record date for the first interest payment date
following the consummation of the Exchange Offer will receive interest accruing
from the most recent date to which interest has been paid on the Existing Notes
or, if no interest has been paid, from August 20, 1999. Existing Notes accepted
for exchange will cease to accrue interest from and after the date of
consummation of the Exchange Offer. Holders whose Existing Notes are accepted
for exchange will not receive any payment in respect of accrued interest on such
Existing Notes otherwise payable on any interest payment date the record date
for which occurs on or after consummation of the Exchange Offer.
This Letter is to be completed by a holder of Existing Notes either if
certificates for such Existing Notes are to be forwarded herewith or if a tender
is to be made by book-entry transfer to the account maintained by State Street
Bank and Trust Company (the "Exchange Agent") at The Depository Trust Company
("DTC") pursuant to the procedures set forth in "The Exchange Offer--Procedures
for Tendering--Existing Notes Held in Book-Entry Form" section of the Prospectus
and an Agent's Message is not delivered. Tenders by book-entry transfer may also
be made by delivering an Agent's Message in lieu of this Letter. The term
"Agent's Message" means a message, transmitted by DTC, received by the Exchange
Agent and forming a part of a Book-Entry Confirmation (as defined below), which
states that DTC has received an express acknowledgment from the tendering
holder, which acknowledgment states that such holder has received and agrees to
be bound by the Letter of Transmittal and that the Company may enforce the
Letter of Transmittal against such holder. Holders of Existing Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates or confirmation of the book-entry tender of their Existing Notes
into the Exchange Agent's account at DTC (a "Book-Entry Confirmation") and all
other documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Existing Notes according to the guaranteed
delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 1. Delivery of documents
to DTC does not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed
this Letter to indicate the action the undersigned desires to take with respect
to the Exchange offer.
The undersigned, by completing the box entitled "Description of 9 1/2%
Senior Subordinated Notes due 2008, Series A" below and signing this Letter,
will be deemed to have tendered the Existing Notes as set forth in such box
below.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL AND
THE PROSPECTUS CAREFULLY BEFORE COMPLETING THE BOXES
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
2
<PAGE> 7
List below the Existing Notes to which this Letter relates. If the
space provided below is inadequate, the certificate numbers and principal amount
of Existing Notes should be listed on a separate signed schedule affixed hereto.
DESCRIPTION OF 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
<TABLE>
<CAPTION>
NAME AND ADDRESS OF REGISTERED AGGREGATE PRINCIPAL AMOUNT
HOLDERS (AS IT/THEY APPEAR(S) CERTIFICATE PRINCIPAL AMOUNT TENDERED (MUST BE
ON THE EXISTING NOTES) NUMBERS(*) REPRESENTED BY IN INTEGRAL MULTIPLES
(PLEASE FILL IN IF BLANK) CERTIFICATE(S) OF $1,000)**
<S> <C> <C> <C>
TOTAL
</TABLE>
* Need not be completed by book-entry holders.
** Unless indicated in the column labeled "Principal Amount Tendered," any
tendering holder of 9 1/2% Senior Subordinated Notes due 2008, Series A
will be deemed to have tendered the entire aggregate principal amount
represented by the column labeled "Aggregate Principal Amount Represented
by Certificates(s)." If the space provided above is inadequate, list the
certificate numbers and principal amounts an a separate signed schedule and
affix the list to this Letter of Transmittal. The minimum permitted tender
is $1,000 in principal amount of 9 1/2% Senior Subordinated Notes due 2008,
Series A and all tenders must be in integral multiples of $1,000 in
principal amount.
[ ] Check here if tendered Existing Notes are enclosed herewith.
