<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-3
FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES UNDER THE
TRUST INDENTURE ACT OF 1939
Abraxas Petroleum Corporation
Canadian Abraxas Petroleum Limited
----------------------------------------------
(Name of applicant)
500 North Loop 1604 East, Suite 100, San Antonio, Texas 78232
300 5th Avenue SW, #1200, Calgary, Alberta, Canada T2P 3C4
-------------------------------------------------------------------------------
(Address of principal executive offices)
SECURITIES TO BE ISSUED UNDER THE INDENTURE TO BE QUALIFIED
TITLE OF CLASS AMOUNT
----------------------- --------------
11 1/2% Senior Secured Notes due 2004, Series A $196,800,000
-------------------------------------------------------
Approximate date of proposed public offering: As soon as practicable following
the qualification of the indenture covered hereby under the Trust Indenture Act
of 1939, as amended.
Name and address of agent for service:
Robert L. G. Watson
President and Chief Executive Officer
Abraxas Petroleum Corporation
500 North Loop 1604 East, Suite 100
San Antonio, Texas 78232.
With a copy to:
Cox & Smith Incorporated
112 East Pecan, Suite 1800
San Antonio, Texas 78205
Attn: Steven R. Jacobs.
The obligors hereby amend this application for qualification on such
date or dates as may be necessary to delay its effectiveness until (i) the 20th
day after the filing of a further amendment which specifically states that it
shall supersede this amendment, or (ii) such date as the Commission, acting
pursuant to Section 307(c) of the Act, may determine upon the written request
of the obligor.
<PAGE> 2
GENERAL
1. General information.
(a) Form of organization. Both Abraxas Petroleum Corporation
("Abraxas") and Canadian Abraxas Petroleum Limited ("Canadian
Abraxas" and, together with Abraxas, the ("Applicants") are
corporations.
(b) State or other sovereign power under the laws of which organized.
Abraxas is organized under the laws of the State of Nevada.
Canadian Abraxas is organized under the laws of Alberta, Canada.
2. Securities Act exemption applicable.
The Applicants are relying upon the exemption provided by Section
3(a)(9) of the Securities Act of 1933, as amended (the "Securities Act"), in
claiming that registration of the Exchange Notes (as hereinafter defined) to be
issued by the Applicants in connection with the exchange offer hereinafter
described (the "Exchange Offer") is not required under the Securities Act. The
Exchange Offer will be made pursuant to the terms and provisions of an Offer to
Exchange and Consent Solicitation dated November 18, 1999 (the "Offer to
Exchange"), and the related Consent and Letter of Transmittal (the "Consent and
Letter of Transmittal"). Pursuant to the Offer to Exchange and the Consent and
Letter of Transmittal, the Applicants, as co-issuers, are offering to exchange
their 11 1/2% Senior Secured Notes due 2004, Series A (the "Exchange Notes"),
shares of Abraxas' common stock, par value $.01 per share ("Common Stock"), and
Contingent Value Rights (the "CVRs") for their 11 1/2% Senior Notes due 2004,
Series D (the "Old Notes") in the ratio of $700 principal amount of Exchange
Notes, approximately 59.6184 shares of Common Stock, and approximately 59.6184
CVRs each of which may result in the distribution of up to approximately 6.3889
shares of Common Stock for each $1,000 principal amount of Old Notes. As of
September 30, 1999, $274.0 million aggregate principal amount of the Old Notes
were outstanding. If 100% of the outstanding Old Notes are accepted for
exchange pursuant to the Exchange Offer, the Applicants will be required to
issue a total of (i) $196.8 million aggregate principal amount of Exchange
Notes; (ii) 16.3 million shares of Common Stock; and (iii) 16.3 million CVRs.
The holders of the Old Notes have not made, nor will they make, any cash
payments in connection with the Exchange Offer. Consummation of the Exchange
Offer is conditioned upon, among other things, the qualification of the
indenture (the "Indenture") for the Exchange Notes, a copy of which is filed as
an exhibit to this Form T-3, under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). There have not been, and there will not be, any
sales of the Exchange Notes, Common Stock or CVRs made by the Applicants (other
than those sales included within the Exchange Offer) or by or through an
underwriter at or about the same time as the Exchange Offer. The Applicants
will not pay any commission or other remuneration or consideration, directly or
indirectly, to any broker, dealer, salesman or other person for soliciting
exchanges of the Old Notes. The Applicants have appointed The Bank of New York
(the "Exchange Agent") as the exchange agent in connection with the Exchange
Offer. In such capacity, the Exchange Agent will perform services for the
Applicants in connection with the tender and withdrawal of Old Notes pursuant
to the Exchange Offer. The Applicants have agreed to pay the Exchange Agent
compensation for its services, to reimburse the Exchange Agent for its
reasonable out-of-pocket expenses in connection therewith and to indemnify the
Exchange Agent against any losses or claims incurred without negligence or bad
faith on the part of the Exchange Agent in connection with its duties under the
Exchange Offer. In addition, the Applicants will pay remuneration to their
financial, legal, and accounting counsel for the provision of advisory, legal,
and accountancy services, respectively.
2
<PAGE> 3
AFFILIATIONS
3. Affiliates.
(a) The following are subsidiaries of Abraxas with the percentages of
voting securities owned by Abraxas indicated in parenthesis:
(i) Canadian Abraxas Petroleum Limited (100%).
(ii) Wamsutter Holdings, Inc. (100%).
(iii)Sandia Oil & Gas Corp. (100%).(1)
(iv) Western Associated Energy Corp. (100%).
(v) Grey Wolf Exploration, Inc. (47.1%).(2)
(b) The following are subsidiaries of Canadian Abraxas with the
percentages of voting securities owned by Canadian Abraxas
indicated in parenthesis:
(i) New Cache Petroleums, Ltd. (100%).
(c) See Item 4 for "Directors and Officers" of the Applicants, some of
whom may be deemed to be affiliates of the Applicants by virtue of
their positions.
(1) Sandia Oil & Gas Corp. owns 100% of the voting securities of Sandia
Operating, Inc.
(2) Canadian Abraxas owns 1.6% of the voting securities of Grey Wolf
Exploration, Inc.
MANAGEMENT AND CONTROL
4. Directors and executive officers.
<TABLE>
<CAPTION>
NAME ADDRESS OFFICE
--------------------- --------------------------------- --------------------------------------
<S> <C> <C>
Robert L. G. Watson c/o Abraxas Petroleum Corporation Chairman of the Board, President and
500 North Loop 1604 East Chief Executive Officer of Abraxas;
Suite 100 Chairman of the Board, President and
San Antonio, Texas 78232 director of Canadian Abraxas
Chris E. Williford c/o Abraxas Petroleum Corporation Executive Vice President, Chief
500 North Loop 1604 East Financial Officer, Treasurer and
Suite 100 director of Abraxas; Vice President
San Antonio, Texas 78232 and Assistant Secretary of Canadian
Abraxas
Robert W. Carington, Jr. c/o Abraxas Petroleum Corporation Executive Vice President and director
500 North Loop 1604 East of Abraxas
Suite 100
San Antonio, Texas 78232
Franklin A. Burke c/o Abraxas Petroleum Corporation Director of Abraxas
500 North Loop 1604 East
Suite 100
San Antonio, Texas 78232
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
Harold D. Carter c/o Abraxas Petroleum Corporation Director of Abraxas
500 North Loop 1604 East
Suite 100
San Antonio, Texas 78232
Robert D. Gershen c/o Abraxas Petroleum Corporation Director of Abraxas
500 North Loop 1604 East
Suite 100
San Antonio, Texas 78232
Richard M. Kleberg, III c/o Abraxas Petroleum Corporation Director of Abraxas
500 North Loop 1604 East
Suite 100
San Antonio, Texas 78232
James C. Phelps c/o Abraxas Petroleum Corporation Director of Abraxas
500 North Loop 1604 East
Suite 100
San Antonio, Texas 78232
Paul A. Powell, Jr. c/o Abraxas Petroleum Corporation Director of Abraxas
500 North Loop 1604 East
Suite 100
San Antonio, Texas 78232
Richard M. Riggs c/o Abraxas Petroleum Corporation Director of Abraxas
500 North Loop 1604 East
Suite 100
San Antonio, Texas 78232
Roger L. Bruton c/o Abraxas Petroleum Corporation Executive Vice President and director
500 North Loop 1604 East of Canadian Abraxas
Suite 100
San Antonio, Texas 78232
Donald A. Engle c/o Abraxas Petroleum Corporation Secretary and director of Canadian
500 North Loop 1604 East Abraxas
Suite 100
San Antonio, Texas 78232
</TABLE>
5. Principal owners of voting securities. The following own 10% or more of the
voting securities of Canadian Abraxas:
<TABLE>
<CAPTION>
NAME AND COMPLETE TITLE OF CLASS AMOUNT % OF VOTING
MAILING ADDRESS OWNED OWNED SECURITIES OWNED
----------------- -------------- ------- ----------------
<S> <C> <C> <C>
Abraxas Petroleum Corporation Common Stock 5,751 100%
500 North Loop 1604 East,
Suite 100
San Antonio, Texas 78232
</TABLE>
4
<PAGE> 5
UNDERWRITERS
6. Underwriters. (a) The name and complete mailing address of each person who,
within three years prior to the date of the filing this application, acted as
an underwriter of any securities of the Applicants which are outstanding on the
date of filing this application and the title of each class of the securities
underwritten follows:
<TABLE>
<CAPTION>
Class of Securities Underwriter Complete Mailing Address
------------------- ----------- ------------------------
<S> <C> <C>
12.875% Senior Secured Jefferies & Company, Inc. 909 Fannin, Suite 3100
Notes due 2003 Houston, Texas 77010
11 1/2% Senior Notes Jefferies & Company, Inc. 909 Fannin, Suite 3100
due 2004, Series D Houston, Texas 77010
</TABLE>
CAPITAL SECURITIES
7. Capitalization. (a) Authorized Classes of Securities.
As of November 18, 1999.
<TABLE>
<CAPTION>
TITLE OF CLASS AMOUNT AUTHORIZED AMOUNT OUTSTANDING
-------------- ----------------- ------------------
<S> <C> <C>
Abraxas:
Common Stock, par value 50,000,000 6,352,672
$.01 per share (1)
Preferred Stock, par value 1,000,000 0
$.01 per share
11 1/2% Senior Notes due 2004, $275,000,000 $274,000,000
Series D
12.875% Senior Secured $ 63,500,000 $ 63,500,000
Notes due 2003
Canadian Abraxas (2)
Common Shares Unlimited 5,751
First Preferred Shares Unlimited 0
</TABLE>
(1) Abraxas has warrants ("Warrants") outstanding to purchase an aggregate
of 225,500 shares of Abraxas Common Stock. Associated Energy Managers,
Inc. ("AEM"), has Warrants to purchase 13,500 shares at an exercise
price of $7.00 per share. First Union National Bank of North Carolina
("First Union") has warrants to purchase 212,000 shares of Abraxas
Common Stock at an exercise price of $9.79 per share. These warrants
were issued to First Union in connection with Abraxas' credit
agreement. First Union and AEM have certain registration rights with
respect to shares of the Abraxas common stock issued pursuant to the
exercise of such Warrants.
All outstanding Warrants contain provisions that protect AEM and First
Union against dilution by adjusting the price at which the Warrants
are exercisable and the number of shares of the Abraxas Common Stock
issuable upon exercise thereof upon the occurrence of certain events,
including payment of stock dividends and distributions, stock splits,
recapitalizations, reclassifications, mergers, consolidations or the
issuance or sale of Common Stock or options, rights or securities
convertible into shares of the Common Stock,
5
<PAGE> 6
in the case of AEM, at less than the current market price or, in the
case of First Union, at a price less than the greater of the current
market price or the exercise price. A holder of Warrants has no rights
as a stockholder of Abraxas until the Warrants are exercised. All
Warrants are currently exercisable, although none have been exercised
as of the date hereof.
(2) Canadian Abraxas is a guarantor of Abraxas' 12.875% Senior Secured
Notes due 2003.
(b) Voting Rights.
(i) Holders of the Abraxas Common Stock are entitled to cast one vote
for each share held of record on all matters submitted to a vote of
stockholders and are not entitled to cumulate votes for the election of
directors. The Board of Directors of Abraxas is authorized, without any further
action by the stockholders, to determine the voting rights of any series of
Preferred Stock. No such series of Preferred Stock have been designated or
issued.
(ii) Holders of the Canadian Abraxas Common Shares and First Preferred
Shares are entitled to cast one vote for each share held of record on all
matters submitted to a vote of Shareholders.
INDENTURE SECURITIES
8. Analysis of indenture provisions.
The information required by this Item is incorporated by reference to
information under the caption "Description of the New Notes" of the Offer to
Exchange, which is set forth as Exhibit T3E-1.
9. Other obligors.
The following subsidiaries of the Applicants are guarantors of the New
Notes:
<TABLE>
<CAPTION>
NAME COMPLETE MAILING ADDRESS
---- ------------------------
<S> <C>
Sandia Oil & Gas Corp. 500 North Loop 1604 East, Suite 100
San Antonio, Texas 78232
New Cache Petroleums, Ltd. 300 5th Avenue SW, #1200
Calgary, Alberta, Canada T2P 3C4
Wamsutter Holdings, Inc. 500 North Loop 1604 East, Suite 100
San Antonio, Texas 78232
</TABLE>
Contents of application for qualification. This application for qualification
comprises --
(a) Pages numbered 1 to 8, consecutively.
(b) The statement of eligibility and qualification of each trustee
under the indenture to be qualified (filed herewith as Exhibit
T3G).
(c) The following exhibits in addition to those filed as a part of the
statement of eligibility and qualification of each trustee:
(i) Exhibit T3A-1.1: Articles of Incorporation of Abraxas (Filed
as Exhibit 3.1 to Abraxas' Registration Statement on Form
S-4, No. 333-36565 (the "S-4 Registration Statement")).
Exhibit T3A-1.2: Articles of Amendment to the Articles of
Incorporation of Abraxas dated October 22, 1990 (Filed as
Exhibit 3.3 to the S-4 Registration Statement).
6
<PAGE> 7
Exhibit T3A-1.3: Articles of Amendment to the Articles of
Incorporation of Abraxas dated December 18, 1990. (Filed as
Exhibit 3.4 to the S-4 Registration Statement).
Exhibit T3A-1.4: Articles of Amendment to the Articles of
Incorporation of Abraxas dated June 8, 1995 (Filed as Exhibit
3.4 to Abraxas' Registration Statement on Form S-3, No.
333-00398 (the "S-3 Registration Statement")).
Exhibit T3A-2: Articles of Incorporation of Canadian Abraxas
(Filed as Exhibit 3.7 to Abraxas and Canadian Abraxas'
Registration Statement on Form S-4, 333-18673, (the "Exchange
Offer Registration Statement")).
(ii) Exhibit T3B-1: Amended and Restated Bylaws of Abraxas. (Filed
as Exhibit 3.5 to the S-3 Registration Statement).
Exhibit T3B-2: Bylaws of Canadian Abraxas (Filed as Exhibit
3.8 to the Exchange Offer Registration Statement).
(iii) Exhibit T3C: A copy of the Indenture to be qualified is filed
herewith.
(iv) Exhibit T3D: Not applicable.
(v) Exhibit T3E-1: A copy of the Offer to Exchange to be sent or
given to holders of the Applicants' 11 1/2% Senior Notes due
2004, Series D in connection with the Exchange Offer is filed
herewith.
Exhibit T3E-2: A copy of the Consent and Letter of
Transmittal to be sent or given to holders of the Applicants'
11 1/2% Senior Notes due 2004, Series D in connection with
the Exchange Offer is filed herewith.
(vi) Exhibit T3F: A cross reference sheet showing the location in
the Indenture of the provisions inserted therein pursuant to
Section 310 through 318(a), inclusive, of the Trust Indenture
Act, is incorporated by reference to the "Cross Reference
Table" of the Indenture set forth as Exhibit T3C hereof.
(vii) Exhibit T3G: A copy of the Trustee's Statement of Eligibility
on Form T-1 under the Trust Indenture Act is filed herewith.
7
<PAGE> 8
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
applicant, Abraxas Petroleum Corporation, a corporation organized and existing
under the laws of the State of Nevada, has duly caused this application to be
signed on its behalf by the undersigned, thereunto duly authorized, and its
seal to be hereunto affixed and attested, all in the city of San Antonio, and
State of Texas, on the 18th day of November, 1999.
(SEAL)
ABRAXAS PETROLEUM CORPORATION
By: /s/ Robert L.G. Watson
----------------------------------
Robert L.G. Watson,
President and Chief Executive
Officer
ATTEST: /s/ Chris E. Williford
----------------------------------
Chris E. Williford, Executive
Vice President
Pursuant to the requirements of the Trust Indenture Act of 1939, the
applicant, Canadian Abraxas Petroleum Limited, a corporation organized and
existing under the laws of Calgary, Alberta, has duly caused this application
to be signed on its behalf by the undersigned, thereunto duly authorized, and
its seal to be hereunto affixed and attested, all in the city of San Antonio,
and State of Texas, on the 18th day of November, 1999.
(SEAL)
CANADIAN ABRAXAS PETROLEUM LIMITED
By: /s/ Robert L.G. Watson
----------------------------------
Robert L.G. Watson,
President and Chief Executive
Officer
ATTEST: /s/ Chris E. Williford
-------------------------------
Chris E. Williford, Vice President
and Assistant Secretary
8
<PAGE> 9
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
T3A-1.1 Articles of Incorporation of Abraxas (Filed as Exhibit 3.1 to
Abraxas' Registration Statement on Form S-4, No. 333-36565 (the
"S-4 Registration Statement")).
T3A-1.2 Articles of Amendment to the Articles of Incorporation of Abraxas
dated October 22, 1990 (Filed as Exhibit 3.3 to the S-4
Registration Statement).
T3A-1.3 Articles of Amendment to the Articles of Incorporation of Abraxas
dated December 18, 1990. (Filed as Exhibit 3.4 to the S-4
Registration Statement).
T3A-1.4 Articles of Amendment to the Articles of Incorporation of Abraxas
dated June 8, 1995 (Filed as Exhibit 3.4 to Abraxas' Registration
Statement on Form S-3, No. 333-00398 (the "S-3 Registration
Statement")).
T3A-2 Articles of Incorporation of Canadian Abraxas (Filed as Exhibit
3.7 to Abraxas and Canadian Abraxas' Registration Statement on
Form S-4, 333-18673, (the "Exchange Offer Registration Statement")).
T3B-1 Amended and Restated Bylaws of Abraxas. (Filed as Exhibit 3.5 to
the S-3 Registration Statement).
T3B-2 Bylaws of Canadian Abraxas (Filed as Exhibit 3.8 to the Exchange
Offer Registration Statement).
T3C A copy of the Indenture to be qualified is filed herewith.
T3D Not applicable.
T3E-1 A copy of the Offer to Exchange to be sent or given to holders of
the Applicants' 11 1/2% Senior Notes due 2004, Series D in
connection with the Exchange Offer is filed herewith.
T3E-2 A copy of the Consent and Letter of Transmittal to be sent or
given to holders of the Applicants' 11 1/2% Senior Notes due 2004,
Series D in connection with the Exchange Offer is filed herewith.
T3F A cross reference sheet showing the location in the Indenture of
the provisions inserted therein pursuant to Section 310 through
318(a), inclusive, of the Trust Indenture Act, is incorporated by
reference to the "Cross Reference Table" of the Indenture set
forth as Exhibit T3C hereof.
T3G A copy of the Trustee's Statement of Eligibility on Form T-1 under
the Trust Indenture Act is filed herewith.
</TABLE>
<PAGE> 1
EXHIBIT T3C
================================================================================
ABRAXAS PETROLEUM CORPORATION
and
CANADIAN ABRAXAS PETROLEUM LIMITED
as Issuers,
THE SUBSIDIARY GUARANTORS PARTY HERETO
and
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Trustee
==================
INDENTURE
Dated as of December [__], 1999
==================
$196,800,000.00
11-1/2% Senior Notes due 2004
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310(a)(1)..............................................................................................7.10
(a)(2)..............................................................................................7.10
(a)(3)..............................................................................................N.A.
(a)(4)..............................................................................................N.A.
(a)(5)..............................................................................................7.08; 7.10,
....................................................................................................7.11
(b).................................................................................................7.08; 7.10,
...................................................................................................10.02
(c).................................................................................................N.A.
311(a).................................................................................................7.11
(b).................................................................................................7.11
(c).................................................................................................N.A.
312(a).................................................................................................2.05
(b)................................................................................................10.03
(c)................................................................................................10.03
313(a).................................................................................................7.06
(b)(1)..............................................................................................N.A.
(b)(2)..............................................................................................7.06
(c).................................................................................................7.06; 10.02
(d).................................................................................................7.06
314(a).................................................................................................4.06; 4.08;
...................................................................................................11.02
(b)................................................................................................12.02
(c)(1)..............................................................................................7.02, 10.04
(c)(2)..............................................................................................7.02, 10.04
(c)(3)..............................................................................................N.A.
(d)................................................................................................12.03
(e)................................................................................................10.05
(f).................................................................................................N.A.
315(a).................................................................................................7.01(b)
(b).................................................................................................7.05; 10.02
(c).................................................................................................7.01(a)
(d).................................................................................................7.01(c)
(e).................................................................................................6.11
316(a)(last sentence)..................................................................................2.09
(a)(1)(A)...........................................................................................6.05
(a)(1)(B)...........................................................................................6.04
(a)(2)..............................................................................................N.A.
(b).................................................................................................6.07
(c).................................................................................................9.04
317(a)(1)..............................................................................................6.08
(a)(2)..............................................................................................6.09
(b).................................................................................................2.04
318(a)................................................................................................10.01
(c)................................................................................................10.01
</TABLE>
- ----------------------
N.A. means Not Applicable
NOTE: This Cross-Reference Table is not and shall not, for any purpose, be
deemed to be a part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions..................................................................1
SECTION 1.02. Incorporation by Reference of TIA...........................................17
SECTION 1.03. Rules of Construction.......................................................17
ARTICLE TWO
THE NOTES
SECTION 2.01. Principal Amount; Form and Dating...........................................18
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount....................18
SECTION 2.03. Registrar and Paying Agent..................................................19
SECTION 2.04. Paying Agent To Hold Assets in Trust........................................19
SECTION 2.05. Holder Lists................................................................19
SECTION 2.06. Transfer and Exchange.......................................................19
SECTION 2.07. Replacement Notes...........................................................20
SECTION 2.08. Outstanding Notes...........................................................20
SECTION 2.09. Treasury Notes..............................................................20
SECTION 2.10. Temporary Notes.............................................................21
SECTION 2.11. Cancellation................................................................21
SECTION 2.12. Defaulted Interest..........................................................21
SECTION 2.13. CUSIP Number................................................................21
SECTION 2.14. Deposit of Monies...........................................................22
SECTION 2.15. Restrictive Legends.........................................................22
SECTION 2.16. Book-Entry Provisions for Global Security...................................23
SECTION 2.17. Special Transfer Provisions.................................................24
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee..........................................................25
SECTION 3.02. Selection of Notes To Be Redeemed...........................................25
SECTION 3.03. Optional Redemption.........................................................26
SECTION 3.04. Notice of Redemption........................................................26
SECTION 3.05. Effect of Notice of Redemption..............................................27
SECTION 3.06. Deposit of Redemption Price.................................................27
SECTION 3.07. Notes Redeemed in Part......................................................27
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes............................................................27
SECTION 4.02. Maintenance of Office or Agency.............................................27
SECTION 4.03. Corporate Existence.........................................................28
SECTION 4.04. Payment of Taxes and Other Claims...........................................28
SECTION 4.05. Maintenance of Properties and Insurance.....................................28
SECTION 4.06. Compliance Certificate; Notice of Default...................................28
SECTION 4.07. Compliance with Laws........................................................29
SECTION 4.08. Reports to Holders..........................................................29
SECTION 4.09. Waiver of Stay, Extension or Usury Laws.....................................29
SECTION 4.10. Limitation on Restricted Payments...........................................29
SECTION 4.11. Limitation on Transactions with Affiliates..................................31
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness.........................31
SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries.....................................................32
SECTION 4.14. Limitation on Restricted and Unrestricted Subsidiaries......................32
SECTION 4.15. Change of Control...........................................................33
SECTION 4.16. Limitation on Asset Sales...................................................35
SECTION 4.17. Limitations with Respect to Capital Stock of Restricted Subsidiaries........37
SECTION 4.18. Limitation on Liens.........................................................37
SECTION 4.19. Limitation on Conduct of Business...........................................37
SECTION 4.20. Additional Subsidiary Guarantees............................................38
SECTION 4.21. Limitation on Restrictive Covenants.........................................38
SECTION 4.22. Impairment of Security Interest.............................................38
SECTION 4.23. Additional Amounts..........................................................38
SECTION 4.24. Maintenance of Lien; Additional Collateral..................................39
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets....................................40
SECTION 5.02. Successor Corporation Substituted...........................................41
ARTICLE SIX
REMEDIES
SECTION 6.01. Events of Default...........................................................41
SECTION 6.02. Acceleration................................................................42
SECTION 6.03. Other Remedies..............................................................43
SECTION 6.04. Waiver of Past Defaults.....................................................43
SECTION 6.05. Control by Majority.........................................................43
SECTION 6.06. Limitation on Suits.........................................................43
SECTION 6.07. Right of Holders To Receive Payment.........................................43
</TABLE>
ii
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<TABLE>
<S> <C> <C>
SECTION 6.08. Collection Suit by Trustee..................................................44
SECTION 6.09. Trustee May File Proofs of Claim............................................44
SECTION 6.10. Priorities..................................................................44
SECTION 6.11. Undertaking for Costs.......................................................44
SECTION 6.12. Restoration of Rights and Remedies..........................................45
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee...........................................................45
SECTION 7.02. Rights of Trustee...........................................................46
SECTION 7.03. Individual Rights of Trustee................................................47
SECTION 7.04. Trustee's Disclaimer........................................................47
SECTION 7.05. Notice of Default...........................................................47
SECTION 7.06. Reports by Trustee to Holders...............................................47
SECTION 7.07. Compensation and Indemnity..................................................47
SECTION 7.08. Replacement of Trustee......................................................48
SECTION 7.09. Successor Trustee by Merger, Etc............................................49
SECTION 7.10. Eligibility; Disqualification...............................................49
SECTION 7.11. Preferential Collection of Claims Against Issuers...........................49
SECTION 7.12. Other Capacities............................................................49
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of Issuer's Obligations.........................................49
SECTION 8.02. Application of Trust Money..................................................51
SECTION 8.03. Repayment to the Issuers....................................................51
SECTION 8.04. Reinstatement...............................................................51
SECTION 8.05. Acknowledgment of Discharge by Trustee......................................51
ARTICLE NINE
MODIFICATION OF INDENTURE
SECTION 9.01. Without Consent of Holders..................................................51
SECTION 9.02. With Consent of Holders.....................................................52
SECTION 9.03. Compliance with TIA.........................................................52
SECTION 9.04. Revocation and Effect of Consents...........................................52
SECTION 9.05. Notation on or Exchange of Notes............................................53
SECTION 9.06. Trustee To Sign Amendments, Etc.............................................53
SECTION 9.07. Evidence of Amendments, Supplements, Waivers................................53
SECTION 9.08. Amendment of Standstill Provision...........................................53
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. TIA Controls...............................................................53
SECTION 10.02. Notices....................................................................53
SECTION 10.03. Communications by Holders with Other Holders...............................54
SECTION 10.04. Certificate and Opinion as to Conditions Precedent.........................54
SECTION 10.05. Statements Required in Certificate or Opinion..............................55
SECTION 10.06. Rules by Trustee, Paying Agent, Registrar..................................55
SECTION 10.07. Legal Holidays.............................................................55
SECTION 10.08. Governing Law..............................................................55
SECTION 10.09. No Adverse Interpretation of Other Agreements..............................55
SECTION 10.10. No Personal Liability......................................................55
SECTION 10.11. Successors.................................................................55
SECTION 10.12. Duplicate Originals........................................................56
SECTION 10.13. Severability...............................................................56
SECTION 10.14. Independence of Covenants..................................................56
SECTION 10.15. Currency Indemnity.........................................................56
ARTICLE ELEVEN
GUARANTEE OF NOTES
SECTION 11.01. Unconditional Guarantee....................................................56
SECTION 11.02. Limitations on Guarantees..................................................57
SECTION 11.03. Execution and Delivery of Guarantee........................................57
SECTION 11.04. Release of a Subsidiary Guarantor..........................................58
SECTION 11.05. Waiver of Subrogation......................................................58
SECTION 11.06. Immediate Payment..........................................................59
SECTION 11.07. No Set-Off.................................................................59
SECTION 11.08. Obligations Absolute.......................................................59
SECTION 11.09. Obligations Continuing.....................................................59
SECTION 11.10. Obligations Not Reduced....................................................59
SECTION 11.11. Obligations Reinstated.....................................................59
SECTION 11.12. Obligations Not Affected...................................................60
SECTION 11.13. Waiver.....................................................................60
SECTION 11.14. No Obligation To Take Action Against the Issuers...........................61
SECTION 11.15. Dealing with the Issuers and Others........................................61
SECTION 11.16. Default and Enforcement....................................................61
SECTION 11.17. Acknowledgment.............................................................61
SECTION 11.18. Costs and Expenses.........................................................61
SECTION 11.19. No Merger or Waiver; Cumulative Remedies...................................61
SECTION 11.20. Survival of Obligations....................................................62
SECTION 11.21. Guarantee in Addition to Other Obligations.................................62
SECTION 11.22. Severability...............................................................62
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE TWELVE
SECURITY
SECTION 12.01. Grant of Security Interest; Remedies; Standstill...........................62
SECTION 12.02. Recording and Opinions.....................................................63
SECTION 12.03. Release of Collateral......................................................63
SECTION 12.04. Specified Releases of Collateral...........................................64
SECTION 12.05. Rights of Purchasers; Form and Sufficiency of Release......................65
SECTION 12.06. Authorization of Actions to Be Taken by the Trustee Under the
Security Documents.........................................................66
SECTION 12.07. Authorization of Receipt of Funds by the Trustee Under the Security
Documents..................................................................66
SECTION 12.08. Use of Trust Moneys........................................................66
Exhibit A - Form of Note........................................................................A-1
Exhibit B - Form of Additional Provisions in Form of Assignment
for Restricted Securities...........................................................B-1
Exhibit C - Form of Certificate To Be Delivered in Connection with Transfers to
Non-QIB Accredited Investors........................................................C-1
Exhibit D - Form of Certificate To Be Delivered in Connection with Transfers
Pursuant to Regulation S ...........................................................D-1
Exhibit E - Guarantee...........................................................................E-1
Exhibit F - Form of Supplemental Indenture......................................................F-1
</TABLE>
Note: This Table of Contents is not, and shall not, for any purpose, be deemed
to be part of the Indenture.
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<PAGE> 8
THIS INDENTURE, dated as of December [__], 1999, is among Abraxas
Petroleum Corporation, a Nevada corporation ("Abraxas"), Canadian Abraxas
Petroleum Limited, an Alberta corporation and wholly owned subsidiary of Abraxas
("Canadian Abraxas", and, together with Abraxas, the "Issuers"), New Cache
Petroleums, Ltd., an Alberta corporation and wholly owned subsidiary of Canadian
Abraxas ("New Cache"), Sandia Oil & Gas Corporation, a Texas corporation and
wholly owned subsidiary of Abraxas ("Sandia"), Wamsutter Holdings, Inc., a
Wyoming corporation ("Wamsutter") and Firstar Bank, National Association, as
Trustee (the "Trustee").
The Issuers have duly authorized the creation of the 11-1/2% Senior
Notes due 2004 and, to provide therefor, the Issuers have duly authorized the
execution and delivery of this Indenture. The Notes (as defined herein) will be
guaranteed on a junior secured basis by New Cache Sandia, Wamsutter and each of
Abraxas' future Restricted Subsidiaries (as defined herein) which become
Subsidiary Guarantors as required in this Indenture. All things necessary to
make the Notes, when duly issued and executed by the Issuers, and authenticated
and delivered hereunder, the valid obligations of the Issuers, and to make this
Indenture a valid and binding agreement of the Issuers, have been done.
Each party hereto agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the Holders of the Notes.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Abraxas" means Abraxas Petroleum Corporation, a Nevada corporation,
until a successor replaces it pursuant to this Indenture and thereafter means
such successor.
"Abraxas Properties" means all Properties, and equity, partnership or
other ownership interests therein, that are related or incidental to, or used or
useful in connection with, the conduct or operation of any business activities
of Abraxas or any of its Restricted Subsidiaries, which business activities are
not prohibited by the terms of this Indenture.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries (a) existing at the time such Person becomes a Restricted
Subsidiary or at the time it merges or consolidates with Abraxas or any of its
Restricted Subsidiaries, or (b) which becomes Indebtedness of Abraxas or a
Restricted Subsidiary in connection with the acquisition of assets from such
Person, in each case not incurred in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition, merger or consolidation.
"Adjusted Consolidated Net Tangible Assets" means (without
duplication), as of the date of determination: (1) the sum of: (A) discounted
future net revenues from proved oil and gas reserves of Abraxas and its
consolidated Restricted Subsidiaries, calculated in accordance with Commission
guidelines (before any state or federal income tax), as estimated by a
nationally recognized firm of independent petroleum engineers as of a date no
earlier than the date of Abraxas' latest annual consolidated financial
statements, as increased by, as of the date of determination, the estimated
discounted future net revenues from (i) estimated proved oil and gas reserves
acquired since the date of such year-end reserve report and (ii) estimated oil
and gas reserves attributable to upward revisions of estimates of proved oil and
gas reserves since the date of such year-end reserve report due to exploration,
development or exploitation activities, in each case calculated in accordance
with Commission guidelines (utilizing the prices utilized in such year-end
reserve report), and decreased by, as of the date of determination, the
estimated discounted future net revenues from (iii) estimated proved oil and gas
reserves produced or disposed of since the date of such year-end reserve report
and (iv) estimated oil and gas reserves attributable to downward revisions of
estimates of proved oil and gas reserves since the date of such year-end reserve
report due to changes in geological conditions or other factors which would, in
accordance with standard industry practice, cause such revisions, in each case
calculated in accordance with Commission guidelines (utilizing the prices
utilized in such year-end reserve report); provided, however, that, in the case
of each of the determinations made pursuant to clauses (i) through (iv), such
increases and decreases shall be as estimated by Abraxas' petroleum engineers,
unless in the event that there is a Material Change as a result of such
acquisitions, dispositions or revisions, then the discounted future net revenues
utilized for purposes of this clause (1)(A) shall be confirmed in writing, by a
nationally recognized firm of independent petroleum engineers (which may be
Abraxas' independent petroleum engineers who prepare Abraxas' annual reserve
report), plus (B) the capitalized costs
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that are attributable to oil and gas properties of Abraxas and its consolidated
Restricted Subsidiaries to which no proved oil and gas reserves are
attributable, based on Abraxas' books and records as of a date no earlier than
the date of Abraxas' latest annual or quarterly financial statements, plus (C)
the Net Working Capital on a date no earlier than the date of Abraxas' latest
consolidated annual or quarterly financial statements, plus (D) with respect to
each other tangible asset of Abraxas or its consolidated Restricted Subsidiaries
specifically including, but not to the exclusion of any other qualifying
tangible assets, Abraxas' or its consolidated Restricted Subsidiaries' gas
producing facilities and unproved oil and gas properties (less any remaining
deferred income taxes which have been allocated to such gas processing
facilities in connection with the acquisition thereof), land, equipment,
leasehold improvements, investments carried on the equity method, restricted
cash and the carrying value of marketable securities, the greater of (i) the net
book value of such other tangible asset on a date no earlier than the date of
Abraxas' latest consolidated annual or quarterly financial statements or (ii)
the appraised value, as estimated by a qualified Independent Advisor, of such
other tangible assets of Abraxas and its Restricted Subsidiaries, as of a date
no earlier than the date of Abraxas' latest audited financial statements minus
(2) minority interests and, to the extent not otherwise taken into account in
determining Adjusted Consolidated Net Tangible Assets, any gas balancing
liabilities of Abraxas and its consolidated Restricted Subsidiaries reflected in
Abraxas' latest audited financial statements.
In addition to, but without duplication of, the foregoing, for purposes
of this definition, "Adjusted Consolidated Net Tangible Assets" shall be
calculated after giving effect, on a pro forma basis, to: (1) any Investment not
prohibited by this Indenture, to and including the date of the transaction
giving rise to the need to calculate Adjusted Consolidated Net Tangible Assets
(the "Assets Transaction Date"), in any other Person that, as a result of such
Investment, becomes a Restricted Subsidiary of Abraxas, (2) the acquisition, to
and including the Assets Transaction Date (by merger, consolidation or purchase
of stock or assets), of any business or assets, including, without limitation,
Permitted Industry Investments, and (3) any sales or other dispositions of
assets permitted by this Indenture (other than sales of Hydrocarbons or other
mineral products in the ordinary course of business) occurring on or prior to
the Assets Transaction Date.
"Affiliate" means, with respect to any specified Person, (a) any other
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or under common control with, such specified Person, and
(b) any Related Person of such Person. For purposes of this definition, the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning provided in Section 4.11.
"Agent" means any Registrar, Paying Agent, co-Registrar, authenticating
agent or securities custodian.
"Agent Members" has the meaning provided in Section 2.16.
"Asset Acquisition" means: (a) an Investment by Abraxas or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary, or shall be merged with or into Abraxas or any
Restricted Subsidiary, or (b) the acquisition by Abraxas or any Restricted
Subsidiary of the assets of any Person (other than a Restricted Subsidiary)
which constitute all or substantially all of the assets of such Person or
comprise any division or line of business of such Person or any other properties
or assets of such Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, exchange, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by Abraxas
or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than Abraxas or a Restricted Subsidiary of: (a)
any Capital Stock of any Restricted Subsidiary, or (b) any other property or
assets (including any interests therein) of Abraxas or any Restricted
Subsidiary, including any disposition by means of a merger, consolidation or
similar transaction; provided, however, that the following will not be deemed to
be an Asset Sale: (i) the sale, lease, conveyance, disposition or other transfer
of all or substantially all of the assets of Abraxas in a transaction which is
made in compliance with Article Five, (ii) any Investment in an Unrestricted
Subsidiary which is made in compliance with Section 4.10, (iii) disposals or
replacements of obsolete equipment in the ordinary course of business, (iv) the
sale, lease, conveyance, disposition or other transfer by Abraxas or any
Restricted Subsidiary of assets or property to Abraxas or one or more Wholly
Owned Restricted Subsidiaries, (v) any disposition of Hydrocarbons or other
mineral products for value in the ordinary course of business, (vi) the
abandonment, surrender, termination, cancellation, release, farmout, lease or
sublease of undeveloped oil and gas properties in the ordinary course of
business or oil and gas properties which are not capable of
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<PAGE> 10
production in economic quantities, (vii) the contemporaneous trade or exchange
by Abraxas or any of its Restricted Subsidiaries of any oil and gas property or
interest therein owned or held by such Person for any oil and gas property or
interest therein owned or held by another Person which the Board of Directors of
Abraxas determines in good faith by resolution to be of approximately equal
value, including any cash or Cash Equivalents necessary in order to achieve an
exchange of equivalent value; provided that such cash and Cash Equivalents are
subject to Section 4.16; provided, further, to the extent not prohibited by the
terms of any instruments evidencing Acquired Indebtedness associated with the
property received, that the property received by Abraxas or such Restricted
Subsidiary is made subject to the Lien of this Indenture and the Security
Documents to the extent that such property traded or exchanged was subject to
such Lien, provided that any such property received that constitutes Oil and Gas
Assets shall be subject to such Lien in any event; and provided, further, that
to the extent the property traded or exchanged by Abraxas and/or a Restricted
Subsidiary contains proved reserves, the property received contains an
approximately equal value of proved reserves, including cash or Cash Equivalents
to achieve an exchange of equivalent value, or (viii) the sale, lease,
conveyance, disposition or other transfer by Abraxas or any Restricted
Subsidiary of assets or property in the ordinary course of business; provided,
however, that the aggregate amount (valued at the fair market value of such
assets or property at the time of such sale, lease, conveyance, disposition or
transfer) of all such assets and property so sold, leased, conveyed, disposed or
transferred since the Issue Date pursuant to this clause (viii) shall not exceed
$1,000,000 in any one year.
"Authenticating Agent" has the meaning provided in Section 2.02.
"Available Proceeds Amount" means (a) the sum of all Collateral
Proceeds and all Non-Collateral Proceeds remaining after application to repay
any Indebtedness secured by the assets the subject of the Asset Sale giving rise
to such Non-Collateral Proceeds; and (b) for purposes of determining whether a
Net Proceeds Offer must be made as of any day and the amount of such offer, an
amount equal to: the amount set forth under clause (a) above minus the aggregate
amount of all such Asset Sale proceeds previously spent in compliance with the
terms of Section 12.08.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, as for any Person, the board of directors
of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any other
day on which banking institutions in the City of New York are required or
authorized by law or other governmental action to be closed.
"Canadian Abraxas" means the party named as such in the first paragraph
of this Indenture until a successor replaces it pursuant to this Indenture and
thereafter means such successor.
"Capitalized Lease Obligation" means, as to any Person, the discounted
present value of the rental obligations of such Person under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation at such date, determined in accordance with GAAP.
"Capital Stock" means: (a) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and including any
warrants, options or rights to acquire any of the foregoing and instruments
convertible into any of the foregoing, and (b) with respect to any Person that
is not a corporation, any and all partnership or other equity interests of such
Person.
"Cash Equivalents" means: (a) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (b)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
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<PAGE> 11
obtainable from either S&P or Moody's; (c) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (d)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any United States branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $250,000,000; (e)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (a) above entered into with any bank
meeting the qualifications specified in clause (d) above; and (f) money market
mutual or similar funds having assets in excess of $100,000,000.
"Change of Control" means the occurrence of one or more of the
following events: (a) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of Abraxas to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in
compliance with the provisions of this Indenture); (b) the approval by the
holders of Capital Stock of Abraxas of any plan or proposal for the liquidation
or dissolution of Abraxas (whether or not otherwise in compliance with the
provisions of this Indenture); (c) any Person or Group shall become the owner,
directly or indirectly, beneficially or of record, of shares representing more
than 35% of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of Abraxas; or (d) the replacement of a majority of
the Board of Directors of Abraxas over a two-year period from the directors who
constituted the Board of Directors of Abraxas at the beginning of such period
with directors whose replacement shall not have been approved (by
recommendation, nomination or election, as the case may be) by a vote of at
least a majority of the Board of Directors of Abraxas then still in office who
either were members of such Board of Directors at the beginning of such period
or whose election as a member of such Board of Directors was previously so
approved.
"Change of Control Offer" has the meaning provided in Section 4.15.
"Change of Control Payment Date" has the meaning provided in Section
4.15.
"Collateral" means, collectively, all of the property and assets
(including, without limitation, Trust Moneys) that are from time to time subject
to, or purported to be subject to, the Lien of this Indenture or any of the
Security Documents.
"Collateral Account" shall have the meaning provided in Section 12.08.
"Collateral Proceeds" means any Net Cash Proceeds received from an
Asset Sale involving Collateral.
"Commission" means the SEC.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, for any period, the sum (without
duplication) of: (a) Consolidated Net Income, and (b) to the extent Consolidated
Net Income has been reduced thereby, (i) all income taxes of Abraxas and its
Restricted Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary, unusual or nonrecurring
gains or losses or taxes attributable to sales or dispositions outside the
ordinary course of business), (ii) Consolidated Interest Expense, (iii) the
amount of any Preferred Stock dividends paid by Abraxas and its Restricted
Subsidiaries, and (iv) Consolidated Non-cash Charges, less any non-cash items
increasing Consolidated Net Income for such period, all as determined on a
consolidated basis for Abraxas and its Restricted Subsidiaries in accordance
with GAAP.
"Consolidated EBITDA Coverage Ratio" means, with respect to Abraxas,
the ratio of: (a) Consolidated EBITDA of Abraxas during the four full fiscal
quarters for which financial information in respect thereof is available (the
"Four Quarter Period") ending on or prior to the date of the transaction giving
rise to the need to calculate the Consolidated EBITDA Coverage Ratio (the
"Transaction Date") to (b) Consolidated Fixed Charges of Abraxas for the Four
Quarter Period.
For purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect (without duplication) on a pro
forma basis for the period of such calculation to: (a) the incurrence or
repayment of any Indebtedness of Abraxas or any of its Restricted Subsidiaries
(and the application of the proceeds thereof) giving rise
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to the need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period, and (b) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of
Abraxas or one of its Restricted Subsidiaries (including any Person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness, and also
including, without limitation, any Consolidated EBITDA attributable to the
assets which are the subject of the Asset Acquisition or Asset Sale during the
Four Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness) occurred
on the first day of the Four Quarter Period. If Abraxas or any of its Restricted
Subsidiaries directly or indirectly guarantees Indebtedness of a third Person,
the preceding sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if Abraxas or the Restricted Subsidiary, as the case may be, had
directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated EBITDA
Coverage Ratio": (i) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date; (ii) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed to have
been in effect during the Four Quarter Period; (iii) notwithstanding clauses (i)
and (ii) above, interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to Abraxas for any
period, the sum, without duplication, of: (a) Consolidated Interest Expense
(including any premium or penalty paid in connection with redeeming or retiring
Indebtedness of Abraxas and its Restricted Subsidiaries prior to the stated
maturity thereof pursuant to the agreements governing such Indebtedness), plus
(b) the product of (i) the amount of all dividend payments on any series of
Preferred Stock of Abraxas (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(ii) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local
income tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to Abraxas for any
period, the sum of, without duplication: (a) the aggregate of the interest
expense of Abraxas and its Restricted Subsidiaries for such period determined on
a consolidated basis in accordance with GAAP, including without limitation, (i)
any amortization of original issue discount, (ii) the net costs under Interest
Swap Obligations, (iii) all capitalized interest and (iv) the interest portion
of any deferred payment obligation; and (b) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by Abraxas and its Restricted Subsidiaries during such period, as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to Abraxas for any
period, the aggregate net income (or loss) of Abraxas and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, however, that there shall be excluded therefrom: (a)
after-tax gains from Asset Sales or abandonments or reserves relating thereto,
(b) after-tax items classified as extraordinary or nonrecurring gains, (c) the
net income of any Person acquired in a "pooling of interests" transaction
accrued prior to the date it becomes a Restricted Subsidiary or is merged or
consolidated with Abraxas or any Restricted Subsidiary, (d) the net income (but
not loss) of any Restricted Subsidiary to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is restricted by charter, contract, operation of law or otherwise, (e) the net
income of any Person in which Abraxas has an interest, other than a Restricted
Subsidiary, except to the extent of cash dividends or distributions actually
paid to Abraxas or to a Restricted Subsidiary by such Person, (f) income or loss
attributable to discontinued operations (including, without limitation,
operations disposed of during such period whether or not such operations were
classified as discontinued), and (g) in the case of a successor to Abraxas by
consolidation or merger or as a transferee of Abraxas' assets, any net income
(or loss) of the successor corporation prior to such consolidation, merger or
transfer of assets.
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"Consolidated Net Worth" of any Person as of any date means the
consolidated stockholders' equity of such Person, determined on a consolidated
basis in accordance with GAAP, less (without duplication) amounts attributable
to Disqualified Capital Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to Abraxas, for any
period, the aggregate depreciation, depletion, amortization and other non-cash
expenses of Abraxas and its Restricted Subsidiaries reducing Consolidated Net
Income of Abraxas for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which requires an accrual of or a reserve for
cash charges for any future period).
"consolidation" means, with respect to any Person, the consolidation of
the accounts of the Restricted Subsidiaries of such Person with those of such
Person, all in accordance with GAAP; provided, however, that "consolidation"
will not include consolidation of the accounts of any Unrestricted Subsidiary of
such Person with the accounts of such Person. The term "consolidated" has a
correlative meaning to the foregoing.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 101 East 5th Street, St. Paul, Minnesota 55101.
"Covenant Defeasance" has the meaning set forth in Section 8.01.
"Crude Oil and Natural Gas Business" means (i) the acquisition,
exploration, development, operation and disposition of interests in oil, gas and
other hydrocarbon properties located in North America, and (ii) the gathering,
marketing, treating, processing, storage, selling and transporting of any
production from such interests or properties of Abraxas or of others.
"Crude Oil and Natural Gas Hedge Agreements" means, with respect to any
Person, any oil and gas agreements and other agreements or arrangements or any
combination thereof entered into by such Person in the ordinary course of
business and that is designed to provide protection against oil and natural gas
price fluctuations.
"Crude Oil and Natural Gas Properties" means all Properties, including
equity or other ownership interests therein, owned by any Person which have been
assigned "proved oil and gas reserves" as defined in Rule 4-10 of Regulation S-X
of the Securities Act as in effect on the Issue Date.
"Crude Oil and Natural Gas Related Assets" means any Investment or
capital expenditure (but not including additions to working capital or
repayments of any revolving credit or working capital borrowings) by Abraxas or
any Restricted Subsidiary of Abraxas which is related to the business of Abraxas
and its Restricted Subsidiaries as it is conducted on the date of the Asset Sale
giving rise to the Net Cash Proceeds to be reinvested.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect Abraxas
or any Restricted Subsidiary of Abraxas against fluctuations in currency values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Default Interest Payment Date" has the meaning set forth in Section
2.12.
"Depository" means The Depository Trust Company, its nominees and
successors.
"Disqualified Capital Stock" means that portion of any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is mandatorily redeemable at the sole option of the
holder thereof, in whole or in part, in either case, on or prior to the final
maturity of the Notes.
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"Equity Offering" means an offering of Qualified Capital Stock of
Abraxas.
"Event of Default" has the meaning provided in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between an informed and willing seller and an informed and willing buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors of
Abraxas acting reasonably and in good faith and shall be evidenced by a Board
Resolution of Abraxas delivered to the Trustee; provided, however, that (a) if
the aggregate non-cash consideration to be received by Abraxas or any Restricted
Subsidiary from any Asset Sale shall reasonably be expected to exceed $5,000,000
or (b) if the net worth of any Restricted Subsidiary to be designated as an
Unrestricted Subsidiary shall reasonably be expected to exceed $10,000,000, then
fair market value shall be determined by an Independent Advisor.
"First Lien Indenture" means the Indenture dated March 26, 1999
executed by Abraxas and Norwest Bank Minnesota, National Association, or any
successor or replacement agreement, whether by the same or any other trustee,
agent, note holder or group of note holders, lender or group of lenders,
together with the related documents (including, without limitation, any
guarantee agreements and security documents), in each case as such indenture and
documents have been or may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreements extended the maturity of, refinancing, replacing or otherwise
restructuring all or any portion of the Indebtedness under such agreements.
"First Lien Notes" means the $63,500.00 12-7/8% Senior Notes due 2003
of Abraxas issued pursuant to the First Lien Indenture as such notes have been
or may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including any agreements
extending the maturity of, refinancing, replacing or otherwise restructuring all
or any portion of the Indebtedness under such notes.
"First Lien Notes Representative" means the trustee under the First
Lien Indenture or any other Person designated to the Trustee in a First Lien
Notes Representative Change Notice.
"First Lien Notes Representative Change Notice" means a written notice
of a change in the identity and/or address of the First Lien Notes
Representative which certifies to the Trustee (a) with respect to such a notice
that gives notice of a new First Lien Notes Representative, that the Persons
executing such notice constitute the holders of at least 51% in aggregate
principal amount of Indebtedness under the First Lien Notes, or (b) with respect
to such a notice that only gives notice of a new address for the First Lien
Notes Representative, that the Person executing such notice is the then current
First Lien Notes Representative, and which sets forth the new identity (by name,
and by jurisdiction of organization as applicable) and/or the new address of the
First Lien Notes Representative.
"Foreclosure Action" has the meaning provided in Section 12.01.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board as of any date of determination.
"Global Notes" has the meaning provided in Section 2.01.
"Grey Wolf" means Grey Wolf Exploration, Ltd., an Alberta corporation.
"guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain
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<PAGE> 15
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part) (but if in part, only to the extent
thereof); provided, however, that the term "guarantee" shall not include (A)
endorsements for collection or deposit in the ordinary course of business and
(B) guarantees (other than guarantees of Indebtedness) by Abraxas in respect of
assisting one or more Restricted Subsidiaries in the ordinary course of their
respective businesses, including without limitation guarantees of trade
obligations and operating leases, on ordinary business terms. The term
"guarantee" used as a verb has a corresponding meaning.
"Guarantees" has the meaning set forth in Section 11.01.
"Holder" means any Person holding a Note.
"Hydrocarbons" means oil, gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and
all constituents, elements or compounds thereof and products processed
therefrom.
"incur" means, with respect to any Indebtedness, to create, incur,
assume, guarantee, acquire, become liable, contingently or otherwise, with
respect to such Indebtedness, or otherwise become responsible for the payment
thereof.
"Indebtedness" means with respect to any Person, without duplication:
(a) all Obligations of such Person for borrowed money, (b) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(c) all Capitalized Lease Obligations of such Person, (d) all Obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable), (e) all Obligations for the
reimbursement of any obligor on a letter of credit, banker's acceptance or
similar credit transaction, (f) guarantees and other contingent obligations in
respect of Indebtedness referred to in clauses (a) through (e) above and clause
(h) below, (g) all Obligations of any other Person of the type referred to in
clauses (a) through (f) above which are secured by any Lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
Obligation so secured, (h) all Obligations under Currency Agreements and
Interest Swap Obligations, and (i) all Disqualified Capital Stock issued by such
Person with the amount of Indebtedness represented by such Disqualified Capital
Stock being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed redemption price or repurchase price.
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of Abraxas.
The "amount" or "principal amount" of Indebtedness at any time of determination
as used herein represented by: (1) any Indebtedness issued at a price that is
less than the principal amount at maturity thereof shall be the face amount of
the liability in respect thereof, (2) any Capitalized Lease Obligation shall be
the amount determined in accordance with the definition thereof, (3) any
Interest Swap Obligations included in the definition of Permitted Indebtedness
shall be zero, (4) all other unconditional obligations shall be the amount of
the liability thereof determined in accordance with GAAP, and (5) all other
contingent obligations shall be the maximum liability at such date of such
Person.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Independent Advisor" means a reputable accounting, appraisal or
nationally recognized investment banking, engineering or consulting firm which:
(a) does not, and whose directors, officers and employees or Affiliates do not,
have a direct or indirect material financial interest in Abraxas, and (b) in the
judgment of the Board of Directors of Abraxas, is otherwise disinterested,
independent and qualified to perform the task for which it is to be engaged.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
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"interest" when used with respect to any Note means the amount of all
interest accruing on such Note, including any applicable defaulted interest
pursuant to Section 2.12.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Notes.
"Interest Swap Obligation" means the obligations of any Person pursuant
to any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"Investment" means, with respect to any Person, any direct or indirect:
(a) loan, advance or other extension of credit (including, without limitation, a
guarantee) or capital contribution (by means of any transfer of cash or other
property (valued at the fair market value thereof as of the date of transfer) to
others or any payment for property or services for the account or use of
others), (b) purchase or acquisition by such Person of any Capital Stock, bonds,
notes, debentures or other securities or evidences of Indebtedness issued by any
other Person (whether by merger, consolidation, amalgamation or otherwise and
whether or not purchased directly from the issuer of such securities or
evidences of Indebtedness), (c) guarantee or assumption of the Indebtedness of
any other Person (other than the guarantee or assumption of Indebtedness of such
Person or a Restricted Subsidiary of such Person which guarantee or assumption
is made in compliance with Section 4.12), and (d) other items that would be
classified as investments on a balance sheet of such Person prepared in
accordance with GAAP. Notwithstanding the foregoing, "Investment" shall exclude
extensions of trade credit by Abraxas and its Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of
Abraxas or such Restricted Subsidiary, as the case may be. The amount of any
Investment shall not be adjusted for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment. If Abraxas
or any Restricted Subsidiary sells or otherwise disposes of any Capital Stock of
any Restricted Subsidiary such that, after giving effect to any such sale or
disposition, it ceases to be a Subsidiary of Abraxas, Abraxas shall be deemed to
have made an Investment on the date of any such sale or disposition equal to the
fair market value of the Capital Stock of such Restricted Subsidiary not sold or
disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Issuers" means the parties named as such in the first paragraph of
this Indenture until successors replaces them pursuant to this Indenture and
thereafter means such successors.
"Legal Defeasance" has the meaning set forth in Section 8.01.
"Legal Holiday" has the meaning provided in Section 10.07.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, floating or other charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof and any agreement to give any security interest).
"Material Change" means an increase or decrease of more than 10% during
a fiscal quarter in the discounted future net cash flows (excluding changes that
result solely from changes in prices) from proved oil and gas reserves of
Abraxas and consolidated Restricted Subsidiaries (before any state or federal
income tax); provided, however, that the following will be excluded from the
Material Change calculation: (i) any acquisitions during such fiscal quarter of
oil and gas reserves that have been estimated by independent petroleum engineers
and on which a report or reports exist, (ii) any disposition of properties
existing at the beginning of such fiscal quarter that have been disposed of as
provided in Section 4.16, and (iii) any reserves added during such fiscal
quarter attributable to the drilling or recompletion of wells not included in
previous reserve estimates, but which will be included in future quarters.
"Maturity Date" means November 1, 2004.
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"Moody's" means Moody's Investors Service, Inc. and its successors.
"Mortgage" means any mortgage, deed of trust, assignment of production,
security agreement, fixture filing, guarantee of debts and liabilities, general
security agreement, financing statement or other instrument executed and
delivered by Abraxas or any Restricted Subsidiary of Abraxas and granting a Lien
in favor of the Trustee for the benefit of the Trustee and the Holders, as the
same may be amended, supplemented or modified from time to time in accordance
with the terms thereof and of this Indenture.
"Net Cash Proceeds" means, with respect to any Asset Sale, sale,
transfer or other disposition, the proceeds in the form of cash or Cash
Equivalents including payments in respect of deferred payment obligations when
received in the form of cash or Cash Equivalents received by Abraxas or any of
its Restricted Subsidiaries from such Asset Sale, sale, transfer or other
disposition net of: (a) reasonable out-of-pocket expenses and fees relating to
such Asset Sale, sale, transfer or other disposition (including, without
limitation, legal, accounting and investment banking fees and sales
commissions), (b) taxes paid or payable after taking into account any reduction
in consolidated tax liability due to available tax credits or deductions and any
tax sharing arrangements, (c) appropriate amounts (determined by the Chief
Financial Officer of Abraxas) to be provided by Abraxas or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any post closing adjustments or liabilities associated with such Asset Sale,
sale, transfer or other disposition and retained by Abraxas or any Restricted
Subsidiary, as the case may be, after such Asset Sale, sale, transfer or other
disposition 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, sale, transfer or other disposition (but excluding any payments which, by
the terms of the indemnities will not, be made during the term of the Notes),
and (d) the aggregate amount of cash and Cash Equivalents so received which is
used to retire any then existing Indebtedness (other than Indebtedness under the
First Lien Notes, the Old Notes or the Notes) of Abraxas or such Restricted
Subsidiary which is secured by a Lien on the property subject of the Asset Sale,
sale, transfer or other disposition.
"Net Cash Proceeds Application Period" has the meaning set forth in
Section 4.16.
"Net Proceeds Offer" has the meaning set forth in Section 4.16.
"Net Proceeds Offer Payment Date" has the meaning set forth in Section
4.16.
"Net Working Capital" means: (a) all current assets of Abraxas and its
consolidated Subsidiaries, minus (b) all current liabilities of Abraxas and its
consolidated Subsidiaries, except current liabilities included in Indebtedness,
in each case as set forth in financial statements of Abraxas prepared in
accordance with GAAP.
"New Cache" means the party named as such in the first paragraph of
this Indenture until a successor replaces it pursuant to this Indenture and
thereafter means such successor.
"Non-Collateral Proceeds" has the meaning set forth in Section 4.16.
"Non-Recourse Indebtedness" with respect to any Person means
Indebtedness of such Person for which: (a) the sole legal recourse for
collection of principal and interest on such Indebtedness is against the
specific property identified in the instruments evidencing or securing such
Indebtedness and such property was acquired with the proceeds of such
Indebtedness or such Indebtedness was incurred within 90 days after the
acquisition of such property, and (b) no other assets of such Person may be
realized upon in collection of principal or interest on such Indebtedness;
provided, however, that any such Indebtedness shall not cease to be
"Non-Recourse Indebtedness" solely as a result of the instrument governing such
Indebtedness containing terms pursuant to which such Indebtedness becomes
recourse upon: (i) fraud or misrepresentation by the Person in connection with
such Indebtedness, (ii) such Person failing to pay taxes or other charges that
result in the creation of Liens on any portion of the specific property securing
such Indebtedness or failing to maintain any insurance on such property required
under the instruments securing such Indebtedness, (iii) the conversion of any of
the collateral for such Indebtedness, (iv) such Person failing to maintain any
of the collateral for such Indebtedness in the condition required under the
instruments securing the Indebtedness, (v) any income generated by the specific
property securing such Indebtedness being applied in a manner not otherwise
allowed in the instruments securing such Indebtedness, (vi) the violation of any
applicable law or ordinance governing hazardous materials or substances or
otherwise affecting the environmental condition of the specific property
securing the Indebtedness, or (vii) the rights of the holder of such
Indebtedness to the specific property becoming impaired, suspended or reduced by
any act, omission or misrepresentation of such Person; provided,
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further, that upon the occurrence of any of the foregoing clauses (i) through
(vii) above, any such Indebtedness which shall have ceased to be "Non-Recourse
Indebtedness" shall be deemed to have been Indebtedness incurred by such Person
at such time.
"Non-U.S. Person" means a Person who is not a U.S. person, as defined
in Regulation S.
"Notes" means the 11-1/2% Senior Notes due 2004 treated as a single
class of securities, as amended or supplemented from time to time in accordance
with the terms hereof, that are issued pursuant to this Indenture.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Offer to Exchange and Consent Solicitation" means the confidential
Offer to Exchange and Consent Solicitation dated November 18, 1999 of the
Issuers relating to the offering of the Notes.
"Officer" means, with respect to any Person, the Chairman of the Board
of Directors, the Chief Executive Officer, the President, any Vice President,
the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of
such Person, or any other officer designated by the Board of Directors serving
in a similar capacity.
"Officers' Certificate" means a certificate signed by two Officers of
Abraxas and/or Canadian Abraxas, as appropriate, complying with the requirements
of Sections 10.04 and 10.05, as they relate to the giving of an Officers'
Certificate.
"Oil and Gas Assets" means the Crude Oil and Natural Gas Properties and
natural gas processing facilities of Abraxas and/or any of Abraxas' Restricted
Subsidiaries.
"Old Indenture" means the Indenture dated January 27, 1998 executed by
the Issuers and IBJ Schroder Bank & Trust Company, or any successor or
replacement agreement, whether by the same or any other trustee, agent, note
holder or group of note holders, lender or group of lenders, together with the
related documents (including, without limitation, any guarantee agreements and
security documents), in each case as such indenture and documents have been or
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreements extended the
maturity of, refinancing, replacing or otherwise restructuring all or any
portion of the Indebtedness under such agreements.
"Old Notes" means the $275,000,000.00 11-1/2% Senior Notes due 2004 of
Abraxas, as such notes have been or may be amended (including any amendment and
restatement thereof), supplemented or otherwise modified from time to time,
including any agreements extending the maturity of, refinancing, replacing or
otherwise restructuring all or any portion of the Indebtedness under such notes.
"Opinion of Counsel" means a written opinion addressed to the Trustee
from legal counsel who is reasonably acceptable to the Trustee complying with
the requirements of Sections 10.04 and 10.05, as they relate to the giving of an
Opinion of Counsel.
"Paying Agent" has the meaning provided in Section 2.03, and includes
any additional Paying Agent.
"Payment Restriction" shall have the meaning set forth in Section 4.13.
"Permitted Indebtedness" means, without duplication, each of the
following: (a) Indebtedness under the Notes, this Indenture, the Guarantees and
the Security Documents; (b) Interest Swap Obligations of Abraxas or a Restricted
Subsidiary covering Indebtedness of Abraxas or any of its Restricted
Subsidiaries; provided, however, that such Interest Swap Obligations are entered
into to protect Abraxas and its Restricted Subsidiaries from fluctuations in
interest rates on Indebtedness incurred in accordance with this Indenture to the
extent the notional principal amount of such Interest Swap Obligations does not
exceed the principal amount of the Indebtedness to which such Interest Swap
Obligation relates; (c) Indebtedness of a Restricted Subsidiary to Abraxas or to
a Wholly Owned Restricted Subsidiary for so long as such Indebtedness is held by
Abraxas or a Wholly Owned Restricted Subsidiary, in each case subject to no Lien
held by a Person other than Abraxas or a Wholly Owned Restricted Subsidiary;
provided, however, that if as of any date any Person other
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than Abraxas or a Wholly Owned Restricted Subsidiary owns or holds any such
Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by
the issuer of such Indebtedness; (d) Indebtedness of Abraxas to a Wholly Owned
Restricted Subsidiary for so long as such Indebtedness is held by a Wholly Owned
Restricted Subsidiary, in each case subject to no Lien; provided, however, that
(i) any Indebtedness of Abraxas to any Wholly Owned Restricted Subsidiary that
is not a Subsidiary Guarantor is unsecured and subordinated, pursuant to a
written agreement, to Abraxas' obligations under this Indenture and the Notes
and (ii) if as of any date any Person other than a Wholly Owned Restricted
Subsidiary owns or holds any such Indebtedness or holds a Lien in respect of
such Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by Abraxas; (e) Indebtedness arising from
the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of daylight overdrafts)
drawn against insufficient funds in the ordinary course of business; provided,
however, that such Indebtedness is extinguished within two Business Days of
incurrence; (f) Indebtedness of Abraxas or any of its Restricted Subsidiaries
represented by letters of credit for the account of Abraxas or such Restricted
Subsidiary, as the case may be, in order to provide security for workers'
compensation claims, payment obligations in connection with self-insurance or
similar requirements in the ordinary course of business; (g) Refinancing
Indebtedness; (h) Capitalized Lease Obligations of Abraxas outstanding on the
Issue Date; (i) Capitalized Lease Obligations and Purchase Money Indebtedness of
Abraxas or any of its Restricted Subsidiaries not to exceed $5,000,000 at any
one time outstanding; (j) Permitted Operating Obligations; (k) Obligations
arising in connection with Crude Oil and Natural Gas Hedge Agreements of Abraxas
or a Restricted Subsidiary; (l) Non-Recourse Indebtedness; (m) Indebtedness
under Currency Agreements; provided, however, that in the case of Currency
Agreements which relate to Indebtedness, such Currency Agreements do not
increase the Indebtedness of Abraxas and its Restricted Subsidiaries outstanding
other than as a result of fluctuations in foreign currency exchange rates or by
reason of fees, indemnities and compensation payable thereunder; (n) additional
Indebtedness of Abraxas or any of its Restricted Subsidiaries in an aggregate
principal amount at any time outstanding not to exceed the sum of (i) $5,000,000
plus (ii) 5% of Adjusted Consolidated Net Tangible Assets; and (o) Indebtedness,
including, but not limited to, the First Lien Notes outstanding on the Issue
Date and the Old Notes outstanding on the Issue Date (to the extent the
Indebtedness thereunder is not taken up by the Notes).
"Permitted Industry Investments" means: (a) capital expenditures,
including, without limitation, acquisitions of the Abraxas Properties and
interests therein; (b) (i) entry into operating agreements, joint ventures,
working interests, royalty interests, mineral leases, unitization agreements,
pooling arrangements or other similar or customary agreements, transactions,
properties, interests or arrangements, and Investments and expenditures in
connection therewith or pursuant thereto, in each case made or entered into in
the ordinary course of the oil and gas business, and (ii) exchanges of the
Abraxas Properties for other Abraxas Properties of at least equivalent value as
determined in good faith by the Board of Directors of Abraxas; and (c)
Investments of operating funds on behalf of co-owners of Crude Oil and Natural
Gas Properties of Abraxas or the Subsidiaries pursuant to joint operating
agreements.
"Permitted Investments" means: (a) Investments by Abraxas or any
Restricted Subsidiary in any Person that is or will become immediately after
such Investment a Restricted Subsidiary or that will merge or consolidate into
Abraxas or a Restricted Subsidiary that is not subject to any Payment
Restriction; (b) Investments in Abraxas by any Restricted Subsidiary; provided,
however, that any Indebtedness evidencing any such Investment held by a
Restricted Subsidiary that is not a Subsidiary Guarantor is unsecured and
subordinated, pursuant to a written agreement, to Abraxas' obligations under the
Notes and this Indenture; (c) investments in cash and Cash Equivalents; (d)
Investments made by Abraxas or its Restricted Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance with
Section 4.16; and (e) Permitted Industry Investments.
