<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1997
REGISTRATION NO. 333-39097
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CROSS TIMBERS OIL COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1311 75-2347769
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
810 HOUSTON STREET, SUITE 2000
FORT WORTH, TEXAS 76102
(817) 870-2800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
BOB R. SIMPSON
810 HOUSTON STREET, SUITE 2000
FORT WORTH, TEXAS 76102
(817) 870-2800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE OF PROCESS)
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COPIES OF ALL COMMUNICATIONS TO:
F. RICHARD BERNASEK, ESQ. JAMES M. PRINCE, ESQ.
KELLY, HART & HALLMAN, P.C. ANDREWS & KURTH, L.L.P.
201 MAIN STREET, SUITE 2500 4200 TEXAS COMMERCE TOWER
FORT WORTH, TEXAS 76102 HOUSTON, TEXAS 77002
(817) 332-2500 (713) 220-4300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE(1) FEE
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<S> <C> <C> <C> <C>
8 3/4% Series B Senior
Subordinated Notes due
2009 ................. $175,000,000 100% $175,000,000 $53,030.31(2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS
OFFER FOR ALL OUTSTANDING
8 3/4% SERIES A SENIOR SUBORDINATED NOTES DUE 2009 IN EXCHANGE FOR
8 3/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2009, WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OF
CROSS TIMBERS OIL COMPANY
LOGO
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER
10, 1997, UNLESS EXTENDED.
---------------
Cross Timbers Oil Company, a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange an aggregate principal amount of
up to $175,000,000 of its 8 3/4% Series B Senior Subordinated Notes due 2009
(the "New Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), for a like principal amount of its
issued and outstanding 8 3/4% Series A Senior Subordinated Notes due 2009 (the
"Old Notes" and, together with the New Notes, the "Notes") from the holders
(the "Holders") thereof. The terms of the New Notes are identical in all
material respects to the Old Notes, except for certain transfer restrictions
and registration rights relating to the Old Notes and except for certain
provisions providing for Liquidated Damages (as defined herein) on the Old
Notes under certain circumstances relating to the timing of the Exchange
Offer.
On October 28, 1997, the Company issued $175,000,000 principal amount of Old
Notes. The Old Notes were issued pursuant to an offering exempt from
registration under the Securities Act and applicable state securities laws.
Interest on the Notes will be payable semi-annually on November 1 and May 1
of each year, commencing May 1, 1998. The Notes will mature on November 1,
2009. The Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after November 1, 2002, at the redemption prices set
forth herein, together with accrued and unpaid interest and Liquidated Damages
(as defined herein), if any, to the date of redemption. At any time prior to
November 1, 2000, the Company may, at its option, redeem up to 33 1/3% of the
aggregate principal amount of the Notes with the net cash proceeds from one or
more Public Equity Offerings (as defined herein) at a redemption price equal
to 108 3/4% of the principal amount thereof, together with accrued and unpaid
interest and Liquidated Damages, if any, to the date of redemption, provided
that at least $116,700,000 of the principal amount of the Notes remains
outstanding after each such redemption. See "Description of the Notes--Certain
Covenants--Optional Redemption."
In the event of a Change of Control (as defined herein), each Holder will
have the right to require the Company to purchase all or any part of such
Holder's Notes at 101% of the aggregate principal amount thereof, together
with accrued and unpaid interest and Liquidated Damages, if any, to the date
of purchase. See "Description of the Notes--Certain Covenants--Change of
Control."
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior
Indebtedness (as defined herein) of the Company. The Notes are also
effectively subordinated to all obligations of the Company's Subsidiaries (as
defined herein) including, without limitation, trade payables incurred in the
ordinary course. The Notes rank pari passu with any present and future senior
subordinated Indebtedness (as defined herein) of the Company, including the
Company's $125,000,000 9 1/4% senior subordinated notes due 2007, and will
rank senior to all other subordinated Indebtedness of the Company. At June 30,
1997, on a pro forma basis, the Company would have had outstanding
approximately $46.6 million of Senior Indebtedness and $125 million of
Indebtedness pari passu with the Notes.
For each Old Note accepted for exchange, the Holder thereof will receive a
New Note having a principal amount equal to that of the surrendered Old Note.
The New Notes will bear interest from the most recent date to which interest
has been paid on the Old Notes or, if no interest has been paid on the Old
Notes, from October 28, 1997. Old Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive any payment of accrued interest on such Old Notes.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement (as
defined herein). Based on existing interpretations by the staff of the
Securities and Exchange Commission (the "Commission") set forth in several no-
action letters to third parties, the Company believes that New Notes issued
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by a Holder thereof without further compliance with the
registration and prospectus delivery provisions of the Securities Act.
However, the staff of the Commission has not rendered a no-action letter with
respect to the Exchange Offer, and there can be assurance that the staff would
make a similar determination for the Exchange Offer as in such other
circumstances. Further, any purchaser of Old Notes who is an "affiliate" of
the Company, who is not acquiring the New Notes in the ordinary course of its
business or who intends to participate in the Exchange Offer for the purpose
of distributing the New Notes (1) will not be able to rely on the
interpretations of the staff of the Commission, (2) will not be able to tender
its Old Notes in the Exchange Offer and (3) must comply with the registration
and prospectus delivery provisions of the Securities Act in connection with
any sale or transfer of the Old Notes unless such sale or transfer is made
pursuant to an exemption from such requirements. Each Holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. Each broker-
dealer that receives New Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a prospectus in connection with
any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will be deemed
not to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of up to 180 days after
the Expiration Date (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date. In the event the Company terminates the Exchange Offer
and does not accept for exchange any Old Notes, the Company will promptly
return the Old Notes to the Holders thereof. See "The Exchange Offer."
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes.
Lehman Brothers Inc., Morgan Stanley & Co. Incorporated, J.P. Morgan
Securities Inc. and NationsBanc Montgomery Securities, Inc. (the "Initial
Purchasers") have advised the Company that they currently intend to make a
market in the New Notes. The Initial Purchasers are not obligated to do so,
however, and any market-making with respect to the New Notes may be
discontinued at any time without notice. The Company does not intend to apply
for listing or quotation of the New Notes on any securities exchange or stock
market.
SEE "RISK FACTORS" ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY HOLDERS OF OLD NOTES BEFORE DECIDING WHETHER TO TENDER SUCH
OLD NOTES IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 7, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-4 (together with all amendments, exhibits and supplements thereto, the
"Registration Statement") under the Securities Act with respect to the New
Notes offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the New Notes offered hereby, reference is made to
the Registration Statement. Any statements made in this Prospectus concerning
the provisions of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of such documents filed as an exhibit
to the Registration Statement or otherwise filed with the Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Commission. Reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and Suite 1400,
Northwestern Atrium Center, 14th Floor, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material may also be obtained at prescribed
rates by writing to the Commission, Public Reference Section, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and such information
may also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Such
reports, proxy and information statements and other information may be found
on the Commission's Web site address, http://www.sec.gov.
The Company is a Delaware corporation. Its principal executive offices are
located at 810 Houston Street, Suite 2000, Fort Worth, Texas 76102 and its
telephone number is (817) 870-2800.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference the following documents:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1996;
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997
and June 30, 1997; and
(c) All other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to termination of the offering made hereby.
Any statement contained herein or in a document all or a portion of which is
incorporated by or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Statements contained in this Prospectus as to the contents of any contract
or other document referred to are not necessarily complete and in each
instance reference is made to such contract or other document, copies of which
are available from the Company as described below, each such statement being
qualified in all respects by such reference.
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial statements (including the notes thereto)
appearing elsewhere in, or incorporated by reference into, this Prospectus.
Holders of Old Notes should carefully consider the matters discussed under the
caption "Risk Factors" before deciding whether to tender Old Notes in the
Exchange Offer. References in this Prospectus to the "Company" refer to Cross
Timbers Oil Company and its predecessors. Certain terms relating to the oil and
gas business are defined in "Glossary of Certain Oil and Gas Terms." Unless
otherwise stated herein, (i) all information provided in this Prospectus is as
of December 31, 1996 or for the fiscal year ended December 31 of the year
indicated and (ii) per share amounts relating to common stock of the Company
give effect to a three-for-two stock split effected March 19, 1997.
THE COMPANY
Cross Timbers Oil Company is a leading United States independent energy
company engaged in the acquisition, development, exploitation and exploration
of oil and natural gas properties, and in the production, processing, marketing
and transportation of oil and natural gas. The Company has consistently
increased proved reserves, production and cash flow since its inception in
1986, and believes it is one of the most efficient domestic onshore operators
in the industry. The Company has grown primarily through acquisitions of
reserves, followed by aggressive development and exploitation activities and
strategic acquisitions of additional interests in or near such reserves. The
Company's oil and gas reserves are principally located in relatively long-lived
fields with well-established production histories concentrated in western
Oklahoma, the Permian Basin of West Texas and New Mexico, the Hugoton Field of
Oklahoma and Kansas and the Green River Basin of Wyoming.
The Company has achieved substantial growth in proved reserves, production,
revenues and EBITDA over the last five years. The Company increased proved
reserves by 192% from 45.4 million BOE as of December 31, 1992 to 132.5 million
BOE as of December 31, 1996 at an average finding cost of $3.90 per BOE.
Production increased from 4.9 million BOE in 1992 to 9.7 million BOE in 1996,
and oil and gas revenues and EBITDA increased from $63.9 million and $30.2
million, respectively, in 1992 to $148.4 million and $85.5 million,
respectively, in 1996.
As of December 31, 1996, the Company's estimated proved oil and gas reserves
totaled 42.4 million Bbls of oil and 540.5 Bcf of natural gas, or a total of
132.5 million BOE. Approximately 83% of these reserves, on a BOE basis, were
proved developed reserves. The average reserve-to-production index for the
Company's oil and gas proved reserves at December 31, 1996 was 12.4 years. As
of December 31, 1996, the Company owned interests in 5,309 gross (1,695 net)
wells and was the operator of wells representing 81% of the present value of
cash flows before income taxes (discounted at 10%) from estimated proved
reserves. The discounted present value of cash flows before income taxes from
the Company's estimated proved reserves was $946.2 million at December 31,
1996, based on then current oil and gas prices of $24.25 per barrel and $3.02
per Mcf, respectively. Based on an oil price of $20.00 per barrel and a gas
price of $2.00 per Mcf, the discounted present value of cash flows before
income taxes of the Company's proved reserves as of December 31, 1996 would
have been $599.9 million. The Company has established a successful development
record and from 1992 to 1996 drilled 462 gross (189 net) development wells, of
which 449 gross (181.9 net) were commercially successful. The Company believes
that production and cash flow in 1997 and 1998 will increase significantly as a
result of acquisitions completed in 1996 and early 1997, the continued
development of existing properties and the drilling of certain higher-risk
prospects.
From inception in 1986 through December 31, 1996, the Company produced a
total of 55.4 million BOE. During this period, total proved reserves added due
to extensions, discoveries and revisions were approximately 135% of production.
Total development and exploitation costs incurred during this period were
approximately 54% of cash provided by operating activities. Over the last three
years, the Company increased, on a BOE basis,
1
<PAGE>
proved reserves per share from 2.10 at year end 1993 to 4.80 at year end 1996
while maintaining debt at approximately $2.20 per BOE of proved reserves. No
assurance can be given that this trend will continue.
The following table sets forth the total amount spent by the Company to
acquire, exploit and develop its proved reserves, and the amount of such
reserves on a BOE basis, from inception in 1986 to December 31, 1996:
<TABLE>
<CAPTION>
AVERAGE COST
COSTS BOE (a) PER BOE
-------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisition of properties..................... $637,979 127,862 $4.99
Exploitation and development of properties.... 153,357 74,846 2.05
-------- -------
Total......................................... $791,336 202,708 3.90
======== =======
</TABLE>
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(a) Amounts set forth include proved reserves, on a BOE basis, acquired or
added through development since inception of the Company in 1986, and
therefore include proved reserves acquired, exploited or developed and
subsequently produced, distributed or sold.
RECENT DEVELOPMENTS
Amoco Properties Acquisition
On September 29, 1997, the Company entered into a definitive agreement with
Amoco Production Company, a subsidiary of Amoco Corporation ("Amoco"), to
acquire producing properties located in the San Juan Basin of northwestern New
Mexico (the "Amoco Properties") for $252 million and five-year warrants to
purchase 625,000 shares of Company common stock exercisable at $22.97 per
share. The Company has secured firm commitments to finance this acquisition
through an increase in borrowings available under the Company's senior credit
agreement. There can be no assurance, however, that the acquisition of the
Amoco Properties will be consummated or that all of such properties will be
purchased. The transaction is anticipated to close December 1, 1997 with an
effective date of November 1, 1997, and is subject to preferential purchase
rights and typical purchase price adjustments. Amoco has the option to accept,
in lieu of $15.7 million in cash at closing, certain properties owned by the
Company that are either located in the Panhandle of Texas or currently operated
by Amoco. See "Recent Developments--Amoco Properties Acquisition."
The Amoco Properties consist of interests in approximately 170,000 net acres
concentrated in San Juan and Rio Arriba counties of New Mexico. The Company's
internal engineers estimate proved reserves attributable to the acquisition to
be 258.6 Bcf of natural gas, 16.4 million Bbls of NGLs and 1.5 million Bbls of
oil, or a total of 61 million BOE. The Company estimates current net daily
production for the Amoco Properties at 49,000 Mcf of gas, 3,100 Bbls of NGLs
and 270 Bbls of oil from more than 2,600 gross (900 net) wells with a reserve-
to-production index of 14.5 years. Proved developed reserves represent 93% of
the present value of cash flows before income taxes (discounted at 10%) from
estimated proved reserves. All of the proved reserves are attributable to the
Dakota, Pictured Cliffs, Mesa Verde and Fruitland Coal formations. In addition,
the properties generate Section 29 income tax credits of approximately $2.5
million per year.
Average daily production from the Amoco Properties for the six months ended
June 30, 1997 was 49,597 Mcf of gas, 321 Bbls of oil and 3,409 Bbls of NGLs.
Estimated revenues, production expenses, production taxes, and revenues less
direct operating expenses for the six-month period were $23.3 million, $3.1
million, $2.4 million and $17.8 million, respectively, and average prices were
$19.44 per Bbl for oil, $1.73 per Mcf for gas and $10.72 per Bbl for NGL. The
discounted present value of cash flows before income taxes (discounted at 10%)
from estimated proved reserves of the Amoco Properties is $279.9 million at the
December 1, 1997 closing date, based on September 30, 1997 oil, gas and NGL
prices of $18.89 per Bbl, $2.88 per Mcf and $10.59 per Bbl, respectively. Based
on an oil price of $20.00 per Bbl, a gas price of $2.00 per Mcf and an NGL
price of $10.00 per Bbl, the discounted present value of cash flows before
income taxes (discounted at 10%) from the
2
<PAGE>
estimated proved reserves of the Amoco Properties at December 1, 1997 is $180.6
million. The estimated production data, revenues and direct operating expenses
included in this paragraph were based on information provided by Amoco and
remain subject to audit by the Company's independent public accountants.
Estimates of proved reserves of the Amoco Properties and the discounted present
value thereof were prepared by the Company's internal engineers and are subject
to revision by the Company's independent petroleum engineers.
Results of Operations for the Three and Nine Months Ended September 30, 1997
and 1996
On October 20, 1997, the Company announced third quarter 1997 earnings of
$2.8 million or 11 cents per share, compared to third quarter 1996 earnings of
$4.6 million or 18 cents per share (adjusted for the March 1997 3-for-2 split).
Strong production increases of 28% for gas and 10% for oil for the quarter were
offset by a decline in oil prices of $3.39 per barrel. Increased oil and gas
production is primarily attributable to property acquisitions and development
activity. Total revenues for the quarter were $44.1 million, a 12% increase
from third quarter 1996 revenues of $39.2 million. For the first nine months of
1997, earnings were $17.2 million or 65 cents per share, compared with earnings
of $11.1 million or 41 cents per share (adjusted for the March 1997 3-for-2
stock split) for the same 1996 period. Total revenues for the first nine months
of 1997 were $143.5 million, a 28% increase from revenues of $112 million for
the same 1996 period. Revenues for the first nine months of 1997 include gains
on sale of producing properties and facilities and equity securities of $3.5
million, and lawsuit settlement proceeds of $1.3 million. See "Recent
Developments -- Results of Operations for the Three and Nine Months Ended
September 30, 1997 and 1996."
COMPANY STRENGTHS
The Company believes that its historical success and future prospects are
directly related to its unique combination of strengths, including the
following:
QUALITY OF EXISTING PROPERTIES. The Company's properties are characterized by
relatively long reserve lives and highly predictable well production profiles.
Based on current production from 1,695 net producing wells, the average
reserve-to-production index for the Company's proved reserves at December 31,
1996 was 12.4 years. In general, these properties have extensive production
histories and contain significant reserves and production enhancement
opportunities. While the Company's properties are geographically diversified,
the producing fields are concentrated within each core area, allowing for
substantial economies of scale in production and cost-effective application of
reservoir management techniques gained from prior operations. Since the
Company's inception, approximately 54% of cash provided by operating activities
has been invested in exploitation and development opportunities.
INVENTORY OF DRILLING PROJECTS. The Company has generated a substantial
inventory of approximately 630 potential development drilling locations within
its existing properties (of which 156 have been attributed proved undeveloped
reserves), which should continue to support future net reserve additions. The
Company has increased its inventory of drilling projects consistently since its
inception and added more than 200 potential development drilling locations (of
which 54 have been attributed proved undeveloped reserves) through acquisitions
in 1996.
PROVEN ACQUISITION PROGRAM. The Company employs a disciplined acquisition
program refined by senior management over more than 20 years to augment its
core properties and expand its reserve base. The Company's 40 engineering and
geoscience professionals use their expertise and experience gained through the
management of existing core properties to target properties with similar
geological and reservoir characteristics for acquisition. Following an
acquisition, these professionals implement development programs based on such
expertise and experience to enhance production and reduce costs. Since its
inception, the Company has completed acquisitions for an aggregate purchase
price of $638 million, representing 127.9 million BOE of proved reserves.
Additionally, since its inception the Company has added through its
exploitation and development activities 74.8 million BOE, or 59%, of the proved
reserves that it has acquired. In 1995 and 1996 alone, the Company acquired 59
million BOE of proved reserves for an aggregate purchase price of $237 million.
The Company believes that its average acquisition cost of $4.04 per BOE of
proved reserves during 1995 and 1996 ranks it in the top quartile of
independent oil and gas producers over this period.
3
<PAGE>
EFFICIENT OPERATIONS. The Company believes that the nature of its properties,
along with the operating expertise and experience of its personnel in its
principal geographic regions, have allowed the Company to lower its average
lease operating expense ratios per BOE produced. The Company is the operator of
properties representing 81% of the present value of cash flows before income
taxes (discounted at 10%) from estimated proved reserves, allowing it to
control expenses, capital allocation and the timing of development and
exploitation activities in its fields. This control and the Company's operating
expertise have allowed it to reduce substantially production costs of acquired
properties. For example, in its Prentice Northeast Unit, the Company has
reduced direct lease operating expenses by 35%, from $8.44 per BOE produced for
the period from the Company's initial acquisition in the Unit in April 1993
through December 1993, to $5.50 per BOE produced for the year ended December
31, 1996.
EXPERIENCED MANAGEMENT AND TECHNICAL STAFF. Senior management of the Company
has worked together for over 20 years. They were co-founders of the Company in
1986 and previously served as executive officers of Southland Royalty Company,
one of the largest U.S. independent oil and gas producers prior to its
acquisition by Burlington Northern, Inc. in 1985. In addition, the Company has
40 engineering and geoscience professionals dedicated to its properties with an
average of 15 years of experience.
BUSINESS STRATEGY
ACQUIRING LONG-LIVED, OPERATED PROPERTIES. The Company seeks to acquire long-
lived, onshore operated producing properties that (i) contain complex multiple-
producing horizons with the potential for increases in reserves and production,
(ii) are in the Company's core operating areas or in areas with similar
geological and reservoir characteristics and (iii) present opportunities to
reduce expenses through more efficient operations. The Company believes that
the properties it acquires provide opportunities to increase production and
reserves through the implementation of mechanical and operational improvements,
workovers, behind-pipe completions, secondary-recovery operations, new
development wells and other exploitation activities. The Company also seeks to
acquire facilities related to gathering, processing, marketing and transporting
oil and gas in areas where it owns reserves. Such facilities can enhance
profitability, reduce gathering, processing, marketing and transportation
costs, provide marketing flexibility and give the Company access to additional
markets.
INCREASING PRODUCTION AND RESERVES. A principal component of the Company's
strategy is to increase production and reserves through aggressive management
of operations and exploitation and development drilling. The Company believes
that its principal properties possess geological and reservoir characteristics
that make them well suited for production increases through low-risk
exploitation and drilling programs. The Company has generated an inventory of
approximately 630 potential drilling locations for this program. Additionally,
the Company reviews operations and mechanical data on operated properties to
determine if actions can be taken to reduce operating costs or increase
production. Such actions include installing, repairing and upgrading lifting
equipment, redesigning downhole equipment to improve production from different
zones, modifying surface facilities and conducting restimulations and
recompletions. The Company may also initiate, upgrade or revise existing
secondary-recovery operations and drill development wells. As a result of its
efforts, reserves added by the Company through revisions, extensions and
discoveries have exceeded production by 135% since 1986.
EXPLORATION ACTIVITIES. The Company's strategy has evolved to include
allocation of 10% to 20% of its annual capital budget (excluding acquisitions)
to higher-risk projects, including step-out development drilling, trend
extensions and exploration. The Company attempts to select projects that it
believes will have the potential to add substantially to proved reserves and
cash flow. Although it has not historically engaged in significant exploratory
activities, the Company believes that it can prudently and successfully add
growth potential through exploratory activities given improved technology, its
experienced technical staff and its expanded base of operations.
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THE EXCHANGE OFFER
Securities Offered........ Up to $175,000,000 aggregate principal amount of
Series B 8 3/4% Senior Subordinated Notes due 2009,
which have been registered under the Securities
Act. The terms of the New Notes and the Old Notes
are identical in all material respects, except for
certain transfer restrictions and registration
rights relating to the Old Notes and except for
certain provisions providing for Liquidated Damages
(as defined herein) relating to the Old Notes
described below under "--Summary Description of the
New Notes."
The Exchange Offer........ The New Notes are being offered in exchange for a
like principal amount of Old Notes. The issuance of
the New Notes is intended to satisfy obligations of
the Company contained in the Registration Rights
Agreement, dated October 28, 1997, among the
Company and the Initial Purchasers (the
"Registration Rights Agreement").
Expiration Date;
Withdrawal Rights......... The Exchange Offer will expire at 5:00 p.m., New
York City time, on December 10, 1997, or such later
date and time to which it is extended. The tender
of Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
Any Old Note not accepted for exchange for any
reason will be returned without expense to the
tendering Holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer. See "The Exchange Offer--Terms of the
Exchange Offer; Period for Tendering Old Notes" and
"--Withdrawal Rights."
