<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
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)
----------------
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. [_]
----------------
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>
9 1/4% Series B Senior
Subordinated Notes due
2007.................. $125,000,000 100% $125,000,000 $37,878.79
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
----------------
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>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 7, 1997
PROSPECTUS
OFFER FOR ALL OUTSTANDING
9 1/4% SERIES A SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE FOR
9 1/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007, WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OF
[LOGO OF CROSS CROSS TIMBERS OIL COMPANY
TIMBERS OIL COMPANY
APPEARS HERE]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
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 $125,000,000 of its 9 1/4% Series B Senior Subordinated Notes due 2007
(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 9 1/4% Series A Senior Subordinated Notes due 2007 (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 an increase in the interest rate on the Old Notes under certain
circumstances relating to the timing of the Exchange Offer.
On April 2, 1997, the Company issued $125,000,000 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 April 1 and October 1
of each year, commencing October 1, 1997. The Notes will mature on April 1,
2007. The Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after April 1, 2002, at the redemption prices set forth
herein, together with accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time on or prior to April 1, 2000, the Company
may, subject to certain requirements, redeem up to 33 1/3% of the Notes with
the net cash proceeds from one or more Public Equity Offerings (as defined
herein) by the Company at a price equal to 109.25% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
redemption, provided that at least $83.3 million of the aggregate principal
amount of the Notes remains outstanding after giving effect to such redemption.
Upon a Change of Control (as defined herein), each Holder (as defined herein)
of the Notes will have the right to require the Company to purchase all or a
portion of such Holder's Notes at 101% of the aggregate principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase. See "Description of the Notes."
The Notes are general unsecured senior subordinated obligations of the
Company that are subordinated in right of payment to all existing and future
Senior Indebtedness (as defined herein) of the Company including indebtedness
under the Credit Agreement (as defined herein), pari passu in right of payment
with all existing and future senior subordinated indebtedness of the Company
and senior in right of payment to all future subordinated indebtedness of the
Company. As of December 31, 1996, on a pro forma basis, after giving effect to
the offering of the Old Notes and the application of the proceeds therefrom as
described in "Use of Proceeds," the Company would have had approximately $166.9
million of indebtedness that effectively would rank senior to the Notes, and no
indebtedness that would be subordinated to the Notes.
For each Old Note accepted for exchange, the Holder of such Old Note 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 April 2, 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. 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 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 not be deemed 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, 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. Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Bear, Stearns & Co., Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation (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" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION 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 MAY , 1997.
<PAGE>
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "PROSPECTUS SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS AND PROPERTIES," IN ADDITION TO CERTAIN STATEMENTS
CONTAINED ELSEWHERE IN THIS PROSPECTUS, 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, RESPECTIVELY, 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 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. THE MOST
SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER FACTORS ARE DISCUSSED UNDER
"RISK FACTORS," BEGINNING ON PAGE 14 OF THIS PROSPECTUS, AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
BEGINNING ON PAGE 32 OF THIS PROSPECTUS, AND HOLDERS ARE URGED TO CAREFULLY
CONSIDER SUCH FACTORS.
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.
2
<PAGE>
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 Securities and Exchange Commission (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) Current Reports on Form 8-K filed on January 3, 1997, February 4,
1997, March 26, 1997 and April 9, 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 the copy of such contract or other document,
copies of which are included as Exhibits to the Registration Statement, each
such statement being qualified in all respects by such reference.
3
<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 this Prospectus. Holders of Old Notes should carefully
consider the matters discussed under the caption "Risk Factors" before deciding
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 reserve, production
and similar 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) share
and 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
4
<PAGE>
54% of cash provided by operating activities. Over the last three years, the
Company increased, on a BOE basis, 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 in the future.
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.
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.
5
<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.
6
<PAGE>
THE EXCHANGE OFFER
Securities Offered........ Up to $125,000,000 aggregate principal amount of
Series B 9 1/4% Senior Subordinated Notes due 2007,
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 interest provisions 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 April 2, 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 , 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
Old Notes................. Each Holder of Old Notes wishing to accept the
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."
7
<PAGE>
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
Procedures............... Holders of Old Notes who wish to tender their Old
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
Consequences............. The exchange pursuant to the Exchange Offer should
not result in gain or loss to the Holders or the
Company for federal income tax purposes. See
"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
8
<PAGE>
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 an
increase in the interest rates 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 April 2, 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 April 2, 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............. $125,000,000 aggregate principal amount of 9 1/4%
Series B Senior Subordinated Notes due 2007, which
have been registered under the Securities Act.
Maturity Date............. April 1, 2007.
Interest Payment Dates.... Interest on the Notes will be payable semi-annually
in arrears on April 1 and October 1 of each year,
commencing October 1, 1997.