[ ] Check here if tendered Existing Notes are being delivered by book-entry
transfer made to the account maintained by the Exchange Agent with DTC
and complete the following (for use by eligible institutions (as
hereinafter defined) only):
Name of Tendering Institution
--------------------------------------------------
Account Number
-----------------------------------------------------------------
Transaction Code Number
--------------------------------------------------------
[ ] Check here and enclose a photocopy of the Notice of Guaranteed Delivery
if tendered Existing Notes are being delivered pursuant to a Notice of
Guaranteed Delivery previously sent to the Exchange Agent and complete
the following (for use by eligible institutions only):
Name(s)of Registered Holder(s)
-------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-----------------------------
Window Ticket Number (if available)
--------------------------------------------
Name of Institution which Guaranteed Delivery
----------------------------------
Account Number (if delivered by book-entry transfer)
---------------------------
Transaction Code Number (if delivered by book-entry transfer)
-------------------
Tendering Institution (if delivered by book-entry transfer)
--------------------
3
<PAGE> 8
<TABLE>
<CAPTION>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3, 4 and 5) (See Instructions 3 and 4)
<S> <C>
To be completed ONLY (i) if certificates for Existing To be completed ONLY if certificates for Existing Notes
Notes not tendered, or Exchange Notes issued in not tendered, or Exchange Notes issued in exchange for
exchange for Existing Notes accepted for exchange, are Existing Notes accepted for exchange, are to be
to be issued in the name of someone other than the delivered to someone other than the undersigned, or to
undersigned, or (ii) if Existing Notes tendered by book- the undersigned at an address other than that shown
entry transfer which are not exchanged are to be above.
returned by credit to an account maintained at the DTC
other than the DTC Account Number set forth above. Mail to:
Issue certificate(s) to: Name
------------------------------------------------------
(Please Print)
Name Address
-------------------------------------------------- ---------------------------------------------------
(Please Print)
Address
------------------------------------------------ ----------------------------------------------------------
(Include Zip Code)
- -------------------------------------------------------
(Include Zip Code)
- ------------------------------------------------------- ----------------------------------------------------------
(Tax Identification or Social Security No.) (Tax Identification or Social Security No.)
Credit Existing Notes not exchanged and delivered by
book-entry transfer to the DTC account set forth below:
- -------------------------------------------------------
DTC Account Number
</TABLE>
4
<PAGE> 9
SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING
INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
1. Upon the terms and subject to the conditions of the Exchange Offer,
the undersigned hereby tenders to the Company the aggregate principal amount of
Existing Notes described above. Subject to, and effective upon, the acceptance
for exchange of the Existing Notes tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to such Existing Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange Agent
its agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Company) with respect to the tendered Existing Notes
with full power of substitution to (i) deliver certificates for such Existing
Notes, or transfer ownership of such Existing Notes on the account books
maintained by DTC, to the Company and deliver all accompanying evidences of
transfer and authenticity to, or upon the order of, the Company and (ii) present
such Existing Notes for transfer on the books of the Company and receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Existing Notes, all in accordance with the terms of the Exchange Offer. The
power of attorney granted in this paragraph shall be deemed irrevocable and
coupled with an interest.
2. The undersigned hereby represents, warrants and agrees that the
undersigned has full power and authority to tender, exchange, sell, assign and
transfer the Existing Notes tendered hereby and to acquire the Exchange Notes
issuable upon the exchange of such tendered Existing Notes and that the Company
will acquire good, marketable and unencumbered title thereto, free and clear of
all liens, restrictions, charges and encumbrances and not subject to any adverse
claims or proxies when the same are accepted by the Company.
3. The undersigned also acknowledges that the Exchange Offer is being
made in reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for the Existing Notes may be offered for resale, resold and otherwise
transferred by holders thereof, other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or a broker-dealer, without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holders' business and such holders are
not participating, and have no arrangement with any person to participate, in a
distribution of such Exchange Notes; however, the SEC has not considered the
Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the SEC would make a similar determination with
respect to the Exchange Offer as in other circumstances. If any holder is an
affiliate of the Company, is engaged in or intends to engage in, or has any
arrangement or understanding with any person to participate in, a distribution
of the Exchange Notes to be acquired pursuant to the Exchange Offer, such holder
(i) could not rely on the applicable interpretations of the staff of the SEC and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. If the undersigned
is not a broker-dealer, the undersigned represents that it is not engaged in,
and does not intend to engage in, a distribution of the Exchange Notes. If the
undersigned or person receiving the Exchange Notes is a broker-dealer that will
receive Exchange Notes for its own account, it represents that the Existing
Notes to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges and agrees
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Each such broker-dealer agrees that upon receipt of notice from
the Company of the occurrence of any event or the discovery of any fact which
makes any statement contained in the Prospectus untrue in any material respect
or which causes the Prospectus to omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading or the occurrence of certain other events
specified in the Registration Agreement, such broker-dealer will suspend the
sale of Exchange Notes pursuant to the Prospectus until the Company has amended
or supplemented the Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such broker-dealer
or the Company has given notice that the sale of the Exchange Notes may be
resumed, as the case may be. The undersigned acknowledges that if the
undersigned is participating in the Exchange offer for the
5
<PAGE> 10
purpose of distributing the Exchange Notes (i) the undersigned cannot rely on
the position of the staff of the SEC in the Morgan Stanley & Co., Inc. SEC
No-Action Letter (available June 5, 1991) and similar SEC no-action letters,
and, in the absence of an exemption therefrom, must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes, in which case the
registration statement must contain the selling security holder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Securities Act, and (ii) a broker-dealer that delivers such a prospectus to
purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Registration Agreement (including certain indemnification
rights and obligations).