Procedures for Tendering Each Holder of Old Notes wishing to accept the
Old Notes................. Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with either certificates for such Old Notes, or a
Book-Entry Confirmation (as defined herein) of such
Old Notes into the Book-Entry Transfer Facility (as
defined herein) if such procedure is available, and
any other required documentation to the exchange
agent (the "Exchange Agent") at the address set
forth herein. By executing the Letter of
Transmittal, each Holder will represent to the
Company, among other things, that (i) the New Notes
acquired pursuant to the Exchange Offer by the
Holder and any other person are being obtained in
the ordinary course of business of the person
receiving such New Notes, (ii) neither the Holder
nor such other person is participating in, intends
to participate in or has an arrangement or
understanding with any person to participate in the
distribution of such New Notes and (iii) neither
the Holder nor such other person is an "affiliate,"
as defined in Rule 405 under the Securities Act, of
the Company. Each broker-dealer that receives New
Notes for its own account in exchange for Old
Notes, if such Old Notes were acquired by such
broker or dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker or dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the
Securities Act. See "The Exchange Offer--Procedures
for Tendering Old Notes" and "Plan of
Distribution."
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Special Procedures for
Beneficial Owners........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered Holder
promptly and instruct such registered Holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes
in such owner's name or obtain a properly completed
bond power from the registered Holder. The transfer
of registered ownership may take considerable time.
See "The Exchange Offer--Procedures for Tendering
Old Notes."
Guaranteed Delivery Holders of Old Notes who wish to tender their Old
Procedures................ Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes or
any other documents required by the Letter of
Transmittal to the Exchange Agent must tender their
Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Federal Income Tax The exchange pursuant to the Exchange Offer should
Consequences.............. not result in gain or loss to the Holders or the
Company for federal income tax purposes. See "The
Exchange Offer--Certain Federal Income Tax
Considerations."
Use of Proceeds........... There will be no proceeds to the Company from the
Exchange Offer.
Exchange Agent............ The Bank of New York is serving as Exchange Agent
in connection with the Exchange Offer. See "The
Exchange Offer--Exchange Agent."
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate
that it will register Old Notes under the Securities Act. Based on existing
interpretations by the staff of the Commission set forth in several no-action
letters to third parties, the Company believes that New Notes issued pursuant
to the Exchange Offer may be offered for resale, resold and otherwise
transferred by a Holder thereof without further compliance with the
registration and prospectus delivery provisions of the Securities Act. Any
purchaser of Notes, however, who is an "affiliate" of the Company, who is not
acquiring the New Notes in the ordinary course of its business, or who intends
to participate in the Exchange Offer for the purpose of distributing the New
Notes (1) will not be able to rely on the interpretations of the staff of the
Commission, (2) will not be able to tender its Old Notes in the Exchange Offer
and (3) must comply with the registration and prospectus delivery provisions of
the Securities Act in connection with any sale or transfer of the Old Notes
unless such sale or transfer is made pursuant to an exemption from such
requirements. However, the staff of the Commission has not rendered a no-action
letter with respect to the Exchange Offer, and there can be no assurance that
the staff would make a similar determination for the Exchange Offer as in such
other circumstances. Each Holder, other than a broker-dealer, must acknowledge
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes and has no arrangement or understanding to participate in a
distribution of New
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Notes. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes must acknowledge that such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such New Notes. See "Plan of Distribution."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and except for certain provisions providing for
Liquidated Damages (as defined herein) on the Old Notes under certain
circumstances relating to timing of the Exchange Offer, which rights will
terminate upon consummation of the Exchange Offer. The New Notes will bear
interest from the most recent date to which interest has been paid on the Old
Notes or, if no interest has been paid on the Old Notes, from October 28, 1997.
Accordingly, registered Holders of New Notes on the relevant record date for
the first interest payment date following the consummation of the Exchange
Offer will receive interest accruing from the most recent date to which
interest has been paid or, if no interest has been paid, from October 28, 1997.
Old Notes accepted for exchange will cease to accrue interest from and after
the date of consummation of the Exchange Offer. Holders of Old Notes whose Old
Notes are accepted for exchange will not receive any payment of interest on
such Old Notes otherwise payable on any interest payment date the record date
for which occurs on or after the date of consummation of the Exchange Offer,
and rights to receive interest on such Old Notes will terminate upon
consummation of the Exchange Offer.
Notes Offered............. $175,000,000 aggregate principal amount of 8 3/4%
Series B Senior Subordinated Notes due 2009, which
have been registered under the Securities Act.
Maturity Date............. November 1, 2009.
Interest Payment Dates.... Interest on the Notes will be payable semi-annually
in arrears on May 1 and November 1 of each year,
commencing May 1, 1998.
Mandatory Redemption...... The Company will not be required to make mandatory
redemption or sinking fund payments with respect to
the Notes.
Optional Redemption....... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after November 1, 2002, at the redemption prices
set forth herein, together with accrued and unpaid
interest and Liquidated Damages (as defined
herein), if any, to the date of redemption. In
addition, at any time on or prior to November 1,
2000, the Company may redeem up to 33 1/3% of the
Notes with the net cash proceeds of one or more
Public Equity Offerings by the Company, at a
redemption price equal to 108 3/4% of the principal
amount to be redeemed, together with accrued and
unpaid interest and Liquidated Damages, if any, to
the date of redemption, provided that at least
$116.7 million principal amount of the Notes
remains outstanding after each such redemption. See
"Description of the Notes--Redemption--Optional
Redemption."
Change of Control......... Upon the occurrence of a Change of Control, each
Holder may require the Company to purchase all or a
portion of such Holder's Notes at a purchase price
equal to 101% of the principal amount thereof,
together with accrued and unpaid interest and
Liquidated Damages, if any, to the date of
purchase. See "Description of the Notes--Certain
Covenants--Change of Control."
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<PAGE>
Ranking................... The Notes are general unsecured obligations of the
Company and are subordinated in right of payment to
all existing and future Senior Indebtedness (as
defined herein) of the Company. The Notes are also
effectively subordinated to all obligations of the
Company's Subsidiaries (as defined herein)
including, without limitation, trade payables
incurred in the ordinary course. The Notes rank
pari passu with any present and future senior
subordinated Indebtedness (as defined herein) of
the Company, including the Company's $125,000,000 9
1/4% senior subordinated notes due 2007, and rank
senior to all other subordinated Indebtedness of
the Company. None of the Company's Subsidiaries is
presently required to guarantee the Notes, although
under certain future circumstances the Company may
be required to cause one or more Restricted
Subsidiaries (as defined herein) to guarantee the
Notes on a senior subordinated basis. At June 30,
1997, on a pro forma basis, the Company would have
had outstanding approximately $46.6 million of
Senior Indebtedness and $125 million of
Indebtedness pari passu with the Notes. See
"Description of the Notes--Subordination" and "--
Subsidiary Guarantees of the Notes."
Certain Covenants......... The Indenture pursuant to which the Old Notes were,
and the New Notes will be, issued (the "Indenture")
contains certain covenants, including, without
limitation, covenants with respect to the following
matters: (i) limitation on indebtedness; (ii)
limitation on restricted payments; (iii) limitation
on issuances and sales of restricted subsidiary
stock; (iv) limitation on transactions with
affiliates; (v) limitation on liens;
(vi) limitation on disposition of proceeds of asset
sales; (vii) limitation on guarantees of
indebtedness by subsidiaries; (viii) limitation on
dividends and other payment restrictions affecting
subsidiaries; and (ix) limitation on mergers,
consolidations and transfers of assets. See
"Description of the Notes--Certain Covenants."
Use of Proceeds........... The Company will not receive any proceeds from the
Exchange Offer. The proceeds from the offering of
the Old Notes, which were approximately $169.9
million, were used to reduce indebtedness under the
Company's senior credit agreement.
Exchange Offer; Holders of New Notes (other than as set forth
Registration Rights....... below) are not entitled to any registration rights
with respect to the New Notes. Pursuant to the
Registration Rights Agreement, the Company agreed
to use its reasonable best efforts to file with the
Securities and Exchange Commission a registration
statement (the "Exchange Offer Registration
Statement") with respect to the Exchange Offer. The
Registration Statement of which this Prospectus is
a part constitutes the Exchange Offer Registration
Statement. See "Description of the Notes--
Registration Rights; Liquidated Damages."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF
OLD NOTES BEFORE DECIDING WHETHER TO TENDER SUCH OLD NOTES IN THE EXCHANGE
OFFER, SEE "RISK FACTORS."
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<PAGE>
RISK FACTORS
Holders of Old Notes should carefully review the information contained
elsewhere in, and incorporated by reference into, this Prospectus and should
particularly consider the following matters before deciding whether to tender
Old Notes in the Exchange Offer:
RESTRICTIONS ON RESALE
The Old Notes have not been registered under the Securities Act or any state
securities laws and, unless so registered, may not be offered or sold except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state
securities laws.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes were issued on October 28, 1997 to a small number of institutional
investors and are eligible for trading in the Private Offerings, Resale and
Trading through Automated Linkages ("PORTAL") market. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
the remaining untendered Old Notes could be adversely affected. There is no
existing trading market for the New Notes, and there can be no assurance
regarding the future development of a market for the New Notes, or the ability
of Holders of New Notes to sell their New Notes or the price at which such
Holders may be able to sell their New Notes. If such a market were to develop,
the New Notes could trade at prices higher or lower than the initial offering
price of the Old Notes depending on many factors, including prevailing
interest rates, the Company's operating results and the market for similar
securities. The Company does not intend to apply for listing of the Notes on
any securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System. Although the Initial Purchasers
have informed the Company that they currently intend to make a market in the
Notes the Initial Purchasers are not obligated to do so, and any such market
making may be discontinued at any time without notice. The liquidity of any
market for the Notes will depend upon the number of Holders of the Notes, the
interest of securities dealers in making a market in the Notes and other
factors. Accordingly, there can be no assurance as to the development of
liquidity of any market for the Notes.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of
securities similar to the Notes. There can be no assurance that the market, if
any, for the Notes will not be subject to similar disruptions. Any such
disruptions may have an adverse effect on the Holders of the Notes.
FORWARD-LOOKING STATEMENTS
Certain statements contained in, or incorporated by reference into, this
Prospectus under the captions "Prospectus Summary," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Recent
Developments" and "Business and Properties" contained herein and in documents
incorporated herein by reference, in addition to certain statements contained
elsewhere in this Prospectus and in the documents that are incorporated herein
by reference, are "Forward-looking Statements" and are thus prospective. Such
statements include, among others, (a) statements regarding the Company's
future acquisition and development plans and objectives and related
expenditures, revenues and cash flows, including without limitation statements
regarding (1) production and cash flows, (2) number and location of planned
wells, (3) anticipated completion of the Company's plan regarding expenditures
for property acquisitions and repurchases of the Company's Common Stock, and
the anticipated source of the funds necessary to complete the plan and (4) the
Company's capital expenditure budgets for acquisition and development, and (b)
statements regarding the Company's anticipated aggregate annual dividends to
be paid on its Common Stock. Statements of assumptions related to or
underlying such forward-looking statements include, without limitation,
statements regarding (i) the quality of the Company's properties with regard
to, among other things, anticipated reserve and
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<PAGE>
production enhancement opportunities and quantity of proved reserves, (ii) the
Company's ability to prudently add growth potential through exploration, (iii)
anticipated domestic hydrocarbon demand during 1997, (iv) the adequacy of the
Company's sources of liquidity during 1997, (v) the expected insignificant
impact on the Company's 1997 expenditures from regulatory compliance, (vi) the
expected insignificant impact on the Company's liquidity during 1997 from
production imbalances, (vii) the expected immaterial adverse impact of a loss
of any current oil or gas purchaser from the Company, (viii) regulatory
approval and the enactment of new legislation in Oklahoma to realize infill
drilling potential and (ix) similarity of the impact on the Company to the
impact on other oil and gas producers of rules promulgated by the Federal
Energy Regulatory Commission. Such forward-looking statements are subject to
risks, uncertainties and other factors which could cause actual results to
differ materially from future results expressed or implied by such forward-
looking statements.
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<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes that are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on December 10, 1997; provided, however, that if the
Company, in its sole discretion, has extended the period of time for which the
Exchange Offer is open, the term "Expiration Date" shall mean the latest time
and date to which the Exchange Offer has been extended.
As of the date of this Prospectus, $175 million aggregate principal amount
of Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about November 7, 1997, to all Holders
of Old Notes known to the Company. The Company's obligation to accept Old
Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth under "--Certain Conditions to the Exchange Offer"
below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Holders thereof as described below.
During any such extension, all Old Notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by the Company.
Any Old Notes not accepted for exchange for any reason will be returned
without expense to the tendering Holder thereof as promptly as practicable
after the expiration or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 or any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "--Certain Conditions to the Exchange Offer." The
Company will give oral or written notice of any extension, amendment, non-
acceptance or termination to the Holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day following the previously scheduled
Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to
tender Old Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal, to The Bank of New
York (the "Exchange Agent") at the address set forth below under "Exchange
Agent" on or prior to the Expiration Date, accompanied by either (i)
certificates for such Old Notes or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below. A Holder who is unable to timely comply with the
above-described procedure prior to the Expiration Date may effect a tender of
Old Notes by complying with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE
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TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on his own behalf, such beneficial owner
must, prior to completing and executing the Letter of Transmittal and
delivering Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such beneficial owner's name or obtain a
properly completed bond power from the registered Holder. The transfer of
registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange are
tendered (i) by a registered Holder of the Old Notes who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor
institution," including (as such terms are defined therein) (i) a bank; (ii) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association
(collectively, "Eligible Institutions"). If Old Notes are registered in the
name of a person other than a signatory of the Letter of Transmittal, the Old
Notes surrendered for exchange must be endorsed by, or be accompanied by a
written instrument or instruments of transfer or exchange, in satisfactory
form as determined by the Company in its sole discretion, duly executed by the
registered Holder with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Note which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
any particular Old Notes either before or after the Expiration Date (including
the right to waive the ineligibility of any Holder who seeks to tender Old
Notes in the Exchange Offer). The interpretation of the terms and conditions
of the Exchange Offer as to any particular Old Notes either before or after
the Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall
any of them incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered Holder or Holders appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, and that neither the Holder
nor such other person has
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<PAGE>
any arrangement or understanding with any person to participate in the
distribution of the New Notes. In the case of a Holder that is not a broker-
dealer, each such Holder, by tendering, will also represent to the Company
that such Holder is not engaged in and does not intend to engage in, a
distribution of the New Notes. If any Holder or any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company,
or is engaged in or intends to engage in or has an arrangement or
understanding with any person to participate in a distribution of such New
Notes to be acquired pursuant to the Exchange Offer, such Holder or any such
other person (i) may not rely on the applicable interpretations of the staff
of the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes. See "Plan
of Distribution." The Letter of Transmittal states that by so acknowledging
and by delivering such a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all conditions to the Exchange Offer, the
Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Company has given
oral or written notice thereof to the Exchange Agent, with written
confirmation of any oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the Holder will receive a New Note
having a principal amount equal to that of the surrendered Old Note. The New
Notes will bear interest from the most recent date to which interest has been
paid on the Old Notes or, if no interest has been paid on the Old Notes, from
October 28, 1997. Accordingly, Holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid or, if no interest has been paid, from October
28, 1997. Old Notes accepted for exchange will cease to accrue interest from
and after the date of consummation of the Exchange Offer. Holders of Old Notes
whose Old Notes are accepted for exchange will not receive any payment in
respect of accrued interest on such Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after the date of
consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes (or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), a properly completed and duly executed Letter
of Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount
than the Holder desires to exchange, such unaccepted or non-exchanged Old
Notes will be returned without expense to the tendering Holder (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry
procedures described below, such non-exchanged Old Notes will be credited to
an account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes
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into the Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Old Notes may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at the address set forth below under "--Exchange Agent" on or
prior to the Expiration Date or in accordance with the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a Holder of the Old Notes desires to tender such Old Notes and the Old
Notes are not immediately available, or time will not permit such Holder's Old
Notes or other required documents to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed
on a timely basis, a tender may be effected if (i) the tender is made through
an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent
has received from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form provided by
the Company (by facsimile transmission, mail or hand delivery), setting forth
the name and address of the Holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the execution
of the Notice of Guaranteed Delivery the certificates for all physically
tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation,
as the case may be, the Letter of Transmittal and any other documents required
by the Letter of Transmittal will be deposited by the Eligible Institution
with the Exchange Agent, and (iii) the certificates for all physically
tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation,
as the case may be, the Letter of Transmittal and all other documents required
by the Letter of Transmittal, are received by the Exchange Agent within five
NYSE trading days after the execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address or, in the case of Eligible
Institutions, at the facsimile number, set forth below under "--Exchange
Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
tendered the Old Notes to be withdrawn (the "Depositor"), (ii) identify the
Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes), (iii) contain a statement that such
person is withdrawing his election to have such Old Notes exchanged, (iv) be
signed by the person in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes in the name of the person withdrawing the tender and (v) specify the
name in which such Old Notes are registered, if different from that of the
Depositor. If Old Notes have been tendered pursuant to the procedure for book-
entry transfer described above, any notice of withdrawal must specify the name
and number of the account at the Book-Entry Transfer Facility to be credited
with the withdrawn Old Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly re-tendered. Any Old
Notes that have been tendered for exchange but that are not exchanged for any
reason will be returned to the tendering Holder without cost to such Holder
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with the Book-Entry Transfer Facility for
the Old Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be re-
tendered by following the procedures described under "--Procedures for
Tendering Old Notes" above at any time on or prior to 5:00 p.m., New York City
time, on the Expiration Date.
14
<PAGE>
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the
New Notes for such Old Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of
the Old Notes pursuant to the Exchange Offer; or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the
Company might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the sole judgment of the
Company, might result in the holders of New Notes having obligations with
respect to resales and transfers of New Notes that are greater than those
described in the interpretation of the Commission referred to on the cover
page of this Prospectus, or would otherwise make it inadvisable to proceed
with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by a governmental agency or authority that may adversely affect the ability
of the Company to complete the transactions contemplated by the Exchange
Offer, (iii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by any
governmental agency or authority that adversely affects the extension of
credit or (iv) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United States,
or, in the case of any of the foregoing existing at the time of the
commencement of the Exchange Offer, a material acceleration or worsening
thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company and its subsidiaries taken as a whole that, in the
sole judgment of the Company, is or may be adverse to the Company, or the
Company shall have become aware of facts that, in the sole judgment of the
Company, have or may have adverse significance with respect to the value of
the Old Notes or the New Notes; that in the sole judgment of the Company in
any case, and regardless of the circumstances (including any action by the
Company) giving rise to any such condition, makes it inadvisable to proceed
with the Exchange Offer and/or with such acceptance for exchange or with
such exchange.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The Company's failure at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect
to the Registration Statement of which this Prospectus constitutes a part or
the qualification of the Indenture under the Trust Indenture Act of 1939.
15
<PAGE>
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
The Bank of New York, Exchange Agent
By Hand or Overnight By Facsimile Transmission By Registered or Certified
Delivery: (for Eligible Institutions only): Mail:
The Bank of New York (212) 571-3080 The Bank of New York
101 Barclay Street Attention: Mr. George Johnson101 Barclay Street, 7E
Corporate Trust Services To Confirm by Telephone New York, New York 10286
Window or for Information Call: Attention: Reorganization
Ground Level (212) 815-3687 Section,
Attention: George Johnson
Reorganization Section,
George Johnson
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The estimated cash expenses to
be incurred in connection with the Exchange Offer will be paid by the Company
and are estimated in the aggregate to be $115,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that Holders who instruct
the Company to register New Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering Holder will be responsible for the payment
of any applicable transfer tax.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold unless registered under, pursuant to an exemption
from or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register Old Notes under the Securities Act. Based on interpretations by the
staff of the Commission, as set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by Holders thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes were acquired
in the ordinary course of such Holders' business and such Holders have no
arrangement or understanding with any person to participate in the
distribution of such New Notes. However, the staff of the Commission has not
rendered a no-action letter with respect to the Exchange Offer, and there can
16
<PAGE>
be no assurance that the staff would make a similar determination for the
Exchange Offer as in such other circumstances. Each Holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If any Holder who
is an affiliate of the Company is engaged in or intends to engage in or has
any arrangement or understanding with respect to the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could not
rely on the applicable interpretations of the staff of the Commission and (ii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes must
acknowledge that such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities and that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
consequences associated with the exchange of Old Notes for New Notes and the
ownership and disposition of the New Notes by holders who acquired the New
Notes pursuant to the Exchange Offer. The summary is based upon current laws,
regulations, rulings and judicial decisions, all of which are subject to
change. The discussion below does not address all aspects of United States
federal income taxation that may be relevant to particular holders in the
context of their specific investment circumstances or certain types of holders
subject to special treatment under such laws (for example, financial
institutions, banks, tax-exempt organizations and insurance companies). In
addition, the discussion does not address any aspect of state, local or
foreign taxation and assumes that a holder of the New Notes (i) will hold them
as "capital assets" (generally, property held for investment) within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) will not own, directly or indirectly, 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote.
For purposes of the discussion, a "United States holder" is an individual
who is a citizen or resident of the United States, a corporation, partnership
or other entity created under the laws of the United States or any political
subdivision thereof, or an estate or trust that is subject to United States
federal income taxation without regard to the source of income and a "non-
United States holder" is any holder who is not a United States holder.
PROSPECTIVE PURCHASERS OF THE NEW NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
ACQUIRING, OWNING AND DISPOSING OF THE NEW NOTES AS WELL AS THE APPLICATION OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
Exchange Offer
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as an exchange or other taxable event for U.S. federal
income tax purposes because under Treasury regulations, the New Notes should
not be considered to differ materially in kind or extent from the Old Notes.
Rather, the New Notes received by a holder should be treated as a continuation
of the Old Notes in the hands of such holder. As a result, there should be no
U.S. federal income tax consequences to holders who exchange Old Notes for New
Notes pursuant to the Exchange Offer and any such holder should have the same
tax basis and holding period in the New Notes as it had in the Old Notes
immediately before the exchange.
United States Holders
Interest payable on the New Notes will be includible in the income of a
United States holder in accordance with such holder's regular method of
accounting. If a New Note is redeemed, sold or otherwise disposed of, a United
States holder generally will recognize gain or loss equal to the difference
between the amount realized on the sale or other disposition of such New Note
(to the extent such amount does not represent accrued but unpaid
17
<PAGE>
interest) and such holder's tax basis in the New Note. Subject to the market
discount rules discussed below, such gain or loss will be capital gain or
loss. If the holder has held such New Notes for more than 12 months but less
than 18 months, any gain will be mid-term gain with a maximum federal income
tax rate of 28%. If the holder has held such New Notes for more than 18
months, the gain will be long-term gain with a maximum federal income tax rate
of 20%. Any capital loss will be short-term loss if the New Notes have been
held for 12 months or less and long-term loss if the New Notes have been held
for more than 12 months.