"Permitted Liens" means each of the following types of Liens: (a) Liens
arising under this Indenture or the First Lien Indenture, or under the Security
Documents or the security documents securing the First Lien Notes; (b) Liens
securing the Notes and the Guarantees or securing the First Lien Notes or any
guarantee of the First Lien Notes; (c) Liens for taxes, assessments or
governmental charges or claims either (i) not delinquent or (ii) contested in
good faith by appropriate proceedings and as to which Abraxas or a Restricted
Subsidiary, as the case may be, shall have set aside on its books such reserves
as may be required pursuant to GAAP; (d) statutory and contractual Liens of
landlords to secure rent arising in the ordinary course of business to the
extent such Liens relate only to the tangible property of the lessee which is
located on such property and Liens of carriers, warehousemen, mechanics,
builders, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made in respect thereof; (e) Liens
incurred on deposits made in the ordinary course of business: (i) in connection
with workers' compensation, unemployment insurance and other types of social
security, including any Lien securing letters of credit issued in the ordinary
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course of business consistent with past practice in connection therewith, or
(ii) to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money); (f) easements, rights-of-way, zoning
restrictions, restrictive covenants, minor imperfections in title and other
similar charges or encumbrances in respect of real property not interfering in
any material respect with the ordinary conduct of the business of Abraxas or any
of its Restricted Subsidiaries; (g) any interest or title of a lessor under any
Capitalized Lease Obligation; provided that such Liens do not extend to any
property or asset which is not leased property subject to such Capitalized Lease
Obligation; (h) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof; (i) Liens
encumbering deposits made to secure obligations arising from statutory,
regulatory, contractual, or warranty requirements of Abraxas or any of its
Restricted Subsidiaries, including rights of offset and set-off; (j) Liens
securing Interest Swap Obligations which Interest Swap Obligations relate to
Indebtedness that is otherwise permitted under this Indenture and Liens securing
Crude Oil and Natural Gas Hedge Agreements; (k) Liens on pipeline or pipeline
facilities, Hydrocarbons or properties and assets of Abraxas and its
Subsidiaries which arise out of operation of law; (l) royalties, overriding
royalties, revenue interests, net revenue interests, net profit interests,
revisionary interests, production payments, production sales contracts,
operating agreements and other similar interests, properties, arrangements and
agreements, all as ordinarily exist with respect to Properties and assets of
Abraxas and its Subsidiaries or otherwise as are customary in the oil and gas
business; (m) with respect to any Properties and assets of Abraxas and its
Subsidiaries, Liens arising under, or in connection with, or related to,
farm-out, farm-in, joint operation, area of mutual interest agreements and/or
other similar or customary arrangements, agreements or interests that Abraxas or
any Subsidiary determines in good faith to be necessary for the economic
development of such Property; (n) any (i) interest or title of a lessor or
sublessor under any lease, (ii) restriction or encumbrance that the interest or
title of such lessor or sublessor may be subject to (including, without
limitation, ground leases or other prior leases of the demised premises,
mortgages, mechanics' Liens, builders' Liens, tax Liens, and easements), or
(iii) subordination of the interest of the lessee or sublessee under such lease
to any restrictions or encumbrance referred to in the preceding clause (ii); (o)
Liens in favor of collecting or payor banks having a right of setoff,
revocation, refund or chargeback with respect to money or instruments of Abraxas
or any Restricted Subsidiary on deposit with or in possession of such bank; (p)
Liens securing Non-recourse Indebtedness; (q) judgment and attachment Liens not
giving rise to an Event of Default; (r) Liens securing Acquired Indebtedness
incurred in accordance with Section 4.12; provided, however, that (i) such Liens
secured such Acquired Indebtedness at the time of and prior to the incurrence of
such Acquired Indebtedness by Abraxas or a Restricted Subsidiary and were not
granted in connection with, or in anticipation of, the incurrence of such
Acquired Indebtedness by Abraxas or a Restricted Subsidiary and (ii) such Liens
do not extend to or cover any property or assets of Abraxas or of any of its
Restricted Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of Abraxas or a Restricted Subsidiary and are no more favorable to
the lienholders than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by Abraxas or a Restricted Subsidiary;
(s) Liens existing on the Issue Date; (t) Liens securing Refinancing
Indebtedness which is incurred to Refinance any Indebtedness permitted under
this Indenture and which has been secured by a Lien permitted under this
Indenture and which has been incurred in accordance with the provisions of this
Indenture; provided, however, that such Liens (i) are no less favorable to the
Holders and are not more favorable to the lienholders with respect to such Liens
than the Liens in respect of the Indebtedness being Refinanced and (ii) do not
extend to or cover any property or assets of Abraxas or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced; and (u) Liens securing
Indebtedness of Abraxas or any of its Restricted Subsidiaries in an aggregate
principal amount at any time outstanding not to exceed the sum of (i) $5,000,000
plus (ii) 5% of Adjusted Consolidated Net Tangible Assets.
"Permitted Operating Obligations" means Indebtedness of Abraxas or any
Restricted Subsidiary in respect of one or more standby letters of credit, bid,
performance or surety bonds, or other reimbursement obligations, issued for the
account of, or entered into by, Abraxas or any Restricted Subsidiary in the
ordinary course of business (excluding obligations related to the purchase by
Abraxas or any Restricted Subsidiary of Hydrocarbons for which Abraxas or such
Restricted Subsidiary has contracts to sell), or in lieu of any thereof or in
addition to any thereto, guarantees and letters of credit supporting any such
obligations and Indebtedness (in each case, other than for an obligation for
borrowed money, other than borrowed money represented by any such letter of
credit, bid, performance or surety bond, or reimbursement obligation itself, or
any guarantee and letter of credit related thereto).
"Person" means an individual, partnership, corporation, unincorporated
organization, limited liability company, trust, estate, or joint venture, or a
governmental agency or political subdivision thereof.
"Physical Notes" has the meaning provided in Section 2.01.
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"Plan of Liquidation" means, with respect to any Person, a plan
(including by operation of law) that provides for, contemplates or the
effectuation of which is preceded or accompanied by (whether or not
substantially contemporaneously) (i) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of such Person otherwise
than as an entirety or substantially as an entirety and (ii) the distribution of
all or substantially all of the proceeds of such sale, lease, conveyance or
other disposition and all or substantially all of the remaining assets of such
Person to holders of Capital Stock of such Person.
"Pledge Agreement" means those certain Security Agreements (Pledge)
dated as of the Issue Date pursuant to which the Capital Stock of Grey Wolf
owned by Abraxas and/or the Restricted Subsidiaries of Abraxas is pledged to the
Trustee for the benefit of the Holders, as the same may be amended, modified or
supplemented from time to time.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"principal" of any Indebtedness (including the Notes) means the
principal amount of such Indebtedness plus the premium, if any, on such
Indebtedness.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.15.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act, as determined by the
Board of Directors of Abraxas in consultation with its independent public
accountants.
"Property" means, with respect to any Person, any interests of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock,
partnership interests and other equity or ownership interests in any other
Person.
"Purchase Money Indebtedness" means Indebtedness the net proceeds of
which are used to finance the cost (including the cost of construction) of
property or assets acquired in the normal course of business by the Person
incurring such Indebtedness.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Record Date" means the Record Dates specified in the Notes.
"Redemption Date," when used with respect to any Note to be redeemed,
means the date fixed for such redemption pursuant to this Indenture and the
Notes.
"Redemption Price," when used with respect to any Note to be redeemed,
means the price fixed for such redemption, including principal and premium, if
any, pursuant to this Indenture and the Notes.
"Reference Date" has the meaning set forth in Section 4.10.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by Abraxas or any
Restricted Subsidiary of Abraxas of Indebtedness incurred in accordance with
Section 4.12 (other than pursuant to clause (b), (c), (d), (e), (f), (i), (j),
(k), (m) or (n) of the definition of Permitted Indebtedness), in each case that
does not: (1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable expenses incurred
by Abraxas and its Restricted Subsidiaries in connection with such Refinancing),
or (2) create
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Indebtedness with (A) a Weighted Average Life to Maturity that is less than the
Weighted Average Life to Maturity of the Indebtedness being Refinanced or (B) a
final maturity earlier than the final maturity of the Indebtedness being
Refinanced; provided, however, that (a) if such Indebtedness being Refinanced is
Indebtedness of Abraxas or a Subsidiary Guarantor, then such Refinancing
Indebtedness shall be Indebtedness solely of Abraxas and/or such Subsidiary
Guarantor and (b) if such Indebtedness being Refinanced is subordinate or junior
to the Notes or a Guarantee, then such Refinancing Indebtedness shall be
subordinate to the Notes or such Guarantee, as the case may be, at least to the
same extent and in the same manner as the Indebtedness being Refinanced.
"Registrar" has the meaning provided in Section 2.03.
"Regulation S" means Regulation S under the Securities Act.
"Related Person" of any Person means any other Person directly or
indirectly owning 10% or more of the outstanding voting Common Stock of such
Person (or, in the case of a Person that is not a corporation, 10% or more of
the equity interest in such Person).
"Released Interests" has the meaning provided in Section 12.04.
"Replacement Assets" has the meaning provided in Section 4.16.
"Restricted Payment" shall have the meaning set forth in Section 4.10.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided, however, that the Trustee shall be
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether any Note constitutes a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of Abraxas (including,
without limitation, Canadian Abraxas, New Cache, Sandia and Wamsutter) that has
not been designated by the Board of Directors of Abraxas, by a Board Resolution
delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with Section 4.14. Any such designation may be revoked by a Board
Resolution of Abraxas delivered to the Trustee, subject to the provisions of
such Section.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Rating Services, a division of The McGraw
Hill Companies, Inc., and its successors.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to Abraxas or a Restricted Subsidiary of any Property, whether
owned by Abraxas or any Restricted Subsidiary at the Issue Date or later
acquired which has been or is to be sold or transferred by Abraxas or such
Restricted Subsidiary to such Person or to any other Person from whom funds have
been or are to be advanced by such Person on the security of such Property.
"Sandia" means the party named as such in the first paragraph of this
Indenture until a successor replaces it pursuant to this Indenture and
thereafter such successor.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Security Documents" means, collectively, the Mortgages, the Pledge
Agreement and all security agreements, mortgages, deeds of trust, collateral
assignments or other instruments evidencing or creating any security interests
in favor of the Trustee in all or any portion of the Collateral, in each case as
amended, supplemented or modified from time to time in accordance with their
terms and the terms of this Indenture.
"Stated Maturity Date" means November 1, 2004.
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"Standstill Period" has the meaning provided in Section 12.01.
"Standstill Period Commencement Notice" has the meaning provided in
Section 12.01.
"Subordinated Indebtedness" means Indebtedness of Abraxas or a
Subsidiary Guarantor that is subordinated or junior in right of payment to the
Notes, the relevant Guarantee and the Security Documents, as applicable,
pursuant to a written agreement to that effect.
"Subsidiary," with respect to any Person, means: (a) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person, or (b) any
other Person of which at least a majority of the voting interests under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantor" means New Cache, Sandia, Wamsutter and each of
Abraxas' Restricted Subsidiaries that in the future executes a supplemental
indenture in which such Restricted Subsidiary agrees to be bound by the terms of
this Indenture as a Subsidiary Guarantor; provided, however, that any Person
constituting a Subsidiary Guarantor as described above shall cease to constitute
a Subsidiary Guarantor when its Guarantee is released in accordance with the
terms of this Indenture.
"Surviving Entity" shall have the meaning set forth in Section 5.01.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as
otherwise provided in Section 9.03.
"Trust Officer" means any officer or assistant officer within the
Corporate Trust Office of the Trustee (or any successor group of the Trustee)
assigned by the Trustee or successor Trustee to administer this Indenture, or in
the case of a successor trustee, an officer assigned to the department, division
or group performing the corporation trust work of such successor and assigned to
administer this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of Article Seven of this
Indenture and thereafter means such successor.
"Trust Moneys" means all cash or Cash Equivalents received by the
Trustee: (a) upon the release of Collateral from the Lien of this Indenture and
the Security Documents, including investment earnings thereon; or (b) pursuant
to the provisions of any Mortgage; or (c) as proceeds of any other sale or other
disposition of all or any part of the Collateral by or on behalf of the Trustee
or any collection, recovery, receipt, appropriation or other realization of or
from all or any part of the Collateral pursuant to this Indenture or any of the
Security Documents or otherwise; or (d) for application under this Indenture as
provided for in this Indenture or the Security Documents, or whose disposition
is not elsewhere specifically provided for in this Indenture or in the Security
Documents; provided, however, that Trust Moneys shall not include any property
deposited with the Trustee pursuant to any Change of Control Offer, Net Proceeds
Offer or redemption or defeasance of any Notes.
"U.S. Government Obligations" mean direct obligations of, and
obligations guaranteed by, the United States of America for the payment of which
the full faith and credit of the United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Unrestricted Subsidiary" means any Subsidiary of Abraxas designated as
such pursuant to and in compliance with Section 4.14; provided, however, that
Unrestricted Subsidiaries shall initially include Western and Grey Wolf, to the
extent, if any, it now or hereafter constitutes a "Subsidiary". Any such
designation may be revoked by a Board Resolution of Abraxas delivered to the
Trustee, subject to the provisions of such Section 4.14.
"Valuation Date" has the meaning provided in Section 12.04.
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"Wamsutter" means the party named as such in the first paragraph of
this Indenture until a successor replaces it pursuant to this Indenture and
thereafter means such successor.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing: (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying: (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Western" means Western Associated Energy Corporation, a Texas
Corporation.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which all the outstanding voting securities normally entitled to vote in the
election of directors are owned by Abraxas or another Wholly Owned Restricted
Subsidiary.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means Abraxas, Canadian Abraxas,
any Subsidiary Guarantor or any other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule and
not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP of any date of determination;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or other subdivision; and
(6) any reference to a statute, law or regulation means that
statute, law or regulation as amended and in effect from time to time
and includes any successor statute, law or regulation; provided,
however, that any reference to the Bankruptcy Law shall mean the
Bankruptcy Law as applicable to the relevant case.
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ARTICLE TWO
THE NOTES
SECTION 2.01. Principal Amount; Form and Dating.
(a) Principal Amount.
The aggregate principal amount of Notes which may be issued, executed,
authenticated and outstanding under this Indenture is $196,800,000.00.
(b) Form and Dating.
The Notes and the Trustee's certificate of authentication relating
thereto shall be substantially in the form of Exhibit A hereto. The Notes may
have notations, legends or endorsements required by law, stock exchange rule or
depository rule or usage. The Issuers and the Trustee shall approve the form of
the Notes and any notation, legend or endorsement on them. Each Note shall be
dated the date of its issuance and shall show the date of its authentication.
Each Note shall have an executed Guarantee endorsed thereon substantially in the
form of Exhibit E hereto.
The terms and provisions contained in the Notes, annexed hereto as
Exhibit A, shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Issuers and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Notes offered and issued in reliance on Section 3(a)(9) of the
Securities Act shall be issued in the form of one or more permanent global Notes
in registered form, substantially in the form set forth in Exhibit A (the
"Global Notes"), deposited with the Trustee, as custodian for the Depository,
duly executed by the Issuers (and having an executed Guarantee endorsed thereon)
and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of the Global Notes may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depository, as hereinafter provided. Notes issued in exchange for interests
in a Global Note pursuant to Section 2.16 may be issued in the form of permanent
certificated Notes in registered form in substantially the form set forth in
Exhibit A (the "Physical Notes").
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount.
Two Officers, or an Officer and an Assistant Secretary of each Issuer
and each Subsidiary Guarantor, shall sign, or one Officer shall sign and one
Officer or an Assistant Secretary (each of whom shall, in each case, have been
duly authorized by all requisite corporate actions) shall attest to, the Notes
for the Issuers and the Guarantees for the Subsidiary Guarantors by manual or
facsimile signature.
If an Officer or Assistant Secretary whose signature is on a Note or a
Guarantee was an Officer or Assistant Secretary at the time of such execution
but no longer holds that office or position at the time the Trustee
authenticates the Note, the Note shall nevertheless be valid.
A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
The Trustee upon receipt of a written order in the form of an Officers'
Certificate shall authenticate Notes for original issue in the aggregate
principal amount not to exceed $196,800,000.00, in each case upon a written
order of the Issuers in the form of an Officers' Certificate of each Issuer.
Each such written order shall specify the amount of Notes to be authenticated
and the date on which the Notes are to be authenticated, and whether the Notes
are to be issued as Physical Notes or Global Notes or such other information as
the Trustee may reasonably request. The aggregate principal amount of Notes
outstanding at any time may not exceed $196,800,000.00, except as provided in
Sections 2.07 and 2.08.
The Trustee may appoint an authenticating agent (the "Authenticating
Agent") reasonably acceptable to the Issuers to authenticate Notes. Unless
otherwise provided in the appointment, an Authenticating Agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such Authenticating
Agent. An Authenticating Agent has the same rights as an Agent to deal with the
Issuers or with any Affiliate of the Issuers.
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The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Issuers shall maintain an office or agency where (a) Notes may be
presented or surrendered for registration of transfer or for exchange
("Registrar") which shall be the Corporate Trust Office, (b) Notes may be
presented or surrendered for payment ("Paying Agent") which shall initially be
located in the Borough of Manhattan in the City of New York, State of New York,
and (c) notices and demands to or upon the Issuers in respect of the Notes and
this Indenture or to or upon the Subsidiary Guarantors in respect of their
Guarantee and this Indenture may be served which shall be the office of the
Paying Agent or the Corporate Trust Office. The Registrar shall keep a register
of the Notes and of their transfer and exchange. The Issuers, upon prior written
notice to the Trustee, may have one or more co-Registrars and one or more
additional Paying Agents reasonably acceptable to the Trustee. The Issuers may
act as their own Paying Agent, except that for the purposes of payments on the
Notes pursuant to Sections 4.15 and 4.16, neither the Issuers nor any Affiliate
of the Issuers may act as Paying Agent; provided that any such co-Registrar or
Paying Agent shall deliver a certificate to the Trustee certifying that it
agrees to perform its duties in accordance with the procedures established by
the Trustee and with the terms of this Indenture.
The Issuers shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall incorporate the
provisions of the TIA and implement the provisions of this Indenture that relate
to such Agent. The Issuers shall notify the Trustee, in advance, of the name and
address of any such Agent. If the Issuers fail to maintain a Registrar or Paying
Agent, or fail to give the foregoing notice, the Trustee shall act as such.
The Issuers and the Subsidiary Guarantors initially appoint the Trustee
as Registrar, Paying Agent and agent for service of demands and notices in
connection with the Notes and the Guarantees, until such time as the Trustee has
resigned or a successor has been appointed. Any of the Registrar, the Paying
Agent or any other agent may resign upon 30 days' notice to the Issuers.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Issuers shall require each Paying Agent other than the Trustee to
agree in writing that such Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all assets held by the Paying Agent for the payment
of principal of, premium, if any, or interest on, the Notes (whether such assets
have been distributed to it by the Issuers or any other obligor on the Notes),
and the Issuers and the Paying Agent shall notify the Trustee of any Default by
the Issuers (or any other obligor on the Notes) in making any such payment. The
Issuers at any time may require a Paying Agent to distribute all assets held by
it to the Trustee and account for any assets disbursed and the Trustee may at
any time during the continuance of any payment Default, upon written request to
a Paying Agent, require such Paying Agent to distribute all assets held by it to
the Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Issuers to the
Paying Agent, the Paying Agent shall have no further liability for such assets.
SECTION 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders. If the Trustee is not the Registrar, the Issuers shall furnish or
cause the Registrar to furnish to the Trustee before each Record Date and at
such other times as the Trustee may request in writing a list as of such date
and in such form as the Trustee may reasonably require of the names and
addresses of the Holders, which list may be conclusively relied upon by the
Trustee.
SECTION 2.06. Transfer and Exchange.
When Notes are presented to the Registrar or a co-Registrar with a
request to register the transfer of such Notes or to exchange such Notes for an
equal principal amount of Notes or other authorized denominations, the Registrar
or co-Registrar shall register the transfer or make the exchange as requested if
its requirements for such transaction are met; provided, however, that the Notes
presented or surrendered for registration of transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer in form satisfactory
to the Issuers, the Trustee and the Registrar or co-Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing. To permit
registration of transfers and exchanges, the Issuers shall execute and the
Trustee shall authenticate Notes and the Subsidiary Guarantors shall execute
Guarantees thereon at the Registrar's or co-
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Registrar's request. No service charge shall be made for any registration of
transfer or exchange, but the Issuers may require payment of a sum sufficient to
cover any transfer tax, fee or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar governmental charge
payable upon exchanges or transfers pursuant to Sections 2.10, 3.04, 4.15, 4.16
or 9.05, in which event the Issuers shall be responsible for the payment of such
taxes).
The Registrar or co-Registrar shall not be required to register the
transfer of or exchange of any Note (i) during a period beginning at the opening
of business 15 days before the mailing of a notice of redemption of Notes and
ending at the close of business on the day of such mailing and (ii) selected for
redemption in whole or in part pursuant to Article Three, except the unredeemed
portion of any Note being redeemed in part.
Any Holder of a beneficial interest in a Global Note shall, by
acceptance of such Global Note, agree that transfers of beneficial interests in
such Global Note may be effected only through a book entry system maintained by
the Holder of such Global Note (or its agent), and that ownership of a
beneficial interest in the Note shall be required to be reflected in a book
entry system.
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the Holder of a
Note claims that the Note has been lost, destroyed or wrongfully taken and
submits evidence thereof satisfactory to the Trustee, the Issuers shall issue
and the Trustee, upon receipt of a written order in the form of an Officers'
Certificate, shall authenticate a replacement Note and the Subsidiary Guarantors
shall execute a Guarantee thereon if the Trustee's requirements are met. If
required by the Trustee or the Issuers, such Holder must provide an indemnity
bond or other indemnity of reasonable tenor, sufficient in the reasonable
judgment of the Issuers, the Subsidiary Guarantors and the Trustee, to protect
the Issuers, the Subsidiary Guarantors, the Trustee or any Agent from any loss
which any of them may suffer if a Note is replaced. Every replacement Note shall
constitute an additional obligation of the Issuers and the Subsidiary
Guarantors.
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those canceled by it, those delivered to it
for cancellation and those described in this Section as not outstanding. Subject
to the provisions of Section 2.09, a Note does not cease to be outstanding
because the Issuers or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a mutilated
Note surrendered for replacement), it ceases to be outstanding unless the
Trustee receives proof satisfactory to it that the replaced Note is held by a
bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of
such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date or the Stated Maturity Date, the Paying Agent
holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of
the principal, premium, if any, and interest due on the Notes payable on that
date and is not prohibited from paying such money to the Holders thereof
pursuant to the terms of this Indenture, then on and after that date such Notes
shall be deemed not to be outstanding and interest on them shall cease to
accrue.
SECTION 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver, consent or notice, Notes owned by
the Issuers or an Affiliate of the Issuers shall be considered as though they
are not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes which a Trust Officer of the Trustee actually knows are so owned
shall be so considered. The Issuers shall notify the Trustee, in writing, when
they or, to their knowledge, any of their Affiliates repurchase or otherwise
acquire Notes, of the aggregate principal amount of such Notes so repurchased or
otherwise acquired and such other information as the Trustee may reasonably
request and the Trustee shall be entitled to rely thereon.
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SECTION 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Issuers may prepare
and the Trustee shall authenticate temporary Notes upon receipt of a written
order of the Issuers in the form of an Officers' Certificate. The Officers'
Certificate shall specify the amount of temporary Notes to be authenticated and
the date on which the temporary Notes are to be authenticated. Temporary Notes
shall be substantially in the form of definitive Notes but may have variations
that the Issuers consider appropriate for temporary Notes and so indicate in the
Officers' Certificate. Without unreasonable delay, the Issuers shall prepare,
the Trustee shall authenticate and the Subsidiary Guarantors shall execute
Guarantees on, upon receipt of a written order of the Issuers pursuant to
Section 2.02, definitive Notes in exchange for temporary Notes.
SECTION 2.11. Cancellation.
The Issuers at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent, and no one
else, shall cancel and, at the written direction of the Issuers, shall dispose,
in its customary manner, of all Notes surrendered for transfer, exchange,
payment or cancellation. Subject to Section 2.07, the Issuers may not issue new
Notes to replace Notes that it has paid or delivered to the Trustee for
cancellation. If the Issuers shall acquire any of the Notes, such acquisition
shall not operate as a redemption or satisfaction of the Indebtedness
represented by such Notes unless and until the same are surrendered to the
Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
The Issuers will pay interest on overdue principal from time to time on
demand at the rate of interest then borne by the Notes. The Issuers shall, to
the extent lawful, pay interest on overdue installments of interest (without
regard to any applicable grace periods) from time to time on demand at the rate
of interest then borne by the Notes. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months, and, in the case of a partial
month, the actual number of days elapsed.
If the Issuers default in a payment of interest on the Notes, it shall
pay the defaulted interest, plus (to the extent lawful) any interest payable on
the defaulted interest, to the Persons who are Holders on a subsequent special
record date, which special record date shall be the fifteenth day next preceding
the date fixed by the Issuers for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. The Issuers shall
notify the Trustee in writing of the amount of defaulted interest proposed to be
paid on each Note and the date of the proposed payment (a "Default Interest
Payment Date"), and at the same time the Issuers shall deposit with the Trustee
an amount of money equal to the aggregate amount proposed to be paid in respect
of such defaulted interest or shall make arrangements satisfactory to the
Trustee for such deposit on or prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons entitled
to such defaulted interest as provided in this Section; provided, however, that
in no event shall the Issuers deposit monies proposed to be paid in respect of
defaulted interest later than 11:00 a.m. New York City time of the proposed
Default Interest Payment Date. At least 15 days before the subsequent special
record date, the Issuers shall mail (or cause to be mailed) to each Holder, as
of a recent date selected by the Issuers, with a copy to the Trustee, a notice
that states the subsequent special record date, the Default Interest Payment
Date and the amount of defaulted interest, and interest payable on such
defaulted interest, if any, to be paid. Notwithstanding the foregoing, any
interest which is paid prior to the expiration of the 30-day period set forth in
Section 6.01(a) shall be paid to Holders as of the regular record date for the
Interest Payment Date for which interest has not been paid. Notwithstanding the
foregoing, the Issuers may make payment of any defaulted interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Notes may be listed, and upon such notice as may be required by
such exchange.
SECTION 2.13. CUSIP Number.
The Issuers in issuing the Notes may use a "CUSIP" number, and, if so,
the Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders; provided, however, that no representation is hereby
deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes, and that reliance may be placed
only on the other identification numbers printed on the Notes. The Issuers shall
promptly notify the Trustee in writing of any change in the CUSIP number.
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<PAGE> 29
SECTION 2.14. Deposit of Monies.
Prior to 11:00 a.m. New York City time on each Interest Payment Date,
Maturity Date, Redemption Date, Change of Control Payment Date and Net Proceeds
Offer Payment Date, the Issuers shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date, Maturity Date, Redemption Date, Change of Control
Payment Date and Net Proceeds Offer Payment Date, as the case may be, in a
timely manner which permits the Paying Agent to remit payment to the Holders on
such Interest Payment Date, Maturity Date, Redemption Date, Change of Control
Payment Date and Net Proceeds Offer Payment Date, as the case may be.
SECTION 2.15. Restrictive Legends.
Each Global Note and Physical Note that constitutes a Restricted
Security shall bear the following legend (the "Private Placement Legend") on the
face thereof, and the Assignment Form that is part of such Note shall include
the additional provisions set forth in Exhibit B, until after the second
anniversary of the later of the Issue Date and the last date on which an Issuer
or any Affiliate of either Issuer was the owner of such Note (or any predecessor
security) (or such shorter period of time as permitted by Rule 144(k) under the
Securities Act or any successor provision thereunder) (or such longer period of
time as may be required under the Securities Act or applicable state securities
laws in the opinion of counsel for the Issuers, unless otherwise agreed by the
Issuers and the Holder thereof):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3), OR (7) UNDER THE SECURITIES ACT), (AN "ACCREDITED INVESTOR")
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL
ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE ISSUERS THEREOF OR ANY SUBSIDIARY THEREOF, (B) INSIDE
THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT (PROVIDED THAT ANY SUCH SALE OR
TRANSFER IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT MUST
BE EFFECTED PURSUANT TO AN EXEMPTION FROM THE PROSPECTUS AND
REGISTRATION REQUIREMENTS UNDER APPLICABLE CANADIAN SECURITIES LAWS),
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER
THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS
AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE AND THE ISSUERS SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE
TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
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Each Global Note shall also bear the following legend on the face
thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE
BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO AN ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THIS INDENTURE.
SECTION 2.16. Book-Entry Provisions for Global Security.
(a) The Global Notes initially shall (i) be registered in the name of
the Depository or the nominee of such Depository, (ii) be delivered to the
Trustee as custodian for such Depository and (iii) bear legends as set forth in
Section 2.15.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Notes, and the Depository may be treated by the Issuers, the Trustee and
any Agent of the Issuers or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Issuers, the Trustee or any Agent of the Issuers or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers in whole,
but not in part, to the Depository, its successors or their respective nominees.
Interests of beneficial owners in a Global Note may be transferred or exchanged
for Physical Notes in accordance with the rules and procedures of the Depository
and the provisions of Section 2.17. In addition, Physical Notes shall be
transferred to all beneficial owners in exchange for their beneficial interests
in a Global Note if (i) the Depository notifies the Issuers that it is unwilling
or unable to continue as Depository for the Global Notes and a successor
depositary is not appointed by the Issuers within 90 days of such notice or (ii)
an Event of Default has occurred and is continuing and the Registrar has
received a written request from the Depository to issue Physical Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in a Global Note to beneficial owners pursuant to paragraph
(b), the Registrar shall (if one or more Physical Notes are to be issued)
reflect on its books and records the date and a decrease in the principal amount
of such Global Note in an amount equal to the principal amount of the beneficial
interest in the Global Note to be transferred, and the Issuers shall execute,
the Subsidiary Guarantors shall execute Guarantees on, and the Trustee shall
authenticate and deliver, one or more Physical Notes of like tenor and amount.
(d) In connection with the transfer of an entire Global Note to
beneficial owners pursuant to paragraph (b), such Global Note shall be deemed to
be surrendered to the Trustee for cancellation, and the Issuers shall execute,
the Subsidiary Guarantors shall execute Guarantees on and the Trustee shall
authenticate and deliver, to each beneficial owner
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identified by the Depository in exchange for its beneficial interest in the
Global Note, an equal aggregate principal amount of Physical Notes of authorized
denominations.
(e) Any Physical Note constituting a Restricted Security delivered in
exchange for an interest in a Global Note pursuant to paragraph (b) or (c)
shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section
2.17, bear the legend regarding transfer restrictions applicable to the Physical
Notes set forth in Section 2.15.
(f) The Holder of a Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
SECTION 2.17. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors and
Non-U.S. Persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Note
constituting a Restricted Security, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after the
second anniversary of the Issue Date (provided, however, that neither
of the Issuers nor any Affiliate of either of the Issuers has held any
beneficial interest in such Note, or portion thereof, at any time on or
prior to the second anniversary of the Issue Date) or (y) (1) in the
case of a transfer to an Institutional Accredited Investor which is not
a QIB (excluding Non-U.S. Persons), the proposed transferee has
delivered to the Registrar a certificate substantially in the form of
Exhibit C hereto or (2) in the case of a transfer to a Non-U.S. Person,
the proposed transferor has delivered to the Registrar a certificate
substantially in the form of Exhibit D hereto; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in a Global Note, upon receipt by the Registrar of
(x) the certificate, if any, required by paragraph (i) above and (y)
written instructions given in accordance with the Depository's and the
Registrar's procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Notes) a
decrease in the principal amount of such Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred, and (b) the Issuers shall execute, the Subsidiary Guarantors shall
execute the Guarantees on and the Trustee shall authenticate and deliver one or
more Physical Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Note constituting a
Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the box
provided for on the form of Note stating, or has otherwise advised the
Issuers and the Registrar in writing, that the sale has been made in
compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Note stating, or
has otherwise advised the Issuers and the Registrar in writing, that it
is purchasing the Note for its own account or an account with respect
to which it exercises sole investment discretion and that it and any
such account is a QIB within the meaning of Rule 144A, and is aware
that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Issuers as it has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Notes to be transferred consist of Physical Notes which after transfer
are to be evidenced by an interest in a Global Note, upon receipt by
the Registrar of written instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount of such Global Note in an amount equal to the
principal amount of the Physical Notes to be transferred, and the
Trustee shall cancel the Physical Notes so transferred.
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(c) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless (i) the requested transfer is after the third anniversary of the Issue
Date (provided, however, that neither of the Issuers nor any Affiliate of either
of the Issuers has held any beneficial interest in such Note, or portion
thereof, at any time prior to or on the third anniversary of the Issue Date), or
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Issuers and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(d) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.16 or this Section 2.17.
The Issuers shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time during the
Registrar's normal business hours upon the giving of reasonable written notice
to the Registrar.
(e) Transfers of Notes Held by Affiliates. Any certificate (i)
evidencing a Note that has been transferred to an Affiliate of either of the
Issuers within three years after the Issue Date, as evidenced by a notation on
the Assignment Form for such transfer or in the representation letter delivered
in respect thereof or (ii) evidencing a Note that has been acquired from an
Affiliate (other than by an Affiliate) in a transaction or a chain of
transactions not involving any public offering, shall, until three years after
the last date on which either of the Issuers or any Affiliate of either of the
Issuers was an owner of such Note, in each case, bear a legend in substantially
the form set forth in Section 2.15 hereof, unless otherwise agreed by the
Issuers (with written notice thereof to the Trustee).
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If Abraxas elects to redeem Notes pursuant to Section 3.03, it shall
notify the Trustee and the Paying Agent in writing of the Redemption Date and
the principal amount of the Notes to be redeemed.
Abraxas shall give each notice provided for in this Section 3.01 not
less than 5, but not more than 30, days (unless a shorter notice period shall be
satisfactory to the Trustee, as evidenced in a writing signed on behalf of the
Trustee) before the intended mailing date of the Notice of Redemption relating
thereto, together with an Officers' Certificate stating that such redemption
shall comply with the conditions contained herein and in the Notes.
SECTION 3.02. Selection of Notes To Be Redeemed.
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes, or portions thereof, for redemption will be made
by the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes are
not then listed on a national securities exchange, on a pro rata basis, by lot
or by such other method as the Trustee shall deem fair and appropriate;
provided, however, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part; and provided, further, that if a partial redemption is made
with the proceeds of an Equity Offering, selection of the Notes or portions
thereof for redemption shall be made by the Trustee only on a pro rata basis or
on as nearly a pro rata basis as is practicable (subject to the procedures of
DTC), unless such method is otherwise prohibited. Notice of redemption shall be
mailed by first-class mail in accordance with the provisions of Section 3.04. If
any Note is to be redeemed in part only, the notice of redemption that relates
to such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the applicable Redemption Date, interest will
cease to accrue on Notes or portions thereof called for redemption as long as
the Issuers have deposited with the Paying Agent for the Notes funds in
satisfaction of the applicable Redemption Price.
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<PAGE> 33
SECTION 3.03. Optional Redemption.
The Notes will be redeemable, at the Issuers' option, in whole at any
time or in part from time to time, on and after December 1, 2000 at the
following Redemption Prices (expressed as percentages of the principal amount
thereof) if redeemed during the twelve-month period commencing on December 1 of
the years set forth below, plus, in each case, accrued and unpaid interest, if
any, thereon to the date of redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2000............................. 105.750%
2001............................. 102.875%
2002 and thereafter.............. 100.000%
</TABLE>
At any time, or from time to time, prior to December 1, 2000, the
Issuers may, at their option, use all or a portion of the net cash proceeds of
one or more Equity Offerings to redeem up to 50% of the aggregate original
principal amount of the Notes at a Redemption Price equal to 111.500% of the
aggregate principal amount of the Notes to be redeemed, plus accrued and unpaid
interest, if any, thereon to the date of redemption; provided, however, that at
least 50% of the aggregate original principal amount of the Notes remains
outstanding immediately after giving effect to any such redemption (it being
expressly agreed that for purposes of determining whether this condition is
satisfied, Notes owned by either Issuer or any of their Affiliates shall be
deemed not to be outstanding). In order to effect the foregoing redemption with
the proceeds of any Equity Offering, the Issuers shall make such redemption not
more than 60 days after the consummation of any such Equity Offering.
SECTION 3.04. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Issuers shall mail or cause to be mailed a notice of redemption by first
class mail to each Holder of Notes to be redeemed at its registered address,
with a copy to the Trustee and any Paying Agent. At the Issuers' request, the
Trustee shall give the notice of redemption in the Issuers' name and at the
Issuers' expense.
Each notice of redemption shall identify (including the CUSIP number)
the Notes to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest,
if any, to be paid;
(3) the name and address of the Paying Agent;
(4) the subparagraph of the Notes pursuant to which such
redemption is being made;
(5) that Notes called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price plus accrued interest,
if any;
(6) that, unless the Issuers default in making the redemption
payment, interest on Notes or applicable portions thereof called for
redemption ceases to accrue on and after the Redemption Date, and the
only remaining right of the Holders of such Notes is to receive payment
of the Redemption Price plus accrued interest as of the Redemption
Date, if any, upon surrender to the Paying Agent of the Notes redeemed;
(7) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
Redemption Date, and upon surrender of such Note, a new Note or Notes
in the aggregate principal amount equal to the unredeemed portion
thereof will be issued; and
(8) if fewer than all the Notes are to be redeemed, the
identification of the particular Notes (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Notes to be
redeemed and the aggregate principal amount of Notes to be outstanding
after such partial redemption.
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The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Notes.
SECTION 3.05. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.04,
such notice of redemption shall be irrevocable and Notes called for redemption
become due and payable on the Redemption Date at the Redemption Price plus
accrued interest as of such date, if any. Upon surrender to the Trustee or
Paying Agent, such Notes called for redemption shall be paid at the Redemption
Price plus accrued interest thereon to the Redemption Date, but installments of
interest, the maturity of which is on or prior to the Redemption Date, shall be
payable to Holders of record at the close of business on the relevant record
dates referred to in the Notes. Interest shall accrue on or after the Redemption
Date and shall be payable only if the Issuers default in payment of the
Redemption Price plus any accrued and unpaid interest as of the Redemption Date.
SECTION 3.06. Deposit of Redemption Price.
On or before the Redemption Date and in accordance with Section 2.14,
the Issuers shall deposit with the Paying Agent U.S. Legal Tender sufficient to
pay the Redemption Price plus accrued interest, if any, of all Notes to be
redeemed on that date. The Paying Agent shall promptly return to the Issuers any
U.S. Legal Tender so deposited which is not required for that purpose, except
with respect to monies owed as obligations to the Trustee pursuant to Article
Seven.
Unless the Issuers fail to comply with the preceding paragraph and
default in the payment of such Redemption Price plus accrued interest, if any,
interest on the Notes to be redeemed will cease to accrue on and after the
applicable Redemption Date, whether or not such Notes are presented for payment.
SECTION 3.07. Notes Redeemed in Part.
Upon surrender of a Note that is to be redeemed in part, the Trustee
shall authenticate for the Holder a new Note or Notes equal in principal amount
to the unredeemed portion of the Note surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
(a) The Issuers shall pay the principal of, premium, if any, and
interest on the Notes on the dates and in the manner provided in the Notes and
in this Indenture.
(b) An installment of principal of or interest on the Notes shall be
considered paid on the date it is due if the Trustee or Paying Agent (other than
an Issuer or any of its Affiliates) holds, prior to 11:00 a.m. New York City
time on that date, U.S. Legal Tender designated for and sufficient to pay the
installment in full and is not prohibited from paying such money to the Holders
pursuant to the terms of this Indenture or the Notes.
(c) Notwithstanding anything to the contrary contained in this
Indenture, the Issuers may, to the extent they are required to do so by law,
deduct or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
SECTION 4.02. Maintenance of Office or Agency.
The Issuers shall maintain the office or agency required under Section
2.03. The Issuers shall give prior written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Issuers shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 10.02.
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SECTION 4.03. Corporate Existence.
Except as otherwise permitted by Article Five, each Issuer shall do or
cause to be done, at its own cost and expense, all things necessary to preserve
and keep in full force and effect their respective corporate existence and the
corporate existence of each of their Restricted Subsidiaries in accordance with
the respective organizational documents of each such Restricted Subsidiary and
the material rights (charter and statutory) and franchises of the Issuers and
each such Restricted Subsidiary; provided, however, that the Issuers shall not
be required to preserve, with respect to themselves, any material right or
franchise and, with respect to any of their Restricted Subsidiaries, any such
existence, material right or franchise, if the Board of Directors of Abraxas
shall determine in good faith that the preservation thereof is no longer
desirable in the conduct of the business of the Issuers and their Subsidiaries,
taken as a whole.
SECTION 4.04. Payment of Taxes and Other Claims.
The Issuers shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all material taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon either of them or any of their
Subsidiaries or their properties or any of their Subsidiaries' properties and
(ii) all material lawful claims for labor, materials and supplies that, if
unpaid, might by law become a Lien upon the property of the Issuers or any of
their Subsidiaries; provided, however, that the Issuers shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate negotiations or proceedings properly instituted and
diligently conducted for which adequate reserves, to the extent required under
GAAP, have been taken.
SECTION 4.05. Maintenance of Properties and Insurance.
(a) Each Issuer shall, and shall cause each of its Restricted
Subsidiaries to, maintain all properties used or useful in the conduct of its
business in good working order and condition (subject to ordinary wear and tear)
and make all necessary repairs, renewals, replacements, additions, betterments
and improvements thereto and actively conduct and carry on its business;
provided, however, that nothing in this Section 4.05 shall prevent an Issuer or
any of its Restricted Subsidiaries from discontinuing the operation and
maintenance of any of its properties, if such discontinuance is (i) in the
ordinary course of business pursuant to customary business terms or (ii) in the
good faith judgment of the respective Boards of Directors or other governing
body of such Issuer or Restricted Subsidiary, as the case may be, desirable in
the conduct of their respective businesses and is not disadvantageous in any
material respect to the Holders.
(b) The Issuers shall provide or cause to be provided, for themselves
and each of the Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the good faith
judgment of Abraxas, is adequate and appropriate for the conduct of the business
of the Issuers and their Restricted Subsidiaries in a prudent manner, with
reputable insurers or with the government of the United States of America,
Canada or an agency or instrumentality thereof, in such amounts, with such
deductibles, and by such methods as shall be customary, in the good faith
judgment of Abraxas, for companies similarly situated in the industry.
SECTION 4.06. Compliance Certificate; Notice of Default.
(a) The Issuers shall deliver to the Trustee, within 105 days after the
end of each of their respective fiscal quarters, an Officers' Certificate of
each of the Issuers (provided, however, that one of the signatories to each such
Officers' Certificate shall be the respective Issuer's principal executive
officer, principal financial officer or principal accounting officer), as to
such Officers' knowledge, without independent investigation, of the Issuers'
compliance with all conditions and covenants under this Indenture (without
regard to any period of grace or requirement of notice provided hereunder) and
in the event any Default of the Issuers exists, such Officers shall specify the
nature of such Default. Each such Officers' Certificate shall also notify the
Trustee should such Issuer elect to change the manner in which it fixes its
fiscal year end.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the annual financial
statements delivered pursuant to Section 4.08 shall be accompanied by a written
report of Abraxas' independent certified public accountants (who shall be a firm
of established national reputation) stating (A) that their audit examination has
included a review of the terms of this Indenture and the form of the Notes as
they relate to accounting matters, and (B) whether, in connection with their
audit examination, any Default or Event of Default has come to their attention
and if such a Default or Event of Default has come
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to their attention, specifying the nature and period of existence thereof;
provided, however, that, without any restriction as to the scope of the audit
examination, such independent certified public accountants shall not be liable
by reason of any failure to obtain knowledge of any such Default or Event of
Default that would not be disclosed in the course of an audit examination
conducted in accordance with generally accepted auditing standards.
(c) (i) If any Default or Event of Default has occurred and is
continuing or (ii) if any Holder seeks to exercise any remedy hereunder with
respect to a claimed Default under this Indenture or the Notes, Abraxas shall
deliver to the Trustee, at its address set forth in Section 10.02 hereof, by
registered or certified mail or by facsimile transmission followed by hard copy
by registered or certified mail an Officers' Certificate specifying such event,
notice or other action within 10 days of its becoming aware of such occurrence.
SECTION 4.07. Compliance with Laws.
The Issuers shall comply, and shall cause each of their Subsidiaries to
comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as could not singly or in the
aggregate reasonably be expected to have a material adverse effect on the
financial condition, business, prospects or results of operations of Abraxas and
its Subsidiaries taken as a whole.
SECTION 4.08. Reports to Holders.
Abraxas will deliver to the Trustee within 15 days after filing the
same with the Commission, copies of the quarterly and annual reports and of the
information, documents and other reports, if any, which Abraxas is required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
Notwithstanding that Abraxas may not be subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, Abraxas will file with the Commission,
to the extent permitted, and provide the Trustee and Holders with such annual
reports and such information, documents and other reports specified in Sections
13 and 15(d) of the Exchange Act. Abraxas will also comply with the other
provisions of Section 314(a) of the TIA.
SECTION 4.09. Waiver of Stay, Extension or Usury Laws.
The Issuers and each Subsidiary Guarantor covenant (to the extent that
they may lawfully do so) that they will not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive the
Issuers or such Subsidiary Guarantor from paying all or any portion of the
principal of or interest on the Notes as contemplated herein, wherever enacted,
now or at any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that they may lawfully do so)
the Issuers and each Subsidiary Guarantor hereby expressly waive 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.
SECTION 4.10. Limitation on Restricted Payments.
Abraxas will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly,
(a) declare or pay any dividend or make any distribution (other
than dividends or distributions payable solely in Qualified
Capital Stock of Abraxas) on or in respect of shares of
Abraxas' Capital Stock to holders of such Capital Stock,
(b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of Abraxas or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock
other than through the exchange therefor solely of Qualified
Capital Stock of Abraxas or warrants, rights or options to
purchase or acquire shares of Qualified Capital Stock of
Abraxas,
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(c) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value,
prior to any scheduled final maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Indebtedness
of Abraxas or a Subsidiary Guarantor that is subordinate or
junior in right of payment to the Notes or such Subsidiary
Guarantor's Guarantee, as the case may be, or
(d) make any Investment (other than a Permitted Investment)
(each of the foregoing actions set forth in clauses (a) through (d) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto,
(i) a Default or an Event of Default shall have occurred and be
continuing,
(ii) Abraxas is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance
with Section 4.12, or
(iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date
(the amount expended for such purposes, if other than in cash,
being the fair market value of such property as determined
reasonably and in good faith by the Board of Directors of
Abraxas) shall exceed the sum of:
(A) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss,
minus 100% of such loss) of Abraxas earned subsequent
to the Issue Date and on or prior to the last date of
Abraxas' fiscal quarter immediately preceding such
Restricted Payment (the "Reference Date") (treating
such period as a single accounting period), plus
(B) 100% of the aggregate net cash proceeds received by
Abraxas from any Person (other than a Restricted
Subsidiary of Abraxas) from the issuance and sale
subsequent to the Issue Date and on or prior to the
Reference Date of Qualified Capital Stock of Abraxas,
plus
(C) without duplication of any amounts included in clause
(iii)(B) above, 100% of the aggregate net cash
proceeds of any equity contribution received by
Abraxas from a holder of Abraxas' Capital Stock
(excluding, in the case of clauses (iii)(B) and this
clause (iii)(C), any net cash proceeds from an Equity
Offering to the extent used to redeem the Notes),
plus
(D) an amount equal to the net reduction in Investments
in Unrestricted Subsidiaries resulting from
dividends, interest payments, repayments of loans or
advances, or other transfers of cash, in each case to
Abraxas or to any Restricted Subsidiary of Abraxas
from Unrestricted Subsidiaries (but without
duplication of any such amount included in
calculating cumulative Consolidated Net Income of
Abraxas), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (in each case
valued as provided in Section 4.14), not to exceed,
in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by Abraxas or
any Restricted Subsidiary in such Unrestricted
Subsidiary and which was treated as a Restricted
Payment under this Indenture, plus
(E) without duplication of the immediately preceding
subclause (D), an amount equal to the lesser of the
cost or net cash proceeds received upon the sale or
other disposition of any Investment made after the
Issue Date which had been treated as a Restricted
Payment (but without duplication of any such amount
included in calculating cumulative Consolidated Net
Income of Abraxas).
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph shall not prohibit:
(1) the payment of any dividend or redemption payment within 60
days after the date of declaration of such dividend or the
applicable redemption if the dividend or redemption payment,
as the case may be, would have been permitted on the date of
declaration,
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(2) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any shares of Capital Stock of
Abraxas, either (A) solely in exchange for shares of Qualified
Capital Stock of Abraxas or (B) through the application of net
proceeds of a substantially concurrent sale for cash (other
than to a Restricted Subsidiary of Abraxas) of shares of
Qualified Capital Stock of Abraxas,
(3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of Abraxas or
a Subsidiary Guarantor that is subordinate or junior in right
of payment to the Notes or such Subsidiary Guarantor's
Guarantee, as the case may be, either (A) solely in exchange
for shares of Qualified Capital Stock of Abraxas, or (B)
through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Restricted
Subsidiary of Abraxas) of (I) shares of Qualified Capital
Stock of Abraxas or (II) Refinancing Indebtedness, and
(4) the initial designation of Western and Grey Wolf as
Unrestricted Subsidiaries under this Indenture.
In determining the aggregate amount of Restricted Payments made subsequent to
the Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1) and (2)(B) of this paragraph
shall be included in such calculation.
SECTION 4.11. Limitation on Transactions with Affiliates.
(a) Abraxas will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into, amend or permit
or suffer to exist any transaction or series of related transactions (including,
without limitation, the purchase, sale, lease or exchange of any property, the
guaranteeing of any Indebtedness or the rendering of any service) with, or for
the benefit of, any of their respective Affiliates (each an "Affiliate
Transaction"), other than (i) Affiliate Transactions permitted under Section
4.11(b) and (ii) Affiliate Transactions that are on terms that are fair and
reasonable to Abraxas or the applicable Restricted Subsidiary and are no less
favorable to Abraxas or the applicable Restricted Subsidiary than those that
might reasonably have been obtained in a comparable transaction at such time on
an arm's-length basis from a Person that is not an Affiliate of Abraxas or such
Restricted Subsidiary. All Affiliate Transactions (and each series of related
Affiliate Transactions which are similar or part of a common plan) involving
aggregate payments or other property with a fair market value in excess of
$1,000,000 shall be approved by the Board of Directors of Abraxas, such approval
to be evidenced by a Board Resolution stating that the Board of Directors has
determined that such transaction complies with the foregoing provisions. If
Abraxas or any Restricted Subsidiary enters into an Affiliate Transaction (or a
series of related Affiliate Transactions related to a common plan) that involves
an aggregate fair market value of more than $10,000,000, Abraxas shall, prior to
the consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to Abraxas or the relevant
Restricted Subsidiary, as the case may be, from a financial point of view, from
an Independent Advisor and file the same with the Trustee.
(b) The restrictions set forth in Section 4.11(a) shall not apply to
(i) reasonable fees and compensation paid to and indemnity provided on behalf
of, officers, directors, employees or consultants of Abraxas or any Restricted
Subsidiary as determined in good faith by the Board of Directors or senior
management of Abraxas or such Restricted Subsidiary, as the case may be; (ii)
transactions exclusively between or among Abraxas and any of its Restricted
Subsidiaries or exclusively between or among such Restricted Subsidiaries;
provided, however, that such transactions are not otherwise prohibited by this
Indenture; and (iii) Restricted Payments permitted by this Indenture.
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness.
Other than Permitted Indebtedness, Abraxas will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, incur
any Indebtedness; provided, however, that if no Default or Event of Default
shall have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, Abraxas and the Subsidiary Guarantors or
any of them may incur Indebtedness (including, without limitation, Acquired
Indebtedness), in each case, if on the date of the incurrence of such
Indebtedness, after giving pro forma effect to the incurrence thereof and the
receipt and application of the proceeds therefrom, both (i) Abraxas'
Consolidated EBITDA Coverage Ratio would have been at least equal to 2.5 to 1.0
and (ii) Abraxas' Adjusted Consolidated Net Tangible Assets are equal to or
greater than 150% of the aggregate consolidated Indebtedness of Abraxas and its
Restricted Subsidiaries.
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For purposes of determining any particular amount of Indebtedness under
this Section 4.12, guarantees of Indebtedness otherwise included in the
determination of such amount shall not also be included.
Indebtedness of a Person existing at the time such Person becomes a
Restricted Subsidiary (whether by merger, consolidation, acquisition of Capital
Stock or otherwise) or is merged with or into Abraxas or any Restricted
Subsidiary or which is secured by a Lien on an asset acquired by Abraxas or a
Restricted Subsidiary (whether or not such Indebtedness is assumed by the
acquiring Person) shall be deemed incurred at the time the Person becomes a
Restricted Subsidiary or at the time of the asset acquisition, as the case may
be.
Abraxas will not, and will not permit any Subsidiary Guarantor to incur
any Indebtedness which by its terms (or by the terms of any agreement governing
such Indebtedness) is subordinated in right of payment to any other Indebtedness
of Abraxas or such Subsidiary Guarantor unless such Indebtedness is also by its
terms (or by the terms of any agreement governing such Indebtedness) made
expressly subordinate in right of payment to the Notes or the Guarantee of such
Subsidiary Guarantor, as the case may be, pursuant to subordination provisions
that are substantively identical to the subordination provisions of such
Indebtedness (or such agreement) that are most favorable to the holders of any
other Indebtedness of Abraxas or such Subsidiary Guarantor, as the case may be.
SECTION 4.13. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.
Abraxas will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(a) pay dividends or make any other distributions on or in respect
of its Capital Stock,
(b) make loans or advances to, or pay any Indebtedness or other
obligation owed to, Abraxas or any other Restricted
Subsidiary,
(c) guarantee any Indebtedness or any other obligation of Abraxas
or any Restricted Subsidiary, or
(d) transfer any of its property or assets to Abraxas or any other
Restricted Subsidiary (each such encumbrance or restriction, a
"Payment Restriction").
The preceding will not apply, however, to encumbrances or restrictions
existing under or by reason of the following (which are excluded from the term
"Payment Restriction"): (i) applicable law, (ii) this Indenture, the Indenture
governing the Old Notes, the First Lien Indenture Notes or any Security
Document, (iii) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary, (iv) any instrument
governing Acquired Indebtedness, which encumbrance or restriction is not
applicable to such Restricted Subsidiary, or the properties or assets of such
Restricted Subsidiary, other than the Person or the properties or assets of the
Person so acquired, (v) agreements existing on the Issue Date to the extent and
in the manner such agreements were in effect on the Issue Date, (vi) customary
restrictions with respect to a Restricted Subsidiary of Abraxas pursuant to an
agreement that has been entered into for the sale or disposition of Capital
Stock or assets of such Restricted Subsidiary to be consummated in accordance
with the terms of this Indenture solely in respect of the assets or Capital
Stock to be sold or disposed of, (vii) any instrument governing a Permitted
Lien, to the extent and only to the extent such instrument restricts the
transfer or other disposition of assets subject to such Permitted Lien, or
(viii) an agreement governing Refinancing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (ii), (iv) or (v) above; provided, however, that the provisions relating
to such encumbrance or restriction contained in any such Refinancing
Indebtedness are no less favorable to the Holders in any material respect as
determined by the Board of Directors of Abraxas in its reasonable and good faith
judgment than the provisions relating to such encumbrance or restriction
contained in the applicable agreement referred to in such clause (ii), (iv) or
(v).
SECTION 4.14. Limitation on Restricted and Unrestricted Subsidiaries.
The Board of Directors may, if no Default or Event of Default shall
have occurred and be continuing or would arise therefrom, designate an
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
(i) any such redesignation shall be deemed to be an incurrence as of the date of
such redesignation by Abraxas and its Restricted
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Subsidiaries of the Indebtedness (if any) of such redesignated Subsidiary for
purposes of Section 4.12, (ii) unless such redesignated Subsidiary shall not
have any Indebtedness outstanding, other than Indebtedness which would be
Permitted Indebtedness, no such designation shall be permitted if immediately
after giving effect to such redesignation and the incurrence of any such
additional Indebtedness Abraxas could not incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to Section 4.12 and (iii) such
Subsidiary assumes by execution of a supplemental indenture all of the
obligations of a Subsidiary Guarantor under a Guarantee.
The Board of Directors of Abraxas also may, if no Default or Event of
Default shall have occurred and be continuing or would arise therefrom,
designate any Restricted Subsidiary none of whose properties are subject to any
Liens of the Security Documents to be an Unrestricted Subsidiary if (i) such
designation is at that time permitted under Section 4.10 and (ii) immediately
after giving effect to such designation, Abraxas could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.12.
Any such designation or redesignation by the Board of Directors shall
be evidenced to the Trustee by the filing with the Trustee of a certified copy
of the resolution of the Board of Directors giving effect to such designation or
redesignation and an Officers' Certificate certifying that such designation or
redesignation complied with the foregoing conditions and setting forth in
reasonable detail the underlying calculations. In the event that any Restricted
Subsidiary is designated an Unrestricted Subsidiary in accordance with this
Section 4.14, such Restricted Subsidiary's Guarantee will be released.
For purposes of Section 4.10, (i) an "Investment" shall be deemed to
have been made at the time any Restricted Subsidiary is designated as an
Unrestricted Subsidiary in an amount (proportionate to Abraxas' equity interest
in such Subsidiary) equal to the net worth of such Restricted Subsidiary at the
time that such Restricted Subsidiary is designated as an Unrestricted
Subsidiary; (ii) at any date the aggregate amount of all Restricted Payments
made as Investments since the Issue Date shall exclude and be reduced by an
amount (proportionate to Abraxas' equity interest in such Subsidiary) equal to
the net worth of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary, not to exceed, in the case of
any such redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary,
the amount of Investments previously made by Abraxas and the Restricted
Subsidiaries in such Unrestricted Subsidiary (in each case (i) and (ii) "net
worth" to be calculated based upon the fair market value of the assets of such
Subsidiary as of any such date of designation); and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer.
Notwithstanding the foregoing, the Board of Directors may not designate
any Subsidiary of Abraxas to be an Unrestricted Subsidiary if, after such
designation, (a) Abraxas or any Restricted Subsidiary (i) provides credit
support for, or a guarantee of, any Indebtedness of such Subsidiary (including
any undertaking, agreement or instrument evidencing such Indebtedness) or (ii)
is directly or indirectly liable for any Indebtedness of such Subsidiary or (b)
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, any Restricted Subsidiary which is not a Subsidiary of the
Subsidiary to be so designated.
Notwithstanding the foregoing, the provisions set forth above will not
prohibit the initial designation of each of Grey Wolf and Western as
Unrestricted Subsidiaries.
Subsidiaries of Abraxas that are not designated by the Board of
Directors as Restricted or Unrestricted Subsidiaries will be deemed to be
Restricted Subsidiaries. All Subsidiaries of an Unrestricted Subsidiary will be
Unrestricted Subsidiaries.
SECTION 4.15. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder will have
the right to require that the Issuers repurchase all or a portion of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer"), at a purchase price equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, thereon to the date of purchase.
(b) Within 30 days following the date upon which the Change of Control
occurred, the Issuers must send, by first class mail, a notice to each Holder at
such Holder's last registered address, with a copy to the Trustee, which notice
shall govern the terms of the Change of Control Offer. The notice to the Holders
shall contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to the Change of Control Offer. Such notice shall state:
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(i) that the Change of Control Offer is being made pursuant to
this Section 4.15, that all Notes tendered and not withdrawn will be
accepted for payment and that the Change of Control Offer shall remain
open for a period of 20 Business Days or such longer period as may be
required by law;
(ii) the purchase price (including the amount of accrued
interest) and the purchase date (which shall be no earlier than 30 days
nor later than 45 days from the date such notice is mailed, other than
as may be required by law) (the "Change of Control Payment Date");
(iii) that any Note not tendered will continue to accrue
interest;
(iv) that, unless the Issuers default in making payment
therefor, any Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(v) that Holders electing to have a Note purchased pursuant to
a Change of Control Offer will be required to surrender the Note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the third Business Day
prior to the Change of Control Payment Date;
(vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the second Business Day
prior to the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Notes the Holder delivered for purchase and
a statement that such Holder is withdrawing his election to have such
Notes purchased;
(vii) that Holders whose Notes are purchased only in part will
be issued new Notes in a principal amount equal to the unpurchased
portion of the Notes surrendered; provided, however, that each Note
purchased and each new Note issued shall be in an original principal
amount of $1,000 or integral multiples thereof; and
(viii) the circumstances and relevant facts regarding such
Change of Control.
On or before the Change of Control Payment Date, the Issuers shall (i)
accept for payment Notes or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent in accordance with Section
2.14 U.S. Legal Tender sufficient to pay the purchase price plus accrued
interest, if any, of all Notes so tendered and (iii) deliver to the Trustee
Notes so accepted together with an Officers' Certificate stating the Notes or
portions thereof being purchased by the Issuers. Upon receipt by the Paying
Agent of the monies specified in clause (ii) above and a copy of the Officers'
Certificate specified in clause (iii) above, the Paying Agent shall promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
purchase price plus accrued interest, if any, and the Trustee shall promptly
authenticate and mail to such Holders new Notes equal in principal amount to any
unpurchased portion of the Notes surrendered. Any Notes not so accepted shall be
promptly mailed by Abraxas to the Holder thereof. For purposes of this Section
4.15, the Trustee shall act as the Paying Agent.
The Issuers shall 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 Change of Control Purchase Price, at the same times and otherwise in
compliance with the requirements applicable to a Change of Control Offer made by
the Issuers and purchases all Notes validly tendered and not withdrawn under
such Change of Control Offer.
Neither the Board of Directors of Abraxas nor the Trustee may waive the
provisions of this Section 4.15 relating to Abraxas' obligation to make a Change
of Control Offer.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of this Section 4.15, the Issuers shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached their
obligations under the provisions of this Section 4.15 by virtue thereof.
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SECTION 4.16. Limitation on Asset Sales.
(a) Abraxas will not, and will not cause or permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless:
(i) Abraxas or the applicable Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at
least equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by Abraxas' Board of Directors
or senior management of Abraxas);
(ii) at least 75% of the consideration received by Abraxas or
the Restricted Subsidiary, as the case may be, from such Asset Sale
shall be in the form of cash or Cash Equivalents and is received at the
time of such disposition.
(b) Within 180 days after the receipt of any Net Cash Proceeds from an
Asset Sale plus such additional time as may be necessary to complete a net
proceeds offer under the terms of the First Lien Indenture with respect to such
Asset Sale ("Net Cash Proceeds Application Period"), Abraxas or such Restricted
Subsidiary shall apply the Net Cash Proceeds of such Asset Sale as follows:
(i) to the extent such Net Cash Proceeds are received from an
Asset Sale not involving the sale, transfer or disposition of
Collateral ("Non-Collateral Proceeds"), to repay any Indebtedness
secured by the assets involved in such Asset Sale together with a
concomitant permanent reduction in the amount of such Indebtedness so
repaid; and
(ii) with respect to any Non-Collateral Proceeds remaining
after application pursuant to the preceding clause (i) and any Net Cash
Proceeds received from an Asset Sale involving Collateral, Abraxas
shall make an offer within such Net Cash Proceeds Application Period to
purchase (the "Net Proceeds Offer") from all Holders up to a maximum
principal amount (expressed as an integral multiple of $1,000) of Notes
equal to the Available Proceeds Amount at a purchase price equal to
100% of the principal amount thereof plus accrued and unpaid interest
thereon to the date of purchase (the "Net Proceeds Offer Payment
Date"); provided that Abraxas will not be required to apply pursuant to
this clause (ii) Net Cash Proceeds received from any Asset Sale if, and
only to the extent that such Net Cash Proceeds are applied to, within
the Net Cash Proceeds Application Period for such Asset Sale, (i) to
repay or prepay any Indebtedness outstanding under the First Lien Notes
or the First Lien Indenture, (ii) to repay or prepay any Indebtedness
of Abraxas that is secured by a Lien permitted to be incurred pursuant
to Section 4.18, (iii) to pay interest on the Notes in an aggregate
amount not to exceed 5.75% of the aggregate original principal amount
of the Notes, (iv) an investment or investments in Crude Oil and
Natural Gas Related Assets or (v) an investment or investments in
properties or assets that replace the properties or assets that were
the subject of such Asset Sale or in properties or assets that will be
used in the Crude Oil and Natural Gas Business of Abraxas and its
Restricted Subsidiaries ("Replacement Assets"), and the assets
constituting such Crude Oil and Natural Gas Related Assets or
Replacement Assets and any non-cash consideration received are made
subject to the Lien of this Indenture and the Security Documents in the
manner contemplated in this Indenture to the extent the Net Cash
Proceeds used to purchase such assets arose from the sale of property
that was subject to such Lien, provided that any such assets that are
Oil and Gas Assets shall be made subject to such Lien in any event;
further provided, however, that if at the end of the Net Cash Proceeds
Application Period for such Asset Sale referred to above, Abraxas or
one of its Restricted Subsidiaries has delivered to the Trustee an
Officers' Certificate (A) otherwise in compliance with the terms of
this Indenture, (B) stating that attached thereto is a definitive,
executed purchase and sale agreement for a Crude Oil and Natural Gas
Related Assets investment or for Replacement Assets, and (C) setting
forth the aggregate cash consideration to be paid in connection with
such purchase from the Available Proceeds Amount, then Abraxas shall
have an additional period of time during which it may defer making a
Net Proceeds Offer with respect to the Available Proceeds Amount the
subject of such purchase and sale, such additional period of time
ending on the earlier of (y) 90 days after the end of such Net Cash
Proceeds Period and (z) the date such purchase and sale agreement is
terminated or cancelled.
If at any time any consideration (other than cash or Cash Equivalents)
received by Abraxas or any Restricted Subsidiary of Abraxas, as the case may be,
in connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash, then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this Section 4.16.
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Abraxas may defer the Net Proceeds Offer until there is an aggregate
unutilized Available Proceeds Amount equal to or in excess of $5,000,000
resulting from one or more Asset Sales (at which time the entire unutilized
Available Proceeds Amount, and not just the amount in excess of $5,000,000,
shall be applied as required pursuant to this Section 4.16). To the extent the
Net Proceeds Offer is not fully subscribed to by Holders, Abraxas may obtain a
release of the unutilized portion of the Collateral Proceeds from the Lien of
this Indenture and the Security Documents.
Notwithstanding the terms of the four preceding paragraphs above,
Abraxas and its Restricted Subsidiaries will be permitted to consummate an Asset
Sale without complying with such paragraphs to the extent (a) the consideration
for such Asset Sale constitutes Replacement Assets and/or Crude Oil and Natural
Gas Related Assets and (b) such Asset Sale is for fair market value; provided,
however, that any consideration not constituting Replacement Assets and Crude
Oil and Natural Gas Related Assets received by Abraxas or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
this Section 4.16; further provided, however, that, to the extent that the
property transferred or conveyed constitutes an Oil and Gas Asset, the property
received in exchange therefor constitutes an Oil and Gas Asset.
All Collateral Proceeds delivered to the Trustee shall constitute Trust
Moneys and all Collateral Proceeds shall be delivered by Abraxas (A) so long as
any Indebtedness under the First Lien Notes remains outstanding, to the First
Lien Notes Representative, and (B) otherwise to the Trustee, and all Collateral
Proceeds delivered to the Trustee shall be deposited in the Collateral Account
in accordance with this Indenture. Collateral Proceeds so deposited may be
withdrawn from the Collateral Account for application by Abraxas in accordance
with clause (ii) above or otherwise pursuant to this Indenture in accordance
with Section 12.08.
In the event of the transfer of substantially all (but not all) of the
consolidated assets of Abraxas as an entirety to a Person in a transaction
permitted under Section 5.01, the successor corporation shall be deemed to have
sold the consolidated assets of Abraxas not so transferred for purposes of this
covenant, and shall comply with the provisions of this Section 4.16 with respect
to such deemed sale as if it were an Asset Sale. In addition, the fair market
value of such consolidated assets of Abraxas deemed to be sold shall be deemed
to be Net Cash Proceeds for purposes of this Section 4.16.