4. Unless the box under the heading "Special Registration Instructions"
is checked, the undersigned hereby represents and warrants that:
(i) the Exchange Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the holder
whether or not the undersigned;
(ii) if the holder is not a broker-dealer, the holder is not
participating in and does not intend to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Notes;
(iii) the holder does not have an arrangement or understanding
with any person to participate in the distribution (within the meaning
of the Securities Act) of such Exchange Notes;
(iv) the holder is not an "affiliate," as such term is defined
under Rule 405 promulgated under the Securities Act, of the Company or,
if the undersigned is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable; and
(v) if the holder is a broker-dealer that will receive Exchanges
Notes for its own account in exchange for Existing Notes that were
acquired as a result of market-making or other activities, that it will
deliver a prospectus, as required by the Securities Act, in connection
with any resale of the Existing Notes.
5. The undersigned may, if, and only if, unable to make all of the
representations and warranties contained in clauses (i) through (iv) of Item 4,
above, elect to have its Existing Notes registered in the shelf registration
statement described in the registration agreement (the "Registration Agreement")
dated as of August 20, 1999, among the Company and Bank of America Securities
LLC and Salomon Smith Barney Inc. Such election may be made by checking the box
under "Special Registration Instructions" on page 7. By making such election,
the undersigned agrees, as a holder of Existing Notes or Exchange Notes
participating in a shelf registration, to indemnify and hold harmless the
Company, each of its directors, each of its officers who signs such shelf
registration statement and each person who controls the Company within the
meaning of either the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act") against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Securities Act, the Exchange Act or other Federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the shelf registration statement as originally filed or in any
amendment thereof, or any preliminary prospectus or prospectus, or in any
amendment thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; but only with
respect to information relating to the undersigned furnished in writing by or on
behalf of the undersigned expressly for use in the shelf registration statement,
the preliminary prospectus or prospectus or any amendments or supplements
thereto. Any such indemnification shall be governed by the terms and subject to
the conditions set forth in the Registration Agreement, including, without
limitation, the provisions regarding notice, retention of counsel, contribution
and payment of expenses set forth therein. The above summary of the
indemnification provision of the Registration Agreement is not intended to be
exhaustive and is qualified in its entirety by the Registration Agreement.
6
<PAGE> 11
6. The undersigned acknowledges that the Company's acceptance of
properly tendered Existing Notes pursuant to the procedures described under the
caption "The Exchange Offer--Procedures for Tendering" in the Prospectus and in
the instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer. The undersigned warrants and agrees to, upon request, execute
and deliver any additional documents deemed by the Company or the Exchange Agent
to be necessary or desirable to complete the exchange, sale, assignment and
transfer of the Existing Notes tendered hereby. All authority conferred or
agreed to be conferred in this Letter and every obligation of the undersigned
hereunder shall be binding upon the successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal of Tenders"
section of the Prospectus. Unless otherwise indicated herein in the box entitled
"Special Issuance Instructions" above, please issue the Exchange Notes (and, if
applicable, substitute certificates representing Existing Notes for any Existing
Notes not exchanged) in the name of the undersigned or, in the case of a
book-entry delivery of Existing Notes, please credit the account indicated above
maintained at the DTC. Similarly, unless otherwise indicated under the box
entitled "Special Delivery Instructions" above, please send the Exchange Notes
(and, if applicable, substitute certificates representing Existing Notes for any
Existing Notes not exchanged) to the undersigned at the address(es) shown above
in the box entitled "Description of 9 1/2% Senior Subordinated Notes due 2008,
Series A."