Under the market discount rules of the Code, a holder (other than a holder
who made the election described below) who purchased an Old Note with "market
discount" (generally defined as the amount by which the stated redemption
price at maturity exceeds the holder's purchase price) will be required to
treat any gain recognized on the redemption, sale or other disposition of the
New Note received in the disposition as ordinary income to the extent of the
market discount that accrued during the holding period of such New Note (which
would include the holding period of the Old Note). A holder who has elected
under applicable Code provisions to include market discount in income annually
as such discount accrues will not, however, be required to treat any gain
recognized as ordinary income under these rules. Holders should consult their
tax advisors as to the portion of any gain that would be taxable as ordinary
income under these provisions.
Non-United States Holders
An investment in the New Notes by a non-United States holder generally will
not give rise to any United States federal income tax consequences if the
interest received or any gain recognized on the sale, redemption or other
disposition of the New Notes by such holder is not treated as effectively
connected with the conduct by such holder of a trade or business in the United
States, and in the case of gains derived by an individual, such individual is
not present in the United States for 183 days or more and certain other
requirements are met. Under current Treasury regulations, in order to avoid
back-up withholding of 31% on payments of interest (i) a non-United States
holder of the New Notes generally must certify to the issuer or its agent,
under penalties of perjury, that it is not a United States person and complete
and provide the payor with a U.S. Treasury Form W-8 (or a suitable substitute
form), which includes its name and address, or (ii) a securities clearing
organization, bank or other financial organization that holds customers'
securities in the ordinary course of business (a "financial institution") and
holds the New Note, must certify under penalties of perjury that such a Form
W-8 (or suitable substitute form) has been received from the beneficial owner
of the New Notes by it or by a financial institution between it and the
beneficial owner, and must furnish the payor with a copy thereof.
On October 14, 1997, the Internal Revenue Service issued final and temporary
withholding regulations for payments to foreign persons which could affect the
procedures to be followed by a non-United States holder in establishing such
holder's status as a non-United States holder for purposes of the backup
withholding rules discussed above. The final and temporary regulations are
generally effective for payments made after December 31, 1998. Prospective
investors should consult their tax advisors concerning the potential effect of
the final and temporary regulations on an investment in the New Notes.
18
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents, as of the dates and for the periods indicated,
selected financial information for the Company. The financial information for
each of the five years in the period ended December 31, 1996 has been derived
from the Company's audited consolidated financial statements. The Company's
audited consolidated financial statements as of December 31, 1995 and 1996,
and for the years ended December 31, 1994, 1995 and 1996, and the Company's
unaudited consolidated financial statements as of June 30, 1997, and for the
six months ended June 30, 1996 and 1997, are incorporated herein by reference
and should be read in conjunction with this financial data.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------------------------------ ------------------
1992 1993 1994 1995 (a) 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA (b):
Revenues:
Oil.................... $ 31,921 $ 39,747 $ 53,324 $ 60,349 $ 75,013 $ 34,847 $ 38,583
Gas.................... 31,994 34,649 38,389 40,543 73,402 31,033 51,421
Gas gathering,
processing
and marketing......... 3,943 3,717 4,274 7,091 12,032 6,240 5,122
Other.................. (502)(c) 69 288 4,922 944 696 4,337
-------- -------- -------- -------- -------- -------- --------
Total revenues......... 67,356 78,182 96,275 112,905 161,391 72,816 99,463
-------- -------- -------- -------- -------- -------- --------
Expenses:
Production............. 21,744 29,223 32,368 35,338 39,365 19,169 21,130
Exploration............ -- -- -- -- -- -- 575(d)
Taxes on production and
property.............. 5,767 6,706 8,586 8,646 11,944 5,463 7,926
Depreciation, depletion
and amortization...... 19,979 25,108 31,709 36,892 37,858 17,847 22,517
Impairment (a)......... -- -- -- 20,280 -- -- --
General and
administrative........ 8,150 9,863 8,532 13,156 16,420 9,660 7,542
Gas gathering and
processing............ 1,316 1,492 1,646 2,528 6,905 2,778 4,157
Interest, net.......... 4,975 5,464 8,034 12,523 17,072 7,541 11,790
Trust development
costs................. 527 695 622 561 854 471 281
-------- -------- -------- -------- -------- -------- --------
Total expenses......... 62,458 78,551 91,497 129,924 130,418 62,929 75,918
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income tax and
extraordinary item.... 4,898 (369) 4,778 (17,019) 30,973 9,887 23,545
Income tax expense..... 154 3,643 1,730 (5,825) 10,669 3,409 8,270
-------- -------- -------- -------- -------- -------- --------
Net income (loss)
before
extraordinary item.... 4,744 (4,012) 3,048 (11,194) 20,304 6,478 15,275
Extraordinary item..... -- -- -- 656 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... 4,744 (4,012) 3,048 (10,538) 20,304 6,478 15,275
Preferred stock
dividends............. -- -- -- -- 514 -- 890
-------- -------- -------- -------- -------- -------- --------
Earnings (loss)
available to
common stock.......... $ 4,744 $ (4,012)(e) $ 3,048 $(10,538) $ 19,790 $ 6,478 $ 14,385
======== ======== ======== ======== ======== ======== ========
CONSOLIDATED BALANCE
SHEET DATA (b):
Property and equipment,
net................... $149,484 $228,551 $244,555 $364,474 $450,561 $349,662 $508,404
Total assets........... 176,831 258,019 292,451 402,675 523,070 401,776 562,649
Long-term debt......... 79,000 111,750 142,750 238,475 314,757 236,721 341,500
Owners' equity......... 76,056 115,168 113,333 130,700 142,668 122,806 160,658
OTHER FINANCIAL DATA
(b):
EBITDA (f)............. $ 30,150 $ 30,351 $ 44,777 $ 54,068 $ 85,541 $ 35,439 $ 56,962
Capital expenditures... 12,131 105,228 49,608 190,311 146,568 23,405 100,661
Ratio of earnings to
fixed charges (g)..... 1.8x 0.9x 1.5x -- 2.6x 2.2x 2.6x
Ratio of EBITDA to
interest expense...... 5.7x 5.4x 5.4x 4.2x 5.0x 4.6x 4.8x
Ratio of total debt to
annualized EBITDA..... 2.6x 3.7x 3.2x 4.4x 3.7x 3.3x 3.0x
</TABLE>
- --------
(a) Includes effect of a $20.3 million pre-tax, non-cash impairment charge
recorded upon adoption of Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of.
(b) Significant producing property acquisitions in 1993, 1994, 1995 and 1996
affect the comparability of period-to-period financial, operating and
other data.
(c) Includes a $2.4 million loss on sale of Units in the initial public
offering for the Cross Timbers Royalty Trust.
(d) Primarily includes geological and geophysical costs related to the 1997
exploration program. Exploration expenses were not material in prior
periods.
(e) Includes effect of a one-time, non-cash accounting charge of $4 million
for net deferred income tax liabilities recorded upon the Merger.
(f) Earnings before interest, income tax and depreciation, depletion,
amortization and impairment. EBITDA is not intended to represent cash flow
in accordance with generally accepted accounting principles and does not
represent the measure of cash available for distribution. EBITDA is not
intended as an alternative to earnings available to common stock or net
income.
(g) For purposes of calculating this ratio, earnings include income (loss)
from continuing operations before income tax and fixed charges. Fixed
charges include interest expense, preferred stock dividends and an imputed
interest expense on operating lease rentals (assumed as one-third of
rentals). Excluding the effect of the charge in (a) above in 1995, the
ratio of earnings to fixed charges would have been 1.3x.
19
<PAGE>
SELECTED RESERVE AND OPERATING DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- --------- ---------- ------- --------
(IN THOUSANDS EXCEPT PRODUCTION AND PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PROVED RESERVES (a):
Oil (Bbls)............. 16,666 21,082 33,581 39,988 42,440 -- --
Gas (Mcf).............. 172,199 169,119 177,061 358,070 540,538 -- --
Barrels of oil
equivalent (BOE)...... 45,366 49,269 63,091 99,666 132,530 -- --
Estimated future net
cash flows, before
income tax............ $339,433 $309,244 $406,128 $ 712,907 $1,737,024 -- --
Present value of
estimated future net
cash flows, discounted
at 10%:
Before income tax...... $207,415 $189,968 $247,946 $ 405,706 $ 946,150 (b) -- --
After income tax....... 207,415 (c) 173,294 213,146 335,156 706,481 -- --
AVERAGE DAILY
PRODUCTION:
Oil (Bbls)............. 4,749 6,968 9,497 9,677 9,584 9,478 10,769
Gas (Mcf).............. 51,205 51,260 58,182 78,408 101,845 93,160 128,132
Barrels of oil
equivalent (BOE)...... 13,283 15,511 19,194 22,745 26,558 25,005 32,125
AVERAGE SALES PRICE (d):
Oil (per Bbl).......... $ 18.37 $ 15.63 $ 15.38 $ 17.09 $ 21.38 $ 20.20 $ 19.79
Gas (per Mcf).......... 1.71 1.85 1.81 1.42 1.97 1.83 2.22
Production costs (per
BOE)................... $ 4.47 $ 5.16 $ 4.62 $ 4.26 $ 4.05 $ 4.21 $ 3.63
Production and property
taxes (per BOE)........ 1.19 1.19 1.23 1.04 1.23 1.20 1.36
RESERVE ADDITIONS (BOE)
(a):
Acquisitions........... 434 12,351 4,486 31,508 27,118 -- --
Extensions, discoveries
and revisions......... 7,956 (2,744) 16,840 15,426 15,725 -- --
-------- -------- -------- --------- ----------
Total additions........ 8,390 9,607 21,326 46,934 42,843 -- --
======== ======== ======== ========= ==========
COSTS INCURRED:
Acquisitions........... $ 1,475 $ 87,064 $ 28,100 $ 131,342 $ 105,815 $ 9,656 $ 62,866
Development and
exploitation.......... 10,730 19,462 21,826 21,061 45,038 19,472 31,765
-------- -------- -------- --------- ---------- ------- --------
Total costs incurred... $ 12,205 $106,526 $ 49,926 $ 152,403 $ 150,853 $29,128 $ 94,631
======== ======== ======== ========= ========== ======= ========
</TABLE>
- --------
(a) Proved reserves are estimated annually using oil and gas prices and
production and development costs as of December 31 of each year, without
escalation. Such reserve information is not updated for interim periods.
(b) Based on an oil price of $20.00 per barrel and a gas price of $2.00 per
Mcf at December 31, 1996, the discounted present value of cash flows
before income taxes of the Company's proved reserves as of December 31,
1996 would have been $599.9 million.
(c) Since proved reserves were held by non-taxable predecessor entities before
May 18, 1993, no provision is included for federal income tax before that
date.
(d) Average sales price data includes the effects of hedging activities which
have not been significant.
20
<PAGE>
RECENT DEVELOPMENTS
AMOCO PROPERTIES ACQUISITION
On September 29, 1997, the Company entered into a definitive agreement with
Amoco Production Company, a subsidiary of Amoco Corporation ("Amoco"), to
acquire producing properties located in the San Juan Basin of northwestern New
Mexico (the "Amoco Properties") for $252 million and five-year warrants to
purchase 625,000 shares of Company common stock exercisable at $22.97 per
share. The Company has secured firm commitments to finance this acquisition
through an increase in borrowings available under the Company's senior credit
agreement. There can be no assurance, however, that the acquisition of the
Amoco Properties will be consummated or that all of such properties will be
purchased. The transaction is anticipated to close December 1, 1997 with an
effective date of November 1, 1997, and is subject to preferential purchase
rights and typical purchase price adjustments. Amoco has the option to accept,
in lieu of $15.7 million in cash at closing, certain properties owned by the
Company that are either located in the Panhandle of Texas or currently
operated by Amoco.
The Amoco Properties consist of interests in approximately 170,000 net acres
concentrated in San Juan and Rio Arriba counties of New Mexico. The Company's
internal engineers estimate proved reserves attributable to the acquisition to
be 258.6 Bcf of natural gas, 16.4 million Bbls of NGLs and 1.5 million Bbls of
oil, or a total of 61 million BOE. The Company estimates current net daily
production for the Amoco Properties at 49,000 Mcf of gas, 3,100 Bbls of NGLs
and 270 Bbls of oil from more than 2,600 gross (900 net) wells with a reserve-
to-production index of 14.5 years. Proved developed reserves represent 93% of
the present value of cash flows before income taxes (discounted at 10%) from
estimated proved reserves. Substantially all of the value of the proved
reserves are attributable to the Dakota, Pictured Cliffs, Mesa Verde and
Fruitland Coal formations. In addition, the properties generate Section 29
income tax credits of approximately $2.5 million per year.
The Company has identified more than 150 infill wellsites, primarily in the
Dakota and Fruitland Coal formations, relating to 6 million BOE of proved
undeveloped reserves that the Company expects will require approximately $10.6
million to drill and complete. In addition, the Company plans to evaluate more
than 200 potential infill wellsites over the next year. The Company believes
that opportunities for significant increases to production and reserves also
exist through recompletions, restimulations, and through lowering line
pressure within the gathering system with additional compression.
The San Juan Basin of northwest New Mexico and southwest Colorado contains
the largest reserves of natural gas in the Rocky Mountains and, within the
United States, is second in size only to the Hugoton Field of Oklahoma, Texas
and Kansas. It has a substantial gathering and processing infrastructure which
supports cost-efficient oil and gas operations. Extensive interstate pipeline
systems exist to transport gas to out-of-state markets. Recent pipeline
additions have expanded the available markets for San Juan gas to the Mid-
Continent, Gulf Coast and Northeast markets from what has historically been
solely a California market. As a result, the basis decrement for San Juan
Basin gas prices as compared to Henry Hub gas prices has narrowed to 25 cents
per Mcf from a historic basis decrement of 40 cents per Mcf and reflects a
typical gas basis across the nation.
Subject to voting provisions in applicable operating agreements, the Company
expects to operate more than 900 wells representing about 70% of the present
value of proved reserves (based upon Company internal estimates) of the Amoco
Properties. Conoco Inc., a working interest owner in approximately 30% of the
operated wells of the Amoco Properties, claims that it is entitled to assume
operations of these wells under the terms of the operating agreement and has
filed a declaratory judgment action in the 142nd District Court of Midland
County, Texas, seeking a judgment that it is entitled to operate such wells
and an injunction against the operation of such wells by the Company. The
Company believes that it has the right to operate such wells and, in any
event, does not believe that an adverse resolution of this dispute would
materially detract from the value of the Amoco Properties acquisition.
Certain of the properties are subject to preferential rights held by third
parties aggregating approximately $110 million. The purchase price will be
reduced by the allocated value of the preferential rights exercised. The
Company does not believe that the exercise of the preferential rights will
have an adverse impact on the economics of the acquisition.
21
<PAGE>
Average daily production from the Amoco Properties for the six months ended
June 30, 1997 was 49,597 Mcf of gas, 321 Bbls of oil and 3,409 Bbls of NGLs.
Estimated revenues, production expenses, production taxes, and revenues less
direct operating expenses for the six-month period were $23.3 million, $3.1
million, $2.4 million and $17.8 million, respectively, and average prices were
$19.44 per Bbl for oil, $1.73 per Mcf for gas and $10.72 per Bbl for NGLs. The
discounted present value of cash flows before income taxes (discounted at 10%)
from estimated proved reserves of the Amoco Properties is $279.9 million at
the December 1, 1997 closing date, based on September 30, 1997 oil, gas and
NGL prices of $18.89 per Bbl, $2.88 per Mcf and $10.59 per Bbl, respectively.
Based on an oil price of $20.00 per Bbl, a gas price of $2.00 per Mcf and an
NGL price of $10.00 per Bbl, the discounted present value of cash flows before
income taxes (discounted at 10%) from the estimated proved reserves of the
Amoco Properties at December 1, 1997 is $180.6 million. The estimated
production data, revenues and direct operating expenses included in this
paragraph were based on information provided by Amoco and remain subject to
audit by the Company's independent public accountants. Estimates of proved
reserves of the Amoco Properties and the discounted present value thereof were
prepared by the Company's internal engineers and are subject to revision by
the Company's independent petroleum engineers.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996
The following are results of operations for the three and nine months ended
September 30, 1996, compared with results for the three and nine months ended
September 30, 1997, announced on October 20, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1996 1997 1996 1997
--------- --------- -------- --------
(UNAUDITED)
(IN THOUSANDS EXCEPT PRODUCTION AND
PER UNIT DATA)
<S> <C> <C> <C> <C>
Revenues:
Oil.................................... $ 19,375 $ 17,887 $ 54,222 $ 56,470
Gas.................................... 17,090 23,293 48,123 74,714
Total Revenues......................... 39,201 44,086 112,017 143,549
Earnings available to common stock....... $ 4,647 $ 2,779 $ 11,125 $ 17,164
Earnings per share....................... $ 0.18 $ 0.11 $ 0.41 $ 0.65
Average sale prices:
Oil (per Bbl).......................... $ 21.56 $ 18.17 $ 20.67 $ 19.25
Gas (per Mcf).......................... $ 1.75 $ 1.86 $ 1.80 $ 2.09
Average daily production:
Oil (Bbls)............................. 9,767 10,700 9,575 10,746
Gas (Mcf).............................. 106,101 135,997 97,506 130,783
</TABLE>
Third quarter 1997 earnings were $2.8 million or 11 cents per share,
compared to third quarter 1996 earnings of $4.6 million or 18 cents per share
(adjusted for the March 1997 3-for-2 split). Strong production increases of
28% for gas and 10% for oil for the quarter were offset by a decline in oil
prices of $3.39 per barrel. Increased oil and gas production is primarily
attributable to property acquisitions and development activity. Total revenues
for the quarter were $44.1 million, a 12% increase from third quarter 1996
revenues of $39.2 million.
For the first nine months of 1997, earnings were $17.2 million or 65 cents
per share, compared with earnings of $11.1 million or 41 cents per share
(adjusted for the March 1997 3-for-2 stock split) for the same 1996 period.
Total revenues for the first nine months of 1997 were $143.5 million, a 28%
increase from revenues of $112 million for the same 1996 period. Revenues for
the first nine months of 1997 include gains on sale of producing properties
and facilities and equity securities of $3.5 million, and lawsuit settlement
proceeds of $1.3 million.
22
<PAGE>
DESCRIPTION OF THE NOTES
The Old Notes have been, and the New Notes will be, issued under an
indenture dated as of October 28, 1997 (the "Indenture") between the Company,
as issuer, and The Bank of New York, as trustee (the "Trustee"). The following
summary of the material provisions of the Indenture does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
of the provisions of the Indenture, including the definitions of certain terms
contained therein. A copy of the Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and is
incorporated herein by reference. The definitions of certain capitalized terms
used in the following summary are set forth below under "--Certain
Definitions."
The Old Notes and the New Notes constitute a single series of debt
securities under the Indenture. If the Exchange Offer is consummated, Holders
of Old Notes who do not exchange their Old Notes for New Notes will vote
together with Holders of the New Notes for all relevant purposes under the
Indenture. In that regard, the Indenture requires that certain actions by the
Holders thereunder (including acceleration following an Event of Default) must
be taken, and certain rights must be exercised, by specified minimum
percentages of the aggregate principal amount of the outstanding securities
issued under the Indenture. In determining whether Holders of the requisite
percentage in principal amount have given any notice, consent or waiver or
taken any other action permitted under the Indenture, any Old Notes that
remain outstanding after the Exchange Offer will be aggregated with the New
Notes, and the Holders of such Old Notes and the New Notes will vote together
as a single series for all such purposes. Accordingly, all references herein
to specified percentages in aggregate principal amount of the outstanding
Notes shall be deemed to mean, at any time after the Exchange Offer is
consummated, such percentages in aggregate principal amount of the Old Notes
and the New Notes then outstanding.
GENERAL
The Old Notes are, and the New Notes will be, unsecured senior subordinated
obligations of the Company limited to $175,000,000 aggregate principal amount.
Notes are issuable only in registered form, without coupons, in denominations
of $1,000 and integral multiples thereof. Principal of, premium, if any, on
and interest on the Notes is payable, and the Notes are transferable, at the
office or agency of the Company in the City of New York maintained for such
purposes, which currently is the corporate trust office or agency of the
Trustee maintained at New York, New York. In addition, interest may be paid,
at the option of the Company, by check mailed to the registered holders of the
Notes at their respective addresses as shown on the Note Register. No service
charge will be made for any transfer, exchange or redemption of Notes, but the
Company or the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge that may be payable in connection therewith.
For a discussion of the circumstances in which the interest rate on the Old
Notes may be temporarily increased, see "-- Registration Rights; Liquidated
Damages."
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The Notes will mature on November 1, 2009. Interest on the Notes accrues at
the rate of 8 3/4% per annum and is payable semiannually on May 1 and November
1 of each year, commencing May 1, 1998, to the Person in whose name the Note
is registered in the Note Register at the close of business on the April 15 or
October 15 next preceding such interest payment date. Interest is computed on
the basis of a 360-day year comprising twelve 30-day months.
REDEMPTION
Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after November 1, 2002, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on an interest payment date that is on or
prior to the redemption date), if redeemed during the 12-month period
beginning on November 1 of the years indicated below:
23
<PAGE>
<TABLE>
<CAPTION>
YEAR PRICE
---- -------
<S> <C>
2002............................................................. 104.375%
2003............................................................. 102.917%
2004............................................................. 101.458%
2005 and thereafter.............................................. 100.000%
</TABLE>
In addition, at any time and from time to time prior to November 1, 2000,
the Company may, at its option, redeem in the aggregate up to 33 1/3% of the
aggregate principal amount of the Notes originally issued under the Indenture
with the proceeds of one or more Public Equity Offerings by the Company at a
redemption price (expressed as a percentage of principal amount) of 108 3/4%,
plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date (subject to the right of Holders of Notes on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least $116.7 million aggregate principal amount of
the Notes must remain outstanding after each such redemption. In order to
effect the foregoing redemption, the Company must mail notice of redemption no
later than 60 days after the related Public Equity Offering and must
consummate such redemption within 90 days of the closing of the Public Equity
Offering.
Selection and Notice. In the event that less than all of the Notes are to be
redeemed at any time, selection of such Notes (or any portion thereof that is
an integral multiple of $1,000) for redemption will be made by the Trustee
from the outstanding Notes not previously called for redemption (or otherwise
purchased by the Company) on a pro rata basis, by lot or by such method as the
Trustee shall deem fair and appropriate; provided, however, that no Note with
a principal amount of $1,000 or less shall be redeemed in part. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at
its registered address. If any Note is to be redeemed in part only, the notice
of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. On and after the
redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption and accepted for payment.