(c) Each notice of a Net Proceeds Offer pursuant to this Section 4.16
shall be mailed or caused to be mailed, by first class mail, by the Issuers not
less than 30 days nor more than 60 days before the Net Proceeds Offer Payment
Date to all Holders at their last registered addresses, with a copy to the
Trustee. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Notes pursuant to the Net Proceeds Offer and shall
state the following terms:
(i) that the Net Proceeds Offer is being made pursuant to
Section 4.16, that all Notes tendered will be accepted for payment;
provided, however, that if the aggregate principal amount of Notes
tendered in a Net Proceeds Offer plus accrued interest at the
expiration of such offer exceeds the aggregate amount of the Net
Proceeds Offer, the Issuers shall select the Notes to be purchased on a
pro rata basis (with such adjustments as may be deemed appropriate by
the Issuers so that only Notes in denominations of $1,000 or multiples
thereof shall be purchased) and that the Net Proceeds Offer shall
remain open for a period of 20 Business Days or such longer period as
may be required by law;
(ii) the purchase price (including the amount of accrued
interest) and the Net Proceeds Offer Payment Date;
(iii) that any Note not tendered will continue to accrue
interest;
(iv) that, unless the Issuers default in making payment
therefor, any Note accepted for payment pursuant to the Net Proceeds
Offer shall cease to accrue interest after the Net Proceeds Offer
Payment Date;
(v) that Holders electing to have a Note purchased pursuant to
a Net Proceeds Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the third Business Day prior
to the Net Proceeds Offer Payment Date;
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(vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the third Business Day
prior to the Net Proceeds Offer Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Notes the Holder delivered for purchase and
a statement that such Holder is withdrawing his election to have such
Note purchased; and
(vii) that Holders whose Notes are purchased only in part will
be issued new Notes in a principal amount equal to the unpurchased
portion of the Notes surrendered; provided, however, that each Note
purchased and each new Note issued shall be in an original principal
amount of $1,000 or integral multiples thereof;
On or before the Net Proceeds Offer Payment Date, the Issuers shall (A)
accept for payment Notes or portions thereof tendered pursuant to the Net
Proceeds Offer which are to be purchased in accordance with item (c)(i) above,
(B) deposit with the Paying Agent in accordance with Section 2.14 U.S. Legal
Tender sufficient to pay the purchase price plus accrued interest, if any, of
all Notes to be purchased and (C) deliver to the Trustee all Notes so accepted
together with an Officers' Certificate stating the Notes or portions thereof
being purchased by the Issuers. The Paying Agent shall promptly mail to the
Holders of Notes so accepted payment in an amount equal to the purchase price
plus accrued interest, if any. For purposes of this Section 4.16, the Trustee
shall act as the Paying Agent.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Section 4.16, the Issuers shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached their obligations under
the provisions of this Section 4.16 by virtue thereof.
SECTION 4.17. Limitations with Respect to Capital Stock of Restricted
Subsidiaries.
Abraxas will not cause or permit any of its Restricted Subsidiaries to
issue any Preferred Stock (other than to Abraxas or to a Wholly Owned Restricted
Subsidiary) or permit any Person (other than Abraxas or a Wholly Owned
Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary.
Abraxas will not and will not cause or permit any of its Restricted Subsidiaries
to sell or otherwise dispose of any shares of Capital Stock of any Restricted
Subsidiary, and shall not permit any of its Restricted Subsidiaries, directly or
indirectly, to issue or sell or otherwise dispose of any of its Capital Stock
except: (a) to Abraxas or a Wholly-Owned Restricted Subsidiary of Abraxas, or
(b) if all shares of Capital Stock of such Restricted Subsidiary owned by
Abraxas and its Restricted Subsidiary are sold or otherwise disposed of. In
connection with any sale or disposition of Capital Stock of any Restricted
Subsidiary of Abraxas under clause (b), Abraxas will be required to comply with
Section 4.16 and the Guarantee given by such Restricted Subsidiary, if any, as
well as all Collateral owned by such Person shall be released.
SECTION 4.18. Limitation on Liens.
Abraxas will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist or remain in effect any Liens:
(a) upon any item of Collateral other than the Liens created by
this Indenture and the Security Documents and the Liens
expressly permitted by the applicable Security Documents, and
any Liens securing the First Lien Notes or any other
Indebtedness under the First Lien Indenture; and
(b) upon any other Properties of Abraxas or of any of its
Restricted Subsidiaries, whether owned on the Issue Date or
acquired after the Issue Date, or on any income or profits
therefrom, or assign or otherwise convey any right to receive
income or profits thereon other than, with respect to this
clause (b): (i) Liens existing on the Issue Date to the extent
and in the manner such Liens are in effect on the Issue Date,
(ii) Permitted Liens, and (iii) and any Liens securing the
First Lien Notes or any other Indebtedness under the First
Lien Indenture.
SECTION 4.19. Limitation on Conduct of Business.
Abraxas will not, and will not permit any of its Restricted
Subsidiaries to, engage in the conduct of any business other than the Crude Oil
and Natural Gas Business.
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SECTION 4.20. Additional Subsidiary Guarantees.
If Abraxas or any of its Restricted Subsidiaries transfers or causes to
be transferred, in one transaction or a series of related transactions, any
property to any Restricted Subsidiary that is not a Subsidiary Guarantor, or if
Abraxas or any of its Restricted Subsidiaries shall organize, acquire or
otherwise invest in or hold an Investment in another Restricted Subsidiary
having total consolidated assets with a book value in excess of $500,000 that is
not a Subsidiary Guarantor, then such transferee or acquired or other Restricted
Subsidiary shall (a) execute and deliver to the Trustee a Guarantee
substantially the form of Exhibit F, pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Issuers' obligations under
the Notes and this Indenture on the terms set forth in this Indenture, (b) grant
to the Trustee a Lien on substantially all its Oil and Gas Assets, and (c)
deliver to the Trustee an Opinion of Counsel and an Officers' Certificate,
stating that no Event of Default shall occur as a result of such supplemental
indenture, that it complies with the terms of this Indenture and that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary
shall be a Subsidiary Guarantor for all purposes of this Indenture.
SECTION 4.21. Limitation on Restrictive Covenants.
Notwithstanding any other provisions of this Indenture, the restrictive
covenants set forth herein for so long as the Old Indenture and the First Lien
Indenture remain in effect, shall be and shall be deemed limited to the extent
necessary so that the creation, existence and effectiveness of such restrictive
covenant shall not result in a breach of the covenant of the Old Indenture or of
the First Lien Indenture relating to "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries."
SECTION 4.22. Impairment of Security Interest.
Neither Abraxas nor any of its Subsidiaries will take or omit to take
any action which action or omission would have the result of adversely affecting
or impairing any Lien granted in favor of the Trustee, for its benefit and the
benefit of the Holders, with respect to the Collateral, and neither Abraxas nor
any of its Subsidiaries shall grant to any Person, or suffer any Person (other
than Abraxas and its Restricted Subsidiaries) to have (other than to the Trustee
on behalf of the Trustee and the Holders) any interest whatsoever in the
Collateral other than Permitted Liens. Neither Abraxas nor any of its
Subsidiaries will enter into any agreement or instrument that by its terms
requires the proceeds received from any sale of Collateral to be applied to
repay, redeem, defease or otherwise acquire or retire any Indebtedness, other
than Indebtedness under the First Lien Notes or under the First Lien Indenture,
and other than pursuant to this Indenture and the Security Documents. This
section shall not, however, be construed as requiring Abraxas or any of its
Restricted Subsidiaries to interfere with the enforcement of right and remedies
with respect to the Collateral pursuant to the First Lien Indenture.
SECTION 4.23. Additional Amounts.
All payments made by Canadian Abraxas or any Subsidiary Guarantor under
or with respect to the Notes or any Guarantee will be made free and clear of,
and without withholding or deduction for or on account of, any present or future
tax, duty, levy, impost, assessment or other governmental charge imposed or
levied by or on behalf of the Government of Canada or of any province or
territory thereof or by any authority or agency therein or thereof having power
to tax (or the jurisdiction of incorporation of any successor of Canadian
Abraxas or any Subsidiary Guarantor) (hereunder "Taxes"), unless Canadian
Abraxas or the applicable Subsidiary Guarantor, or any successor, as the case
may be, is required to withhold or deduct Taxes by law or by the interpretation
or administration thereof by the relevant governmental authority or agency. If
Canadian Abraxas or any Subsidiary Guarantor or any successor, as the case may
be, is so required to withhold or deduct any amount for or on account of Taxes
from any payment made under or with respect to the Notes or any Guarantee,
Canadian Abraxas or such Subsidiary Guarantor, as the case may be, will pay such
additional amounts ("Additional Amounts") as may be necessary so that the net
amount received by each Holder (including Additional Amounts) after such
withholding or deduction will not be less than the amount the Holder would have
received if such Taxes had not been withheld or deducted; provided that no
Additional Amounts will be payable with respect to a payment made to a Holder
(an "Excluded Holder") in respect of a beneficial owner (a) with which the
Issuers or such Subsidiary Guarantor does not deal at arm's-length (within the
meaning of the Income Tax Act (Canada)) at the time of making such payment or
(b) which is subject to such Taxes by reason of its being connected with Canada
or any province or territory thereof otherwise than by the mere acquisition,
holding or disposition of the Notes or the receipt of payments thereunder.
Canadian Abraxas and the
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Subsidiary Guarantors will also (i) make such withholding or deduction and (ii)
remit the full amount deducted or withheld to the relevant governmental
authority in accordance with applicable law. Canadian Abraxas and the Subsidiary
Guarantors will furnish to the Holders, within 30 days after the date the
payment of any Taxes is due pursuant to applicable law, certified copies of tax
receipts evidencing such payment. Canadian Abraxas and the Subsidiary Guarantors
will, jointly and severally, indemnify and hold harmless each Holder (other than
an Excluded Holder) and upon written request reimburse each such Holder for the
amount of (A) any Taxes so levied or imposed on and paid by such Holder as a
result of payments made under or with respect to the Notes or any Guarantee, (B)
any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto, and (C) any Taxes imposed with respect to any
reimbursement under (A) or (B) so that the net amount received by such Holder
after such reimbursement will not be less than the net amount the Holder would
have received if Taxes on such reimbursement had not been imposed. At least 30
days prior to each date on which any payment under or with respect to the Notes
is due and payable, if Canadian Abraxas or a Subsidiary Guarantor will be
obligated to pay Additional Amounts with respect to such payment, Canadian
Abraxas or such Subsidiary Guarantor, as the case may be, will deliver to the
Trustee an Officers' Certificate stating the fact that such Additional Amounts
will be payable, the amounts so payable and will set forth such other
information necessary to enable the Trustee to pay such Additional Amounts to
Holders on the payment date. Whenever in this Indenture there is mentioned, in
any context, the payment of principal (and premium, if any), redemption price,
Change of Control payment, purchase price, interest or any other amount payable
under or with respect to any Note, such mention shall be deemed to include
mention of the payment of Additional Amounts to the extent that, in such
context, Additional Amounts are, were or would be payable in respect thereof.
The Issuers will pay any present or future stamp, court or documentary taxes
or any other excise or property taxes, charges or similar levies that arise in
any jurisdiction from the execution, delivery, enforcement or registration of
the Notes or any other document or instrument in relation thereto, or from the
receipt of any payments with respect to the Notes, excluding such taxes, charges
or similar levies imposed by any jurisdiction outside of Canada, the
jurisdiction of incorporation of any successor of the Issuers or any
jurisdiction in which a paying agent is located, and have agreed to indemnify
the Holders for any such taxes paid by such Holders.
The foregoing obligations shall survive any termination, defeasance or
discharge of this Indenture and the payment of all amounts owing under or with
respect to the Notes and any Guarantee.
SECTION 4.24. Maintenance of Lien; Additional Collateral.
(a) If, after the Issue Date, Abraxas or any of its Restricted
Subsidiaries shall (i) acquire any material Oil and Gas Assets or (ii) engage in
successful drilling and exploration activities resulting in the creation of new
material Crude Oil and Natural Gas Properties, then Abraxas shall, and shall
cause each of its Restricted Subsidiaries to, execute and file in the
appropriate filing offices mortgages, deeds of trust, security agreements,
financing statements and other instruments granting to the Trustee for the
benefit of the Holders a second priority Lien, subject only to Permitted Liens,
as is necessary or appropriate to ensure that the Lien of this Indenture and the
Security Documents covers such new Oil and Gas Assets.
(b) Without limitation of clause (a) of this Section 4.24, on the date
any Replacement Assets shall be acquired pursuant to Section 4.16 and on the
date of any Oil and Gas Assets are received in exchange or trade for other
properties as contemplated by clause (G) of the definition of "Asset Sale,"
Abraxas shall, and shall cause each of its Restricted Subsidiaries to, execute
and file in the appropriate filing offices mortgages, deeds of trust, security
agreements, financing statements and other instruments granting to the Trustee,
for the benefit of the Holders, a second priority Lien, subject only to
Permitted Liens, on substantially all of such material Replacement Assets or
other material Oil and Gas Assets received in exchange or trade.
(c) In connection with any Security Documents executed and filed under
clause (a) or (b) of Section 4.24, Abraxas shall also comply with the terms of
Section 12.02 to the extent applicable.
(d) On March 15th in each year, beginning with March 15, 2000, Abraxas
shall review its and its Restricted Subsidiaries' Oil and Gas Assets to
ascertain whether or not substantially all of such assets are then subject to
the Lien of this Indenture and the Security Documents. If a substantial portion
of such assets are not then subject to the Lien of this Indenture and the
Security Documents, then Abraxas shall, and shall cause its Restricted
Subsidiaries, to execute and file in the appropriate filing offices mortgages,
deeds of trust, security agreements, financing statements and other instruments
granting to the Trustee for the benefit of the Holders a second priority Lien,
subject only to Permitted Liens, as is necessary or appropriate to accomplish
such objective.
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ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets.
Abraxas will not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of Abraxas' assets (determined on a
consolidated basis for Abraxas and its Restricted Subsidiaries), whether as an
entirety or substantially as an entirety to any Person unless: (a) either (i)
Abraxas or such Restricted Subsidiary, as the case may be, shall be the
surviving or continuing corporation or (ii) the Person (if other than Abraxas)
formed by such consolidation or into which Abraxas is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of Abraxas and its Restricted Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a corporation
organized and validly existing under the laws of the United States or any state
thereof or the District of Columbia (or if such Restricted Subsidiary was formed
under the laws of Canada or any province or territory thereof, such Surviving
Entity shall be a corporation organized and validly existing under the laws of
Canada or any province or territory thereof) and (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, this Indenture and the Security
Documents on the part of Abraxas to be performed or observed; (b) immediately
after giving effect to such transaction and the assumption contemplated by
clause (a)(ii)(y) above (including giving effect to any Indebtedness incurred or
anticipated to be incurred and any Lien granted in connection with or in respect
of such transaction), Abraxas or such Surviving Entity, as the case may be, (i)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of Abraxas immediately prior to such transaction and (ii) shall be
able to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 4.12 hereof; (c) immediately before and
immediately after giving effect to such transaction and the assumption
contemplated by clause (a)(ii)(y) above (including, without limitation, giving
effect to any Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred or be continuing; and (d) Abraxas or the
Surviving Entity, as the case may be, shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with the applicable provisions
hereof and that all conditions precedent in this Indenture relating to such
transaction have been satisfied; provided, however, that such counsel may rely,
as to matters of fact, on a certificate or certificates of officers of Abraxas.
For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries the Capital Stock of which constitutes all or substantially all of
the properties and assets of Abraxas, shall be deemed to be the transfer of all
or substantially all of the properties and assets of Abraxas.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of the Guarantee and
this Indenture in connection with any transaction complying with the provisions
of this Indenture described under this Section 5.01) will not, and Abraxas will
not cause or permit any Subsidiary Guarantor to, consolidate with or merge with
or into any Person other than an Issuer or another Subsidiary Guarantor that is
a Wholly Owned Restricted Subsidiary unless: (a) the entity formed by or
surviving any such consolidation or merger (if other than the Subsidiary
Guarantor) or to which such sale, lease, conveyance or other disposition shall
have been made is a corporation organized and existing under the laws of the
United States or any state thereof or the District of Columbia (or if such
Restricted Subsidiary was formed under the laws of Canada or any province or
territory thereof, such Surviving Entity shall be a corporation organized and
validly existing under the laws of Canada or any province or territory thereof);
(b) such entity assumes by execution of a supplemental indenture all of the
obligations of the Subsidiary Guarantor under its Guarantee; (c) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; and (d) immediately after giving effect to such
transaction and the use of any net proceeds therefrom on a pro forma basis,
Abraxas could satisfy the provisions of clause (b) of the first paragraph of
this Section 5.01. Any merger or consolidation of a Subsidiary Guarantor with
and into an Issuer (with such Issuer being the Surviving Entity) or another
Subsidiary
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Guarantor that is a Wholly Owned Restricted Subsidiary need only comply with
clause (d) of the first paragraph of this Section 5.01.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation, combination or merger or any transfer of all or
substantially all of the assets of Abraxas in accordance with the foregoing, in
which Abraxas is not the Surviving Entity, the Surviving Entity formed by such
consolidation or into which Abraxas is merged or to which such conveyance, lease
or transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, Abraxas under this Indenture and the Notes with the
same effect as if such Surviving Entity had been named as such, and thereafter
(except in the case of a lease), the predecessor corporation will be relieved of
all further obligations and covenants under this Indenture and the Notes.
ARTICLE SIX
REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" means any of the following events:
(a) the failure to pay interest on any Notes when the same
becomes due and payable and such default continues for a period of 30
days;
(b) the failure to pay the principal of any Notes when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds
Offer);
(c) a default in the observance or performance of any other
covenant or agreement contained in this Indenture which default
continues for a period of 30 days after either Issuer or any Subsidiary
Guarantor receives written notice specifying the default (and demanding
that such default be remedied) from the Trustee or the Holders of at
least 25% of the outstanding principal amount of the Notes (except in
the case of a default with respect to observance or performance of any
of the terms or provisions of Section 4.15, 4.16 or 5.01 which will
constitute an Event of Default with such notice requirement but without
such passage of time requirement);
(d) a default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness of Abraxas or any Restricted Subsidiary (or
the payment of which is guaranteed by Abraxas or any Restricted
Subsidiary), whether such Indebtedness now exists, or is created after
the Issue Date, which default (i) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness after
any applicable grace period provided in such Indebtedness (a "payment
default") or (ii) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount
of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a payment default or
the maturity of which has been so accelerated, aggregates $5,000,000 or
more;
(e) one or more judgments in an aggregate amount in excess of
$5,000,000 (unless covered by insurance by a reputable insurer as to
which the insurer has acknowledged coverage) shall have been rendered
against Abraxas or any of its Restricted Subsidiaries and such
judgments remain undischarged, unvacated, unpaid or unstayed for a
period of 60 days after such judgment or judgments become final and
non-appealable;
(f) Abraxas or any of its Subsidiaries pursuant to or under or
within the meaning of any Bankruptcy Law:
(i) commences a voluntary case or proceeding;
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(ii) consents to the entry of an order for relief
against it in an involuntary case or proceeding;
(iii) consents to the appointment of a Custodian of
it or for all or substantially all of its property;
(iv) makes a general assignment for the benefit of
its creditors; or
(v) shall generally not pay its debts when such debts
become due or shall admit in writing its inability to pay its
debts generally;
(g) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against Abraxas or any Subsidiary
of Abraxas in an involuntary case or proceeding,
(ii) appoints a Custodian of Abraxas or any
Subsidiary of Abraxas for all or substantially all of its
Properties, or
(iii) orders the liquidation of Abraxas or any
Subsidiary of Abraxas,
and in each case the order or decree remains unstayed and in effect for
60 days; or
(h) any of the Guarantees or any of the Security Documents
cease to be in full force and effect or any of the Guarantees or the
Security Documents are declared to be null and void or invalid and
unenforceable or any of the Subsidiary Guarantors denies or disaffirms
its liability under its Guarantees (other than by reason of release of
a Subsidiary Guarantor in accordance with the terms of this Indenture)
or any obligor or any Related Person denies or disaffirms its liability
under any Security Document to which it is party.
SECTION 6.02. Acceleration.
Upon the happening of any Event of Default specified in Section 6.01,
the Trustee may, or the holders of at least 25% in aggregate principal amount of
outstanding Notes may, declare the principal of, premium, if any, and accrued
and unpaid interest on all the Notes to be due and payable by notice in writing
to the Issuers and the Trustee specifying the respective Event of Default and
that it is a "notice of acceleration" and the same shall become immediately due
and payable. If an Event of Default of the type described in clause (f) or (g)
above occurs and is continuing, then such amount will ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
At any time after a declaration of acceleration with respect to the
Notes as described in the preceding paragraph, the Holders of a majority in
aggregate principal amount of the Notes then outstanding by written notice to
the Issuers and the Trustee may rescind and cancel such declaration and its
consequences (a) if the rescission would not conflict with any judgment or
decree, (b) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of such
acceleration, (c) to the extent the payment of such interest is lawful, interest
on overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid, (d) if the
Issuers have paid the Trustee its reasonable compensation and reimbursed the
Trustee for its expenses, disbursements and advances, and (e) in the event of
the cure or waiver of an Event of Default of the type described in clause (f) or
(g) of the description of Events of Default above, the Trustee shall have
received an Officers' Certificate and an Opinion of Counsel that such Event of
Default has been cured or waived; provided, however, that such counsel may rely,
as to matters of fact, on a certificate or certificates of officers of Abraxas.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
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SECTION 6.03. Other Remedies.
Subject to Section 12.01(c), if an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of the principal of, premium, if any, or
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
All rights of action and claims under this Indenture or the Notes may
be enforced by the Trustee even if it does not possess any of the Notes or does
not produce any of them in the proceeding. A delay or omission by the Trustee or
any Holder in exercising any right or remedy accruing upon an Event of Default
shall not impair the right or remedy or constitute a waiver of or acquiescence
in the Event of Default. No remedy is exclusive of any other remedy. All
available remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Prior to the declaration of acceleration of the Notes, the Holders of
not less than a majority in aggregate principal amount of the Notes then
outstanding by written notice to the Trustee may, on behalf of the Holders of
all the Notes, waive any existing Default or Event of Default and its
consequences under this Indenture, except a Default or Event of Default
specified in Section 6.01(a) or (b) or in respect of any provision hereof which
cannot be modified or amended without the consent of the Holder so affected
pursuant to Section 9.02. When a Default or Event of Default is so waived, it
shall be deemed to be cured and shall cease to exist. This Section 6.04 shall be
in lieu of Section 316(a)(1)(B) of the TIA and such Section 316(a)(1)(B) of the
TIA is hereby expressly excluded from this Indenture and the Notes, as permitted
by the TIA.
SECTION 6.05. Control by Majority.
Holders of the Notes may not enforce this Indenture or the Notes except
as provided in this Article Six and under the TIA. Subject to Section 12.01(c),
the Holders of not less than a majority in aggregate principal amount of the
outstanding Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, provided, however, that the Trustee
may refuse to follow any direction (a) that conflicts with any rule of law or
this Indenture, (b) that the Trustee determines may be unduly prejudicial to the
rights of another Holder, or (c) that may expose the Trustee to personal
liability for which reasonable security and indemnity provided to the Trustee
against such liability shall be inadequate; provided, further, however, that the
Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction or this Indenture. This Section 6.05 shall be
in lieu of Section 316(a)(1)(A) of the TIA, and such Section 316(a)(1)(A) of the
TIA is hereby expressly excluded from this Indenture and the Notes, as permitted
by the TIA.
SECTION 6.06. Limitation on Suits.
No Holder of any Notes shall have any right to institute any proceeding
with respect to this Indenture, the Notes, any Guarantee or any Security
Document or any remedy hereunder or thereunder, unless the Holders of at least
25% in aggregate principal amount of the outstanding Notes have made written
request, and offered reasonable security and indemnity, to the Trustee to
institute such proceeding as Trustee under the Notes and this Indenture, the
institution of such proceedings is consistent with Section 12.01(c), the Trustee
has failed to institute such proceeding within 60 days after receipt of such
notice, request and offer of security and indemnity and the Trustee, within such
60-day period, has not received directions inconsistent with such written
request by Holders of not less than a majority in aggregate principal amount of
the outstanding Notes.
Subject to Section 12.01(c), the foregoing limitations shall not apply
to a suit instituted by a Holder of a Note for the enforcement of the payment of
the principal of, premium, if any, or interest on, such Note on or after the
respective due dates expressed or provided for in such Note.
A Holder may not use this Indenture to prejudice the rights of any
other Holders or to obtain priority or preference over such other Holders.
SECTION 6.07. Right of Holders To Receive Payment.
Notwithstanding any provision in this Indenture other than Section
12.01(c) (to which this provision is subject), the right of any Holder of a Note
to receive payment of the principal of, premium, if any, and interest on such
Note, on or after the respective due dates expressed or provided for in such
Note, or to bring suit for the enforcement of any such
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payment on or after the respective due dates, is absolute and unconditional and
shall not be impaired or affected without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default specified in clause (a) or (b) of Section 6.01
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against Abraxas, or any other obligor on the
Notes for the whole amount of the principal of, premium, if any, and accrued
interest remaining unpaid, together with interest on overdue principal and, to
the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum provided for by the
Notes and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, fees, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, fees, expenses,
disbursements and advances of the Trustee, its agents, counsel, accountants and
experts) and the Holders allowed in any judicial proceedings relative to the
Issuers, any Subsidiary Guarantor or Restricted Subsidiary (or any other obligor
upon the Notes), their creditors or their property and shall be entitled and
empowered to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same, and any Custodian in
any such judicial proceedings is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, fees, expenses, disbursements
and advances of the Trustee, its agent and counsel, and any other amounts due
the Trustee under Section 7.07. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf of
any Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six it shall
pay out such money in the following order:
First: to the Trustee (including any predecessor Trustee) for
amounts due under Section 7.07;
Second: to Holders for interest accrued on the Notes, ratably,
without preference or priority of any kind, according to the amounts
due and payable on the Notes for interest;
Third: to Holders for the principal amounts (including any
premium) owing under the Notes, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Notes for
the principal (including any premium); and
Fourth: the balance, if any, to the Issuers.
The Trustee, upon prior written notice to the Issuers, may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court may in its discretion require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to any suit by the Trustee, any suit by a
Holder pursuant to Section 6.06, or a suit by a Holder or Holders of more than
10% in aggregate principal amount of the outstanding Notes.
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SECTION 6.12. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture, any Guarantee or any Note and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Issuers, the Subsidiary Guarantors, the Trustee and the Holders shall,
subject to any determination in such proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise thereof as a prudent
person would exercise or use under the circumstances in the conduct of his own
affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are adverse to the
Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or
opinions that by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained, the
Trustee may not be relieved from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.02, 6.04 or 6.05.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate security and indemnity against such risk or
liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01 and
Section 7.02.
(f) The Trustee shall not be liable for interest on any money or assets
received by it except as the Trustee may agree in writing with the Issuers.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
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SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in
acting or refraining from acting upon any document believed by it to be
genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document,
but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and if the
Trustee shall determine to make such further inquiry or investigation,
it shall be entitled to examine the books, records and premises of the
Issuers, personally or by agent or attorney.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel of its selection and may require an Officers'
Certificate or an Opinion of Counsel, which shall conform to Sections
10.04 and 10.05. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action that it
takes or omits to take in good faith which it reasonably believes to be
authorized or within the discretion, rights or powers conferred upon it
by this Indenture.
(e) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, notice, request, direction, consent,
order, bond, debenture, or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled, upon reasonable notice to the Issuers, to examine the books,
records, and premises of the Issuers, personally or by agent or
attorney and to consult with the officers and representatives of the
Issuers, including the Issuers' accountants and attorneys.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Holders pursuant to the provisions of
this Indenture, unless such Holders shall have offered, and if
requested, provided to the Trustee security and indemnity satisfactory
to the Trustee against the costs, expenses and liabilities which may be
incurred by it in compliance with such request, order, direction or
exercise.
(g) The Trustee shall not be required to give any bond or
surety in respect of the performance of its powers and duties
hereunder.
(h) Delivery of reports, information and documents to the
Trustee under Section 4.08 is for informational purposes only and the
Trustee's receipt of the foregoing shall not constitute constructive
notice of any information contained therein or determinable from
information contained therein, including the Issuers' and any
Subsidiary Guarantor's compliance with any of their covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
(i) No permissive right of the Trustee to act hereunder shall
be construed as a duty.
(j) 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, a written Opinion of Counsel, or both.
(k) Except with respect to Section 4.01 hereof, the Trustee
shall have no duty to inquire as to the performance of the Issuers'
covenants in Article Four hereof. In addition, the Trustee shall not be
deemed to have knowledge of any Default or Event of Default except (i)
any Event of Default occurring pursuant to Sections 6.01(a) and 6.01(b)
hereof or (ii) any Default or Event of Default of which the Trustee
shall have received written notification or obtained actual knowledge.
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(l) The Trustee shall not be deemed to have notice or
knowledge of any matter unless a Trust Officer has actual knowledge
thereof or unless written notice thereof is received by the Trustee at
the Corporate Trust Office of the Trustee and such notice references
the Notes generally, the Issuers or this Indenture.
(m) The Trustee shall be authorized to exercise its rights and
remedies under this Indenture and the Security Documents through one or
more agents.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Issuers, any of their
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture, the Guarantees or the Notes, and it shall not be accountable for
the Issuers' use of the proceeds from the Notes, and it shall not be responsible
for any statement of the Issuers in this Indenture or the Notes other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if (i)
the Trustee receives written notice thereof or (ii) such default is an Event of
Default under Section 6.01(a) or (b), the Trustee shall mail to each Holder and
to the First Lien Notes Representative notice of the uncured Default or Event of
Default within 90 days after obtaining knowledge thereof. Except in the case of
a Default or an Event of Default in payment of principal of, or interest on, any
Note, including an accelerated payment, a Default in payment on the Change of
Control Payment Date pursuant to a Change of Control Offer or on the Net
Proceeds Offer Payment Date pursuant to a Net Proceeds Offer and a Default in
compliance with Article Five hereof, the Trustee may withhold the notice if and
so long as its Board of Directors, the executive committee of its Board of
Directors or a committee of its directors and/or Trust Officers in good faith
determines that withholding the notice is in the interest of the Holders. The
foregoing sentence of this Section 7.05 shall be in lieu of the proviso to
Section 315(b) of the TIA and such proviso to Section 315(b) of the TIA is
hereby expressly excluded from this Indenture and the Notes, as permitted by the
TIA.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after May 15 of each year beginning with 2000, the
Trustee shall, to the extent that any of the events described in TIA Section
313(a) occurred within the previous twelve months, but not otherwise, mail to
each Holder a brief report dated as of such date that complies with TIA Section
313(a). The Trustee also shall comply with TIA Sections 313(b), (c) and (d).
A copy of each report at the time of its mailing to Holders shall be
mailed to the Issuers and filed with the Commission and each stock exchange, if
any, on which the Notes are listed.
The Issuers shall promptly notify the Trustee if the Notes become
listed on any stock exchange and the Trustee shall comply with TIA Section
313(d).
SECTION 7.07. Compensation and Indemnity.
The Issuers shall pay to the Trustee from time to time such
compensation for its services as has been agreed to by the Issuers and the
Trustee. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Issuers shall reimburse the
Trustee upon request for all reasonable out-of-pocket expenses incurred or made
by it in connection with the performance of its duties under this Indenture.
Such expenses shall include the reasonable fees and expenses of the Trustee's
agents, counsel, accountants and experts.
The Issuers and the Subsidiary Guarantors shall jointly and severally
indemnify each of the Trustee (or any predecessor Trustee) and its agents,
employees, stockholders, Affiliates and directors and officers for, and hold
them each harmless against, any and all loss, liability, damage, claim or
expense (including reasonable fees and expenses of counsel),
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including taxes (other than taxes based on the income of the Trustee) incurred
by them except for such actions to the extent caused by any negligence, bad
faith or willful misconduct on their part, relating to or arising out of or in
connection with (i) the acceptance or administration of this trust including the
reasonable costs and expenses of defending themselves against any claim or
liability in connection with the exercise or performance of any of their rights,
powers or duties hereunder, or (ii) the validity, invalidity, adequacy or
inadequacy of this Indenture, the Subsidiary Guarantees, the Notes and the Offer
to Exchange and Consent Solicitation. The Trustee shall notify the Issuers
promptly of any claim asserted against the Trustee for which it intends to seek
indemnity. At the Trustee's sole discretion, the Issuers shall defend the claim
and the Trustee shall cooperate and may participate in the defense; provided,
however, that any settlement of a claim shall be approved in writing by the
Trustee if such settlement would result in an admission of liability by the
Trustee or if such settlement would not be accompanied by a full release of the
Trustee for all liability arising out of the events giving rise to such claim.
Alternatively, the Trustee may at its option have separate counsel of its own
choosing and the Issuers shall pay the reasonable fees and expenses of such
counsel.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(f) or (g) occurs, such expenses and the
compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
The provisions of this Section 7.07 shall survive the termination of
this Indenture.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Issuers. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee and appoint a successor Trustee with the Issuers' consent, by so
notifying the Issuers and the Trustee. The Issuers may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuers shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in aggregate principal
amount of the outstanding Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Issuers.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, the resignation or removal of the retiring Trustee shall
become effective, and the successor Trustee shall have all the rights, powers
and duties of the Trustee under this Indenture. The Issuers shall mail notice of
such successor Trustee's appointment to each Holder.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuers or the
Holders of at least 10% in aggregate principal amount of the outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding any resignation or replacement of the Trustee pursuant
to this Section 7.08, the Issuers' obligations under Section 7.07 shall continue
for the benefit of the retiring Trustee.
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SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; provided, however, that
such corporation shall be otherwise qualified and eligible under this Article
Seven.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA Sections 310(a)(1), (2) and (5). The Trustee (or, in the case
of a Trustee that is a corporation included in a bank holding company system,
the related bank holding company) shall have a combined capital and surplus of
at least $150 million as set forth in its most recent published annual report of
condition, and have a Corporate Trust Office in the City of New York. In
addition, if the Trustee is a corporation included in a bank holding company
system, the Trustee, independently of such bank holding company, shall meet the
capital requirements of TIA Section 310(a)(2). The Trustee shall comply with TIA
Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities, or certificates of interest or participation in other securities, of
the Issuers are outstanding, if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met. The provisions of TIA Section 310 shall apply to
the Issuers and the Subsidiary Guarantors, as obligors of the Notes.
SECTION 7.11. Preferential Collection of Claims Against Issuers.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein. The provisions of TIA Section 311 shall apply to the Issuers and the
Subsidiary Guarantors, as obligors on the Notes.
SECTION 7.12. Other Capacities.
All references in this Indenture to the Trustee shall be deemed to
refer to the Trustee in its capacity as Trustee and in its capacities as any
Agent, to the extent acting in such capacities, and every provision of this
Indenture relating to the conduct or affecting the liability or offering
protection, immunity or indemnity to the Trustee shall be deemed to apply with
the same force and effect to the Trustee acting in its capacities as any Agent.
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of Issuers' Obligations.
This Indenture, the Guarantees and the Security Documents will be
discharged and will cease to be of further effect (except as to surviving rights
of registration of transfer or exchange of the Notes, as expressly provided for
in this Indenture) as to all outstanding Notes when (a) either (i) all Notes,
theretofore authenticated and delivered (except lost, stolen or destroyed Notes
which have been replaced or paid and Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Issuers and thereafter repaid to the Issuers or discharged from such trust) have
been delivered to the Trustee for cancellation or (ii) all Notes not theretofore
delivered to the Trustee for cancellation have become due and payable and the
Issuers have irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire Indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Notes to the date of deposit
together with irrevocable written instructions in the form of an Officers'
Certificate from the Issuers directing the Trustee to apply such funds to the
payment thereof at maturity or redemption, as the case may be; (b) the Issuers
have paid all other sums payable under this Indenture by the Issuers; and (c)
the Issuers have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel stating that all conditions precedent under this Indenture
relating to the satisfaction and discharge of this Indenture have been complied
with; provided, however, that such counsel may rely, as to matters of fact, on a
certificate or certificates of officers of the Issuers.
The Issuers may, at their option and at any time, elect to have their
obligations and the corresponding obligations of the Subsidiary Guarantors
discharged with respect to the outstanding Notes ("Legal Defeasance"). Such
Legal Defeasance means that the Issuers and the Subsidiary Guarantors shall be
deemed to have paid and discharged the entire
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indebtedness represented by the outstanding Notes, and satisfied all of their
obligations with respect to the Notes, except for (a) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (b) the Issuers' obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (c) the rights, powers, trust, duties and immunities of the
Trustee and the Issuers' obligations in connection therewith and (d) the Legal
Defeasance provisions of this Section 8.01. In addition, the Issuers may, at
their option and at any time, elect to have the obligations of the Issuers and
the Subsidiary Guarantors, if any, released with respect to covenants contained
in Sections 4.04, 4.08 and 4.10 through 4.20 and Article Five ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event of Covenant Defeasance, those events described under Section 6.01 (except
those events described in Section 6.01(a),(b),(f) and (g)) will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Issuers must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders U.S. Legal Tender, non-callable
U.S. Government Obligations, or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, premium, if
any, and interest on the Notes on the stated date for payment thereof
or on the applicable Redemption Date, as the case may be;
(b) in the case of Legal Defeasance, the Issuers shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (i) the Issuers
have received from, or there has been published by, the Internal
Revenue Service a ruling or (ii) since the Issue Date, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm
that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of Covenant Defeasance, the Issuers shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will
not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default
under Section 6.01(f) or (g) from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under this
Indenture or any other agreement or instrument to which Abraxas or any
of its Restricted Subsidiaries is a party or by which Abraxas or any of
its Restricted Subsidiaries is bound;
(f) the Issuers shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Issuers with the intent of preferring the Holders over any other
creditors of either Issuers or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Issuers or others;
(g) the Issuers shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance, as the case may be, have been complied
with; provided, however, that such counsel may rely, as to matters of
fact, on a certificate or certificates of officers of the Issuers;
(h) the Issuers shall have delivered to the Trustee an Opinion
of Counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and
(i) certain other customary conditions precedent are
satisfied.
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SECTION 8.02. Application of Trust Money.
The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or
U.S. Government Obligations deposited with it pursuant to Section 8.01, and
shall apply the deposited U.S. Legal Tender and the money from U.S. Government
Obligations in accordance with this Indenture to the payment of the principal of
and interest on the Notes. The Trustee shall be under no obligation to invest
said U.S. Legal Tender or U.S. Government Obligations except as it may agree in
writing with the Issuers.
The Issuers shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the Legal Tender or U.S. Government
Obligations deposited pursuant to Section 8.01 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of outstanding Notes. The provisions of
this Section 8.02 shall survive the termination of this Indenture.
SECTION 8.03. Repayment to the Issuers.
Subject to Section 8.01, the Trustee and the Paying Agent shall
promptly pay to the Issuers upon request any excess U.S. Legal Tender or U.S.
Government Obligations held by them at any time and thereupon shall be relieved
from all liability with respect to such money. The Trustee and the Paying Agent
shall pay to the Issuers upon receipt of a written order in the form of an
Officers' Certificate requesting any money held by them for the payment of
principal or interest that remains unclaimed for one year; provided, however,
that the Trustee or such Paying Agent, before being required to make any
payment, may at the expense of the Issuers cause to be published once in a
newspaper of general circulation in the City of New York or mail to each Holder
entitled to such money notice that such money remains unclaimed and that after a
date specified therein which shall be at least 30 days from the date of such
publication or mailing any unclaimed balance of such money then remaining will
be repaid to the Issuers. After payment to the Issuers, Holders entitled to such
money must look to the Issuers for payment as general creditors unless an
applicable law designates another Person.
SECTION 8.04. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender
or U.S. Government Obligations in accordance with Section 8.01 by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Issuers' obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.01 until such time as the Trustee or Paying Agent is permitted to
apply all such U.S. Legal Tender or U.S. Government Obligations in accordance
with Section 8.01; provided, however, that if the Issuers have made any payment
of interest on or principal of any Notes because of the reinstatement of its
obligations, the Issuers shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the U.S. Legal Tender or U.S. Government
Obligations held by the Trustee or Paying Agent.
SECTION 8.05. Acknowledgment of Discharge by Trustee.
After (i) the conditions of Section 8.01 have been satisfied, (ii) the
Issuers have paid or caused to be paid all other sums payable hereunder by the
Issuers and (iii) each of the Issuers has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (i) above relating to the satisfaction and
discharge of this Indenture have been complied with, the Trustee upon written
request of the Issuers in the form of an Officers' Certificate shall acknowledge
in writing the discharge of the Issuers' obligations under this Indenture except
for those surviving obligations specified in Sections 7.07 and 8.02.
ARTICLE NINE
MODIFICATION OF INDENTURE
SECTION 9.01. Without Consent of Holders.
Subject to the provisions of Section 9.02, the Issuers, the Subsidiary
Guarantors and the Trustee may amend, waive or supplement this Indenture or any
Security Document without notice to or consent of any Holder: (a) to cure any
ambiguity,
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defect or inconsistency; (b) to comply with Section 5.01 of this Indenture; (c)
to provide for uncertificated Notes in addition to certificated Notes; (d) to
comply with any requirements of the Commission in order to effect or maintain
the qualification of this Indenture under the TIA; or (e) to make any change
that would provide any additional benefit or rights to the Holders or that does
not adversely affect the rights of any Holder. Notwithstanding the foregoing,
the Trustee and the Issuers may not make any change that adversely affects the
rights of any Holder under this Indenture or any Security Document without the
consent of such Holder. In formulating its opinion on such matters, the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an Opinion of Counsel; provided, however, that in
delivering such Opinion of Counsel, such counsel may rely as to matters of fact,
on a certificate or certificates of officers of Abraxas.
SECTION 9.02. With Consent of Holders.
All other amendments, supplements or waivers of this Indenture, the
Notes, the Guarantees or any Security Document may be made with the consent of
the Holders of not less than a majority of the then outstanding principal amount
of the then outstanding Notes, except that, without the consent of each Holder
of the Notes affected thereby, no amendment, supplement or waiver may, directly
or indirectly: (i) reduce the amount of Notes whose Holders must consent to any
amendment; (ii) reduce the rate of or change the time for payment of interest,
including defaulted interest, on any Notes; (iii) reduce the principal of or
change the fixed maturity of any Notes, or change the date on which any Notes
may be subject to redemption or repurchase, or reduce the redemption or
repurchase price therefor; (iv) make any Notes payable in currency other than
that stated in the Notes; (v) make any change in provisions of this Indenture
protecting the right of each Holder of a Note to receive payment of principal of
and interest on such Note on or after the due date thereof or to bring suit to
enforce such payment or permitting Holders of a majority in aggregate principal
amount of the then outstanding Notes to waive Defaults or Events of Default;
(vi) amend, change or modify in any material respect the obligation of the
Issuers to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate a Net Proceeds Offer with respect to
any Asset Sale that has been consummated or modify any of the provisions or
definitions with respect thereto; (vii) modify or change any provision of this
Indenture, any Security Document or Section 1.01 affecting the ranking of the
Notes or any Guarantee in a manner which adversely affects the Holders; or
(viii) release any Subsidiary Guarantor from any of its obligations under its
Guarantee or this Indenture otherwise than in accordance with the terms of this
Indenture.
SECTION 9.03. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the Notes
shall comply with the TIA as then in effect; provided, however, that this
Section 9.03 shall not of itself require that this Indenture or the Trustee be
qualified under the TIA or constitute any admission or acknowledgment by any
party hereto that any such qualification is required prior to the time this
Indenture and the Trustee are required by the TIA to be so qualified.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder's Note, even if notation of the consent is not made on any
Note. Subject to the following paragraph, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of such Note by
notice to the Trustee or the Issuers received before the date on which the
Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Notes have consented (and not theretofore revoked
such consent) to the amendment, supplement or waiver. An amendment, supplement
or waiver becomes effective upon receipt by the Trustee of such Officers'
Certificate and evidence of consent by the Holders of the requisite percentage
in principal amount of outstanding Notes.
The Issuers may, but shall not be obligated to, fix a Record Date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which Record Date shall be at least 30 days prior to the
first solicitation of such consent. If a Record Date is fixed, then
notwithstanding the second sentence of the immediately preceding paragraph,
those Persons who were Holders at such Record Date (or their duly designated
proxies), and only those Persons, shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
Record Date. No such consent shall be valid or effective for more than 90 days
after such Record Date unless consents from Holders of the requisite percentage
in principal amount of outstanding Notes required hereunder for the
effectiveness of such consents shall have also been given and not revoked within
such 90 day period.
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SECTION 9.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder of such Note to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder. Alternatively, if the Issuers or the Trustee so
determines, the Issuers in exchange for the Note shall issue and the Trustee
upon receipt of a written order in the form of an Officers' Certificate shall
authenticate a new Note that reflects the changed terms.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver approved
by the Board of Directors of the Issuers and authorized pursuant to this Article
Nine; provided, however, that the Trustee may, but shall not be obligated to,
execute any such amendment, supplement or waiver which affects the Trustee's own
rights, duties or immunities under this Indenture. In executing such supplement
or waiver the Trustee shall be entitled to receive security and indemnity
satisfactory to it, and shall be fully protected in relying upon an Opinion of
Counsel and an Officers' Certificate of each Issuer, each stating that (a) no
Event of Default shall occur as a result of such amendment, supplement or
waiver, (b) such amendment, supplement or waiver has been approved by the Board
of Directors of Abraxas and (c) the execution of any amendment, supplement or
waiver authorized pursuant to this Article Nine is authorized or permitted by
this Indenture, provided the legal counsel delivering such Opinion of Counsel
may rely as to matters of fact on one or more Officers' Certificates of the
Issuers. Such Opinion of Counsel shall not be an expense of the Trustee.
SECTION 9.07. Evidence of Amendments, Supplements, Waivers. This
Indenture, the Notes, the Guarantees and the Security Documents may only be
amended, supplemented or waived by a written instrument duly signed as
contemplated in Section 9.01 or 9.02.
SECTION 9.08. Amendment of Standstill Provisions. The provisions of
Section 12.01(c) concerning Standstill Periods and the provisions of Section
7.05 concerning the giving of notices of a Default or an Event of Default to the
First Lien Notes Representative cannot be amended without the written consent of
the First Lien Notes Representative.
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control; provided, however, that this Section 10.01
shall not of itself require that this Indenture or the Trustee be qualified
under the TIA or constitute any admission or acknowledgment by any party hereto
that any such qualification is required prior to the time this Indenture and the
Trustee are required by the TIA to be so qualified.
SECTION 10.02. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
if to the Issuers or any Subsidiary Guarantor:
c/o Abraxas Petroleum Corporation
500 North Loop 1604 East
Suite 100
San Antonio, Texas 78232
Telecopier Number: (210) 490-8816
Attn: Chief Executive Officer
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if to the Trustee:
Firstar Bank, National Association
101 East 5th Street
St. Paul, Minnesota 55101
Attn: Corporate Trust Department
Telephone Number: (651) 229-2600
if to the First Lien Notes Representative:
Norwest Bank Minnesota, National Association
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Attn: Corporate Trust Department
Telephone Number: (612) 667-9764
Each of the Issuers, the Subsidiary Guarantors and the Trustee by
written notice to the others may designate additional or different addresses for
notices to such Person. A different identity and/or address for the First Lien
Notes Representative may be designated by the Trustee being given a First Lien
Notes Representative Change Notice setting forth such different identity and/or
address. Any notice or communication to the Issuers, the Subsidiary Guarantors,
the Trustee or the First Lien Notes Representative shall be deemed to have been
given or made as of the date so delivered if hand delivered; when answered back,
if telexed; when receipt is acknowledged, if faxed; and five (5) calendar days
after mailing if sent by registered or certified mail, postage prepaid (except
that a notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed to him
by first class mail or other equivalent means at his address as it appears on
the registration books of the Registrar ten (10) days prior to such mailing and
shall be sufficiently given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it, except for notices or communications
to the Trustee which shall be effective only upon actual receipt thereof.
SECTION 10.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Issuers, the Subsidiary Guarantors, the Trustee, the Registrar and any other
Person shall have the protection of TIA Section 312(c).
SECTION 10.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuers to the Trustee to take
any action under this Indenture, the Issuers shall furnish to the Trustee:
(1) an Officers' Certificate, in form and substance
satisfactory to the Trustee, stating that, in the opinion of the
signers, all conditions precedent to be performed by the Issuers, if
any, provided for in this Indenture relating to the proposed action
have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent to be performed by the Issuers,
if any, provided for in this Indenture relating to the proposed action
have been complied with (which counsel, as to factual matters, may rely
on an Officers' Certificate).
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SECTION 10.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture, other than the Officers' Certificate
required by Section 4.06, shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is reasonably necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each
such Person, such condition or covenant has been complied with.
SECTION 10.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules in accordance with the Trustee's
customary practices for action by or at a meeting of Holders. The Paying Agent
or Registrar may make reasonable rules for its functions.
SECTION 10.07. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment is
a Saturday, a Sunday or a day on which banking institutions in New York, New
York or at such place of payment are not required to be open. If a payment date
is a Legal Holiday at such place, payment may be made at such place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
SECTION 10.08. Governing Law.
THIS INDENTURE, THE NOTES AND THE GUARANTEES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Each of the
parties hereto agrees to submit to the jurisdiction of the courts of the State
of New York in any action or proceeding arising out of or relating to this
Indenture.
SECTION 10.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Issuers, any Subsidiary Guarantor or any of their
Subsidiaries. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 10.10. No Personal Liability.
No director, officer, employee or stockholder, as such, of the Issuers
or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Issuers or any Subsidiary Guarantor under the Notes, this
Indenture or the Guarantees or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by accepting
a Note waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Notes.
SECTION 10.11. Successors.
All agreements of the Issuers and the Subsidiary Guarantors in this
Indenture, the Notes and the Guarantees shall bind their successors. Except as
permitted under Article Five, neither the Issuers nor any Subsidiary Guarantor
may assign any or all of its rights hereunder. All agreements of the Trustee in
this Indenture shall bind its successors.
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SECTION 10.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
SECTION 10.13. Severability.
In case any one or more of the provisions in this Indenture or in the
Notes shall be held invalid, illegal or unenforceable, in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions shall not in any way be affected
or impaired thereby, it being intended that all of the provisions hereof shall
be enforceable to the full extent permitted by law.
SECTION 10.14. Independence of Covenants.
All covenants and agreements in this Indenture and the Notes shall be
given independent effect so that if any particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or otherwise be within the limitations of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
SECTION 10.15. Currency Indemnity. This is an international loan
transaction in which the specification of U.S. Dollars is of the essence, and
the stipulated currency shall in each instance be the currency of account and
payment in all instances. A payment obligation in U.S. Dollars hereunder or
under the Notes (the "Original Currency") shall not be discharged by an amount
paid in another currency (the "Other Currency"), whether pursuant to any
judgment expressed in or converted into any Other Currency or in another place
except to the extent that such tender or recovery results in the effective
receipt by the Holders of the full amount of the Original Currency payable to it
under this Indenture or the Notes. If for the purpose of obtaining judgment in
any court it is necessary to convert a sum due hereunder in the Original
Currency into the Other Currency, the rate of exchange that shall be applied
shall be that at which in accordance with normal banking procedures the Trustee
could purchase Original Currency at its principal office with the Other Currency
on the Business Day next preceding the day on which such judgment is rendered.
The obligation of the Issuers and the Subsidiary Guarantors in respect of any
such sum due from them to the Trustee or any Holder hereunder or under any other
document (in this Section 10.15 called an "Entitled Person") shall,
notwithstanding the rate of exchange actually applied in rendering such
judgment, be discharged only to the extent that on the Business Day following
receipt by such Entitled Person of any sum adjudged to be due hereunder in the
Other Currency such Entitled Person may in accordance with normal banking
procedures purchase and transfer the Original Currency to New York with the
amount of the judgment currency so adjudged to be due; and the Issuers and the
Subsidiary Guarantors each hereby, as a separate obligation and notwithstanding
any such judgment, agrees jointly and severally to indemnify such Entitled
Person against, and to pay such Entitled Person on demand, in the Original
Currency, the amount (if any) by which the sum originally due to such Entitled
Person in the Original Currency hereunder exceeds the amount of the Original
Currency so purchased and transferred.
ARTICLE ELEVEN
GUARANTEE OF NOTES
SECTION 11.01. Unconditional Guarantee.
Subject to the provisions of this Article Eleven, each Subsidiary
Guarantor, if any, hereby, jointly and severally, unconditionally and
irrevocably guarantees, on a senior basis (such guarantee to be referred to
herein as a "Guarantee") to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective of
the validity and enforceability of this Indenture, the Notes or the obligations
of the Issuers or any Subsidiary Guarantor to the Holders or the Trustee
hereunder or thereunder, that: (a) the principal of, premium, if any, and
interest on the Notes shall be duly and punctually paid in full when due,
whether at maturity, upon redemption at the option of Holders pursuant to the
provisions of the Notes relating thereto, by acceleration or otherwise, and
interest on the overdue principal and (to the extent permitted by law) interest,
if any, on the Notes and all other obligations of the Issuers or the Subsidiary
Guarantors to the Holders or the Trustee hereunder or thereunder (including
amounts due the Trustee under Section 7.07 hereof) and all other obligations
shall be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other obligations, the
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same shall be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at maturity, by acceleration or
otherwise. Failing payment when due of any amount so guaranteed, or failing
performance of any other obligation of the Issuers to the Holders under this
Indenture or under the Notes, for whatever reason, each Subsidiary Guarantor
shall be obligated jointly or severally to pay or to perform, or cause the
performance of, the same immediately. An Event of Default under this Indenture
or the Notes shall entitle the Holders of Notes to accelerate the obligations of
the Subsidiary Guarantors hereunder in the same manner and to the same extent as
the obligations of the Issuers.
Each of the Subsidiary Guarantors hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, any release of any other Subsidiary
Guarantor, the recovery of any judgment against the Issuers, any action to
enforce the same, whether or not a Guarantee is affixed to any particular Note,
or any other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor. Each of the Subsidiary Guarantors hereby
waives the benefit of diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Issuers, any
right to require a proceeding first against the Issuers, protest, notice and all
demands whatsoever and covenants that its Guarantee shall not be discharged
except by complete performance of the obligations contained in the Notes, this
Indenture and this Guarantee. This Guarantee is a guarantee of payment and not
of collection. If any Holder or the Trustee is required by any court or
otherwise to return to the Issuers or to any Subsidiary Guarantor, or any
custodian, trustee, liquidator or other similar official acting in relation to
the Issuers or such Subsidiary Guarantor, any amount paid by the Issuers or such
Subsidiary Guarantor to the Trustee or such Holder, this Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and effect.
Each Subsidiary Guarantor further agrees that, as between it, on the one hand,
and the Holders of Notes and the Trustee, on the other hand, (a) subject to this
Article Eleven, the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six hereof for the purposes of this
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (b) in
the event of any acceleration of such obligations as provided in Article Six
hereof, such obligations (whether or not due and payable) shall forthwith become
due and payable by the Subsidiary Guarantors for the purpose of this Guarantee.
No stockholder, officer, director, employee or incorporator, past,
present or future, or any Subsidiary Guarantor, as such, shall have any personal
liability under this Guarantee solely by reason of his, her or its status as
such stockholder, officer, director, employee or incorporator.
Each Subsidiary Guarantor that makes a payment or distribution under
its Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor, determined in accordance with GAAP.
SECTION 11.02. Limitations on Guarantees.
The obligations of each Subsidiary Guarantor in the United States under
its Guarantee will be limited to the maximum amount which, after giving effect
to all other contingent and fixed liabilities of such Subsidiary Guarantor and
after giving effect to any collections from or payments made by or on behalf of
any other Subsidiary Guarantor in respect of the obligations of such other
Subsidiary Guarantor under its Guarantee or pursuant to its contribution
obligations under this Indenture, will result in the obligations of such
Subsidiary Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law.
SECTION 11.03. Execution and Delivery of Guarantee.
To further evidence the Guarantee set forth in Section 11.01, each
Subsidiary Guarantor hereby agrees that a notation of such Guarantee,
substantially in the form of Exhibit E herein, shall be endorsed on each Note
authenticated and delivered by the Trustee. Such Guarantee shall be executed on
behalf of each Subsidiary Guarantor by either manual or facsimile signature of
two Officers of each Subsidiary Guarantor, each of whom, in each case, shall
have been duly authorized to so execute by all requisite corporate action. The
validity and enforceability of any Guarantee shall not be affected by the fact
that it is not affixed to any particular Note.
Each of the Subsidiary Guarantors hereby agrees that its Guarantee set
forth in Section 11.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Guarantee.
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If an Officer of a Subsidiary Guarantor whose signature is on this
Indenture or a Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which such Guarantee is endorsed or at any time
thereafter, such Subsidiary Guarantor's Guarantee of such Note shall be valid
nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of each Subsidiary Guarantor.
SECTION 11.04. Release of a Subsidiary Guarantor.
(a) If no Default exists or would exist under this Indenture, upon the
sale or disposition of all of the Capital Stock of a Subsidiary Guarantor by the
Issuers or a Restricted Subsidiary of the Issuers in a transaction constituting
an Asset Sale the Net Cash Proceeds of which are applied in accordance with
Section 4.16, or upon the consolidation or merger of a Subsidiary Guarantor with
or into any Person in compliance with Article Five (in each case, other than to
the Issuers or an Affiliate of the Issuers or a Restricted Subsidiary), such
Subsidiary Guarantor and each Subsidiary of such Subsidiary Guarantor that is
also a Subsidiary Guarantor shall be deemed released from all obligations under
this Article Eleven without any further action required on the part of the
Trustee or any Holder and all Collateral owned by such Person shall be released
to the extent set forth in Section 12.04; provided, however, that each such
Subsidiary Guarantor is sold or disposed of in accordance with this Indenture.
Any Subsidiary Guarantor not so released or the entity surviving such Subsidiary
Guarantor, as applicable, shall remain or be liable under its Guarantee as
provided in this Article Eleven.
(b) The Trustee shall deliver to the Issuers an appropriate instrument
evidencing the release of a Subsidiary Guarantor upon receipt of a written
request by the Issuers or such Subsidiary Guarantor accompanied by an Officers'
Certificate and an Opinion of Counsel certifying as to the compliance with this
Section 11.04, provided the legal counsel delivering such Opinion of Counsel may
rely as to matters of fact on one or more Officers' Certificates of the Issuers.
The Trustee shall execute any documents reasonably requested by the
Issuers or a Subsidiary Guarantor in order to evidence the release of such
Subsidiary Guarantor from its obligations under its Guarantee endorsed on the
Notes and under this Article Eleven.
Except as set forth in Articles Four and Five and this Section 11.04,
nothing contained in this Indenture or in any of the Notes shall prevent any
consolidation or merger of a Subsidiary Guarantor with or into the Issuers or
another Subsidiary Guarantor or shall prevent any sale or conveyance of the
property of a Subsidiary Guarantor as an entirety or substantially as an
entirety to the Issuers or another Subsidiary Guarantor.
SECTION 11.05. Waiver of Subrogation.
Until this Indenture is discharged and all of the Notes are discharged
and paid in full, each Subsidiary Guarantor hereby irrevocably waives and agrees
not to exercise any claim or other rights which it may now or hereafter acquire
against the Issuers that arise from the existence, payment, performance or
enforcement of the Issuers' obligations under the Notes or this Indenture and
such Subsidiary Guarantor's obligations under this Guarantee and this Indenture,
in any such instance including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, and any right to
participate in any claim or remedy of the Holders against the Issuers, whether
or not such claim, remedy or right arises in equity, or under contract, statute
or common law, including, without limitation, the right to take or receive from
the Issuers, directly or indirectly, in cash or other property or by set-off or
in any other manner, payment or security on account of such claim or other
rights. If any amount shall be paid to any Subsidiary Guarantor in violation of
the preceding sentence and any amounts owing to the Trustee or the Holders of
Notes under or in connection with the Notes, this Indenture, or any other
document or instrument delivered under or in connection with such agreements or
instruments, shall not have been paid in full, such amount shall have been
deemed to have been paid to such Subsidiary Guarantor for the benefit of, and
held in trust for the benefit of, the Trustee or the Holders and shall forthwith
be paid to the Trustee for the benefit of itself or such Holders to be credited
and applied to the obligations in favor of the Trustee or the Holders, as the
case may be, whether matured or unmatured, in accordance with the terms of this
Indenture. Each Subsidiary Guarantor acknowledges that it will receive direct
and indirect benefits from the financing arrangements contemplated by this
Indenture and that the waiver set forth in this Section 11.05 is knowingly made
in contemplation of such benefits.
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SECTION 11.06. Immediate Payment.
Each Subsidiary Guarantor agrees to make immediate payment to the
Trustee on behalf of the Holders of all Obligations owing or payable to the
respective Holders upon receipt of a demand for payment therefor by the Trustee
to such Subsidiary Guarantor in writing.
SECTION 11.07. No Set-Off.
Each payment to be made by a Subsidiary Guarantor hereunder in respect
of the Obligations shall be payable in the currency or currencies in which such
Obligations are denominated, and shall be made without set-off, counterclaim,
reduction or diminution of any kind or nature.
SECTION 11.08. Obligations Absolute.
The obligations of each Subsidiary Guarantor hereunder are and shall be
absolute and unconditional and any monies or amounts expressed to be owing or
payable by each Subsidiary Guarantor hereunder which may not be recoverable from
such Subsidiary Guarantor on the basis of a Guarantee shall be recoverable from
such Subsidiary Guarantor as a primary obligor and principal debtor in respect
thereof.
SECTION 11.09. Obligations Continuing.
The obligations of each Subsidiary Guarantor hereunder shall be
continuing and shall remain in full force and effect until all the obligations
have been paid and satisfied in full. Each Subsidiary Guarantor agrees with the
Trustee that it will from time to time deliver to the Trustee suitable written
acknowledgments of its continued liability hereunder and under any other
instrument or instruments in such form as counsel to the Trustee may advise and
as will prevent any action brought against it in respect of any default
hereunder being barred by any statute of limitations now or hereafter in force
and, in the event of the failure of a Subsidiary Guarantor so to do, it hereby
irrevocably appoints the Trustee the attorney and agent of such Subsidiary
Guarantor to make, execute and deliver such written acknowledgment or
acknowledgments or other instruments as may from time to time become necessary
or advisable, in the judgment of the Trustee on the advice of counsel, to fully
maintain and keep in force the liability of such Subsidiary Guarantor hereunder;
provided, however, that notwithstanding anything herein to the contrary, nothing
in this Section 11.09 shall be construed to obligate the Trustee to take any
action not otherwise allowed by this Indenture or the TIA, and under no
circumstances shall Trustee be required to take any actions in compliance with
this Section 11.09 which would incur any liability whatsoever under the terms of
this Indenture or otherwise except to the extent that it is provided with
security or indemnity satisfactory to it, nor shall Trustee's actions hereunder
be deemed to be a breach of any other provision of this Indenture.
SECTION 11.10. Obligations Not Reduced.
The obligations of each Subsidiary Guarantor hereunder shall not be
satisfied, reduced or discharged solely by the payment of such principal,
premium, if any, interest, fees and other monies or amounts as may at any time
prior to discharge of this Indenture pursuant to Article 8 be or become owing or
payable under or by virtue of or otherwise in connection with the Notes or this
Indenture.
SECTION 11.11. Obligations Reinstated.
The obligations of each Subsidiary Guarantor hereunder shall continue
to be effective or shall be reinstated, as the case may be, if at any time any
payment which would otherwise have reduced the obligations of any Subsidiary
Guarantor hereunder (whether such payment shall have been made by or on behalf
of the Issuers or by or on behalf of a Subsidiary Guarantor) is rescinded or
reclaimed from any of the Holders upon the insolvency, bankruptcy, liquidation
or reorganization of either Issuer or any Subsidiary Guarantor or otherwise, all
as though such payment had not been made. If demand for, or acceleration of the
time for, payment by the Issuers is stayed upon the insolvency, bankruptcy,
liquidation or reorganization of either Issuer, all such Indebtedness otherwise
subject to demand for payment or acceleration shall nonetheless be payable by
each Subsidiary Guarantor as provided herein.
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SECTION 11.12. Obligations Not Affected.
The obligations of each Subsidiary Guarantor hereunder shall not be
affected, impaired or diminished in any way by any act, omission, matter or
thing whatsoever, occurring before, upon or after any demand for payment
hereunder (and whether or not known or consented to by any Subsidiary Guarantor
or any of the Holders) which, but for this provision, might constitute a whole
or partial defense to a claim against any Subsidiary Guarantor hereunder or
might operate to release or otherwise exonerate any Subsidiary Guarantor from
any of its obligations hereunder or otherwise affect such obligations, whether
occasioned by default of any of the Holders or otherwise, including, without
limitation:
(a) any limitation of status or power, disability, incapacity
or other circumstance relating to either Issuer or any other Person,
including any insolvency, bankruptcy, liquidation, reorganization,
readjustment, composition, dissolution, winding-up or other proceeding
involving or affecting either Issuer or any other Person;
(b) any irregularity, defect, unenforceability or invalidity
in respect of any indebtedness or other obligation of either Issuer or
any other Person under this Indenture, the Notes or any other document
or instrument;
(c) any failure of the Issuers, whether or not without fault
on their part, to perform or comply with any of the provisions of this
Indenture or the Notes, or to give notice thereof to a Subsidiary
Guarantor;
(d) the taking or enforcing or exercising or the refusal or
neglect to take or enforce or exercise any right or remedy from or
against the Issuers or any other Person or their respective assets or
the release or discharge of any such right or remedy;
(e) the granting of time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the
Issuers or any other Person;
(f) any change in the time, manner or place of payment of, or
in any other term of, any of the Notes, or any other amendment,
variation, supplement, replacement or waiver of, or any consent to
departure from, any of the Notes or this Indenture, including, without
limitation, any increase or decrease in the principal amount of or
premium, if any, or interest on any of the Notes;
(g) any change in the ownership, control, name, objects,
businesses, assets, capital structure or constitution of either Issuer
or a Subsidiary Guarantor;
(h) any merger or amalgamation of either Issuer or a
Subsidiary Guarantor with any Person or Persons;
(i) the occurrence of any change in the laws, rules,
regulations or ordinances of any jurisdiction by any present or future
action of any governmental authority or court amending, varying,
reducing or otherwise affecting, or purporting to amend, vary, reduce
or otherwise affect, any of the Obligations or the obligations of a
Subsidiary Guarantor under its Guarantee; and
(j) any other circumstance, including release of the
Subsidiary Guarantor pursuant to Section 11.04 (other than by complete,
irrevocable payment) that might otherwise constitute a legal or
equitable discharge or defense of the Issuers under this Indenture or
the Notes or of a Subsidiary Guarantor in respect of its Guarantee
hereunder.
SECTION 11.13. Waiver.
Without in any way limiting the provisions of Section 11.01 hereof,
each Subsidiary Guarantor hereby waives notice of acceptance hereof, notice of
any liability of any Subsidiary Guarantor hereunder, notice or proof of reliance
by the Holders upon the obligations of any Subsidiary Guarantor hereunder, and
diligence, presentment, demand for payment on the Issuers, protest, notice of
dishonor or non-payment of any of the Obligations, or other notice or
formalities to the Issuers or any Subsidiary Guarantor of any kind whatsoever.
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SECTION 11.14. No Obligation To Take Action Against the Issuers.
Neither the Trustee nor any other Person shall have any obligation to
enforce or exhaust any rights or remedies or to take any other steps under any
security for the Obligations or against the Issuers or any other Person or any
Property of the Issuers or any other Person before the Trustee is entitled to
demand payment and performance by any or all Subsidiary Guarantors of their
liabilities and obligations under their Guarantees or under this Indenture.
SECTION 11.15. Dealing with the Issuers and Others.
The Holders, without releasing, discharging, limiting or otherwise
affecting in whole or in part the obligations and liabilities of any Subsidiary
Guarantor hereunder and without the consent of or notice to any Subsidiary
Guarantor, may
(a) grant time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the
Issuers or any other Person;
(b) take or abstain from taking security or collateral from
the Issuers or any other Person or from perfecting security or
collateral of the Issuers or any other Person;
(c) release, discharge, compromise, realize, enforce or
otherwise deal with or do any act or thing in respect of (with or
without consideration) any and all collateral, mortgages or other
security given by the Issuers or any third party with respect to the
obligations or matters contemplated by this Indenture or the Notes;
(d) accept compromises or arrangements from the Issuers;
(e) apply all monies at any time received from the Issuers or
from any security upon such part of the Obligations as the Holders may
see fit or change any such application in whole or in part from time to
time as the Holders may see fit; and
(f) otherwise deal with, or waive or modify their right to
deal with, the Issuers and all other Persons and any security as the
Holders or the Trustee may see fit.
SECTION 11.16. Default and Enforcement.
Subject to Section 12.01(c), if any Subsidiary Guarantor fails to pay
in accordance with Section 11.06 hereof, the Trustee may proceed in its name as
trustee hereunder in the enforcement of the Guarantee of any such Subsidiary
Guarantor and such Subsidiary Guarantor's obligations thereunder and hereunder
by any remedy provided by law, whether by legal proceedings or otherwise, and to
recover from such Subsidiary Guarantor the obligations.
SECTION 11.17. Acknowledgment.
Each Subsidiary Guarantor hereby acknowledges communication of the
terms of this Indenture and the Notes and consents to and approves of the same.
SECTION 11.18. Costs and Expenses.
Each Subsidiary Guarantor shall pay on demand by the Trustee any and
all costs, fees and expenses (including, without limitation, legal fees on a
solicitor and client basis) incurred by the Trustee, its agents, advisors and
counsel or any of the Holders in enforcing any of their rights under any
Guarantee.
SECTION 11.19. No Merger or Waiver; Cumulative Remedies.
No Guarantee shall operate by way of merger of any of the obligations
of a Subsidiary Guarantor under any other agreement, including, without
limitation, this Indenture. No failure to exercise and no delay in exercising,
on the part of the Trustee or the Holders, any right, remedy, power or privilege
hereunder or under this Indenture or the Notes, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder or under this Indenture or the Notes preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges in the Guarantee and
under this Indenture, the Notes and any other
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document or instrument between a Subsidiary Guarantor and/or either Issuer and
the Trustee are cumulative and not exclusive of any rights, remedies, powers and
privilege provided by law.