SPECIAL REGISTRATION INSTRUCTIONS
To be completed ONLY if (i) the undersigned satisfies the conditions
set forth in Item 5 above, (ii) the undersigned elects to register its Existing
Notes in the shelf registration statement described in the Registration
Agreement and (iii) the undersigned agrees to indemnify certain entities and
individuals as set forth in Item 5 above.
(See Item 5.)
[ ] By checking this box the undersigned hereby (i) represents that it is
unable to make all of the representations and warranties set forth in Item
4 above, (ii) elects to have its Existing Notes registered pursuant to the
shelf registration statement described in the Registration Agreement and
(iii) agrees to indemnify certain entities and individuals identified in,
and to the extent provided in, Item 5 above.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
------------------------------------------------
Address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
7
<PAGE> 12
PLEASE SIGN HERE
TO BE COMPLETED BY ALL TENDERING HOLDERS
(Complete accompanying Substitute W-9)
, 1999
- ---------------------------------------------- -----------------------
Signature(s) of Holder(s) Date
, 1999
- ---------------------------------------------- -----------------------
Signature(s) of Holder(s) Date
Area Code and Telephone Number:
This letter must be signed by the registered holder(s) as the name(s)
appear(s) on the certificate(s) for the Existing Notes hereby tendered or on a
security position listing, or by any person(s) authorized to become registered
holder(s) by endorsements and documents transmitted herewith. If signature is by
a trustee, executor, administrator, guardian, officer or other person acting in
a fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s):
------------------------------------------------------------------------
(Please Type or Print)
Capacity (Full Title):
----------------------------------------------------------
Address:
------------------------------------------------------------------------
(Including Zip Code)
SIGNATURE GUARANTEE (if required by Instruction 3)
Signature(s) Guaranteed by an Eligible Institution:
- --------------------------------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
(Address)
- --------------------------------------------------------------------------------
(Area Code and Telephone Number)
Date: , 1999
-------------------------------
8
<PAGE> 13
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND EXISTING NOTES, GUARANTEED DELIVERY
PROCEDURES. This Letter is to be completed by holders of Existing Notes either
if certificates for such Existing Notes are to be forwarded herewith or if
tenders are to be made pursuant to the procedures for delivery by book-entry
transfer set forth in "The Exchange Offer--Procedures for Tendering--Existing
Notes Held in Book-Entry Form" section of the Prospectus and an Agent's Message
is not delivered. Tenders by book-entry transfer may also be made by delivering
an Agent's Message in lieu of this Letter. The term "Agent's Message" means a
message, transmitted by DTC to and received by the Exchange Agent and forming a
part of a Book-Entry Confirmation, which states that DTC has received an express
acknowledgment from the tendering holder, which acknowledgment states that such
holder has received and agrees to be bound by the Letter of Transmittal and that
the Company may enforce the Letter of Transmittal against such holder.
Certificates for all physically tendered Existing Notes, or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter (or facsimile hereof or Agent's Message in lieu thereof) and any
other documents required by this Letter, must be received by the Exchange Agent
at the address set forth herein on or prior to the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Existing Notes tendered hereby must be in denominations of principal
amount of $1,000 and any integral multiple thereof.
Holders whose certificates for Existing Notes are not immediately
available or who cannot deliver their certificates or a Book-Entry Confirmation
and all other required documents to the Exchange Agent on or prior to the
Expiration Date, may tender their Existing Notes pursuant to the guaranteed
delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus. Pursuant to such procedures, (i) such
tender must be made through an Eligible Institution; (ii) on or prior to 5:00
p.m., New York City time, on the Expiration Date, the Exchange Agent must
receive from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form provided by the Company
(by telegram, telex, facsimile transmission, mail or hand delivery), setting
forth the name and address of the holder of Existing Notes, the certificates
number or numbers of the Existing Notes and the amount of Existing Notes
tendered stating that the tender is being made thereby and guaranteeing that
within five business days after the Expiration Date, the certificates for all
physically tendered Existing Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, together with a Properly completed and duly
executed Letter (or facsimile thereof or Agent's Message in lieu thereof) with
any required signature guarantees and any other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent;
and (iii) the certificates for all physically tendered Existing Notes, in proper
form for transfer, or Book-Entry Confirmation, as the case may be, together with
a properly completed and duly executed Letter (or facsimile thereof or Agent's
Message in lieu thereof) with any required signature guarantees and all other
documents required by this Letter, are deposited by the Eligible Institution
within five business days after the Expiration Date. Alternatively, tender may
be made through DTC's Automated Tender Offer Program if (i) prior to 5:00 p.m.