Offers to Purchase. As described below, (a) upon the occurrence of a Change
of Control, the Company is obligated to make an offer to purchase all
outstanding Notes at a purchase price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase and (b) upon the occurrence of an Asset Sale, the
Company may be obligated to make offers to purchase Notes with a portion of
the Net Cash Proceeds of such Asset Sale at a purchase price equal to 100% of
the principal amount thereof, together with accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase. See "--Certain
Covenants--Change of Control" and "--Limitation on Disposition of Proceeds of
Asset Sales."
SUBORDINATION
Payments of and distributions on or with respect to the Note Obligations are
subordinated, to the extent set forth in the Indenture, in right of payment to
the prior payment in full in cash or Cash Equivalents of all existing and
future Senior Indebtedness, which includes, without limitation, all Credit
Agreement Obligations of the Company. The Notes rank prior in right of payment
only to other Indebtedness of the Company which is, by its terms, expressly
subordinated in right of payment to the Notes. There is currently no
Indebtedness of the Company which would constitute such Subordinated
Indebtedness. In addition, the Note Obligations are effectively subordinated
to all of the creditors of the Company's Subsidiaries, including trade
creditors.
The Indenture provides that in the event of (a) any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relating to the Company
(or its creditors, as such) or its assets, or (b) any liquidation, dissolution
or other winding-up of the Company, whether voluntary or involuntary or (c)
any assignment for the benefit of creditors or other marshaling
24
<PAGE>
of assets or liabilities of the Company, all Senior Indebtedness of the
Company must be paid in full in cash or Cash Equivalents before any direct or
indirect payment or distribution, whether in cash, property or securities
(excluding certain permitted equity and subordinated debt securities referred
to in the Indenture as "Permitted Junior Securities"), is made on account of
the Note Obligations. In the event that, notwithstanding the foregoing, the
Trustee or the Holder of any Note receives any payment or distribution of
properties or assets of the Company of any kind or character, whether in cash,
property or securities, by set-off or otherwise, in respect of Note
Obligations before all Senior Indebtedness is paid or provided for in full,
then the Trustee or the Holders of Notes receiving any such payment or
distribution (other than a payment or distribution in the form of Permitted
Junior Securities) will be required to pay or deliver such payment or
distribution forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other person making payment or
distribution of assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all
Senior Indebtedness in full.
During the continuance of any default in the payment when due (whether at
Stated Maturity, upon scheduled repayment, upon acceleration or otherwise) of
principal of or premium, if any, or interest on, or of unreimbursed amounts
under drawn letters of credit or fees relating to letters of credit
constituting, any Designated Senior Indebtedness (a "Payment Default"), no
direct or indirect payment or distribution by or on behalf of the Company of
any kind or character shall be made on account of the Note Obligations or any
obligation under any Subsidiary Guarantee unless and until such default has
been cured or waived or has ceased to exist or such Designated Senior
Indebtedness shall have been discharged or paid in full in cash or Cash
Equivalents.
In addition, during the continuance of any default other than a Payment
Default with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may then be accelerated (a "Non-payment Default"), after
receipt by the Trustee from the holders (or their representative) of such
Designated Senior Indebtedness of a written notice of such Non-payment
Default, no payment or distribution of any kind or character may be made by
the Company on account of the Senior Subordinated Note Obligations for the
period specified below (the "Payment Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of a
Non-payment Default by the Trustee from the holders (or their representative)
of Designated Senior Indebtedness stating that such notice is a payment
blockage notice pursuant to the Indenture and shall end on the earliest to
occur of the following events: (i) 179 days shall have elapsed since the
receipt by the Trustee of such notice; (ii) the date, as set forth in a
written notice to the Company or the Trustee from the holders (or their
representative) of the Designated Senior Indebtedness initiating such Payment
Blockage Period, on which such default is cured or waived or ceases to exist
(provided that no other Payment Default or Non-payment Default has occurred or
is then continuing after giving effect to such cure or waiver); (iii) the date
on which such Designated Senior Indebtedness is discharged or paid in full in
cash or Cash Equivalents; and (iv) the date, as set forth in a written notice
to the Company or the Trustee from the holders (or their representative) of
the Designated Senior Indebtedness initiating such Payment Blockage Period, on
which such Payment Blockage Period shall have been terminated by written
notice to the Company or the Trustee from the holders (or their
representative) of Designated Senior Indebtedness initiating such Payment
Blockage Period, after which the Company, subject to the subordination
provisions set forth above and the existence of another Payment Default, shall
promptly resume making any and all required payments in respect of the Notes,
including any missed payments. Only one Payment Blockage Period with respect
to the Notes may be commenced within any 360 consecutive day period. No Non-
payment Default with respect to Designated Senior Indebtedness that existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Indebtedness initiating such Payment
Blockage Period will be, or can be, made the basis for the commencement of a
second Payment Blockage Period, whether or not within a period of 360
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days (it being acknowledged that any subsequent
action, or any breach of any financial covenant for a period commencing after
the date of commencement of such Payment Blockage Period,
25
<PAGE>
that, in either case, would give rise to a Non-payment Default pursuant to any
provision under which a Non-payment Default previously existed or was
continuing shall constitute a new Non-payment Default for this purpose;
provided, however, that, in the case of a breach of a particular financial
covenant, the Company shall have been in compliance for at least one full 90
consecutive day period commencing after the date of commencement of such
Payment Blockage Period). In no event will a Payment Blockage Period extend
beyond 179 days from the date of the receipt by the Trustee of the notice, and
there must be a 181 consecutive day period in any 360-day period during which
no Payment Blockage Period is in effect. In the event that, notwithstanding
the foregoing, the Company makes any payment or distribution to the Trustee or
the Holder of any Note prohibited by the subordination provision of the
Indenture, then such payment or distribution will be required to be paid over
and delivered forthwith to the holders (or their representative) of Designated
Senior Indebtedness.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure will constitute an Event of Default
under the Indenture and will enable the Holders of the Notes to accelerate the
maturity thereof. See "--Events of Default."
By reason of such subordination, in the event of liquidation, receivership,
reorganization or insolvency, creditors of the Company who are holders of
Senior Indebtedness may recover more, ratably, than the Holders of the Notes,
and funds which would be otherwise payable to the Holders of the Notes will be
paid to the holders of the Senior Indebtedness to the extent necessary to pay
the Senior Indebtedness in full, and the Company may be unable to meet its
obligations in full with respect to the Notes.
As of June 30, 1997, after giving effect pro forma to the sale of the Old
Notes and the application of the net proceeds therefrom, the aggregate amount
of outstanding Senior Indebtedness would have been approximately $46.6
million. Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company and the Restricted Subsidiaries may
incur, the amounts of such Indebtedness could be substantial and, in any case,
such Indebtedness could be Senior Indebtedness or Indebtedness of Subsidiaries
to which the Notes would be subordinated. The Indenture prohibits the
incurrence by the Company of Indebtedness that is contractually subordinated
in right of payment to any Senior Indebtedness of the Company and senior in
right of payment to the Notes. After giving effect to the issuance of the Old
Notes and the application of the net proceeds therefrom, there is no
Indebtedness of the Company that is subordinated in right of payment to the
Notes and there is $125 million principal amount of Indebtedness of the
Company which is pari passu in right of payment with the Notes.
SUBSIDIARY GUARANTEES OF THE NOTES
No Subsidiaries of the Company initially executed and delivered the
Indenture as a Subsidiary Guarantor. Under the circumstances described below,
however, the Company's payment obligations under the Notes may in the future
be jointly and severally guaranteed by existing or future Subsidiaries of the
Company as Subsidiary Guarantors. In the event that the Notes are guaranteed
in the future by Subsidiaries of the Company, each Subsidiary Guarantor will
guarantee, jointly and severally, to each Holder of Notes and the Trustee, the
full and prompt performance of the Company's obligations under the Indenture
and the Notes, including the payment of principal of (or premium, if any, on)
and interest on the Notes pursuant to its Subsidiary Guarantee. The Subsidiary
Guarantees will be subordinated to Guarantor Senior Indebtedness of the
Subsidiary Guarantors to the same extent and in the same manner as the Notes
are subordinated to Senior Indebtedness.
The obligations of each Subsidiary Guarantor will be limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities (including, but not limited to, Guarantor Senior Indebtedness) of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Subsidiary Guarantor under the Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent
26
<PAGE>
transfer under federal or state law. Each Subsidiary Guarantor that makes a
payment or distribution under a Subsidiary Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor (if any) in a pro rata
amount based on the Adjusted Net Assets of each Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell all,
substantially all or any portion of its assets to the Company or another
Subsidiary Guarantor without limitation, except to the extent any such
transaction is subject to the "Merger, Consolidation and Sale of Assets"
covenant of the Indenture. Each Subsidiary Guarantor may consolidate with or
merge into or sell all or substantially all of its assets to a corporation
other than the Company or another Subsidiary Guarantor (whether or not
affiliated with the Subsidiary Guarantor); provided, however, that (a) if the
surviving corporation is not the Subsidiary Guarantor, the surviving
corporation agrees to assume such Subsidiary Guarantor's Subsidiary Guarantee
and all its obligations pursuant to the Indenture (except to the extent the
following paragraph would result in the release of such Subsidiary Guarantee)
and (b) such transaction does not (i) violate any of the covenants described
below under "Certain Covenants" or in the Indenture or (ii) result in a
Default or Event of Default immediately thereafter that is continuing.
The Subsidiary Guarantee of any Restricted Subsidiary may be released upon
the terms and subject to the conditions described under paragraph (c) of
"Certain Covenants--Limitation on Non-Guarantor Restricted Subsidiaries." Each
Subsidiary Guarantor that is designated as an Unrestricted Subsidiary in
accordance with the Indenture shall be released from its Subsidiary Guarantee
and related obligations set forth in the Indenture for so long as it remains
an Unrestricted Subsidiary.
Although the Indenture does not contain any requirement that any Subsidiary
execute and deliver a Subsidiary Guarantee, certain covenants described below
require a Restricted Subsidiary in the future to execute and deliver a
Subsidiary Guarantee prior to the guarantee of other Indebtedness. See
"Certain Covenants--Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries."
CERTAIN COVENANTS
The Indenture contains, among others, the covenants described below.
Limitation on Indebtedness. (a) The Indenture provides that neither the
Company nor any Restricted Subsidiary will create, incur, issue, assume,
guarantee or in any manner become directly or indirectly liable for the
payment of (collectively "incur") any Indebtedness (including any Acquired
Indebtedness), other than Permitted Indebtedness and Permitted Subsidiary
Indebtedness, as the case may be; provided, however, that the Company and its
Restricted Subsidiaries that are Subsidiary Guarantors may incur Indebtedness
if (x) the Company's Consolidated Fixed Charge Coverage Ratio for the four
full fiscal quarters immediately preceding the incurrence of such Indebtedness
(and for which financial statements are available), taken as one period (at
the time of such incurrence, after giving pro forma effect to: (i) the
incurrence of such Indebtedness and (if applicable) the application of the net
proceeds therefrom, including to refinance other Indebtedness or to acquire
producing oil and gas properties, as if such Indebtedness had been incurred
and the application of such proceeds had occurred at the beginning of such
four-quarter period; (ii) the incurrence, repayment or retirement of any other
Indebtedness (including Permitted Indebtedness) by the Company or its
Restricted Subsidiaries since the first day of such four-quarter period
(including any other Indebtedness to be incurred concurrent with the
incurrence of such Indebtedness) as if such Indebtedness had been incurred,
repaid or retired at the beginning of such four-quarter period; and (iii)
notwithstanding clause (d) of the definition of Consolidated Net Income, the
acquisition (whether by purchase, merger or otherwise) or disposition (whether
by sale, merger or otherwise) of any Person acquired or disposed of by the
Company or its Restricted Subsidiaries, as the case may be, since the first
day of such four-quarter period, as if such acquisition or disposition had
occurred at the beginning of such four-quarter period), would have been equal
to at least 2.5 to 1.0 and (y) no Default or Event of Default shall have
occurred and be continuing at the time such additional Indebtedness is
incurred or would occur as a consequence of the incurrence of the additional
Indebtedness.
27
<PAGE>
Limitation on Restricted Payments. (a) The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, take the following actions:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Company's Capital Stock (other than dividends or
distributions payable solely in shares of Qualified Capital Stock of the
Company, options, warrants or other rights to purchase Qualified Capital
Stock of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any Affiliate thereof (other than any
Wholly Owned Restricted Subsidiary of the Company) or any options, warrants
or other rights to acquire such Capital Stock; provided, however, that the
Company may purchase, redeem or otherwise retire common stock of the
Company in an amount not to exceed $10,000,000 in the aggregate for all
such transactions after April 1, 1997, and; provided, further, that the
Company may make any payment of the applicable redemption price in
connection with a Qualified Redemption Transaction;
(iii) make any principal payment on or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, scheduled sinking fund payment or maturity, any Subordinated
Indebtedness; provided, however, that the Company may make any payment of
the applicable redemption price in connection with a Qualified Redemption
Transaction;
(iv) declare or pay any dividend on, or make any distribution to the
holders of, any shares of Capital Stock of any Restricted Subsidiary of the
Company (other than to the Company or any of its Wholly Owned Restricted
Subsidiaries) or purchase, redeem or otherwise acquire or retire for value
any Capital Stock of any Restricted Subsidiary or any options, warrants or
other rights to acquire any such Capital Stock (other than with respect to
any such Capital Stock held by the Company or any Wholly Owned Restricted
Subsidiary of the Company);
(v) make any Investment (other than a Permitted Investment);
(vi) in connection with the acquisition of any property or asset by the
Company or its Restricted Subsidiaries after the date of the Indenture,
which property or asset would secure or be subject to any Production
Payment obligations of the Company or its Restricted Subsidiaries, make any
investment (of cash, property or other assets) in such property or asset so
acquired in addition to the amount of Indebtedness (including Production
Payment obligations) incurred by the Company or its Restricted Subsidiaries
in connection with such acquisition; or
(vii) incur any guarantee of Indebtedness of any Affiliate (other than
(a) guarantees of Indebtedness of any Restricted Subsidiary by the Company
or (b) guarantees of Indebtedness of the Company by any Restricted
Subsidiary, in each case in accordance with the terms of the Indenture);
(such payments or other actions described in (but not excluded from) clauses
(i) through (vii) are collectively referred to as "Restricted Payments"),
unless at the time of and after giving effect to the proposed Restricted
Payment (with the amount of any such Restricted Payment, if other than cash,
being the amount determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a board resolution), (1) no
Default or Event of Default shall have occurred and be continuing, (2) the
Company could incur $1.00 of additional Indebtedness (excluding Permitted
Indebtedness) in accordance with the "Limitation on Indebtedness" covenant and
(3) the aggregate amount of all Restricted Payments declared or made after
April 1, 1997, shall not exceed the sum (without duplication) of the
following:
(A) 50% of the aggregate cumulative Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on May 1,
1997, and ending on the last day of the Company's last fiscal quarter
ending prior to the date of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss), plus
(B) the aggregate net cash proceeds received after April 1, 1997, by the
Company as capital contributions to the Company (other than from any
Restricted Subsidiary), plus
(C) the aggregate net cash proceeds received after April 1, 1997, by the
Company from the issuance or sale (other than to any of its Restricted
Subsidiaries) of shares of Qualified Capital Stock of the Company or any
options, warrants or rights to purchase such shares of Qualified Capital
Stock of the Company, plus
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(D) the aggregate net cash proceeds received after April 1, 1997 by the
Company (other than from any of its Restricted Subsidiaries) upon the
exercise of any options, warrants or rights to purchase shares of Qualified
Capital Stock of the Company, plus
(E) the aggregate net cash proceeds received after April 1, 1997 by the
Company from the issuance or sale (other than to any of its Restricted
Subsidiaries) of debt securities or shares of Redeemable Capital Stock that
have been converted into or exchanged for Qualified Capital Stock of the
Company to the extent such debt securities were originally sold for cash,
together with the aggregate cash received by the Company at the time of
such conversion or exchange, plus
(F) To the extent not otherwise included in the Company's Consolidated
Net Income, the net reduction in Investments in Unrestricted Subsidiaries
resulting from the payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each case
to the Company or a Restricted Subsidiary after April 1, 1997 from any
Unrestricted Subsidiary or from the redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary (valued in each case as provided in
the definition of "Investment"), not to exceed in the case of any
Unrestricted Subsidiary the total amount of Investments (other than
Permitted Investments) in such Unrestricted Subsidiary made by the Company
and its Restricted Subsidiaries in such Unrestricted Subsidiary after April
1, 1997, plus
(G) $25,000,000.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (in the case of clauses
(ii), (iii) and (iv) below) no Default or Event of Default shall have occurred
and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such declaration complied
with the provisions of paragraph (a) above (and such payment shall be
deemed to have been paid on such date of declaration for purposes of any
calculation required by the provisions of paragraph (a) above);
(ii) the repurchase, redemption or other acquisition or retirement of any
shares of any class of Capital Stock of the Company or any Restricted
Subsidiary, in exchange for, or out of the aggregate net cash proceeds of,
a substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of shares of Qualified Capital Stock of the Company;
(iii) the purchase, redemption, repayment, defeasance or other
acquisition or retirement for value of any Subordinated Indebtedness (other
than Redeemable Capital Stock) in exchange for or out of the aggregate net
cash proceeds of a substantially concurrent issue and sale (other than to a
Restricted Subsidiary) of shares of Qualified Capital Stock of the Company;
(iv) the purchase, redemption, repayment, defeasance or other acquisition
or retirement for value of Subordinated Indebtedness (other than Redeemable
Capital Stock) in exchange for, or out of the aggregate net cash proceeds
of, a substantially concurrent incurrence (other than to a Restricted
Subsidiary) of Subordinated Indebtedness of the Company so long as (A) the
principal amount of such new Indebtedness does not exceed the principal
amount (or, if such Subordinated Indebtedness being refinanced provides for
an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration thereof, such lesser amount as of the date of
determination) of the Subordinated Indebtedness being so purchased,
redeemed, repaid, defeased, acquired or retired, plus the amount of any
premium required to be paid in connection with such refinancing pursuant to
the terms of the Subordinated Indebtedness refinanced or the amount of any
premium reasonably determined by the Company as necessary to accomplish
such refinancing, plus the amount of expenses of the Company incurred in
connection with such refinancing, (B) such new Subordinated Indebtedness is
subordinated to the Notes at least to the same extent as such Subordinated
Indebtedness so purchased, redeemed, repaid, defeased, acquired or retired,
(C) such new Subordinated Indebtedness has an Average Life to Stated
Maturity that is longer than the Average Life to Stated Maturity of the
Notes and such new Subordinated Indebtedness has a Stated Maturity for its
final scheduled principal payment that is at least 91 days later than the
Stated Maturity for the final scheduled principal payment of the Notes; and
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(v) repurchases, acquisitions or retirements of shares of Qualified
Capital Stock of the Company deemed to occur upon the exercise of stock
options or similar rights issued under employee benefit plans of the
Company if such shares represent all or a portion of exercise price or are
surrendered in connection with satisfying any Federal income tax
obligation.
The actions described in clauses (i), (ii), (iii) and (v) of this paragraph
(b) shall be Restricted Payments that shall be permitted to be taken in
accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a) (provided that any dividend paid pursuant to clause (i) of this paragraph
(b) shall reduce the amount that would otherwise be available under clause (3)
of paragraph (a) when declared, but not also when subsequently paid pursuant
to such clause (i)), and the actions described in clause (iv) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a).
(c) In computing Consolidated Net Income of the Company under paragraph (a)
above, (1) the Company shall use audited financial statements for the portions
of the relevant period for which audited financial statements are available on
the date of determination and unaudited financial statements and other current
financial data based on the books and records of the Company for the remaining
portion of such period and (2) the Company shall be permitted to rely in good
faith on the financial statements and other financial data derived from the
books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment, would in the good faith determination
of the Company be permitted under the requirements of the Indenture, such
Restricted Payment shall be deemed to have been made in compliance with the
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the
Company for any period.
Limitation on Issuances and Sales of Restricted Subsidiary Stock. The
Indenture provides that the Company (i) will not permit any Restricted
Subsidiary to issue any Preferred Stock (other than to the Company or a Wholly
Owned Restricted Subsidiary) and (ii) will not permit any Person (other than
the Company and/or one or more Wholly Owned Restricted Subsidiaries) to own
any Capital Stock of any Restricted Subsidiary; provided, however, that this
covenant shall not prohibit (1) the issuance and sale of all, but not less
than all, of the issued and outstanding Capital Stock of any Restricted
Subsidiary owned by the Company or any of its Restricted Subsidiaries in
compliance with the other provisions of the Indenture, or (2) the ownership by
directors of directors' qualifying shares or the ownership by foreign
nationals of Capital Stock of any Restricted Subsidiary, to the extent
mandated by applicable law.
Limitation on Transactions with Affiliates. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, enter into or suffer to exist any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or the rendering of any services) with,
or for the benefit of, any Affiliate of the Company other than a Restricted
Subsidiary (each, other than a Restricted Subsidiary, being an "Interested
Person"), unless (i) such transaction or series of transactions is on terms
that are no less favorable to the Company or such Restricted Subsidiary, as
the case may be, than those that would be available in a comparable arm's
length transaction with unrelated third parties who are not Interested
Persons, (ii) with respect to any one transaction or series of transactions
involving aggregate payments in excess of $1,000,000, the Company delivers an
officer's certificate to the Trustee certifying that such transaction or
series of transactions complies with clause (i) above and such transaction or
series of transactions has been approved by the Board of Directors of the
Company and (iii) with respect to any one transaction or series of
transactions involving aggregate payments in excess of $10,000,000, the
officer's certificate referred to in clause (ii) above also certifies that
such transaction or series of transactions has been approved by a majority of
the Disinterested Directors or, in the event there are no such Disinterested
Directors, that the Company has obtained a written opinion from an independent
nationally recognized investment banking firm or appraisal firm, in either
case specializing or having a specialty in the type and subject matter of the
transaction or series of transactions at issue, which opinion shall be to the
effect set forth in clause (i) above or
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shall state that such transaction or series of transactions is fair from a
financial point of view to the Company or such Restricted Subsidiary;
provided, however, that this covenant will not restrict the Company from (1)
paying reasonable and customary regular compensation and fees to directors of
the Company who are not employees of the Company or any Restricted Subsidiary
or (2) paying dividends on, or making distributions with respect to, shares of
Capital Stock of the Company on a pro rata basis to the extent permitted by
the "Limitation on Restricted Payments" covenant.
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume, affirm or suffer to exist or become effective any Lien of any
kind, except for Permitted Liens, on or with respect to any of its property or
assets (including any intercompany notes), whether owned at the date of the
Indenture or thereafter acquired, or any income, profits or proceeds
therefrom, or assign or otherwise convey any right to receive income thereon,
unless (x) in the case of any Lien securing Subordinated Indebtedness, the
Notes are secured by a Lien on such property, assets or proceeds that is
senior in priority to such Lien and (y) in the case of any other Lien, the
Notes are directly secured equally and ratably with the obligation or
liability secured by such Lien. The incurrence of additional secured
Indebtedness by the Company or any Restricted Subsidiary is subject to further
limitations on the incurrence of Indebtedness as described under "--Limitation
on Indebtedness."