SECTION 11.20. Survival of Obligations.
Without prejudice to the survival of any of the other obligations of
each Subsidiary Guarantor hereunder, the obligations of each Subsidiary
Guarantor under Section 11.01 shall survive the payment in full of the
Obligations and shall be enforceable against such Subsidiary Guarantor without
regard to and without giving effect to any defense, right of offset or
counterclaim available to or which may be asserted by either Issuer or any
Subsidiary Guarantor.
SECTION 11.21. Guarantee in Addition to Other Obligations.
The obligations of each Subsidiary Guarantor under its Guarantee and
this Indenture are in addition to and not in substitution for any other
obligations to the Trustee or to any of the Holders in relation to this
Indenture or the Notes and any guarantees or security at any time held by or for
the benefit of any of them.
SECTION 11.22. Severability.
Any provision of this Article Eleven which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction
unless its removal would substantially defeat the basic intent, spirit and
purpose of this Indenture and this Article Eleven.
ARTICLE TWELVE
SECURITY
SECTION 12.01. Grant of Security Interest; Remedies; Standstill.
(a) In order to secure the obligations of the Issuers hereunder, the
Issuers hereby covenant to, and to cause each Subsidiary Guarantor owning Oil
and Gas Assets to, execute and deliver on or before the Issue Date one or more
Mortgages and other Security Documents, as reasonably determined by the Trustee
to obtain a Lien on substantially all of the Oil and Gas Assets of the Issuers
and the Subsidiary Guarantors as of the Issue Date and on the Capital Stock of
Grey Wolf owned by the Issuers, such Lien being junior to the Liens securing the
First Lien Notes. Each such Security Document, when executed and delivered,
shall be deemed hereby incorporated by reference herein to the same extent and
as fully as if set forth in their entirety at this place, and reference is made
hereby to each such Security Document for a more complete description of the
terms and provisions thereof. Each Holder, by accepting a Note, agrees to all of
the terms and provisions of each Security Document and the Trustee agrees to all
of the terms and provisions of each Security Document.
(b) If (i) the Notes become due and payable prior to the Maturity Date
or are not paid in full at the Maturity Date or (ii) an Event of Default has
occurred and is continuing, the Trustee may take all actions it deems necessary
or appropriate, including, but not limited to, foreclosing upon the Collateral
in accordance with the Security Documents and applicable law. The proceeds
received from the sale of any Collateral that is the subject of a foreclosure or
collection suit shall be applied in accordance with the priorities set forth in
Section 6.10. The Trustee has the power to institute and maintain such suits and
proceedings as it may deem expedient to prevent impairment of, or to preserve or
protect its and the Holders' interest in, the Collateral in the manner set forth
in Article Seven.
(c) Notwithstanding the foregoing, if an Event of Default has occurred,
the Trustee or a Holder, as the case may be, must give the First Lien Notes
Representative written notice (a "Standstill Period Commencement Notice") prior
to taking any action to enforce its foreclosure rights with respect to any of
the Collateral (a "Foreclosure Action") in connection with such Event of
Default, with such notice stating that an Event of Default has occurred under
this Indenture and stating that such notice is being given to commence a
Standstill Period under Section 12.01 of this Indenture. The Trustee or such
Holder, as the case may be, shall not take a Foreclosure Action with respect to
such Event of Default until 180 days have elapsed since the date such Standstill
Period Commencement Notice is given by the Trustee or such Holder, as the case
may be, to the First Lien Notes Representative (a "Standstill Period"), unless
the First Lien Notes Representative
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consents to the taking of such Foreclosure Action and the First Lien Notes
Representative has authority to give such consent on behalf of the holders of
the First Lien Notes pursuant to the First Lien Indenture. The provisions of
this clause (c) shall cease to be applicable upon the payment in full of all
Indebtedness under the First Lien Notes and the First Lien Indenture. Nothing in
this clause (c) shall be construed as limiting any right of the Trustee and/or
the Holders of the Notes to assert any rights they may have to any proceeds
arising from any foreclosure or other such realization on the Collateral by the
First Lien Notes Representative, by any holder or holders of any of the First
Lien Notes or by any trustee or other person acting for or on behalf of the
First Lien Notes Representative or any holder or holders of any of the First
Lien Notes.
(d) Unless an Event of Default shall have occurred and be continuing,
the Issuers and the Subsidiary Guarantors will have the right to remain in
possession and retain exclusive control of the Collateral securing the Notes
(other than any cash, securities, obligations and Cash Equivalents constituting
part of the Collateral and deposited with the Trustee in the Collateral Account
or with the First Lien Notes Representative and other than as set forth in the
Security Documents), to freely operate the Collateral and to collect, invest and
dispose of any income thereon or therefrom.
SECTION 12.02. Recording and Opinions.
(a) The Issuers shall take or cause to be taken all action required to
perfect, maintain, preserve and protect the Lien in the Collateral granted by
the Security Documents, including, without limitation, the filing of financing
statements, continuation statements and any instruments of further assurance, in
such manner and in such places as may be required by law fully to preserve and
protect the rights of the Holders and the Trustee under this Indenture and the
Security Documents to all property comprising the Collateral. The Issuers shall
from time to time promptly pay all financing and continuation statement
recording and/or filing fees, charges and taxes relating to this Indenture, the
Security Documents, any amendments thereto and any other instruments of further
assurance required pursuant to the Security Documents.
(b) The Issuers shall, to the extent required by the TIA, furnish to
the Trustee, at closing and at such other time as required by Section 314(b) of
the TIA, Opinion(s) of Counsel either (i) substantially to the effect that, in
the opinion of such counsel, this Indenture and the grant of a Lien in the
Collateral intended to be made by the Security Documents and all other
instruments of further assurance, including, without limitation, financing
statements, have been properly recorded and filed to the extent necessary to
perfect the Lien in the Collateral created by the Security Documents (other than
as stated in such opinion) and reciting the details of such action, and stating
that as to the Lien created pursuant to the Security Documents, such recordings
and filings are the only recordings and filings necessary to give notice thereof
and that no re-recordings or refilings are necessary to maintain such notice
(other than as stated in such opinion), or (ii) to the effect that, in the
opinion of such counsel, no such action is necessary to perfect such Lien. In
rendering such opinions, legal counsel may rely on certificates of officers of
the Issuers and/or the Restricted Subsidiaries with respect to factual matters.
(c) The Issuers shall furnish to the Trustee on March 15th in each
year, beginning with March 15, 2000, an Opinion of Counsel, dated as of such
date, either (i)(A) stating that, in the opinion of such counsel, all required
action has been taken with respect to the recording, filing, re-recording and
refiling of all supplemental indentures, financing statements, continuation
statements and other documents as is necessary to maintain the Lien of the
Security Documents (other than as stated in such opinion) and reciting with
respect to the Lien in the Collateral the details of such action or referring to
prior Opinions of Counsel in which such details are given, and (B) stating that,
based on relevant laws as in effect on the date of such Opinion of Counsel, all
financing statements, continuation statements and other documents have been
executed and filed that are necessary as of such date and during the succeeding
24 months fully to maintain the Lien of the Holders and the Trustee hereunder
and under the Security Documents with respect to the Collateral (other than as
stated in such opinion), or (ii) stating that, in the opinion of such counsel,
no such action is necessary to maintain such Lien. In rendering such opinions,
legal counsel may rely on certificates of officers of the Issuers and/or the
Restricted Subsidiaries with respect to factual matters.
SECTION 12.03. Release of Collateral.
(a) The Trustee, in its capacity as secured party under the
Security Documents, shall not at any time release Collateral from the Lien
created by this Indenture and the Security Documents unless such release is in
accordance with the provisions of this Indenture and the Security Documents.
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(b) At any time when an Event of Default shall have occurred
and be continuing, the Trustee shall not release any Liens granted for the
benefit of the Holders and no release of Collateral given at such time pursuant
to the provisions of this Indenture and the Security Documents shall be
effective as against the Holders of the Notes.
(c) The release of any Collateral from the terms of the
Security Documents shall not be deemed to impair the security under this
Indenture in contravention of the provisions hereof if and to the extent the
Collateral is released pursuant to this Indenture and the Security Documents. To
the extent applicable, the Issuers shall cause TIA Section 314(d) relating to
the release of property from the Lien of the Security Documents and relating to
the substitution therefor of any property to be subjected to the Lien of the
Security Documents to be complied with. Any certificate or opinion required by
TIA Section 314(d) may be made by an Officer of Abraxas, except in cases where
TIA Section 314(d) requires that such certificate or opinion be made by an
independent Person, which Person shall be an independent engineer, appraiser or
other expert selected or approved by the Trustee. A Person is "independent" if
such Person (a) is in fact independent, (b) does not have any direct financial
interest or any material indirect financial interest in either Issuer, any of
their Subsidiaries or in any Affiliate of the Issuers and (c) is not an officer,
employee, promoter, underwriter, trustee, partner or director or Person
performing similar functions to any of the foregoing for either Issuer or any of
their Subsidiaries. The Trustee shall be entitled to receive and rely upon a
certificate provided by any such Person confirming that such Person is
independent within the foregoing definition.
SECTION 12.04. Specified Releases of Collateral.
(a) The Issuers and the Subsidiary Guarantors shall be
entitled to obtain a full release of all of the Collateral from the Lien of this
Indenture and of the Security Documents upon compliance with the conditions
precedent set forth in Section 8.01 for satisfaction and discharge of this
Indenture or for Legal Defeasance pursuant to Section 8.01. Upon delivery by the
Issuers to the Trustee of an Officers' Certificate and an Opinion of Counsel,
each to the effect that such conditions precedent have been complied with (and
which may be the same Officers' Certificate and Opinion of Counsel required by
Article Eight), the Trustee shall forthwith take all necessary action (at the
request of and the expense of the Issuers) to release and reconvey to the
relevant Person all of the Collateral, and shall deliver such Collateral in its
possession to the Issuers, including, without limitation, the execution and
delivery of releases and satisfactions wherever required.
(b) Upon compliance by the Issuers with the conditions set
forth below in respect of any sale, transfer or other disposition, the Trustee
shall release the Released Interests from the Lien of this Indenture and the
Security Documents and reconvey the Released Interests to the Issuers or the
grantor of the Lien on such property. The Issuers will have the right to obtain
a release of items of Collateral (the "Released Interests") subject to any sale,
transfer or other disposition, or owned by a Restricted Subsidiary the Capital
Stock of which is sold in compliance with the terms of this Indenture such that
it ceases to be a Restricted Subsidiary, upon compliance with the condition that
such Issuers deliver to the Trustee the following:
(i) a written notice in the form of an Officers' Certificate from
Abraxas requesting the release of Released Interests:
(A) describing the proposed Released Interests,
(B) specifying the value of such Released Interests or such
Capital Stock, as the case may be, on a date within 60 days of the Abraxas
notice (the "Valuation Date"),
(C) stating that the consideration to be received is at least
equal to the fair market value of the Released Interests,
(D) stating that the release of such Released Interests will
not interfere with the Trustee's ability to realize the value of the remaining
Collateral and will not impair the maintenance and operation of the remaining
Collateral,
(E) confirming the sale or exchange of, or an agreement to
sell or exchange, such Released Interests or such Capital Stock, as the case may
be, is a bona fide sale to or exchange with a Person that is not an Affiliate of
the Issuers or, in the event that such sale or exchange is to or with a Person
that is an Affiliate, confirming that such sale or exchange is made in
compliance with the provisions set forth in Section 4.11,
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<PAGE> 72
(F) in the event there is to be a contemporaneous substitution
of property for the Collateral subject to the sale, transfer or other
disposition, specifying the property intended to be substituted for the
Collateral to be disposed of,
(ii) an Officers' Certificate of Abraxas stating that:
(A) such sale, transfer or other disposition or such
redesignation, as the case may be, complies with the terms and conditions of
this Indenture, including the provisions set forth in Sections 4.10, 4.11, 4.14
and 4.16, to the extent any of the foregoing are applicable,
(B) all Net Cash Proceeds from the sale, transfer or other
disposition of any of the Released Interests or such Capital Stock, as the case
may be, will be applied pursuant to the provisions of this Indenture in respect
of the deposit of proceeds into the Collateral Account or with the First Lien
Notes Representative as contemplated by this Indenture and in respect of Asset
Sales, to the extent applicable,
(C) there is no Default or Event of Default in effect or
continuing on the date thereof or the date of such sale, transfer or other
disposition or such redesignation, as the case may be,
(D) the release of the Collateral will not result in a Default
or Event of Default under this Indenture,
(E) upon the delivery of such Officers' Certificate, all
conditions precedent in this Indenture relating to the release in question will
have been complied with,
(F) such sale, transfer or other disposition is not between
Abraxas and any of its Restricted Subsidiary or between Restricted Subsidiaries,
and
(G) such sale, transfer or other disposition is not a sale,
transfer or other disposition that is excluded from the definition of "Asset
Sale" because it was a sale, lease, conveyance, disposition or other transfer of
all or substantially all of the assets of the Issuers in a transaction which
made in compliance with the provisions of Section 5.01.
(iii) all documentation required by the TIA, if any, prior to the
release of Collateral by the Trustee and, in the event there
is to be a contemporaneous substitution of property for the
Collateral subject to such sale, transfer or other
disposition, all documentation necessary to effect the
substitution of such new Collateral.
(c) Notwithstanding the provisions of Section 12.04(b), so long as no
Event of Default shall have occurred and be continuing, the Issuers may, without
satisfaction of the conditions set forth in Section 12.04(b) above, all to the
extent consistent with Sections 4.03, 4.05 and 4.07: (i) sell or otherwise
dispose of any equipment or inventory subject to the Lien of this Indenture and
the Security Documents, which may have become worn out or obsolete, (ii)
abandon, terminate, cancel, release or make alterations in or substitutions of
any leases or contracts subject to the Lien of this Indenture or any of the
Security Documents, (iii) surrender or modify any franchise, license or permit
subject to the Lien of this Indenture or any of the Security Documents which it
may own or under which it may be operating, (iv) alter, repair, replace, change
the location or position of and add to its structures, machinery, systems,
equipment, fixtures and appurtenances, (v) demolish, dismantle, tear down or
scrap any obsolete Collateral or abandon any portion thereof, (vi) grant
farm-outs, leases or sub-leases in respect of real property to the extent the
foregoing does not constitute an Asset Sale, and (vii) dispose of Hydrocarbons
or other mineral products for value in the ordinary course of business all in
accordance with the terms of the TIA.
SECTION 12.05. Rights of Purchasers; Form and Sufficiency of Release.
No purchaser or grantee of any property or rights purporting to be
released herefrom shall be bound to ascertain the authority of the Trustee to
execute the release or to inquire as to the existence of any conditions herein
prescribed for the exercise of such authority; nor shall any purchaser or
grantee of any property or rights permitted by this Indenture to be sold or
otherwise disposed of by the Issuers or any Restricted Subsidiary be under any
obligation to ascertain or inquire into the authority of the Issuers or
Restricted Subsidiary to make such sale or other disposition. In the event that
any Person has sold, exchanged, or otherwise disposed of or proposes to sell,
exchange or otherwise dispose of any portion of the Collateral that may be sold,
exchanged or otherwise disposed of, and Abraxas or Restricted Subsidiary makes
written request to the Trustee
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<PAGE> 73
to furnish a written disclaimer, release or quit-claim of any interest in such
property under this Indenture and the Security Documents, the Trustee, in its
capacity as secured party under the Security Documents, shall execute,
acknowledge and deliver to Abraxas or Restricted Subsidiary (in proper form)
such an instrument promptly after satisfaction of the conditions set forth
herein for delivery of any such release. Notwithstanding the preceding sentence,
all purchasers and grantees of any property or rights purporting to be released
herefrom shall be entitled to rely upon any release executed by the Trustee
hereunder as sufficient for the purpose of this Indenture and the Security
Documents and as constituting a good and valid release of the property therein
described from the Lien of this Indenture or of the Security Documents.
SECTION 12.06. Authorization of Actions to Be Taken by the Trustee
Under the Security Documents.
Subject to the provisions of the applicable Security Document and to
Section 12.01(c), (a) the Trustee may, in its sole discretion and without the
consent of the Holders, take all actions it deems necessary or appropriate in
order to (i) enforce any of the terms of the Security Documents and (ii) collect
and receive any and all amounts payable in respect of the Obligations of the
Issuers hereunder and (b) the Trustee shall have power to institute and to
maintain such suits and proceedings as it may deem expedient to prevent any
impairment of the Collateral by any act that may be unlawful or in violation of
the Security Documents or this Indenture, and such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders in the Collateral (including the power to institute and
maintain suits or proceedings to restrain the enforcement of or compliance with
any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security interest thereunder or
be prejudicial to the interests of the Holders or of the Trustee).
SECTION 12.07. Authorization of Receipt of Funds by the Trustee Under
the Security Documents.
The Trustee is authorized to receive any funds for the benefit of the
Holders distributed under the Security Documents, and to make further
distributions of such funds to the Holders in accordance with the provisions of
Section 6.10 and the other provisions of this Indenture.
SECTION 12.08. Use of Trust Moneys.
The Net Cash Proceeds associated with any Asset Sale and any Net Cash
Proceeds associated with any sale, transfer or other disposition of Collateral,
to the extent such sale, transfer or other disposition is not an "Asset Sale" by
virtue of clause (viii) of the definition thereof, insurance proceeds and
condemnation (or similar) proceeds shall be deposited (A) so long as any
Indebtedness under the First Lien Notes remains outstanding, with the First Lien
Notes Representative, and (B) otherwise into a securities account maintained by
the Trustee at its Corporate Trust Office or at any securities intermediary
selected by the Trustee having a combined capital and surplus of at least
$250,000,000 and having a long-term debt rating of at least "A3" by Moody's and
at least "A-" by S&P styled the "Abraxas Collateral Account" (such account being
the "Collateral Account") which shall be under the exclusive dominion and
control of the Trustee. All amounts on deposit in the Collateral Account shall
be treated as financial assets and cash funds on deposit in the Collateral
Account may be invested by the Trustee, at the written direction of the Issuers,
in Cash Equivalents; provided, however, in no event shall the Issuers have the
right to withdraw funds or assets from the Collateral Account except in
compliance with the terms of this Indenture, and all assets credited to the
Collateral Account shall be subject to a Lien in favor of the Trustee and the
Holders.
Any such funds deposited with the Trustee may be released to the Issuers by
their delivering to the Trustee an Officers' Certificate stating:
(1) no Event of Default has occurred and is continuing as of the date
of the proposed release; and
(2) (A) if such Trust Moneys represent Collateral Proceeds in respect of
an Asset Sale, that the application of such funds are otherwise being
applied in accordance with Section 4.16, or (B) if such Trust Moneys
represent proceeds in respect of a casualty, expropriation or taking, that
the application of such funds will be applied to repair or replace property
subject of a casualty or condemnation or reimburse the Issuers for amounts
spent to repair or replace such property and that attached thereto are
invoices or other evidence reflecting the amounts spent or to be spent, or
(C) if such Trust Moneys represent proceeds derived from any other manner,
that such amounts are being utilized in connection with business of Abraxas
and its Restricted Subsidiaries in compliance with the terms of this
Indenture; and
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<PAGE> 74
(3) all conditions precedent in this Indenture relating to the release
in question have been complied with; and
(4) all documentation required by the TIA, if any, prior to the release
of such Trust Moneys by the Trustee has been delivered to the Trustee.
Notwithstanding the foregoing, (A) if the maturity of the Notes has been
accelerated, which acceleration has not been rescinded as permitted by this
Indenture, the Trustee shall apply the Trust Moneys credited to the Collateral
Account to pay the principal of, premium, if any and accrued and unpaid interest
on the Notes to the extent of such Trust Moneys, (B) if the Issuers so elects,
by giving written notice to the Trustee, the Trustee shall apply Trust Moneys
credited to the Collateral Account to the payment of interest due on any
interest payment date, and (C) if the Issuers so elect, by giving written notice
to the Trustee, the Trustee shall apply Trust Moneys credited to the Collateral
Account to the payment of the principal of, and premium, if any, and accrued and
unpaid interest on any Notes on the Stated Maturity Date or upon redemption or
to the purchase of Notes upon tender or in the open market or at private sale or
upon any exchange or in any one or more of such ways, in each case in compliance
with this Indenture.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 75
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
ABRAXAS PETROLEUM CORPORATION, as an Issuer
By:
-----------------------------------------
Name:
Title:
CANADIAN ABRAXAS PETROLEUM LIMITED, as an
Issuer
By:
-----------------------------------------
Name:
Title:
NEW CACHE PETROLEUMS, LTD., as a Subsidiary
Guarantor
By:
-----------------------------------------
Name:
Title:
SANDIA OIL & GAS CORPORATION, as a Subsidiary
Guarantor
By:
-----------------------------------------
Name:
Title:
WAMSUTTER HOLDINGS, INC., as a Subsidiary
Guarantor
By:
-----------------------------------------
Name:
Title:
FIRSTAR BANK, NATIONAL ASSOCIATION, as Trustee
By:
-----------------------------------------
Name:
Title:
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<PAGE> 76
EXHIBIT A
CUSIP No.: [ ]
ABRAXAS PETROLEUM CORPORATION
11-1/2% SENIOR NOTE DUE 2004
No. [ ] $[ ]
ABRAXAS PETROLEUM CORPORATION, a Nevada corporation and CANADIAN
ABRAXAS PETROLEUM CORPORATION LIMITED, an Alberta corporation (the "Issuers",
which term includes any successor entities), for value received promises to pay
to [ ] or registered assigns the principal sum of [ ] Dollars on November 1,
2004.
Interest Payment Dates: May 1 and November 1, commencing May 1, 2000
Record Dates: April 15 and October 15
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Issuers have caused this Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
ABRAXAS PETROLEUM CORPORATION
By:
----------------------------------
Name:
Title:
CANADIAN ABRAXAS PETROLEUM LIMITED
By:
----------------------------------
Name:
Title:
Dated:
Certificate of Authentication
This is one of the 11-1/2% Senior Notes due 2004 referred to in the
within-mentioned Indenture.
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Trustee
By:
----------------------------------
Authorized Signatory
Date of Authentication:
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<PAGE> 77
(REVERSE OF SECURITY)
11-1/2% Senior Note due 2004
(1) Interest. ABRAXAS PETROLEUM CORPORATION, a Nevada corporation and
CANADIAN ABRAXAS PETROLEUM LIMITED, an Alberta corporation (the "Issuers"),
promise to pay interest on the principal amount of this Note at the rate per
annum shown above. Interest on the Indebtedness evidenced by the Notes will
accrue from the most recent date on which interest has been paid or, if no
interest has been paid, from November 1, 1999. The Issuers will pay interest
semi-annually in arrears on each Interest Payment Date, commencing May 1, 2000.
Interest will be computed on the basis of a 360-day year of twelve 30-day months
and, in the case of a partial month, the actual number of days elapsed.
The Issuers shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes and on overdue installments of interest (without regard to any applicable
grace periods) to the extent lawful.
2. Method of Payment. The Issuers shall pay interest on the Notes
(except defaulted interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest Payment
Date even if the Notes are cancelled on registration of transfer or registration
of exchange after such Record Date. Holders must surrender Notes to a Paying
Agent to collect principal payments. The Issuers shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Issuers may pay principal and interest by their check payable in such U.S.
Legal Tender. The Issuers may deliver any such interest payment to the Paying
Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, Firstar Bank, National
Association (the "Trustee") will act as Paying Agent and Registrar. Abraxas may
change any Paying Agent, Registrar or co-Registrar without notice to the
Holders.
4. Indenture. The Issuers issued the Notes under an Indenture, dated as
of December [__], 1999 (the "Indenture"), between the Issuers, the Subsidiary
Guarantors and the Trustee. This Note is one of a duly authorized issue of Notes
of the Issuers designated as its 11-1/2% Senior Notes due 2004 (the "Notes").
The Notes are limited in aggregate principal amount to$196,800,000.00. The Notes
are treated as a single class of securities under the Indenture. Capitalized
terms herein are used as defined in the Indenture unless otherwise defined
herein. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S. Code Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture. Notwithstanding anything to the contrary herein, the Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and said Act for a statement of them. The Notes are general obligations of the
Issuers secured by a second lien on the Collateral, subject, however, to the
Permitted Liens.
5. Indenture. Each Holder, by accepting a Note, agrees to be bound by
all of the terms and provisions of the Indenture, as the same may be amended
from time to time in accordance with its terms.
6. Redemption. The Notes will be redeemable, at the Issuers' option, in
whole at any time or in part from time to time, on and after December 1, 2000,
upon not less than 30 nor more than 60 days' notice, at the following Redemption
Prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on December 1 of the years set forth
below, plus, in each case, accrued and unpaid interest, if any, thereon to the
date of redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2000........................... 105.750%
2001........................... 102.875%
2002 and thereafter............ 100.000%
</TABLE>
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<PAGE> 78
At any time, or from time to time, prior to December 1, 2000, the
Issuers may, at their option, use all or a portion of the net cash proceeds of
one or more Equity Offerings (as defined in the Indenture) to redeem up to 50%
of the aggregate original principal amount of the Notes at a Redemption Price
equal to 111.500% of the aggregate principal amount of the Notes to be redeemed,
plus accrued and unpaid interest, if any, thereon to the date of redemption;
provided, however, that at least 50% of the aggregate original principal amount
of the Notes remains outstanding immediately after giving effect to any such
redemption (it being expressly agreed that for purposes of determining whether
this condition is satisfied, Notes owned by either Issuer or any of their
Affiliates shall be deemed not to be outstanding). In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Issuers shall
make such redemption not more than 60 days after the consummation of any Equity
Offering.
7. Notice of Redemption. Notice of redemption will be mailed at least
30 days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of
the Notes called for redemption shall have been deposited with the Paying Agent
for redemption on such Redemption Date, then, unless the Issuers default in the
payment of such Redemption Price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest from and after such Redemption Date
and the only right of the Holders of such Notes will be to receive payment of
the Redemption Price plus accrued interest, if any.
8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide
that, pursuant to Net Proceeds Offers (as defined in the Indenture) in
connection with certain Asset Sales (as defined in the Indenture) and upon the
occurrence of a Change of Control (as defined in the Indenture), and subject to
further limitations contained therein, the Issuers will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
9. Denominations; Transfer; Exchange. The Notes are in registered form,
without coupons, and (except Notes issued as payment of Interest) in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer or exchange of Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or similar
governmental charges payable in connection therewith as permitted by the
Indenture. The Registrar need not register the transfer or exchange of any Notes
or portions thereof selected for redemption.
10. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
11. Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Issuers. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity. If the Issuers at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and comply with the other provisions of the Indenture relating thereto,
the Issuers will be discharged from certain provisions of the Indenture and the
Notes (including certain covenants, but including, under certain circumstances,
its obligation to pay the principal of and interest on the Notes but without
affecting the rights of the Holders to receive such amounts from such deposits).
13. Amendment; Supplement; Waiver. Subject to certain exceptions set
forth in the Indenture, the Indenture or the Notes may be amended or
supplemented with the written consent of the Holders of not less than a majority
in aggregate principal amount of the Notes then outstanding, and any past
Default or Event of Default or noncompliance with any provision may be waived
with the written consent of the Holders of not less than a majority in aggregate
principal amount of the Notes then outstanding. Without notice to or consent of
any Holder, the parties thereto may amend or supplement the Indenture or the
Notes to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Notes in addition to or in place of certificated
Notes, comply with any requirements of the Commission in order to effect or
maintain
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<PAGE> 79
the qualification of the Indenture under the TIA or comply with Article Five of
the Indenture or make any other change that does not adversely affect the rights
of any Holder of a Note.
14. Restrictive Covenants. The Indenture imposes certain limitations on
the ability of the Issuers and the Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of its Capital
Stock or certain Indebtedness, make certain Investments, create or incur liens,
enter into transactions with Affiliates, create dividend or other payment
restrictions affecting Restricted Subsidiaries, issue Preferred Stock of its
Restricted Subsidiaries, and on the ability of the Issuers and their Restricted
Subsidiaries to merge or consolidate with any other Person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
Issuers' and their Restricted Subsidiaries' assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the
Issuers must annually report to the Trustee on compliance with such limitations.
15. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
16. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of Notes then outstanding may declare all the Notes to be due
and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee is not obligated to enforce the Indenture
or the Notes unless it has received security and indemnity satisfactory to it.
The Indenture permits, subject to certain limitations therein provided, Holders
of a majority in aggregate principal amount of the Notes then outstanding to
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Notes notice of any continuing Default or Event of
Default (except a Default in payment of principal or interest when due, for any
reason or a Default in compliance with Article Five of the Indenture) if it
determines that withholding notice is in its interest. Foreclosure under the
Security Documents is subject to a 180 day standstill period in favor of the
holders of the First Lien Notes as provided in the Indenture.
17. Trustee Dealings with Issuers. The Trustee under the Indenture, in
its individual or any other capacity, may become the owner or pledgee of Notes
and may otherwise deal with the Issuers, their Subsidiaries or their respective
Affiliates as if it were not the Trustee.
18. No Recourse Against Others. No partner, director, officer, employee
or stockholder, as such, of either Issuer or any Subsidiary Guarantor, as such,
shall have any liability for any obligations of either Issuer or any Subsidiary
Guarantor under the Notes, the Indenture or the Guarantees or for any claim
based on, in respect of, or by reason of, such obligations or its creation. Each
Holder of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
19. Guarantees. This Note will be entitled to the benefits of certain
Guarantees, if any, made for the benefit of the Holders. Reference is hereby
made to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Subsidiary Guarantors, the
Trustee and the Holders.
20. Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
21. Governing Law. This Note and the Indenture shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York. Each of the parties
hereto agrees to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Note.
22. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Note or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
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<PAGE> 80
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
23. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Issuers will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture, which has the text of this Note.
Requests may be made to: Abraxas Petroleum Corporation, 500 North Loop 1604
East, Suite 100, San Antonio, Texas 78232.
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ______________________________________, agent to
transfer this Note on the books of the Issuers. The agent may substitute another
to act for him.
Dated: Signed:
----------------- ----------------------------------------------
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:
------------------------------------------------------------
A-5
<PAGE> 81
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Issuers
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Note purchased by the
Issuers pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount you elect to have purchased:
$-------------------
Dated:
------------------ ----------------------------------------------------
NOTICE: The signature on this assignment
must correspond with the name as it appears
upon the face of the within Note in every
particular without alteration or enlargement
or any change whatsoever and be guaranteed.
Signature Guarantee:
------------------------------------------------------------
A-6
<PAGE> 82
EXHIBIT B
Form of Additional Provisions In Assignment Form
For Restricted Securities
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the Commission
of the effectiveness of a registration statement under the Securities Act of
1933, as amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) December [__], 2000, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer:
[Check One]
(1) __ to the Issuers or a Subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the
Securities Act of 1933, as amended; or
(3) __ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933,
as amended) that has furnished to the Trustee a signed letter
containing certain representations and agreements (the form of
which letter can be obtained from the Trustee); or
(4) __ outside the United states to a "foreign person" in compliance
with Rule 904 of Regulation S under the Securities Act of
1933, as amended; or
(5) __ pursuant to the exemption from registration provided by Rule
144 under the Securities Act of 1933, as amended; or
(6) __ pursuant to an effective registration statement under the
Securities Act of 1933, as amended; or
(7) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Issuers as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
[ ] The transferee is an Affiliate of the Issuer.
Unless one of the items is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any Person other than the
registered Holder thereof; provided, however, that if item (3), (4), (5) or (7)
is checked, the Issuers or the Trustee may require, prior to registering any
such transfer of the Notes, in its sole discretion, such written legal opinions,
certifications (including an investment letter in the case of box (3) or (4))
and other information as the Trustee or the Issuers has have reasonably
requested to confirm that such transfer is being made pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act of 1933, as amended.
B-1
<PAGE> 83
If none of the foregoing items are checked, the Trustee or Registrar shall not
be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.17 of the Indenture shall have
been satisfied.
Dated: Signed:
----------------- ----------------------------------------------
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:
-------------
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Issuers as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
----------------- ----------------------------------------------
NOTICE: To be executed by an executive officer
B-2
<PAGE> 84
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
[ ], [ ]
[ ]
[ ]
[ ]
Ladies and Gentlemen:
In connection with our proposed purchase of 11-1/2% Senior Notes due
2004 (the "Notes") of Abraxas Petroleum Corporation ("Abraxas") and Canadian
Abraxas Petroleum Limited ("Canadian Abraxas"), we confirm that:
1. We have received a copy of the Offer to Exchange and
Consent Solicitation (the "Offer to Exchange and Consent
Solicitation"), dated [____________], 1999, relating to the Notes and
such other information as we deem necessary in order to make our
investment decision. We acknowledge that we have read and agreed to the
matters stated in the section entitled "Notice to Investors" of such
Offer to Exchange and Consent Solicitation.
2. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the
Indenture relating to the Notes (the "Indenture") as described in the
Offer to Exchange and Consent Solicitation and the undersigned agrees
to be bound by, and not to resell, pledge or otherwise transfer the
Notes except in compliance with, such restrictions and conditions and
the Securities Act of 1933, as amended (the "Securities Act"), and all
applicable State securities laws.
3. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes may not be
offered or sold within the United States or to, or for the account or
benefit of, U.S. Persons except as permitted in the following sentence.
We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell any Notes, we
will do so only (i) to Abraxas, Canadian Abraxas or any subsidiary
thereof, (ii) inside the United States in accordance with Rule 144A
under the Securities Act to a "qualified institutional buyer" (as
defined in Rule 144A promulgated under the Securities Act) that, prior
to such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to the Trustee (as defined in the Indenture) a signed
letter containing certain representations and agreements relating to
the restrictions on transfer of the Notes (the form of which letter can
be obtained from the Trustee), (iii) outside the United States in
accordance with Rule 904 of Regulation S promulgated under the
Securities Act (provided that any such sale or transfer in Canada or to
or for the benefit of a Canadian resident must be effected pursuant to
an exemption from the prospectus and registration requirements under
applicable Canadian securities laws), (iv) pursuant to the exemption
from registration provided by Rule 144 under the Securities Act (if
available), or (v) pursuant to an effective registration statement
under the Securities Act, and we further agree to provide to any Person
purchasing any of the Notes from us a notice advising such purchaser
that resales of the Notes are restricted as stated herein.
4. We understand that, on any proposed resale of any Notes, we
will be required to furnish to the Trustee, Abraxas and Canadian
Abraxas such certification, legal opinions and other information as the
Trustee and Abraxas may reasonably require to confirm that the proposed
sale
C-1
<PAGE> 85
complies with the foregoing restrictions. We further understand that
the Notes 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 Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its
investment, as the case may be.
6. We are acquiring the Notes purchased by us for our account
or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You, Abraxas, Canadian Abraxas, the Trustee and others are
entitled to rely upon this letter and are irrevocably authorized to produce this
letter or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
-------------------------------
Name:
Title:
C-2
<PAGE> 86
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
[ ], [ ]
[ ]
[ ]
[ ]
[ ]
Re: Abraxas Petroleum Corporation
Canadian Abraxas Petroleum Limited (the "Issuers")
11-1/2% Senior Notes due 2004 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $[ ] aggregate principal amount
of the Notes, we confirm that such sale has been effected pursuant to and in
accordance with Regulation S under the U.S. Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a Person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any Person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any Person acting on our behalf knows that the transaction has
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 Notes.
You, the Issuers and counsel for the Issuers are entitled to
rely upon this letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or legal proceedings
or official inquiry with respect to the matters covered hereby. Terms used in
this certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
---------------------------------
Authorized Signature
D-1
<PAGE> 87
EXHIBIT E
GUARANTEE
For value received, the undersigned hereby unconditionally guarantees,
as principal obligor and not only as a surety, to the Holder of this Note the
cash payments in United States dollars of principal of, premium, if any, and
interest on this Note (and including Additional Interest payable thereon) in the
amounts and at the times when due and interest on the overdue principal,
premium, if any, and interest, if any, of this Note, if lawful, and the payment
or performance of all other obligations of the Issuers under the Indenture or
the Notes, to the Holder of this Note and the Trustee, all in accordance with
and subject to the terms and limitations of this Note, Article Eleven of the
Indenture and this Guarantee. This Guarantee will become effective in accordance
with Article Eleven of the Indenture and its terms shall be evidenced therein.
The validity and enforceability of any Guarantee shall not be affected by the
fact that it is not affixed to any particular Note. Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Indenture
dated as of December [__], 1999, among Abraxas Petroleum Corporation, a Nevada
corporation, and Canadian Abraxas Petroleum Limited, an Alberta corporation, as
issuers (the "Issuers"), the Subsidiary Guarantors party thereto, and Firstar
Bank, National Association, as trustee (the "Trustee"), as amended or
supplemented (the "Indenture").
The obligations of the undersigned to the Holders of Notes and to the
Trustee pursuant to this Guarantee and the Indenture are expressly set forth in
Article Eleven of the Indenture and reference is hereby made to the Indenture
for the precise terms of the Guarantee and all of the other provisions of the
Indenture to which this Guarantee relates.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW. Each Subsidiary Guarantor hereby agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Guarantee.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
E-1
<PAGE> 88
IN WITNESS WHEREOF, each Subsidiary Guarantor has caused its Guarantee
to be duly executed.
Date: ____________________
NEW CACHE PETROLEUMS, LTD., as Guarantor
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
SANDIA OIL & GAS CORPORATION, as Guarantor
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
WAMSUTTER HOLDINGS, INC., as Guarantor
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
E-2
<PAGE> 89
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") is dated as
of , among [SUBSIDIARY GUARANTOR] (the "New Subsidiary Guarantor"), a
subsidiary of Abraxas Petroleum Corporation (or its successor), a Nevada
corporation (the "Abraxas"), Abraxas, Canadian Abraxas Petroleum Corporation, an
Alberta corporation ("Canadian Abraxas", and together with Abraxas, the
"Issuers"), and Firstar Bank, National Association, as trustee under the
Indenture referred to below (the "Trustee").
RECITALS:
WHEREAS the Issuers, New Cache Petroleums, Ltd., an Alberta corporation
("New Cache"), Sandia Oil & Gas Corporation, a Texas corporation ("Sandia"), and
Wamsutter Holdings, Inc., a Wyoming corporation ("Wamsutter" and together with
New Cache and Sandia, the "Subsidiary Guarantors") have heretofore executed and
delivered to the Trustee an Indenture (the "Indenture") dated as of December
[__], 1999, providing for the issuance of an aggregate principal amount of up to
$196,800,000.00 of 11-1/2% Senior Notes due 2004 (the "Notes"); and
WHEREAS Section 4.20 of the Indenture provides that under certain
circumstances the Issuers are required to cause the New Subsidiary Guarantor to
execute and deliver to the Trustee a supplemental indenture pursuant to which
the New Subsidiary Guarantor shall unconditionally guarantee all the Issuers'
obligations under the Notes and the Indenture pursuant to a Guarantee on the
terms and conditions set forth herein;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Subsidiary Guarantor, the Issuers and the Trustee mutually covenant and agree
for the equal and ratable benefit of the Holders as follows:
1. Agreement to Guarantee. The New Subsidiary Guarantor hereby agrees,
to unconditionally guarantee the Issuers' obligations under the Notes and the
Indenture on the terms and subject to the conditions set forth in Article XI of
the Indenture and to be bound by all other applicable provisions of the
Indenture.
2. Ratification of Indenture; Supplemental Indenture Part of Indenture.
The Indenture, as supplemented hereby, is in all respects ratified and confirmed
and all the terms, conditions and provisions thereof shall remain in full force
and effect. This Supplemental Indenture shall form a part of the Indenture for
all purposes, and every holder of Notes heretofore or hereafter authenticated
and delivered shall be bound hereby.
3. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
4. Trustee Makes No Representation. The Trustee makes no representation
as to the validity or sufficiency of this Supplemental Indenture.
5. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. Effect of Headings. The Section headings herein are for convenience
only and shall not effect the construction thereof.
F-1
<PAGE> 90
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
[NEW SUBSIDIARY GUARANTOR]
By:
-------------------------------
Name:
Title:
ABRAXAS PETROLEUM CORPORATION
By:
-------------------------------
Name:
Title:
CANADIAN ABRAXAS PETROLEUM LIMITED
By:
-------------------------------
Name:
Title:
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Trustee
By:
-------------------------------
Name:
Title:
F-2
<PAGE> 1
EXHIBIT T3E-1
ABRAXAS PETROLEUM CORPORATION
CANADIAN ABRAXAS PETROLEUM LIMITED
OFFER TO EXCHANGE
11 1/2% SENIOR SECURED NOTES DUE 2004, SERIES A,
AND ABRAXAS COMMON STOCK AND CONTINGENT VALUE RIGHTS
FOR ALL OUTSTANDING
11 1/2% SENIOR NOTES DUE 2004, SERIES D
AND
CONSENT SOLICITATION
----------------------
THE EXCHANGE OFFER WILL EXPIRE AT 12:01 A.M., NEW YORK CITY TIME, ON
DECEMBER 17, 1999, UNLESS EXTENDED.
----------------------
IN EXCHANGE FOR EACH $1,000 PRINCIPAL AMOUNT OF OLD NOTES, YOU WILL RECEIVE
o a new note with a principal amount equal to $700
o approximately 59.6184 shares of Abraxas common stock
o approximately 59.6184 contingent value rights each of which may result
in the distribution of up to approximately 6.3889 shares of Abraxas
common stock
THE NEW NOTES
o will accrue interest from November 1, 1999, at a fixed annual rate of
11 1/2% paid every six months on May 1 and November 1, commencing May
1, 2000
o will be secured by a second lien or charge on substantially all of our
proved crude oil and natural gas assets, natural gas processing plants
and Grey Wolf stock owned by us
o will be effectively senior to the old notes to the extent of the value
of the collateral
o will be guaranteed by New Cache Petroleums, Ltd., Sandia Oil & Gas
Corp. and Wamsutter Holdings, Inc.
o will be freely tradeable, but not listed on any securities exchange or
any automated dealer quotation system
THE ABRAXAS COMMON STOCK
o will be freely tradeable
o is currently traded on the OTC Bulletin Board. On November 16, 1999,
the closing "bid" price of Abraxas common stock was $1.4375 per share
THE CONTINGENT VALUE RIGHTS
o may result in the distribution of additional shares of Abraxas common
stock under certain circumstances
o will be freely tradeable, but not listed on any securities exchange or
any automated dealer quotation system
THE EXCHANGE OFFER
o expires at 12:01 a.m., New York City time, on December 17, 1999, unless
extended
o is conditioned upon, among other things, the tender of at least 95% of
the principal amount of the old notes
IN ADDITION, YOU SHOULD BE AWARE THAT
o we are soliciting consents to amend the indenture relating to the old
notes to eliminate most of the restrictive covenants and certain events
of default
o your tender of old notes will constitute your consent to these
amendments
----------------------
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 11 OF THIS
OFFER TO EXCHANGE AND CONSENT SOLICITATION BEFORE PARTICIPATING
IN THE EXCHANGE OFFER AND CONSENT SOLICITATION.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE NEW NOTES, THE ABRAXAS COMMON STOCK OR THE
CONTINGENT VALUE RIGHTS OR DETERMINED THAT THIS OFFER TO EXCHANGE AND CONSENT
SOLICITATION IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
November 18, 1999
<PAGE> 2
This Offer to Exchange and Consent Solicitation, together with the
accompanying Letter of Transmittal, is being sent to all registered holders of
the old notes on or about November 18, 1999.
----------------------
SUBJECT TO THE PROVISIONS OF THIS OFFER TO EXCHANGE AND CONSENT
SOLICITATION, ABRAXAS RESERVES THE RIGHT TO WAIVE OR MODIFY ANY OR ALL
CONDITIONS TO THE EXCHANGE OFFER AND TO ACCEPT FOR EXCHANGE ANY OLD NOTES
TENDERED PURSUANT TO THE EXCHANGE OFFER, WHETHER OR NOT THE REQUISITE CONSENTS
TO THE PROPOSED AMENDMENTS ARE RECEIVED, EXCEPT THAT ABRAXAS MAY NOT WAIVE THE
CONDITIONS RELATING TO (I) THE RECEIPT OF THE TAX OPINION WITH RESPECT TO
CANADIAN WITHHOLDING TAX; (II) THE RESIGNATION OF SEVEN ABRAXAS DIRECTORS AND
THE COMMITMENT TO APPOINT FOUR DIRECTORS DESIGNATED BY THE HOLDERS OF A MAJORITY
IN PRINCIPAL AMOUNT OF THE PARTICIPATING OLD NOTES; AND (III) THE 95% MINIMUM
ACCEPTANCE THRESHOLD (WITHOUT THE CONSENT OF THE HOLDERS OF A MAJORITY IN
PRINCIPAL AMOUNT OF THE PARTICIPATING OLD NOTES). SUBJECT TO COMPLIANCE WITH
APPLICABLE SECURITIES LAWS AND TERMS SET FORTH IN THIS OFFER TO EXCHANGE AND
CONSENT SOLICITATION, ABRAXAS RESERVES THE RIGHT TO EXTEND THE EXCHANGE OFFER IN
ANY RESPECT. ANY SUCH WAIVER, AMENDMENT OR EXTENSION MAY BE MADE BY PRESS
RELEASE OR SUCH OTHER MEANS OF ANNOUNCEMENT AS ABRAXAS DEEMS APPROPRIATE.
----------------------
Abraxas has made no arrangements for nor has any understanding with any
broker, dealer, salesman or other person regarding the solicitation of tenders
hereunder, and no person has been authorized by Abraxas to give any information
or to make any representations in connection with the exchange offer other than
those contained herein and, if given or made, such other information or
representations must not be relied upon as having been authorized. The Delivery
of this Offer to Exchange and Consent Solicitation shall not, under any
circumstances, create any implication that the information herein is correct as
of any time subsequent to the date hereof.
----------------------
This transaction has not been reviewed by the Securities and Exchange
Commission. The exchange offer is being made by Abraxas and Canadian Abraxas in
reliance on the exemption from the registration requirements of the Securities
Act of 1933, as amended, afforded by Section 3(a)(9) thereof. Abraxas and
Canadian Abraxas, therefore, will not pay any commission or other remuneration
to any broker, dealer, salesman or other person for soliciting tenders of the
old notes. Regular employees of Abraxas and Canadian Abraxas, who will not
receive additional compensation therefor, may solicit exchanges from holders of
the old notes.
----------------------
THE DISTRIBUTION OF THIS OFFER TO EXCHANGE AND CONSENT SOLICITATION AND THE
EXCHANGE OFFER MAY BE RESTRICTED BY LAW IN CERTAIN JURISDICTIONS. PERSONS WHO
RECEIVE THIS OFFER TO EXCHANGE AND CONSENT SOLICITATION OR ANY OF THE NEW NOTES,
SHARES OF ABRAXAS COMMON STOCK OR CONTINGENT VALUE RIGHTS MUST INFORM THEMSELVES
ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS.
ii
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary...................................................................................................... 1
Forward Looking Information.................................................................................. 11
Risk Factors................................................................................................. 11
Background of the Exchange Offer............................................................................. 21
The Exchange Offer........................................................................................... 22
The Consent Solicitation..................................................................................... 27
Consequences of the Exchange Offer and Consent Solicitation.................................................. 29
Capitalization............................................................................................... 31
Unaudited Pro Forma Financial Information.................................................................... 32
Business..................................................................................................... 40
Description of the New Notes................................................................................. 42
Summary Comparison of Old Notes and New Notes................................................................ 85
Description of Capital Stock................................................................................. 87
Certain U.S. Federal and Canadian Income Tax Considerations.................................................. 94
Book-entry; Delivery and Form................................................................................ 98
Legal Matters................................................................................................ 99
Independent Auditors......................................................................................... 99
Engineers ................................................................................................... 99
Where You Can Find More Information.......................................................................... 99
Glossary of Terms............................................................................................ 101
</TABLE>
iii
<PAGE> 4
SUMMARY
The following highlights certain information in this Offer To Exchange and
Consent Solicitation that is important to you. This Offer To Exchange and
Consent Solicitation includes the terms of the new notes, Abraxas common stock
and contingent value rights we are offering, as well as information regarding
our business and detailed financial information. We encourage you to read this
Offer To Exchange and Consent Solicitation in its entirety. The term "Abraxas"
refers only to Abraxas Petroleum Corporation and not to any of Abraxas'
subsidiaries, the term the "Issuers" refers to Abraxas and Canadian Abraxas and
the terms "Company," "we," "our," "ours" and "us" refer to Abraxas and all of
its wholly-owned subsidiaries, including New Cache, Canadian Abraxas, Sandia and
Wamsutter, for the relevant time periods. Except as otherwise noted, our
consolidated financial, reserve and operating information includes the
financial, reserve and operating information of Grey Wolf Exploration, Inc.,
which is consolidated for financial reporting purposes but is not wholly-owned
by us. Except as otherwise noted, the reserve data reported in this Offer To
Exchange and Consent Solicitation are based on the reserve estimates of our
independent petroleum engineers. Except as otherwise noted, the terms "on a pro
forma basis" or "pro forma" refer to what our business might have looked like if
the sale of the first lien notes, the acquisition of New Cache, the sale by
Abraxas of properties in Wyoming and the exchange of the new notes, Abraxas
common stock and the contingent value rights (in each case exclusive of any new
notes, Abraxas common stock and contingent value rights issuable to Houlihan
Lokey and any new notes issuable to Jefferies for payment of their fees and
expenses) for 100% of the outstanding old notes had occurred at the times
indicated. You should read the discussions under the heading "Glossary of Terms"
for definitions of certain terms used in this Offer To Exchange and Consent
Solicitation.
SUMMARY OF THE EXCHANGE OFFER AND CONSENT SOLICITATION
<TABLE>
<S> <C>
Exchange offer............................. We have authorized a new issuance of 11 1/2% senior notes due 2004 in
exchange for the old notes. If you validly tender your old notes on or
before the expiration date, for each $1,000 principal amount of old
notes you will receive the following:
o $700 principal amount of new notes;
o approximately 59.6184 shares of Abraxas common stock; and
o approximately 59.6184 contingent value rights each of which may
result in the distribution of up to approximately 6.3889 shares
of Abraxas common stock.
Consent solicitation....................... If you tender old notes in the exchange offer you will also consent to
amendments to the indenture for those notes which remove substantially
all of the covenants.
Comparison of covenants ................... The new notes will have covenants identical to those currently in the
old notes indenture except for the changes that we have described more
fully in this document.
Expiration time ........................... The exchange offer will expire at 12:01 a.m., New York City time, on
December 17, 1999, unless extended. We have the right to extend the
exchange offer.
Required consents ......................... The amendments to the old notes indenture require the consent of holders
of at least a majority of the outstanding principal amount of the old
notes. Promptly after receiving the consent of the holders of at least a
majority of the outstanding principal amount of old notes:
o we and the trustee will execute a supplemental indenture
amending the indenture; and
o tenders of old notes and the related consents may no longer be
withdrawn.
The supplemental indenture will provide that it will not be operative
until the date of the closing of the exchange offer. When the amendments
to the indenture become operative, all holders of old notes under the
indenture will be bound by the amendments, including holders who did not
tender and consent.
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Amendments to old notes.................... The amendments include the elimination of certain covenants and other
provisions including:
o the covenant which restricts us from incurring additional
indebtedness;
o the covenant which restricts us from placing liens on our
assets;
o the covenant which limits our ability to pay dividends,
repurchase our capital stock and make other restricted
payments;
o the covenant which restricts our transactions with affiliates;
and
o the covenant which restricts us from selling certain assets or
merging with other companies.
Support agreements......................... We have entered into agreements with holders owning a total of
approximately 87.8% of the principal amount of the old notes under
which the holders have agreed, subject to the satisfaction of the
conditions set forth below, to accept the exchange offer.
Purpose of the exchange offer and consent
solicitation............................ The purpose of the exchange offer is to reduce our outstanding
indebtedness and cash interest expense which will increase our
liquidity. If we do not successfully complete the exchange offer, we
will not have the liquidity to fully exploit our crude oil and natural
gas property base and will likely encounter financial difficulties in
the future.
Conditions of the exchange offer........... The following are the conditions of the exchange offer:
o the holders of at least 95% of the outstanding principal amount
of the old notes must have tendered their old notes in the
exchange offer and must not have withdrawn such notes;
o we and the trustee shall have executed a supplement to the
indenture for the old notes providing for the amendments
proposed in the consent solicitation;
o we will have received an opinion of our Canadian counsel that
we will not be required to withhold Canadian taxes on interest
payments;
o seven of Abraxas' directors shall have resigned; and
o the other conditions described under "The Exchange Offer --
Conditions to Consummation of the Exchange Offer" must be
satisfied.
We may waive the satisfaction of certain conditions that relate to the
exchange offer except that we may not waive the conditions relating to
(i) the receipt of the tax opinion with respect to Canadian withholding
tax, (ii) the resignation of seven Abraxas directors and our commitment
to appoint four directors designated by the holders of a majority in
principal amount of the participating old notes, and (iii) the 95%
minimum acceptance threshold (without the consent of the holders of a
majority in principal amount of the participating old notes). We may
terminate the exchange offer at any time in our discretion.
Procedures for tendering notes............. The old notes were issued in book-entry form only, and currently all of
the old notes are still held in book-entry form. If you wish to tender
your old notes, you must follow the procedures established by DTC for
tendering notes held in book-entry form. These procedures require that
The Bank of New York, the exchange agent, must receive, prior to the
expiration time of the exchange offer, a computer generated message
known as an "agent's message" that is transmitted through DTC's
automated tender offer program and confirms that:
o DTC has received your instructions to tender your notes; and
</TABLE>
2
<PAGE> 6
<TABLE>
<S> <C>
o you agree to be bound by the terms of the consent and letter of
transmittal.
Withdrawal rights.......................... If you tender old notes, you may withdraw the old notes you have
tendered and revoke your consent to the amendments to the indenture at
any time prior to the execution by us and the trustee of the
supplemental indenture for the old notes. Withdrawal may be accomplished
by complying with applicable ATOP procedures for withdrawal.
Minimum denominations ..................... We will accept old notes only in denominations of $1,000 or integral
multiples of $1,000.
Tax considerations......................... Holders of the old notes who participate in the exchange offer will not
recognize any gain or loss on the exchange. For a more detailed
explanation of the income tax effects of the exchange offer and the
consent solicitation, see "U.S. Federal and Canadian Income Tax
Considerations."
Solicitation of tenders; expenses.......... We will not pay anyone for soliciting or recommending acceptances of the
exchange offer. We will pay the fees and expenses of the exchange agent
and of any brokers and other persons that forward copies of this Offer
To Exchange and Consent Solicitation and related documents to the
beneficial owners.
Financial advisors......................... Houlihan Lokey Howard & Zukin Capital has acted as financial advisor to
an informal committee of holders of old notes and Jefferies & Company,
Inc. has acted as our financial advisor. Houlihan Lokey and Jefferies
will be paid customary fees and be reimbursed for certain expenses by us
but neither Houlihan Lokey nor Jefferies will receive any compensation
for soliciting tenders of the old notes.
</TABLE>
3
<PAGE> 7
SUMMARY OF THE NEW NOTES
<TABLE>
<S> <C>
Total Amount of New Notes Offered......... 11 1/2% Senior Secured Notes due 2004, Series A, with principal amount
of up to $191.8 million (excluding up to $5.0 million of new notes
issued to Houlihan Lokey and Jefferies for payment of their fees and
expenses).
Issuers................................... Abraxas Petroleum Corporation and Canadian Abraxas Petroleum Limited.
Maturity Date............................. November 1, 2004.
Interest Rate and Payment Dates........... Annual rate - 11 1/2%.
Payment frequency -- every six months on May 1 and November 1.
First payment -- May 1, 2000.
Guarantees................................ Initially, Sandia, New Cache and Wamsutter, and later possibly some of
our other subsidiaries will guarantee the new notes. If the issuers
cannot make payments on the new notes when they are due, the guarantors
must make them instead.
Ranking................................... The new notes and the guarantees constitute senior debts.
They rank equally with all of the issuers' and each guarantor's current
and future indebtedness and effectively senior to the old notes to the
extent of the value of the collateral. They will, however, be
effectively subordinated to the first lien notes and related guarantees
to the extent the value of the collateral securing the new notes and
related guarantees and the first lien notes and related guarantees is
insufficient to pay both the new notes and the first lien notes.
As of September 30, 1999, we had no junior indebtedness but had $337.5
million of senior indebtedness, including $274.0 million under the old
notes and $63.5 million under the first lien notes.
Collateral................................ The new notes will be secured by a second lien or charge on
substantially all of our proved crude oil and natural gas properties and
natural gas processing plants and the shares of Grey Wolf common stock
owned by the issuers. Holders of the new notes may not foreclose on the
collateral for 180 days after an event of default under the new notes.
Optional Redemption....................... On or after November 1, 2000, the issuers may redeem some or all of the
new notes at any time at the redemption prices listed in the section
"Description of the New Notes" under the heading "Optional Redemption."
Before November 1, 2000, the issuers may redeem up to 50% of the new
notes with the proceeds of certain public offerings of equity in Abraxas
or asset sales at the prices listed in the section "Description of the
New Notes" under the heading "Optional Redemption."
Mandatory Offer to Repurchase............. If the issuers sell certain assets or experience specific kinds of
changes of control, the issuers must offer to repurchase the new notes,
subject to certain limitations in the case of assets sales, at the
prices listed in the section "Description of the New Notes."
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
Basic Covenants of New Indenture.......... The issuers will issue the new notes under an indenture with Firstar
Bank, N.A. The indenture will, among other things, restrict the issuers'
ability and the ability of their subsidiaries to:
o borrow money or issue preferred stock;
o pay dividends on stock or purchase stock;
o pay dividends or make other asset transfers;
o transact business with affiliates;
o sell stock in subsidiaries;
o engage in any new line of business;
o impair the security interest in any collateral for the new
notes;
o use assets as security in other transactions; and
o sell certain assets or merge with or in to other companies.
Use of Proceeds........................... We will receive no cash from the exchange offer.
</TABLE>
ABOUT ABRAXAS
We are an independent energy company engaged primarily in the acquisition,
exploitation, development and production of crude oil and natural gas. Our
principal areas of operation are South Texas, West Texas and Canada. Since
January 1, 1991, our principal means of growth has been through the acquisition
and subsequent exploitation and development of producing properties and related
assets.
As a result of our historical acquisition activities, we have a substantial
inventory of low risk exploitation and development opportunities, the
development of which is critical to the maintenance and growth of our current
production levels. These natural gas-based opportunities in South Texas,
particularly in the Edwards Trend, West Texas and Canada are characterized by
high success rates, low finding costs and proprietary drilling advantages. We
also seek to complement our acquisition and development activities by
selectively participating in exploration projects with experienced industry
partners and relatively small capital requirements. On a pro forma basis:
o We owned interests in 1,211,788 gross acres (772,651 net acres), at
December 31, 1998;
o Our estimated total proved reserves were 320 Bcfe, at December 31,
1998;
o At December 31, 1998, we operated properties accounting for 69% of our
PV-10, affording us substantial control over the timing and occurrence
of operating and capital expenditures;
o We had net natural gas processing capacity of 108 MMcfpd through our 19
natural gas processing plants in Canada, at September 30, 1999; and
o Our natural gas processing assets had a net book value of $40 million,
at September 30, 1999.
The Company was founded in 1977 by Robert L. G. Watson, the Company's
Chairman of the Board, President and Chief Executive Officer. The Company's
principal offices are located at 500 North Loop 1604 East, Suite 100, San
Antonio, Texas 78232 and its telephone number is (210) 490-4788. Canadian
Abraxas was formed in 1996. Canadian Abraxas' principal offices are located at
300-5th Avenue, 12th Floor, Calgary, Alberta and its telephone number is (403)
262-1949.
BUSINESS STRATEGY
Our primary business objectives are to increase reserves, production and
cash flow through the following:
o Improved Liquidity. Our sale in March 1999 of the first lien notes
allowed us to refinance our bank debt, meet our near-term debt service
requirements and make limited capital expenditures. Successful
completion of the exchange offer will reduce our long term debt by $82
million on a pro forma basis, resulting in $9.5 million in interest
savings every year, or approximately $48 million by November 2004. We
believe that these savings, together with periodic, non-core property
dispositions will result in sufficient liquidity to maintain and
increase existing production and that the reduction in indebtedness
will position us for additional equity issuances and merger and
acquisition opportunities.
5
<PAGE> 9
o Low Cost Operations. We seek to maintain low operating and G&A expenses
per Mcfe by operating a majority of our properties and by maintaining a
high rate of production on a per well basis. As a result of this
strategy, we have achieved per unit operating and G&A expenses that
compare favorably with similar companies.
o Exploitation of Existing Properties. We will allocate a portion of our
operating cash flow to the exploitation of our producing properties. We
believe that the proximity of our undeveloped reserves to existing
production makes development of these properties less risky and more
cost-effective than other drilling opportunities available to us.
Additionally, our high degree of operating control gives us flexibility
in the timing and incurrence of operating and capital expenditures. We
have experienced 100% drilling success in the Edwards Trend in South
Texas at very attractive finding and development costs and expect to
drill at least 6 additional wells in this trend and up to 12 wells in
West Texas during the remainder of 1999 and 2000. Our West Texas wells
are characterized by a drilling profile similar to that of the Edwards
Trend wells. We believe that the incremental liquidity gained from the
successful completion of the exchange offer will enable us to more
rapidly develop these projects, leading to increased production, cash
flow and proved reserves.
o Producing Property Acquisitions. As cash flow permits, we intend to
continue to acquire producing crude oil and natural gas properties that
can increase cash flow, production and reserves through operational
improvements and additional development. We also expect that our
ability to complete acquisitions with Abraxas common stock will be
greatly enhanced following consummation of the exchange offer, which
will reduce long term debt and substantially increase the public float
of Abraxas common stock.
o Focused Exploration Activity. We believe that by devoting a relatively
small amount of capital to high impact, high risk projects while
reserving the majority of our available capital for development
projects, we can reduce drilling risks while still benefiting from the
potential for significant reserve additions. We attempt to further
minimize our exploration capital expenditures by participating in
higher-risk projects with industry partners on a promoted basis.
1999 DEVELOPMENTS
In October 1999, Abraxas sold a dollar denominated production payment for
$4.0 million, relating to existing natural gas wells in the Edwards Trend, to a
unit of Southern Energy, Inc. Under the terms of this production payment,
Abraxas has the ability to sell up to a total of $50.0 million in production
payments to Southern for additional drilling opportunities in the Edwards Trend.
In March 1999, Abraxas sold $63.5 million of its 12 7/8% Senior Secured
Notes due 2003 to refinance bank debt, meet near-term debt service requirements
and make limited capital expenditures. The first lien notes are senior
obligations of Abraxas and are jointly and severally guaranteed by Canadian
Abraxas, New Cache and Sandia. Additionally, Wamsutter will become a guarantor
of the first lien notes in connection with the exchange offer. The first lien
notes and the guarantees are secured by a first lien or charge on substantially
all of the crude oil and natural gas properties and natural gas processing
plants owned by Abraxas, Canadian Abraxas, New Cache and Sandia, as well as the
shares of common stock of Grey Wolf owned by Abraxas and Canadian Abraxas.
In January 1999, Canadian Abraxas acquired all of the outstanding common
shares of New Cache Petroleums Ltd. for an aggregate purchase price of $78
million in cash and the assumption of approximately $10 million in debt. The
debt was repaid with a portion of the proceeds from the sale of the first lien
notes.
THE COMMON STOCK
Abraxas is authorized to issue a total of 50,000,000 shares of common
stock, par value $.01 per share, and 1,000,000 shares of preferred stock, par
value $.01 per share. Upon the closing of the exchange offer, there will be
22,688,114 shares of Abraxas common stock outstanding on a pro forma basis
(excluding 163,354 shares to be issued to Houlihan Lokey) and no shares of
preferred stock outstanding.
6
<PAGE> 10
THE CONTINGENT VALUE RIGHTS
Upon the closing of the exchange offer, Abraxas will issue contingent value
rights ("CVRs") which may entitle the holders thereof to receive up to a total
of 104,365,326 shares of Abraxas common stock (excluding approximately 1,043,652
shares issuable under the CVRs to be issued to Houlihan Lokey). On the first
anniversary of the closing of the exchange offer, or at the election of Abraxas,
on the eighteen month anniversary of the closing of the exchange offer, Abraxas
may be required to issue additional shares of common stock to the holders of the
contingent value rights. The actual number of shares issued will depend on the
market price of Abraxas common stock. The CVRs will terminate if the market
price of Abraxas common stock exceeds certain target prices for a period of 30
trading days during any 45 consecutive trading day period prior to the
expiration date. The target price on any given date will equal $5.03 plus daily
interest at an annual rate of 11.5%. On the first anniversary of the closing of
the exchange offer, the target price will be $5.68 and on the eighteen month
anniversary of the closing of the exchange offer, the target price will be
$5.97. If the number of shares ultimately issuable under the CVRs is greater
than the number of authorized and unissued shares we have available at that
time, we will be required either to increase the authorized number of shares of
Abraxas common stock or to effect a reverse stock split in order to increase the
number of authorized and unissued shares of Abraxas common stock to an amount
sufficient to satisfy the number of shares issuable under the CVRs.
RISK FACTORS
Prior to deciding whether to accept the exchange offer, you should
carefully consider all of the information contained in this Offer To Exchange
and Consent Solicitation. See "Risk Factors" for a discussion of certain
important factors that should be considered in evaluating the terms of the
exchange offer and consent solicitation. You are urged to carefully read all of
the discussion under "Risk Factors."
EXCHANGE AGENT
The Bank of New York is the exchange agent for the exchange offer. If you
are not tendering through ATOP, all documentation necessary to effect an
exchange of old notes pursuant to the exchange offer, including the letter of
transmittal, should be addressed to the exchange agent at the address set forth
in the section "The Exchange Offer and Solicitation" under the heading "The
Exchange Agent."
7
<PAGE> 11
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table presents summary historical consolidated financial data
of the Company as of and for the three years ended December 31, 1998, and as of
and for the nine months ended September 30, 1998 and 1999, and pro forma
financial data of the Company as of and for the year ended December 31, 1998,
and as of and for the nine months ended September 30, 1998 and 1999, which have
been derived from the Company's consolidated financial statements and unaudited
historical and pro forma financial data. It is important that you read the
information in this table along with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Selected Historical Financial
Data," the Consolidated Financial Statements of the Company and the notes
thereto contained in our Form 10-K for the year ended December 31, 1998 and our
Form 10-Q for the quarter ended September 30, 1999 enclosed herewith and the
unaudited Pro Forma Financial Information and the notes thereto included
elsewhere in this Offer To Exchange and Consent Solicitation.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
PRO
FORMA
1996 1997 1998 1998 (1)
---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total operating revenue (3) ............. $ 26,653 $ 70,931 $ 60,084 $ 66,175
Operating expense (4) ................... 6,289 16,429 18,612 22,840
Depreciation, depletion and
amortization expense ................... 9,605 30,581 31,226 44,720
Proved property impairment .............. -- 4,600 61,224 90,862
General and administrative expense ...... 1,933 4,171 5,522 7,732
Interest expense, net of interest
income ................................. 5,987 24,300 30,043 29,120
Amortization of deferred financing
fee .................................... 280 1,260 1,571 1,854
Income (loss) from continuing
operations before extraordinary
items .................................. $ 1,940 $ (6,485) $ (83,960) $ (116,516)
Preferred stock dividends ............... 366 183 -- --
---------- ---------- ---------- ----------
Net income (loss) applicable to
common stock ........................... $ 1,147 $ (6,668) $ (83,960) $ (116,516)
Net income (loss) per common share:
Basic .................................. $ 0.20 $ (1.11) $ (13.26) $ (5.14)
Diluted ................................ $ 0.17 $ (1.11) $ (13.26) $ (5.14)
OTHER DATA:
EBITDA (5)(6) ............................ $ 18,431 $ 50,331 $ 35,950 $ 35,603
EBITDA/Interest expense, net of
interest income ....................... 3.08x 3.08x 1.20x 1.22x
Capital expenditures (including
acquisitions) ............................ $ 173,155 $ 87,764 $ 57,861 $ 65,821
Ratio of earnings to fixed charges (7) ... 1.34x -- -- --
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
PRO
FORMA
1998 1999 1999 (2)
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total operating revenue (3) ............. $ 46,009 $ 49,704 $ 49,704
Operating expense (4) ................... 13,768 14,438 14,438
Depreciation, depletion and
amortization expense ................... 26,049 25,801 25,801
Proved property impairment .............. -- -- --
General and administrative expense ...... 3,957 4,187 4,187
Interest expense, net of interest
income ................................. 22,377 27,929 20,969
Amortization of deferred financing
fee .................................... 913 1,073 848
Income (loss) from continuing
operations before extraordinary
items .................................. $ (16,472) $ (19,954) $ (12,769)
Preferred stock dividends ............... -- -- --
---------- ---------- ----------
Net income (loss) applicable to
common stock ........................... $ (16,472) $ (19,954) $ (12,769)
Net income (loss) per common share:
Basic .................................. $ (2.60) $ (3.15) $ (0.56)
Diluted ................................ $ (2.60) $ (3.15) $ (0.56)
OTHER DATA:
EBITDA (5)(6) ............................ $ 28,284 $ 31,079 $ 31,079
EBITDA/Interest expense, net of
interest income ....................... 1.26x 1.11x 1.48x
Capital expenditures (including
acquisitions) ............................ $ 41,661 $ 115,250 $ 115,250
Ratio of earnings to fixed charges (7) ... -- -- --
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------
(dollars in thousands)
HISTORICAL PRO FORMA (8)
---------- -------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets .................................. $ 347,325 $ 344,349
Total debt (9) ................................ 346,243 263,305
Stockholders' equity (deficit) (10) ........... (75,340) 8,561
</TABLE>
- ------------------
(1) Reflects the sale of the first lien notes, the sale of the properties in
Wyoming, the acquisition of New Cache and the exchange offer as if they
occurred on January 1, 1998. Does not reflect issuance of any new notes,
Abraxas common stock or contingent value rights issuable to Houlihan Lokey
and the issuance of any new notes to Jefferies for payment of their fees
and expenses in connection with the exchange offer.