Optional Redemption....... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after April 1, 2002, at the redemption prices set
forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. In
addition, at any time on or prior to April 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 109.25% of the principal amount to
be redeemed, together with accrued and unpaid
interest, if any, to the date of redemption,
provided that at least $83.3 million of the
aggregate principal amount of the Notes remains
outstanding after each such redemption. See
"Description of the Notes--Optional Redemption."
Guarantee................. Under certain circumstances, the Company's payment
obligations under the Notes will be jointly and
severally guaranteed on a senior subordinated basis
(the "Subsidiary Guarantees") by certain of the
Company's existing or future Restricted
Subsidiaries (the "Subsidiary Guarantors"). The
Subsidiary Guarantees, if given, may be released
under certain circumstances. See "Description of
the Notes--Subsidiary Guarantees of the Notes." Any
Subsidiary Guarantees will be limited to the extent
of any payment that would constitute a fraudulent
transfer or conveyance under federal or state law.
See "Risk
9
<PAGE>
Factors--Fraudulent Conveyance Considerations
Relating to Subsidiary Guarantees" and "Description
of the Notes--Subsidiary Guarantees of the Notes."
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, if any,
to the date of purchase. See "Description of the
Notes--Certain Covenants--Change of Control."
Ranking................... The Notes are general unsecured senior subordinated
obligations of the Company that are subordinated in
right of payment to all existing or future senior
indebtedness of the Company, pari passu with all
existing and future senior subordinated
indebtedness of the Company and senior in right of
payment to all future subordinated indebtedness of
the Company. As of December 31, 1996, on a pro
forma basis after giving effect to the offering of
the Old Notes, the Company would have had
approximately $166.9 million of indebtedness that
effectively would rank senior to the Notes. Subject
to certain limitations set forth in the Indenture,
the Company and its subsidiaries may incur
additional indebtedness. See "Capitalization,"
"Description of the Notes" and "Management's
Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital
Resources."
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 $121.1
million, were used to reduce indebtedness under the
Credit Agreement. See "Use of Proceeds."
Exchange Offer;
Registration Rights...... Holders of New Notes (other than as set forth
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 best efforts to (1) file with the
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 "--Consequences
of Exchanging Old Notes."
10
<PAGE>
In the event that the Exchange Offer is
consummated, any Old Notes that remain outstanding
after consummation of the Exchange Offer and the
New Notes issued in the Exchange Offer will vote
together as a single class for purposes of
determining whether Holders of the requisite
percentage in outstanding principal amount thereof
have taken certain actions or exercised certain
rights under the Indenture. See "Description of the
Notes."
RISK FACTORS
See "Risk Factors" beginning on page 14 for a discussion of certain factors
that should be considered by Holders of Old Notes before deciding to tender
such Old Notes in the Exchange Offer.
11
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The following table presents summary financial information for each of the
years, and as of year-end, in the five-year period ended December 31, 1996,
which has been derived from the Company's audited consolidated financial
statements. This financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1992 1993 1994 1995 (a) 1996
-------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA (b):
Revenues:
Oil.................... $ 31,921 $ 39,747 $ 53,324 $ 60,349 $ 75,013
Gas.................... 31,994 34,649 38,389 40,543 73,402
Gas gathering,
processing and
marketing............. 3,943 3,717 4,274 7,091 12,032
Other.................. (502) (c) 69 288 4,922 944
-------- --------- --------- --------- ---------
Total revenues......... 67,356 78,182 96,275 112,905 161,391
-------- --------- --------- --------- ---------
Expenses:
Production............. 21,744 29,223 32,368 35,338 39,365
Taxes on production and
property.............. 5,767 6,706 8,586 8,646 11,944
Depreciation, depletion
and amortization...... 19,979 25,108 31,709 36,892 37,858
Impairment (a)......... -- -- -- 20,280 --
General and
administrative........ 8,150 9,863 8,532 13,156 16,420
Gas gathering and
processing............ 1,316 1,492 1,646 2,528 6,905
Interest, net.......... 4,975 5,464 8,034 12,523 17,072
Trust development
costs................. 527 695 622 561 854
-------- --------- --------- --------- ---------
Total expenses......... 62,458 78,551 91,497 129,924 130,418
-------- --------- --------- --------- ---------
Income (loss) before
income tax and
extraordinary item.... 4,898 (369) 4,778 (17,019) 30,973
Income tax expense..... 154 3,643 1,730 (5,825) 10,669
-------- --------- --------- --------- ---------
Net income (loss)
before extraordinary
item.................. 4,744 (4,012) 3,048 (11,194) 20,304