Change of Control. Upon the occurrence of a Change of Control, the Company
shall be obligated to make an offer to purchase all of the then outstanding
Notes (a "Change of Control Offer"), and shall purchase, on a business day
(the "Change of Control Purchase Date") not more than 70 nor less than 30 days
following the Change of Control, all of the then outstanding Notes validly
tendered pursuant to such Change of Control Offer at a purchase price (the
"Change of Control Purchase Price") equal to 101% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any, to
the Change of Control Purchase Date. The Change of Control Offer is required
to remain open for at least 20 Business Days and until the close of business
on the fifth business day prior to the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the Change of Control, mail to each Noteholder a
notice of the Change of Control Offer, which notice shall govern the terms of
the Change of Control Offer and shall state, among other things, the
procedures that Noteholders must follow to accept the Change of Control Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes delivered by Noteholders seeking to accept
the Change of Control Offer. If on a Change of Control Purchase Date the
Company does not have available funds sufficient to pay the Change of Control
Purchase Price or is prohibited from purchasing the Notes, an Event of Default
will occur under the Indenture. The definition of "Change of Control" includes
an event by which the Company sells, conveys, transfers or leases all or
substantially all of its properties to any Person; the phrase "all or
substantially all" is subject to applicable legal precedent and as a result in
the future there may be uncertainty as to whether a Change of Control has
occurred.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer at the
same purchase price, at the same times and otherwise in substantial compliance
with the requirements applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The Company intends to comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder, if applicable, in the event
that a Change of Control occurs and the Company is required to purchase Notes
as described above. The existence of a Holder's right to require, subject to
certain conditions, the Company to repurchase its Notes upon a Change of
Control may deter a third party from acquiring the Company in a transaction
that constitutes, or results in, a Change of Control.
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Limitation on Disposition of Proceeds of Asset Sales. (a) The Indenture
provides that the Company will not, and will not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time
of such Asset Sale at least equal to the fair market value of the assets and
properties sold or otherwise disposed of pursuant to the Asset Sale (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a board resolution) and (ii) at least 75% of
the consideration received by the Company or the Restricted Subsidiary, as the
case may be, in respect of such Asset Sale consists of cash, Cash Equivalents
or the assumption by the purchaser of liabilities of the Company (other than
liabilities of the Company that are by their terms subordinated to the Notes)
or any Restricted Subsidiary as a result of which the Company and its
remaining Restricted Subsidiaries are no longer liable.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may either (x) apply the Net Cash Proceeds thereof to permanently
reduce Senior Indebtedness or to permanently reduce Guarantor Senior
Indebtedness, or (y) invest all or any part of the Net Cash Proceeds thereof,
within 365 days after such Asset Sale, in properties and assets which replace
the properties and assets that were the subject of the Asset Sale or in
properties and assets that will be used in the business of the Company or its
Restricted Subsidiaries, as the case may be ("Replacement Assets"). The amount
of such Net Cash Proceeds not applied or invested as provided in this
paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds
$15,000,000, the Company shall make an offer to purchase, from all Holders of
the Notes and any then outstanding Pari Passu Indebtedness required to be
repurchased or repaid on a permanent basis in connection with an Asset Sale,
an aggregate principal amount of Notes and any then outstanding Pari Passu
Indebtedness equal to such Excess Proceeds as follows:
(i) (A) the Company shall make an offer to purchase (a "Net Proceeds
Offer") from all Holders of the Notes in accordance with the procedures set
forth in the Indenture the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased out of an amount (the
"Payment Amount") equal to the product of such Excess Proceeds multiplied
by a fraction, the numerator of which is the outstanding principal amount
of the Notes and the denominator of which is the sum of the outstanding
principal amount of the Notes and such Pari Passu Indebtedness, if any
(subject to proration in the event such amount is less than the aggregate
Offered Price (as defined herein) of all Notes tendered), and (B) to the
extent required by such Pari Passu Indebtedness and provided there is a
permanent reduction in the principal amount of such Pari Passu
Indebtedness, the Company shall make an offer to purchase Pari Passu
Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu
Indebtedness Amount") equal to the excess of the Excess Proceeds over the
Payment Amount.
(ii) The offer price for the Notes shall be payable in cash in an amount
equal to 100% of the principal amount of the Notes tendered pursuant to a
Net Proceeds Offer, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date such Net Proceeds Offer is consummated (the
"Offered Price"), in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate Offered Price of the Notes
tendered pursuant to a Net Proceeds Offer is less than the Payment Amount
relating thereto or the aggregate amount of the Pari Passu Indebtedness
that is purchased or repaid pursuant to the Pari Passu Offer is less than
the Pari Passu Indebtedness Amount (such shortfall constituting a "Net
Proceeds Deficiency"), the Company may use such Net Proceeds Deficiency, or
a portion thereof, for general corporate purposes, subject to the
limitations of the "Limitation on Restricted Payments" covenant.
(iii) If the aggregate Offered Price of Notes validly tendered and not
withdrawn by Holders thereof exceeds the Payment Amount, Notes to be
purchased will be selected on a pro rata basis. Upon completion of such Net
Proceeds Offer and Pari Passu Offer, the amount of Excess Proceeds shall be
reset to zero.
The Company will not permit any Subsidiary to enter into or suffer to exist
any agreement that would place any restriction of any kind (other than
pursuant to law or regulation) on the ability of the Company to make a Net
Proceeds Offer following any Asset Sale. The Company intends to comply with
Rule 14e-1 under the Exchange Act, and any other securities laws and
regulations thereunder, if applicable, in the event that an Asset Sale occurs
and the Company is required to purchase Notes as described above.
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Limitation on Non-Guarantor Restricted Subsidiaries. (a) The Indenture
provides that the Company will not permit any Restricted Subsidiary that is
not a Subsidiary Guarantor to guarantee the payment of any Indebtedness of the
Company unless (i)(A) such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for a Subsidiary
Guarantee of the Notes by such Restricted Subsidiary which Subsidiary
Guarantee will be subordinated to Guarantor Senior Indebtedness (but no other
Indebtedness) to the same extent that the Notes are subordinated to Senior
Indebtedness and (B), with respect to any guarantee of Subordinated
Indebtedness by a Restricted Subsidiary, any such guarantee shall be
subordinated to such Restricted Subsidiary's Subsidiary Guarantee at least to
the same extent as such Subordinated Indebtedness is subordinated to the
Notes; (ii) such Restricted Subsidiary waives, and agrees not in any manner
whatsoever to claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee until such time as the
obligations guaranteed thereby are paid in full; and (iii) such Restricted
Subsidiary shall deliver to the Trustee an opinion of independent legal
counsel to the effect that such Subsidiary Guarantee has been duly executed
and authorized and constitutes a valid, binding and enforceable obligation of
such Restricted Subsidiary, except insofar as enforcement thereof may be
limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; provided that
this paragraph (a) shall not be applicable to (1) any guarantee of any
Restricted Subsidiary that (x) existed at the time such Person became a
Restricted Subsidiary of the Company and (y) was not incurred in connection
with, or in contemplation of, such Person becoming a Restricted Subsidiary of
the Company or (2) any guarantee of any Restricted Subsidiary of Indebtedness
of the Company described in clause (i) of the definition of Permitted
Indebtedness.
(b) The Indenture provides that the Company shall not, and shall not permit
any of its Restricted Subsidiaries to, transfer any assets, businesses,
divisions, real property or equipment to any Restricted Subsidiary (other than
sales of oil and gas production in the ordinary course of business at prices
under contracts in existence as of the date of the Indenture or on terms not
less favorable to the Subsidiary than would be obtainable at the time in
comparable transactions through arms-length dealings with Persons other than
Affiliates of the Company or any transfer that results in Permitted Subsidiary
Indebtedness) or acquire Capital Stock of a new Restricted Subsidiary that in
either case is not a Subsidiary Guarantor unless (i) such transferee or new
Restricted Subsidiary enters into a Subsidiary Guarantee by complying with
paragraph (a) of this covenant or (ii) the aggregate fair market value (as
determined in good faith by the Board of Directors), at the time of such
proposed transfer or acquisition, of such assets, businesses, divisions, real
property or equipment proposed to be transferred or Capital Stock of a new
Restricted Subsidiary proposed to be acquired, together with the aggregate
fair market value of all assets, businesses, divisions, real property or
equipment previously transferred pursuant to this clause (ii) and Capital
Stock previously acquired pursuant to this clause (ii) (in each case valued at
the time of transfer or acquisition) does not exceed (x) the greater of
$35,000,000 and 5% of Adjusted Consolidated Net Tangible Assets less (y) the
book value of total combined assets of all Subsidiaries of the Company at
December 31, 1996, as reflected in a consolidating balance sheet of the
Company prepared in accordance with GAAP (exclusive, in the case of each of
clauses (x) and (y), of intercompany receivables and liabilities due from the
Company and assets subject to any Sale/Leaseback Transaction treated as an
operating lease in the consolidated financial statements of the Company);
provided that, in the case of clause (ii), if the Restricted Subsidiary to
which such transfer was made or whose Capital Stock was acquired subsequently
enters into a Subsidiary Guarantee, such transfer or acquisition shall be
treated as having been made pursuant to clause (i).
(c) Notwithstanding the foregoing and the other provisions of the Indenture,
any Subsidiary Guarantee incurred by a Restricted Subsidiary pursuant to the
covenant shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person that is not an Affiliate of the Company, of all of the
Company's Capital Stock in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited by
the Indenture), (ii) the merger of such Restricted Subsidiary into the Company
or any other Restricted Subsidiary (provided the surviving Restricted
Subsidiary assumes the Subsidiary Guarantee) or the liquidation and
dissolution of such
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Restricted Subsidiary (in each case to the extent not prohibited by the
Indenture), or (iii) (x) the release or discharge of all guarantees by such
Restricted Subsidiary of any Indebtedness other than the Note Obligations,
except a discharge or release by or as a result of payment under such
guarantees and (y) after giving effect to the proposed release and discharge,
the aggregate total combined assets of all Restricted Subsidiaries that are
not Subsidiary Guarantors (exclusive of intercompany receivables and
liabilities due from the Company and assets subject to any Sale/Leaseback
Transaction treated as an operating lease in the consolidated financial
statements of the Company) do not exceed the greater of $35,000,000 and 5% of
Adjusted Consolidated Net Tangible Assets.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock to the Company or any
Restricted Subsidiary, (b) pay any Indebtedness owed to the Company or any
Restricted Subsidiary, (c) make an Investment in the Company or any Restricted
Subsidiary or (d) transfer any of its properties or assets to the Company or
any Restricted Subsidiary, except for such encumbrances or restrictions (i)
pursuant to an agreement in effect or entered into on the date of the
Indenture, (ii) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any other Person, or the properties or assets
of any other Person, other than the Person, or the property or assets of the
Person, so acquired or (iii) existing under any agreement that extends,
renews, refinances or replaces the agreements containing the restrictions in
the foregoing clauses (i) and (ii), provided that the terms and conditions of
any such restrictions are not materially less favorable to the Holders of the
Notes than those under or pursuant to the agreement evidencing the
Indebtedness so extended, renewed, refinanced or replaced.
Limitation on Other Senior Subordinated Indebtedness. The Indenture provides
that the Company will not incur, directly or indirectly, any Indebtedness
which is expressly subordinate or junior in right of payment in any respect to
Senior Indebtedness unless such Indebtedness ranks pari passu in right of
payment with the Notes, or is expressly subordinated in right of payment to
the Notes.
Reports. The Indenture requires that the Company (and the Subsidiary
Guarantors, if applicable) file on a timely basis with the Commission, to the
extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the
annual reports, quarterly reports and other documents that the Company would
be required to file if it were subject to Section 13 or 15(d) of the Exchange
Act). The Company (and the Subsidiary Guarantors, if applicable) is also
required (a) to file with the Trustee, and provide to each holder of Notes,
without cost to such holder, copies of such reports and documents within 15
days after the date on which the Company files such reports and documents with
the Commission or the date on which the Company (and the Subsidiary
Guarantors, if applicable) would be required to file such reports and
documents if the Company (and the Subsidiary Guarantors, if applicable) were
so required and (b) if filing such reports and documents with the Commission
is not accepted by the Commission or is prohibited under the Exchange Act, to
furnish at the Company's cost copies of such reports and documents to any
holder of Notes promptly upon written request. The Company is obligated to
make available, upon request, to any Holder of Notes the information required
by Rule 144A(d)(4) under the Securities Act, during any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act.
Future Designation of Restricted and Unrestricted Subsidiaries. The
foregoing covenants (including calculation of financial ratios and the
determination of limitations on the incurrence of Indebtedness and Liens) may
be affected by the designation by the Company of any existing or future
Subsidiary of the Company as an Unrestricted Subsidiary. Generally, a
Restricted Subsidiary includes any Subsidiary of the Company, whether existing
on or after the date of the Indenture, unless the Subsidiary of the Company is
designated as an Unrestricted Subsidiary pursuant to the terms of the
Indenture. The definition of "Unrestricted Subsidiary" set forth under the
caption "--Certain Definitions" describes the circumstances under which a
future Subsidiary of the Company may be designated as an Unrestricted
Subsidiary by the Board of Directors of the Company.
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MERGER, CONSOLIDATION AND SALE OF ASSETS, ETC.
The Company will not, in any single transaction or series of related
transactions, merge or consolidate with or into any other Person, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially
all of its properties and assets to any Person or group of Affiliated Persons,
and the Company will not permit any of its Restricted Subsidiaries to enter
into any such transaction or series of transactions if such transaction or
series of transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all
of the properties and assets of the Company and its Restricted Subsidiaries on
a consolidated basis to any other Person or group of Affiliated Persons,
unless at the time and after giving effect thereto (i) either (A) if the
transaction or transactions is a merger or consolidation, the Company shall be
the surviving Person of such merger or consolidation, or (B) the Person (if
other than the Company) formed by such consolidation or into which the Company
or such Restricted Subsidiary is merged or to which the properties and assets
of the Company or such Restricted Subsidiary, as the case may be, are sold,
assigned, conveyed, transferred, leased or otherwise disposed of (any such
surviving Person or transferee Person being the "Surviving Entity") shall be a
corporation organized and existing under the laws of the United States of
America, any state thereof or the District of Columbia and shall, in either
case, expressly assume by a supplemental indenture to the Indenture executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture, and, in each
case, the Indenture shall remain in full force and effect; (ii) immediately
before and immediately after giving effect to such transaction or series of
transactions on a pro forma basis (and treating any Indebtedness not
previously an obligation of Company or any of its Restricted Subsidiaries in
connection with or as a result of such transaction as having been incurred at
the time of such transaction), no Default or Event of Default shall have
occurred and be continuing; (iii) except in the case of the consolidation or
merger of any Restricted Subsidiary with or into the Company, immediately
after giving effect to such transaction or transactions on a pro forma basis,
the Consolidated Net Worth of the Company (or the Surviving Entity if the
Company is not the continuing obligor under the Indenture) is at least equal
to the Consolidated Net Worth of the Company immediately before such
transaction or transactions; (iv) except in the case of the consolidation or
merger of any Restricted Subsidiary with or into the Company or any Wholly
Owned Restricted Subsidiary, immediately before and immediately after giving
effect to such transaction or transactions on a pro forma basis (on the
assumption that the transaction or transactions occurred on the first day of
the period of four fiscal quarters ending immediately prior to the
consummation of such transaction or transactions, with the appropriate
adjustments with respect to the transaction or transactions being included in
such pro forma calculation), the Company (or the Surviving Entity if the
Company is not the continuing obligor under the Indenture) could incur $1.00
of additional Indebtedness (excluding Permitted Indebtedness) pursuant to the
"Limitation on Indebtedness" covenant; (v) each Subsidiary Guarantor, unless
it is the other party to the transactions described above, shall have by
supplemental indenture to the Indenture confirmed that its Subsidiary
Guarantee of the Notes shall apply to such Person's obligations under the
Indenture and the Notes; and (vi) if any of the properties or assets of the
Company or any of its Restricted Subsidiaries would upon such transaction or
series of related transactions become subject to any Lien (other than a
Permitted Lien), the creation and imposition of such Lien shall have been in
compliance with the "Limitation on Liens" covenant.
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an Officers' Certificate stating that such consolidation, merger,
transfer, lease or other disposition and the supplemental indenture in respect
thereto comply with the requirements under the Indenture and an Opinion of
Counsel stating that the requirements of clause (i) of the preceding paragraph
have been complied with. Upon any consolidation or merger or any sale,
assignment, transfer, lease or other disposition of all or substantially all
of the assets of the Company in accordance with the foregoing, in which the
Company is not the continuing corporation, the Surviving Entity shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Indenture with the same effect as if such successor
corporation had been named as the Company therein, and thereafter the Company,
except in the case of a lease, will be discharged from all obligations and
covenants under the Indenture and the Notes.
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EVENTS OF DEFAULT
The following constitute "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, on any
of the Notes, whether such payment is due at maturity, upon redemption,
upon repurchase pursuant to a Change of Control Offer or a Net Proceeds
Offer, upon acceleration or otherwise; or
(ii) default in the payment of any installment of interest and Liquidated
Damages, if any, on any of the Notes, when it becomes due and payable, and
the continuance of such default for a period of 30 days; or
(iii) default in the performance or breach of the provisions of the
"Merger, Consolidation and Sale of Assets" section of the Indenture, the
failure to make or consummate a Change of Control Offer in accordance with
the provisions of the "Change of Control" covenant or the failure to make
or consummate a Net Proceeds Offer in accordance with the provisions of the
"Limitation on Disposition of Proceeds of Asset Sales" covenant; or
(iv) the Company or any Subsidiary Guarantor shall fail to perform or
observe any other term, covenant or agreement contained in the Notes, any
Subsidiary Guarantee or the Indenture (other than a default specified in
(i), (ii) or (iii) above) for a period of 30 days after written notice of
such failure requiring the Company to remedy the same shall have been given
(x) to the Company by the Trustee or (y) to the Company and the Trustee by
the holders of at least 25% in aggregate principal amount of the Notes then
outstanding; or
(v) the occurrence and continuation beyond any applicable grace period of
any default in the payment of the principal of (or premium, if any, on) or
interest on any Indebtedness of the Company (other than the Notes) or any
Restricted Subsidiary for money borrowed when due, or any other default
causing acceleration of any Indebtedness of the Company or any Restricted
Subsidiary for money borrowed, provided that the aggregate principal amount
of such Indebtedness shall exceed $5,000,000; provided further that if any
such default is cured or waived or any such acceleration rescinded, or such
debt is repaid, within a period of 10 days from the continuation of such
default beyond the applicable grace period or the occurrence of such
acceleration, as the case may be, such Event of Default under the Indenture
and any consequential acceleration of the Notes shall be automatically
rescinded, so long as such rescission does not conflict with any judgment
or decree; or
(vi) the commencement of proceedings, or the taking of any enforcement
action (including by way of set-off), by any holder of at least $5,000,000
in aggregate principal amount of Indebtedness of the Company or any
Restricted Subsidiary, after a default under such Indebtedness, to retain
in satisfaction of such Indebtedness or to collect or seize, dispose of or
apply in satisfaction of such Indebtedness, property or assets of the
Company or any Restricted Subsidiary having a fair market value (as
determined by the Board of Directors of the Company and evidenced by a
board resolution) in excess of $5,000,000 individually or in the aggregate,
provided that if any such proceedings or actions are terminated or
rescinded, or such Indebtedness is repaid, such Event of Default under the
Indenture and any consequential acceleration of the Notes shall be
automatically rescinded, so long as (a) such rescission does not conflict
with any judgment or decree and (b) the holder of such Indebtedness shall
not have applied any such property or assets in satisfaction of such
Indebtedness; or
(vii) any Subsidiary Guarantee shall for any reason cease to be, or be
asserted by the Company or any Subsidiary Guarantor, as applicable, not to
be, in full force and effect, enforceable in accordance with its terms
(except pursuant to the release of any such Subsidiary Guarantee in
accordance with the Indenture); or
(viii) certain events giving rise to ERISA liability; or
(ix) final judgments or orders rendered against the Company or any
Restricted Subsidiary that are unsatisfied and that require the payment in
money, either individually or in an aggregate amount, that is more than
$5,000,000 over the coverage under applicable insurance policies and either
(i) commencement by any creditor of an enforcement proceeding upon such
judgment (other than a judgment that is stayed by reason of pending appeal
or otherwise) or (ii) the occurrence of a 60-day period during which a stay
of such judgment or order, by reason of pending appeal or otherwise, was
not in effect; or
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(x) the entry of a decree or order by a court having jurisdiction in the
premises (A) for relief in respect of the Company or any Restricted
Subsidiary in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar
law or (B) adjudging the Company or any Restricted Subsidiary bankrupt or
insolvent, or approving a petition seeking reorganization, arrangement,
adjustment or composition of the Company or a Restricted Subsidiary under
any applicable federal or state law, or appointing under any such law a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Restricted Subsidiary or of a
substantial part of their consolidated assets, or ordering the winding up
or liquidation of their affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in effect
for a period of 60 consecutive days; or
(xi) the commencement by the Company or any Restricted Subsidiary of a
voluntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or any other
case or proceeding to be adjudicated bankrupt or insolvent, or the consent
by the Company or any Restricted Subsidiary to the entry of a decree or
order for relief in respect thereof in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by
the Company or any Restricted Subsidiary of a petition or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by it under any such law to the filing of any such petition or to
the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar official)
of any of the Company or any Restricted Subsidiary or of any substantial
part of their consolidated assets, or the making by it of an assignment for
the benefit of creditors under any such law, or the admission by it in
writing of its inability to pay its debts generally as they become due or
taking of corporate action by the Company or any Restricted Subsidiary in
furtherance of any such action.
If an Event of Default (other than as specified in clause (x) or (xi) above)
shall occur and be continuing, the Trustee, by written notice to the Company,
or the holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee and the Company, may declare the
principal of, premium, if any, and accrued interest and Liquidated Damages, if
any, on all of the outstanding Notes due and payable immediately, upon which
declaration all amounts payable in respect of the Notes shall be immediately
due and payable. If an Event of Default specified in clause (x) or (xi) above
occurs and is continuing, then the principal of, premium, if any, and accrued
interest on all of the outstanding Notes shall ipso facto become and be
immediately due and payable without any declaration, notice or other act on
the part of the Trustee or any holder of Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may
rescind such declaration if (a) the Company or any Subsidiary Guarantor has
paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid
or advanced by the Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, (ii) all overdue interest on all Notes, (iii) the principal of
and premium, if any, on any Notes which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the
Notes, and (iv) to the extent that payment of such interest is lawful,
interest upon overdue interest and overdue principal at the rate borne by the
Notes which has become due otherwise than by such declaration of acceleration;
(b) the rescission would not conflict with any judgment or decree of a court
of competent jurisdiction; and (c) all Events of Default, other than the
nonpayment of principal of, premium, if any, and interest on the Notes that
has become due solely by such declaration of acceleration, have been cured or
waived.