(2) Reflects the sale of the first lien notes, the acquisition of New Cache and
the exchange offer as if they occurred on January 1, 1999. Does not reflect
issuance of any new notes, Abraxas common stock or contingent value rights
issuable to Houlihan Lokey or the issuance of any new notes to Jefferies
for payment of their fees and expenses in connection with the exchange
offer.
(3) Consists of crude oil and natural gas production sales, revenue from rig
operations and processing facilities, and other miscellaneous revenue.
(4) Consists of lease operating expenses, production taxes, rig operating
expenses and processing costs.
(5) Includes $0.2 million, $0.8 million, $3.2 million, $3.2 million, $2.0
million, and $4.3 million attributable to Grey Wolf in 1996, 1997, 1998,
Pro Forma 1998, September 30, 1998 and Pro Forma September 30, 1999,
respectively.
(6) EBITDA represents net income before interest, income taxes, depreciation
and amortization. EBITDA is presented not as an actual measure of operating
results or cash flow from operations (as determined in accordance with
generally accepted accounting principles), but because it
8
<PAGE> 12
is a widely accepted financial indicator of a company's ability to service
and/or incur indebtedness. EBITDA, however, should not be construed as an
alternative to net income as a measure of a company's operating results or
to operating cash flow as a measure of liquidity. This methodology may not
be consistent with a similarly captioned item presented by other companies.
(7) Earnings consist of income (loss) from continuing operations before income
taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing fees and premium on the old notes. The
Company's earnings were inadequate to cover fixed charges in 1997, 1998,
September 30, 1999 and Pro Forma September 30, 1999 by $10.0 million, $88.1
million, $23.7 million and $19.5 million, respectively.
(8) Reflects the sale of the first lien notes, the acquisition of New Cache and
the exchange offer, excluding any notes issued to Houlihan Lokey and
Jefferies for payment of their fees and expenses, as if they occurred on
September 30, 1999.
(9) Consists of long-term debt, including the premium on the old notes and
capital lease obligations.
(10) Consists of 6,352,672 issued and outstanding shares of Abraxas common
stock.
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<PAGE> 13
SUMMARY HISTORICAL AND PRO FORMA OPERATING DATA
The following table sets forth summary information with respect to the
Company's estimated proved crude oil, NGLs and natural gas reserves and certain
summary information with respect to the Company's operations as of the dates or
for the periods indicated. It is important that you read this table along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and the notes
thereto included in our Form 10-K for the year ended December 31, 1998 and our
Form 10-Q for the quarter ended September 30, 1999 enclosed herewith.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
PRO FORMA
1996 1997 1998 1998 (1)
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C>
ESTIMATED PROVED RESERVES (PERIOD-END):
Crude oil and NGLs (MBbls) ......................... 18,035 17,777 7,695 10,840
Natural gas (MMcf) ................................. 177,260 224,314 197,478 254,559
Natural gas equivalents (Mmcfe) .................... 285,470 330,976 243,648 319,599
% Proved developed ............................... 87% 82% 74% 80%
Estimated future net revenue before income taxes ... $ 756,352 $ 464,444 $ 336,232 $ 446,274
PV-10 (2) .......................................... 415,908 268,614 181,581 237,162
% Proved developed ............................... 88% 83% 82% 87%
RESERVE LIFE (YEARS): (3) ............................... 26.7 10.1 7.1 8.4
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- -------------------
PRO FORMA
1996 1997 1998 1998 (1) 1998 1999
------- ------- ------- --------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
PRODUCTION:
Crude oil (MBbls) ........................... 425 937 729 1,148 565 609
NGLs (MBbls) ................................ 300 992 867 413 715 282
Natural gas (MMcf) .......................... 6,350 21,050 24,930 28,761 18,874 20,155
Mmcfe ..................................... 10,698 32,624 34,506 38,127 26,554 25,501
AVERAGE SALES PRICE: (4)
Crude oil (per Bbl) ......................... $ 20.85 $ 18.63 $ 13.65 $ 12.93 $ 13.75 $ 13.98
NGLs (per Bbl) .............................. 14.55 10.75 6.81 6.81 6.90 11.96
Natural gas (per Mcf) ....................... 1.97 1.79 1.54 1.47 1.52 1.59
Per Mcfe .................................. 2.40 2.02 1.57 1.54 1.56 1.72
LOE (PER MCFE) ................................. $ 0.55 $ 0.46 $ 0.49 $ 0.55 $ 0.50 $ 0.55
NATURAL GAS PROCESSING PLANTS (PERIOD-END):
Number of natural gas processing plants ..... 19 20 19 22 19 19
Net plant capacity (MMcfpd) ................. 128 137 108 121 108 108
</TABLE>
- ----------
(1) With respect to period-end information as of December 31, 1998, reflects
the acquisition of New Cache as if it occurred at December 31, 1998. With
respect to all other information, reflects the sale of the properties in
Wyoming and the acquisition of New Cache as if they occurred on January 1,
1998.
(2) The average sales prices as of December 31, 1998 used for purposes of such
estimates of the Company except for New Cache were $9.95 per Bbl of crude
oil, $8.97 per Bbl of NGLs and $1.90 per Mcf of natural gas and the average
sales prices used for purposes of such estimate of New Cache were $10.42
per Bbl of crude oil and $1.47 per Mcf of natural gas. Includes $1.0
million, $11.5 million, $27.3 million and $27.3 million attributable to
Grey Wolf in 1996, 1997, 1998 and Pro Forma 1998, respectively.
(3) Except as otherwise noted, Reserve Life is calculated as proved reserves at
year end divided by annual production, both on an Mcfe basis.
(4) Average sales prices include effects of hedging activities. You should read
the discussion under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" in our Form 10-Q for the quarter ended September 30, 1999
enclosed herewith for more information.
10
<PAGE> 14
FORWARD-LOOKING INFORMATION
We make forward-looking statements throughout this Offer To Exchange and
Consent Solicitation. Whenever you read a statement that is not simply a
statement of historical fact (such as when we describe what we "believe,"
"expect" or "anticipate" will occur, and other similar statements), you must
remember that our expectations may not be correct, even though we believe they
are reasonable. We do not guarantee that the transactions and events described
in this Offer To Exchange and Consent Solicitation will happen as described (or
that they will happen at all). The forward-looking information contained in this
Offer To Exchange and Consent Solicitation is generally located in the material
set forth under the headings "Summary," "Risk Factors," and "Business" but may
be found in other locations as well. These forward-looking statements generally
relate to our plans and objectives for future operations and are based upon our
management's reasonable estimates of future results or trends. The factors that
may affect our expectations of our operations include, among others, the
following:
o Our lack of liquidity
o Our high debt level
o Economic and business conditions
o Our success in completing acquisitions or in development and
exploration activities
o Prices for crude oil and natural gas; and
o Other factors discussed under "Risk Factors" or elsewhere in this Offer
To Exchange and Consent Solicitation.
RISK FACTORS
You should carefully consider the following risk factors in addition to the
other information in this Offer To Exchange and Consent Solicitation before
making a decision to exchange your old notes in the exchange offer.
RISK FACTORS FOR NON-PARTICIPATING NOTEHOLDERS
THE PROPOSED INDENTURE AMENDMENTS WILL ELIMINATE MOST OF THE PROTECTIVE
COVENANTS. Upon the completion of the exchange offer and assuming receipt of the
required consents to the indenture amendments, the old notes indenture will be
amended to delete substantially all of the restrictive covenants and certain
events of default. As a result of such amendments, which require the consent of
the holders of a majority of the principal amount of the old notes, the
non-participating noteholders will not have the benefits and protections of such
covenants and events of default. See "The Consent Solicitation -- Amendments to
the Old Notes." We have entered into support agreements with holders owning a
total of 87.8% of the principal amount of the old notes which provide that these
holders will, subject to the satisfaction of the conditions to the exchange
offer, accept the exchange offer.
THE PARTICIPATING NOTEHOLDERS WILL HAVE A SUPERIOR RIGHT TO OUR CRUDE OIL
AND NATURAL GAS ASSETS IN THE EVENT OF A DEFAULT. If the exchange offer is
consummated, the new notes will be secured by a second lien on the Collateral.
Accordingly, upon any liquidation or bankruptcy of the Company, holders of the
new notes may have the right to have their claims satisfied from any proceeds
from the sale of these crude oil and natural gas assets, subject to the rights
of holders of the first lien notes. If you do not participate in the exchange
offer, you will not have any claim against such Collateral except to the extent
the proceeds therefrom exceed the claims of the holders of the first lien notes,
the new notes and any other secured indebtedness of the Company.
IN THE EVENT OF A BANKRUPTCY PROCEEDING INVOLVING THE COMPANY, INTEREST ON
THE OLD NOTES WOULD CEASE, WHILE IT COULD CONTINUE TO ACCRUE ON THE NEW NOTES.
In the event of a bankruptcy proceeding involving the Company, interest on any
untendered old notes would cease to accrue as of the date of the bankruptcy
filing. In contrast, the new notes would continue to accrue interest after such
a filing to the extent that they are fully secured (i.e., to the extent the
value of the Collateral exceeds the allowed claims secured thereby).
NON-PARTICIPATING NOTEHOLDERS MAY HAVE NO ACTIVE TRADING MARKET FOR THEIR
OLD NOTES. The trading market for any old notes that remain outstanding after
the exchange offer is consummated will become more limited. A security with a
smaller aggregate principal amount outstanding could likely be less liquid and
may command a lower price than a
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<PAGE> 15
comparable security with a greater aggregate principal amount outstanding.
Therefore, the liquidity of and the market price for any old notes that remain
outstanding after the exchange offer is consummated may be adversely affected to
the extent that the number of old notes tendered pursuant to the exchange offer
reduces the aggregate principal amount outstanding of old notes. The reduced
aggregate principal amount outstanding may also make the trading price of any
remaining old notes more volatile.
RISK FACTORS FOR PARTICIPATING NOTEHOLDERS
PARTICIPATING NOTEHOLDERS CANNOT BE SURE THAT AN ACTIVE MARKET WILL DEVELOP
FOR THE NEW NOTES, THE ABRAXAS COMMON STOCK OR CVRS. The new notes and CVRs have
not previously been issued and no assurance can be given that an active market
will develop, or, if such a market develops, that such market will be liquid.
The new notes and CVRs will not be listed on any national securities exchange.
Accordingly, no assurance can be given that a holder of the new notes or the
CVRs will be able to sell such new notes or the CVRs in the future or as to the
price at which such sale may occur. The liquidity of the market for the new
notes and CVRs and the prices at which such new notes and CVRs trade will depend
upon the amount outstanding, the number of holders thereof, the interest of
securities dealers in maintaining a market in such new notes and CVRs and other
factors beyond our control. In addition, no assurance can be given as to the
relationship that the market price of the new notes will bear to the market
prices of the old notes, either currently or in the future.
The liquidity of, and trading market for, the new notes also may be
adversely affected by general declines in the market for high yield securities.
Such declines may adversely affect the liquidity and trading markets for the new
notes.
The Abraxas common stock is quoted on the OTC Bulletin Board. While there
are currently 14 market makers in the Abraxas common stock, none of these market
makers are obligated to continue to make a market in the Abraxas common stock.
In this event, the liquidity of the Abraxas common stock could be adversely
impacted and a stockholder could have difficulty obtaining accurate stock
quotes.
THE SECURITY FOR THE NEW NOTES MAY BE INADEQUATE TO SATISFY ALL AMOUNTS DUE
AND OWING UNDER THE FIRST LIEN NOTES AND THE NEW NOTES. The new notes will be
secured by a second lien or charge on substantially all of our proved crude oil
and natural gas assets, natural gas processing plants and Grey Wolf stock owned
by us. There can be no assurance that, following an acceleration after an event
of default under the new notes indenture, the proceeds from the sale of the
Collateral and allocable to the new notes would be sufficient, either alone or
when combined with proceeds from the sale of other assets not constituting
Collateral and allocable to the new notes, to satisfy all amounts due on the new
notes. The ability of the holders of new notes to realize upon the Collateral
will also be subject to certain limitations in the new notes indenture, the
accompanying mortgage and the pledge agreement, including a prohibition on
foreclosing on the Collateral for 180 days after an event of default under the
new notes. In addition, if we become a debtor in a case under the United States
Bankruptcy Code (the "Bankruptcy Code"), the automatic stay imposed by the
Bankruptcy Code would prevent the Trustee from selling or otherwise disposing of
the Collateral without bankruptcy court authorization. In that case, the
foreclosure might be delayed indefinitely. See "Description of the New Notes --
Security."
THE GUARANTEES MAY NOT BE ENFORCEABLE IN BANKRUPTCY. Abraxas' and Canadian
Abraxas' obligations under the new notes will be guaranteed by New Cache, Sandia
and Wamsutter. Various fraudulent conveyance laws have been enacted for the
protection of creditors and may be utilized by courts to subordinate or void
such guarantees. It is also possible that under certain circumstances a court
could hold that the direct obligations of a guarantor could be superior to the
obligations under its guarantee.
To the extent that a court were to find that at the time a guarantor
entered into a guarantee either:
(1) the guarantee was incurred by the guarantor with the intent to hinder,
delay or defraud any present or future creditor or that the guarantor
contemplated insolvency with a design to favor one or more creditors to
the exclusion in whole or in part of others, or
(2) the guarantor did not receive fair consideration or reasonably
equivalent value for issuing the guarantee and, at the time it issued
the guarantee, the guarantor
o was insolvent or rendered insolvent by reason of the issuance of
the guarantee,
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<PAGE> 16
o was engaged or about to engage in a business or transaction for
which the remaining assets of the guarantor constituted
unreasonably small capital or
o intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they matured,
the court could void or subordinate the guarantee in favor of the guarantor's
other creditors. Among other things, a legal challenge of a guarantee issued by
a guarantor on fraudulent conveyance grounds may focus on the benefits, if any,
realized by the guarantor as a result of our issuance of the new notes. A court
might find that the guarantors did not benefit from incurrence of the
indebtedness represented by the new notes.
To the extent that a guarantee is voided as a fraudulent conveyance or
found unenforceable for any other reason, holders of the new notes would cease
to have any claim in respect of the applicable guarantor. In such event, the
claims of the holders of the new notes against such guarantor would be subject
to the prior payment of all liabilities and preferred stock claims of such
guarantor. There can be no assurance that, after providing for all claims and
preferred stock interests, if any, there would be sufficient assets to satisfy
the claims of the holders of the new notes relating to any voided portion of
such guarantee.
Under applicable provisions of Canadian federal bankruptcy law or
comparable provisions of provincial fraudulent preference laws, if a court in an
action brought by an unpaid creditor of Canadian Abraxas or New Cache or by a
bankruptcy trustee of Canadian Abraxas or New Cache were to find that the liens
granted by Canadian Abraxas or New Cache over its assets were intended to prefer
the holders of the new notes over other creditors, such liens could be set
aside. This would become an issue if Canadian Abraxas or New Cache became
insolvent or bankrupt within a certain period after granting the liens.
UNDER CERTAIN CIRCUMSTANCES A BANKRUPTCY COURT COULD ORDER THE REPAYMENT OF
INTEREST PAYMENTS MADE UNDER THE NEW NOTES OR UNDER THE SECURITY INTERESTS. The
bankruptcy code allows the bankruptcy trustee (or us, acting as
debtor-in-possession) to avoid certain transfers of a debtor's property as a
"preference." Under the bankruptcy code a preference is:
o a transfer of the debtor's property,
o to or for the benefit of a creditor on account of an existing debt,
o made while the debtor was insolvent (presumed in the 90 days before a
bankruptcy filing),
o if the creditor receives more than it would have received in a
bankruptcy liquidation if the transfer had not been made, and
o if the transfer/payment was made in the 90 days before the bankruptcy
filing, or, if the creditor was an "insider" within one year before the
bankruptcy filing (a creditor that is also a director, officer or
controlling stockholder of a debtor may be deemed to be an insider).
Our payment of principal and/or accrued interest, or our grant of a lien or
security interest, including payments made or liens or security interests
granted pursuant to the exchange offer, may be deemed to be a preference if all
of the factors discussed above are present. If such transfers were deemed to be
preferential transfers, the payments could be recovered from the noteholders and
the lien or security interest could be avoided.
If the new notes are fully secured (i.e., the value of collateral exceeds
the amount it secures, including the first lien notes), payments on the new
notes would not constitute preferential transfers. However, if, or to the
extent, the new notes are undersecured (i.e., the value of the collateral is
less than the amount which it secures), payments would be deemed to have been
applied, first, to the unsecured portion of the new notes and, second, to the
secured portion of the new notes and the payments attributable to the unsecured
portion could be considered preferential transfers. Therefore, if we are
involved in a bankruptcy proceeding, holders of new notes may be required to
disgorge payments made on the new notes to the extent such new notes are
undersecured.
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<PAGE> 17
Additionally, due to Abraxas', Canadian Abraxas' and the Guarantors' being
domiciled in Canada and in the United States, Abraxas, Canadian Abraxas and the
Guarantors could be subject to multi-jurisdictional insolvency proceedings in
Canada and the United States. If multi-jurisdictional insolvency proceedings
were to occur, this could result in additional delay in payment of the first
lien notes or the new notes, as well as delay in or prevention from enforcing
remedies under the first lien notes or the new notes, any guarantee thereunder
and the liens securing the first lien notes or the new notes and the guarantees.
Likewise, the first lien notes or the new notes could be subject to different
treatment inasmuch as the multiple insolvency proceedings would be conducted by
different courts applying different laws.
ANTI-TAKEOVER PROVISIONS COULD MAKE A THIRD PARTY ACQUISITION OF ABRAXAS
DIFFICULT. Abraxas' Articles of Incorporation and by-laws provide for a
classified board of directors, with each member serving a three-year term and
eliminate the ability of stockholders to call special meetings or take action by
written consent. Abraxas has also adopted a stockholder rights plan. Each of the
provisions in the Articles of Incorporation and by-laws and the stockholder
rights plan could make it more difficult for a third party to acquire Abraxas
without the approval of Abraxas' board. In addition, the Nevada corporate
statute also contains certain provisions which could make an acquisition by a
third party more difficult. See "Description of Capital Stock -- Anti-takeover
Effects of Certain Provisions of the Articles of Incorporation and Bylaws," "--
Stockholders Rights Plan" and "-- Anti-Takeover Statutes."
LACK OF DIVIDENDS ON ABRAXAS COMMON STOCK. Abraxas has never paid a cash
dividend on its common stock and the terms of the first lien notes indenture and
the new notes indenture limit the ability of Abraxas to pay dividends on its
common stock.
GENERAL RISK FACTORS
WE LACK LIQUIDITY DUE TO OUR REDUCED CASH FLOW. We have historically funded
our operations primarily through cash flow from operations and borrowings under
our bank credit facilities and other credit sources. Due to severely depressed
crude oil and natural gas market prices, our cash flow from operations has been
substantially reduced. We anticipate that we will have two principal sources of
liquidity during the next 12 months: (i) cash on hand and (ii) cash generated by
operations. You should read the discussions under the headings "-- Leverage
Materially Affects our Operations," "Description of the New Notes" and the
unaudited Pro Forma Financial Information and the notes thereto included
elsewhere in this Offer To Exchange and Consent Solicitation and the
Consolidated Financial Statements and the notes thereto included in our Form
10-K for the year ended December 31, 1998 and our Form 10-Q for the quarter
ended September 30, 1999 enclosed herewith for more information regarding our
lack of liquidity. .
Our ability to raise funds through additional indebtedness will be
substantially limited by the terms of the indenture governing the first lien
notes, the indenture governing the old notes (to the extent old notes are not
tendered in the exchange offer) and the indenture governing the new notes,
although many of the restrictive covenants contained in the old notes indenture
would be eliminated by the indenture amendments.
The first lien notes indenture and the new notes indenture will restrict,
among other things, our ability to :
o incur additional indebtedness
o incur liens
o pay dividends or make certain other restricted payments
o consummate certain asset sales
o enter into certain transactions with affiliates
o merge or consolidate with any other person; or
o sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company.
Additionally, our ability to raise funds through additional indebtedness
will be limited because substantially all of our crude oil and natural gas
properties and natural gas processing facilities are subject to a lien or
floating charge for the benefit of the holders of the first lien notes and will
be subject to a second lien or floating charge for the benefit of the holders of
the new notes. We may also choose to issue equity securities or sell certain of
our assets to fund our operations, although the first lien notes indenture, the
old notes indenture and the new notes indenture will substantially limit our use
of the
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<PAGE> 18
proceeds of any such asset sales. Because of our diminished cash flow from
operations and the resulting depressed prices for our common stock, we may not
be able to obtain equity financing on satisfactory terms.
We have implemented a number of measures to conserve our cash resources,
including reducing our capital expenditures. However, while these measures have
helped to conserve our cash resources in the near term, they also have limited
our ability to replenish our depleting reserves. This could negatively impact
our operating cash flow and results of operations in the future. You should read
the discussion under the heading "-- Our Ability to Replace Production with New
Reserves Is Highly Dependent On Acquisitions or Successful Development and
Exploration Activities Which In Turn Are Adversely Affected By Our Reduced
Capital Expenditures" for more information.
OUR DEBT LEVELS AND OUR DEBT COVENANTS MAY LIMIT OUR ABILITY TO PURSUE
BUSINESS OPPORTUNITIES AND TO OBTAIN ADDITIONAL FINANCING. We have substantial
indebtedness and debt service requirements. Our total debt and stockholders'
equity (deficit) were $346.2 million and $(75.3) million, respectively, as of
September 30, 1999, and $263.3 million and $8.6 million on a pro forma basis as
of September 30, 1999. You should read the discussions under the heading
"Capitalization" for more information regarding our high degree of leverage. We
may incur additional indebtedness in the future in connection with acquiring,
developing and exploiting producing properties, although our ability to incur
additional indebtedness is substantially limited by the terms of the first lien
notes indenture, the old notes indenture and the new notes indenture. You should
read the discussions under the heading "-- We Lack Liquidity Due to Our Reduced
Cash Flow," "Description of the New Notes," the unaudited Pro Forma Financial
Information and the notes thereto included elsewhere in this Offer to Exchange
and Consent Solicitation and the Consolidated Financial Statements and the notes
thereto included in our Form 10-K for the year ended December 31, 1998 and our
Form 10-Q for the quarter ended September 30, 1999 enclosed herewith for more
information regarding our indebtedness.
Our high level of debt affects our operations in several important ways,
including:
o A substantial amount of our cash flow from operations will be used to
pay interest on the first lien notes, any untendered old notes and the
new notes;
o The covenants contained in the first lien notes indenture, the old
notes indenture and the new notes indenture will limit our ability to
borrow additional funds or to dispose of assets and may affect our
flexibility in planning for, and reacting to, changes in our business,
including possibly limiting acquisition activities;
o Our debt level may impair our ability to obtain additional financing in
the future for working capital, capital expenditures, acquisitions,
interest payments, scheduled principal payments, general corporate
purposes or other purposes; and
o The terms of the first lien notes indenture, the old notes indenture
and the new notes indenture will permit the holders of the first lien
notes, any untendered old notes and the new notes to accelerate
payments upon an event of default or a change of control.
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<PAGE> 19
OUR ABILITY TO SERVICE OUR DEBT IS LIMITED BY FACTORS BEYOND OUR CONTROL.
Our ability to meet our debt obligations and to reduce our indebtedness,
including the first lien notes, any untendered old notes and the new notes, will
depend on our future performance. Our performance, to a certain extent, is
subject to general economic conditions and financial, business and other factors
that are beyond our control. Based upon the current level of operations and the
historical production of the producing properties and related assets currently
owned by us and the reduction in our indebtedness as a result of the exchange
offer, we believe that our current cash reserves and cash flow from operations
will be adequate to meet our anticipated requirements for working capital,
capital expenditures, interest payments, scheduled principal payments and
general corporate or other purposes for the remainder of 1999 and 2000. If we do
not successfully complete the exchange offer, we will not have the liquidity to
fully exploit our crude oil and natural gas property base and will likely
encounter financial difficulties in the future. We cannot assure you however,
that we will continue to generate cash flow from operations at or above current
levels, that we will be able to meet our interest payments on all of our debt or
that the historical production of the producing properties and related assets
currently owned by us can be sustained in the future. Our cash flow from
operations will be negatively affected by, among other things, depressed
commodity prices. Further, our operating cash flow could be negatively affected
by our limited ability, due to our diminished liquidity and ability to borrow
funds, to acquire producing properties, to undertake exploration and development
projects and to otherwise replenish our depleting reserves.
If we are unable to generate cash flow from operations in the future to
service the first lien notes, any untendered old notes, the new notes and our
other debt, we may try to refinance all or a portion of our debt or repay such
debt with the proceeds of an equity offering. We cannot assure you that we will
be able to generate sufficient cash flow to pay the interest on our debt or that
future borrowings or equity financing will be available to pay or refinance our
debt. Our ability to refinance all or a portion of our debt or to obtain
additional financing will be substantially limited under the terms of the first
lien notes indenture, the old notes indenture and the new notes indenture. Also,
substantially all of our crude oil and natural gas properties and natural gas
processing facilities are subject to a lien or floating charge for the benefit
of the holders of the first lien notes and will be subject to a second lien or
floating charge for the benefit of the holders of the new notes. In addition,
the first lien notes and the old notes are, and the new notes will be, subject
to certain limitations on redemption. You should read the discussions under the
heading "-- We Lack Liquidity Due to Our Reduced Cash Flow" and "Description of
the New Notes -- Redemption" for more information regarding the factors which
may limit our ability to service our debt, to redeem the first lien notes, any
untendered old notes and the new notes and to refinance our debt.
OUR ABILITY TO REPLACE PRODUCTION WITH NEW RESERVES IS HIGHLY DEPENDENT ON
ACQUISITIONS OR SUCCESSFUL DEVELOPMENT AND EXPLORATION ACTIVITIES WHICH IN TURN
ARE ADVERSELY AFFECTED BY OUR REDUCED CAPITAL EXPENDITURES. Our ability to
continue to acquire producing properties or companies that own such properties
assumes that major integrated oil companies and independent oil companies will
continue to divest many of their crude oil and natural gas properties. We cannot
assure you that such divestitures will continue or that we will be able to
acquire such properties at acceptable prices or develop additional reserves in
the future. In addition, under the terms of the first lien notes indenture, the
old notes indenture and the new notes indenture, our ability to obtain
additional financing in the future for acquisitions and capital expenditures
will be limited.
CRUDE OIL AND NATURAL GAS PRICE DECLINES AND THEIR VOLATILITY COULD
ADVERSELY AFFECT OUR REVENUE, CASH FLOWS AND PROFITABILITY. Our revenue,
profitability and future rate of growth depend substantially upon prevailing
prices for crude oil and natural gas. Crude oil and natural gas prices fluctuate
and in recent years have declined significantly. Prices also affect the amount
of cash flow available for capital expenditures and our ability to borrow money
or raise additional capital. We have reduced our capital expenditures budget
because of lower crude oil and natural gas prices. In addition, we may have
ceiling test writedowns when prices decline. Lower prices may also reduce the
amount of crude oil and natural gas that we can produce economically.
We cannot predict future crude oil and natural gas prices and prices may
decline further. Factors that can cause this fluctuation include:
o relatively minor changes in the supply of and demand for crude oil and
natural gas;
o market uncertainty;
o the level of consumer product demand;
o weather conditions;
o domestic and foreign governmental regulations;
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<PAGE> 20
o the price and availability of alternative fuels;
o political conditions in the Middle East;
o the foreign supply of crude oil and natural gas;
o the price of oil and natural gas imports; and
o overall economic conditions.
We enter into hedge agreements and other financial arrangements at various
times to attempt to minimize the effect of crude oil and natural gas price
fluctuations. We cannot assure you that such transactions will reduce risk or
minimize the effect of any decline in crude oil or natural gas prices. Any
substantial or extended decline in oil or natural gas prices would have a
material adverse effect on our business and financial results. Hedging
activities may limit the risk of declines in prices, but such arrangements may
also limit additional revenues from price increases.
LOWER CRUDE OIL AND NATURAL GAS PRICES INCREASE THE RISK OF CEILING
LIMITATION WRITEDOWNS. We use the full cost method to account for our crude oil
and natural gas operations. Accordingly, we capitalize the cost to acquire,
explore for and develop crude oil and natural gas properties. Under full cost
accounting rules, the net capitalized cost of crude oil and natural gas
properties may not exceed a "ceiling limit" which is based upon the present
value of estimated future net cash flows from proved reserves, discounted at
10%, plus the lower of cost or fair market value of unproved properties. If net
capitalized costs of crude oil and natural gas properties exceed the ceiling
limit, we must charge the amount of the excess to earnings. This is called a
"ceiling limitation writedown." This charge does not impact cash flow from
operating activities, but does reduce our stockholders' equity. The risk that we
will be required to write down the carrying value of crude oil and natural gas
properties increases when crude oil and natural gas prices are low or volatile.
In addition, writedowns may occur if we experience substantial downward
adjustments to our estimated proved reserves or if purchasers cancel long-term
contracts for our natural gas production. In 1998, we recorded a writedown of
$61.2 million. We cannot assure you that we will not experience ceiling
limitation writedowns in the future.
ESTIMATES OF PROVED RESERVES AND FUTURE NET REVENUE ARE UNCERTAIN AND
INHERENTLY IMPRECISE. This Offer To Exchange and Consent Solicitation contains
estimates of our proved crude oil and natural gas reserves and the estimated
future net revenue from such reserves. The process of estimating crude oil and
natural gas reserves is complex and involves decisions and assumptions in the
evaluation of available geological, geophysical, engineering and economic data.
Therefore, these estimates are imprecise.
Actual future production, crude oil and natural gas prices, revenues,
taxes, development expenditures, operating expenses and quantities of
recoverable crude oil and natural gas reserves most likely will vary from those
estimated. Any significant variance could materially affect the estimated
quantities and present value of reserves set forth in this Offer To Exchange and
Consent Solicitation. In addition, we may adjust estimates of proved reserves to
reflect production history, results of exploration and development, prevailing
crude oil and natural gas prices and other factors, many of which are beyond our
control.
You should not assume that the present value of future net revenues
referred to in this Offer To Exchange and Consent Solicitation is the current
market value of our estimated crude oil and natural gas reserves. In accordance
with SEC requirements, the estimated discounted future net cash flows from
proved reserves are generally based on prices and costs as of the end of the
year of the estimate. Actual future prices and costs may be materially higher or
lower than the prices and costs as of the end of the year of the estimate.
Significant declines during 1998 in crude oil and natural gas prices reduced our
present value of future net revenues. Any changes in consumption by natural gas
purchasers or in governmental regulations or taxation will also affect actual
future net cash flows. The timing of both the production and the expenses from
the development and production of crude oil and natural gas properties will
affect the timing of actual future net cash flows from proved reserves and their
present value. For example, we reduced our 1999 capital expenditure budget. This
reduction will delay cash flows and thereby reduce present value. In addition,
the 10% discount factor, which is required by the SEC to be used in calculating
discounted future net cash flows for reporting purposes, is not necessarily the
most accurate discount factor. The effective interest rate at various times and
the risks associated with us or the crude oil and natural gas industry in
general will affect the accuracy of the 10% discount factor.
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<PAGE> 21
The estimates are based upon various assumptions about future production
levels, prices and costs that may not prove to be correct over time. In
particular, estimates of crude oil and natural gas reserves, future net revenue
from proved reserves and the PV-10 thereof for the crude oil and natural gas
properties described in this Offer To Exchange and Consent Solicitation are
based on the assumption that future crude oil and natural gas prices remain the
same as crude oil and natural gas prices at December 31, 1998. The average sales
prices as of such date used for purposes of such estimates of the Company except
for New Cache were $9.95 per Bbl of crude oil, $8.97 per Bbl of NGLs and $1.90
per Mcf of natural gas and the average sales prices used for purposes of such
estimate of New Cache were $10.42 per Bbl of crude oil and $1.47 per Mcf of
natural gas. It is also assumed that New Cache will make future capital
expenditures of approximately $0.8 million in the aggregate, which are necessary
to develop and realize the value of proved undeveloped reserves on its
properties. Any significant variance in actual results from these assumptions
could also materially affect the estimated quantity and value of reserves set
forth herein.
NET LOSSES. We have experienced recurring losses. The following table shows
the losses we had in 1994, 1995, 1997, 1998 and the first nine months of 1999:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------
1994 1995 1997 1998 1999
----- ----- ----- ------ -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net loss applicable to common stock .... $(2.6) $(1.6) $(6.7) $(84.0) $(20.0)
</TABLE>
You should read our Consolidated Financial Statements and the notes thereto
included in our Form 10-K for the year ended December 31, 1998 and our Form 10-Q
for the quarter ended September 30,1999 enclosed herewith for more information
regarding these losses. We cannot assure you that we will become profitable in
the future.
CANADIAN OPERATIONS ARE SUBJECT TO THE RISKS OF CURRENCY FLUCTUATIONS AND
IN SOME INSTANCES ECONOMIC AND POLITICAL DEVELOPMENTS. We have significant
operations in Canada. The expenses of such operations are payable in Canadian
dollars while most of the revenue from crude oil and natural gas sales is based
upon U.S. dollar price indices. As a result, Canadian operations are subject to
the risk of fluctuations in the relative values of the Canadian and U.S.
dollars. We are also required to recognize foreign currency translation gains or
losses related to the debt issued by our Canadian subsidiary because the debt is
denominated in U.S. dollars and the functional currency of such subsidiary is
the Canadian dollar. Our foreign operations may also be adversely affected by
local political and economic developments, royalty and tax increases and other
foreign laws or policies, as well as U.S. policies affecting trade, taxation and
investment in other countries.
OUR OPERATIONS ARE SUBJECT TO NUMEROUS RISKS OF CRUDE OIL AND NATURAL GAS
DRILLING AND PRODUCTION ACTIVITIES. Crude oil and natural gas drilling and
production activities are subject to numerous risks, many of which are beyond
our control. These risks include the following:
o that no commercially productive crude oil or natural gas reservoirs
will be found;
o that crude oil and natural gas drilling and production activities may
be shortened, delayed or canceled; and
o that our ability to develop, produce and market our reserves may be
limited by:
- title problems,
- weather conditions,
- compliance with governmental requirements, and
- mechanical difficulties or shortages or delays in the delivery of
drilling rigs, work boats and other equipment.
In the past, we have had difficulty securing drilling equipment in
certain of our core areas. We cannot assure you that the new wells we drill will
be productive or that we will recover all or any portion of our investment.
Drilling for crude oil and natural gas may be unprofitable. Dry wells and wells
that are productive but do not produce sufficient net revenues
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<PAGE> 22
after drilling, operating and other costs are unprofitable. In addition, our
properties may be susceptible to hydrocarbon draining from production by other
operations on adjacent properties.
Our industry also experiences numerous operating risks. These operating
risks include the risk of fire, explosions, blow-outs, pipe failure, abnormally
pressured formations and environmental hazards. Environmental hazards include
oil spills, gas leaks, ruptures or discharges of toxic gases. If any of these
industry operating risks occur, we could have substantial losses. Substantial
losses also may result from injury or loss of life, severe damage to or
destruction of property, clean-up responsibilities, regulatory investigation and
penalties and suspension of operations. In accordance with industry practice, we
maintain insurance against some, but not all, of the risks described above. We
cannot assure you that our insurance will be adequate to cover losses or
liabilities. Also, we cannot predict the continued availability of insurance at
premium levels that justify its purchase.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY WHICH MAY ADVERSELY AFFECT OUR
OPERATIONS. We operate in a highly competitive environment. Competition is
particularly intense with respect to the acquisition of desirable undeveloped
crude oil and natural gas properties. The principal competitive factors in the
acquisition of such undeveloped crude oil and natural gas properties include the
staff and data necessary to identify, investigate and purchase such properties,
and the financial resources necessary to acquire and develop such properties. We
compete with major and independent crude oil and natural gas companies for
properties and the equipment and labor required to develop and operate such
properties. Many of these competitors have financial and other resources
substantially greater than ours.
The principal resources necessary for the exploration and production of
crude oil and natural gas are leasehold prospects under which crude oil and
natural gas reserves may be discovered, drilling rigs and related equipment to
explore for such reserves and knowledgeable personnel to conduct all phases of
crude oil and natural gas operations. We must compete for such resources with
both major crude oil and natural gas companies and independent operators.
Although we believe our current operating and financial resources are adequate
to preclude any significant disruption of our operations in the immediate future
we cannot assure you that such materials and resources will be available to us.
We face significant competition for obtaining additional natural gas
supplies for gathering and processing operations, for marketing NGLs, residue
gas, helium, condensate and sulfur, and for transporting natural gas and
liquids. Our principal competitors include major integrated oil companies and
their marketing affiliates and national and local gas gatherers, brokers,
marketers and distributors of varying sizes, financial resources and experience.
Certain competitors, such as major crude oil and natural gas companies, have
capital resources and control supplies of natural gas substantially greater than
the Company. Smaller local distributors may enjoy a marketing advantage in their
immediate service areas.
We compete against other companies in our natural gas processing business
both for supplies of natural gas and for customers to which we sell our
products. Competition for natural gas supplies is based primarily on location of
natural gas gathering facilities and natural gas gathering plants, operating
efficiency and reliability and ability to obtain a satisfactory price for
products recovered. Competition for customers is based primarily on price and
delivery capabilities.
WE MAY NOT BE ABLE TO FINANCE A CHANGE OF CONTROL OFFER. Upon the
occurrence of certain kinds of change of control events, we will be required to
offer to repurchase all of the first lien notes, any untendered old notes and
the new notes. However, it is possible that we will not have sufficient funds at
the time of the change of control to make the required repurchase of such notes.
OUR CRUDE OIL AND NATURAL GAS OPERATIONS ARE SUBJECT TO VARIOUS U.S.
FEDERAL, STATE AND LOCAL AND CANADIAN FEDERAL AND PROVINCIAL GOVERNMENTAL
REGULATION THAT MATERIALLY AFFECT OUR OPERATIONS. Matters regulated include
discharge permits for drilling operations, drilling and abandonment bonds,
reports concerning operations, the spacing of wells and unitization and pooling
of properties and taxation. At various times, regulatory agencies have imposed
price controls and limitations on production. In order to conserve supplies of
crude oil and natural gas, these agencies have restricted the rates of flow of
crude oil and natural gas wells below actual production capacity. Federal,
state, provincial and local laws regulate production, handling, storage,
transportation and disposal of crude oil and natural gas, by-products from crude
oil and natural gas and other substances and materials produced or used in
connection with crude oil and natural gas operations. To date, our expenditures
related to complying with these laws and for remediation of existing
environmental contamination have not been significant. We believe that we are in
substantial compliance with all applicable laws and
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regulations. However, the requirements of such laws and regulations are
frequently changed. We cannot predict the ultimate cost of compliance with these
requirements or their effect on our operations.
DEPENDENCE ON KEY PERSONNEL. We depend to a large extent on Robert L. G.
Watson, our Chairman of the Board, President and Chief Executive Officer, for
our management and business and financial contacts. The unavailability of Mr.
Watson would have a materially adverse effect on our business. Mr. Watson has a
five-year employment contract with Abraxas which provides that he can be
terminated for cause only. Our success is also dependent upon our ability to
employ and retain skilled technical personnel. While we have not experienced
difficulties in employing or retaining such personnel, our failure to do so in
the future could adversely affect our business.
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BACKGROUND OF THE EXCHANGE OFFER
We have maintained an active dialogue with Jefferies since 1993. In
response to weakened crude oil and natural gas prices and a general tightening
in bank credit availability, we began discussions with Jefferies in early 1999
regarding a refinancing of our bank credit agreement. In March 1999, we
completed an offering of $63.5 million aggregate principal amount of the first
lien notes. We utilized the net proceeds of this offering to repay all of our
secured bank indebtedness and for general corporate purposes, including interest
payments on the old notes.
The decline in crude oil and natural gas prices and our high interest
burden have reduced our investment in undeveloped reserves and created a
severely constrained liquidity situation for us. As net revenues have fallen, we
have used an increasingly larger portion of our cash flow to meet debt interest
expense. In consideration of our high interest burden, attractive near-term
drilling opportunities in South Texas, West Texas and Canada and our very
limited capital budget, we began to discuss recapitalization options with
Jefferies in April 1999.
We discussed and explored a variety of monetization and recapitalization
options, ranging from senior secured financings to private equity placements. We
have had extensive dialogue with both Jefferies and other financial advisors
regarding the placement of private or public equity and have concluded that our
current financial leverage renders the issuance of any equity and many other
traditional financing options practically impossible. In order to meet near-term
debt service requirements and to create additional liquidity to exploit our
near-term opportunities to maintain and grow current production levels, it
became clear that a recapitalization was necessary.
We selected the option of an exchange offer due to the likelihood of
substantial debt reduction upon a high degree of participation by noteholders
and because the exchange offer treats each holder of the old notes equally.
After consultation with Jefferies, we concluded that this approach, compared to
open market purchases of old notes or selectively dealing with holders of old
notes, is inherently fairer to all corporate constituencies. The terms of the
new notes and the exchange offer reflect discussions with an informal committee
of holders of the old notes, who represent over a majority of the principal
amount of the old notes. We have entered into support agreements with holders
owning a total of 87.8% of the principal amount of the old notes which provide
that these holders will, subject to the satisfaction of the conditions to
closing the exchange offer, accept the exchange offer. We expect that the
increased liquidity gained from the exchange offer will allow us to increase
crude oil and natural gas development expenditures and increase production,
which would allow us to meet our debt service requirements. It is our
expectation that our revenues and EBITDA will increase as a result of these
development expenditures and improved natural gas prices, leading to increases
in our equity market capitalization and resulting in substantial value accrual
to participating noteholders. If we do not successfully complete the exchange
offer, we will not have the liquidity to fully exploit our crude oil and natural
gas property base and will likely encounter financial difficulties in the
future. See "Consequences of the Exchange Offer."
Houlihan Lokey has rendered advice to the informal committee of holders of
the old notes in connection with the exchange offer. Houlihan Lokey has not been
retained to solicit any tenders pursuant to the exchange offer. For its services
as financial advisor, Houlihan Lokey is entitled to receive a fixed fee of
$200,000 in cash, new notes with a principal amount of $1.718 million, 163,354
shares of Abraxas common stock and 163,354 CVRs, regardless of whether or not
the exchange offer is consummated. In addition, Houlihan Lokey is entitled to be
reimbursed for certain out-of-pocket expenses. Abraxas has agreed to indemnify
Houlihan Lokey against certain losses, claims, damages and liabilities,
including liabilities under federal securities laws, to which Houlihan Lokey may
become subject in connection with its services to us as financial advisor to
certain holders of the notes.
Jefferies has rendered advice to Abraxas in connection with the exchange
offer. Jefferies has not been retained to solicit any tenders pursuant to the
exchange offer. For its services as financial advisor, Jefferies is entitled to
receive a fixed fee of $3.5 million in a combination of cash and new notes,
regardless of whether or not the exchange offer is consummated. In addition,
Jefferies is entitled to be reimbursed for certain out-of-pocket expenses.
Abraxas has agreed to indemnify Jefferies against certain losses, claims,
damages and liabilities, including liabilities under federal securities laws, to
which Jefferies may become subject in connection with its services to us as
financial advisor.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
We currently have outstanding $274.0 million of the old notes. We have
authorized the issuance of the new notes in exchange for the old notes. We will
issue $191.8 million in aggregate principal amount of new notes (excluding new
notes to be issued to Houlihan Lokey and Jefferies in payment of their fees and
expenses) assuming all holders of old notes participate in the exchange offer.
If you validly tender and do not withdraw your old notes on or before the
solicitation date, you will receive the following consideration:
o a new note with a principal amount of $700
o approximately 59.6184 shares of Abraxas common stock
o approximately 59.6184 CVRs each of which may result in the distribution
of up to approximately 6.3889 shares of Abraxas common stock
As a condition to the consummation of the exchange offer, the number of
directors of Abraxas will be reduced to seven and seven of Abraxas' directors
will resign and be replaced by four individuals designated by a majority of the
participating noteholders. Upon consummation of the exchange offer,
participating noteholders will own collectively approximately 72.0% of the
outstanding shares of Abraxas common stock and will therefore have the power to
elect, at each annual meeting of Abraxas' stockholders, all of the members of
Abraxas' board of directors to be elected at such meeting. The number of
directors to be elected at each annual meeting is less than the total number of
directors, as Abraxas has a staggered board.
Participating noteholders will not be required to pay brokerage commissions
or fees or, subject to the instructions in the Letter of Transmittal, transfer
taxes with respect to the exchange of the old notes pursuant to the exchange
offer. We will pay all charges, expenses and transfer taxes in connection with
the exchange offer.
EXPIRATION TIME; EXTENSIONS; TERMINATION; AMENDMENTS
The exchange offer will terminate at the expiration time. If you do not
tender your old notes by the expiration time, we will not be obligated to accept
your notes for exchange. The expiration time is 12:01 a.m., New York City time,
on December 17, 1999. We may extend the exchange offer to a later expiration
time. If we do, the expiration time shall mean the latest time to which the
exchange offer is extended. If we extend the exchange offer, we will notify the
exchange agent of the extension, and we will make a public announcement of the
extension. Although we may make a public announcement in any manner we choose,
we currently intend to announce extensions by making a release to the Dow Jones
News Service before 9:00 a.m. on the first business day after the previous
expiration time. If we extend the exchange offer, old notes which have been
properly tendered will continue to be properly tendered, and we will have the
right to exchange the old notes for new notes.
We have the right to amend the exchange offer. If we make an amendment
which we determine is material, we will disclose the amendment in a manner which
we determine is reasonably calculated to inform the holders of old notes of the
amendment.
We also have the right to terminate the exchange offer at any time for any
reason. If we terminate the exchange offer, we will make a public announcement
of the termination and will promptly return to you any notes which you have
previously tendered.
PROCEDURES FOR TENDERING NOTES
In order to participate in the exchange offer, you must properly tender
your old notes to the exchange agent as described below. It is your
responsibility to properly tender your notes. We have the right to waive defects
in your tender. However, we are not required to waive defects and are not
required to notify you of defects in your tender.
If you have any questions or need help in tendering your old notes, please
call Abraxas at (210) 490-4788.
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All of the old notes were issued in book-entry form, and all of the old
notes are currently represented by global certificates held for the account of
DTC. We have confirmed with DTC that the old notes may be tendered using the
Automated Tender Offer Program instituted by DTC. DTC participants may
electronically transmit their acceptance of the exchange offers by causing DTC
to transfer their notes to the exchange agent using the ATOP procedures. In
connection with the transfer, DTC will send an "agent's message" to the exchange
agent. The agent's message states that DTC has received instructions from the
participant to tender old notes and that the participant agrees to be bound by
the terms of the consent and letter of transmittal.
By using the ATOP procedures to tender old notes, you will not be required
to deliver a consent and letter of transmittal to the exchange agent. However,
you will be bound by its terms just as if you had signed it.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; PAYMENT FOR OLD NOTES
If the conditions to the exchange offer are satisfied, or if we waive all
of the conditions which have not been satisfied, we will accept all of the
tendered old notes for exchange after the expiration time and after we receive
an "agent's message" with respect to all such old notes. We will accept the old
notes for exchange by notifying the exchange agent of our acceptance. The notice
may be oral if we promptly confirm it in writing.
We will pay for old notes which we have accepted for exchange by delivering
to the exchange agent, through the facilities of DTC, the new notes, the Abraxas
common stock and CVRs owed to the holders of old notes who properly tendered. We
will issue new notes only in denominations of $1,000 or integral multiples
thereof. We will pay cash for any new notes otherwise issuable in amounts less
than $1,000 or integral multiples thereof. The exchange agent will promptly
deliver, through the facilities of DTC, the new notes, the Abraxas common stock
and CVRs to the persons entitled to it. We will not be responsible for any
mistakes or delays made by the exchange agent in distributing the exchange offer
consideration.
If we do not consummate the exchange offer we will promptly return, through
the facilities of DTC, notes which have been tendered by you by book-entry
transfer.
We expect to accept for exchange and purchase notes properly tendered
promptly following the expiration time. However, if the conditions to the
consummation of the exchange offer are not satisfied, we have the right to
retain the old notes without accepting them or without paying for them until the
conditions are satisfied. If we cause the exchange agent to hold such notes, we
must comply with Rules 14e-1 under the Securities Exchange Act of 1934 which
requires us to pay for the exchanged notes or return the notes promptly after
termination or withdrawal of a tender offer.
WITHDRAWAL RIGHTS
You may withdraw old notes which you have tendered at any time before we
and the trustee execute the supplemental indenture for the old notes adopting
the amendments made pursuant to the consent solicitations. As described under
"The Consent Solicitation," we expect to execute a supplemental indenture to the
indenture on the date we receive valid consents from holders of a majority of
the outstanding principal amount of old notes.
In order to withdraw old notes you have tendered, you must submit to the
exchange agent a notice of withdrawal, using the ATOP procedures for withdrawal
of tenders, prior to the date we and the trustee sign a supplemental indenture
for such old notes.
Withdrawal of the old notes will be deemed to withdraw the related consent
to the proposed amendments to the indenture under which the withdrawn old notes
were issued.
If you withdraw old notes, you will have the right to re-tender them prior
to the expiration time in accordance with the procedures described above for
tendering notes.
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DETERMINATION OF WHETHER A TENDER OR WITHDRAWAL OF OLD NOTES IS PROPER
We will not be required to issue new notes, Abraxas common stock and CVRs
for old notes tendered pursuant to the exchange offer unless those old notes are
properly tendered. Similarly, we will not be able to return old notes which have
been tendered if you do not properly comply with the procedures to withdraw the
old notes. We will have the right to decide whether a tender or withdrawal was
made properly and our decision will be final. You should note the following with
respect to the exchange offer:
o If we determine you have not properly tendered your old notes, or have
not properly complied with the procedures to withdraw notes previously
tendered, you will have to correct the problem in the time period we
determine.
o We are not under any obligation to advise you of any defect in your
tender or withdrawal; neither is the exchange agent.
o We have the right to waive any defect in the tender or withdrawal of
notes, and may waive a defect with respect to one note holder and not
another.
o If we determine you have not properly tendered your old notes, they
will be promptly returned to you following the exchange offers via a
credit to the appropriate DTC account.
CONDITIONS TO CONSUMMATION OF THE EXCHANGE OFFER
We do not have to close the exchange offer if any of the conditions listed
below is not satisfied on or before the expiration date:
o holders of at least 95% of the outstanding principal amount of old
notes shall have tendered their old notes in the exchange offer and
shall not have withdrawn such notes;
o the supplemental indenture to the indenture for the old notes shall
have been executed;
o an opinion of our Canadian counsel that interest payments will not be
subject to Canadian income tax withholding shall have been received;
and
o seven of Abraxas' directors shall have resigned.
In addition, we will not be required to close the exchange offer if any of
the following occurs, or if we become aware of any of the following, or, if any
of the following exists on the date of this offer, we become aware of a material
worsening:
o any legal or administrative proceeding which could in our judgment,
adversely affect our ability to close the exchange offer or amend the
indenture as contemplated by the consent solicitations;
o any event which adversely affects our business or our ability to
consummate the exchange offer or the contemplated benefits;
o the enactment of any law, rule or court order which prohibits or delays
the exchange offer, or which places restrictions on the exchange offer;
o the trustee under the indenture for the old notes shall object to the
terms of the exchange offer or our ability to amend the indenture for
the old notes as contemplated by the consent solicitation;
o any suspension of or adverse changes in the U.S. financial or capital
markets;
o any material change in the trading prices of the old notes or the
markets for the old notes;
o any moratorium or other suspension or limitation on the ability of
banks to extend credit or receive payments; or
o the commencement of a war or armed hostilities involving the United
States.
We will have the right to waive any of the foregoing conditions and
consummate the exchange offer except that we may not waive the conditions
relating to (i) the receipt of the tax opinion with respect to Canadian
withholding tax, (ii) the resignation of seven Abraxas directors and our
commitment to appoint four directors designated by the holders of a majority in
principal amount of the participating old notes, and (iii) the 95% minimum
acceptance threshold (without the consent of the holders of a majority in
principal amount of the participating old notes). Neither you nor any person who
tenders old notes will have the ability to prevent us from waiving a condition
and will not have the ability to withdraw old notes tendered
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if we waive any of the foregoing conditions. We also have the right to determine
whether any of the conditions were satisfied. Our decision as to whether a
condition was satisfied is final and binding, and you will have no right to
disagree with our conclusions.
NO APPRAISAL OR SIMILAR RIGHTS
The indenture under which the old notes were issued and applicable law do
not give the holders of old notes any appraisal or similar rights to request a
court or other person to value their old notes in connection with the exchange
offer.
FRACTIONAL SHARES OR CVRS; DENOMINATIONS OF NEW NOTES
Abraxas will not issue fractional shares or fractional CVRs. Instead of
fractional shares, you will receive cash equal to the applicable fractional
interest multiplied by $5.03 per share of Abraxas common stock and the
applicable fractional interest multiplied by the difference of $5.03 less the
closing bid price for the Abraxas common stock on the last trading date
immediately prior to the expiration of the exchange offer for each such
fractional CVR. We will not issue new notes in denominations of less than $1,000
or integral multiples thereof and will pay cash for any new notes otherwise
issuable in amounts less than $1,000 or integral multiples thereof.
EXCHANGE AGENT
The Bank of New York is serving as Exchange Agent for the exchange offer.
The Issuers have agreed to pay the Exchange Agent reasonable and customary fees
for its services and to reimburse the Exchange Agent for its reasonable
out-of-pocket expenses in connection therewith.
The Issuers have also agreed to indemnify the Exchange Agent against
certain liabilities and expenses, including liabilities under the federal
securities laws.
Questions and requests for assistance may be directed to the Exchange Agent
at the following addresses and telephone number:
BY OVERNIGHT COURIER
BY HAND OR REGISTERED/CERTIFIED MAIL
------------------------------- -------------------------------
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
New York, NY 10286 New York, NY 10286
Ground Level Attn: Reorganization Unit - 7E
Corporate Trust Services Window
Attn: Reorganization Unit - 7E
BY FACSIMILE
--------------------
(212) 815-6339
Confirm by Telephone
(212) 815-3687
Requests for additional copies of this Offer To Exchange and Consent
Solicitation, the Letter of Transmittal and other related documents should be
directed to the Exchange Agent.
SOLICITATION OF TENDERS; EXPENSES
In addition to the use of the mails, solicitations to exchange may be made
by officers and employees of Abraxas, personally or by telephone or telegram,
without receiving additional compensation. Abraxas will not make any payments to
brokers, dealers or other persons for soliciting or recommending acceptances of
the exchange offer. Abraxas will, however, pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. Abraxas will also pay brokerage
houses and other custodians, nominees and fiduciaries the out-of-pocket expenses
incurred by them in forwarding copies of this Offer To Exchange and Consent
Solicitation and related documents to the beneficial owners of the old notes and
in handling or forwarding tenders for their customers.
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INCOME TAX CONSEQUENCES
We have described the tax consequences of the exchange offer and the
consent solicitation under "Certain U.S. Federal and Canadian Income Tax
Considerations."
MISCELLANEOUS
The exchange offer is not being made to, nor will tenders be accepted from
or on behalf of, noteholders in any jurisdiction in which the making or
acceptance thereof would not be in compliance with the laws of such
jurisdiction. The Issuers may, however, at their discretion, take such action as
they may deem necessary to make the exchange offer in any jurisdiction and
extend the exchange offer to noteholders in such jurisdiction. The Issuers are
not aware of any jurisdiction in which the making of the exchange offer or the
acceptance thereof would not be in compliance with the laws of any such
jurisdiction. In any jurisdiction where the securities or blue sky laws require
the exchange offer to be made by a licensed broker or dealer, the exchange offer
shall be deemed to be made on behalf of the Issuers by one or more registered
brokers or dealers licensed under the laws of such jurisdiction.
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THE CONSENT SOLICITATION
In connection with the exchange offer, we are soliciting consents to
proposed amendments to the indenture under which the old notes were issued.
HOW TO CONSENT OR REVOKE CONSENT
If you tender your old notes in the exchange offer you will have also
consented to the proposed amendments to the indenture under which the old notes
you have tendered were issued. The consent and letter of transmittal for the
exchange offer constitutes a consent to the proposed amendments. You may not
consent to proposed amendments to the old notes indenture unless you participate
in the exchange offer.
We have entered into support agreements with holders owning a total of
87.8% of the principal amount of the old notes which provide that these holders
will, subject to the satisfaction of the conditions to closing the exchange
offer, accept the exchange offer.
Your consent may not be revoked unless you also withdraw the old notes from
the exchange offer. If you tender your old notes in the exchange offer and then
withdraw them, you will also be deemed to have revoked the consent to the
amendments to the indenture for the withdrawn old notes. For a description of
your ability to withdraw old notes tendered in the exchange offer, see "The
Exchange Offer -- Withdrawal Rights."
AMENDMENTS TO THE OLD NOTES
We are proposing to amend the following provisions of the indenture for the
old notes. To be effective, these amendments must receive the consent of holders
of at least a majority of the outstanding principal amount of the old notes. The
proposed amendments would delete the following sections from the indenture for
the old notes:
o Section 4.04, which requires that we pay all taxes and other
governmental charges when due and pay all of our vendors and suppliers
in a timely fashion.
o Section 4.05, which requires that we maintain our properties in good
condition, repair and working order and that we maintain insurance on
our assets.
o Section 4.08, which requires that we provide the reports we file with
the SEC to holders of the notes.
o Section 4.10, which limits our ability to pay dividends, repurchase our
capital stock and make other restricted payments.
o Section 4.11, which restricts us in our dealings with our affiliates.
o Section 4.12, which restricts us from incurring additional
indebtedness.
o Section 4.13, which restricts us from allowing our subsidiaries to have
restrictions on their ability to pay dividends to us.
o Section 4.14, which limits our ability to designate subsidiaries as
being Restricted Subsidiaries or Unrestricted Subsidiaries.
o Section 4.17, which limits the right of our subsidiaries to issue
capital stock and our ability to sell the capital stock of our
subsidiaries.
o Section 4.18, which limits our ability to place liens on our assets.
o Section 5.1(b)(i), which requires that we maintain the same or a
greater consolidated net worth following any merger, consolidation or
sale or other disposition of all or substantially all our assets.
o Section 5.1(b)(ii), which requires that, except in certain instances,
before and after giving effect to any merger, consolidation or sale or
other disposition of all or substantially all of our assets, we could
incur $1.00 of additional Indebtedness (excluding Permitted
Indebtedness) under Section 4.12 of the indenture described above.
o Section 5.1(c), which requires that immediately before and after giving
effect to a consolidation, merger or sale or other disposition of all
or substantially all of our assets, no Default or Event of Default
shall have occurred and be continuing.
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o Section 5.1(d), which requires that we provide an officers' certificate
of compliance and an opinion of our legal counsel in connection with
any merger, consolidation or sale of other disposition of all or
substantially all our assets.
o Section 6.01(d), which provides that our failure to make payments due
under other indebtedness will constitute an Event of Default.
o Section 6.01(e), which provides that the entry of an unsatisfied
judgment against us in an amount greater than $5,000,000 will
constitute an Event of Default.
The proposed amendments would also amend Section 4.06 which requires that
we provide officers' certificates to the trustee annually and after our first,
second and third fiscal quarters stating, among other things, whether we are in
default under the indenture, to require that we provide such information to the
trustee only on an annual basis.
We are seeking the consent to all amendments as a single proposal.
Therefore, you must consent to all of the amendments or withhold consent on all
of the proposals.
WHEN AMENDMENTS BECOME EFFECTIVE
We intend to execute the supplemental indenture for an issue of old notes
on the date we receive the approval of at least a majority of the outstanding
principal amount of old notes issued under that indenture. We have entered into
support agreements with holders owning a total of 87.8% of the principal amount
of the old notes which provide that these holders will, subject to the
satisfaction of the conditions to closing the exchange offer, accept the
exchange offer. The supplemental indenture to an indenture will become effective
when executed by us and the trustee. However, the amendments to the indenture
will become operative only on the closing of the exchange offer.
CONSEQUENCES OF FAILURE TO PARTICIPATE IN THE CONSENT SOLICITATION
If you do not participate in the exchange offer and the proposed amendments
become effective, you will be bound by the amendments even if you do not consent
to them. In addition, the liquidity of the old notes may be reduced as a result
of the exchange offer. For more information, see "Consequences of the Exchange
Offer and Consent Solicitation."
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CONSEQUENCES OF THE EXCHANGE OFFER AND CONSENT SOLICITATION
CONSEQUENCES TO THE COMPANY
VIABILITY. The exchange of the new notes, Abraxas common stock and CVRs for
the old notes will substantially reduce our debt level and associated interest
burden, greatly enhancing our going concern viability. If we do not successfully
complete the exchange offer, we will not have the liquidity to fully exploit our
crude oil and natural gas property base and will likely encounter financial
difficulties in the future.
USE OF PROCEEDS. We will not receive any cash proceeds from the issuance of
the new notes. In consideration for the exchange of each $1,000 principal amount
of old notes, Abraxas and Canadian Abraxas will issue a new note with a
principal amount equal to $700 and Abraxas will issue approximately 59.6184
shares of Abraxas common stock and approximately 59.6184 CVRs each of which may
result in the distribution of up to approximately 6.3889 shares of Abraxas
common stock. We will not issue new notes in denominations of less than $1,000
or integral multiples thereof or fractional shares or CVRs. We will pay cash for
all new notes otherwise issuable in amounts of less than $1,000 or integral
multiples thereof, $5.03 per share for fractional shares of Abraxas common stock
and the applicable fractional interest multiplied by the difference of $5.03
less the closing bid price for the Abraxas common stock on the last trading date
immediately prior to the expiration of the exchange offer for each fractional
CVR.
CASH FLOW CONSIDERATIONS. The exchange offer is intended to reduce the
amount of cash that we must dedicate to debt service. Therefore, if successful,
the exchange offer will enhance our ability to make interest and principal
payments and capital expenditures from available cash and operating cash flows.
Specifically, completion of the exchange offer will enable us, assuming 100%
participation, to replace $274 million principal amount of old notes, which in
the aggregate have interest requirements of $31.6 million per year through
November 1, 2004, with $191.8 million principal amount of new notes (excluding
new notes to be issued to Houlihan Lokey and Jefferies in payment of their fees
and expenses) which in the aggregate would have interest requirements of $22.1
million per year through November 1, 2004. These interest savings will allow us
to more fully exploit our existing crude oil and natural gas properties and
maintain and increase our production levels.
ACCESS TO CAPITAL MARKETS. Successful completion of the exchange offer
should decrease our near-term financial risk and increase the likelihood that
Abraxas' stockholders will realize the benefits of increased cash flows and net
asset value, through the elimination of $82.2 million in prior claims. We
believe that completion of the exchange offer will provide us with greater
access to the public and private equity markets, thus increasing our
alternatives for refinancing or repaying our long-term indebtedness.
NO CANCELLATION OF INDEBTEDNESS INCOME. Abraxas should not recognize
cancellation of indebtedness income since a supportable position can be taken
that the outstanding principal of the old notes and accrued and unpaid interest
related thereto (to the extent deducted by Abraxas for tax purposes)
relinquished in the exchange offer (adjusted for unamortized issue costs and
certain other amounts) does not exceed the principal amount of the new notes and
the fair market value of the Abraxas common stock and CVRs received in the
exchange offer. See "Certain U.S. Federal and Canadian Income Tax
Consideration."
NET OPERATING LOSS CARRYFORWARDS. At December 31, 1998, we had, subject to
the limitations discussed below, $59.2 million of net operating loss
carryforwards for U.S. tax purposes, of which approximately $55.0 million were
available for utilization without limitation. These loss carryforwards will
expire from 2002 through 2010 if not utilized. At December 31, 1998, we had
approximately $11.9 million of net operating loss carryforwards for Canadian tax
purposes which expire in varying amounts from 2002 through 2005. The exchange
offer will result in a change of ownership under Section 382. Accordingly, it is
expected that the use of net operating loss carryforwards generated through the
closing of the exchange offer, will be limited to approximately $600,000 per
year based on current market values of the Abraxas common stock as compared to
$1.0 million prior to the exchange offer. Future changes in ownership may
further limit the use of our carryforwards. In addition to the Section 382
limitations, uncertainties exist as to the future utilization of the operating
loss carryforwards under the criteria set forth under FASB Statement No. 109.
29
<PAGE> 33
CONSEQUENCES TO PARTICIPATING NOTEHOLDERS
SECURITY. Our obligations under the new notes will be secured by a second
priority lien or charge on substantially all of our proved crude oil and natural
gas properties and the shares of common stock of Grey Wolf owned by Abraxas and
Canadian Abraxas. As a result, upon our liquidation or bankruptcy, holders of
the new notes may recover ratably more than the holders of the old notes and
holders of other unsecured claims.
GREATER COVENANT PROTECTION. Acceptance of the exchange offer will afford a
holder of the new notes additional covenant protection in the new notes and
enable such holders to avoid elimination of many of the covenants of the old
notes indenture, if the required consents are received and the old notes
indenture is amended. Participation in the exchange offer by holders of old
notes will also constitute the consent by such noteholders to the related
indenture amendments. See "The Consent Solicitation -- Amendments to the Old
Notes."
CONSEQUENCES TO NON-PARTICIPATING NOTEHOLDERS
SECURITY FOR NEW NOTES. If the exchange offer is consummated, the new notes
will be secured by a second priority security interest in the Collateral.
Accordingly, upon our liquidation or bankruptcy, holders of new notes would have
the right to have their claims satisfied from any proceeds attributable to such
liens. Holders of old notes would not have any claim against such collateral
except to the extent the proceeds therefrom exceeded the claims of the holders
of the new notes, the first lien notes and any other secured indebtedness.
LIMITED COVENANT PROTECTION. Holders of old notes who do not participate in
the exchange offer will continue to hold their old notes subject to the old
notes indenture, as amended by the amendments to the old notes indenture. If the
indenture amendments are effected, each person who continues to hold old notes
will be bound by the amended old notes indenture, regardless of whether such
holder consented thereto. If effected, the indenture amendments would relieve
the Company from compliance with those restrictive covenants to be deleted from
the old notes indenture and from any adverse consequence that could have
resulted upon the occurrence of those events of default to be deleted from the
old notes indenture. We have entered into support agreements with holders owning
a total of 87.8% of the principal amount of the old notes which provide that
these holders will, subject to the satisfaction of the conditions to closing the
exchange offer, accept the exchange offer. See " The Consent Solicitation --
Amendments to the Old Notes" and "Summary Comparison of Old Notes and New
Notes."
LIMITED LIQUIDITY; NO ACTIVE TRADING MARKET. The trading market for any old
notes that remain outstanding after the exchange offer is consummated will
become more limited. A security with a smaller aggregate principal amount
outstanding could likely be less liquid and may command a lower price than a
comparable security with a greater aggregate principal amount outstanding.
Therefore, the liquidity of and the market price for any old notes that remain
outstanding after the exchange offer is consummated may be adversely affected to
the extent that the number of old notes tendered pursuant to the exchange offer
reduces the aggregate principal amount outstanding of old notes. The reduced
aggregate principal amount outstanding may also make the trading price of any
remaining old notes more volatile.
30
<PAGE> 34
CAPITALIZATION
The following table sets forth the total consolidated capitalization of the
Company at September 30, 1999 on a historical and pro forma basis. This table
should be read in conjunction with the Consolidated Financial Statements of the
Company and the notes thereto included in the Company's Form 10-Q for the
quarter ended September 30, 1999 enclosed herewith and the unaudited Pro Forma
Financial Information and the notes thereto and the other financial information
included elsewhere in this Offer To Exchange and Consent Solicitation.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------
HISTORICAL PRO FORMA (1)
---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt, including current maturities:
Credit Facility due to a Canadian bank (2) ................ $ 6,277 $ 6,277
12 7/8% Senior Secured Notes due 2003 ..................... 63,500 63,500
11 1/2% Senior Secured Notes due 2004, Series A (3)(4) .... -- 193,521
11 1/2% Senior Notes due 2004, Series D (4) ............... 276,459 --
Other long-term obligations ......................... 7 7
---------- ----------
Total debt ................................................... 346,243 263,305
---------- ----------
Stockholders' equity:
Common stock .............................................. 65 228
Treasury stock, 171,015 shares ............................ (1,071) (1,071)
Additional paid-in capital ................................ 51,651 133,688
Foreign currency translation .............................. (2,886) (2,886)
Accumulated deficit ....................................... (123,099) (121,398)
---------- ----------
Total stockholders' equity (deficit) ................ (75,340) 8,561
---------- ----------
Total capitalization ................................ $ 270,903 $ 271,866
========== ==========
</TABLE>
- ------------------
(1) Reflects the exchange offer as if it occurred at September 30, 1999. Does
not reflect issuance of any new notes, Abraxas common stock or contingent
value rights issuable to Houlihan Lokey and new notes issuable to Jefferies
for payment of their fees and expenses in connection with the exchange
offer.