Extraordinary item..... -- -- -- 656 --
-------- --------- --------- --------- ---------
Net income (loss)...... 4,744 (4,012) 3,048 (10,538) 20,304
Preferred stock
dividends............. -- -- -- -- 514
-------- --------- --------- --------- ---------
Earnings (loss)
available to common
stock................. $ 4,744 $ (4,012) (d) $ 3,048 $ (10,538) $ 19,790
======== ========= ========= ========= =========
CONSOLIDATED BALANCE
SHEET DATA (b):
Property and equipment,
net................... $149,484 $ 228,551 $ 244,555 $ 364,474 $ 450,561
Total assets........... 176,831 258,019 292,451 402,675 523,070
Long-term debt......... 79,000 111,750 142,750 238,475 314,757
Owners' equity......... 76,056 115,168 113,333 130,700 142,668
OTHER FINANCIAL DATA
(b):
EBITDA (e)............. $ 30,150 $ 30,351 $ 44,777 $ 54,068 $ 85,541
Capital expenditures... 12,131 105,228 49,608 190,311 146,568
Ratio of EBITDA to
interest expense...... 5.7x 5.4x 5.4x 4.2x 5.0x
Ratio of total debt to
EBITDA................ 2.6x 3.7x 3.2x 4.4x 3.7x
</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 year-to-year 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) Includes effect of a one-time, non-cash accounting charge of $4 million for
net deferred income tax liabilities recorded upon the merger between the
Company and the predecessor partnership effective on May 18, 1993 (the
"Merger").
(e) 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.
12
<PAGE>
SUMMARY RESERVE AND OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PRODUCTION AND PER UNIT DATA)
<S> <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
Gas (Mcf).............. 51,205 51,260 58,182 78,408 101,845
Barrels of oil
equivalent (BOE)...... 13,283 15,511 19,194 22,745 26,558
AVERAGE SALES PRICE (d):
Oil (per Bbl).......... $18.37 $15.63 $15.38 $17.09 $21.38
Gas (per Mcf).......... 1.71 1.85 1.81 1.42 1.97
Production costs (per
BOE)................... $4.47 $5.16 $4.62 $4.26 $4.05
Production and property
taxes (per BOE)........ 1.19 1.19 1.23 1.04 1.23
RESERVE ADDITIONS (BOE):
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
Development and
exploitation.......... 10,730 19,462 21,826 21,061 45,038
---------- ---------- ---------- ---------- ----------
Total costs incurred... $ 12,205 $ 106,526 $ 49,926 $ 152,403 $ 150,853
========== ========== ========== ========== ==========
</TABLE>
- --------
(a) Proved reserves were estimated using oil and gas prices and production and
development costs as of December 31 of each such year, without escalation.
(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.
13
<PAGE>
RISK FACTORS
Holders of Old Notes should carefully review the information contained
elsewhere in this Prospectus and should particularly consider the following
matters before deciding to tender Old Notes in the Exchange Offer. The risk
factors set forth below generally are applicable to the Old Notes as well as
the New Notes:
REPLACEMENT OF RESERVES
The Company's future success depends upon its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable. The
proved reserves of the Company will generally decline as reserves are
depleted, except to the extent that the Company conducts successful
exploration or development activities or acquires properties containing proved
reserves, or both. In order to increase reserves and production, the Company
must continue its development drilling and recompletion programs, pursue its
exploration drilling program or undertake other replacement activities. The
Company's current strategy includes increasing its reserve base through
acquisitions of producing properties, by continuing to exploit its existing
properties and, to a lesser extent, by pursuing exploration opportunities.
There can be no assurance, however, that the Company's planned development and
exploration projects and acquisition activities will result in significant
additional reserves or that the Company will have continuing success drilling
productive wells at low finding costs.
PRICE FLUCTUATIONS AND MARKETS
The Company's results of operations are highly dependent upon the prices
received for the Company's oil and natural gas. Substantially all of the
Company's sales of oil and natural gas are made in the spot market, or
pursuant to contracts based on spot market prices, and not pursuant to long-
term, fixed-price contracts. Accordingly, the prices received by the Company
for its oil and natural gas production are dependent upon numerous factors
beyond the control of the Company. These factors include, but are not limited
to, the level of consumer product demand, governmental regulations and taxes,
the price and availability of alternative fuels, the level of foreign imports
of oil and natural gas, and the overall economic environment. Any significant
decline in prices for oil and natural gas could have a material adverse effect
on the Company's financial condition, results of operations and quantities of
reserves recoverable on an economic basis. Should the industry experience
significant price declines from current levels or other adverse market
conditions, the Company may not be able to generate sufficient cash flow from
operations to meet its obligations and make planned capital expenditures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Business and Properties--
Competition and Markets" and "--Federal and State Regulation."