Under certain circumstances described in the Indenture, in the event of a
declaration of acceleration in respect of the Notes because of an Event of
Default specified in clauses (v) or (vi) above shall have occurred and be
continuing, such declaration of acceleration and any consequential
acceleration shall be automatically
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rescinded if the Indebtedness that is the subject of such Event of Default has
been repaid, or if the default relating to such Indebtedness is waived or
cured and if such Indebtedness had been accelerated, then the holders thereof
have rescinded their declaration of acceleration in respect of such
Indebtedness.
The holders of not less than a majority in aggregate principal amount of the
outstanding Notes may on behalf of the holders of all the Notes waive any past
defaults under the Indenture, except a default in the payment of the principal
of, premium, if any, or interest on any Note, or in respect of a covenant or
provision which under the Indenture cannot be modified or amended without the
consent of the holder of each Note outstanding.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 60 days after receipt of such
notice and offer of indemnity and the Trustee, within such 60-day period, has
not received directions inconsistent with such written request by holders of a
majority in aggregate principal amount of the outstanding Notes. Such
limitations do not apply, however, 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 in such
Note.
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 person
would exercise under the circumstances in the conduct of such person's own
affairs. Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee under the Indenture is not under any obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
Noteholders unless such holders shall have offered to the Trustee reasonable
security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee under the Indenture.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 60 days after the occurrence thereof;
provided, however, that in case of a Default of the type listed in clause (v)
above, no notice to Holders shall be given until at least 60 days after the
occurrence thereof. Except in the case of a Default or an Event of Default in
payment of principal of, premium, if any, or interest on any Notes, the
Trustee may withhold the notice to the holders of such Notes if a committee of
its Trust Officers in good faith determines that withholding the notice is in
the interest of the Noteholders.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Subsidiary Guarantors
of its obligations under the Indenture and as to any default in such
performance. The Company is also required to notify the Trustee within ten
days of any Default.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations of
the Company and the Subsidiary Guarantors with respect to the outstanding
Notes ("legal defeasance"). Such legal defeasance means that the Company and
the Subsidiary Guarantors shall be deemed to have paid and discharged the
entire Indebtedness represented by the outstanding Notes, except for (i) the
rights of holders of outstanding Notes to receive payment in respect of the
principal of, premium, if any, on and interest and Liquidated Damages, if any,
on such Notes when such payments are due, (ii) the Company's obligations to
issue temporary Notes, register the transfer or exchange of any Notes, replace
mutilated, destroyed, lost or stolen Notes and maintain an office or agency
for payments in respect of the Notes, (iii) the rights, powers, trusts, duties
and immunities of the Trustee, and (iv) the defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect
to terminate the obligations of the Company and any Subsidiary Guarantor with
respect to certain covenants that are set forth in the Indenture, some of
which are described under "--Certain Covenants" above, and any omission to
comply with such obligations shall not constitute a Default or an Event of
Default with respect to the Notes ("covenant defeasance").
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In order to exercise either legal defeasance or covenant defeasance, (i) the
Company or any Subsidiary Guarantor must irrevocably deposit, with the
Trustee, in trust, for the benefit of the holders of the Notes, cash in United
States dollars, U.S. Government Obligations (as defined in the Indenture), 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, on and interest and Liquidated Damages, if any,
on the outstanding Notes to redemption or maturity; (ii) the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such legal defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
legal defeasance or covenant defeasance had not occurred (in the case of legal
defeasance, such opinion must refer to and be based upon a published ruling of
the Internal Revenue Service or a change in applicable federal income tax
laws); (iii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit; (iv) such legal defeasance or covenant
defeasance shall not cause the Trustee to have a conflicting interest under
the Indenture or the Trust Indenture Act with respect to any securities of the
Company or any Subsidiary Guarantor, (v) such legal defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a
default under, any material agreement or instrument to which the Company or
any Subsidiary Guarantor is a party or by which it is bound; and (vi) the
Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel satisfactory to the Trustee, which, taken together, state
that all conditions precedent under the Indenture to either legal defeasance
or covenant defeasance, as the case may be, have been complied with and that
no violations under agreements governing any other outstanding Indebtedness
would result therefrom.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable or will become due and payable at
their Stated Maturity within one year, or are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the serving
of notice of redemption by the Trustee in the name, and at the expense, of the
Company, and the Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amounts sufficient to pay and discharge the
entire indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of (and premium, if any, on) and interest and
Liquidated Damages, if any, on the Notes to the date of deposit (in the case
of Notes which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be, together with instructions from the
Company irrevocably directing the Trustee to apply such funds to the payment
thereof at maturity or redemption, as the case may be, (ii) the Company has
paid all other sums payable under the Indenture by the Company; and (iii) the
Company has delivered to the Trustee an Officers' Certificate and an Opinion
of Counsel satisfactory to the Trustee, which, taken together, state that all
conditions precedent under the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company and the Trustee may, without the consent of
the Noteholders, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act of 1939, or making any change that
does not adversely affect the rights of any Noteholder. Other amendments and
modifications of the Indenture or the Notes may be made by the Company, the
Subsidiary Guarantors and the Trustee with the consent of the holders of not
less than a majority of the aggregate principal
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amount of the outstanding Notes; provided, however, that no such modification
or amendment may, without the consent of the holder of each outstanding Note
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest on any Note, (b) reduce the principal amount of (or
the premium, if any, on) or interest on any Note, (c) change the coin or
currency of payment of principal of (or the premium, if any, on) or interest
on, any Note, (d) impair the right to institute suit for the enforcement of
any payment on or with respect to any Note, (e) reduce the above-stated
percentage of aggregate principal amount of outstanding Notes necessary to
modify or amend the Indenture, (f) reduce the percentage of aggregate
principal amount of outstanding Notes necessary for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults,
(g) modify any provisions of the Indenture relating to the modification and
amendment of the Indenture or the waiver of past defaults or covenants, except
as otherwise specified, (h) modify any provision of the Indenture relating to
the Subsidiary Guarantees in a manner adverse to the Holders, or (i) amend,
change or modify the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate
the Net Proceeds Offer with respect to any Asset Sale or modify any of the
provisions or definitions with respect thereto.
The Holders of a majority in aggregate principal amount of the outstanding
Notes may waive compliance by the Company with certain restrictive provisions
of the Indenture. The Holders of a majority in aggregate principal amount of
the outstanding Notes may waive any past default under the Indenture, except a
default in the payment of principal (or premium, if any, on) or interest on
the Notes.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred
and is continuing, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent Person would exercise under the circumstances in the
conduct of such Person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as amended,
contain limitations on the rights of the Trustee thereunder, should it become
a creditor of the Company, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claims, as
security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest
(as defined) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees provide that they
will be governed by the laws of the State of New York, without regard to the
principles of conflicts of law.
BOOK-ENTRY, DELIVERY AND FORM
A portion of the Old Notes was represented initially by a single global Note
(the "Global Old Note") that was deposited with, or on behalf of, The
Depository Trust Company ("DTC"). The Global Old Note is registered in the
name of Cede & Co., as nominee of the DTC, and beneficial interests in the
Global Old Note are shown on, and transfers thereof are effected only through,
records maintained by DTC and its participants. Except as provided below, the
New Notes also will be issued in the form of one or more global Notes (the
"Global New Notes" and, together with the Global Old Note, the "Global
Notes"). The Global New Notes will be deposited on the original date of
issuance of the New Notes with, or on behalf of, DTC and registered in the
name of Cede & Co., as nominee of DTC. The interest of beneficial owners of
Notes in the Global Notes will be represented through financial institutions
acting on their behalf as direct or indirect participants of DTC.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in the
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Global Notes will be shown on, and the transfer of these ownership interests
will be effected only through, records maintained by DTC or its nominee (with
respect to interests of participants) and the records of participants (with
respect to interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. In addition, no beneficial owner
of an interest in a Global Note will be able to transfer that interest except
in accordance with the applicable procedures of DTC and, if applicable, Cedel,
societe anonyme ("Cedel"), and Morgan Guaranty Trust Company of New York, as
operator of the Euroclear system ("Euroclear") (in addition to those under the
Indenture).
Payments on Global Notes will be made to DTC, or its nominee, as the
registered owner thereof. None of the Company, the Trustee or any paying agent
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global Notes or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. The Company expects that DTC
or its nominee, upon receipt of any payment in respect of a Global Note
representing any Notes held by it or its nominee, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note
for such Notes as shown on the records of DTC or its nominee. The Company also
expects that payments by participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. 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 a 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 (as defined below) and certain
banks, the ability of a Person having a beneficial interest in a Global Note
to pledge such interest to Persons 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 of such interest.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC holds securities that its
participants deposit with DTC and facilitates the settlement among
participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a direct participant, either
directly or indirectly ("indirect participants"). The rules applicable to DTC
and its participants are on file with the Commission. Although DTC, Euroclear
and Cedel are expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of
DTC, Euroclear and Cedel, they are under no obligation to perform or continue
to perform such procedures, and such procedures may be discontinued at any
time. Neither the Company nor the Trustee will have any responsibility for the
performance by DTC, Euroclear or Cedel or the participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in a
Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Notes represented by Certificates in definitive
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form registered in the name of such Person or such Person's nominee
("Certificated Notes"). Upon any such issuance, the Trustee is required to
register such Notes in the name of, and cause the same to be delivered to,
such Person or Persons (or the nominee of any thereof). In addition, if (i)
DTC notifies the Company in writing that it is no longer willing or able to
act as a depositary and the Company is unable to locate a qualified successor
within 90 days or (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Notes in the form of
Certificated Notes under the Indenture, then, upon surrender by DTC of its
Global Note, Certificated Notes will be issued to each Person that DTC
identifies as the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by DTC in
identifying the beneficial owners of the related Notes, and the Company and
the Trustee may conclusively rely on, and will be protected in relying on,
instructions from DTC for all purposes (including with respect to the
registration and delivery, and the respective principal amounts, of the Notes
to be issued).
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the initial issuance and sale of the Old Notes, the
Company entered into the Registration Rights Agreement pursuant to which the
Company agreed to file with the Commission the Exchange Offer Registration
Statement on the appropriate form under the Securities Act with respect to the
New Notes. If (i) the Company is not permitted to consummate the Exchange
Offer because the Exchange Offer is not permitted by applicable law or
Commission policy, (ii) any Noteholder notifies the Company prior to the 20th
day following consummation of the Exchange Offer that (A) it is prohibited by
law or Commission policy from participating in the Exchange Offer or (B) that
it may not resell the New Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (C) that it is a broker-dealer and owns Old Notes acquired directly
from the Company or an affiliate of the Company, (iii) for any other reason
the Exchange Offer Registration Statement is not declared effective within 120
days after the original issuance of the Old Notes (the "Closing Date") or the
Exchange Offer is not consummated within 30 business days after the
effectiveness of the Exchange Offer Registration Statement or (iv) at the
request of Lehman Brothers Inc. under certain conditions, then the Company
will file with the Commission a Shelf Registration Statement to cover resales
of the Old Notes by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. The Company will use its reasonable best efforts to
cause the applicable registration statement to be declared effective as
promptly as possible by the Commission.
The Registration Rights Agreement provides that to the extent permitted by
applicable law or Commission policy, the Company will use its reasonable best
efforts to (i) file an Exchange Offer Registration Statement with the
Commission on or prior to 60 days after the Closing Date, (ii) have the
Exchange Offer Registration Statement declared effective by the Commission on
or prior to 120 days after the Closing Date, (iii) consummate the Exchange
Offer on the earliest practicable date after the Exchange Offer Registration
Statement is declared effective by the Commission, but not later than 30
business days thereafter and (iv) if obligated to file the Shelf Registration
Statement, file the Shelf Registration Statement with the Commission as
promptly as practicable, cause the Shelf Registration Statement to be declared
effective by the Commission on or prior to 90 days after such obligation
arises and keep the Shelf Registration Statement effective for two years or
such shorter period ending when all of the Notes have been sold thereunder. If
(a) the Company fails to file any of the Registration Statements required by
the Registration Rights Agreement on or before the date specified above for
such filing, (b) any of such Registration Statements is not declared effective
by the Commission on or prior to the date specified for such effectiveness
(the "Effectiveness Target Date"), (c) the Company fails to consummate the
Exchange Offer within 30 business days of the Effectiveness Target Date with
respect to the Exchange Offer Registration Statement, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or use of the
prospectus is suspended in connection with resales of Old Notes during the
periods specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (d) above a "Registration Default"), then
the Company will pay Liquidated Damages to each Holder of Old Notes with
respect to the first 90-day period immediately following the occurrence of the
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first Registration Default in an amount equal to $.05 per week per $1,000
principal amount of Old Notes held by such Holder. The amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Old Notes with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.50 per week per $1,000 principal amount of Old Notes;
provided that Liquidated Damages will not accrue for more than one
Registration Default at any given time. All accrued Liquidated Damages will be
paid by the Company on each Interest Payment Date to the Global Note Holder by
wire transfer of immediately available funds or by federal funds check and to
Holders of Certificated Old Notes by wire transfer to the accounts specified
by them or by mailing checks to their registered addresses if no such accounts
have been specified. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
Noteholders will be required to make certain representations to the Company
(as described in the Registration Rights Agreement) in order to participate in
the Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on
the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Notes included in the
Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person, (b) outstanding at the
time such Person becomes a Subsidiary of any other Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Asset
Acquisition or such Person becoming such a Subsidiary) or (c) any renewals,
extensions, substitutions, refinancings or replacements (each, for purposes of
this clause, a "refinancing") by the Company of any Indebtedness described in
clause (a) or (b) of this definition, including any successive refinancings,
so long as (A) any such new Indebtedness shall be in a principal amount that
does not exceed the principal amount (or, if such Indebtedness being
refinanced provides for an amount less than the principal amount thereof to be
due and payable upon a declaration of acceleration thereof, such lesser amount
as of the date of determination) so refinanced plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms
of the Indebtedness refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing, plus
the amount of expenses of the Company incurred in connection with such
refinancing, and (B) in the case of any refinancing of Subordinated
Indebtedness, such new Indebtedness is made subordinate to the Notes at least
to the same extent as the Indebtedness being refinanced and (C) such new
Indebtedness has an Average Life longer than the Average Life of the Notes and
a final Stated Maturity later than the final Stated Maturity of the Notes.
"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination, (a) the sum of (i) discounted future net
revenues from proved oil and gas reserves of the Company and its Restricted
Subsidiaries calculated in accordance with SEC guidelines before any state or
federal income taxes, as estimated by a nationally recognized firm of
independent petroleum engineers in a reserve report prepared as of the end of
the Company's most recently completed fiscal year, as increased by, as of the
date of determination, the estimated discounted future net revenues from (A)
estimated proved oil and gas reserves acquired since the date of such year-end
reserve report, and (B) estimated oil and gas reserves attributable to upward
revisions of estimates of proved oil and gas reserves since the date of such
year-end reserve report due to exploration, development or exploitation
activities, in each case calculated in accordance with SEC guidelines
(utilizing the prices utilized in such year-end reserve report), and decreased
by, as of the date of determination, the estimated discounted future net
revenues from (C) estimated proved oil and gas reserves produced or disposed
of since the date of such year-end reserve report and (D) estimated oil and
gas reserves attributable to downward revisions of estimates of proved oil and
gas reserves since the date of such year-end reserve report due to changes in
geological conditions or other factors which would, in accordance with
standard industry practice, cause such revisions, in each case calculated in
accordance with SEC guidelines (utilizing the prices utilized in such year-end
reserve report); provided that, in the case of each of the determinations made
pursuant to clauses (A) through
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(D), such increases and decreases shall be as estimated by the Company's
petroleum engineers, unless in the event that there is a Material Change as a
result of such acquisitions, dispositions or revisions, then the discounted
future net revenues utilized for purposes of this clause (a)(i) shall be
confirmed in writing by a nationally recognized firm of independent petroleum
engineers, (ii) the capitalized costs that are attributable to oil and gas
properties of the Company and its Restricted Subsidiaries to which no proved
oil and gas reserves are attributable, based on the Company's books and
records as of a date no earlier than the date of the Company's latest annual
or quarterly financial statements, (iii) the Net Working Capital on a date no
earlier than the date of the Company's latest annual or quarterly financial
statements and (iv) the greater of (A) the net book value on a date no earlier
than the date of the Company's latest annual or quarterly financial statements
or (B) the appraised value, as estimated by independent appraisers, of other
tangible assets (including, without duplication, Investments in unconsolidated
Restricted Subsidiaries) of the Company and its Restricted Subsidiaries, as of
the date no earlier than the date of the Company's latest audited financial
statements, minus (b) the sum of (i) minority interests (other than a minority
interest in a Subsidiary that is a business trust or similar entity formed for
the primary purpose of issuing preferred securities the proceeds of which are
loaned to the Company or a Restricted Subsidiary), (ii) any net gas balancing
liabilities of the Company and its Restricted Subsidiaries reflected in the
Company's latest audited financial statements, (iii) to the extent included in
(a)(i) above, the discounted future net revenues, calculated in accordance
with SEC guidelines (utilizing the prices utilized in the Company's year-end
reserve report), attributable to reserves which are required to be delivered
to third parties to fully satisfy the obligations of the Company and its
Restricted Subsidiaries with respect to Volumetric Production Payments on the
schedules specified with respect thereto and (iv) the discounted future net
revenues, calculated in accordance with SEC guidelines, attributable to
reserves subject to Dollar-Denominated Production Payments which, based on the
estimates of production and price assumptions included in determining the
discounted future net revenues specified in (a)(i) above, would be necessary
to fully satisfy the payment obligations of the Company and its Restricted
Subsidiaries with respect to Dollar-Denominated Production Payments on the
schedules specified with respect thereto. If the Company changes its method of
accounting from the successful efforts method to the full cost method or a
similar method of accounting, "Adjusted Consolidated Net Tangible Assets" will
continue to be calculated as if the Company were still using the successful
efforts method of accounting.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control," when used with respect to any Person, means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of this definition, beneficial ownership of 10% or
more of the voting common equity (on a fully diluted basis) or options or
warrants to purchase such equity (but only if exercisable at the date of
determination or within 60 days thereof) of a Person shall be deemed to
constitute control of such Person. No Person shall be deemed an Affiliate of
an oil and gas royalty trust solely by virtue of ownership of units of
beneficial interest in such trust.
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary in any other Person pursuant to which such Person shall become a
Restricted Subsidiary or any Restricted Subsidiary shall be merged with or
into the Company or any Restricted Subsidiary or (b) the acquisition by the
Company or any Restricted Subsidiary of the assets of any Person which
constitute all or substantially all of the assets of such Person or any
division or line of business of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by means of a Sale/Leaseback
Transaction or by way of merger or consolidation) (collectively, for purposes
of this definition, a "transfer"), directly or indirectly, in one or a series
of related transactions, of (a) any Capital Stock of any Restricted Subsidiary
held by the Company or any Restricted Subsidiary; (b) all or substantially all
of the properties and assets of any division or line of business of the
Company or any of its Restricted Subsidiaries; or
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(c) any other properties or assets of the Company or any of its Restricted
Subsidiaries other than a disposition of hydrocarbons or other mineral
products in the ordinary course of business. For the purposes of this
definition, the term "Asset Sale" shall not include (i) any transfer of
properties or assets that is governed by, and made in accordance with, the
provisions described under "Merger, Consolidation and Sale of Assets, Etc.;"
(ii) any transfer of properties or assets to an Unrestricted Subsidiary, if
permitted under the provisions described under "Limitation on Restricted
Payments"; (iii) any trade or exchange of oil and gas properties or shares of
Capital Stock in any corporation in the Oil and Gas Business owned by the
Company or any Restricted Subsidiary for oil and gas properties owned or held
by another Person provided that (x) the fair market value of the properties or
shares traded or exchanged by the Company or such Restricted Subsidiary
(including any cash or Cash Equivalents, not to exceed 15% of such fair market
value, to be delivered by the Company or such Restricted Subsidiary) is
reasonably equivalent to the fair market value of the properties (together
with any cash or Cash Equivalents, not to exceed 15% of such fair market
value) to be received by the Company or such Restricted Subsidiary as
determined in good faith by (A) any officer of the Company if such fair market
value is less than $5,000,000 and (B) the Board of Directors of the Company as
certified by a certified resolution delivered to the Trustee if such fair
market value is equal to or in excess of $5,000,000; provided that if such
resolution indicates that such fair market value is equal to or in excess of
$10,000,000 such resolution shall be accompanied by a written appraisal by a
nationally recognized investment banking firm or appraisal firm, in each case
specializing or having a speciality in oil and gas properties, and (y) such
exchange is approved by a majority of the Disinterested Directors of the
Company; or (iv) any transfer of properties or assets having a fair market
value of less than $2,000,000.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the present value of the total net amount
of rent required to be paid by such Person under the lease during the primary
term thereof, without giving effect to any renewals at the option of the
lessee, discounted from the respective due dates thereof to such date of
determination at the rate of interest per annum implicit in the terms of the
lease. As used in the preceding sentence, the "net amount of rent" under any
lease for any such period shall mean the sum of rental and other payments
required to be paid with respect to such period by the lessee thereunder,
excluding any amounts required to be paid by such lessee on account of
maintenance and repairs, insurance, taxes, assessments, water rates or similar
charges. In the case of any lease which is terminable by the lessee upon
payment of a penalty, such net amount of rent shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under
such lease subsequent to the first date upon which it may be so terminated.
"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (a) the sum of the products
of (i) the number of years (and any portion thereof) from the date of
determination to the date or dates of each successive scheduled principal
payment (including, without limitation, any sinking fund or mandatory
redemption payment requirements) of such Indebtedness multiplied by (ii) the
amount of each such principal payment by (b) the sum of all such principal
payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents in the equity
interests (however designated) in such Person, and any rights (other than debt
securities convertible into an equity interest), warrants or options
exercisable for, exchangeable for or convertible into such an equity interest
in such Person.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the
purpose of the Indenture, the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with
GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity of
365 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided
that the full faith and credit of the United States of America is pledged in
support thereof); (ii) demand
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and time deposits and certificates of deposit or acceptances with a maturity
of 365 days or less of any financial institution that is a member of the
Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500,000,000; (iii) commercial paper with a maturity
of 365 days or less issued by a corporation that is not an Affiliate of the
Company and is organized under the laws of any state of the United States or
the District of Columbia and rated at least A-1 by S&P or at least P-1 by
Moody's; (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above entered
into with any commercial bank meeting the specifications of clause (ii) above;
and (v) overnight bank deposits and bankers' acceptances at any commercial
bank meeting the qualifications specified in clause (ii) above.