(2) Indebtedness of Grey Wolf, which is non-recourse to the Company.
(3) Excludes up to $5.0 million of new notes payable to Houlihan Lokey and
Jefferies as payment for their fees and expenses.
(4) Includes a debt issuance premium of $2.5 million on a historical basis and
$1.7 million on a pro forma basis.
31
<PAGE> 35
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information is derived from the
historical financial statements of the Company and New Cache set forth elsewhere
in this Offer To Exchange and Consent Solicitation and is adjusted to reflect
the following:
The Unaudited Pro Forma Condensed Balance Sheet of the Company as of
December 31, 1998, has been prepared assuming the offering of the first lien
notes, the acquisition of New Cache and the exchange offer were consummated on
December 31, 1998. The Unaudited Pro Forma Condensed Balance Sheet of the
Company as of September 30, 1999, has been prepared assuming the exchange offer
was consummated on September 30, 1999. The Unaudited Pro Forma Statements of
Operations of the Company for the year ended December 31, 1998 and for the nine
month period ended September 30, 1998 have been prepared assuming the offering
of the first lien notes, the acquisition of New Cache, the sale of the Wyoming
Properties and the exchange offer were consummated at the beginning of the
reporting period. The Unaudited Pro Forma Statement of Operations of the Company
for the nine month period ended September 30, 1999 has been prepared assuming
the exchange offer was consummated at the beginning of the reporting period. The
historical revenues and expenses of New Cache and the Wyoming Properties
represent amounts recorded by or with respect to such businesses or properties
for the periods indicated.
The historical financial statements of New Cache were prepared in Canadian
dollars in accordance with Canadian generally accepted accounting principles.
The New Cache historical statement of operations included in the Unaudited Pro
Forma Statement of Operations of the Company for the year ended December 31,
1998 represents the historical results of operations of New Cache for the twelve
months ended November 30, 1998, has been adjusted to present the results in
accordance with United States generally accepted accounting principles and has
been translated into U.S. dollars at the average exchange rate of $0.6792 to one
Canadian dollar. The balance sheet information of New Cache as of June 30, 1999,
has been translated at the period-end exchange rate of $0.6523 to one Canadian
dollar. See "Business -- Primary Operating Areas -- Western Canada."
The Unaudited Pro Forma Financial Information should be read in conjunction
with the notes thereto, the Consolidated Financial Statements of the Company and
the notes thereto and the historical financial statements and the notes thereto
of New Cache included elsewhere in this Offer To Exchange and Consent
Solicitation.
The Unaudited Pro Forma Financial Information is not indicative of the
financial position or results of operations of the Company which would actually
have occurred if the offering of the first lien notes, the acquisition of New
Cache, the sale of the Wyoming Properties and the exchange offer had occurred at
the dates presented or which may be obtained in the future. In addition, future
results may vary significantly from the results reflected in such statements due
to normal crude oil and natural gas production declines, reductions in prices
paid for crude oil and natural gas, future acquisitions and other factors.
32
<PAGE> 36
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
----------------------
ABRAXAS NEW CACHE SALE OF EXCHANGE
PETROLEUM NEW PRO FORMA WYOMING OFFERING OFFER
CORPORATION CACHE ADJUSTMENTS PROPERTIES ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- --------- ----------- ---------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Oil and gas production
revenues................... $ 54,263 $ 16,896 -- $(11,805) -- -- $ 59,354
Gas processing revenues...... 3,159 -- -- -- -- -- 3,159
Rig revenues................. 469 -- -- -- -- -- 469
Other revenues............... 2,193 902 -- 98 -- -- 3,193
-------- --------- -------- -------- ------- ------- ---------
Total revenue.......... 60,084 17,798 -- (11,707) -- -- 66,175
Operating costs and expenses:
Lease operating and
production taxes........... 18,091 6,237 -- (2,009) -- -- 22,319
Depreciation, depletion
and amortization........... 31,226 13,609 $ 3,300 (a) (3,415) -- -- 44,720
Proved property impairment... 61,224 32,616 (32,616)(b) -- -- -- 90,862
29,638 (b)
Rig operations............... 521 -- -- -- -- -- 521
General and administrative
expense.................... 5,522 2,210 -- -- -- -- 7,732
-------- --------- -------- -------- ------- ------- ---------
Total operating
expenses............. 116,584 54,672 322 (5,424) -- -- 166,154
-------- --------- -------- -------- ------- ------- ---------
Operating income (loss)......... (56,500) (36,874) (322) (6,283) -- -- (99,979)
Other (income) expense:
Interest income.............. (805) (6) -- -- -- -- (811)
Amortization of deferred
financing fee.............. 1,571 -- -- -- $ 625 (c) $ (342) (f) 1,854
Interest expense............. 30,848 1,372 -- -- 6,990 (d) (9,279) (g) 29,931
-------- --------- -------- -------- ------- ------- ---------
Total other expenses..... 31,614 1,366 -- -- 7,615 (9,621) 30,974
-------- --------- -------- -------- ------- ------- ---------
Income (loss) before tax........ (88,114) (38,240) (322) (6,283) (7,615) 9,621 (130,953)
Income tax (expense) benefit:
Current...................... (231) (189) -- -- -- -- (420)
Deferred..................... 4,389 14,782 8,410 (e) -- -- -- 14,861
(12,720)(e)
Minority interest income
(loss)....................... (4) -- -- -- -- -- (4)
-------- --------- -------- -------- ------- ------- ---------
Net (loss) applicable to
common stockholders.......... $(83,960) $ (23,647) $ (4,632) $ (6,283) $(7,615) $ 9,621 $(116,516)
======== ========= ======== ======== ======= ======= =========
Net (loss) per share............ $ (13.26) $ (5.14)
======== =========
</TABLE>
See notes to unaudited pro forma financial information.
33
<PAGE> 37
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
---------------------
ABRAXAS NEW CACHE SALE OF EXCHANGE
PETROLEUM NEW PRO FORMA WYOMING OFFERING OFFER
CORPORATION CACHE ADJUSTMENTS PROPERTIES ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ------- ----------- ---------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Oil and gas production
revenues................... $ 41,406 $12,409 -- $(10,189) -- -- $ 43,626
Gas processing revenues...... 2,369 -- -- -- -- -- 2,369
Rig revenues................. 350 -- -- -- -- -- 350
Other revenues............... 1,884 661 -- 84 -- -- 2,629
-------- ------- -------- -------- ------- ------- ---------
Total revenue.......... 46,009 13,070 -- (10,105) -- -- 48,974
Operating costs and expenses:
Lease operating and
production taxes........... 13,387 4,838 -- (1,775) -- -- 16,450
Depreciation, depletion
and amortization........... 26,049 8,184 $ 2,475 (a) (3,415) -- -- 33,293
Rig operations............... 381 -- -- -- -- -- 381
General and administrative
expense.................... 3,957 1,367 -- -- -- -- 5,324
-------- ------- -------- -------- ------- ------- ---------
Total operating
expenses............. 43,774 14,389 2,475 (5,190) -- -- 55,448
-------- ------- -------- -------- ------- ------- ---------
Operating income (loss)......... 2,235 (1,319) (2,475) (4,915) -- -- (6,474)
Other (income) expense:
Interest income.............. (418) -- -- -- -- -- (418)
Amortization of deferred
financing fee.............. 913 -- -- -- $ 469 (b) $ (189)(d) 1,193
Interest expense............. 22,795 769 -- -- 5,243 (c) (6,960) (e) 21,847
-------- ------- -------- -------- ------- ------- ---------
Total other expenses..... 23,290 769 -- -- 5,712 (7,149) 22,622
-------- ------- -------- -------- ------- ------- ---------
Income (loss) before tax........ (21,055) (2,088) (2,475) (4,915) (5,712) 7,149 (29,096)
Income tax (expense) benefit:
Current...................... (208) (146) -- -- -- -- (354)
Deferred..................... 4,741 479 -- -- -- -- 5,220
Minority interest income........ 50 -- -- -- -- -- 50
-------- ------- -------- -------- ------- ------- ---------
Net (loss) applicable to
common stockholders.......... $(16,472) $(1,755) $ (2,475) $ (4,915) $(5,712) $ 7,149 $ (24,180)
======== ======= ======== ======== ======= ======= =========
Net (loss) per share............ $ (2.60) $ (1.07)
======== =========
</TABLE>
See notes to unaudited pro forma financial information.
34
<PAGE> 38
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ABRAXAS EXCHANGE
PETROLEUM OFFER
CORPORATION ADJUSTMENTS PRO FORMA
--------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Oil and gas production revenues ............... $ 43,884 -- $ 43,884
Gas processing revenues ....................... 2,733 -- 2,733
Rig revenues .................................. 328 -- 328
Other revenues ................................ 2,759 -- 2,759
--------- --------- ---------
Total revenue .......................... 49,704 -- 49,704
Operating costs and expenses:
Lease operating and production taxes .......... 13,986 -- 13,986
Depreciation, depletion and amortization ...... 25,801 -- 25,801
Rig operations ................................ 452 -- 452
General and administrative expense ............ 4,187 -- 4,187
--------- --------- ---------
Total operating expenses ............... 44,426 -- 44,426
--------- --------- ---------
Operating income (loss) ......................... 5,278 -- 5,278
Other (income) expense:
Interest income ............................... (493) -- (493)
Amortization of deferred financing fee ........ 1,073 $ (225)(a) 848
Interest expense .............................. 28,422 (6,960)(b) 21,462
--------- --------- ---------
Total other expenses ................... 29,002 (7,185) 21,817
--------- --------- ---------
Income (loss) before tax ........................ (23,724) 7,185 (16,539)
Income tax (expense) benefit:
Current ....................................... (305) -- (305)
Deferred ...................................... 4,247 -- 4,247
Minority interest income (loss) ................. (172) -- (172)
--------- --------- ---------
Net (loss) applicable to common stockholders .... $ (19,954) $ 7,185 $ (12,769)
========= ========= =========
Net (loss) per share ............................ $ (3.15) $ (0.56)
========= =========
</TABLE>
See notes to unaudited pro forma financial information.
35
<PAGE> 39
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
ABRAXAS NEW CACHE PRO
PETROLEUM FORMA OFFERING EXCHANGE OFFER
CORPORATION NEW CACHE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- --------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash........................... $ 61,390 $ 7 $ (61,724) (a) $ 18,820 (b) -- $ 18,493
Accounts receivable............ 10,505 5,359 -- -- -- 15,864
Other.......................... 1,348 -- -- -- -- 1,348
---------- -------- --------- -------- ----------- -----------
Total current assets.... 73,243 5,366 (61,724) 18,820 -- 35,705
Property and equipment........... 374,316 128,282 32,938 (c) -- -- 535,536
Less accumulated DD&A............ (165,867) (64,727) (32,938) (d) -- -- (263,532)
---------- -------- --------- -------- ----------- -----------
Net property and equipment..... 208,449 63,555 -- -- -- 272,004
Deferred financing fees.......... 8,059 -- -- 2,500 (b) $ (2,418)(i) 8,141
Other assets..................... 1,747 -- -- -- -- 1,747
---------- -------- --------- -------- ----------- -----------
Total assets............ $ 291,498 $ 68,921 $ (61,724) $ 21,320 $ (2,418) $ 317,597
========== ======== ========= ======== =========== ===========
Liabilities and stockholders' equity
(deficit):
Total current liabilities $ 22,554 $ 29,190 $ 1,949 (e) $ (9,730) $ (1,576)(j) $ 25,637
(16,750) (d)
Long-term debt................... 299,698 -- 16,750 31,050 (b) (82,938)(k) 264,560
Deferred income taxes............ 19,820 2,105 -- -- -- 21,925
Minority interest................ 9,672 -- -- -- -- 9,672
Other liabilities................ 3,276 430 -- -- -- 3,706
Stockholders' equity (deficit):
Common stock................... 65 64,752 (64,752) (f) -- 163 (l) 228
Additional paid-in capital..... 51,695 -- -- -- 82,037 (l) 133,732
Accumulated deficit............ (103,145) (18,418) 18,418 (f) -- (104) (129,726)
(24,528) (g)
(1,949) (h)
Accumulated other comprehensive
income....................... (10,970) (9,138) 9,138 (f) -- -- (10,970)
Treasury stock................. (1,167) -- -- -- -- (1,167)
---------- -------- --------- -------- ----------- -----------
Total stockholders' equity
(deficit)............. (63,522) 37,196 (63,673) -- 82,096 (7,903)
---------- -------- --------- -------- ----------- -----------
Total liabilities and
stockholders' equity
(deficit)............. $ 291,498 $ 68,921 $ (61,724) $ 21,320 $ (2,418) $ 317,597
========== ======== ========= ======== =========== ===========
</TABLE>
See notes to unaudited pro forma financial information.
36
<PAGE> 40
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ABRAXAS
PETROLEUM EXCHANGE OFFER
CORPORATION ADJUSTMENTS PRO FORMA
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets:
Cash............................................. $ 14,421 -- $ 14,421
Accounts receivable.............................. 17,145 -- 17,145
Other............................................ 916 -- 916
--------- ---------- -----------
Total current assets...................... 32,482 -- 32,482
Property and equipment............................. 495,082 -- 495,082
Less accumulated DD&A.............................. 191,398 -- 191,398
--------- ---------- -----------
Net property and equipment....................... 303,684 -- 303,684
Deferred financing fees............................ 9,919 $ (2,976)(a) 6,943
Other assets....................................... 1,240 -- 1,240
--------- ---------- -----------
Total assets.............................. $ 347,325 $ (2,976) $ 344,349
========= ========== ===========
Liabilities and stockholders' equity (deficit):
Total current liabilities................. $ 34,333 $ (3,939)(b) $ 30,394
Long-term debt..................................... 346,243 (82,938)(c) 263,305
Deferred income taxes.............................. 27,429 -- 27,429
Minority interest.................................. 10,286 -- 10,286
Future site restoration............................ 4,374 -- 4,374
Stockholders' equity (deficit):
Common stock..................................... 65 163 (d) 228
Additional paid-in capital....................... 51,651 82,037 133,688
Accumulated deficit.............................. (123,099) 1,701 (121,398)
Treasury stock................................... (1,071) -- (1,071)
Accumulated other comprehensive income........... (2,886) -- (2,886)
--------- ---------- -----------
Total stockholders' equity (deficit)...... (75,340) 83,901 8,561
--------- ---------- -----------
Total liabilities and stockholders' equity
(deficit)............................... $ 347,325 $ (2,976) $ 344,349
========= ========== ===========
</TABLE>
See notes to unaudited pro forma financial information.
37
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
NOTE 1. The Unaudited Pro Forma Statement of Operations for the year ended
December 31, 1998, reflects the offering of the first lien notes, the
acquisition of New Cache, the sale of the Wyoming Properties and the exchange
offer as if all were consummated on January 1, 1998.
a. Adjust depletion expense for the acquisition of New Cache.
b. Reverse New Cache ceiling writedown and record ceiling writedown based
on purchase price.
c. Adjust amortization of deferred financing fee to reflect amortization
of additional fees incurred in connection with the issuance of the old
notes.
d. Adjust interest expense using an annual interest rate of 12 7/8% for
the issuance of the first lien notes and to reflect the repayment of
previous credit facility and indebtedness incurred in connection with
acquisition of New Cache.
e. Reverse New Cache deferred tax benefit relating to ceiling writedown
and record deferred tax benefit for writedown of properties based on
purchase price.
f. Adjust amortization of deferred financing fee to reflect fees
associated with old notes.
g. Adjust interest expense to reflect reduced debt as a result of the
exchange offer.
NOTE 2. The Unaudited Pro Forma Statement of Operations for the nine months
ended September 30, 1998 reflects the offering of the first lien notes, the
acquisition of New Cache, the sale of the Wyoming Properties and the exchange
offer as if all were consummated on January 1, 1998.
a. Adjust depletion expense for the acquisition of New Cache.
b. Adjust amortization of deferred financing fee to reflect amortization
of additional fees incurred in connection with the issuance of the old
notes.
c. Adjust interest expense using an annual interest rate of 12 7/8% for
the issuance of the first lien notes and reducing interest expense
interest incurred during the period on previous credit facility, which
was paid off with the proceeds of the first lien notes.
d. Adjust deferred financing fees for amount associated with old notes.
e. Adjust interest expense to reflect reduced debt as a result of the
exchange offer.
NOTE 3. The Unaudited Pro Forma Statement of Operations for the nine months
ended September 30, 1999 reflects the exchange offer as if it was consummated on
January 1, 1999.
a. Adjust amortization of deferred financing fees to reflect fees
associated with reduced amount.
b. Adjust interest expense to reflect reduced debt as a result of the
exchange offer.
NOTE 4. The Unaudited Pro Forma Condensed Balance Sheet as of December 31,
1998, reflects the offering of the first lien notes, the acquisition of New
Cache and the exchange offer as if they had occurred as of December 31, 1998:
To reflect the sale of $63.5 million principal amount of the first lien
notes. The proceeds are to be used to repay the Credit Facility and the New
Cache Debt and for general corporate purposes.
38
<PAGE> 42
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
a. Cash expenditure for the acquisition of New Cache................. $ (61,724)
b. Allocation of proceeds for sale of the first lien notes:
Increase in senior secured notes.............................. 63,500
Paydown of credit facility.................................... (32,450)
Reduction of current liabilities.............................. (9,730)
Increase in deferred financing fees........................... (2,500)
------------
Increase in cash.............................................. 18,820
------------
c. Increase in basis of oil and gas properties attributable to New
Cache acquisition................................................. 32,938
d. Reduce basis in oil and gas properties due to ceiling writedown... (32,938)
e. Increase in New Cache current liabilities at December 31, 1998
for costs incurred in connection with the acquisition of New
Cache............................................................. 1,949
f. To eliminate New Cache's equity:
Common stock.................................................. (64,752)
Accumulated deficit........................................... 18,418
Foreign currency translation adjustment....................... 9,138
g. Reduce equity for after tax impact of ceiling writedown........... (24,528)
h. Reduce equity for increase in current liabilities................. (1,949)
Exchange Offer Adjustments:
i. Adjust deferred financing fees to reflect fees associated with old notes.
j. Adjust accrued interest to reflect reduced debt as a result of
the exchange offer.
k. Adjust senior notes to reflect the exchange offer.
l. Adjust common stock to reflect the exchange offer.
</TABLE>
NOTE 5. The Unaudited Pro Forma Condensed Balance Sheet as of September 30,
1999, reflects the exchange offer as if it had occurred as of September 30,
1999:
a. Adjust deferred financing fees to reflect fees associated with old
notes.
b. Adjust accrued interest to reflect the exchange offer.
c. Adjust senior notes to reflect the exchange offer.
d. Adjust common stock to reflect the exchange offer.
39
<PAGE> 43
BUSINESS
GENERAL
We are an independent energy company engaged primarily in the acquisition,
exploitation, development and production of crude oil and natural gas. Our
principal areas of operation are South Texas, West Texas and Canada. Since
January 1, 1991, our principal means of growth has been through the acquisition
and subsequent exploitation and development of producing properties and related
assets.
PRIMARY OPERATING AREAS
Our U.S. operations are concentrated in South and West Texas with over 99%
of the PV-10 of our U.S. crude oil and natural gas properties at December 31,
1998 located in those two regions. We operate approximately 80% of our wells in
Texas.
South Texas
Our operations in South Texas are concentrated along the Edwards Trend in
Live Oak and Dewitt Counties and in the Frio/Vicksburg area in San Patricio
County. We own an average 71% working interest in and operate 80% of our 115
wells. These properties had average daily production of 863 net Bbls of crude
oil and NGLs and 10,285 net Mcf of natural gas per day for the year ended
December 31, 1998, and 557 net Bbls of crude oil and NGLs and 12,679 net Mcf of
natural gas per day for the quarter ended September 30, 1999. During the first
ten months of 1999, we drilled a total of 4 new wells (4.0 net) in South Texas,
with a 100% success rate.
Our wells in the Edwards Trend are characterized by high working interests
and are substantially all natural gas. We have identified numerous drilling
locations in the Edwards Trend and we believe that we have the necessary
technical expertise and significant competitive advantage over other operations
in the trend through our proprietary drilling techniques.
West Texas
Our operations in West Texas are concentrated along the deep
Devonian/Ellenberger formation and shallow Cherry Canyon sandstones in Ward
County, the Spraberry Trend in Midland County and in the Sharon Ridge Clearfork
Field in Scurry County. We own an average 73% working interest in and operate
approximately 80% of our 264 wells. These properties had average daily
production of 1,264 net Bbls of crude oil and NGLs and 6,926 net Mcf of natural
gas per day for the year ended December 31, 1998, and 644 net Bbls of crude oil
and NGLs and 4,969 net Mcf of natural gas per day for the quarter ended
September 30, 1999. During the first-ten months of 1999, we drilled a total of 4
new wells (3.9 net) in West Texas with a 100% success rate. Our wells in West
Texas have a drilling profile which is similar to that of the Edwards Trend we
have identified several drilling locations in West Texas. Recent successful
horizontal wells in similar fields by Texaco, Mobil, and Titan have enabled us
to properly delineate our drilling prospects.
Canada
We own producing properties in Western Canada, consisting primarily of
natural gas reserve. We also own interests ranging from 10% to 100% in
approximately 200 miles of natural gas gathering systems and 19 natural gas
processing plants. As of December 31, 1998, on a pro forma basis, Canadian
Abraxas and New Cache had estimated net proved reserves of 175 Bcfe (82% natural
gas) with a PV-10 of $142.9 million, 97% of which was attributable to proved
developed reserves. For the year ended December 31, 1998, on a pro forma basis,
the properties produced an average of approximately 1,980 net Bbls of crude oil
and NGLs per day and 52,583 net Mcf of natural gas per day from 105.5 net wells.
For the quarter ended September 30, 1999, these properties had average daily
production of 1,472 net Bbls of crude oil and NGLs and 47,637 net Mcf of natural
gas per day. The natural gas processing plants had aggregate capacity of
approximately 306 gross MMcf of natural gas per day (121 net MMcf).
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<PAGE> 44
Grey Wolf manages the operations of Canadian Abraxas pursuant to a
management agreement between Canadian Abraxas and Grey Wolf. Under the
management agreement, Canadian Abraxas reimburses Grey Wolf for reasonable costs
or expenses attributable to Canadian Abraxas and for administrative expenses
based upon the percentage that Canadian Abraxas' gross revenue bears to the
total gross revenue of Canadian Abraxas and Grey Wolf.
CRUDE OIL, NGLS AND NATURAL GAS PRODUCTION AND SALES PRICES
The following table presents our net crude oil, net NGLs and net natural
gas production for the Company, the average sales price per Bbl of crude oil and
NGLs and per Mcf of natural gas produced and the average LOE per Mcfe of
production sold, for the years ended December 31, 1996, 1997 and 1998 and the
nine months ended September 30, 1999:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
1996 1997 1998 SEPTEMBER 30, 1999
---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
PRODUCTION:(1)
Crude oil (MBbls) ......... 425.2 936.7 728.6 608.6
NGLs (MBbls) .............. 299.5 992.3 867.4 281.5
Natural gas (MMcf) ........ 6,350.1 21,050.0 24,929.9 20,154.6
MMcfe(2) .................. 10,698.3 32,624.0 34,505.9 25,495.2
AVERAGE SALES PRICE:(3)
Crude oil (per Bbl) ....... $ 20.85 $ 18.63 $ 13.65 $ 13.98
NGLs (per Bbl) ............ 14.55 10.75 6.81 11.96
Natural gas (per Mcf) ..... 1.97 1.79 1.54 1.59
Per Mcfe .................. 2.40 2.02 1.57 1.72
LOE (PER MCFE) .............. $ 0.55 $ 0.46 $ 0.49 $ 0.55
</TABLE>
- ----------------
(1) Includes the following amounts with respect to Grey Wolf: 32 MBbls of crude
oil, 0 MBbls of NGLs, 35 MMcf of natural gas and 226 MMcfe in 1996; 18
MBbls of crude oil, 8 MBbls of NGLs, 531 MMcf of natural gas and 686 MMcfe
in 1997; and 21 MBbls of crude oil, 37 MBbls of NGLs, 3,262 MMcf of natural
gas and 3,605 MMcfe in 1998.
(2) Crude oil and natural gas were combined by converting crude oil and NGLs to
Mcfe on the basis of 6 Mcf natural gas to 1 Bbl of crude oil.
(3) Average sales prices include effects of hedging activities.
DRILLING ACTIVITIES
The following table sets forth our gross and net working interests in
exploratory, development, and service wells drilled during the three years ended
December 31, 1996, 1997 and 1998 and the nine months ended September 30, 1999:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
1996 1997 1998 SEPTEMBER 30, 1999
-------------- -------------- -------------- ------------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EXPLORATORY
Productive
Crude oil ......... 2.0 1.2 -- -- 1.0 1.0 -- --
Natural gas ....... 2.0 1.2 10.1 7.9 7.0 5.6 4.0 1.7
Dry holes ........... 4.0 1.4 2.0 1.8 9.0 7.3 4.0 1.2
---- ---- ---- ---- ---- ---- ---- ----
Total ......... 8.0 3.8 12.0 9.7 17.0 13.9 8.0 2.9
==== ==== ==== ==== ==== ==== ==== ====
DEVELOPMENT
Productive
Crude oil ......... 20.0 15.8 25.0 22.3 3.0 2.4 9.0 3.6
Natural gas ....... 10.0 3.7 20.0 14.9 30.0 23.9 18.0 11.6
Service ............. -- -- -- -- 1.0 1.0 -- --
Dry holes ........... 1.0 1.0 3.0 2.0 3.0 2.2 10.0 5.8
---- ---- ---- ---- ---- ---- ---- ----
Total ......... 31.0 20.5 48.0 39.2 37.0 29.5 37.0 21.0
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
41
<PAGE> 45
DESCRIPTION OF THE NEW NOTES
You can find definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "Issuers"
refer to Abraxas and Canadian Abraxas and not to any of their subsidiaries.
The Issuers will issue the new notes under an indenture entered into among
the Issuers, the Subsidiary Guarantors and Firstar Bank, National Association,
as Trustee (the "Trustee"). The indenture is governed by certain provisions
contained in the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act" or the "TIA"). The terms of the new notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act.
The indenture will provide for issuance of up to $196.8 million of new
notes. The Issuers will issue a maximum principal amount of $191.8 million of
new notes in exchange for the old notes in the exchange offer and a maximum
principal amount of $5.0 million in payment of certain fees incurred in
connection with the exchange offer. All of the new notes will be identical
except that the new notes issued for payment of fees will not be immediately
freely tradeable.
The following description is a summary of the material provisions of the
new notes, the indenture and the documents providing for the security interests
of the holders of the new notes. It does not restate those agreements in their
entirety. We urge you to read the indenture and the security documents because
they, not this description, define your rights as holders of the new notes. A
copy of the form of indenture and the security documents may be obtained from
the Issuers.
BRIEF DESCRIPTION OF THE NEW NOTES AND THE GUARANTEES
The New Notes
The new notes:
o will be general obligations of the Issuers;
o will be secured by a second lien and a second fixed or floating charge
on substantially all of the Oil and Gas Assets of Abraxas and its
Wholly Owned Restricted Subsidiaries and the common stock of Grey Wolf
owned by the Issuers;
o will rank equally with all of the Issuers' current and future senior
Indebtedness;
o will rank senior to all of the Issuers' current future Subordinated
Indebtedness; and
o will be unconditionally guaranteed by the Subsidiary Guarantors.
The Guarantees
The new notes will be jointly and severally guaranteed (the "Guarantees")
by the following subsidiaries of the Issuers:
o New Cache;
o Sandia; and
o Wamsutter.
The Guarantees of the new notes:
o will be general obligations of each Subsidiary Guarantor;
o will be senior in right of payment to all existing and future
Subordinated Indebtedness of each Subsidiary Guarantor;
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<PAGE> 46
o will be on an equal basis with all existing and future Senior
Indebtedness of each Subsidiary Guarantor;
o will be secured by a second lien or charge on all of the Oil and Gas
Assets of the Subsidiary Guarantors; and
o will be limited for each Subsidiary Guarantor to the maximum amount
which will result in each Guarantee's not being a fraudulent conveyance
or fraudulent transfer.
Each Subsidiary Guarantor that makes a payment or distribution under its
Guarantee will be entitled to a contribution from each other Subsidiary
Guarantor in a prorata amount based on the net assets of each Subsidiary
Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Issuers or another Subsidiary Guarantor that is a Wholly Owned
Restricted Subsidiary without limitation, or with or to other Persons upon the
terms and conditions set forth in the indenture. See the description of the
covenant in "Merger, Consolidation and Sale of Assets" below. In the event all
of the Capital Stock of a Subsidiary Guarantor is sold by the Issuers and/or one
or more of their Restricted Subsidiaries and the sale complies with the
provisions set forth in "Limitation on Asset Sales," such Subsidiary Guarantor's
Guarantee and any related Collateral will be released.
PRINCIPAL, MATURITY AND INTEREST
The indenture will provide for the issuance of up to $196.8 million of new
notes thereunder. The new notes will be issued in full registered form only,
without coupons, in denominations of $1,000 and integral multiples of $1,000.
The new notes will mature on November 1, 2004.
Interest on the new notes will accrue at the rate of 11.5% per annum and
will be payable semi-annually on each November 1 and May 1, commencing on May 1,
2000, to the Persons who are registered holders at the close of business on the
April 15 and October 15 immediately preceding the applicable interest payment
date. Interest shall accrue and be payable both before and after the filing of
any bankruptcy petition at the rate of 11.5% per annum.
Interest on the new notes will accrue from and including the most recent
date to which interest has been paid with interest beginning to accrue on
November 1, 1999. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months, and in the case of a partial month, the
actual number of days elapsed.
PAYMENT OF TAXES
All payments made by Canadian Abraxas or any Subsidiary Guarantor under or
with respect to the new notes or its Subsidiary Guarantee will be made free and
clear of any tax, duty, levy, impost, assessment or other Canadian government or
provincial charges.
These items are sometimes collectively called "Taxes" in this Description of the
New Notes.
If Canadian Abraxas or any Subsidiary Guarantor or any successor, as the
case may be, were required to withhold or deduct any Taxes from any payment made
under or with respect to the new notes or any Subsidiary Guarantee, Canadian
Abraxas or such Subsidiary Guarantor, as the case may be, will pay such
additional amounts ("Additional Amounts") as may be necessary so that the net
amount received by each holder (including Additional Amounts) after such
withholding or deduction will not be less than the amount the holder would have
received if such Taxes had not been withheld or deducted. However, no Additional
Amounts will be payable with respect to a payment made to a holder (an "Excluded
Holder") in respect of a beneficial owner:
o with which the Issuers or such Subsidiary Guarantor does not deal at
arm's-length (within the meaning of the Income Tax Act (Canada)) at the
time of making such payment; or
o which is subject to such Taxes by reason of its being connected with
Canada or any province or territory thereof otherwise than by the mere
acquisition, holding or disposition of the new notes or the receipt of
payments thereunder.
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<PAGE> 47
Canadian Abraxas and the Subsidiary Guarantors will also:
o make such withholding or deduction; and
o remit the full amount deducted or withheld to the relevant governmental
authority in accordance with applicable law.
If Canadian Abraxas and the Subsidiary Guarantors pay these Taxes, they
will furnish certified copies of tax receipts evidencing such payment within 30
days of payment to the holders.
Canadian Abraxas and the Subsidiary Guarantors will, jointly and severally,
indemnify and hold harmless each holder (other than an Excluded Holder) and upon
written request reimburse each such holder for the amount of :
o any Taxes so levied or imposed on and paid by such holder as a result
of payments made under or with respect to the new notes or any
Subsidiary Guarantee,
o any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, and
o any Taxes imposed with respect to any reimbursement under the two
clauses above so that the net amount received by such holder after such
reimbursement will not be less than the net amount the holder would
have received if Taxes on such reimbursement had not been imposed.
Whenever in the Indenture there is mentioned, in any context, the payment
of principal (and premium, if any), redemption price, Change of Control payment,
purchase price, interest or any other amount payable under or with respect to
any of the new notes, it also includes the payment of Additional Amounts to the
extent that, in such context, Additional Amounts are, were or would be payable.
The Issuers will also pay any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges or similar levies that
arise in any jurisdiction from the execution, delivery, enforcement or
registration of the new notes or any other document or instrument in relation
thereto, or from the receipt of any payments with respect to the new notes,
excluding such taxes, charges or similar levies imposed by any jurisdiction
outside of Canada, the jurisdiction of incorporation of any successor of either
of the Issuers or any jurisdiction in which a paying agent is located, and have
agreed to indemnify the holders for any such taxes paid by such holders.
The foregoing obligations will survive any termination, defeasance or
discharge of the indenture and the payment of all amounts owing under or with
respect to the new notes and any Subsidiary Guarantee.
PAYING AGENT AND REGISTRAR; TRANSFER AND EXCHANGE
Initially, the Trustee will act as registrar for the new notes and as
paying agent. The new notes may be presented for registration of transfer and
exchange at the office of the registrar, which currently is the Trustee's
corporate trust office at 101 East 5th Street, St. Paul, Minnesota 55101. The
Issuers will pay principal (and premium, if any) and interest on the new notes
at the office of the paying agent in the Borough of Manhattan in the City of New
York, State of New York. In addition, in the event the new notes do not remain
in book-entry form, interest may be paid, at the Issuers' option, by wire
transfer or check mailed to the registered addresses of the holders as shown on
the note register. The Issuers may change the paying agent and registrar without
notice to holders of the new notes. The new notes will be treated as a single
class of securities under the indenture.
REDEMPTION
Optional Redemption
The Issuers may redeem the new notes, at their option, in whole at any time
or in part from time to time, on and after December 1, 2000, at the redemption
prices expressed as percentages of the principal amount set forth below. If the
Issuers redeem the new notes, the Issuers must also pay interest accrued and
unpaid to the applicable redemption date. The redemption prices during the
twelve-month period beginning on December 1 of the years indicated are set forth
below:
44
<PAGE> 48
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2000 105.750%
2001 102.875%
2002 and thereafter 100.000%
</TABLE>
In addition, prior to December 1, 2000, the Issuers may redeem up to 50% of
the aggregate principal amount of the new notes at a redemption price of 111.50%
of the principal amount, plus accrued and unpaid interest to the date of
redemption with the net proceeds of one or more Equity Offerings. The Issuers
may not cause a redemption from the proceeds of an Equity Offering unless:
o at least 50% of the aggregate principal amount of the new notes remains
outstanding immediately after giving effect to any such redemption
(with new notes owned by the Issuers or any of their Affiliates deemed
not to be outstanding); and
o redemption occurs within 60 days after the consummation of any such
Equity Offering.
If the Issuers redeem less than all of the new notes, selection of new
notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
new notes are listed or, if the new notes are not then listed on a national
securities exchange, on a pro rata basis, by lot or by such other method as the
Trustee deems fair and appropriate. The Issuers will not redeem new notes in
principal amounts of less than $1,000. In addition, if a partial redemption is
made with the proceeds of an Equity Offering, selection of new notes or portions
thereof for redemption shall be made by the Trustee only on a pro rata basis or
on as nearly a pro rata basis as is practicable (subject to the procedures of
The Depository Trust Company (the "DTC")), unless such method is otherwise
prohibited. The Issuers will mail notice of redemption at least 30 and not more
than 60 days before the redemption date. The notice will describe the amount of
new notes being redeemed, if less than the entire principal amount. Interest
will cease to accrue on new notes which are redeemed on the redemption date.
SECURITY
All of the Obligations of the Issuers under the new notes and the indenture
will be secured by a second priority Lien, but subject to Permitted Liens, on
substantially all of the Oil and Gas Assets of the Issuers and the Subsidiary
Guarantors, and by a second priority Lien, subject to Permitted Liens, on
substantially all of any Oil and Gas Assets acquired thereafter (other than
assets securing Acquired Indebtedness to the extent granting additional Liens
would be prohibited by the terms of the instruments relating to such Acquired
Indebtedness), as well as the Capital Stock of Grey Wolf owned by the Issuers,
such Lien being junior to the Liens securing the First Lien Notes. The Oil and
Gas Assets that will initially secure such Obligations represent approximately
99% of the PV-10 value at December 31, 1998.
If the new notes become due and payable prior to maturity or are not paid
in full at maturity, the Trustee may take all actions it deems necessary or
appropriate, including, but not limited to, foreclosing upon the Collateral in
accordance with the security documents and applicable law. The right to
foreclose on the Collateral is, however, subject to a 180-day standstill period
in favor of the holders of the First Lien Notes described below. Subject to the
right of the holders of the First Lien Notes, the proceeds received from the
sale of any Collateral that is the subject of a foreclosure or collection suit
will be applied first to pay the expenses of such foreclosure or suit and
amounts then payable to the Trustee and thereafter to pay the principal of and
interest on the new notes. The Trustee has the power to institute and maintain
such suits and proceedings as it may deem expedient to prevent impairment of, or
to preserve or protect its and the holders' interest in, the Collateral.
If an Event of Default has occurred, , the Trustee or a holder, as the case
may be, must give the First Lien Notes Representative written notice (a
"Standstill Period Commencement Notice")prior to taking action to enforce its
foreclosure rights with respect to any of the Collateral in connection with such
Event of Default, with such notice stating that an Event of Default has occurred
under the indenture and stating that such notice is being given to commence a
Standstill Period. The Trustee and such holder will not be allowed to take a
foreclosure action with respect to such Event of Default until 180 days have
elapsed since the date such Standstill Period Commencement Notice is given by
the Trustee or such holder to the First
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<PAGE> 49
Lien Notes Representative (a "Standstill Period"), unless the First Lien Notes
Representative consents to the taking of such foreclosure action and the First
Lien Notes Representative has authority to give such consent on behalf of the
holders of the First Lien Notes pursuant to the First Lien Indenture. The
foregoing provisions of this paragraph shall cease to be applicable upon the
payment in full of all Indebtedness under the First Lien Notes and the First
Lien Indenture. Nothing in this paragraph shall be construed as limiting any
right of the Trustee and/or the holders of the new notes to assert any rights
they may have to any proceeds arising from any foreclosure or other such
realization on the Collateral by the First Lien Notes Representative, by any
holder or holders of any of the First Lien Notes or by any trustee or other
person acting for or on behalf of the First Lien Notes Representative or any
holder or holders of any of the First Lien Notes.
There can be no assurance that the Trustee will be able to sell the
Collateral without substantial delays or compromises in addition to the 180-day
standstill or that the proceeds obtained will be sufficient to pay all amounts
owing to holders of the new notes. See "Risk Factors -- Adequacy of Collateral."
Third parties that have Permitted Liens (including, without limitation, the
holders of the First Lien Notes) may have rights and remedies with respect to
the property subject to such Liens that, if exercised, could adversely affect
the value of the Collateral. In addition, the ability of the holders to realize
upon the Collateral may be subject to certain bankruptcy law limitations in the
event of a bankruptcy. See "Risk Factors -- Substantive
Consolidation/Bankruptcy."
The collateral release provisions of the indenture will permit the release
of Collateral without substitution of collateral of equal value under certain
circumstances. See "Possession, Use and Release of Collateral." As described
under the summary of the covenant "Limitation on Asset Sales," the Net Cash
Proceeds of certain Asset Sales may under specified circumstances be required to
be utilized to make an offer to purchase new notes.
CHANGE OF CONTROL
If a Change of Control occurs, each holder will have the right to require
that the Issuers purchase all or a portion of such holder's new notes pursuant
to the offer described below (the "Change of Control Offer"), at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase.
The Issuers must mail a notice of any Change of Control to each holder and
the Trustee no later than 30 days after the Change of Control occurs. The notice
will state, among other things, the purchase date, which must be no earlier than
30 days nor later than 45 days from the date such notice is mailed, other than
as may be required by law (the "Change of Control Payment Date"). A Change of
Control Offer must remain open for a period of 20 Business Days or such longer
period as may be required by law. Holders electing to have a new note purchased
pursuant to a Change of Control Offer will be required to surrender the new
note, with the form entitled "Option of Holder to Elect Purchase" on the reverse
of the new note completed, to the paying agent for the new notes at the address
specified in the notice prior to the close of business on the third Business Day
prior to the Change of Control Payment Date.
The Issuers will not be required to make a Change of Control Offer if a
third party makes the Change of Control Offer at the Change of Control purchase
price, at the same times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by the Issuers and purchases the
new notes validly tendered and not withdrawn under such Change of Control Offer.
If a Change of Control Offer is made, there can be no assurance that the
Issuers will have available funds sufficient to pay the Change of Control
purchase price for all the new notes that might be delivered by holders seeking
to accept the Change of Control Offer. In addition, the First Lien Notes
Indenture and the old notes indenture have substantially identical change of
control provisions as the indenture, which may further restrict the ability of
the Issuers to purchase the new notes. In the event the Issuers are required to
purchase new notes pursuant to a Change of Control Offer, the Issuers expect
that they would seek third party financing to the extent they do not have
available funds to meet their purchase obligations. However, there can be no
assurance that the Issuers would be able to obtain such financing.
Neither the Board of Directors of Abraxas nor the Trustee may waive the
covenant relating to the Issuers' obligation to make a Change of Control Offer.
Restrictions in the indenture described in this Description of the New Notes on
the ability of the Issuers and their Restricted Subsidiaries to incur additional
Indebtedness, to grant liens on their property, to make Restricted Payments and
to make Asset Sales may also make more difficult or discourage a takeover of the
Issuers, whether favored or opposed by the management of the Issuers.
Consummation of any such transaction in certain circumstances may
46
<PAGE> 50
require repurchase of the new notes, and there can be no assurance that the
Issuers or the acquiring party will have sufficient financial resources to
effect such repurchase. Such restrictions and the restrictions on transactions
with Affiliates may, in certain circumstances, make more difficult or discourage
any leveraged buyout of the Issuers by the management of the Issuers. While such
restrictions cover a wide variety of arrangements which have traditionally been
used to effect highly leveraged transactions, the indenture may not afford the
holders of new notes protection in all circumstances from the adverse aspects of
a highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of new notes pursuant to a Change of Control Offer. These rules
require that the Issuers keep the offer open for 20 Business Days. They also
require that the Issuers notify holders of new 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 "Change of
Control" provisions in the indenture, the Issuers will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the "Change of Control" provisions of the
indenture.
CERTAIN COVENANTS
The indenture will contain, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness
Other than the Permitted Indebtedness, Abraxas may not, and may not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, assume, guarantee, acquire, become liable, contingently or otherwise,
with respect to, or otherwise become responsible for payment of (collectively,
"incur") any Indebtedness. However, if no Default or Event of Default shall have
occurred and be continuing at the time of or as a consequence of the incurrence
of any such Indebtedness, Abraxas and the Subsidiary Guarantors or any of them
may incur Indebtedness (including any Acquired Indebtedness), in each case, if
at the time of such event and after giving effect thereto on a pro forma basis,
both:
o Abraxas' Consolidated EBITDA Coverage Ratio would have been at least
equal to 2.5 to 1.0; and
o Abraxas' Adjusted Consolidated Net Tangible Assets are equal to or
greater than 150% of the aggregate consolidated Indebtedness of Abraxas
and its Restricted Subsidiaries.
For purposes of determining any particular amount of Indebtedness under
this covenant, guarantees of Indebtedness otherwise included in the
determination of the amount of Indebtedness shall not also be included.
Indebtedness of a Person existing at the time such Person becomes a
Restricted Subsidiary (whether by merger, consolidation, acquisition of Capital
Stock or otherwise) or is merged with or into Abraxas or any Restricted
Subsidiary or which is secured by a Lien on an asset acquired by Abraxas or a
Restricted Subsidiary (whether or not such Indebtedness is assumed by the
acquiring Person) shall be deemed incurred at the time the Person becomes a
Restricted Subsidiary or at the time of the asset acquisition.
Abraxas will not, and will not permit any Subsidiary Guarantor, to incur
any Indebtedness which by its terms (or by the terms of any agreement governing
such Indebtedness) is subordinated in right of payment to any other Indebtedness
of Abraxas or such Subsidiary Guarantor unless such Indebtedness is also by its
terms (or by the terms of any agreement governing such Indebtedness) made
expressly subordinate in right of payment to the new notes or the Guarantee of
such Subsidiary Guarantor, as the case may be, pursuant to subordination
provisions that are substantively identical to the subordination provisions of
such Indebtedness (or such agreement) that are most favorable to the holders of
any other Indebtedness of Abraxas or such Subsidiary Guarantor, as the case may
be.
47
<PAGE> 51
Limitation on Restricted Payments
The indenture will define the following as Restricted Payments if done by
Abraxas or any of its Restricted Subsidiaries:
o declare or pay any dividend or make any distribution (other than
dividends or distributions payable solely in Qualified Capital Stock
of Abraxas) on or in respect of shares of Abraxas' Capital Stock to
holders of such Capital Stock;
o purchase, redeem or otherwise acquire or retire for value any Capital
Stock of Abraxas or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock other than through
the exchange therefor solely of Qualified Capital Stock of Abraxas or
warrants, rights or options to purchase or acquire shares of Qualified
Capital Stock of Abraxas;
o make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Indebtedness of Abraxas or a Subsidiary
Guarantor; or
o make any Investment (other than a Permitted Investment).
The Issuers may not make a Restricted Payment, if at the time of such Restricted
Payment or immediately after giving effect to the Restricted Payment:
o a Default or an Event of Default shall have occurred and be
continuing;
o Abraxas is not able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the covenant
described under "Limitation on Incurrence of Additional Indebtedness"
above; or
o the aggregate amount of all Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date (the
amount expended for such purposes, if other than in cash, being the
fair market value of such property as determined reasonably and in
good faith by the Board of Directors of Abraxas) shall exceed the sum
of:
(i) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of Abraxas earned subsequent to the Issue Date and on
or prior to the last date of Abraxas' fiscal quarter immediately
preceding such Restricted Payment (the "Reference Date") (treating
such period as a single accounting period), plus
(ii) 100% of the aggregate net cash proceeds received by
Abraxas from any Person (other than a Restricted Subsidiary of
Abraxas) from the issuance and sale subsequent to the Issue Date
and on or prior to the Reference Date of Qualified Capital Stock
of Abraxas, plus
(iii) without duplication of any amounts included in
clause(ii) above, 100% of the aggregate net cash proceeds of any
equity contribution received by Abraxas from a holder of Abraxas'
Capital Stock (excluding, in the case of clauses (ii) and (iii),
any net cash proceeds from an Equity Offering to the extent used
to redeem the new notes), plus
(iv) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, interest
payments, repayments of loans or advances, or other transfers of
cash, in each case to Abraxas or to any Restricted Subsidiary of
Abraxas from Unrestricted Subsidiaries (but without duplication of
any such amount included in calculating cumulative Consolidated
Net Income of Abraxas), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (in each case valued as
provided in the covenant described under "Limitation on
Designation of Unrestricted Subsidiaries" below), not to exceed,
in the case of any Unrestricted Subsidiary, the amount of
Investments previously made by Abraxas or any Restricted
Subsidiary in such Unrestricted Subsidiary and which was treated
as a Restricted Payment under the indenture, plus
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(v) without duplication of the immediately preceding subclause
(iv), an amount equal to the lesser of the cost or net cash
proceeds received upon the sale or other disposition of any
Investment made after the Issue Date which had been treated as a
Restricted Payment (but without duplication of any such amount
included in calculating cumulative Consolidated Net Income of
Abraxas).
However, the Issuers may take the following actions:
o the payment of any dividend or redemption payment within 60 days after
the date of declaration of such dividend or the applicable redemption
if the dividend or redemption payment, as the case may be, would have
been permitted on the date of declaration,
o if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any shares of Capital Stock of Abraxas,
either:
(A) solely in exchange for shares of Qualified Capital Stock
of Abraxas, or
(B) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Restricted Subsidiary of
Abraxas) of shares of Qualified Capital Stock of Abraxas,
o if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of Abraxas or a
Subsidiary Guarantor that is subordinate or junior in right of payment
to the new notes or such Subsidiary Guarantor's Guarantee, as the case
may be, either:
(A) solely in exchange for shares of Qualified Capital Stock
of Abraxas, or
(B) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Restricted Subsidiary of
Abraxas) of (I) shares of Qualified Capital Stock of Abraxas or (II)
Refinancing Indebtedness; and
o the initial designation of Western Associated Energy Corporation and
Grey Wolf as Unrestricted Subsidiaries under the indenture.
In determining the aggregate amount of Restricted Payments made subsequent to
the Issue Date, amounts expended for the payment of any dividend or redemption
payment, as described above, and for the acquisition of any shares of Capital
Stock of Abraxas through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Restricted Subsidiary of Abraxas) of
shares of Qualified Capital Stock of Abraxas, as described above, shall be
included in such calculation.
Limitation on Asset Sales
Abraxas may not, and may not cause or permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless the consideration received is
at least equal to the fair market value of the assets sold or otherwise disposed
of, as determined in good faith by Abraxas' Board of Directors or senior
management of Abraxas, and at least 75% of the consideration received is cash or
Cash Equivalents and is received at the time of such disposition.
Within 180 days after the receipt of any Net Cash Proceeds from an Asset
Sale plus such additional time as may be necessary to complete a net proceeds
offer under the terms of the First Lien Indenture with respect to such Asset
Sale ("Net Cash Proceeds Application Period"), Abraxas or such Restricted
Subsidiary must apply the Net Cash Proceeds of such Asset Sale as follows:
o to the extent such Net Cash Proceeds are received from an Asset Sale
not involving the sale, transfer or disposition of Collateral
("Non-Collateral Proceeds"), to repay any Indebtedness secured by the
assets involved in such Asset Sale together with a concomitant
permanent reduction in the amount of such Indebtedness so repaid; and
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o with respect to any Non-Collateral Proceeds remaining after
application pursuant to the preceding paragraph and any Net Cash
Proceeds received from an Asset Sale involving Collateral, Abraxas
must make an offer to purchase (the "Net Proceeds Offer") from all
holders up to a maximum principal amount (expressed as an integral
multiple of $1,000) of new notes equal to the Available Proceeds
Amount at a purchase price equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon to the date of
purchase.
Abraxas will not, however, be required to apply Net Cash Proceeds received
from any Asset Sale to make a Net Proceeds Offer if, and only to the extent that
such Net Cash Proceeds are applied, within the Net Cash Proceeds Application
Period for such Asset Sale:
o to repay or prepay any Indebtedness outstanding under the First Lien
Notes or the First Lien Indenture;
o to repay or prepay any Indebtedness of Abraxas that is secured by a
Lien permitted to be incurred pursuant to the Section "Covenants-
Limitation on Liens";
o to pay interest on the new notes in an aggregate amount not to exceed
5.75% of the aggregate original principal amount of the new notes;
o to an investment or investments in Crude Oil and Natural Gas Related
Assets; or
o to an investment or investments in properties or assets that replace
the properties or assets that were the subject of such Asset Sale or
in properties or assets that will be used in the Crude Oil and Natural
Gas Business of Abraxas and its Restricted Subsidiaries ("Replacement
Assets"), with the assets constituting such Crude Oil and Natural Gas
Related Assets or Replacement Assets and any non-cash consideration
received being made subject to the Lien of the indenture and the
security documents to the extent the Net Cash Proceeds used to
purchase such assets arose from the sale of Property that was subject
to such Lien, provided that any such assets that are Oil and Gas
Assets shall be made subject to such Lien in any event.
In addition, if at the end of the Net Cash Proceeds Application Period for
such Asset Sale, Abraxas or one of its Restricted Subsidiaries has delivered to
the Trustee an officer's certificate
o otherwise in compliance with the terms of the indenture;
o stating that attached thereto is a definitive, executed purchase and
sale agreement for a Crude Oil and Natural Gas Related Assets
investment or for Replacement Assets; and
o setting forth the aggregate cash consideration to be paid in
connection with such purchase from the Available Proceeds Amount;
then Abraxas shall have an additional period of time during which it may defer
making a Net Proceeds Offer with respect to the Available Proceeds Amount the
subject of such purchase and sale, such additional period of time ending on the
earlier of:
o 90 days after the end of the Net Cash Proceeds Application Period, and
o the date such purchase and sale agreement is terminated or cancelled.
If at any time any consideration (other than cash or Cash Equivalents)
received in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash, then such conversion or disposition shall be
treated like an Asset Sale and the Net Cash Proceeds will be applied as
described above.
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Abraxas may defer the Net Proceeds Offer until there is an aggregate
unutilized Available Proceeds Amount equal to or in excess of $5,000,000
resulting from one or more Asset Sales (at which time the entire unutilized
Available Proceeds Amount, and not just the amount in excess of $5,000,000, will
be applied as required pursuant to this paragraph). If the amount of new notes
tendered is less than the amount of new notes that the Issuers offered to
purchase, Abraxas may obtain a release of the unutilized portion of the
Collateral Proceeds from the Lien of the indenture and the security documents.
Notwithstanding the terms of the six preceding paragraphs above, Abraxas and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent:
o the consideration for such Asset Sale constitutes Replacement Assets
and/or Crude Oil and Natural Gas Related Assets; and
o such Asset Sale is for fair market value.
Any consideration not constituting Replacement Assets and Crude Oil and Natural
Gas Related Assets received by Abraxas or any of its Restricted Subsidiaries in
connection with any Asset Sale permitted to be consummated under this paragraph
will be treated as Net Cash Proceeds and, to the extent that the property
transferred or conveyed constitutes an Oil and Gas Asset, the property received
in exchange will constitute an Oil and Gas Asset.
All Collateral Proceeds delivered to the Trustee will constitute Trust
Moneys, and all Collateral Proceeds will be delivered by Abraxas:
o so long as any Indebtedness under the First Lien Notes remains
outstanding, to the First Lien Notes Representative; and
o otherwise to the Trustee and all Collateral Proceeds delivered to the
Trustee will be deposited in the Collateral Account in accordance with
the indenture. These Collateral Proceeds may be withdrawn from the
Collateral Account for application by Abraxas as set forth above or
otherwise pursuant to the indenture as summarized in "Deposit; Use and
Release of Trust Moneys."
In the event of the transfer of substantially all (but not all) of the
consolidated assets of Abraxas as an entirety to a Person in a transaction
permitted under the covenant described in "Merger, Consolidation and Sale of
Assets," the successor corporation will be deemed to have sold the consolidated
assets of Abraxas not so transferred and must comply with the provisions of this
covenant as if it were an Asset Sale. In addition, the fair market value of the
consolidated assets of Abraxas deemed to be sold will be deemed to be Net Cash
Proceeds.
The Issuers will be required to mail notice of a Net Proceeds Offer to the
holders and the Trustee not less than 30 days nor more than 60 days before the
payment date for the Net Proceeds Offer, and shall comply with the procedures
set forth in the indenture. Upon receiving notice of the Net Proceeds Offer,
holders may elect to tender their new notes in whole or in part in integral
multiples of $1,000 principal amount in exchange for cash. To the extent holders
properly tender new notes in an amount exceeding the Available Proceeds Amount,
new notes will be repurchased on a pro rata basis (based on amounts tendered).
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of new notes as a result of a Net Proceeds Offer. These rules require
that the Issuers keep the offer open for 20 Business Days. They also require
that the Issuers notify holders of new notes of changes in the offer and extend
the offer for specified time periods if the Issuers amend the offer. If the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the indenture, the Issuers will comply with the applicable
securities laws and regulations and shall not be deemed to have breached their
obligations under the "Asset Sale" provisions of the indenture.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
Abraxas may not, and may not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction (each, a "Payment
Restriction") on the ability of any Restricted Subsidiary to:
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o pay dividends or make any other distributions on or in respect of its
Capital Stock;
o make loans or advances, or to pay any Indebtedness or other obligation
owed, to Abraxas or any other Restricted Subsidiary;
o guarantee any Indebtedness or any other obligation of Abraxas or any
Restricted Subsidiary; or
o transfer any of its property or assets to Abraxas or any other
Restricted Subsidiary.
The preceding will not apply, however, to encumbrances or restrictions
existing under or by reason of the following (which are excluded from the term
"Payment Restriction"):
(1) applicable law;
(2) the indenture, the indenture governing the old notes, the indenture
governing the First Lien Notes, any security document or any of the security
documents entered into in connection with the indenture governing the old
notes or the indenture governing the First Lien Notes;
(3) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary;
(4) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to such Restricted Subsidiary, or the
properties or assets of such Restricted Subsidiary, other than the Person or
the properties or assets of the Person so acquired;
(5) agreements existing on the Issue Date to the extent and in the
manner such agreements were in effect on the Issue Date;
(6) customary restrictions with respect to a Restricted Subsidiary
pursuant to an agreement that has been entered into for the sale or
disposition of Capital Stock or assets of such Restricted Subsidiary to be
consummated in accordance with the terms of the indenture solely in respect
of the assets or Capital Stock to be sold or disposed of;
(7) any instrument governing a Permitted Lien, to the extent and only to
the extent such instrument restricts the transfer or other disposition of
assets subject to such Permitted Lien; or
(8) an agreement governing Refinancing Indebtedness incurred to
Refinance the Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clause (2), (4) or (5) above; provided, however,
that the provisions relating to such encumbrance or restriction contained in
any such Refinancing Indebtedness are no less favorable to the holders in
any material respect as determined by the Board of Directors of Abraxas in
its reasonable and good faith judgment than the provisions relating to such
encumbrance or restriction contained in the applicable agreement referred to
in such clause (2), (4) or (5).
Limitation on Preferred Stock of Restricted Subsidiaries
The Restricted Subsidiaries may not issue any Preferred Stock (other than to
Abraxas or to a Wholly Owned Restricted Subsidiary) or permit any Person (other
than Abraxas or a Wholly Owned Restricted Subsidiary) to own any Preferred Stock
of any Restricted Subsidiary.
Limitation on Liens
Abraxas may not, and may not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist or remain in effect any Liens:
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o upon any item of Collateral other than the Liens created by the
indenture and the security documents and the Liens expressly permitted
by the applicable security documents, and any Liens securing the First
Lien Notes or any other Indebtedness under the First Lien Indenture;
o upon any other properties or assets of Abraxas or of any of its
Restricted Subsidiaries, whether owned on the Issue Date or acquired
after the Issue Date, or on any income or profits therefrom, or assign
or otherwise convey any right to receive income or profits thereon
other than, with respect to this clause:
(i) Liens existing on the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date,
(ii) Permitted Liens, and
(iii) Any Liens securing the First Lien Notes or any other
Indebtedness under the First Lien Indenture.
Merger, Consolidation and Sale of Assets
Abraxas may not, in a single transaction or series of related transactions,
consolidate or merge with or into any Person, or sell, assign, transfer, lease,
convey or otherwise dispose of (or cause or permit any Restricted Subsidiary to
sell, assign, transfer, lease, convey or otherwise dispose of) all or
substantially all of Abraxas' assets (determined on a consolidated basis for
Abraxas and its Restricted Subsidiaries), whether as an entirety or
substantially as an entirety to any Person unless:
o either
(A) Abraxas or such Restricted Subsidiary, as the case may be,
shall be the surviving or continuing corporation or
(B) the Person (if other than Abraxas) formed by such
consolidation or into which Abraxas is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of Abraxas and its Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity")
(i) shall be a corporation organized and validly existing
under the laws of the United States or any state thereof or the
District of Columbia (or if such Restricted Subsidiary was formed under
the laws of Canada or any province or territory thereof, such Surviving
Entity shall be a corporation organized and validly existing under the
laws of Canada or any province or territory thereof) and
(ii) shall expressly assume, by supplemental indenture (in
form and substance satisfactory to the Trustee), executed and delivered
to the Trustee, the due and punctual payment of the principal of,
premium, if any, and interest on all of the new notes and the
performance of every covenant of the new notes, the indenture, and the
security documents on the part of Abraxas to be performed or observed;
o immediately after giving effect to such transaction and the assumption
contemplated above (including giving effect to any Indebtedness
incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of such transaction), Abraxas or such
Surviving Entity, as the case may be,
(A) shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of Abraxas immediately prior to such
transaction and
(B) shall be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the
covenant described in "Limitation on Incurrence of Additional
Indebtedness";
o immediately before and immediately after giving effect to such
transaction and the assumption contemplated above (including, without
limitation, giving effect to any Indebtedness incurred or anticipated
to be incurred and any Lien granted in connection with or in respect
of the transaction), no Default or Event of Default shall have
occurred or be continuing; and
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o Abraxas or the Surviving Entity, as the case may be, shall have
delivered to the Trustee an officer's certificate and an opinion of
counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with the applicable
provisions of the indenture and that all conditions precedent in the
indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries the Capital Stock of which constitutes all or substantially all of
the properties and assets of Abraxas, shall be deemed to be the transfer of all
or substantially all of the properties and assets of Abraxas.
Upon any consolidation, combination or merger or any transfer of all or
substantially all of the assets of Abraxas in accordance with the foregoing, in
which Abraxas is not the continuing corporation, the successor Person formed by
such consolidation or into which Abraxas is merged or to which such conveyance,
lease or transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, Abraxas under the indenture and the new
notes.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of the Guarantee and
the indenture in connection with any transaction complying with the provisions
of the indenture described under "Merger, Consolidation and Sale of Assets") may
not, and Abraxas may not cause or permit any Subsidiary Guarantor to,
consolidate with or merge with or into any Person other than an Issuer or
another Subsidiary Guarantor that is a Wholly Owned Restricted Subsidiary
unless:
o the entity formed by or surviving any such consolidation or merger (if
other than the Subsidiary Guarantor) or to which such sale, lease,
conveyance or other disposition shall have been made is a corporation
organized and existing under the laws of the United States or any
state thereof or the District of Columbia (or if such Restricted
Subsidiary was formed under the laws of Canada or any province or
territory thereof, such Surviving Entity shall be a corporation
organized and validly existing under the laws of Canada or any
province or territory thereof);
o such entity assumes by execution of a supplemental indenture all of
the obligations of the Subsidiary Guarantor under its Guarantee;
o immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
o immediately after giving effect to such transaction and the use of any
net proceeds therefrom on a pro forma basis, Abraxas could satisfy the
Consolidated Net Worth and incurrence of Additional Indebtedness
provisions set forth above.
Any merger or consolidation of a Subsidiary Guarantor with and into either of
the Issuers (with either of the Issuers being the Surviving Entity) or another
Subsidiary Guarantor that is a Wholly Owned Restricted Subsidiary need only
comply with the officer's certificate and opinion of counsel provisions set
forth above.
Limitations on Transactions with Affiliates
Abraxas may not, and may not permit any of its Restricted Subsidiaries to,
directly or indirectly, engage in any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease or
exchange of any property, the guaranteeing of any Indebtedness or the rendering
of any service) with any of its respective Affiliates unless,
o such transaction or series of related transactions is on terms that
are fair and reasonable to Abraxas or the applicable Restricted
Subsidiary and are no less favorable to Abraxas or the applicable
Restricted Subsidiary than would have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person that
is not an Affiliate ; and
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o with respect to a transaction or series of related transactions
involving aggregate payments or other property with a fair market
value in excess of $1,000,000, Abraxas obtains Board approval which is
evidenced by a resolution stating that the Board has determined that
such transaction complies with the foregoing provisions.
In addition, if the transaction or series of related transactions involves an
aggregate fair market value of more than $10,000,000, Abraxas must, prior to the
consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to Abraxas or the relevant
Restricted Subsidiary, as the case may be, from a financial point of view, from
an Independent Advisor and file the same with the Trustee.
The foregoing shall not apply to
o reasonable fees and compensation paid to and indemnity provided on
behalf of, officers, directors, employees or consultants of Abraxas or
any Restricted Subsidiary as determined in good faith by the Board of
Directors or senior management of Abraxas or such Restricted
Subsidiary, as the case may be;
o transactions exclusively between or among Abraxas and any of its
Restricted Subsidiaries or exclusively between or among such
Restricted Subsidiaries if such transactions are not otherwise
prohibited by the indenture; and
o Restricted Payments permitted by the indenture.
Limitation on Restricted and Unrestricted Subsidiaries
The indenture provides that the Board of Directors may, if no Default or
Event of Default shall have occurred and be continuing or would arise therefrom,
designate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that
o any such redesignation shall be deemed to be an incurrence by Abraxas
and its Restricted Subsidiaries of the Indebtedness (if any) of such
redesignated Subsidiary under the covenant described in "Limitation on
Incurrence of Additional Indebtedness" above;
o unless such redesignated Subsidiary shall not have any Indebtedness
outstanding, other than Indebtedness which would be Permitted
Indebtedness, no such designation shall be permitted if immediately
after giving effect to such redesignation and the incurrence of any
such additional Indebtedness, Abraxas could not incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the
covenant described in "Limitation on Incurrence of Additional
Indebtedness" above; and
o such Subsidiary assumes all of the obligations of a Subsidiary
Guarantor under a Guarantee.
The Board of Directors of Abraxas also may, if no Default or Event of
Default shall have occurred and be continuing or would arise from such a
designation, designate any Restricted Subsidiary none of whose Properties are
subject to any Liens of any security documents to be an Unrestricted Subsidiary
if:
o such designation is at that time permitted under the covenant
described in "Limitation on Restricted Payments" above; and
o immediately after giving effect to such designation, Abraxas could
incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the covenant described in "Limitation on
Incurrence of Additional Indebtedness" above.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by the filing with the Trustee of a certified copy of the resolution of
the Board of Directors giving effect to such designation or redesignation and an
officer's certificate certifying that such designation or redesignation complied
with the foregoing conditions and setting forth in reasonable detail the
underlying calculations. In the event that any Restricted Subsidiary is
designated an Unrestricted
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Subsidiary in accordance with this covenant, such Restricted Subsidiary's
Guarantee will be released.
For purposes of the covenant described under "Limitation on Restricted
Payments" above,
o an "Investment" shall be deemed to have been made at the time any
Restricted Subsidiary is designated as an Unrestricted Subsidiary in
an amount (proportionate to Abraxas' equity interest in such
Subsidiary) equal to the net worth of such Restricted Subsidiary at
the time that such Restricted Subsidiary is designated as an
Unrestricted Subsidiary;
o at any date the aggregate amount of all Restricted Payments made as
Investments since the Issue Date shall exclude and be reduced by an
amount (proportionate to the Abraxas' equity interest in such
Subsidiary) equal to the net worth of any Unrestricted Subsidiary at
the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary, not to exceed, in the case of any such redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary, the amount of
Investments previously made by Abraxas and its Restricted Subsidiaries
in such Unrestricted Subsidiary with, "net worth" calculated based
upon the fair market value of the assets of such Subsidiary as of any
such date of designation); and
o any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer.
Notwithstanding the foregoing, the Board of Directors may not designate any
Subsidiary of Abraxas to be an Unrestricted Subsidiary if, after such
designation,
o Abraxas or any Restricted Subsidiary
(A) provides credit support for, or a guarantee of, any
Indebtedness of such Subsidiary (including any undertaking, agreement
or instrument evidencing such Indebtedness) or
(B) is directly or indirectly liable for any Indebtedness of such
Subsidiary, or
o such Subsidiary owns any Capital Stock of, or owns or holds any Lien
on any property of, any Restricted Subsidiary which is not a
Subsidiary of the Subsidiary to be so designated.
The Subsidiaries of Abraxas that are not designated by the Board of
Directors as Restricted or Unrestricted Subsidiaries will be deemed to be
Restricted Subsidiaries. All Subsidiaries of an Unrestricted Subsidiary will be
Unrestricted Subsidiaries.
Additional Subsidiary Guarantees
If Abraxas or any of its Restricted Subsidiaries transfers or causes to be
transferred, in one transaction or a series of related transactions, any
property to any Restricted Subsidiary that is not a Subsidiary Guarantor, or if
Abraxas or any of its Restricted Subsidiaries shall organize, acquire or
otherwise invest in or hold an Investment in another Restricted Subsidiary
having total consolidated assets with a book value in excess of $500,000 that is
not a Subsidiary Guarantor, then such transferee or acquired or other Restricted
Subsidiary shall
o execute and deliver to the Trustee a Guarantee in form reasonably
satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Issuers'
obligations under the new notes and the indenture on the terms set
forth in the indenture;
o grant to the Trustee a second Lien on substantially all its Oil and
Gas Assets; and
o deliver to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Subsidiary.
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Thereafter, such Restricted Subsidiary shall be a Subsidiary Guarantor for all
purposes of the indenture.
Limitation on Impairment of Security Interest
Neither Abraxas nor any of its Subsidiaries may take or omit to take any
action which would have the result of adversely affecting or impairing the
security interest in favor of the Trustee, on behalf of itself and the holders,
with respect to the Collateral, and neither Abraxas nor any of its Subsidiaries
may grant to any Person, or suffer any Person (other than Abraxas and its
Restricted Subsidiaries) to have (other than to the Trustee on behalf of the
Trustee and the holders) any interest whatsoever in the Collateral other than
Permitted Liens. Neither Abraxas nor any of its Subsidiaries may enter into any
agreement or instrument that by its terms requires the proceeds received from
any sale of Collateral to be applied to repay, redeem, defease or otherwise
acquire or retire any Indebtedness, other than Indebtedness under the First Lien
Notes or under the First Lien Indenture and the security documents entered into
in connection therewith, and other than pursuant to the indenture and the
security documents.
Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries
Abraxas may not, and may not permit any Restricted Subsidiary to, sell or
otherwise dispose of any shares of Capital Stock of any Restricted Subsidiary,
and shall not permit any of its Restricted Subsidiaries, directly or indirectly,
to issue or sell or otherwise dispose of any of its Capital Stock except:
o to Abraxas or a Wholly Owned Restricted Subsidiary of Abraxas; or
o if all shares of Capital Stock of such Restricted Subsidiary owned by
Abraxas and its Restricted Subsidiary are sold or otherwise disposed
of.
In connection with any sale or disposition of Capital Stock of any
Restricted Subsidiary, Abraxas will be required to comply with the covenant
described under the caption "Limitation on Asset Sales."
Limitation on Conduct of Business
Abraxas will not, and will not permit any of its Restricted Subsidiaries to,
engage in the conduct of any business other than the Crude Oil and Natural Gas
Business.
Reports to Holders
Abraxas will deliver to the Trustee within 15 days after the filing of the
same with the SEC, copies of the quarterly and annual reports and of the
information, documents and other reports, if any, which Abraxas is required to
file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act.
Notwithstanding that Abraxas may not be subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, Abraxas will file with the SEC, to the
extent permitted, and provide the Trustee and Holders with such annual reports
and such information, documents and other reports specified in Sections 13 and
15(d) of the Exchange Act. Abraxas will also comply with the other provisions of
Section 314(a) of the TIA.
EVENTS OF DEFAULT
Each of the following will be an Event of Default:
o the failure to pay interest (including any Additional Interest) on any
new notes when the same becomes due and payable and the default
continues for a period of 30 days;
o the failure to pay the principal on any new notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase new notes
tendered pursuant to a Change of Control Offer or a Net Proceeds
Offer);
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o a default in the observance or performance of any other covenant or
agreement contained in the indenture which default continues for a
period of 30 days after either of the Issuers or any Subsidiary
Guarantor receives written notice specifying the default (and
demanding that such default be remedied) from the Trustee or the
holders of at least 25% of the outstanding principal amount of the new
notes (except in the case of a default with respect to observance or
performance of any of the terms or provisions of the covenants
described above under "Change of Control" or "Merger, Consolidation
and Sale of Assets" or "Limitation on Asset Sales" which will
constitute an Event of Default with such notice requirement but
without such passage of time requirement);
o a default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of Abraxas or of any Restricted Subsidiary (or the
payment of which is guaranteed by Abraxas or any Restricted
Subsidiary), whether such Indebtedness now exists or is created after
the Issue Date, which default:
(A) is caused by a failure to pay principal of or premium, if
any, or interest on such Indebtedness after any applicable grace period
provided in such Indebtedness (a "payment default"), or
(B) results in the acceleration of such Indebtedness prior to
its express maturity and,
in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which
there has been a payment default or the maturity of which has been so
accelerated, aggregates at least $5,000,000;
o one or more judgments in an aggregate amount in excess of $5,000,000
(unless covered by insurance by a reputable insurer as to which the
insurer has acknowledged coverage) are rendered against Abraxas or any
of its Restricted Subsidiaries and such judgments remain undischarged,
unvacated, unpaid or unstayed for a period of 60 days after such
judgment or judgments become final and non-appealable;
o certain events of bankruptcy; or
o any of the Guarantees or any of the security documents cease to be in
full force and effect or any of the Guarantees or any of the security
documents are declared to be null and void or invalid and
unenforceable or any of the Subsidiary Guarantors denies or disaffirms
its liability under its Guarantees (other than by reason of release of
a Subsidiary Guarantor in accordance with the terms of the indenture)
or any obligor or any Related Person denies or disaffirms its
liability under any security document to which it is a party.
If any Event of Default (other than the Event of Default relating to certain
events of bankruptcy) occurs and is continuing, the Trustee or the holders of at
least 25% in principal amount of outstanding new notes may declare the principal
of, premium, if any, and accrued and unpaid interest on all the new notes to be
due and payable by notice in writing to the Issuers and the Trustee specifying
the Event of Default and that it is a "notice of acceleration", and the same
shall become immediately due and payable. If an Event of Default relating to
certain events of bankruptcy occurs and is continuing, then all unpaid principal
of, and premium, if any, and accrued and unpaid interest on all of the
outstanding new notes will be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder.
After a declaration of acceleration with respect to the new notes as
described in the preceding paragraph, the holders of a majority in principal
amount of the new notes may rescind and cancel such declaration if:
o the rescission would not conflict with any judgment or decree;
o all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because
of such acceleration;
o to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has
been paid;
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o the Issuers have paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances;
and
o the Trustee shall have received an officer's certificate and an
opinion of counsel that such Event of Default has been cured or waived
in the event of the cure or waiver of an Event of Default relating to
certain events of bankruptcy.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
Prior to the declaration of acceleration of the new notes, the holders of a
majority in principal amount of the new notes may waive any existing Default or
Event of Default under the indenture, and its consequences, except a default in
the payment of the principal of or interest on any new notes.
Holders of the new notes may not enforce the indenture or the new notes
except as provided in the indenture and under the TIA. During the existence of
an Event of Default, the Trustee is required to exercise such rights and powers
vested in it under the indenture and use the same degree of care and skill in
its exercise thereof as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs. Subject to the provisions of
the indenture relating to the duties of the Trustee, whether or not an Event of
Default shall occur and be continuing, the Trustee is under no obligation to
exercise any of its rights or powers under the indenture at the request, order
or direction of any of the holders, unless such holders have offered to the
Trustee reasonable indemnity. Subject to all provisions of the indenture and
applicable law, the holders of a majority in aggregate principal amount of the
then outstanding new 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.
The Issuers are required to provide an officer's certificate to the Trustee
promptly upon any such officer obtaining knowledge of any Default or Event of
Default (provided that such officers shall provide such certification at least
annually whether or not they know of any Default or Event of Default) that has
occurred and, if applicable, describe such Default or Event of Default and the
status thereof.
POSSESSION, USE AND RELEASE OF COLLATERAL
Unless an Event of Default shall have occurred and be continuing, the
Issuers and the Subsidiary Guarantors will have the right to remain in
possession and retain exclusive control of the Collateral securing the new notes
(other than any cash, securities, obligations and Cash Equivalents constituting
part of the Collateral and deposited with the Trustee in the Collateral Account
or with the First Lien Notes Representative and other than as set forth in the
security documents), to freely operate the Collateral and to collect, invest and
dispose of any income thereon.
Release of Collateral
Upon compliance by the Issuers with the conditions set forth below in
respect of any sale, transfer or other disposition, the Trustee will release the
Released Interests (as defined below) from the Lien of the indenture and the
security documents and reconvey the Released Interests to the Issuers or the
grantor of the Lien on such property. The Issuers will have the right to obtain
a release of items of Collateral (the "Released Interests") subject to any sale,
transfer or other disposition, or owned by a Restricted Subsidiary the Capital
Stock of which is sold in compliance with the indenture such that it ceases to
be a Restricted Subsidiary, upon compliance with the condition that the Issuers
deliver to the Trustee the following:
o a notice from Abraxas requesting the release of Released Interests:
(A) describing the proposed Released Interests,
(B) specifying the value of such Released Interests or such
Capital Stock, as the case may be, on a date within 60 days of the
Abraxas notice (the "Valuation Date"),
(C) stating that the consideration to be received is at least
equal to the fair market value of the Released Interests,
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(D) stating that the release of such Released Interests will
not interfere with the Trustee's ability to realize the value of the
remaining Collateral and will not impair the maintenance and operation
of the remaining Collateral,
(E) confirming the sale or exchange of, or an agreement to
sell or exchange, such Released Interests or such Capital Stock, as the
case may be, is a bona fide sale to or exchange with a Person that is
not an Affiliate of the Issuers or, in the event that such sale or
exchange is to or with a Person that is an Affiliate, confirming that
such sale or exchange is made in compliance with the provisions
summarized in the description of certain covenants under "Limitation on
Transactions with Affiliates," and
(F) in the event there is to be a contemporaneous substitution
of property for the Collateral subject to the sale, transfer or other
disposition, specifying the property intended to be substituted for the
Collateral to be disposed of;
o an officer's certificate of Abraxas stating that:
(A) such sale, transfer or other disposition or such
redesignation, as the case may be, complies with the terms and
conditions of the indenture, including the provisions summarized in the
description of certain covenants under " Limitation on Asset Sales,"
"Limitation on Transactions with Affiliates," "Limitation on Restricted
and Unrestricted Subsidiaries" and "Limitation on Restricted Payments"
above, to the extent any of the foregoing are applicable,
(B) all Net Cash Proceeds from the sale, transfer or other
disposition of any of the Released Interests or such Capital Stock, as
the case may be, will be applied pursuant to the provisions of the
indenture in respect of the deposit of proceeds into the Collateral
Account or with the First Lien Notes Representative as contemplated by
the indenture and in respect of Asset Sales, to the extent applicable,
(C) there is no Default or Event of Default in effect or
continuing on the date thereof or the date of such sale, transfer or
other disposition or such redesignation, as the case may be,
(D) the release of the Collateral will not result in a Default
or Event of Default under the indenture,
(E) upon delivery of such officer's certificate, all
conditions precedent in the indenture relating to the release in
question will have been complied with,
(F) such sale, transfer or other disposition is not between
Abraxas or any Restricted Subsidiary or between Restricted
Subsidiaries, and
(G) such sale, transfer or other disposition is not a sale,
transfer or other disposition that is excluded from the definition of
"Asset Sale" because it was a sale, lease, conveyance, disposition or
other transfer of all or substantially all of the assets of the Issuers
in a transaction which made in compliance with the provisions of the
covenants described under "Merger, Consolidation and Sale of Assets;"
and
o all documentation required by the TIA, if any, prior to the release of
Collateral by the Trustee and, in the event there is to be a
contemporaneous substitution of property for the Collateral subject to
such sale, transfer or other disposition, all documentation necessary
to effect the substitution of such new Collateral.
Notwithstanding the provisions described above, so long as no Event of
Default shall have occurred and be continuing, the Issuers may, without
satisfaction of the conditions described above, dispose of Hydrocarbons or other
mineral products for value in the ordinary course and engage in any number of
ordinary course activities in respect of the Collateral, in limited dollar
amounts specified by the TIA, upon satisfaction of certain conditions. For
example, among other things, subject to certain dollar limitations and
conditions, the Issuers would be permitted to:
o sell or otherwise dispose of any property subject to the Lien of the
indenture and the security documents, which may have become worn out
or obsolete;
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o abandon, terminate, cancel, release or make alterations in or
substitutions of any leases or contracts subject to the Lien of the
indenture or any of the security documents;
o surrender or modify any franchise, license or permit subject to the
Lien of the indenture or any of the security documents which it may
own or under which it may be operating;
o alter, repair, replace, change the location or position of and add to
its structures, machinery, systems, equipment, fixtures and
appurtenances;
o demolish, dismantle, tear down or scrap any obsolete Collateral or
abandon any portion thereof; and
o grant farm-outs, leases or sub-leases in respect of real property to
the extent the foregoing does not constitute an Asset Sale.
DEPOSIT; USE AND RELEASE OF TRUST MONEYS
The Net Cash Proceeds associated with any Asset Sale and any Net Cash
Proceeds associated with any sale, transfer or other disposition of Collateral,
to the extent such sale, transfer or other disposition is not an Asset Sale by
virtue of clause (H) of the definition thereof, insurance proceeds and
condemnation (or similar) proceeds shall be deposited so long as any
Indebtedness under the First Lien Notes remains outstanding, with the First Lien
Notes Representative and otherwise into a securities account maintained by the
Trustee at its corporate trust offices or at any securities intermediary
selected by the Trustee having a combined capital and surplus of at least
$250,000,000 and having a long-term debt rating of at least "A3" by Moody's and
at least "A--" by S&P styled the "Abraxas Collateral Account" (such account
being the "Collateral Account") which shall be under the exclusive dominion and
control of the Trustee. All amounts on deposit in the Collateral Account shall
be treated as financial assets and cash funds on deposit in the Collateral
Account may be invested by the Trustee, at the direction of the Issuers, in Cash
Equivalents. The Issuers will not have the right to withdraw funds or assets
from the Collateral Account except in compliance with the terms of the indenture
and all assets credited to the Collateral Account shall be subject to a Lien in
favor of the Trustee and the holders.
Any funds deposited with the Trustee may be released to the Issuers by their
delivering to the Trustee an officer's certificate stating:
o no Event of Default has occurred and is continuing as of the date of
the proposed release;
(A) if such Trust Moneys represent Collateral Proceeds in
respect of an Asset Sale, that the application of such funds are
otherwise being applied in accordance with the covenant "Limitation on
Asset Sales," above, or
(B) if such Trust Moneys represent proceeds in respect of a
casualty, expropriation or taking, that the application of such funds
will be applied to repair or replace property subject of a casualty or
condemnation or reimburse the Issuers for amounts spent to repair or
replace such property and that attached thereto are invoices or other
evidence reflecting the amounts spent or to be spent, or
(C) if such Trust Moneys represent proceeds derived from any
other manner, that such amounts are being utilized in connection with
business of Abraxas and its Restricted Subsidiaries in compliance with
the terms of the indenture; and
o all conditions precedent in the indenture relating to the release in
question have been complied with; and
o all documentation required by the TIA, if any, prior to the release of
such Trust Moneys by the Trustee has been delivered to the Trustee.
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Notwithstanding the foregoing,
o if the maturity of the new notes has been accelerated, and the
acceleration has not been rescinded as permitted by the indenture, the
Trustee shall apply the Trust Moneys credited to the Collateral
Account to pay the principal of, premium, if any and accrued and
unpaid interest on the new notes to the extent of such Trust Moneys;
o if the Issuers so elect, by giving written notice to the Trustee, the
Trustee shall apply Trust Moneys credited to the Collateral Account to
the payment of interest due on any interest payment date; and
o if the Issuers so elect, by giving written notice to the Trustee, the
Trustee shall apply Trust Moneys credited to the Collateral Account to
the payment of the principal of, and premium, if any, and accrued and
unpaid interest on any new notes on the maturity or upon redemption or
to the purchase of new notes upon tender or in the open market or at
private sale or upon any exchange or in any one or more of such ways,
in each case in compliance with the indenture.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
As long as the Issuers take steps to make sure that holders receive all of
their payment under the new notes and are able to transfer the new notes, the
Issuers can elect to legally release themselves and any of the Subsidiary
Guarantors for any Obligations on the new notes (called "Legal Defeasance")
other than:
o the rights of holders to receive payments in respect of the principal
of, premium, if any, and interest on the new notes when such payments
are due;
o the Issuers' obligations with respect to the new notes to issue
temporary new notes, register new notes, replace mutilated, destroyed,
lost or stolen new notes and the maintenance of an office or agency
for payments;
o the rights, powers, trust, duties and immunities of the Trustee; and
o the Legal Defeasance provisions of the indenture.
In addition, the Issuers may, at their option and at any time, elect to have
the obligations of the Issuers and the Subsidiary Guarantors, if any, released
with respect to certain covenants that are described in the indenture ("Covenant
Defeasance"). In the event Covenant Defeasance occurs, certain events (other
than non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the new notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
o the Issuers must irrevocably deposit with the Trustee, in trust, for
the benefit of the holders cash in U.S. dollars and/or non-callable
U.S. government obligations in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on
the new notes on their various due dates:
o in the case of Legal Defeasance, the Issuers must deliver to the
Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that:
(A) the Issuers have received from, or there has been published by, the
Internal Revenue Service a ruling, or
(B) since the Issue Date, there has been a change in the applicable
federal income tax law, in either case to the effect that the holders
will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not
occurred;
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o in the case of Covenant Defeasance, the Issuers must deliver to the
Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the holders will not
recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
o no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
o such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the indenture or
any other agreement or instrument to which Abraxas or any of its
Restricted Subsidiaries is a party or by which Abraxas or any of its
Restricted Subsidiaries is bound;
o the Issuers must deliver an officer's certificate to the Trustee
stating that the deposit was not made by the Issuers with the intent
of preferring the holders over any other creditors of the Issuers or
with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Issuers or others;
o the Issuers must deliver an officer's certificate and an opinion of
counsel to the Trustee, each stating that all conditions precedent
provided for or relating to the Legal Defeasance or the Covenant
Defeasance, as the case may be, have been complied with;
o the Issuers must deliver an opinion of counsel to the Trustee to the
effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and
o certain other customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Issuers and the Subsidiary Guarantors will have no further obligations
under the indenture, the security documents and the Guarantees as to all
outstanding new notes, other than surviving rights of registration of transfer
or exchange of the new notes, when
o either
(A) all the new notes, have been delivered to the Trustee for
cancellation except lost, stolen or destroyed new notes which have been
replaced or paid and new notes which the Issuers have deposited in
trust or segregated and held in trust by the Issuers and thereafter
repaid to the Issuers or discharged from such trust, or
(B) all new notes have become due and payable and the Issuers have
deposited with the Trustee funds in sufficient to pay and discharge the
entire Indebtedness on the new notes on their various due dates;
o the Issuers have paid all other sums payable under the indenture by
the Issuers; and
o the Issuers have delivered to the Trustee an officer's certificate and
an opinion of counsel stating that the Issuers have complied with all
conditions precedent under the indenture relating to the satisfaction
and discharge of the indenture.
MODIFICATION OF THE INDENTURE
From time to time, the Issuers, the Subsidiary Guarantors and the Trustee,
without the consent of the holders, may amend the indenture or any security
document for certain specified purposes, including curing ambiguities, defects
or inconsistencies, to comply with any requirements of the SEC in order to
effect or maintain the qualification of the indenture
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under the TIA or to make any change that would provide any additional benefit
or rights to the holders or that does not adversely affect the rights of any
holder. In formulating its opinion on such matters, the Trustee will be
entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an opinion of counsel.
Other modifications and amendments of the indenture or any security document
may be made with the consent of the holders of not less than a majority of the
principal amount of the then outstanding new notes issued under the indenture,
except that, without the consent of each holder affected thereby, no amendment
may:
o reduce the amount of new notes whose holders must consent to an
amendment;
o reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any new
notes;
o reduce the principal of or change or have the effect of changing the
fixed maturity of any new notes, or change the date on which any new
notes may be subject to redemption or repurchase, or reduce the
redemption or repurchase price therefor;
o make any new notes payable in money other than that stated in the new
notes;
o make any change in provisions of the indenture or any security
document protecting the right of each holder to receive payment of
principal of and interest on such new note on or after the due date
thereof or to bring suit to enforce such payment, or permitting
holders of a majority in principal amount of new notes to waive
Defaults or Events of Default;
o amend, change or modify in any material respect the obligation of the
Issuers to make and consummate a Change of Control Offer in the event
of a Change of Control or make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated or modify any
of the provisions or definitions with respect thereto;
o modify or change any provision of the indenture, any security document
or the related definitions affecting ranking of the new notes or any
Guarantee in a manner which adversely affects the holders; or
o release any Subsidiary Guarantor from any of its obligations under its
Guarantee, in any case otherwise than in accordance with the terms of
the indenture.
The provisions of the indenture concerning the 180 day standstill period
with respect to foreclosure actions and the provisions of the indenture
concerning the giving of notices of Default or an Event of Default to the First
Lien Notes Representative may not be amended without the consent of the First
Lien Notes Representative.
GOVERNING LAW
The indenture, the new notes, the Guarantees and the security documents
relating to Collateral located in the U.S. will be governed by, and construed in
accordance with, the laws of the State of New York, except to the extent the
laws of another jurisdiction may be mandatorily applicable to certain matters
under the security documents. The security documents relating to Collateral
located in Canada will be governed by Alberta law.
CONCERNING THE TRUSTEE
Firstar Bank, National Association will act as Trustee whose address is 101
East 5th Street, St. Paul, Minnesota 55101, attn: Corporate Trust Department.
Except during the continuance of an Event of Default, the Trustee will
perform only such duties as are specifically set forth in the indenture. During
the existence of an Event of Default, the Trustee will exercise such rights and
powers vested in it by the indenture, and use the same degree of care and skill
in its exercise as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
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The indenture and the provisions of the TIA incorporated by reference into
the indenture will contain certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers or any Subsidiary Guarantor, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustee will be permitted to engage in other transactions. If the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
FORM, DENOMINATION AND REGISTRATION
Global Notes; Book Entry Form
Except as set forth in the next paragraph, the new notes will be evidenced
initially by one or more global notes (the "Global Note") which will be
deposited with, or on behalf of, the DTC and registered in the name of Cede &
Co., as DTC's nominee. Except as set forth below, record ownership of the Global
Note may be transferred, in whole or in part, only to another nominee of DTC or
to a successor of DTC or its nominee.
New notes held by holders who elect to take physical delivery of their
certificates instead of holding their interests through the Global Note (and
which are thus ineligible to trade through DTC) (collectively referred to herein
as the "Non-Global Purchasers") will be issued in registered certificated form
("Certificated Notes"). Upon transfer , such Certificated Note will, unless the
transferee requests otherwise or the Global Note has previously been exchanged
in whole for Certificated Notes as described below, be exchanged for an interest
in the Global Note.
Owners of beneficial interests in the Global Note may hold their interest in
the Global Note directly through DTC if such person is a participant in DTC or
indirectly through organizations that are participants in DTC (the
"Participants"). Persons who are not Participants may beneficially own interests
in the Global Note held by DTC only through Participants or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). So long as Cede & Co., as the nominee of
DTC, is the registered owner of the Global Note, Cede & Co. for all purposes
will be considered the sole holder of the Global Note. Owners of beneficial
interests in the Global Note will be entitled to have certificates registered in
their names and to receive physical delivery of Certificated Notes.
Payment of principal of and premium and interest on the Global Note will be
made to Cede & Co., the nominee for DTC, as registered owner of the Global Note,
by wire transfer of immediately available funds on the applicable payment date.
Neither the Issuers nor the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
The Issuers have been informed by DTC that, with respect to any payment of
principal of, or premium or interest on the Global Note, DTC's practice is to
credit Participants' accounts on the applicable payment date, with payments in
amounts proportionate to their respective beneficial interests in the new notes
represented by the Global Note as shown on the records of DTC, unless DTC has
reason to believe that it will not receive payment on such payment date.
Payments by Participants to owners of beneficial interests in the new notes
represented by the Global Note held through such Participants will be the
responsibility of such Participants, as is now the case with securities held for
the accounts of customers registered in "street name."
Transfers between Participants will be effected in the ordinary way in
accordance with DTC's rules and will be settled in immediately available funds.
The laws of some states require that certain persons take physical delivery of
securities in definitive form. Consequently, the ability to transfer beneficial
interests in the Global Note to such persons may be limited. Because DTC can
only act on behalf of Participants, who in turn act on behalf of Indirect
Participants and certain banks and other parties, the ability of a person having
a beneficial interest in the new notes represented by the Global Note to pledge
such interest to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing such interest.
Neither the Issuers nor the Transfer Agent will have responsibility for the
performance of DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has
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advised the Issuers that it will take any action permitted to be taken by a
holder of new notes (including, without limitation, the presentation of new
notes for exchange as described below) only at the direction of one or more
Participants to whose account with DTC interests in the Global Note are
credited, and only in respect of the new notes represented by the Global Note
as to which such Participant or Participants has or have given such direction.
DTC has also advised the Issuers that DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
Participants and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations such as the Initial Purchaser. Certain of such Participants (or
their representatives), together with other entities, own DTC. Indirect access
to the DTC system is available to others such as banks, brokers, dealers and
trust companies that clear through, or maintain a custodial relationship with, a
Participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among Participants, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Issuers within 90 days, the Issuers will cause Certificated Notes to be
issued in exchange for the Global Notes.
Certificated Notes
Investors in the new notes may request that Certificated Notes be issued in
exchange for new notes represented by the Global Note. Furthermore, Certificated
Notes may be issued in exchange for new notes represented by the Global Note if
no successor depositary is appointed by the Issuers as set forth above.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Abraxas" means Abraxas Petroleum Corporation, a Nevada corporation.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries
(1) existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with Abraxas or any of its Restricted
Subsidiaries, or
(2) which becomes Indebtedness of Abraxas or a Restricted Subsidiary in
connection with the acquisition of assets from such Person.
Acquired Indebtedness does not include Indebtedness not incurred in connection
with, or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary or such acquisition, merger or consolidation.
"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination the sum of:
(A) Discounted future net revenues from proved oil and gas reserves of
Abraxas and its consolidated Restricted Subsidiaries, calculated in
accordance with SEC guidelines but before any state or federal income tax,
as estimated by a nationally recognized firm of independent petroleum
engineers as of a date no earlier than the date of Abraxas' latest annual
consolidated financial statements,
(i) as increased by, as of the date of determination, the estimated
discounted future net revenues from:
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(x) estimated proved oil and gas reserves acquired since the
date of such year-end reserve report; and
(y) estimated oil and gas reserves attributable to upward
revisions of estimates of proved oil and gas reserves since the
date of such year-end reserve report due to exploration,
development or exploitation activities, in each case calculated
in accordance with SEC guidelines (utilizing the prices utilized
in such year-end reserve report); and
(ii) decreased by, as of the date of determination, the estimated
discounted future net revenues from:
(x) estimated proved oil and gas reserves produced or
disposed of since the date of such year-end reserve report; and
(y) estimated oil and gas reserves attributable to downward
revisions of estimates of proved oil and gas reserves since the
date of such year-end reserve report due to changes in geological
conditions or other factors which would, in accordance with
standard industry practice, cause such revisions; and
(iii) in each case calculated in accordance with SEC guidelines
(utilizing the prices utilized in such year-end reserve report).
In the case of each of the determinations made pursuant to clauses (i)
through (iv), such increases and decreases shall be as estimated by Abraxas'
petroleum engineers, except that in the event that there is a Material Change as
a result of such acquisitions, dispositions or revisions, then the discounted
future net revenues utilized for purposes of this clause shall be confirmed by a
nationally recognized firm of independent petroleum engineers, plus
(B) The capitalized costs that are attributable to oil and gas
properties of Abraxas and its consolidated Restricted Subsidiaries to which
no proved oil and gas reserves are attributable, based on Abraxas' books and
records as of a date no earlier than the date of Abraxas' latest annual or
quarterly financial statements, plus
(C) The Net Working Capital on a date no earlier than the date of
Abraxas' latest consolidated annual or quarterly financial statements, plus
(D) With respect to each other tangible asset of Abraxas or its
consolidated Restricted Subsidiaries specifically including, but not to the
exclusion of any other qualifying tangible assets, Abraxas' or its
consolidated Restricted Subsidiaries' natural gas producing facilities and
unproved oil and gas properties (less any remaining deferred income taxes
which have been allocated to such gas processing facilities in connection
with the acquisition thereof), land, equipment, leasehold improvements,
investments carried on the equity method, restricted cash and the carrying
value of marketable securities, the greater of
(i) the net book value of such other tangible asset on a date no
earlier than the date of Abraxas' latest consolidated annual or quarterly
financial statements or
(ii) the appraised value, as estimated by a qualified Independent
Advisor, of such other tangible assets of Abraxas and its Restricted
Subsidiaries, as of a date no earlier than the date of Abraxas' latest
audited financial statements, minus
The sum of minority interests. To the extent not otherwise taken into
account in determining Adjusted Consolidated Net Tangible Assets, any gas
balancing liabilities of Abraxas and its consolidated Restricted Subsidiaries
reflected in Abraxas' latest audited financial statements.
In addition to, but without duplication of, the foregoing, for purposes of
this definition, "Adjusted Consolidated Net Tangible Assets" shall be calculated
after giving effect, on a pro forma basis, to:
(1) any Investment not prohibited by the indenture, to and including the
date of the transaction giving rise to the need
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to calculate Adjusted Consolidated Net Tangible Assets (the "Assets
Transaction Date"), in any other Person that, as a result of such
Investment, becomes a Restricted Subsidiary of Abraxas;
(2) the acquisition, to and including the Assets Transaction Date (by
merger, consolidation or purchase of stock or assets), of any business or
assets, including, without limitation, Permitted Industry Investments, and
(3) any sales or other dispositions of assets permitted by the indenture
(other than sales of Hydrocarbons or other mineral products in the ordinary
course of business) occurring on or prior to the Assets Transaction Date.
"Affiliate" of any specified Person means,
(1) any other Person who directly or indirectly through one or more
intermediaries controls, or is controlled by, or under common control with,
such specified Person; and
(2) any Related Person of such Person.
For purposes of this definition, the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth under "Certain
Covenants -- Limitation on Transactions with Affiliates."
"Asset Acquisition" means:
(1) an Investment by Abraxas or any Restricted Subsidiary in any other
Person pursuant to which such Person shall become a Restricted Subsidiary,
or shall be merged with or into Abraxas or any Restricted Subsidiary; or
(2) the acquisition by Abraxas or any Restricted Subsidiary of the
assets of any Person (other than a Restricted Subsidiary) which constitute
all or substantially all of the assets of such Person or comprises any
division or line of business of such Person or any other properties or
assets of such Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, exchange, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by Abraxas
or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than Abraxas or a Restricted Subsidiary of:
(1) any Capital Stock of any Restricted Subsidiary; or
(2) any other property or assets (including any interests therein) of
Abraxas or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction.
For purposes of this definition, the term "Asset Sale" shall not include:
(3) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of Abraxas in a transaction which is made
in compliance with the provisions of the covenant described in "Merger,
Consolidation and Sale of Assets;"
(4) any Investment in an Unrestricted Subsidiary which is made in
compliance with the provisions of the covenant described in "Limitation on
Restricted Payments" above;
(5) disposals or replacements of obsolete equipment in the ordinary
course of business;
(6) the sale, lease, conveyance, disposition or other transfer by
Abraxas or any Restricted Subsidiary of assets or
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property to Abraxas or one or more Wholly Owned Restricted Subsidiaries;
(7) any disposition of Hydrocarbons or other mineral products for value
in the ordinary course of business;
(8) the abandonment, surrender, termination, cancellation, release,
farmout, lease or sublease of undeveloped oil and gas properties in the
ordinary course of business or oil and gas properties which are not capable
of production in economic quantities;
(9) the contemporaneous trade or exchange by Abraxas or any of its
Restricted Subsidiaries of any oil and gas property or interest therein
owned or held by such Person for any oil and gas property or interest
therein owned or held by another Person which the Board of Directors of
Abraxas determines in good faith by resolution to be of approximately equal
value, including any cash or Cash Equivalents necessary in order to achieve
an exchange of equivalent value; provided that such cash and Cash
Equivalents are subject to the covenant "Limitation on Asset Sales";
provided, further, to the extent not prohibited by the terms of any
instruments evidencing Acquired Indebtedness associated with the property
received, that the property received by Abraxas or such Restricted
Subsidiary is made subject to the Lien of the indenture and the security
documents to the extent that such property traded or exchanged was subject
to such Lien, provided that any such property received that constitutes Oil
and Gas Assets shall be made subject to such Lien in any event; and
provided, further, that to the extent the property traded or exchanged by
Abraxas and/or a Restricted Subsidiary contains proved reserves, the
property received contains an approximately equal value of proved reserves,
including cash or Cash Equivalents to achieve an exchange of equivalent
value; or
(10) the sale, lease, conveyance, disposition or other transfer by
Abraxas or any Restricted Subsidiary of assets or property in the ordinary
course of business; provided, however, that the aggregate amount (valued at
the fair market value of such assets or property at the time of such sale,
lease, conveyance, disposition or transfer) of all such assets and property
so sold, leased, conveyed, disposed or transferred since the Issue Date
pursuant to this clause shall not exceed $1,000,000 in any one year.
"Available Proceeds Amount" means (i) the sum of all Collateral Proceeds and
all Non-Collateral Proceeds remaining after application to repay any
Indebtedness secured by the assets the subject of the Asset Sale giving rise to
such Non-Collateral Proceeds; and (ii) for purposes of determining whether a Net
Proceeds Offer must be made as of any day and the amount of such offer, an
amount equal to: the amount set forth under clause (i) above minus the aggregate
amount of all such Asset Sale proceeds previously spent in compliance with the
terms of the section described "Deposit; Use and Release of Trust Moneys."
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"Business Day" means any day other than a Saturday, Sunday or any other day
on which banking institutions in the City of New York are required or authorized
by law or other governmental action to be closed.
"Canadian Abraxas" means Canadian Abraxas Petroleum Limited.
"Capitalized Lease Obligation" means, as to any Person, the discounted
present value of the rental obligations of such Person under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation at such date, determined in accordance with GAAP.
"Capital Stock" means:
(1) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated
and whether or not voting) of corporate stock, including each class of
Common Stock and Preferred
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Stock of such Person and including any warrants, options or rights to
acquire any of the foregoing and instruments convertible into any of the
foregoing, and
(2) with respect to any Person that is not a corporation, any and all
partnership or other equity interests of such Person.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation ("S&P")
or Moody's Investors Service, Inc. ("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the
District of Columbia or any United States branch of a foreign bank having at
the date of acquisition thereof combined capital and surplus of not less
than $250,000,000;
(5) 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 bank meeting the qualifications specified in the
fourth clause above; and
(6) money market mutual or similar funds having assets in excess of
$100,000,000.
"Change of Control" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of
Abraxas to any Person or group of related Persons for purposes of Section
13(d) of the Exchange Act (a "Group") (whether or not otherwise in
compliance with the provisions of the indenture);
(2) the approval by the holders of Capital Stock of Abraxas of any plan
or proposal for the liquidation or dissolution of Abraxas (whether or not
otherwise in compliance with the provisions of the indenture);
(3) any Person or Group shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than 35% of the
aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of Abraxas; or
(4) the replacement of a majority of the Board of Directors of Abraxas
over a two-year period from the directors who constituted the Board of
Directors of Abraxas at the beginning of such period with directors whose
replacement shall not have been approved (by recommendation, nomination or
election, as the case may be) by a vote of at least a majority of the Board
of Directors of Abraxas then still in office who either were members of such
Board of Directors at the beginning of such period or whose election as a
member of such Board of Directors was previously so approved.
"Change of Control Offer" has the meaning set forth under "Change of
Control."
"Change of Control Payment Date" has the meaning set forth under "Change of
Control."
"Collateral" means, collectively, all of the property and assets (including,
without limitation, Trust Moneys) that are from time to time subject to, or
purported to be subject to, the Lien of the indenture or any of the security
documents.
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"Collateral Account" has the meaning given to it in the section described
herein under the heading "Deposit; Use and Release of Trust Moneys."
"Collateral Proceeds" means any Net Cash Proceeds received from an Asset
Sale involving Collateral.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, for any period, the sum (without duplication)
of:
(1) Consolidated Net Income, and
(2) to the extent Consolidated Net Income has been reduced thereby,
(A) all income taxes of Abraxas and its Restricted Subsidiaries paid
or accrued in accordance with GAAP for such period (other than income taxes
attributable to extraordinary, unusual or nonrecurring gains or losses or
taxes attributable to sales or dispositions outside the ordinary course of
business),
(B) Consolidated Interest Expense,
(C) the amount of any Preferred Stock dividends paid by Abraxas and
its Restricted Subsidiaries, and
(D) Consolidated Non-cash Charges, less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for Abraxas and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated EBITDA Coverage Ratio" means, with respect to Abraxas, the
ratio of:
(1) Consolidated EBITDA of Abraxas during the four full fiscal quarters
for which financial information in respect thereof is available (the "Four
Quarter Period") ending on or prior to the date of the transaction giving
rise to the need to calculate the Consolidated EBITDA Coverage Ratio (the
"Transaction Date") to
(2) Consolidated Fixed Charges of Abraxas for the Four Quarter Period.
For purposes of this definition, "Consolidated EBITDA" and "Consolidated
Fixed Charges" shall be calculated after giving effect (without duplication) on
a pro forma basis for the period of such calculation to:
(1) the incurrence or repayment of any Indebtedness of Abraxas or any of
its Restricted Subsidiaries (and the application of the proceeds thereof)
giving rise to the need to make such calculation and any incurrence or
repayment of other Indebtedness (and the application of the proceeds
thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be
(and the application of the proceeds thereof), occurred on the first day of
the Four Quarter Period, and
(2) any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of Abraxas or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for
Acquired Indebtedness, and also including, without limitation, any
Consolidated EBITDA attributable to the assets which are the subject of the
Asset Acquisition or Asset Sale during the Four Quarter Period) occurring
during the Four Quarter Period or at any time subsequent to the last day of
the Four Quarter Period and on or prior to the Transaction Date, as if such
Asset Sale or Asset Acquisition (including the incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first day of
the Four Quarter Period. If Abraxas or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the
preceding sentence shall give effect to the incurrence of such guaranteed
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Indebtedness as if Abraxas or the Restricted Subsidiary, as the case may be,
had directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated EBITDA
Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal
to the rate of interest on such Indebtedness in effect on the Transaction
Date;
(2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of
a prime or similar rate, a eurocurrency interbank offered rate, or other
rates, then the interest rate in effect on the Transaction Date will be
deemed to have been in effect during the Four Quarter Period;
(3) notwithstanding clauses (1) and (2) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Swap Obligations, shall be deemed to accrue
at the rate per annum resulting after giving effect to the operation of such
agreements.
"Consolidated Fixed Charges" means, with respect to Abraxas for any period,
the sum, without duplication, of:
(1) Consolidated Interest Expense (including any premium or penalty paid
in connection with redeeming or retiring Indebtedness of Abraxas and its
Restricted Subsidiaries prior to the stated maturity thereof pursuant to the
agreements governing such Indebtedness), plus
(2) the product of (A) the amount of all dividend payments on any series
of Preferred Stock of Abraxas (other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during such
period times (B) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective consolidated
federal, state and local income tax rate of such Person, expressed as a
decimal.
"Consolidated Interest Expense" means, with respect to Abraxas for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of Abraxas and its Restricted
Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, including without limitation,
(A) any amortization of original issue discount,
(B) the net costs under Interest Swap Obligations,
(C) all capitalized interest and
(D) the interest portion of any deferred payment obligation; and
(2) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by Abraxas and its Restricted
Subsidiaries during such period, as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to Abraxas for any period, the
aggregate net income (or loss) of Abraxas and its Restricted Subsidiaries for
such period on a consolidated basis, determined in accordance with GAAP;
provided, however, that there shall be excluded therefrom:
(1) after-tax gains from Asset Sales or abandonments or reserves
relating thereto,
(2) after-tax items classified as extraordinary or nonrecurring gains,
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(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary or
is merged or consolidated with Abraxas or any Restricted Subsidiary,
(4) the net income (but not loss) of any Restricted Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by charter, contract,
operation of law or otherwise,
(5) the net income of any Person in which Abraxas has an interest, other
than a Restricted Subsidiary, except to the extent of cash dividends or
distributions actually paid to Abraxas or to a Restricted Subsidiary by such
Person,
(6) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued), and
(7) in the case of a successor to Abraxas by consolidation or merger or
as a transferee of Abraxas' assets, any net income (or loss) of the
successor corporation prior to such consolidation, merger or transfer of
assets.
"Consolidated Net Worth" of any Person as of any date means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to Abraxas, for any
period, the aggregate depreciation, depletion, amortization and other non-cash
expenses of Abraxas and its Restricted Subsidiaries reducing Consolidated Net
Income of Abraxas for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which requires an accrual of or a reserve for
cash charges for any future period).
"consolidation" means, with respect to any Person, the consolidation of the
accounts of the Restricted Subsidiaries of such Person with those of such
Person, all in accordance with GAAP; provided, however, that "consolidation"
will not include consolidation of the accounts of any Unrestricted Subsidiary of
such Person with the accounts of such Person. The term "consolidated" has a
correlative meaning to the foregoing.
"Covenant Defeasance" has the meaning set forth under "Legal Defeasance and
Covenant Defeasance."
"Crude Oil and Natural Gas Business" means (i) the acquisition, exploration,
development, operation and disposition of interests in oil, gas and other
hydrocarbon properties located in North America, and (ii) the gathering,
marketing, treating, processing, storage, selling and transporting of any
production from such interests or properties of Abraxas or of others.
"Crude Oil and Natural Gas Hedge Agreements" means, with respect to any
Person, any oil and gas agreements and other agreements or arrangements or any
combination thereof entered into by such Person in the ordinary course of
business and that is designed to provide protection against oil and natural gas
price fluctuations.
"Crude Oil and Natural Gas Properties" means all Properties, including
equity or other ownership interests therein, owned by any Person which have been
assigned "proved oil and gas reserves" as defined in Rule 4-10 of Regulation S-X
of the Securities Act as in effect on the Issue Date.
"Crude Oil and Natural Gas Related Assets" means any Investment or capital
expenditure (but not including additions to working capital or repayments of any
revolving credit or working capital borrowings) by Abraxas or any Restricted
Subsidiary of Abraxas which is related to the business of Abraxas and its
Restricted Subsidiaries as it is conducted on the date of the Asset Sale giving
rise to the Net Cash Proceeds to be reinvested.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect Abraxas
or any Restricted Subsidiary of Abraxas against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
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"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is mandatorily redeemable at the sole option of the holder thereof, in whole or
in part, in either case, on or prior to the final maturity of the new notes.
"Equity Offering" means an offering of Qualified Capital Stock of Abraxas.
"Event Of Default" has the meaning set forth under "Events of Default".
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"Fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between an informed and willing seller and an informed and willing buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors of
Abraxas acting reasonably and in good faith and shall be evidenced by a Board
Resolution of Abraxas delivered to the Trustee; provided, however, that
(1) if the aggregate non-cash consideration to be received by Abraxas or
any Restricted Subsidiary from any Asset Sale shall reasonably be expected
to exceed $5,000,000 or
(2) if the net worth of any Restricted Subsidiary to be designated as an
Unrestricted Subsidiary shall reasonably be expected to exceed $10,000,000,
then fair market value shall be determined by an Independent Advisor.
"First Lien Indenture" means the Indenture dated March 26, 1999 executed by
Abraxas, as issuer, and Norwest Bank Minnesota, National Association, as
trustee, or any successor or replacement agreement, whether by the same or any
other trustee, agent, note holder or group of note holders, lender or group of
lenders, together with the related documents (including, without limitation, any
guarantee agreements and security documents), in each case as such indenture and
documents have been or may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreements extended the maturity of, refinancing, replacing or otherwise
restructuring all or any portion of the Indebtedness under such agreements.
"First Lien Notes" means the $63,500,000 12-7/8% Senior Notes due 2003 of
Abraxas issued pursuant to the First Lien Indenture as such notes have been or
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreements extending the
maturity of, refinancing, replacing or otherwise restructuring all or any
portion of the Indebtedness under such notes.
"First Lien Notes Representative" means the trustee under the First Lien
Indenture or any other Person designated to the Trustee in a First Lien Notes
Representative Change Notice.
"First Lien Notes Representative Change Notice" means a written notice of a
change in the identity and/or address of the First Lien Notes Representative
which certifies to the Trustee (a) with respect to such a notice that gives
notice of a new First Lien Notes Representative, that the Persons executing such
notice constitute the holders of at least 51% in aggregate principal amount of
Indebtedness under the First Lien Notes, or (b) with respect to such a notice
that only gives notice of a new address for the First Lien Notes Representative,
that the Person executing such notice is the then current First Lien Notes
Representative, and which sets forth the new identity (by name, and by
jurisdiction of organization as applicable) and/or the new address of the First
Lien Notes Representative.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board as of any date of determination.
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"Grey Wolf" means Grey Wolf Exploration Inc., an Alberta corporation.
"Hydrocarbons" means oil, gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and
all constituents, elements or compounds thereof and products processed
therefrom.
"incur" has the meaning set forth under "Certain Covenants -- Limitation on
Incurrence of Additional Indebtedness."
"Indebtedness" means with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money,
(2) all Obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments,
(3) all Capitalized Lease Obligations of such Person,
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable),
(5) all Obligations for the reimbursement of any obligor on a letter of
credit, banker's acceptance or similar credit transaction,
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below,
(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) above which are secured by any Lien on any property
or asset of such Person, the amount of such Obligation being deemed to be
the lesser of the fair market value of such property or asset or the amount
of the Obligation so secured,
(8) all Obligations under Currency Agreements and Interest Swap
Obligations, and
(9) all Disqualified Capital Stock issued by such Person with the amount
of Indebtedness represented by such Disqualified Capital Stock being equal
to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed redemption price or repurchase price.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of Abraxas. The "amount" or "principal amount"
of Indebtedness at any time of determination as used herein is represented by:
(1) any Indebtedness issued at a price that is less than the principal
amount at maturity thereof shall be the face amount of the liability in
respect thereof,
(2) any Capitalized Lease Obligation shall be the amount determined in
accordance with the definition thereof,
(3) any Interest Swap Obligations included in the definition of
Permitted Indebtedness shall be zero,
(4) all other unconditional obligations shall be the amount of the
liability thereof determined in accordance with GAAP, and
(5) all other contingent obligations shall be the maximum liability at
such date of such Person.
"Independent Advisor" means a reputable accounting, appraisal or nationally
recognized investment banking, engineering or consulting firm which:
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(1) does not, and whose directors, officers and employees or Affiliates
do not, have a direct or indirect material financial interest in Abraxas,
and
(2) in the judgment of the Board of Directors of Abraxas, is otherwise
disinterested, independent and qualified to perform the task for which it is
to be engaged.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"Interest Swap Obligation" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect:
(1) loan, advance or other extension of credit (including, without
limitation, a guarantee) or capital contribution (by means of any transfer
of cash or other property (valued at the fair market value thereof as of the
date of transfer) to others or any payment for property or services for the
account or use of others),
(2) purchase or acquisition by such Person of any Capital Stock, bonds,
notes, debentures or other securities or evidences of Indebtedness issued by
any other Person (whether by merger, consolidation, amalgamation or
otherwise and whether or not purchased directly from the issuer of such
securities or evidences of Indebtedness),
(3) guarantee or assumption of the Indebtedness of any other Person
(other than the guarantee or assumption of Indebtedness of such Person or a
Restricted Subsidiary of such Person which guarantee or assumption is made
in compliance with the provisions of "Certain Covenants -- Limitation on
Incurrence of Additional Indebtedness" above), and
(4) other items that would be classified as investments on a balance
sheet of such Person prepared in accordance with GAAP.
Notwithstanding the foregoing, "Investment" shall exclude extensions of
trade credit by Abraxas and its Restricted Subsidiaries on commercially
reasonable terms in accordance with normal trade practices of Abraxas or such
Restricted Subsidiary, as the case may be. The amount of any Investment shall
not be adjusted for increases or decreases in value, or write-ups, write-downs
or write-offs with respect to such Investment. If Abraxas or any Restricted
Subsidiary sells or otherwise disposes of any Capital Stock of any Restricted
Subsidiary such that, after giving effect to any such sale or disposition, it
ceases to be a Subsidiary of Abraxas, Abraxas shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Capital Stock of such Restricted Subsidiary not sold or disposed
of.
"Issue Date" means the date of original issuance of the new notes.
"Issuers" means Abraxas Petroleum Corporation, a Nevada corporation, and
Canadian Abraxas Petroleum Limited, an Alberta corporation.
"Legal Defeasance" has the meaning set forth under "Legal Defeasance and
Covenant Defeasance."
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
floating or other charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
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"Material Change" means an increase or decrease of more than 10% during a
fiscal quarter in the discounted future net cash flows (excluding changes that
result solely from changes in prices) from proved oil and gas reserves of
Abraxas and its consolidated Restricted Subsidiaries (before any state or
federal income tax); provided, however, that the following will be excluded from
the Material Change calculation:
(1) any acquisitions during the quarter of oil and gas reserves that
have been estimated by independent petroleum engineers and on which a report
or reports exist,
(2) any disposition of properties existing at the beginning of such
quarter that have been disposed of as provided in "Limitation on Asset
Sales," and
(3) any reserves added during the quarter attributable to the drilling
or recompletion of wells not included in previous reserve estimates, but
which will be included in future quarters.
"Mortgage" means a mortgage (or deed of trust) dated as of the Issue Date
granted by Abraxas or any Restricted Subsidiary of Abraxas for the benefit of
the Trustee and the holders, as the same may be amended, supplemented or
modified from time to time in accordance with the terms thereof and of the
indenture.
"Net Cash Proceeds" means, with respect to any Asset Sale, sale, transfer or
other disposition, the proceeds in the form of cash or Cash Equivalents
including payments in respect of deferred payment obligations when received in
the form of cash or Cash Equivalents received by Abraxas or any of its
Restricted Subsidiaries from such Asset Sale, sale, transfer or other
disposition net of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset
Sale, sale, transfer or other disposition (including, without limitation,
legal, accounting and investment banking fees and sales commissions),
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements, and
(3) appropriate amounts (determined by the Chief Financial Officer of
Abraxas) to be provided by Abraxas or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any post closing
adjustments or liabilities associated with such Asset Sale, sale, transfer
or other disposition and retained by Abraxas or any Restricted Subsidiary,
as the case may be, after such Asset Sale, sale, transfer or other
disposition, 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, sale, transfer or other disposition (but excluding any
payments which, by the terms of the indemnities will not, be made during the
term of the new notes), and
(4) the aggregate amount of cash and Cash Equivalents so received which
is used to retire any then existing Indebtedness (other than Indebtedness
under the First Lien Notes, the old notes or the new notes) of Abraxas or
such Restricted Subsidiary which is secured by a Lien on the property
subject of the Asset Sale, sale, transfer or other disposition.
"Net Cash Proceeds Application Period" has the meaning set forth under
"Certain Covenants -- Limitation on Asset Sales".
"Net Working Capital" means:
(1) all current assets of Abraxas and its consolidated Subsidiaries,
minus
(2) all current liabilities of Abraxas and its consolidated
Subsidiaries, except current liabilities included in Indebtedness,
in each case as set forth in financial statements of Abraxas prepared in
accordance with GAAP.
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"New Cache" means New Cache Petroleums, Ltd.
"Non-Recourse Indebtedness" with respect to any Person means Indebtedness of
such Person for which:
(1) the sole legal recourse for collection of principal and interest on
such Indebtedness is against the specific property identified in the
instruments evidencing or securing such Indebtedness and such property was
acquired with the proceeds of such Indebtedness or such Indebtedness was
incurred within 90 days after the acquisition of such property, and
(2) no other assets of such Person may be realized upon in collection of
principal or interest on such Indebtedness;
provided, however, that any such Indebtedness shall not cease to be
"Non-Recourse Indebtedness" solely as a result of the instrument governing such
Indebtedness containing terms pursuant to which such Indebtedness becomes
recourse upon:
(A) fraud or misrepresentation by the Person in connection with such
Indebtedness,
(B) such Person failing to pay taxes or other charges that result in the
creation of liens on any portion of the specific property securing such
Indebtedness or failing to maintain any insurance on such property required
under the instruments securing such Indebtedness,
(C) the conversion of any of the collateral for such Indebtedness,
(D) such Person failing to maintain any of the collateral for such
Indebtedness in the condition required under the instruments securing the
Indebtedness,
(E) any income generated by the specific property securing such
Indebtedness being applied in a manner not otherwise allowed in the
instruments securing such Indebtedness,
(F) the violation of any applicable law or ordinance governing hazardous
materials or substances or otherwise affecting the environmental condition
of the specific property securing the Indebtedness, or
(G) the rights of the holder of such Indebtedness to the specific
property becoming impaired, suspended or reduced by any act, omission or
misrepresentation of such Person;
provided, further, that upon the occurrence of any of the foregoing clauses (A)
through (G) above, any such Indebtedness which shall have ceased to be
"Non-Recourse Indebtedness" shall be deemed to have been Indebtedness incurred
by such Person at such time.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Oil and Gas Assets" means the Crude Oil and Natural Gas Properties and
natural gas processing facilities of Abraxas and/or any of Abraxas' Restricted
Subsidiaries.
"Payment Restriction" has the meaning set forth in the description of the
covenants "Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries."
"Permitted Indebtedness" means, without duplication, each of the following:
(1) Indebtedness under the new notes, the old notes, the First Lien
Notes, the indenture, the Guarantees, the security documents, the First Lien
Notes Indenture, the security documents entered into in connection with the
First Lien Notes Indenture and the indenture governing the old notes;
(2) Interest Swap Obligations of Abraxas or a Restricted Subsidiary
covering Indebtedness of Abraxas or any of its
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Restricted Subsidiaries; provided, however, that such Interest Swap
Obligations are entered into to protect Abraxas and its Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness incurred
in accordance with the indenture to the extent the notional principal
amount of such Interest Swap Obligations does not exceed the principal
amount of the Indebtedness to which such Interest Swap Obligation relates;
(3) Indebtedness of a Restricted Subsidiary to Abraxas or to a Wholly
Owned Restricted Subsidiary for so long as such Indebtedness is held by
Abraxas or a Wholly Owned Restricted Subsidiary, in each case subject to no
Lien held by a Person other than Abraxas or a Wholly Owned Restricted
Subsidiary; provided, however, that if as of any date any Person other than
Abraxas or a Wholly Owned Restricted Subsidiary owns or holds any such
Indebtedness or holds a Lien in respect of such Indebtedness, such date
shall be deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the issuer of such Indebtedness;
(4) Indebtedness of Abraxas to a Wholly Owned Restricted Subsidiary for
so long as such Indebtedness is held by a Wholly Owned Restricted
Subsidiary, in each case subject to no Lien; provided, however, that (A) any
Indebtedness of Abraxas to any Wholly Owned Restricted Subsidiary that is
not a Subsidiary Guarantor is unsecured and subordinated, pursuant to a
written agreement, to Abraxas' obligations under the indenture and the new
notes and (B) if as of any date any Person other than a Wholly Owned
Restricted Subsidiary owns or holds any such Indebtedness or holds a Lien in
respect of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by Abraxas;
(5) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within two Business Days of incurrence;
(6) Indebtedness of Abraxas or any of its Restricted Subsidiaries
represented by letters of credit for the account of Abraxas or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(7) Refinancing Indebtedness;
(8) Capitalized Lease Obligations of Abraxas outstanding on the Issue
Date;
(9) Capitalized Lease Obligations and Purchase Money Indebtedness of
Abraxas or any of its Restricted Subsidiaries not to exceed $5,000,000 at
any one time outstanding;
(10) Permitted Operating Obligations;
(11) Obligations arising in connection with Crude Oil and Natural Gas
Hedge Agreements of Abraxas or a Restricted Subsidiary;
(12) Non-Recourse Indebtedness;
(13) Indebtedness under Currency Agreements; provided, however, that in
the case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of Abraxas and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(14) additional Indebtedness of Abraxas or any of its Restricted
Subsidiaries in an aggregate principal amount at any time outstanding not to
exceed the sum of (i) $5,000,000 plus (ii) 5.0% of Adjusted Consolidated Net
Tangible Assets; and
(15) Indebtedness, outstanding on the Issue Date (to the extent not
repaid with the proceeds of the sale of the new notes).
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"Permitted Industry Investments" means:
(1) capital expenditures, including, without limitation, acquisitions of
Abraxas Properties and interests therein;
(2) (A) entry into operating agreements, joint ventures, working
interests, royalty interests, mineral leases, unitization agreements,
pooling arrangements or other similar or customary agreements, transactions,
properties, interests or arrangements, and Investments and expenditures in
connection therewith or pursuant thereto, in each case made or entered into
in the ordinary course of the oil and gas business, and (B) exchanges of
Abraxas' Properties for other Abraxas Properties of at least equivalent
value as determined in good faith by the Board of Directors of Abraxas; and
(3) Investments of operating funds on behalf of co-owners of Crude Oil
and Natural Gas Properties of Abraxas or the Subsidiaries pursuant to joint
operating agreements.
"Permitted Investments" means:
(1) Investments by Abraxas or any Restricted Subsidiary in any Person
that is or will become immediately after such Investment a Restricted
Subsidiary or that will merge or consolidate into Abraxas or a Restricted
Subsidiary that is not subject to any Payment Restriction;
(2) Investments in Abraxas by any Restricted Subsidiary; provided,
however, that any Indebtedness evidencing any such Investment held by a
Restricted Subsidiary that is not a Subsidiary Guarantor is unsecured and
subordinated, pursuant to a written agreement, to Abraxas' obligations under
the new notes and the indenture;
(3) investments in cash and Cash Equivalents;
(4) Investments made by Abraxas or its Restricted Subsidiaries as a
result of consideration received in connection with an Asset Sale made in
compliance with "Certain Covenants -- Limitation on Asset Sales" above; and
(5) Permitted Industry Investments.
"Permitted Liens" means each of the following types of Liens:
(1) Liens arising under the indenture or the security documents;
(2) Liens securing the new notes and the Guarantees;
(3) Liens arising under the First Lien Notes Indenture or the security
documents entered into in connection therewith;
(4) Liens securing the First Lien Notes and the guarantees thereunder;
(5) Liens for taxes, assessments or governmental charges or claims
either (A) not delinquent or (B) contested in good faith by appropriate
proceedings and as to which Abraxas or a Restricted Subsidiary, as the case
may be, shall have set aside on its books such reserves as may be required
pursuant to GAAP;
(6) statutory and contractual Liens of landlords to secure rent arising
in the ordinary course of business to the extent such Liens relate only to
the tangible property of the lessee which is located on such property and
Liens of carriers, warehousemen, mechanics, builders, suppliers,
materialmen, repairmen and other Liens imposed by law incurred in the
ordinary course of business for sums not yet delinquent or being contested
in good faith, if such reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made in respect thereof;
(7) Liens incurred on deposits made in the ordinary course of business:
(A) in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing
letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or
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(B) to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of
borrowed money);
(8) easements, rights-of-way, zoning restrictions, restrictive
covenants, minor imperfections in title and other similar charges or
encumbrances in respect of real property not interfering in any material
respect with the ordinary conduct of the business of Abraxas or any of its
Restricted Subsidiaries;
(9) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or asset
which is not leased property subject to such Capitalized Lease Obligation;
(10) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(11) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of Abraxas or
any of its Restricted Subsidiaries, including rights of offset and set-off;
(12) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
indenture and Liens securing Crude Oil and Natural Gas Hedge Agreements;
(13) Liens on pipeline or pipeline facilities, Hydrocarbons or
properties and assets of Abraxas and its Subsidiaries which arise out of
operation of law;
(14) royalties, overriding royalties, revenue interests, net revenue
interests, net profit interests, revisionary interests, production payments,
production sales contracts, operating agreements and other similar
interests, properties, arrangements and agreements, all as ordinarily exist
with respect to Properties and assets of Abraxas and its Subsidiaries or
otherwise as are customary in the oil and gas business;
(15) with respect to any Properties and assets of Abraxas and its
Subsidiaries, Liens arising under, or in connection with, or related to,
farm-out, farm-in, joint operation, area of mutual interest agreements
and/or other similar or customary arrangements, agreements or interests that
Abraxas or any Subsidiary determines in good faith to be necessary for the
economic development of such Property;
(16) any (A) interest or title of a lessor or sublessor under any lease,
(B) restriction or encumbrance that the interest or title of such lessor or
sublessor may be subject to (including, without limitation, ground leases or
other prior leases of the demised premises, mortgages, mechanics' liens,
builders' liens, tax liens, and easements), or (C) subordination of the
interest of the lessee or sublessee under such lease to any restrictions or
encumbrance referred to in the preceding clause (B);
(17) Liens in favor of collecting or payor banks having a right of
setoff, revocation, refund or chargeback with respect to money or
instruments of Abraxas or any Restricted Subsidiary on deposit with or in
possession of such bank;
(18) Liens securing Non-recourse Indebtedness;
(19) judgment and attachment Liens not giving rise to an Event of
Default;
(20) Liens securing Acquired Indebtedness incurred in accordance with
"Certain Covenants -- Limitation on Incurrence of Additional Indebtedness"
above; provided, however, that (A) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by Abraxas or a Restricted Subsidiary and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by Abraxas or a Restricted Subsidiary and (B) such Liens do not
extend to or cover any property or assets of Abraxas or of any of its
Restricted Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of Abraxas or a Restricted Subsidiary and are no more favorable
to the lienholders than those securing the Acquired Indebtedness prior to
the incurrence of such Acquired Indebtedness by Abraxas or a Restricted
Subsidiary; and
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(21) Liens existing on the Issue Date;
(22) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness permitted under the indenture and which has been
secured by a Lien permitted under the indenture and which has been incurred
in accordance with the provisions of the indenture; provided, however, that
such Liens (x) are no less favorable to the holders and are not more
favorable to the lienholders with respect to such Liens than the Liens in
respect of the Indebtedness being Refinanced and (y) do not extend to or
cover any property or assets of Abraxas or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced; and
(23) Liens securing Indebtedness of Abraxas or any of its Restricted
Subsidiaries in an aggregate principal amount at any time outstanding not to
exceed the sum of (A) $5,000,000.00 plus (B) 5.0% of Adjusted Consolidated
Net Tangible Assets.
"Permitted Operating Obligations" means Indebtedness of Abraxas or any
Restricted Subsidiary in respect of one or more standby letters of credit, bid,
performance or surety bonds, or other reimbursement obligations, issued for the
account of, or entered into by, Abraxas or any Restricted Subsidiary in the
ordinary course of business (excluding obligations related to the purchase by
Abraxas or any Restricted Subsidiary of Hydrocarbons for which Abraxas or such
Restricted Subsidiary has contracts to sell), or in lieu of any thereof or in
addition to any thereto, guarantees and letters of credit supporting any such
obligations and Indebtedness (in each case, other than for an obligation for
borrowed money, other than borrowed money represented by any such letter of
credit, bid, performance or surety bond, or reimbursement obligation itself, or
any guarantee and letter of credit related thereto).
"Person" means an individual, partnership, corporation, unincorporated
organization, limited liability company, trust, estate, or joint venture, or a
governmental agency or political subdivision thereof.
"Pledge Agreement" means those certain Security Agreements (Pledge) dated as
of the Issue Date pursuant to which the Capital Stock of Grey Wolf owned by
Abraxas and/or the Restricted Subsidiaries of Abraxas is pledged to the Trustee
for the benefit of the holders, as the same may be amended, modified or
supplemented from time to time.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Property" means, with respect to any Person, any interests of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, Capital Stock, partnership
interests and other equity or ownership interests in any other Person.
"Purchase Money Indebtedness" means Indebtedness the net proceeds of which
are used to finance the cost (including the cost of construction) of property or
assets acquired in the normal course of business by the Person incurring such
Indebtedness.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Institutional Buyer" shall have the meaning specified in Rule
144A under the Securities Act.
"Reference Date" has the meaning set forth under "Certain Covenants --
Limitation on Restricted Payments."
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by Abraxas or any
Restricted Subsidiary of Abraxas of Indebtedness incurred in accordance with
the covenant described in "Limitation on Incurrence of Additional Indebtedness"
above (other
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than pursuant to clause (2), (3), (4), (5), (6), (9), (10), (11), (13) or (14)
of the definition of Permitted Indebtedness), in each case that does not:
(1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by Abraxas and its Restricted Subsidiaries in connection
with such Refinancing), or
(2) create Indebtedness with (A) a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the Indebtedness
being Refinanced or (B) a final maturity earlier than the final maturity of
the Indebtedness being Refinanced; provided, however, that (a) if such
Indebtedness being Refinanced is Indebtedness of Abraxas or a Subsidiary
Guarantor, then such Refinancing Indebtedness shall be Indebtedness solely
of Abraxas and/or such Subsidiary Guarantor and (b) if such Indebtedness
being Refinanced is subordinate or junior to the new notes or a Guarantee,
then such Refinancing Indebtedness shall be subordinate to the new notes or
such Guarantee, as the case may be, at least to the same extent and in the
same manner as the Indebtedness being Refinanced.
"Related Person" of any Person means any other Person directly or indirectly
owning 10% or more of the outstanding voting Common Stock of such Person (or, in
the case of a Person that is not a corporation, 10% or more of the equity
interest in such Person).
"Replacement Assets" has the meaning set forth in the covenant described
under "Limitation on Asset Sales."
"Restricted Payment" has the meaning set forth in the covenant described
under "Limitation on Restricted Payments."
"Restricted Subsidiary" means any Subsidiary of Abraxas (including, without
limitation, Canadian Abraxas, New Cache and Sandia) that has not been designated
by the Board of Directors of Abraxas, by a Board Resolution delivered to the
Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with the
covenant described under "Limitation on Restricted and Unrestricted
Subsidiaries" above. Any such designation may be revoked by a Board Resolution
of Abraxas delivered to the Trustee, subject to the provisions of such covenant.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to Abraxas or a Restricted Subsidiary of any property, whether owned by
Abraxas or any Restricted Subsidiary at the Issue Date or later acquired which
has been or is to be sold or transferred by Abraxas or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
"Sandia" means Sandia Oil & Gas Corporation.
"security documents" means, collectively, the Mortgages, the Pledge
Agreement and all security agreements, mortgages, deeds of trust, collateral
assignments or other instruments evidencing or creating any security interests
in favor of the Trustee in all or any portion of the Collateral, in each case as
amended, supplemented or modified from time to time in accordance with their
terms and the terms of the indenture.
"Subordinated Indebtedness" means Indebtedness of Abraxas or a Subsidiary
Guarantor that is subordinated or junior in right of payment to the new notes,
the relevant Subsidiary Guarantee and the security documents, as applicable,
pursuant to a written agreement to that effect.
"Subsidiary" with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned, directly
or indirectly, by such Person, or
(2) any other Person of which at least a majority of the voting
interests under ordinary circumstances is at the time, directly or
indirectly, owned by such Person.
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"Subsidiary Guarantor" means New Cache, Sandia, Wamsutter and each of
Abraxas' Restricted Subsidiaries that in the future executes a supplemental
indenture in which such Restricted Subsidiary agrees to be bound by the terms of
the indenture as a Subsidiary Guarantor; provided, however, that any Person
constituting a Subsidiary Guarantor as described above shall cease to constitute
a Subsidiary Guarantor when its Guarantee is released in accordance with the
terms of the indenture.
"Surviving Entity" has the meaning set forth in the covenant described in
"Merger, Consolidation and Sale of Assets."
"Trust Moneys" means all cash or Cash Equivalents received by the Trustee:
(1) upon the release of Collateral from the Lien of the indenture and
the security documents, including investment earnings thereon; or
(2) pursuant to the provisions of any Mortgage; or
(3) as proceeds of any other sale or other disposition of all or any
part of the Collateral by or on behalf of the Trustee or any collection,
recovery, receipt, appropriation or other realization of or from all or any
part of the Collateral pursuant to the indenture or any of the security
documents or otherwise; or
(4) for application under the indenture as provided for in the indenture
or the security documents, or whose disposition is not elsewhere
specifically provided for in the indenture or in the security documents;
provided, however, that Trust Moneys shall not include any property
deposited with the Trustee pursuant to any Change of Control Offer, Net
Proceeds Offer or redemption or defeasance of any new notes.
"Unrestricted Subsidiary" means any Subsidiary of Abraxas designated as such
pursuant to and in compliance with the covenant described in "Limitation on
Restricted and Unrestricted Subsidiaries" above; provided, however, that
Unrestricted Subsidiaries shall initially include Western Associated Energy
Corporation, a Texas corporation, and Grey Wolf, to the extent, if any, it now
or hereafter constitutes a "Subsidiary". Any such designation may be revoked by
a Board Resolution of Abraxas delivered to the Trustee, subject to the
provisions of such covenant.
"Wamsutter" means Wamsutter Holdings, Inc.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the then outstanding aggregate principal amount of such
Indebtedness into
(2) the sum of the total of the products obtained by multiplying:
(A) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by
(B) the number of years (calculated to the nearest one-twelfth)
which will elapse between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which all the outstanding voting securities normally entitled to vote in the
election of directors are owned by Abraxas or another Wholly Owned Restricted
Subsidiary.
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SUMMARY COMPARISON OF OLD NOTES AND NEW NOTES
The following is a brief comparison of the principal features of the new
notes and the old notes. These descriptions utilize capitalized terms which are
defined in the old notes indenture and new notes indenture. In addition, this
summary does not purport to be complete and is qualified in its entirety by
reference to the new notes indenture and the old notes indenture, copies of
which are available from Abraxas.
<TABLE>
<CAPTION>
OLD NOTES NEW NOTES
--------- ---------
<S> <C> <C>
Issuers: Abraxas and Canadian Abraxas. Abraxas and Canadian Abraxas.
Interest and Yield: 11 1/2% per annum, payable semi-annually 11 1/2% per annum, accruing from November
in arrears on May 1 and November 1. 1, 1999, and payable semi-annually in
arrears on each May 1 and November 1,
commencing May 1, 2000.
Form of Interest Payments: Interest is payable in cash only. Interest is payable in cash only.
Stated Maturity: November 1, 2004. November 1, 2004.
Guarantees: Unconditionally guaranteed on a senior Unconditionally guaranteed on a senior
basis by Sandia, Wamsutter and New Cache. basis by Sandia, Wamsutter and New Cache.