New York City time, on the Expiration Date, the Exchange Agent receives an
agent's message from DTC stating that DTC has received an express acknowledgment
from the participant in DTC tendering the Existing Notes that they have received
and agree to be bound by the Notice of Guaranteed Delivery, and (ii) the
certificates for all physically tendered Existing Notes, in proper form for
transfer, or Book-Entry Confirmation, as the case may be, together with a
properly completed and duly executed Letter (or facsimile thereof or Agent's
Message in lieu thereof) with any required signature guarantees and all other
documents required by this Letter, are deposited by an Eligible Institution or
through DTC's Automated Tender Offer Program within five business days after the
Expiration Date.
The method of delivery of this Letter, the Existing Notes and all other
required documents is at the option and sole risk of the tendering holders, and
the delivery will be deemed made only when actually received by the Exchange
Agent. If Existing Notes are sent by mail, it is suggested that the mailing be
registered mail, properly insured, with return receipt requested, or by an
overnight delivery service, and made sufficiently in advance of the Expiration
Date to permit delivery to the Exchange Agent prior to 5:00 p.m., Now York City
time, on the Expiration Date.
9
<PAGE> 14
Only a holder may tender its Existing Notes in the Exchange Offer. Any
beneficial owner whose Existing Notes are registered in the name of his broker,
dealer, commercial bank, trust company or other nominee or are held in
book-entry form and who wishes to tender should contact the registered holder
promptly and instruct the registered holder to execute and deliver this Letter
of Transmittal on his behalf. If the beneficial owner wishes to tender on his
own behalf, the beneficial owner must, prior to completing and executing this
Letter of Transmittal and delivering his Existing Notes, either make appropriate
arrangements to register ownership of the Existing Notes in the owner's name or
obtain a properly completed bond power from the registered holder. The transfer
of record ownership may take considerable time.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Existing Notes and withdrawal of tendered
Existing Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right, in its sole and absolute discretion, to reject any and all Existing Notes
not properly tendered or any Existing Notes the Company's acceptance of which,
or exchange for, would, in the opinion of counsel for the Company, be unlawful.
The Company also reserves the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offer or any irregularities or
conditions of tender as to particular Existing Notes whether or not similar
conditions or irregularities are waived in the case of other holders. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Existing Notes must be cured within such time as the
Company shall determine. Neither the Company, any affiliates or assigns of the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Existing
Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Existing Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Existing
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders of Existing Notes,
unless otherwise provided in this Letter of Transmittal, as soon as practicable
following the Expiration Date. See "The Exchange Offer" section of the
Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTE HOLDERS WHO TENDER BY
BOOK-ENTRY TRANSFER). If less than all of the Existing Notes evidenced by a
submitted certificate are to be tendered, the tendering holder(s) should fill in
the aggregate principal amount of Existing Notes to be tendered in the box above
entitled "Description of 9 1/2% Senior Subordinated Notes due 2008, Series
A--Principal Amount Tendered." A reissued certificate representing the balance
of nontendered Existing Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box of this Letter, promptly after the
Expiration Date. All of the Existing Notes delivered to the Exchange Agent will
be deemed to have been tendered unless otherwise indicated.
3. SIGNATURES ON THIS LETTER, BOND POWERS AND ENDORSEMENTS, GUARANTEE
OF SIGNATURES. If this Letter is signed by the holder of the Existing Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates or on a DTC security position listing without
any change whatsoever.
If any tendered Existing Notes are owned of record by two or more joint
owners, all of such owners must sign this Letter.
If any tendered Existing Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder or holders of the
Existing Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the Exchange
Notes are to be issued, or any untendered Existing Notes are to be reissued, to
a person other than the registered holder, then endorsements of any certificates
transmitted hereby or separate bond powers are required. Signatures on such
certificate(s) must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder
or holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly
10
<PAGE> 15
as the name or names of the registered holder or holders appear(s) on the
certificate(s) and signatures on such certificate(s) must be guaranteed by an
Eligible Institution.