"Change of Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d)(3) or
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than
40% of the total voting power of the outstanding Voting Stock of the Company;
(b) the Company is merged with or into or consolidated with another Person
and, immediately after giving effect to the merger or consolidation, (A) less
than 50% of the total voting power of the outstanding Voting Stock of the
surviving or resulting Person is then "beneficially owned" (within the meaning
of Rule 13d-3 under the Exchange Act) in the aggregate by (x) the stockholders
of the Company immediately prior to such merger or consolidation, or (y) if a
record date has been set to determine the stockholders of the Company entitled
to vote with respect to such merger or consolidation, the stockholders of the
Company as of such record date and (B) any "person" or "group" (as such terms
are used in Sections 13(d)(3) or 14(d)(2) of the Exchange Act) has become the
direct or indirect "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 40% of the total voting power of the Voting Stock
of the surviving or resulting Person; (c) the Company, either individually or
in conjunction with one or more Restricted Subsidiaries, sells, conveys,
transfers or leases, or the Restricted Subsidiaries sell, convey, transfer or
lease, all or substantially all of the assets of the Company and the
Restricted Subsidiaries, taken as a whole (either in one transaction or a
series of related transactions), including Capital Stock of the Restricted
Subsidiaries, to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary); (d) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by the stockholders
of the Company was approved by a vote of 66 2/3% of the directors then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then
in office; or (e) the liquidation or dissolution of the Company.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio
of (a) the sum of Consolidated Net Income, Consolidated Interest Expense,
Consolidated Income Tax Expense and Consolidated Non-cash Charges deducted in
computing Consolidated Net Income, in each case, for such period, of the
Company and its Restricted Subsidiaries on a consolidated basis, all
determined in accordance with GAAP, decreased (to the extent included in
determining Consolidated Net Income) by the sum of (x) the amount of deferred
revenues that are amortized during such period and are attributable to
reserves that are subject to Volumetric Production Payments and (y) amounts
recorded in accordance with GAAP as repayments of principal and interest
pursuant to Dollar-Denominated Production Payments, to (b) the sum of such
Consolidated Interest Expense for such period; provided that (i) in making
such computation, the Consolidated Interest Expense attributable to interest
on any Indebtedness required to be computed on a pro forma basis in accordance
with clause (x) of the "Limitation on Indebtedness" covenant and bearing a
floating interest rate shall be computed as if the rate in effect on the date
of computation had been the applicable rate for the entire period, (ii) in
making such computation, the Consolidated Interest Expense attributable to
interest on any Indebtedness under a revolving credit facility required to be
computed on a pro forma basis in accordance with clause (x) of the
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"Limitation on Indebtedness" covenant shall be computed based upon the average
daily balance of such Indebtedness during the applicable period, provided that
such average daily balance shall be reduced by the amount of any repayment of
Indebtedness under a revolving credit facility during the applicable period,
which repayment permanently reduced the commitments or amounts available to be
reborrowed under such facility, (iii) notwithstanding clauses (i) and (ii) of
this proviso, interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by agreements relating to Interest Rate
Protection Obligations, shall be deemed to have accrued at the rate per annum
resulting after giving effect to the operation of such agreements and (iv) in
making such calculation, Consolidated Interest Expense shall exclude interest
attributable to Dollar-Denominated Production Payments.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (i) the interest expense of the Company and its Restricted
Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing and (e) all accrued interest, in each case to the extent
attributable to such period, (ii) to the extent any Indebtedness of any Person
(other than the Company or a Restricted Subsidiary) is guaranteed by the
Company or any Restricted Subsidiary, the aggregate amount of interest paid or
accrued by such other Person during such period attributable to any such
Indebtedness, in each case to the extent attributable to that period, (iii)
the aggregate amount of the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by the
Company and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP and (iv) the aggregate amount of
dividends paid or accrued on Redeemable Capital Stock or Preferred Stock of
the Company and its Restricted Subsidiaries, to the extent such Redeemable
Capital Stock or Preferred Stock is owned by Persons other than Restricted
Subsidiaries.
"Consolidated Net Income" means, for any period, the consolidated net income
(or loss) of the Company and its Restricted Subsidiaries for such period as
determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto),
(b) net after-tax gains or losses (less all fees and expenses relating
thereto) attributable to Asset Sales, (c) the net income (or net loss) of any
Person (other than the Company or any of its Restricted Subsidiaries), in
which the Company or any of its Restricted Subsidiaries has an ownership
interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or its Restricted Subsidiaries in
cash by such other Person during such period (regardless of whether such cash
dividends, distributions or interest on indebtedness is attributable to net
income (or net loss) of such Person during such period or during any prior
period), (d) net income (or net loss) of any Person combined with the Company
or any of its Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (e) the net
income of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary is
not at the date of determination permitted, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (f) income resulting from transfers
of assets received by the Company or any Restricted Subsidiary from an
Unrestricted Subsidiary and (g) any write-downs of non-current assets;
provided, however, that any ceiling limitation write-downs under SEC
guidelines shall be treated as capitalized costs, as if such write-downs had
not occurred.
"Consolidated Net Worth" means, at any date, the consolidated stockholders'
equity of the Company less the amount of such stockholders' equity
attributable to Redeemable Capital Stock or treasury stock of the Company and
its Restricted Subsidiaries, as determined in accordance with GAAP.
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"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization, impairment and other non-cash expenses
(including any exploration expense) of the Company and its Restricted
Subsidiaries reducing Consolidated Net Income for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such non-cash charge
which requires an accrual of or reserve for cash charges for any future
period).
"Credit Agreement" means the Revolving Credit Agreement dated May 28, 1997
among the Company and Morgan Guaranty Trust Company of New York and
NationsBank of Texas, N.A., as co-agents, and the other banks specified
therein, as such agreement may be amended, modified, supplemented, extended,
restated, replaced (including replacement after the termination of such
agreement), restructured, increased, renewed or refinanced from time to time
in one or more credit agreements, loan agreements, instruments or similar
agreements, as such may be further amended, modified, supplemented, extended,
restated, replaced (including replacement after the termination of such
agreement), restructured, increased, renewed or refinanced from time to time.
"Credit Agreement Obligations" means all monetary obligations of every
nature of the Company or a Restricted Subsidiary, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities, from time
to time owed to the lenders or any agent under or in respect of the Credit
Agreement.
"Default" means any event, act or condition that is, or after notice or
passage of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness
constituting Credit Agreement Obligations and (ii) any other Senior
Indebtedness which (a) at the time of incurrence equals or exceeds $10,000,000
in aggregate principal amount and (b) is specifically designated by the
Company in the instrument evidencing such Senior Indebtedness as "Designated
Senior Indebtedness" for purpose of the Indenture.
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors of the Company is
required to deliver a resolution of the Board of Directors under the
Indenture, a member of the Board of Directors of the Company who does not have
any material direct or indirect financial interest (other than an interest
arising solely from the beneficial ownership of Capital Stock of the Company)
in or with respect to such transaction or series of transactions.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Event of Default" has the meaning set forth above under the caption "Events
of Default."
"GAAP" means generally accepted accounting principles, consistently applied,
that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as may be approved by a
significant segment of the accounting profession of the United States of
America, which are applicable as of the date of the Indenture.
"Guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. When used as a verb,
"guarantee" shall have a corresponding meaning.
"Guarantor Senior Indebtedness" means all Indebtedness of a Subsidiary
Guarantor created, incurred, assumed or guaranteed by such Subsidiary
Guarantor (and all renewals, substitutions, refinancings or
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replacements thereof) (including the principal of, interest on and fees,
premiums, expenses (including costs of collection), indemnities and other
amounts payable in connection with, such Indebtedness) (and including, in the
case of the Credit Agreement, interest accruing after the filing of a petition
by or against such Subsidiary Guarantor under any bankruptcy law, in
accordance with and at the rate, including any default rate, specified with
respect to such Indebtedness, whether or not a claim for such interest is
allowed as a claim after such filing in any proceeding under such bankruptcy
law), unless the instrument governing such Indebtedness expressly provides
that such Indebtedness is not senior in right of payment to its Subsidiary
Guarantee. Notwithstanding the foregoing, Guarantor Senior Indebtedness of a
Subsidiary Guarantor will not include (i) Indebtedness of such Subsidiary
Guarantor evidenced by its Subsidiary Guarantee, (ii) Indebtedness of such
Subsidiary Guarantor that is expressly subordinated or junior in right of
payment to any Guarantor Senior Indebtedness of such Subsidiary Guarantor or
its Subsidiary Guarantee, (iii) Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11 United States Code,
is by its terms without recourse to such Subsidiary Guarantor, (iv) any
repurchase, redemption or other obligation in respect of Redeemable Capital
Stock of such Subsidiary Guarantor, (v) to the extent it might constitute
Indebtedness, any liability for federal, state, local or other taxes owed or
owing by such Subsidiary Guarantor, (vi) Indebtedness of such Subsidiary
Guarantor to the Company or any of the Company's other Subsidiaries or any
other Affiliate of the Company or any of such Affiliate's Subsidiaries, and
(vii) that portion of any Indebtedness of such Subsidiary Guarantor which at
the time of issuance is issued in violation of the Indenture (but, as to any
such Indebtedness, no such violation shall be deemed to exist for purposes of
this clause (vii) if the holder(s) of such Indebtedness or their
representative or such Subsidiary Guarantor shall have furnished to the
Trustee an opinion of counsel unqualified in all material respects of
independent legal counsel, addressed to the Trustee (which legal counsel may,
as to matters of fact, rely upon a certificate of such Subsidiary Guarantor)
to the effect that the incurrence of such Indebtedness does not violate the
provisions of such Indenture); provided that the foregoing exclusions shall
not affect the priorities of any Indebtedness arising solely by operation of
law in any case or proceeding or similar event described in clause (a), (b) or
(c) of the second paragraph of "--Subordination."
"Holder" or "Noteholder" means a Person in whose name a Note is registered
in the Note Register and, after the Exchange Offer, a person in whose name an
Exchange Note is registered in the Note Register.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade accounts payable and other
accrued current liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of
such Person in connection with any letters of credit, bankers' acceptance or
other similar credit transaction and in connection with any agreement to
purchase, redeem, exchange, convert or otherwise acquire for value any Capital
Stock of such Person, or any warrants, rights or options to acquire such
Capital Stock, now or hereafter outstanding, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (b) all obligations of such Person evidenced
by bonds, notes, debentures or other similar instruments, if, and to the
extent, any of the foregoing would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, (c) all Indebtedness of such
Person created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business, (d) all
Capitalized Lease Obligations of such Person, (e) the Attributable
Indebtedness (in excess of any related Capitalized Lease Obligations) related
to any Sale/Leaseback Transaction of such Person, (f) all Indebtedness
referred to in the preceding clauses of other Persons and all dividends of
other Persons, the payment of which is secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon property (including, without limitation, accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness (the amount of
such obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (g) all guarantees by such
Person of Indebtedness referred to in this definition (including, with respect
to any Production Payment, any warranties or guaranties of production or
payment by such Person with respect
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to such Production Payment but excluding other contractual obligations of such
Person with respect to such Production Payment), (h) all Redeemable Capital
Stock of such Person valued at the greater of its voluntary or involuntary
maximum fixed repurchase price plus accrued dividends, (i) all obligations of
such Person under or in respect of currency exchange contracts and Interest
Rate Protection Obligations and (j) any amendment, supplement, modification,
deferral, renewal, extension or refunding of any liability of such Person of
the types referred to in clauses (a) through (i) above. For purposes hereof,
the "maximum fixed repurchase price" of any Redeemable Capital Stock which
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Redeemable Capital Stock, such fair
market value shall be determined in good faith by the board of directors of
the issuer of such Redeemable Capital Stock, provided, however, that if such
Redeemable Capital Stock is not at the date of determination permitted or
required to be repurchased, the "maximum fixed repurchase price" shall be the
book value of such Redeemable Capital Stock. Subject to clause (g) of the
first sentence of this definition, neither Dollar-Denominated Production
Payments nor Volumetric Production Payments shall be deemed to be
Indebtedness.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
Person calculated by applying a fixed or a floating rate of interest on the
same notional amount and includes, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to
protect against or manage such Person's and any of its Subsidiaries' exposure
to fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or
capital contribution to (by means of any transfer of cash or other property or
assets to others or any payment for property, assets or services for the
account or use of others), or any purchase or acquisition by such Person of
any Capital Stock, bonds, notes, debentures or other securities (including
derivatives) or evidences of Indebtedness issued by, any other Person. In
addition, the fair market value of the net assets of any Restricted Subsidiary
at the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary shall be deemed to be an "Investment" made by the Company in such
Unrestricted Subsidiary at such time. "Investments" shall exclude (a)
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices and (b) Interest Rate Protection Obligations entered
into in the ordinary course of business or as required by any Permitted
Indebtedness or any Indebtedness incurred in compliance with the "Limitation
on Indebtedness" covenant, but only to the extent that the notional principal
amount of such Interest Rate Protection Obligations does not exceed 105% of
the principal amount of such Indebtedness to which such Interest Rate
Protection Obligations relate and (c) bonds, notes, debentures or other
securities received in compliance with the "Limitation on Disposition of
Proceeds of Asset Sales" covenant.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance or similar agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any agreement to give or grant a Lien or any lease, conditional
sale or other title retention agreement having substantially the same economic
effect as any of the foregoing) upon or with respect to any property of any
kind. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement.
"Liquidated Damages" has the meaning set forth under the caption
"Registration Rights; Liquidated Damages."
"Material Change" means an increase or decrease (excluding changes that
result solely from changes in prices) of more than 50% during a fiscal quarter
in the estimated discounted future net cash flows from proved oil and gas
reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (a) (i)
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of the definition of Adjusted Consolidated Net Tangible Assets; provided,
however, that the following will be excluded from the calculation of Material
Change: (i) any acquisitions during the quarter of oil and gas reserves that
have been estimated by a nationally recognized firm of independent petroleum
engineers and on which a report or reports exist and (ii) any disposition of
properties held at the beginning of such quarter that have been disposed of as
provided in the "Limitation on Disposition of Proceeds of Asset Sales"
covenant.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as provided therein or in the Indenture,
whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the assets subject to the Asset
Sale and (iv) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP consistently applied against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the
case may be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an Officers' Certificate
delivered to the Trustee; provided, however, that any amounts remaining after
adjustments, revaluations or liquidations of such reserves shall constitute
Net Cash Proceeds.
"Net Working Capital" means (i) all current assets of the Company and its
Restricted Subsidiaries, minus (ii) all current liabilities of the Company and
its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with GAAP.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of the Company or a Restricted Subsidiary incurred in connection
with the acquisition by the Company or a Restricted Subsidiary of any property
or assets and as to which (a) the holders of such Indebtedness agree that they
will look solely to the property or assets so acquired and securing such
Indebtedness for payment on or in respect of such Indebtedness and (b) no
default with respect to such Indebtedness would permit (after notice or
passage of time or both), according to the terms thereof, any holder of any
Indebtedness of the Company or a Restricted Subsidiary to declare a default on
such Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity.
"Note Register" means the register maintained by or for the Company in which
the Company shall provide for the registration of the Notes and, after the
Exchange Offer, the Exchange Notes and of transfer of the Notes and the
Exchange Notes.
"Note Obligations" means any principal of, premium, if any, and interest on,
and any other amounts (including, without limitation, any payment obligations
with respect to the Notes as a result of any Asset Sale, Change of Control or
redemption) owing in respect of, the Notes payable pursuant to the terms of
the Notes or the Indenture or upon acceleration of the Notes.
"Oil and Gas Business" means (i) the acquisition, exploration, development,
operation and disposition of interests in oil, gas and other hydrocarbon
properties, (ii) the gathering, marketing, treating, processing, storage,
refining, selling and transporting of any production from such interests or
properties, (iii) any business relating
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to or arising from exploration for or development, production, treatment,
processing, storage, refining, transportation or marketing of oil, gas and
other minerals and products produced in association therewith, and (iv) any
activity necessary, appropriate or incidental to the activities described in
the foregoing clauses (i) through (iii) of this definition.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is pari
passu in right of payment to the Notes.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness of the Company under one or more bank credit or
revolving credit facilities in an aggregate principal amount at any one
time outstanding not to exceed the greater of (A) $410,000,000 and (B) an
amount equal to the sum of (x) $200,000,000 and (y) 20% of Adjusted
Consolidated Net Tangible Assets determined as of the date of the
incurrence of such Indebtedness (such greater amount being referred to as
the "Adjusted Maximum Credit Amount") (plus interest and fees under such
facilities), less any amounts derived from Asset Sales and applied to the
required permanent reduction of Senior Indebtedness (and a permanent
reduction of the related commitment to lend or amount available to be
reborrowed in the case of a revolving credit facility) under such credit
facilities as contemplated by the "Limitation on Disposition of Proceeds of
Asset Sales" covenant (the "Maximum Credit Amount") (with the Maximum
Credit Amount to be an aggregate maximum amount for the Company and all
Restricted Subsidiaries, pursuant to clause (i) of the definition of
"Permitted Subsidiary Indebtedness"), and any renewals, amendments,
extensions, supplements, modifications, deferrals, refinancings or
replacements (each, for purposes of this clause, a "refinancing") thereof
by the Company, including any successive refinancings thereof by the
Company, so long as the aggregate principal amount of any such new
Indebtedness, together with the aggregate principal amount of all other
Indebtedness outstanding pursuant to this clause (i) (and clause (i) of the
definition of "Permitted Subsidiary Indebtedness"), shall not at any one
time exceed the Maximum Credit Amount;
(ii) Indebtedness of the Company under the Notes;
(iii) Indebtedness of the Company outstanding on the date of the
Indenture (and not repaid or defeased with the proceeds of the offering of
the Old Notes);
(iv) obligations of the Company pursuant to Interest Rate Protection
Obligations, but only to the extent such obligations do not exceed 105% of
the aggregate principal amount of the Indebtedness covered by such Interest
Rate Protection Obligations; obligations under currency exchange contracts
entered into in the ordinary course of business; and hedging arrangements
that the Company enters into in the ordinary course of business for the
purpose of protecting its production against fluctuations in oil or natural
gas prices;
(v) Indebtedness of the Company to any Restricted Subsidiaries;
(vi) in-kind obligations relating to net gas balancing positions arising
in the ordinary course of business and consistent with past practice;
(vii) Indebtedness in respect of bid, performance or surety bonds issued
or other reimbursement obligations for the account of the Company or any
Restricted Subsidiary in the ordinary course of business, including
guarantees and letters of credit supporting such bid, performance, surety
bonds or other reimbursement obligations (in each case other than for an
obligation for money borrowed);
(viii) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by the
Company of any Indebtedness of the Company other than Indebtedness incurred
pursuant to clauses (iv), (vii) and (viii) of this definition, including
any successive refinancings by the Company, so long as (A) any such new
Indebtedness shall be in a principal amount that does not exceed the
principal amount (or, if such Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) so refinanced plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of
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any premium reasonably determined by the Company as necessary to accomplish
such refinancing, plus the amount of expenses of the Company incurred in
connection with such refinancing, and (B) in the case of any refinancing of
Subordinated Indebtedness, such new Indebtedness is made subordinate to the
Notes at least to the same extent as the Indebtedness being refinanced and
(C) such new Indebtedness has an Average Life equal to or longer than the
Average Life of the Indebtedness being refinanced and a final Stated
Maturity equal to or later than the final Stated Maturity of the
Indebtedness being refinanced;
(ix) Non-Recourse Indebtedness; and
(x) other Indebtedness of the Company in an aggregate principal amount
not in excess of $25,000,000 at any one time outstanding.
"Permitted Investments" means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in the Company or any of its Restricted
Subsidiaries; (iii) Investments in an amount not to exceed 5% of Adjusted
Consolidated Net Tangible Assets determined as of the date of the making or
incurrence of such Permitted Investment at any one time outstanding; (iv)
Investments by the Company or any of its Restricted Subsidiaries in another
Person, if as a result of such Investment (A) such other Person becomes a
Restricted Subsidiary of the Company or (B) such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all of
its assets to, the Company or a Restricted Subsidiary; (v) entry into
operating agreements, joint ventures, partnership agreements, working
interests; royalty interests, mineral leases, processing agreements, farm-out
agreements, contracts for the sale, transportation or exchange of oil and
natural gas, unitization agreements, pooling arrangements, area of mutual
interest agreements 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; (vi) entry into any hedging
arrangements in the ordinary course of business for the purpose of protecting
the Company's or any Restricted Subsidiary's production against fluctuations
in oil or natural gas prices; (vii) Investments in units of any oil and gas
royalty trust; or (viii) entry into a joint venture or partnership agreement
in connection with ownership and operation of office and building real estate
and related assets owned by the Company or any Restricted Subsidiary and
contribution of such assets to such entity.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date the Old Notes were first issued;
(b) Liens securing the Notes;
(c) Liens in favor of the Company or a Subsidiary Guarantor;
(d) Liens securing Senior Indebtedness or Guarantor Senior Indebtedness;
(e) Liens for taxes, assessments and governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(f) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not 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;
(g) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the payment or performance of
tenders, statutory or regulatory obligations, surety and appeal bonds,
bids, leases, government contracts and leases, performance and return of
money bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money but including lessee or operator obligations
under statutes, governmental regulations or instruments related to the
ownership, exploration and production of oil, gas and minerals on state,
federal or foreign lands or waters);
(h) judgment Liens not giving rise to an Event of Default so long as any
appropriate legal proceedings which may have been duly initiated for the
review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have
expired;
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(i) easements, rights-of-way, restrictions and other similar charges or
encumbrances not interfering in any material respect with the ordinary
conduct of the business of the Company or any of its Restricted
Subsidiaries;
(j) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease;
(k) Liens resulting from the deposit of funds or evidences of
Indebtedness in trust for the purpose of defeasing Indebtedness of the
Company or any of the Subsidiaries;
(l) Liens securing obligations under hedging agreements that the Company
or any Restricted Subsidiary enters into in the ordinary course of business
for the purpose of protecting its production against fluctuations in oil or
natural gas prices;
(m) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(n) 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;
(o) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of the Company or its Restricted
Subsidiaries relating to such property or assets;
(p) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and set-
off;
(q) Liens securing Interest Rate Protection Obligations which Interest
Rate Protection Obligations relate to Indebtedness that is secured by Liens
otherwise permitted under this Indenture;
(r) Liens on, or related to, properties or assets to secure all or part
of the costs incurred in the ordinary course of business for the
exploration, drilling, development or operation thereof;
(s) Liens on pipeline or pipeline facilities which arise out of operation
of law;
(t) Liens arising under operating agreements, joint venture agreements,
partnership agreements, oil and gas leases, farm-out agreements, division
orders, contracts for the sale, transportation or exchange of oil and
natural gas, unitization and pooling declarations and agreements, area of
mutual interest agreements and other agreements which are customary in the
Oil and Gas Business;
(u) Liens reserved in oil and gas mineral leases for bonus or rental
payments and for compliance with the terms of such leases;
(v) Liens constituting survey exceptions, encumbrances, easements, or
reservations of, or rights to others for, rights-of-way, zoning or other
restrictions as to the use of real properties, and minor defects of title
which, in the case of any of the foregoing, were not incurred or created to
secure the payment of borrowed money or the deferred purchase price of
Property or services, and in the aggregate do not materially adversely
affect the value of Property of the Company and the Restricted
Subsidiaries, taken as a whole, or materially impair the use of such
Properties for the purposes for which such Properties are held by the
Company or any Restricted Subsidiaries; and
(w) Liens securing Non-Recourse Indebtedness; provided, however, that the
related Non-Recourse Indebtedness shall not be secured by any property or
assets of the Company or any Restricted Subsidiary other than the property
and assets acquired by the Company with the proceeds of such Non-Recourse
Indebtedness.