The guarantees rank equal in right of The guarantees will rank equal in right of
payment to all existing and future Senior payment to all existing and future Senior
Indebtedness of Sandia, Wamsutter and New Indebtedness of Sandia, Wamsutter and New
Cache, and will rank equal in right of Cache, and will rank equal in right of
payment to the guarantee of Sandia and New payment to the guarantee of Sandia,
Cache of the new notes, and senior to all Wamsutter and New Cache of the old notes,
future Subordinated Indebtedness of and senior to all future Subordinated
Sandia, Wamsutter and New Cache. The Indebtedness of Sandia, Wamsutter and New
guarantees are unsecured. Cache.
Security: None. New notes and related guarantees secured
by a second lien or charge on
substantially all of the Issuers' and the
guarantors' proved crude oil and natural
gas properties and natural gas processing
plants and the shares of common stock of
Grey Wolf owned by the Issuers. Asset
sales will be permitted subject to
limitations on the non-cash portion of
such sales and requirements for collateral
substitution. Holders of the new notes may
not foreclose on the collateral for 180
days after an event of default under the
new notes.
</TABLE>
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<PAGE> 89
<TABLE>
<CAPTION>
OLD NOTES NEW NOTES
--------- ---------
<S> <C> <C>
Ranking: Senior in contractual right of payment to Senior in contractual right of payment to
all Subordinated Indebtedness and equal all Subordinated Indebtedness and equal in
with all Senior Indebtedness, including right of payment with all Senior
the new notes and the first lien notes. Indebtedness, including the old notes and
the first lien notes.
Optional Redemption: Redeemable at the option of the Issuers on Redeemable at the option of the Issuers on
or after November 1, 2000. If the Issuers or after November 1, 2000. If the Issuers
consummate a Public Equity Offering prior consummate an Equity Offering or Asset
to November 1, 2000, the Issuers may use Sale prior to November 1, 2000, the
the proceeds from such offering to redeem, Issuers may use the proceeds from such
at their option, up to $96.25 million offering to redeem, at their option, up to
aggregate principal amount of old notes, 50% of the aggregate original principal
with accrued and unpaid interest, at a amount of the new notes, with accrued and
redemption price equal to 111.50% of the unpaid interest, at a redemption price
principal amount thereof, provided that at equal to 111.50% of the principal amount
least $178.75 million aggregate principal thereof.
amount remains outstanding after such
redemption.
Change of Control: Upon the occurrence of a Change of Control Upon the occurrence of a Change of Control
each holder of old notes may require the each holder of new notes may require the
Issuers to repurchase all or a portion of Issuers to repurchase all or a portion of
such holder's old notes at a price equal such holder's new notes at a price equal
to 101% of the principal amount thereof to 101% of the principal amount thereof
with accrued and unpaid interest to the with accrued and unpaid interest to the
date of repurchase. date of repurchase.
Transferability: The old notes are registered and freely The new notes will be freely transferable.
transferable.
Certain Covenants: Existing covenants are similar to those The new notes indenture will, among other
relating to the new notes, but will be things, restrict our ability to borrow
eliminated by the indenture amendments. money or issue preferred stock, pay
dividends on stock or purchase stock;
restrict the ability of subsidiaries to
agree to restrict payments of dividends or
making asset transfers to the Issuers;
transact business with affiliates; sell
stock in subsidiaries; engage in any new
line of business; use assets as security
in other transactions; and sell certain
assets or merge with or into other
companies.
</TABLE>
In addition to the new notes, holders who tender their old notes will
receive Abraxas common stock and CVRs. For information regarding the Abraxas
common stock and CVRs, see "Description of Capital Stock -- Common Stock" and
"Description of Capital Stock -- Contingent Value Rights."
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<PAGE> 90
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Abraxas is authorized to issue 50,000,000 shares of common stock, par
value $.01 per share. At November 15, 1999, there were 6,352,672 shares of
Abraxas common stock issued and outstanding. Holders of the common stock are
entitled to cast one vote for each share held of record on all matters submitted
to a vote of stockholders and are not entitled to cumulate votes for the
election of directors. Holders of common stock do not have preemptive rights to
subscribe for additional shares of common stock issued by Abraxas.
Holders of the common stock are entitled to receive dividends as may be
declared by the Board of Directors out of funds legally available therefor.
Under the terms of the first lien notes indenture and the new notes indenture,
Abraxas may not pay dividends on shares of the common stock. In the event of
liquidation, holders of the common stock are entitled to share pro rata in any
distribution of Abraxas' assets remaining after payment of liabilities, subject
to the preferences and rights of the holders of any outstanding shares of
Preferred Stock. All of the outstanding shares of the common stock are fully
paid and nonassessable.
References herein to Abraxas' common stock include the common share
purchase rights distributed by Abraxas to its stockholders on November 17, 1994
as long as they trade with the common stock. See "-- Stockholder Rights Plan".
PREFERRED STOCK
Abraxas' Articles of Incorporation authorize the issuance of up to
1,000,000 shares of Preferred Stock, par value $.01 per share, in one or more
series. The Board of Directors is authorized, without any further action by the
stockholders, to determine the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption, liquidation preferences,
sinking fund terms and other rights, preferences, privileges and restrictions of
any series of Preferred Stock, the number of shares constituting any such
series, and the designation thereof. The rights of the holders of common stock
will be subject to, and may be adversely affected by, the rights of holders of
any Preferred Stock that may be issued in the future.
CONTINGENT VALUE RIGHTS
GENERAL. The CVRs will be issued under a CVR Agreement (the "CVR
Agreement") between Abraxas and American Stock Transfer & Trust Company. The
following description is a summary of the material provisions of the CVRs and
the CVR Agreement. It does not restate the CVR Agreement in its entirety. We
urge you to read the CVR Agreement because it, not this description, defines
your rights as a holder of CVRs. A copy of the CVR Agreement may be obtained
from Abraxas. The definitions of certain capitalized terms used in the following
summary are set forth below under "Certain Definitions."
ISSUANCE OF SHARES AT MATURITY DATE OR EXTENDED MATURITY DATE. The CVR
Agreement provides that, subject to adjustment as described under "Antidilution"
below, Abraxas will be required to issue to each holder of the CVRs (each such
person, a "CVR Holder") on the Maturity Date (as defined below), unless Abraxas
will, in its sole discretion, extend the Maturity Date to the Extended Maturity
Date (as defined below), then on the Extended Maturity Date, for each CVR held
by such CVR Holder, a number of shares of Abraxas common stock, if any, equal to
(a) the Target Price (as defined below) minus the Current Market Value divided
by (b) the Current Market Value; provided, however, in no event shall more than
62,014,179 shares of Abraxas common stock be issued in exchange for the CVRs, in
the aggregate, at the Maturity Date or more than 104,365,326 shares of Abraxas
common stock be issued in exchange for the CVRs, in the aggregate, at the
Extended Maturity Date. Such determination by Abraxas absent manifest error will
be final and binding on Abraxas and the CVR Holder.
Abraxas may at its option extend the Maturity Date to the Extended
Maturity Date. Such option will be exercised by (i) publishing notice of an
extension in the Authorized Newspaper (as defined below) or (ii) furnishing
notice to the CVR Holders of such extension, in each case, not less than one
business day preceding the Maturity Date; provided, however,
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<PAGE> 91
that no defect in any such notice will affect the validity of the extension of
the Maturity Date to the Extended Maturity Date, and that any notice when
published and mailed to a CVR Holder whether or not actually received by such
CVR Holder.
If the number of shares ultimately issuable under the CVRs is greater
than the number of authorized and unissued shares Abraxas has available at that
time, Abraxas will be required either to increase the authorized number of
shares of Abraxas common stock or to effect a reverse stock split in order to
increase the number of authorized and unissued shares of Abraxas common stock to
an amount sufficient to satisfy the number of shares issuable under the CVRs.
DETERMINATION THAT NO SHARES ARE ISSUABLE WITH RESPECT TO THE CVRS. If
the Current Market Value of a share of the Abraxas common stock equals or
exceeds $5.68 on the Maturity Date or $5.97 on the Extended Maturity Date (if
the Maturity Date is extended by Abraxas to the Extended Maturity Date), as the
case may be, no shares of Abraxas common stock will be issuable with respect to
the CVRs. In addition, the CVRs will terminate if the average of the Per Share
Market Value (as defined below) equals or exceeds the Target Price for any
period of 30 Trading Days during any 45 consecutive Trading Days.
In the event that Abraxas determines that no shares of Abraxas common
stock are issuable with respect to the CVRs to the CVR Holders, Abraxas will
give to the CVR Holders notice of such determination. Upon making such
determination and absent manifest error, the CVRs will terminate and become null
and void and the CVR Holders will have no further rights with respect thereto.
The failure to give such notice or any defect therein will not affect the
validity of such determination.
ANTIDILUTION. In the event Abraxas in any manner subdivides (by stock
split, stock dividend or otherwise) or combines (by reverse stock split or
otherwise) the number of outstanding shares of Abraxas common stock, Abraxas
will similarly subdivide or combine the CVRs and will appropriately adjust the
Target Price. Whenever such an adjustment is made, Abraxas will (i) promptly
prepare a certificate setting forth such adjustment and a brief statement of the
facts accounting for such adjustment, (ii) promptly file with American Stock
Transfer a copy of such certificate and (iii) mail a brief summary thereof to
each CVR Holder. American Stock Transfer will be fully protected in relying on
any such certificate and on any adjustment therein contained. Such adjustment
absent manifest error will be final and binding on Abraxas and the CVR Holders.
Each outstanding CVR Certificate will thenceforth represent that number of
adjusted CVRs necessary to reflect such subdivision or combination and reflect
the adjusted Target Price.
CONSOLIDATION, MERGER AND SALE OF ASSETS. The CVR Agreement provides
that Abraxas may, without the consent of the holders of any of the outstanding
CVRs, consolidate with or merge into any other entity or convey, transfer or
lease its properties and assets substantially as an entirety to any entity,
provided that (i) the Surviving Person (as defined below) assumes Abraxas'
obligations under the CVRs and the CVR Agreement and (ii) Abraxas delivers to
American Stock Transfer an officer's certificate regarding compliance with the
foregoing. For the purposes hereof, "convey, transfer or lease its properties
and assets substantially as an entirety" shall mean properties and assets
contributing in the aggregate of at least 80% of Abraxas' total revenues as
reported in Abraxas' last available periodic financial report (quarterly or
annual, as the case may be) filed with the SEC.
In the event that Abraxas were merged out of existence, liquidated or
subject to some other event resulting in the lack of any market for the Abraxas
common stock (each, a "Transaction"), the holders of the CVRs would be entitled
to receive securities of the Surviving Person or such other consideration that
holders of shares of Abraxas common stock received in such a Transaction based
upon the price per share received by holders of shares of Abraxas common stock.
PROHIBITION ON SHORT POSITIONS IN THE ABRAXAS COMMON STOCK. During the
Valuation Period, holders of CVRs will be prohibited under the terms of the CVR
Agreement from establishing short positions in the Abraxas common stock or in
derivatives of the Abraxas common stock.
CERTAIN DEFINITIONS.
"Authorized Newspaper" means The Wall Street Journal, or if The Wall
Street Journal shall cease to be published, or, if the publication or general
circulation of The Wall Street Journal shall be suspended for whatever reason,
such other English language newspaper as is selected by the Company with general
circulation in The City of New York, New York.
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<PAGE> 92
"Current Market Value" means with respect to the Maturity Date and the
Extended Maturity Date, the average of the highest closing bid prices during
normal trading hours of shares of Abraxas common stock for any 30 Trading Days
during any 45 consecutive Trading Day Period that begins and ends in the
Valuation Period.
"Extended Maturity Date" means the eighteen month anniversary date of
the closing of the exchange offer.
"Maturity Date" means the first anniversary date of the closing of the
exchange offer.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of Abraxas common stock on such date on the principal stock
exchange on which Abraxas common stock has been listed or, if there is no such
price on such date, then the average of such prices on such exchange on the date
nearest preceding such date, or (b) if Abraxas common stock is not listed on any
stock exchange, the average of the high and low sales prices for a share of
Abraxas common stock in the over-the-counter market, as reported by the NASDAQ
Stock Market for such date, or, if there are no such prices on such date, then
the average of such prices on the date nearest preceding such date, or (c) if
Abraxas common stock is not quoted on the NASDAQ Stock Market, the average of
the final bid and final asked prices for a share of Abraxas common stock in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices), or (d) if Abraxas common stock is no longer publicly
traded, as determined by a nationally recognized or major regional investment
banking firm or firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial statements
of Abraxas) selected in good faith by the Board of Directors of Abraxas.
"Surviving Person" means any other Person into which Abraxas shall
consolidate with or merge into or the Person which acquires by conveyance or
transfer or which leases, the properties and assets of Abraxas substantially as
an entirety.
"Target Price" means (i) the price determined by multiplying $5.03 plus
daily interest at an annual rate of 11.5% divided by the number of shares of
Abraxas common stock issued in the exchange offer, (ii) at the Maturity Date,
$5.68 and (iii) at the Extended Maturity Date, $5.97. In each case, upon each
occurrence of an event specified under "Antidilution" above, such amounts, as
they may have been previously adjusted, shall be adjusted as described under
"Antidilution" above.
"Trading Day" means (a) a day on which Abraxas common stock is traded
on the principal stock exchange on which Abraxas common stock has been listed,
or (b) if Abraxas common stock is not listed on any stock exchange, a day on
which Abraxas common stock is traded in the over-the-counter market, as reported
by the NASDAQ Stock Market, or (c) if Abraxas common stock is not traded on the
NASDAQ Stock Market, a day on which Abraxas common stock is traded in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices).
"Valuation Period" means the period beginning on the date of the
closing of the exchange offer and ending on the Maturity Date or the Extended
Maturity Date, as the case may be.
WARRANTS
Abraxas has warrants outstanding to purchase an aggregate of 225,500
shares of Abraxas common stock. Associated Energy Managers, Inc. ("AEM"), has
Warrants to purchase 13,500 shares at an exercise price of $7.00 per share.
First Union National Bank of North Carolina ("First Union") has warrants to
purchase 212,000 shares of Abraxas common stock at an exercise price of $9.79
per share. These warrants were issued to First Union in connection with Abraxas'
credit agreement. First Union and AEM have certain registration rights with
respect to shares of the Abraxas common stock issued pursuant to the exercise of
such warrants. See " -- Registration Rights."
All outstanding warrants contain provisions that protect AEM and First
Union against dilution by adjusting the price at which the warrants are
exercisable and the number of shares of the Abraxas common stock issuable upon
exercise thereof
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upon the occurrence of certain events, including payment of stock dividends and
distributions, stock splits, recapitalizations, reclassifications, mergers,
consolidations or the issuance or sale of common stock or options, rights or
securities convertible into shares of the common stock, in the case of AEM, at
less than the current market price or, in the case of First Union, at a price
less than the greater of the current market price or the exercise price. A
holder of warrants has no rights as a stockholder of Abraxas until the warrants
are exercised. All warrants are currently exercisable, although none have been
exercised as of the date hereof.
OPTION PLANS
Pursuant to the Abraxas Petroleum Corporation 1984 Incentive Stock
Option Plan (the "ISO Plan"), the Abraxas Petroleum Corporation 1993 Key
Contributor Stock Option Plan (the "1993 Plan") and the Abraxas Petroleum
Corporation 1994 Long Term Incentive Plan (the "LTIP"), Abraxas grants to
employees and officers of the Company (including directors of the Company who
are also employees) incentive stock options and non-qualified stock options. The
ISO Plan, the 1993 Plan and the LTIP are administered by the compensation
committee which, based upon the recommendation of the Chief Executive Officer,
determines the number of shares subject to each option. At September 30, 1999,
there were options to purchase 1,444,577 shares of Abraxas common stock
outstanding, of which 486,883 were fully vested at an average exercise price of
$2.06 per share. After the exchange offer, Abraxas intends to adopt a new
stock-based incentive plan providing for the issuance of incentive stock
options, non-qualified stock options and other stock-based incentive
compensation representing up to ten percent of the number of fully diluted
shares outstanding as of the time of adoption of the plan.
REGISTRATION RIGHTS
The shares of the Abraxas common stock to be received by AEM and First
Union upon exercise of warrants and any shares of the Abraxas common stock owned
by Endowment Energy Partners, L.P. ("EEP") and Endowment Energy Partners II,
Limited Partnership ("EEP II") are entitled to certain rights with respect to
the registration of such shares under the Securities Act.
Under the terms of the Registration Rights Agreement with EEP and EEP
II, in the event that Abraxas proposes to register any shares of the Abraxas
common stock or securities convertible into Abraxas common stock under the
Securities Act for its own account, except in certain circumstances, EEP and EEP
II are entitled to unlimited piggyback registrations, subject to the right of
the underwriters of any such offering to limit the number of shares included in
such registration. Abraxas has agreed to pay all expenses in connection with a
piggyback registration except for underwriting discounts and selling commissions
which shall be borne by EEP and/or EEP II with respect to shares of the Abraxas
common stock owned by EEP and EEP II other than the 211,500 shares of Abraxas
common stock acquired by EEP and EEP II through the exercise of the warrants
formerly owned by EEP and EEP II ("Warrant Shares"). EEP and EEP II have the
additional right to require Abraxas to effect one demand registration of all
shares of the Abraxas common stock (other than Warrant Shares) in the aggregate
at any time and Abraxas is required to effect such registration, subject to
certain conditions and limitations. Abraxas is required to bear the expenses of
a demand registration except for underwriting discounts and selling commissions
which shall be borne by EEP and/or EEP II with respect to shares of Abraxas
common stock owned by EEP and EEP II other than Warrant Shares. Abraxas has
agreed to customary indemnities including an agreement to indemnify, subject to
certain limited exceptions, EEP and EEP II in connection with a demand
registration and a piggyback registration.
Under the terms of its warrants, AEM has the right to unlimited
piggyback registrations. EEP and EEP II have the right to one demand
registration in the aggregate at any time after December 20, 1995 and unlimited
piggyback registrations with respect to Warrant Shares. Abraxas has agreed to
pay all expenses in connection with piggyback registrations by AEM and by EEP
and EEP II with respect to Warrant Shares and to share expenses equally with EEP
and EEP II with respect to Warrant Shares registered in a Demand Registration;
provided, however, all underwriting discounts and selling commissions shall be
borne by EEP, EEP II or AEM, as the case may be.
Under the terms of its warrants, First Union has the right to two
demand registrations and, subject to the rights to Piggyback Registration of
EEP, EEP II and AEM, unlimited piggyback registrations. Abraxas will pay all
expenses incurred in connection with any such registration other than
underwriting discounts and selling commissions which shall be borne by First
Union. Abraxas has also agreed to customary indemnities, including an agreement
to indemnify, subject to certain limitations, First Union in connection with a
demand registration and a piggyback registration.
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The new notes, shares of Abraxas common stock and CVRs to be received
by Houlihan Lokey and new notes to be received by Jefferies as compensation for
their services in connection with the exchange offer will be entitled to certain
rights with respect to the registration of such shares under the Securities Act.
Under the terms of the registration rights agreement proposed to be entered into
with Houlihan Lokey and Jefferies, Abraxas will agree to file within 30 days
after the consummation of the exchange offer, and to cause to become effective
within 180 days of such consummation, a shelf registration statement under the
Securities Act covering such securities. If such registration statement is not
declared effective within such 180-day period, Houlihan Lokey and Jefferies will
have the right to require Abraxas to purchase such securities at the prices
therefor set forth in the registration rights agreement.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND
BYLAWS
Abraxas' Articles of Incorporation and Bylaws provide for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of Directors
will be elected each year. The Articles of Incorporation and Bylaws provide that
the Board of Directors will consist of not less than three nor more than twelve
members, with the exact number to be determined from time to time by the
affirmative vote of a majority of directors then in office. The Board of
Directors, and not the stockholders, has the authority to determine the number
of directors, and could prevent any stockholder from obtaining majority
representation on Abraxas' Board of Directors by enlarging the Board of
Directors and by filling the new directorships with the stockholder's own
nominees. In addition, directors may be removed by the stockholders only for
cause.
The Articles of Incorporation and Bylaws provide that special meetings
of stockholders of Abraxas may be called only by the Chairman of the Board, the
President or a majority of the members of the Board of Directors. This provision
may make it more difficult for stockholders to take actions opposed by the Board
of Directors.
The Articles of Incorporation and Bylaws provide that any action
required to be taken or which may be taken by holders of Abraxas common stock
must be effected at a duly called annual or special meeting of such holders, and
may not be taken by any written consent of such stockholders. These provisions
may have the effect of delaying consideration of a stockholder proposal until
the next annual meeting unless a special meeting is called by the persons set
forth above. The provisions of the Articles of Incorporation and Bylaws
prohibiting stockholder action by written consent could prevent the holders of a
majority of the voting power of Abraxas from using the written consent procedure
to take stockholder action and taking action by consent without giving all the
stockholders of Abraxas entitled to vote on a proposed action the opportunity to
participate in determining such proposed action.
STOCKHOLDER RIGHTS PLAN
On November 17, 1994, the Board of Directors of Abraxas adopted a
stockholder rights plan (the "Stockholder Rights Plan"). Under the terms of the
Stockholder Rights Plan, the Board of Directors of Abraxas declared a dividend
of one common share purchase right ("Stockholder Right") on each share of the
Abraxas common stock outstanding on November 17, 1994. Each Stockholder Right
entitles the holder thereof to buy one share of Abraxas common stock at an
exercise price of $40 per share, subject to adjustment.
The Stockholder Rights are not exercisable until the occurrence of
specified events. Upon the occurrence of such an event (which events are
generally those which would signify the commencement of a hostile bid to acquire
Abraxas), the Stockholder Rights then become exercisable (unless redeemed by the
Board of Directors) for a number of shares of Abraxas common stock having a
market value of four times the exercise price of the Stockholder Right. If the
acquiror were to conclude the acquisition of Abraxas, the Stockholder Rights
would then become exercisable for shares of the controlling/surviving
corporation having a value of four times the exercise price of the Stockholder
Rights. If the Stockholder Rights were exercised at any time, significant
dilution would result, thus making the acquisition prohibitively expensive for
the acquiror. In order to encourage a bidder to negotiate with the Board of
Directors, the Stockholder Rights Plan provides that the Stockholder Rights may
be redeemed under prescribed circumstances by the Board of Directors.
The Stockholder Rights are not intended to prevent a takeover of
Abraxas and will not interfere with any tender offer or business combination
approved by the Board of Directors. The Stockholder Rights Plan is intended to
protect the
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stockholders in the event of (a) an unsolicited offer to acquire Abraxas,
including offers that do not treat all stockholders equally, (b) the acquisition
in the open market of shares constituting control of Abraxas without offering
fair value to all stockholders and (c) other coercive takeover tactics which
could impair the Board's ability to fully represent the interests of the
stockholders.
ANTI-TAKEOVER STATUTES
The Nevada General Corporation Law (the "Nevada GCL") contains two
provisions, described below as "Combination Provisions" and the "Control Share
Act," that may make more difficult the accomplishment of unsolicited or hostile
attempts to acquire control of a corporation through certain types of
transactions.
Restrictions on Certain Combinations Between Nevada Resident Corporations and
Interested Stockholders
The Nevada GCL includes certain provisions (the "Combination
Provisions") prohibiting certain "combinations" (generally defined to include
certain mergers, disposition of assets transactions, and share issuance or
transfer transactions) between a resident domestic corporation and an
"interested stockholder" (generally defined to be the beneficial owner of 10% or
more of the voting power of the outstanding shares of the corporation), except
those combinations which are approved by the board of directors before the
interested stockholder first obtained a 10% interest in the corporation's stock.
There are additional exceptions to the prohibition, which apply to combinations
if they occur more than three years after the interested stockholder's date of
acquiring shares. The Combination Provisions apply unless the corporation elects
against their application in its original articles of incorporation or an
amendment thereto, or in its bylaws. Abraxas' Articles of Incorporation and
Bylaws do not currently contain a provision rendering the Combination Provisions
inapplicable.
Nevada Control Share Act
Nevada's Control Share Acquisition Act (the "Control Share Act")
imposes procedural hurdles on and curtails greenmail practices of corporate
raiders. The Control Share Act temporarily disenfranchises the voting power of
"control shares" of a person or group ("Acquiring Person") purchasing a
"controlling interest" in an "issuing corporation" (as defined in the Nevada
GCL) not opting out of the Control Share Act. In this regard, the Control Share
Act will apply to an "issuing corporation" unless, before an acquisition is
made, the articles of incorporation or bylaws in effect on the tenth day
following the acquisition of a controlling interest provide that it is
inapplicable. Abraxas' Articles of Incorporation and Bylaws do not currently
contain a provision rendering the Control Share Act inapplicable.
Under the Control Share Act, an "issuing corporation" is a corporation
organized in Nevada which has 200 or more stockholders, at least 100 of whom are
stockholders of record (which for this purpose includes registered and
beneficial owners) and residents of Nevada, and which does business in Nevada
directly or through an affiliated company. The status of Abraxas at the time of
the occurrence of a transaction governed by the Control Share Act (assuming that
Abraxas' Articles of Incorporation or Bylaws have not theretofore been amended
to include an opting out provision) would determine whether the Control Share
Act is applicable.
The Control Share Act requires an Acquiring Person to take certain
procedural steps before he or it can obtain the full voting power of the control
shares. "Control shares" are the shares of a corporation (1) acquired or offered
to be acquired which will enable the Acquiring Person to own a "controlling
interest," and (2) acquired within 90 days immediately preceding that date. A
"controlling interest" is defined as the ownership of shares which would enable
the Acquiring Person to exercise certain graduated amounts (beginning with
one-fifth) of all voting power of the corporation. The Acquiring Person may not
vote any control shares without first obtaining approval from the stockholders
not characterized as "interested stockholders" (as defined below).
To obtain voting Rights in control shares, the Acquiring Person must
file a statement at the principal office of the issuer ("Offeror's Statement")
setting forth certain information about the acquisition or intended acquisition
of stock. The Offeror's Statement may also request a special meeting of
stockholders to determine the voting Rights to be accorded to the Acquiring
Person. A special stockholders' meeting must then be held at the Acquiring
Person's expense within 30 to 50 days after the Offeror's Statement is filed. If
a special meeting is not requested by the Acquiring Person, the matter will be
addressed at the next regular or special meeting of stockholders.
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At the special or annual meeting at which the issue of voting rights of
control shares will be addressed, "interested stockholders" may not vote on the
question of granting voting rights to control the corporation or its parent
unless the articles of incorporation of the issuing corporation provide
otherwise. Abraxas' Articles of Incorporation do not currently contain a
provision allowing for such voting power.
If full voting power is granted to the Acquiring Person by the
disinterested stockholders, and the Acquiring Person has acquired control shares
with a majority or more of the voting power, then (unless otherwise provided in
the articles of incorporation or bylaws in effect on the tenth day following the
acquisition of a controlling interest) all stockholders of record, other than
the Acquiring Person, who have not voted in favor of authorizing voting rights
for the control shares, must be sent a notice advising them of the fact and of
their right to receive "fair value" for their shares. Abraxas' Articles of
Incorporation and Bylaws do not provide otherwise. Within 20 days of the mailing
of the notice, any such stockholder may demand to receive from the corporation
the "fair value" for all or part of his shares. "Fair value" is defined in the
Control Share Act as "not less than the highest price per share paid by the
Acquiring Person in an acquisition."
The Control Share Act permits a corporation to redeem the control
shares in the following two instances, if so provided in the articles of
incorporation or bylaws of the corporation in effect on the tenth day following
the acquisition of a controlling interest: (1) if the Acquiring Person fails to
deliver the Offeror's Statement to the corporation within 10 days after the
Acquiring Person's acquisition of the control shares; or (2) an Offeror's
Statement is delivered, but the control shares are not accorded full voting
rights by the stockholders. Abraxas' Articles of Incorporation and Bylaws do not
address this matter.
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CERTAIN U.S. FEDERAL AND CANADIAN INCOME TAX CONSIDERATIONS
U.S. FEDERAL INCOME TAX CONSIDERATIONS
SCOPE AND LIMITATIONS
This section discusses the material federal income tax consequences under
current law of:
o The exchange of old notes for new notes, Abraxas common stock and
CVRs pursuant to the exchange offer (the "Exchange"),
o The ownership and disposition of the new notes, Abraxas common
stock and CVRs, and
o The adoption of the indenture amendments.
It does not, however, discuss every aspect of federal income taxation that may
be relevant to a particular taxpayer under special circumstances or to foreign
corporations or persons who are not citizens of the United States or who are
otherwise subject to special tax treatment under the federal income tax laws,
and it does not discuss the effect of any applicable foreign, state, or local
tax laws.
NOTEHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
CONSEQUENCES TO THEM OF THE EXCHANGE, INCLUDING THE APPLICABILITY AND
EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
TAX CONSEQUENCES TO NON-PARTICIPATING NOTEHOLDERS
The adoption of the indenture amendments should not be a "significant
modification" of a debt instrument as that term is used in the Income Tax
Regulations and therefore should not cause non-exchanging noteholders to be
treated as if they exchanged their old notes for new debt instruments having the
terms of the old notes as modified by the indenture amendments (a "Deemed
Exchange"). If a "significant modification" were to occur, any such Deemed
Exchange would be non-taxable to non-exchanging noteholders, but may result in
the creation of "Original Issue Discount" as that term is used in the Code.
Noteholders are urged to consult their own tax advisors as to the consequences
of a Deemed Exchange. The Company's reporting position will be consistent with
the analysis that no "significant modification" has occurred and therefore no
"Original Issue Discount," has been created.
TAX CONSEQUENCES TO PARTICIPATING NOTEHOLDERS
The exchange of the old notes for the new notes, Abraxas common stock and
CVRs should be characterized as a "significant modification" of a debt
instrument as that term is used in the Income Tax Regulations. Such
characterization would result in a realization event in which gain or loss may
be recognized. Nevertheless, even though a realization event may occur no gain
or loss should be recognized by Participating Noteholders as discussed below.
EXCHANGE OF THE OLD NOTES FOR NEW NOTES, ABRAXAS COMMON STOCK AND CVRS.
The tax consequences to a participating noteholder exchanging old notes for new
notes should not, in and of itself, be considered a realization event since a
supportable position can be taken that no "significant modification" of a debt
instrument has occurred and therefore no gain or loss should be realized with
respect to the exchange. Notwithstanding the foregoing characterization, if the
terms of the new notes were considered a "significant modification" to the terms
of the old notes, any resulting gain or loss should not be recognized since
Section 354 of the Code provides that only the excess of the "principal amount"
of the securities received over the "principal amount" of the securities
surrendered will be treated as property other than stock or securities ("Boot")
for purposes of determining any gain recognition. Since the principal amount of
the new notes do not exceed the principal amount of the old notes, no portion of
the new notes should be considered Boot.
The tax consequences to a participating noteholder of exchanging the old
notes for Abraxas common stock and CVRs depend on the classification of the
notes being exchanged and the property received therefrom. If the old notes, new
notes,
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Abraxas common stock and CVRs are considered securities or stock for tax
purposes, no gain or loss should be recognized. Although the Code and
Regulations do not provide clear guidelines and judicial decisions do not answer
all the questions and in some instances are in conflict, in our view the old
notes, new notes, Abraxas common stock and CVRs should be properly classified as
securities or stock for purposes of the tax rules relating to tax-free
reorganizations.
The Company intends to allocate value to the new notes, Abraxas common
stock and CVRs based on the terms of the Exchange and the foregoing discussion.
The Company's characterization of the Abraxas common stock, CVRs and new notes
as stock or securities is binding on each noteholder, unless such noteholder
discloses on its income tax return that it is characterizing the Abraxas common
stock, CVRs or new notes in a different manner. Based upon the analysis and
assumptions above, Participating Noteholders should not recognize any gain or
loss on the Exchange, and the Exchange should not create "Original Issue
Discount" as that term is used in the Code. The Company intends to take a
reporting position consistent with this analysis.
TAX BASIS AND HOLDING PERIOD. A participating noteholder should have an
aggregate tax basis in the new notes, Abraxas common stock and CVRs received
equal to its basis in the old notes, increased by the amount of any gain
recognized on the Exchange, and reduced by the portion, if any, of cash or
property received that is treated as Boot. A participating noteholder's holding
period in the new notes, Abraxas common stock and CVRs should include the
holding period of the old notes (assuming that the old notes were held as
capital assets). The participating noteholder's aggregate tax basis should be
allocated among the new notes, Abraxas common stock and CVRs based on their
relative fair market values.
DISPOSITION OF NEW NOTES, ABRAXAS COMMON STOCK AND CVRS. A participating
noteholder should recognize gain or loss, subject to the "straddle" rules
discussed below, upon a sale, redemption, or other taxable disposition of a new
note, Abraxas common stock or a CVR measured by the difference between (1) the
amount of cash and the fair market value of property received and (2) the tax
basis of the relinquished property. Such gain or loss will be capital gain or
loss if the property disposed of is a capital asset in the hands of the
participating noteholder.
OWNERSHIP OF THE ABRAXAS COMMON STOCK AND CVRS. The Federal income tax
consequences resulting from the maturity, lapse, or disposition of the Abraxas
common stock and CVRs received by a noteholder (a "CVR Holder") should depend on
the characterization of the CVRs for Federal income tax purposes. Although no
court has addressed the proper characterization of the CVRs for Federal income
tax purposes, the Internal Revenue Service has taken the position that rights
which were in many respects similar to the CVRs should be treated as cash
settlement put options for Federal income tax purposes. The following discussion
examines the Federal income tax consequences if the CVRs were treated as cash
settlement put options. It should be noted, however, that the CVRs might be
treated in some other manner, and that subsequent legislation, regulations,
court decisions and revenue rulings could affect the Federal income tax
treatment of the CVRs.
Treatment of the CVRs as Cash Settlement Put Options. If the CVRs were
treated as cash settlement put options, a CVR Holder would realize capital gain
or loss upon the lapse, payment at maturity or sale or exchange of the CVRs in
an amount equal to the difference between the amount realized, if any, and such
CVR Holder's tax basis for the CVRs. Notwithstanding the foregoing conclusion,
some or all of any capital loss realized from a disposition of a CVR might be
deferred, or a CVR Holder's holding period might be adjusted, under the straddle
rules described below.
Straddle Rules. Section 1092 of the Code provides special rules
concerning the recognition of losses and the determination of holding periods
with respect to positions that are part of a "straddle." The term "straddle"
means offsetting positions with respect to personal property. The term
"position" means an interest (including an option) in personal property. For
this purpose, "personal property" includes stock only if such stock is part of a
straddle where one of the offsetting positions is either an option with respect
to such stock or substantially identical stock or securities or, under Income
Tax Regulations which have been proposed but have not yet been finalized, a
position with respect to substantially similar or related property (other than
stock) (for example, a debt instrument). Positions are treated as "offsetting"
where the risk of loss from holding one position is substantially diminished by
reason of holding another position.
It is possible that the holding of CVRs and the Abraxas common stock, or
another security of Abraxas by a CVR Holder (regardless of whether the holder
acquired any such shares of Abraxas common stock or other security of Abraxas in
the Exchange Offer or otherwise) would be a straddle if the CVRs were treated as
cash settlement put options. It should
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be noted that the Code directs the Secretary of the Treasury to issue Income Tax
Regulations prescribing the method for determining the portion of a position
that is subject to the straddle rules when the size of the position exceeds the
size of the offsetting position. No such Income Tax Regulations have been issued
to date.
If holding the CVRs and Abraxas common stock or another security of
Abraxas were treated as a straddle, then any loss realized in a taxable year by
a CVR Holder upon a sale or other disposition (including retirement) of either
the CVRs or Abraxas common stock or another security of Abraxas would be
recognized only to the extent it exceeds the unrecognized gain (as of the end of
such year) with respect to the retained position. The unrecognized portion of
such loss would be deferred and would be treated as a loss incurred in a later
taxable year, the recognition of which would continue to be subject to the
straddle rules.
In addition, if the CVRs and Abraxas common stock or another security of
Abraxas were treated as a straddle, special rules would apply to determine
whether capital gain or loss upon the disposition of such stock or security and
the CVRs would be treated as long term or short term. If a CVR Holder would not
have a long-term holding period (i.e., a holding period of more than one year)
for Abraxas common stock or another security of Abraxas when such holder
receives a CVR that is part of a straddle including such stock or security, then
such CVR Holder's holding period for any such stock or security before the
acquisition of the CVR would be disregarded, and instead its holding period for
any such stock or security and the CVR would begin only upon the disposition, if
any, of the other. As a result of this rule, any capital gain or loss recognized
upon the disposition of any such share of Abraxas common stock or the
disposition of the CVR, whichever occurred first, would be short term, and any
capital gain or loss recognized upon the disposition of the second position
would be long term or short term, depending on whether a long-term holding
period would have been acquired commencing with the disposition of the first
position.
If a CVR Holder were treated as having held Abraxas common stock or
another security of Abraxas for more than one year when such CVR Holder receives
a CVR that is part of a straddle including such stock or security, then such CVR
Holder would retain the long-term holding period for such stock or security.
Thus, any capital gain or loss recognized by the CVR Holder on the disposition
of such stock or security would be long term. The CVR Holder's holding period
for the CVR for purposes of determining the term of any capital gain will begin
only when (if ever) such CVR Holder disposes of such stock or security. However,
any capital loss recognized by the CVR Holder upon maturity, or upon an earlier
termination or disposition of the CVR, would be treated as long term, regardless
of the CVR Holder's holding period for the CVR.
Section 263(g) of the Code disallows a deduction for interest and
carrying charges allocable to a position that is a part of a straddle and
requires such amounts to be added to the tax basis of such position.
BACKUP WITHHOLDING
Under the backup withholding rules, interest and dividends otherwise
payable to a holder of new notes, Abraxas common stock or CVRs and the proceeds
from any disposition of such property may be subject to backup withholding at
the rate of 31% unless the Participating Noteholder (1) is a corporation or
comes within certain other exempt categories and, demonstrates that fact when
required, or (2) provides a correct taxpayer identification number, certifies as
to no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. See "The Exchange
Offer--Backup Withholding."
TAX CONSEQUENCES TO THE COMPANY
The Company should not recognize cancellation of indebtedness income
("COD Income") since a supportable position can be taken that the outstanding
principal of the old notes and accrued and unpaid interest related thereto (to
the extent deducted by the Company for tax purposes) relinquished in the
Exchange (adjusted for unamortized issue costs and certain other amounts) does
not exceed the principal amount of the new notes and the fair market value of
the Abraxas common stock and CVRs received in the Exchange. The Exchange will
result in a change of ownership under Section 382. Accordingly, it is expected
that the use of net operating loss carryforwards generated through the closing
of the exchange offer, will be limited to approximately $600,000 per year based
on current market values of the Abraxas common stock.
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CANADIAN INCOME TAX CONSIDERATIONS
TAX CONSEQUENCES TO NOTEHOLDERS
The following summary is applicable to any person (referred to in this
summary as "a non-resident holder") who at all relevant times is not resident in
Canada, nor deemed to be resident in Canada, for purposes of the Income Tax Act
(Canada) (the "Act"), who at all relevant times is a resident of the United
States for purposes of the Canada-United States Income Tax Convention, 1980, who
at all times deal's at arm's length with Abraxas, who does not use or hold, and
is not deemed to use or hold, the old notes in carrying on a business in Canada,
and who will not use or hold, nor be deemed to use or hold, any of the new
notes, the Abraxas common stock, or the contingent value rights in carrying on a
business in Canada. Non-resident holders who carry on an insurance business in
Canada and elsewhere should consult their tax advisors.
A non-resident holder will not be subject to taxation under the Act on
the exchange of old notes for new notes, Abraxas common stock and the contingent
voting rights. A non-resident holder will also not be subject to taxation under
the Act on any capital gain realized on a future disposition of the new notes,
the Abraxas common stock or the contingent voting rights.
A non-resident holder should not be subject to any taxation under the
Act, including any withholding tax, on any interest paid to the holder under and
pursuant to the new notes. A non-resident holder that is a Non-Participating
Noteholder will continue not to be subject to any taxation under the Act,
including any withholding tax, on any interest paid to the holder under and
pursuant to the old notes.
TAX CONSEQUENCES TO THE COMPANY
The Company may recognize forgiveness of debt on the reduction of the
principal amount of the old notes and may be required to reduce its undeducted
non-capital loss carryforwards and other undeducted tax accounts for purposes of
the Act. However, we do not expect to incur debt forgiveness income under the
Act as a result of the exchange offer.
The Company may also become liable for interest and penalties should it
ultimately be found liable to withhold on interest paid to non-resident holders
on the new notes.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the new notes, shares of Abraxas common
stock and CVRs offered hereby will be issued in fully registered form, without
coupons and will be deposited with, or on behalf of, the Depositary, and
registered in the name of Cede & Co., as the Depository's nominee, in the form
of global certificates (the "Global Certificates") or will remain in the custody
of the Trustee.
Except as set forth below, the Global Certificates may be transferred,
in whole and not in part, only by the Depositary to its nominee to such
Depositary or another nominee of the Depositary or by the Depositary or its
nominee to a successor of the Depositary or a nominee of such successor.
The Issuers understand that the Depositary is a limited-purpose trust
company which was created to hold securities for its participating organizations
(the "Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic
book-entry changes in accounts of its Participants. Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to the
Depository'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 ("indirect
participants"). Persons who are not participants may beneficially own securities
held by the Depositary through Participants or indirect participants.
Pursuant to procedures established by the Depositary (i) upon deposit
of the Global Certificates, the Depositary will credit the accounts of
Participants with portions of the principal amount and shares of the Global
Certificates and (ii) ownership of the new notes, shares of Abraxas common stock
and CVRs will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by the Depositary (with respect to the
interest on the Depository's participants), the Depository's Participants and
the Depository's indirect participants.
The laws of some jurisdictions require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer interests in the Global Certificates will be limited to
such extent.
So long as the nominee of the Depositary is the registered owner of the
Global Certificates, such nominee will be considered the sole owner or holder of
the new notes, shares of Abraxas common stock and CVRs for all purposes. Except
as provided below, the owners of interests in the Global Certificates will not
be entitled to have new notes, shares or CVRs registered in their names, will
not receive or be entitled to receive physical delivery of new notes or shares
in definitive form and will not be considered the owners or holders thereof
under the new indenture or otherwise. As a result, the ability of a person
having a beneficial interest in new notes or shares represented by the Global
Certificates to pledge such interest to persons or entities that do not
participate in the Depository's system or to otherwise take actions in respect
to such interest may be affected by the lack of a physical certificate
evidencing such interest.
Neither the Issuers, the Trustee nor any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of interests in the Global Certificates or for
maintaining, supervising or reviewing any records relating to such interests.
Principal and interest payments on the Global Certificates registered
in the name of the Depository's nominee will be made by the Issuers or through a
paying agent to the Depository's nominee as the registered owner of the Global
Certificates. Under the terms of the new indenture, the Issuers and the Trustee
will treat the persons in whose names the new notes are registered as the owners
of such new notes for the purpose of receiving payments of principal and
interest on such new notes and for all other purposes whatsoever. Therefore,
neither the Issuers, the Trustee nor any paying agent has any direct
responsibility or liability for the payment of principal or interest on the new
notes to owners of interests in the Global Certificates. The Depositary has
advised the Issuers and the Trustee that its present practice is, upon receipt
of any payment of principal or interest, to credit immediately the account of
the Participants with payments in amounts proportionate to their respective
holdings in principal amount of interests in the Global Certificates as shown on
the records of the Depositary. Payments by Participants and indirect
participants to owners of interests in the Global Certificates will be governed
by
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standing instructions and customary practices, as is now the case 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.
If the Depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by the Issuers within 90
calendar days, the Issuers will issue new notes, shares and CVRs in certificated
form in exchange for the Global Certificates. In addition, the Issuers may at
any time determine not to have the new notes, shares and CVRs represented by
Global Certificates, and, in such event, will issue new notes, shares and CVRs
in certificated form in exchange for the Global Certificates. In either
instance, an owner of an interest in the Global Certificates would be entitled
to physical delivery of such securities in certificated form. new notes so
issued in certificated form will be issued in denominations of principal amount
equal to $700 plus the amount of accrued and unpaid interest from November 1
through the date of the Exchange, and integral multiples thereof, and will be
issued in registered form only.
Neither the Issuers nor the Trustee shall be liable for any delay by
the Depositary or its nominee in identifying the beneficial owners or the
related new notes or shares, and each such person may conclusively rely on, and
shall be protected in relying on, instructions from the Depositary or its
nominee for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the new notes to be issued).
LEGAL MATTERS
The validity of the new notes, the Abraxas common stock and the CVRs
offered hereby will be passed upon for Abraxas by Cox & Smith Incorporated, San
Antonio, Texas and the validity of the new notes will be passed upon for
Canadian Abraxas by Osler, Hoskin and Harcourt LLP, Calgary, Alberta, Canada.
INDEPENDENT AUDITORS
The consolidated financial statements of Abraxas Petroleum Corporation
at December 31, 1997 and 1998, and for each of the three years in the period
ended December 31, 1998, appearing in this Offer To Exchange and Consent
Solicitation have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon appearing elsewhere herein, and is included
in reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The financial statements of New Cache Petroleums Ltd. as of November 30
1998 and for the year then ended included in this Offer To Exchange and Consent
Solicitation have been audited by Ernst & Young LLP, independent auditors.
ENGINEERS
The historical reserve information prepared by DeGolyer and MacNaughton
and McDaniel & Associates Consultants Ltd. included in this Offer To Exchange
and Consent Solicitation has been included herein in reliance upon the authority
of that firm as experts with respect to matters contained in such reserve
report.
WHERE YOU CAN FIND MORE INFORMATION
Abraxas files 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 102 You may also read
and copy any document Abraxas files 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.
The SEC allows Abraxas to "incorporate by reference" the information
Abraxas files with them, which means that Abraxas can disclose important
information to you by referring you to those documents. The information
incorporated by reference is an important part of this memorandum, and
information that Abraxas files later with the SEC will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any further filings made
99
<PAGE> 103
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until we terminate or close the exchange offer and consent
solicitation:
o Abraxas' Annual Report on Form 10-K for the year ended December 31,
1998;
o Abraxas' Quarterly Report on Form 10-Q for the quarter ended March 31,
1999;
o Abraxas' Quarterly Report on Form 10-Q for the quarter ended June 30,
1999;
o Abraxas' Quarterly Report on Form 10-Q for the quarter ended September
30, 1999; and
o Abraxas' Current Reports on Form 8-K, filed January 28, 1999 and March
22, 1999.
We have included copies of Abraxas' Form 10-K and Form 10-Q for the quarter
ended September 30, 1999 herewith. You may request a copy of any of the other
filings at no cost, by writing or telephoning us at the following address:
Abraxas Petroleum Corporation
500 North Loop 1604, Suite 100
San Antonio, Texas 78232
Phone: (210) 490-4788
You should rely only on the information provided or incorporated by
reference in this memorandum 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
memorandum or any documents incorporated by reference herein is accurate as of
any date other than the date on the front of such document.
100
<PAGE> 104
GLOSSARY OF TERMS
Unless otherwise indicated in this Offer To Exchange and Consent
Solicitation, natural gas volumes are stated at the legal pressure base of the
State or area in which the reserves are located at 60 degrees Fahrenheit.
Natural gas equivalents are determined using the ratio of six Mcf of natural gas
to one barrel of crude oil, condensate or NGLs.
The following definitions shall apply to the technical terms used in this
Offer To Exchange and Consent Solicitation.
TERMS USED TO DESCRIBE QUANTITIES OF CRUDE OIL AND NATURAL GAS
o "Bbl" -- barrel or barrels.
o "Bcf" -- billion cubic feet.
o "Bcfe" -- billion cubic feet equivalent.
o "BOPD" -- barrels of crude oil per day.
o "MBbl" -- thousand barrels.
o "Mcf" -- thousand cubic feet.
o "Mcfe" -- thousand cubic feet equivalent.
o "MMBbls" -- million barrels.
o "MMBTU" -- million British Thermal Units.
o "MMBTUpd" -- million British Thermal Units per day.
o "MMcf" -- million cubic feet.
o "MMcfe" -- million cubic feet equivalent.
o "MMcfpd" -- million cubic feet per day.
TERMS USED TO DESCRIBE OUR INTERESTS IN WELLS AND ACREAGE
o "Developed acreage" means acreage which consists of acres spaced
or assignable to productive wells.
o "Gross" natural gas and crude oil wells or "gross" wells or acres
is the number of wells or acres in which we have an interest.
o "Net" natural gas and crude oil wells or "net" acres are
determined by multiplying "gross" wells or acres by our working
interest in such wells or acres.
o "Undeveloped acreage" means leased acres on which wells have not
been drilled or completed to a point that would permit the
production of commercial quantities of crude oil and natural gas,
regardless whether or not such acreage contains proved reserves.
TERMS USED TO ASSIGN A PRESENT VALUE TO OR TO CLASSIFY OUR RESERVE
o "PV-10" means estimated future net revenue, discounted at a rate
of 10% per annum, before income taxes and with
101
<PAGE> 105
no price or cost escalation or de-escalation in accordance with
guidelines promulgated by the Securities and Exchange Commission.
o "Proved reserves" or "reserves" means natural gas and crude oil,
condensate and NGLs on a net revenue interest basis, found to be
commercially recoverable.
o "Proved undeveloped reserves" includes those proved reserves
expected to be recovered from new wells on undrilled acreage or
from existing wells where a relatively major expenditure is
required for recompletion.
TERMS USED TO DESCRIBE COSTS
o "DD&A" means depletion, depreciation and amortization.
o "LOE" means lease operating expenses and production taxes.
TERMS USED TO DESCRIBE TYPES OF WELLS
o "Development well" means a well drilled within the proved area of
a crude oil or natural gas reservoir to the depth of stratigraphic
horizon (rock layer or formation) known to be productive for the
purpose of extraction of proved crude oil or natural gas reserves.
o "Dry hole" means an exploratory or development well found to be
incapable of producing either crude oil or gas in sufficient
quantities to justify completion as a crude oil or natural gas
well.
o "Exploratory well" means a well drilled to find and produce crude
oil or natural gas in an unproved area, to find a new reservoir in
a field previously found to be producing crude oil or natural gas
in another reservoir, or to extend a known reservoir.
o "Productive wells" mean producing wells and wells capable of
production.
o "Service Well" is a well used for water injection in secondary
recovery projects or for the disposal of produced water.
OTHER TERMS
o "Charge" means an encumbrance, lien, claim or other interest in
property securing payment or performance of an obligation.
o "EBITDA" means earnings from continuing operations before income
taxes, interest expense, DD&A and other non-cash charges.
o "NGL" means natural gas liquid.
o "NYMEX" means the New York Mercantile Exchange.
102
<PAGE> 1
EXHIBIT T3E-2
CONSENT AND LETTER OF TRANSMITTAL
TO EXCHANGE AND TO GIVE CONSENT IN RESPECT OF ANY AND ALL OF THE
OUTSTANDING 11 1/2% SENIOR NOTES DUE 2004, SERIES D
(CUSIP 003831AF1)
OF
ABRAXAS PETROLEUM CORPORATION
AND
CANADIAN ABRAXAS PETROLEUM LIMITED
PURSUANT TO THE OFFER TO EXCHANGE AND CONSENT SOLICITATION
DATED NOVEMBER 18, 1999
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 12:01 A.M., NEW YORK CITY TIME, ON DECEMBER
17, 1999, UNLESS EXTENDED (THE "EXPIRATION TIME"). HOLDERS OF THE 11 1/2%
SENIOR NOTES DUE 2004, SERIES D (THE "OLD NOTES") MUST TENDER THEIR OLD NOTES
ON OR PRIOR TO THE EXPIRATION TIME IN ORDER TO PARTICIPATE IN THE EXCHANGE
OFFER AND RECEIVE THE EXCHANGE OFFER CONSIDERATION.
WE WILL EXECUTE A SUPPLEMENTAL INDENTURE FOR THE OLD NOTES ON THE DATE WE
RECEIVE THE CONSENT OF THE HOLDERS OF AT LEAST A MAJORITY OF THE OUTSTANDING
PRINCIPAL AMOUNT OF THE OLD NOTES. ONCE WE HAVE EXECUTED THE SUPPLEMENTAL
INDENTURE, TENDERS OF THE OLD NOTES MAY NOT BE WITHDRAWN AND THE RELATED
CONSENTS ARE IRREVOCABLE.
HOLDERS THAT DESIRE TO PARTICIPATE IN THE EXCHANGE OFFER MUST CAUSE AN AGENT'S
MESSAGE TO BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION TIME.
- -------------------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
By Overnight Courier or
By Hand: Registered/Certified Mail:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Ground Level New York, New York 10286
Corporate Trust Services Window Attn: Reorganization Unit - 7E
New York, New York 10286
Attn: Reorganization Unit - 7E
By Facsimile: Confirm by Telephone:
(212) 815-6339 (212) 815-3687
<PAGE> 2
All terms used herein and not defined herein shall have the meaning
ascribed to them in the Offer to Exchange and Consent Solicitation dated
November 18, 1999 of Abraxas Petroleum Corporation and Canadian Abraxas
Petroleum Limited.
The instructions contained herein should be read carefully before this
Consent and Letter of Transmittal is completed.
This Consent and Letter of Transmittal is to be used by holders of
11 1/2% Senior Notes due 2004, Series D (the "old notes"). Tender of old notes
is to be made according to the DTC Automated Tender Offer Program ("ATOP")
pursuant to the procedures set forth in the Offer to Exchange and Consent
Solicitation under the caption "The Exchange Offer--Procedures for Tendering
Notes." DTC participants that are accepting the exchange offer and consenting in
the consent solicitation must transmit their acceptance and consent to DTC,
which will verify the acceptance and consent and execute a book-entry delivery
to the exchange agent's DTC account. DTC will then send a computer generated
message known as an "agent's message" to the exchange agent for its acceptance.
For you to validly tender your old notes in the exchange offer and to consent in
the consent solicitation, the exchange agent must receive, prior to the
expiration time of the exchange offer, an agent's message under the ATOP
procedures that confirms that:
o DTC has received your instructions to tender your old notes;
and
o You agree to be bound by the terms of this Consent and Letter
of Transmittal.
The consideration payable in exchange for old notes tendered in the
exchange offer is described in the Offer to Exchange and Consent Solicitation.
BY USING THE ATOP PROCEDURES TO TENDER OLD NOTES, YOU WILL NOT BE
REQUIRED TO DELIVER THIS CONSENT AND LETTER OF TRANSMITTAL TO THE EXCHANGE
AGENT. HOWEVER, YOU WILL BE BOUND BY ITS TERMS JUST AS IF YOU HAD SIGNED IT.
In the event the exchange offer is withdrawn or otherwise not
completed, you will not receive new notes even if you have validly tendered old
notes and delivered consents in connection with the exchange offer and consent
solicitation. Any tendered notes will be returned to you via a credit to the
appropriate DTC account.
If you tender old notes in the exchange offer you will automatically
consent to the proposed amendments to the indenture for the old notes. You may
not consent to the proposed amendments to the indenture for the old notes
unless you participate in the exchange offer. The exchange offer and consent
solicitation for the old notes are made upon the terms and subject to the
conditions set forth in the Offer to Exchange and Consent Solicitation and
herein.
The instructions included with this Consent and Letter of Transmittal
must be followed. Questions and requests for assistance or for additional
copies of the Offer to Exchange and Consent Solicitation and this Consent and
Letter of Transmittal may be directed to the exchange agent.
<PAGE> 3
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
By tendering old notes in the exchange offer, you acknowledge receipt
of the Offer to Exchange and Consent Solicitation dated November 18, 1999 and
this Consent and Letter of Transmittal and instructions hereto, which together
constitute:
o our offer to exchange $700 principal amount of our 11 1/2%
Senior Secured Notes due 2004, Series A, referred to herein
as the "new notes", approximately 59.6184 shares of Abraxas
common stock, and approximately 59.6184 contingent value
rights each exercisable for up to approximately 6.3889 shares
of Abraxas common stock for each $1,000 principal amount of
the outstanding 11 1/2% Senior Notes due 2004, Series D,
referred to herein as the "old notes"; and
o our solicitation of consents from registered holders of old
notes to the amendments, as described in the Offer to
Exchange and Consent Solicitation, to the indenture dated
January 27, 1998, between us and The Bank of New York, as
successor trustee, pursuant to which the old notes were
issued.
The exchange offer is conditioned upon our receipt of tenders which
have not been withdrawn of at least 95% of the outstanding principal amount of
the old notes, our receipt of an opinion of our Canadian counsel that the new
notes will not be subject to Canadian withholding tax, and the resignation of
seven of Abraxas' directors. The exchange offer is subject to other customary
conditions described in the Offer to Exchange and Consent Solicitation. Subject
to the satisfaction of these conditions, we have committed to appoint four
persons designated by the holders of a majority in principal amount of the
participating holders of the old notes to the Board of Directors of Abraxas
Petroleum Corporation.
Upon the terms and subject to the conditions of the exchange offer and
the consent solicitation, you hereby:
o tender to us the principal amount of old notes indicated in
the agent's message; and
o consent to the proposed amendments to the indenture for the
old notes described in the Offer to Exchange and Consent
Solicitation, including under the section "The Consent
Solicitation," and to the execution and delivery of the
supplemental indenture (hereby revoking any previously
submitted disapproval or abstention).
Subject to, and effective upon, the acceptance for exchange of the
principal amount of old notes tendered under this Consent and Letter of
Transmittal, you hereby tender, exchange, assign and transfer to or upon the
order of, us all right, title and interest in and to all of the old notes that
are being tendered for exchange hereby. You hereby irrevocably constitute and
appoint The Bank of New York your true and lawful agent and attorney-in-fact
(with full knowledge that the exchange agent also acts as our agent) with
respect to such old notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to
(i) transfer ownership of such old notes on the account books maintained by DTC
to us or upon our order, and (ii) receive all benefits and otherwise exercise
all rights of beneficial ownership of such old notes.
You agree and acknowledge that, by tendering old notes in the exchange
offer, you make and provide the written consent, with respect to the old notes
tendered hereby, to the proposed amendments to the indenture to the old notes.
You understand that the consent provided hereby is irrevocable and may not be
revoked once a majority of the outstanding principal amount of the old notes
have been tendered.
In the event of a termination of the exchange offer, old notes
tendered in the exchange offer will be returned to you promptly. If we make a
change in the terms of the exchange offer or the information
<PAGE> 4
concerning the exchange offer in a manner determined by us, in our sole
discretion, to constitute a material change to the holders of old notes, we
will disseminate additional material in respect of the exchange offer and will
extend the exchange offer, in each case to the extent required by law.
You understand that tenders of old notes pursuant to the procedures
described in the Offer to Exchange and Consent Solicitation and in the
instructions hereto and acceptance thereof by us will constitute a binding
agreement between you and us upon the terms and subject to the conditions of
the exchange offer and the consent solicitation.
You hereby represent and warrant that you have full power and
authority to tender, exchange, assign and transfer the old notes tendered
hereby and to give the consent contained to the proposed amendments to the
supplemental indenture to the old notes, and that when such notes are accepted
for exchange by us, we will acquire good title thereto, free and clear of all
liens, restrictions, changes and encumbrances and not subject to any adverse
claim or right. You will, upon request, execute and deliver any additional
documents deemed by the exchange agent or by us to be necessary or desirable to
complete the exchange, assignment and transfer of the old notes tendered hereby
or to perfect your consent.
For purposes of the exchange offer, you understand that we will be
deemed to have accepted for exchange validly tendered old notes (or defectively
tendered old notes with respect to which we have waived such defect), if, as
and when we give oral (confirmed in writing) or written notice thereof to the
exchange agent.
You understand that, under certain circumstances and subject to certain
conditions of the exchange offer set forth in the Offer to Exchange and Consent
Solicitation, each of which we may waive except as described therein, we will
not accept for exchange any of the old notes tendered after the expiration time.
Any old notes not accepted for exchange will be returned promptly to you via a
credit to the appropriate DTC account.
All authority conferred or agreed to be conferred by this Consent and
Letter of Transmittal shall survive your death or incapacity and your
obligations under this Consent and Letter of Transmittal shall be binding upon
your heirs, personal representatives, executors, administrators, successors,
assigns, trustees in bankruptcy and other legal representatives.
You understand that all questions as to whether a tender, consent or
withdrawal (including time of receipt) was made properly will be determined by
us, in our sole discretion, which determination shall be final and binding.
<PAGE> 5
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER AD
CONSENT SOLICITATION
1. Book-Entry Confirmations; Consideration; Withdrawal of Tenders. To
tender old notes in the exchange offer, a confirmation of any book-entry
transfer into the exchange agent's account maintained by DTC through ATOP of
old notes tendered electronically must be received by the exchange agent prior
to the expiration time. Tenders of old notes in the exchange offer will be
accepted prior to the expiration time in accordance with the procedures
described in the preceding sentence or otherwise in compliance with this
Consent and Letter of Transmittal. You are solely responsible for ensuring that
your old notes are properly and validly tendered in the exchange offer. It is
suggested that holders tender their old notes sufficiently in advance of the
expiration time to permit delivery by DTC of the agent's message to the
exchange agent prior to such time. The delivery will be deemed made when the
agent's message is actually received or confirmed by the exchange agent.
Holders who tender old notes in the exchange offer are obligated to
consent to the proposed amendments to the supplemental indenture for the old
notes.
Tenders of old notes may be withdrawn at any time prior to the
execution of a supplemental indenture for the old notes. We and the trustee
will execute a supplemental indenture on the date we receive consents
representing a majority of the outstanding principal amount of the old notes.
Withdrawal of tenders of old notes may be accomplished by complying with the
applicable ATOP procedures for withdrawal of tenders. The exchange agent must
receive the agent's message relating to a holder's withdrawal prior to the
execution of a supplemental indenture for the old notes for the withdrawal to
be effective. Withdrawal of old notes will be deemed to be a withdrawal of the
related consent to the proposed amendments to the indenture for the old notes.
If you withdraw old notes, you will have the right to re-tender them prior to
the expiration time through ATOP.
2. Consent to Proposed Amendments; Revocation of Consent. In
accordance with the Offer to Exchange and Consent Solicitation, all tenders of
old notes received by the exchange agent on or prior to the expiration time
will be counted as consents with respect to the execution and delivery of the
supplemental indenture for the old notes. You may not revoke a consent given in
connection with a tender of old notes once the supplemental indenture for the
old notes has been signed by us and the trustee. To revoke your consent, you
must withdraw your tender of old notes by following the withdrawal procedures
described above in instruction 1.
WE INTEND TO EXECUTE THE SUPPLEMENTAL INDENTURE FOR THE OLD NOTES
CONTAINING THE PROPOSED AMENDMENTS TO THE INDENTURE FOR THE OLD NOTES ON THE
DATE WE RECEIVE CONSENTS REPRESENTING A MAJORITY OF THE OUTSTANDING PRINCIPAL
AMOUNT OF OLD NOTES ISSUED UNDER THE INDENTURE. SUCH SUPPLEMENTAL INDENTURE
WILL BE BINDING UPON EACH HOLDER OF OLD NOTES WHETHER OR NOT SUCH HOLDER GIVES
A CONSENT WITH RESPECT THERETO.
3. Partial Tenders and Consents. Tenders of old notes pursuant to the
exchange offer (and the corresponding consents thereto) will be accepted only
in respect of principal amounts equal to $1,000 or integral multiples thereof.
The entire principal amount of old notes set forth in a participant's DTC
account will be deemed to have been tendered, and a related consent in respect
thereof given, unless otherwise indicated. If the entire principal amount of
all old notes is not tendered or not accepted for exchange (and the related
consent in respect thereof not given), old notes representing such untendered
amount (or in respect of which a consent is not given) will be returned by
credit to the participant's account at DTC promptly after the old notes are
accepted for exchange.
<PAGE> 6
4. Transfer Taxes. We will pay all transfer taxes applicable to the
exchange and transfer of old notes pursuant to the exchange offer, except in
the case of deliveries of old notes for principal amounts not tendered or not
accepted for exchange that are registered in the name of any person other than
the registered or acting holder of old notes tendered thereby.
5. Irregularities. All questions as to the validity (including time of
receipt) and acceptance of tenders of old notes and deliveries of consents will
be determined by us, in or sole discretion, which determination shall be final
and binding. Alternative, conditional or contingent tenders or consents will
not be considered valid. We reserve the absolute right to reject any or all
tenders and consents in respect of old notes the acceptance of which would, in
our opinion, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular old notes or of
delivery as to particular consents. Our interpretation of the terms and
conditions of the exchange offer (including the instructions in this Consent
and Letter of Transmittal) will be final and binding. Any defect or
irregularity in connection with tenders of old notes or deliveries of consents
must be cured within such time as we determine, unless waived by us. Tenders of
old notes shall not have been deemed to have been made until all defects or
irregularities have been waived by us or cured. A defective tender may, in our
sole discretion, constitute a valid consent and will be counted for purposes of
determining whether consents of a majority of old notes have been obtained even
if the accompanying old notes are not accepted for exchange by reason of such
defect. All tendering holders, by tender of old notes in the exchange offer,
waive any right to receive notice of the acceptance of their old notes for
exchange or of the effectiveness of the proposed amendments. Neither we, the
exchange agent nor any other person will be under any duty to give notice of
any defects or irregularities in tenders of old notes or deliveries of
consents, or will incur any liability to holders for failure to give any such
notice.
6. Waiver of Conditions. We expressly reserve the absolute right, in
our sole discretion, to amend or waive any of the conditions to the exchange
offer, except as described in the Offer to Exchange and Consent Solicitation, in
the case of any old notes tendered or consents delivered, in whole or in part,
at any time and from time to time.
7. Requests for Assistance or Additional Copies. Questions relating to
the procedure for tendering old notes and consenting to the proposed amendments
and requests for assistance or additional copies of the Offer to Exchange and
Consent Solicitation and this Consent and Letter of Transmittal may be directed
to the exchange agent. Holders may also contact their broker, dealer,
commercial bank or trust company for assistance concerning the exchange offer.
<PAGE> 1
EXHIBIT T3G
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM T- 1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
------------------------------------
FIRSTAR BANK, N.A.
f/k/a FIRSTAR BANK OF MINNESOTA, N.A.
(Exact name of Trustee as specified in its charter)
A National Banking Association 41-0122055
(State of incorporation if not a national bank) (IRS Employer
Identification No.)
101 East Fifth Street
Corporate Trust Department
St. Paul, Minnesota 55101
(Address of principal executive offices) (Zip Code)
FIRSTAR BANK, N.A.
101 East Fifth Street
St. Paul, Minnesota 55101
(651) 229-2600
(Exact name, address and telephone number of agent for service)
---------------------------------
Abraxas Petroleum Corporation
Canadian Abraxas Petroleum Limited
(Exact name of obligors as specified in their charters)
Nevada 74-2584033
Alberta N/A
(State of incorporation or other jurisdiction) (IRS Employer
Identification No.)
500 North Loop 300 - 5th Avenue
1604 East, Suite 100 12th Floor
San Antonio, Texas 78232 Calgary, Alberta
(Address of obligors' principal executive offices)
-----------------------------------
11-1/2% Senior Secured Notes due 2004
(Title of Indenture Securities)
<PAGE> 2
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, DC
Federal Deposit Insurance Corporation
Washington, DC
The Board of Governors of the Federal Reserve System
Washington, DC
(b) The Trustee is authorized to exercise corporate trust powers.
GENERAL
Item 2. Affiliations with Obligor and Underwriters. If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe
each such affiliation.
None.
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's knowledge
the obligor is not in default under any Indenture for which the Trustee acts as
Trustee.
Item 16. List of Exhibits. Listed below are all the exhibits filed as a part of
this statement of eligibility and qualification. Exhibits 1-4 are
incorporated by reference from filing 333-48849. Exhibit 7 is
incorporated by reference from filing 333-79659.
Exhibit 1. Copy of Articles of Association of the trustee
now in effect.
Exhibit 2. a. A copy of the certificate of the Comptroller
of Currency dated June 1, 1965, authorizing
Firstar Bank of Minnesota, N.A. to act as
fiduciary.
b. A copy of the certificate of authority of
the trustee to commence business issued June
9, 1903, by the Comptroller of the Currency
to Firstar Bank of Minnesota, N.A.
Exhibit 3. A copy of the authorization of the trustee to
exercise corporate trust powers issued by the
Federal Reserve Board.
Exhibit 4. Copy of the By-Laws of the trustee as now in effect.
Exhibit 5. N/A.
<PAGE> 3
Exhibit 6. The consent of the trustee required by
Section 3 2 1 (b) of the Act.
Exhibit 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.
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligor within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligor, or affiliates, are based
upon information furnished to the Trustee by the obligor. While the Trustee has
no reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, a national banking association organized and existing under the laws
of the United States, has duly caused this statement of eligibility and
qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City
of Saint Paul and State of Minnesota on the 17th day of November, 1999.
FIRSTAR BANK, N.A.,
f/k/a FIRSTAR BANK OF MINNESOTA, N.A.
(Seal)
/s/ Frank P. Leslie III
------------------------------------
Frank P. Leslie III, Vice President
<PAGE> 4
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, Firstar Bank of Minnesota, N.A., hereby consents that reports
of examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: November 17, 1999
FIRSTAR BANK, N.A.,
f/k/a/ FIRSTAR BANK OF MINNESOTA, N.A.
/s/ Frank P. Leslie III
--------------------------------------
Frank P. Leslie III, Vice President