If this Letter or any certificates or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Existing Notes or signatures on bond
powers required by this Instruction 3 must be guaranteed by a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchanges Medallion Program (each, an "Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Existing Notes are tendered: (i) by a registered
holder of Existing Notes (or by a participant in DTC whose name appears on a
security position listing as the owner) who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on this
Letter and Exchange Notes are being issued directly to such registered holder
(or deposited in the holder's account at DTC), or (ii) for the account of an
Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of
Existing Notes should indicate in the applicable box the name and address to
which Exchange Notes issued pursuant to the Exchange Offer and/or substitute
certificates evidencing Existing Notes not exchanged are to be issued or sent,
if different from the name or address of the person signing this Letter. In the
case of issuance in a different name, the employer identification or social
security number of the person named must also be indicated. If no such
instructions are given, such Existing Notes not exchanged will be returned to
the name and address of the person signing this Letter. If a note holder is
tendering Existing Notes by book-entry transfer, any Existing Notes not
exchanged will be credited to such account maintained at the DTC.
5. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Existing Notes to it or its order pursuant to the
Exchange Offer. If, however, Exchange Notes and/or substitute Existing Notes not
exchanged are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Existing Notes tendered
hereby, or if tendered Existing Notes are registered in the name of any person
other than the person signing this Letter, or if a transfer tax is imposed for
any reason other than the transfer of Existing Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed to such tendering holder and the Exchange Agent will retain possession of
an amount of Exchange Notes with a face amount equal to the amount of such
transfer taxes due by such tendering holder pending receipt by the Exchange
Agent of the amount of such taxes.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Existing Notes specified in this
Letter.
6. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive satisfaction of any or all conditions to the Exchange Offer enumerated in
the Prospectus.
7. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Existing Notes, by
execution of this Letter or an Agent's Message in lieu thereof, shall waive any
right to receive notice of the acceptance of their Existing Notes for exchange.
8. MUTILATED, LOST, STOLEN OR DESTROYED EXISTING NOTES. Any holder
whose Existing Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.
11
<PAGE> 16
9. WITHDRAWAL OF TENDERS. Tenders of Existing Notes may be withdrawn at
any time prior to 5:00 p.m., Now York City time, on the Expiration Date. For a
withdrawal of a tender of Existing Notes to be effective, prior to 5:00 p.m.,
New York City time, on the Expiration Date, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth above or you must comply with the appropriate
procedures for withdrawal under DTC's Automated Tender Offer Program. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Existing Notes to be withdrawn (the "Depositor"), (ii) identify the Existing
Notes to be withdrawn (including the certificate number or numbers, where
certificates for Existing Notes have been transmitted (or in the case of
Existing Notes transferred by book-entry transfer, the name and number of the
account at DTC to be credited) and principal amount of such Existing Notes),
(iii) be signed by the holder in the same manner as the original signature on
this Letter (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the trustee under the Indenture
register the transfer of such Existing Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Existing
Notes are registered, if different from that of the Depositor. All questions as
to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, in its sole discretion, whose
determination shall be final and binding on all parties. Neither the Company,
any affiliates or assigns of the Company, the Exchange Agent nor any other
person shall be under any duty to give any notification of any irregularities in
any notice of withdrawal or incur any liability for failure to give any such
notification. Any Existing Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any Existing
Notes that have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Existing Notes may be retendered by following
the procedures described above at any time on or prior to 5:00 p.m., New York
City time, on the Expiration Date.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus, this Letter and other related documents may be directed to the
Exchange Agent, at the address and telephone number indicated above.
11. IMPORTANT TAX INFORMATION. Under current federal income tax law, a
holder of Exchange Notes is required to provide the Company (as payor) with such
holder's correct taxpayer identification number ("TIN") on Substitute Form W-9
or otherwise establish a basis for exemption from backup withholding to prevent
backup withholding on any Exchange Notes delivered pursuant to the Exchange
Offer and any payments received in respect of the Exchange Notes. If a holder of
Exchange Notes is an individual, the TIN is such holder's social security
number. If the Company is not provided with the correct taxpayer identification
number, a holder of Exchange Notes may be subject to a $50 penalty imposed by
the Internal Revenue Service. Accordingly, each prospective holder of Exchange
Notes to be issued pursuant to Special Issuance Instructions should complete the
attached Substitute Form W-9. The Substitute Form W-9 need not be completed if
the box entitled Special Issuance Instructions has not been completed.