Notwithstanding anything in clauses (a) through (w) of this definition, the
term "Permitted Liens" does not include any Liens resulting from the creation,
incurrence, issuance, assumption or guarantee of any Production Payments other
than Production Payments that are created, incurred, issued, assumed or
guaranteed in connection with the financing of, and within 30 days after, the
acquisition of the properties or assets that are subject thereto.
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"Permitted Subsidiary Indebtedness" means any of the following:
(i) Indebtedness of any Restricted Subsidiary under one or more bank
credit or revolving credit facilities (and "refinancings" thereof) in an
amount at any one time outstanding not to exceed the Maximum Credit Amount
(in the aggregate for all Restricted Subsidiaries and the Company, pursuant
to clause (i) of the definition of "Permitted Indebtedness");
(ii) Indebtedness of any Restricted Subsidiary outstanding on the date of
the Indenture;
(iii) obligations of any Restricted Subsidiary pursuant to Interest Rate
Protection Obligations, but only to the extent such obligations do not
exceed 105% of the aggregate principal amount of the Indebtedness covered
by such Interest Rate Protection Obligations; and hedging arrangements that
any Restricted Subsidiary enters into in the ordinary course of business
for the purpose of protecting its production against fluctuations in oil or
natural gas prices;
(iv) the Subsidiary Guarantees (and any assumption of the obligations
guaranteed thereby);
(v) Indebtedness of any Restricted Subsidiary relating to guarantees by
such Restricted Subsidiary of Permitted Indebtedness pursuant to clause (i)
of the definition of "Permitted Indebtedness;"
(vi) in-kind obligations relating to net gas balancing positions arising
in the ordinary course of business and consistent with past practice;
(vii) Indebtedness in respect of bid, performance or surety bonds or
other reimbursement obligations issued for the account of any Restricted
Subsidiary in the ordinary course of business, including guarantees and
letters of credit supporting such bid, performance, surety bonds or other
reimbursement obligations (in each case other than for an obligation for
money borrowed);
(viii) Indebtedness of any Restricted Subsidiary to any other Restricted
Subsidiary or to the Company;
(ix) Indebtedness relating to guarantees by any Restricted Subsidiary
permitted to be incurred pursuant to paragraph (a) of the "Limitation on
Non-Guarantor Restricted Subsidiaries" covenant;
(x) Non-Recourse Indebtedness; and
(xi) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by any
Restricted Subsidiary of any Indebtedness of such Restricted Subsidiary,
including any successive refinancings by such Restricted Subsidiary, so
long as (x) any such new Indebtedness shall be in a principal amount that
does not exceed the principal amount (or, if such Indebtedness being
refinanced provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration thereof, such lesser
amount as of the date of determination) so refinanced plus the amount of
any premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness refinanced or the amount of any
premium reasonably determined by such Restricted Subsidiary as necessary to
accomplish such refinancing, plus the amount of expenses of such Subsidiary
incurred in connection with such refinancing and (y) such new Indebtedness
has an Average Life equal to or longer than the Average Life of the
Indebtedness being refinanced and a final Stated Maturity equal to or later
than the final Stated Maturity of the Indebtedness being refinanced.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued
after the date of the Indenture, including, without limitation, all classes
and series of preferred or preference stock of such Person.
"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
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"Public Equity Offering" means an underwritten public offering for cash by
the Company of its Qualified Capital Stock pursuant to a registration
statement that has been declared effective by the Commission (other than a
registration statement on Form S-8 or any successor form or otherwise relating
to equity securities issuable under any employee benefit plan of the Company).
"Public Market" exists at any time with respect to the Qualified Capital
Stock of the Company if such Qualified Capital Stock of the Company is then
(a) registered with the Commission pursuant to Section 12(b) or 12(g) of the
Exchange Act and (b) traded either on a national securities exchange or on the
NASDAQ Stock Market.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Qualified Redemption Transaction" means a call for redemption of any
Capital Stock or Subordinated Indebtedness (including any Subordinated
Indebtedness accounted for as a minority interest of the Company that is held
by a Subsidiary that is a business trust or similar entity formed for the
primary purpose of issuing preferred securities the proceeds of which are
loaned to the Company or a Restricted Subsidiary) that by its terms is
convertible into common stock of the Company if on the date of notice of such
call for redemption (A) a Public Market exists in the shares of common stock
of the Company and (B) the average closing price on the Public Market for
shares of common stock of the Company for the twenty trading days immediately
preceding the date of such notice exceeds 120% of the conversion price per
share (determined by reference to the redemption price) of common stock of the
Company issuable upon conversion of the Capital Stock or Subordinated
Indebtedness called for redemption.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to 91 days
after the final Stated Maturity of the Notes or is redeemable at the option of
the holder thereof at any time prior to 91 days after such final Stated
Maturity, or is convertible into or exchangeable for debt securities at any
time prior to 91 days after such final Stated Maturity.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of the Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of the Indenture.
"S&P" means Standard and Poor's Rating Group, a division of McGraw Hill,
Inc., and its successors.
"Sale/Leaseback Transaction" means, with respect to any Person, any direct
or indirect arrangement pursuant to which properties or assets are sold or
transferred by such Person or a Subsidiary of such Person and are thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Subsidiaries.
"Senior Indebtedness" means the principal of, premium, if any, and interest
on any Indebtedness of the Company (including, in the case of the Credit
Agreement, interest accruing after the filing of a petition by or against the
Company under any bankruptcy law, in accordance with and at the rate,
including any default rate, specified with respect to such indebtedness,
whether or not a claim for such interest is allowed as a claim after such
filing in any proceeding under such bankruptcy law), whether outstanding on
the date of the Indenture or thereafter created, incurred or assumed, unless,
in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Notes. Notwithstanding the foregoing, "Senior Indebtedness" shall not include
(a) Indebtedness evidenced by the Notes, (b) Indebtedness that is expressly
subordinate or junior in right of payment to any Senior Indebtedness of the
Company, (c) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11 United States Code, is by its terms
without recourse to the Company, (d) any repurchase, redemption or other
obligation in respect of Redeemable Capital Stock of the
56
<PAGE>
Company, (e) to the extent it might constitute Indebtedness, any liability for
federal, state, local or other taxes owed or owing by the Company, (f)
Indebtedness of the Company to a Subsidiary of the Company or any other
Affiliate of the Company or any of such Affiliate's Subsidiaries, and (g) that
portion of any Indebtedness of the Company which at the time of issuance is
issued in violation of the Indenture (but, as to any such Indebtedness, no
such violation shall be deemed to exist for purposes of this clause (g) if the
holder(s) of such Indebtedness or their representative or the Company shall
have furnished to the Trustee an opinion of counsel unqualified in all
material respects of independent legal counsel, addressed to the Trustee
(which legal counsel may, as to matters of fact, rely upon a certificate of
the Company) to the effect that the incurrence of such Indebtedness does not
violate the provisions of such Indenture); provided that the foregoing
exclusions shall not affect the priorities of any Indebtedness arising solely
by operation of law in any case or proceeding or similar event described in
clause (a), (b) or (c) of the second paragraph of "--Subordination."
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable, and, when used with respect to any other Indebtedness or any
installment of interest thereon, means the date specified in the instrument
evidencing or governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or such installment of interest is due and
payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (i) a corporation a majority
of whose Voting Stock is at the time, directly or indirectly, owned by such
Person, by one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries thereof or (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Person
performing similar functions).
"Subsidiary Guarantee" means any guarantee of the Notes by (i) any
Subsidiary Guarantor in accordance with the provisions set forth in
"Subsidiary Guarantees of the Notes" and (ii) any Restricted Subsidiary in
accordance with the provisions set forth in the "Limitation on Non-Guarantor
Restricted Subsidiaries" covenant.
"Subsidiary Guarantor" means (i) each of the Company's Restricted
Subsidiaries that becomes a guarantor of the Notes in compliance with the
provisions described under "--Subsidiary Guarantees of the Notes" or the
provisions of the "Limitation on Non-Guarantor Restricted Subsidiaries"
covenant and (ii) each of the Company's Subsidiaries executing a supplemental
indenture in which such Subsidiary agrees to be bound by the terms of the
Indenture and to guarantee on an unsubordinated basis the payment of the Notes
pursuant to the provisions described under "--Subsidiary Guarantees of the
Notes."
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination will be designated an Unrestricted Subsidiary by the
Board of Directors of the Company as provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may
designate any Subsidiary of the Company as an Unrestricted Subsidiary so long
as (a) neither the Company nor any Restricted Subsidiary is directly or
indirectly liable pursuant to the terms of any Indebtedness of such
Subsidiary, (b) no default with respect to any Indebtedness of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default
on such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity, (c) neither the Company nor any
Restricted Subsidiary has made an Investment in such Subsidiary unless such
Investment was made pursuant to, and in accordance with, the "Limitation on
Restricted Payments" covenant (other than Investments of the type described in
clause (iv) of the definition of Permitted Investments), and (d) such
designation shall not result in the creation or imposition of any Lien on any
of the Properties of the Company or any Restricted Subsidiary (other than any
Permitted Lien or any Lien the creation or imposition of
57
<PAGE>
which shall have been in compliance with the "Limitation on Liens" covenant);
provided, however, that with respect to clause (a), the Company or a
Restricted Subsidiary may be liable for Indebtedness of an Unrestricted
Subsidiary if (x) such liability constituted a Permitted Investment or a
Restricted Payment permitted by the "Limitation on Restricted Payments"
covenant, in each case at the time of incurrence, or (y) the liability would
be a Permitted Investment at the time of designation of such Subsidiary as an
Unrestricted Subsidiary. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by filing a board resolution with
the Trustee giving effect to such designation. The Board of Directors of the
Company may designate any Unrestricted Subsidiary as a Restricted Subsidiary
if, immediately after giving effect to such designation, (i) no Default or
Event of Default shall have occurred and be continuing, (ii) the Company could
incur $1.00 of additional Indebtedness (not including the incurrence of
Permitted Indebtedness) under the first paragraph of the "Limitation on
Indebtedness" covenant and (iii) if any of the Properties of the Company or
any of its Restricted Subsidiaries would upon such designation become subject
to any Lien (other than a Permitted Lien), the creation or imposition of such
Lien shall have been in compliance with the "Limitation on Liens" covenant.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company.
58
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes if
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until February 5, 1998 (90 days from the date of
this Prospectus), all dealers effecting transactions in the New Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such New Notes. Any broker-
dealer that resells New Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of New Notes
and any commission or concessions received by any such persons may be deemed
to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. The Company has agreed to pay all expenses incident to
the Exchange Offer (including the expenses of one counsel for the holders of
the Notes) other than commissions or concessions of any brokers or dealers and
will indemnify the Holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
The Company has agreed that, without the prior written consent of Lehman
Brothers Inc. on behalf of the Initial Purchasers, it will not, directly or
indirectly, issue, sell, offer to sell, grant any option for the sale of or
otherwise dispose of any debt securities of the Company (other than the New
Notes) on or before January 19, 1998.
LEGAL MATTERS
Certain legal matters with respect to the New Notes offered hereby will be
passed on for the Company by Kelly, Hart & Hallman, a professional
corporation, Fort Worth, Texas.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of Cross Timbers Oil Company as of
December 31, 1996 and 1995, and for the three years in the period ended
December 31, 1996, incorporated by reference in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their reports with respect thereto, and are incorporated by reference
herein in reliance upon the authority of said firm as experts in accounting
and auditing in giving said reports.
59
<PAGE>
GLOSSARY OF CERTAIN OIL AND GAS TERMS
Wherever used herein, the following terms shall have the meanings specified.
Bbl--One stock tank barrel, or 42 US gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.
BOE--Barrels of oil equivalent (converting six Mcf of natural gas to one Bbl
of oil).
Bcf--One billion cubic feet, used herein in reference to natural gas or
carbon dioxide.
Btu--British Thermal Unit.
Developed Acreage--Acres which are allocated or assignable to producing
wells or wells capable of production.
Development Well--A well drilled within the proved area of an oil and
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.
Dry Well--A well found to be incapable of producing either oil or natural
gas in sufficient quantities to justify completion as an oil or natural gas
well.
EBITDA--Earnings (excluding discontinued operations and charges resulting
from changes in accounting) before interest expense, income taxes, depletion,
depreciation and amortization, and the provision for impairment of oil and
natural gas properties. EBITDA is not a measure of cash flow as determined by
generally accepted accounting principles. EBITDA information has been included
in this Offering Memorandum because EBITDA is a measure used by certain
investors in determining historical ability to service indebtedness. EBITDA
should not be considered as an alternative to, or more meaningful than, net
income or cash flows as determined in accordance with generally accepted
accounting principles as an indicator of operating performance or liquidity.
Exploratory Well--A well drilled to find and produce oil or natural gas on
an unproved area, to find a new reservoir in a field previously found to be
productive of oil or natural gas in another reservoir, or to extend a known
reservoir.
Gross Acres or Gross Wells--The total acres or wells, as the case may be, in
which a working interest is owned.
Infill Well--A well drilled between known producing wells to better exploit
the reservoir.
MBOE--One thousand barrels of oil equivalent.
Mcf--One thousand cubic feet, used herein in reference to natural gas or
carbon dioxide.
MMcf--One million cubic feet, used herein in reference to natural gas or
carbon dioxide.
Net Acres or Net Wells--The sum of the fractional working interests owned in
gross acres or gross wells.
NGL--Natural gas liquids.
NYMEX--New York Mercantile Exchange.
Oil and Natural Gas Lease--An instrument by which a mineral fee owner grants
to lessee the right for a specific period of time to explore for oil and
natural gas underlying the lands covered by the lease and the right to produce
any oil and natural gas so discovered generally for so long as there is
production in economic quantities from such lands.
60
<PAGE>
Overriding Royalty Interest--A fractional undivided interest in an oil and
natural gas property entitling the owner to a share of oil and natural gas
production, in addition to the usual royalty paid to the owner, free of costs
of production.
PDNP--Proved developed, nonproducing or behind the pipe reserves.
Productive Well--A well that is producing oil or natural gas or that is
capable of production.
Proved Developed Reserves--Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
Proved Reserves--The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved Undeveloped Reserves or PUD--Reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for completion.
PV10%--The discounted future net cash flows for proved oil and natural gas
reserves computed on the same basis as the Standardized Measure, but without
deducting income taxes, which is not in accordance with generally accepted
accounting principles. PV10% is an important financial measure for evaluating
the relative significance of oil and natural gas properties and acquisitions,
but should not be construed as an alternative to the Standardized Measure (as
determined in accordance with generally accepted accounting principles).
Recompletion--The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
Royalty Interest--An interest in an oil and natural gas property entitling
the owner to a share of oil and natural gas production free of costs of
production.
SEC--Securities and Exchange Commission.
Secondary Recovery--A method of oil and natural gas extraction in which
energy sources extrinsic to the reservoir are utilized.
Standardized Measure--The estimated future net cash flows from proved oil
and natural gas reserves computed using prices and costs, at the dates
indicated, after income taxes and discounted at 10%.
Undeveloped Acreage--Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved
reserves.
Waterflood--The injection of water into a reservoir to fill pores vacated by
produced fluids, thus maintaining reservoir pressure and assisting production.
Working Interest--The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production, subject to all royalties, overriding royalties and other burdens
and to all costs of exploration, development and operations and all risks in
connection therewith.
Workover--Operations on a producing well to restore or increase production.
61
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECU-
RITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECU-
RITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 1
Risk Factors............................................................... 9
The Exchange Offer......................................................... 11
Selected Historical Financial Data......................................... 19
Selected Reserve and Operating Data........................................ 20
Recent Developments........................................................ 21
Description of the Notes................................................... 23
Plan of Distribution....................................................... 59
Legal Matters.............................................................. 59
Independent Public Accountants............................................. 59
Glossary of Certain Oil and Gas Terms...................................... 60
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$175,000,000
EXCHANGE OFFER
LOGO
CROSS TIMBERS OIL COMPANY
8 3/4% SENIOR SUBORDINATED NOTES DUE 2009
----------------
PROSPECTUS
----------------
NOVEMBER 7, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
All capitalized terms used and not defined in Part II of this Registration
Statement shall have the meanings assigned to them in the Prospectus which
forms a part of this Registration Statement.
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is incorporated in Delaware. Under Section 145 of the
Delaware General Corporation Law (the "DGCL"), a Delaware corporation has the
power, under specified circumstances, to indemnify its directors, officers,
employees and agents in connection with actions, suits or proceedings brought
against them by a third party or in the right of the corporation, by reason of
the fact that they were or are such directors, officers, employees or agents,
against expenses and liabilities incurred in any such action, suit or
proceeding so long as they acted in good faith and in a manner that they
reasonably believed to be in, or not opposed to, the best interests of such
corporation, and with respect to any criminal action, that they had no
reasonable cause to believe their conduct was unlawful. With respect to suits
by or in the right of such corporation, however, indemnification is generally
limited to attorneys' fees and other expenses and is not available if such
person is adjudged to be liable to such corporation unless the court
determines that indemnification is appropriate. A Delaware corporation also
has the power to purchase and maintain insurance for such persons. Article
Nine of the Restated Certificate of Incorporation of the Registrant permits
indemnification of directors and officers to the fullest extent permitted by
Section 145 of the DGCL. Reference is made to the Restated Certificate of
Incorporation of the Registrant.
Additionally, the Company has acquired directors and officers insurance in
the amount of $10,000,000, which includes coverage for liability under the
federal securities laws.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director provided that such provisions may not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 (relating to liability for
unauthorized acquisitions or redemptions of, or dividends on, capital stock)
of the DGCL or (iv) for any transaction from which the director derived an
improper personal benefit. Article Ten of the Registrant's Restated
Certificate of Incorporation contains such a provision.
The above discussion of the Registrant's Restated Certificate of
Incorporation and Sections 102(b)(7) and 145 of the DGCL is not intended to be
exhaustive and is qualified in its entirety by such Restated Certificate of
Incorporation and statutes.
ITEM 21(A). EXHIBITS.
<TABLE>
<C> <S>
4.1 --Indenture, dated as of October 28, 1997, between the Company and The
Bank of New York, as Trustee.*
4.2 --Form of 8 3/4% Series A Senior Subordinated Notes due 2009.*
4.3 --Form of 8 3/4% Series B Senior Subordinated Notes due 2009.*
5.1 --Opinion of Kelly, Hart & Hallman, P.C. as to the legality of the
Notes.*
12.1 --Statement re: Computation of Ratios (incorporated by reference to
Exhibit 12.1 to Annual Report on Form 10-K for the year ended December
31, 1996).
15.1 --Awareness Letter of Arthur Andersen LLP.*
23.1 --Consent of Arthur Andersen LLP.
23.2 --Consent of Kelly, Hart & Hallman, P.C. (set forth in their opinion
filed as Exhibit 5.1).*
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
23.3 --Consent of Miller and Lents, Ltd.*
24.1 --Powers of attorney (set forth on the signature page hereof).*
25.1 --Form T-1 Statement of Eligibility of Trustee under the Trust Indenture
Act of 1939, as amended, of The Bank of New York.*
99.1 --Form of Letter of Transmittal.*
99.2 --Form of Notice of Guaranteed Delivery.*
</TABLE>
- --------
* Previously filed.
ITEM 22. UNDERTAKINGS.
The undersigned hereby undertakes:
(a) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in the documents filed subsequent to
the effective date of the Registration Statement through the date of
responding to the request.
(c) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
(d) that, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON NOVEMBER 6, 1997.
Cross Timbers Oil Company
/s/ J. Richard Seeds
By: __________________________________
J. RICHARD SEEDS
EXECUTIVE VICE PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
Director and
* Chairman of the November 6,
- ------------------------------------ Board (Principal 1997
BOB R. SIMPSON Executive Officer)
Director, Vice
* Chairman of the November 6,
- ------------------------------------ Board and 1997
STEFFEN E. PALKO President
(Principal
Executive Officer)
Director, Executive
/s/ J. Richard Seeds Vice President November 6,
- ------------------------------------ 1997
J. RICHARD SEEDS
Director
* November 6,
- ------------------------------------ 1997
J. LUTHER KING, JR.
Director
* November 6,
- ------------------------------------ 1997
JACK P. RANDALL
Director
* November 6,
- ------------------------------------ 1997
SCOTT G. SHERMAN
Senior Vice
* President and November 6,
- ------------------------------------ Chief Financial 1997
LOUIS G. BALDWIN Officer (Principal
Financial Officer)
Senior Vice
* President and November 6,
- ------------------------------------ Controller 1997
BENNIE G. KNIFFEN (Principal
Accounting
Officer)
/s/ J. Richard Seeds
*By: __________________________
J. RICHARD SEEDS
ATTORNEY IN FACT
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.1 --Indenture, dated as of October 28, 1997, between the Company and The
Bank of New York, as Trustee.*
4.2 --Form of 8 3/4% Series A Senior Subordinated Notes due 2009.*
4.3 --Form of 8 3/4% Series B Senior Subordinated Notes due 2009.*
5.1 --Opinion of Kelly, Hart & Hallman, P.C. as to the legality of the
Notes.*
12.1 --Statement re: Computation of Ratios (incorporated by reference to
Exhibit 12.1 to Annual Report on Form 10-K for the year ended
December 31, 1996).
15.1 --Awareness Letter of Arthur Andersen LLP.*
23.1 --Consent of Arthur Andersen LLP.
23.2 --Consent of Kelly, Hart & Hallman, P.C. (set forth in their opinion
filed as Exhibit 5.1).*
23.3 --Consent of Miller and Lents, Ltd.*
24.1 --Powers of attorney (set forth on the signature page hereof).*
25.1 --Form T-1 Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939, as amended, of The Bank of New York.*
99.1 --Form of Letter of Transmittal.*
99.2 --Form of Notice of Guaranteed Delivery.*
</TABLE>
- --------
* Previously filed.
<PAGE>
EXHIBIT 23.1
INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT
As independent public accountants, we hereby consent to the incorporation by
reference in this Amendment No. 1 to Registration Statement on Form S-4, No.
333-39097, of Cross Timbers Oil Company of our report dated March 13, 1997,
included in Cross Timbers Oil Company's Annual Report on Form 10-K for the
year ended December 31, 1996, and to all references to our firm included in
this registration statement.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
November 6, 1997