Certain holders of Exchange Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. Exempt prospective holders of Exchange
Notes should indicate their exempt status on Substitute Form W-9. A foreign
individual may qualify as an exempt recipient by submitting to the Company,
through the Exchange Agent, a properly completed Internal Revenue Service Form
W-8 (which the Exchange Agent will provide upon request) signed under penalty of
perjury, attesting to the holder's exempt status. See the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Company is required to withhold 31%
of any payment made to the holder of Exchange Notes or other payee. Backup
withholding is not an additional federal income tax. Rather, the federal income
tax liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service. To prevent backup
withholding on any Exchange Notes delivered pursuant to the Exchange Offer and
any payments received in respect of the Exchange Notes, each prospective holder
of Exchange Notes to be issued pursuant to Special Issuance Instructions must
provide the Company, through the Exchange Agent, with either: (i) such
prospective holder's correct TIN by completing the form below, certifying that
the TIN provided on Substitute Form W-9 is correct (or that such
12
<PAGE> 17
prospective holder is awaiting a TIN) and that (A) such prospective holder has
not been notified by the Internal Revenue Service that he or she is subject to
backup withholding as a result of a failure to report all interest or dividends
or (B) the Internal Revenue Service has notified such prospective holder that he
or she is no longer subject to backup withholding; or (ii) an adequate basis for
exemption.
If the Existing Notes are in more than one name or are not in the name
of the actual owner, such holder should consult the W-9 Guidelines for
information on which TIN to report. If such holder does not have a TIN, such
holder should consult the W-9 Guidelines for instructions on applying for a TIN,
check the box in Part 2 of the Substitute Form W-9 and write "applied for" in
lieu of its TIN. Note: Checking this box and writing "applied for" on the form
means that such holder has already applied for a TIN or that such holder intends
to apply for one in the near future. If such holder does not provide its TIN to
the Company within 60 days, backup withholding will begin and continue until
such holder furnishes its TIN to the Company.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE ORIGINAL NOTES DELIVERED BY BOOK-ENTRY TRANSFER OR IN
ORIGINAL HARD COPY FORM) MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE
OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE
EXPIRATION DATE.
13
<PAGE> 18
TO BE COMPLETED BY TENDERING HOLDERS
(SEE INSTRUCTION 11)
PAYOR'S NAME: NUEVO ENERGY COMPANY
SUBSTITUTE
<TABLE>
<S> <C> <C>
Form W-9
PART 1-- PLEASE PROVIDE YOUR TIN IN -------------------------------
THE BOX AT RIGHT AND CERTIFY BY Social Security Number
SIGNING AND DATING BELOW. OR
Department of the Treasury - -------------------------------
Internal Revenue Service Employer Identification Number
PAYER'S REQUEST FOR PART 2 -- Certification Under penalties of perjury, I certify
TAXPAYER IDENTIFICATION that:
NUMBER (TIN) (1) The number shown on this form is my correct taxpayer
Identification Number (or I am waiting for a number to be
issued to me) and
(2) I am not subject to backup withholding either because I have
not been notified by the Internal Revenue Service ("IRS") that
I am subject to backup withholding as a result of failure to
report all interest or dividends, or the IRS has notified me
that I am no longer subject to backup withholding.
Certification Instructions -- You must cross out item (2) in Part 2
above if you have been notified by the IRS that you are subject to
backup withholding because of under reporting interest or dividends
on your tax return. However, if after being notified by the IRS
that you were subject to backup withholding you received another
notification from the IRS stating that you are no longer subject to
backup withholding, do not cross out item (2).
PART 3 --
SIGNATURE Awaiting TIN [ ]
----------------------------
DATE , 1999 Please complete the certificate of
---------------------------
Awaiting Taxpayer Identification
Number below.
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
14
<PAGE> 19
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number to the payor within 60
days, 31 percent of all reportable payments made to me thereafter will be
withheld until I provide a number.
Signature: Date , 1999
---------------------------- ------------------------------
CERTIFICATE FOR FOREIGN RECORD HOLDERS
Under penalties of perjury, I certify that I am not a United States
citizen or resident (or I am signing for a foreign corporation, partnership,
estate or trust).
Signature: Date , 1999
---------------------------- ------------------------------
15
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY FOR NUEVO ENERGY COMPANY
This form or one substantially equivalent hereto must be used to accept
the Exchange Offer of Nuevo Energy Company (the "Company") made pursuant to the
Prospectus, dated ______________________, 1999 (the "Prospectus"), if
certificates for the outstanding 9 1/2% Senior Subordinated Notes due 2008,
Series A (the "Existing Notes") of the Company are not immediately available or
if the procedure for book-entry transfer cannot be completed on a timely basis
or time will not permit all required documents to reach the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date of the Exchange Offer.
Such form may be delivered or transmitted by telegram, telex, facsimile
transmission, mail or hand delivery to State Street Bank and Trust Company
("Exchange Agent") as set forth below. Capitalized terms not defined herein have
the meaning given to them in the Prospectus.
STATE STREET BANK AND TRUST COMPANY, Exchange Agent
<TABLE>
by registered or certified mail: by hand or overnight delivery:
<S> <C>
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Two Avenue de Lafayette
Post Office Box 778 Fifth Floor, Corporate Trust Division
Boston, Massachusetts 02110-0778 Boston, Massachusetts 02110-1724
Attention: MacKenzie Elijah Attention: MacKenzie Elijah
------------------------------- ---------------------------
</TABLE>
Telephone: (617) 662-1525
Facsimile: (617) 662-1452
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF THIS INSTRUMENT VIA FACSIMILE TO A NUMBER OTHER THAN
AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on
a Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, the signature guarantee must appear in the
applicable space provided in the signature box in the Letter of Transmittal.
16
<PAGE> 2
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus, the
undersigned hereby tenders to the Company the principal amount of Existing Notes
set forth below, pursuant to the guaranteed delivery procedure described in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Principal Amount of Existing Notes If Existing Notes will be delivered
Tendered: to DTC, provide account number.
$ Account Number:
--------------------------------------- --------------------
Certificate Nos. (if available):
- ----------------------------------------
Total Principal Amount Represented by
Certificate(s):
$
---------------------------------------
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
PLEASE SIGN HERE
, 1999
- -------------------------------------------------- -------------------
Signatures of Holder(s) or Authorized Signatory Date
, 1999
- -------------------------------------------------- -------------------
Signatures of Holder(s) or Authorized Signatory Date
Must be signed by the holder(s) of Existing Notes as their name(s)
appear(s) on certificates for Existing Notes or on a security position listing,
or by person(s) authorized to become registered holder(s) by endorsement and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
set forth his or her full title below. If Existing Notes will be delivered by
book-entry transfer to DTC, provide account number.
Please print name(s) and address(es)
Name(s):
-----------------------------------------------------------------------
Capacity:
----------------------------------------------------------------------
Address(es):
-------------------------------------------------------------------
Area Code and Telephone Number:
------------------------------------------------
Account Number:
----------------------------------------------------------------
17
<PAGE> 3
GUARANTEE
(Not to be used for signature guarantees)
The undersigned, a financial institution that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program, hereby
guarantees that the undersigned will deliver to the Exchange Agent the
certificates representing the Existing Notes being tendered hereby in proper
form for transfer or confirmation of book-entry transfer of such Existing Notes
into the Exchange Agent's account at DTC pursuant to the procedures for
book-entry transfer set forth in the Prospectus, in either case, together with
one or more properly completed and duly executed letters of transmittal/or
facsimile thereof or Agent's Message in lieu thereof and any other documents
required by the Letter of Transmittal within five business days after the
Expiration Date.
Name of Firm:
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Address:
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Area Code & Telephone No.:
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- ----------------------------------------------
Authorized Signature
- ----------------------------------------------
Name (Please Type or Print)
- ----------------------------------------------
Title
, 1999
- ----------------------------------------
Date
NOTE: DO NOT SEND CERTIFICATES OF EXISTING NOTES WITH THIS FORM. CERTIFICATES OF
EXISTING NOTES SHOULD BE SENT ONLY WITH A COPY OF THE LETTER OF TRANSMITTAL.
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