The availability of a ready market for the Company's oil and natural gas
production also depends on a number of factors, including the demand for and
supply of oil and natural gas and the proximity of reserves to, and the
capacity of, oil and gas gathering systems, pipelines or trucking and terminal
facilities. Wells may be shut-in for lack of a market or due to inadequacy or
unavailability of pipeline or gathering system capacity.
SUBSTANTIAL INDEBTEDNESS
At December 31, 1996, on a pro forma basis, after giving effect to the
January 1997 conversion of the Company's convertible subordinated notes, the
March 19, 1997 three-for-two stock split and the offering of the Old Notes,
the Company would have had approximately $291.9 million of indebtedness
(including current maturities of long-term indebtedness) as compared to the
Company's stockholders' equity of $172 million. See "Use of Proceeds" and
"Capitalization." The Company may incur additional indebtedness under its
Credit Agreement (as defined herein). See "Description of the Credit
Agreement."
This level of indebtedness may pose substantial risks to holders of Notes,
including the possibility that the Company might not generate sufficient cash
flow to pay the principal of and interest on the Notes. If the Company is
unsuccessful in increasing its proved reserves or realizing production from
its proved undeveloped
14
<PAGE>
reserves, the future net revenue from existing proved reserves may not be
sufficient to pay the principal of and interest on the Notes in accordance
with their terms. Such indebtedness may also adversely affect the Company's
ability to finance its future operations and capital needs, and may limit its
ability to pursue other business opportunities.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial capital
expenditures for the acquisition, development, production, exploration and
abandonment of its oil and natural gas reserves. The Company intends to
finance such capital expenditures primarily with funds provided by operations
and borrowings under the Credit Agreement. The Company increased direct
capital expenditures from approximately $21 million in 1995 (excluding
acquisitions) to approximately $45 million in 1996. The Company has budgeted
$70 million for direct capital expenditures in 1997.
The Company believes that, after debt service, it will have sufficient cash
provided by operating activities and availability under the Credit Agreement
to fund planned capital expenditures through 1997. If revenues decrease as a
result of lower oil or gas prices or otherwise, the Company may have limited
ability to expend the capital necessary to replace its reserves or to maintain
production at current levels, resulting in a decrease in production over time.
If the Company's cash flow from operations is not sufficient to satisfy its
capital expenditure requirements, there can be no assurance that additional
debt or equity financing will be available to meet these requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
COMPETITION
The oil and natural gas industry is highly competitive. The Company will
compete in the acquisition, development, production and marketing of oil and
natural gas with major oil companies, other independent oil and natural gas
concerns and individual producers and operators. Many of these competitors
have substantially greater financial and other resources than the Company.
Furthermore, the oil and natural gas industry competes with other industries
in supplying the energy and fuel needs of industrial, commercial and other
consumers. See "Business and Properties--Competition and Markets."
ACQUISITION RISKS
The Company constantly evaluates acquisition opportunities and frequently
engages in bidding and negotiation for acquisitions, many of which are
substantial. If successful in this process, the Company may be required to
alter or increase its capitalization substantially to finance these
acquisitions through the issuance of additional debt or equity securities, the
sale of production payments or otherwise; however, the Credit Agreement
includes, and the Indenture will include, covenants that limit the Company's
ability to incur additional indebtedness. See "--Substantial Indebtedness."
These changes in capitalization may significantly affect the risk profile of
the Company. Additionally, significant acquisitions can change the nature of
the operations and business of the Company depending upon the character of the
acquired properties, which may be substantially different in operating or
geologic characteristics or geographic location than existing properties.
While it is the Company's current intent to concentrate on acquiring producing
properties with development and exploration potential located in its current
areas of operation, there can be no assurance that the Company will not pursue
acquisitions of properties located in other geographic regions. Moreover,
there can be no assurance that the Company will be successful in the
acquisition of any material property interests. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
DRILLING RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil
and natural gas may involve
15
<PAGE>
unprofitable efforts, not only from dry wells, but from wells that are
productive but do not produce sufficient net revenues to return a profit after
drilling, operating and other costs. The cost of drilling, completing and
operating wells is often uncertain. The Company's drilling operations may be
curtailed, delayed or canceled as a result of numerous factors, many of which
are beyond the Company's control, including title problems, weather
conditions, compliance with governmental requirements and shortages or delays
in the delivery of equipment and services.
OPERATING HAZARDS AND UNINSURED RISKS
The Company's operations are subject to hazards and risks inherent in
drilling for, producing and transporting oil and natural gas, such as fires,
natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline ruptures and spills, any of which can
result in loss of hydrocarbons, environmental pollution, personal injury
claims and other damage to properties of the Company and others. As protection
against operating hazards, the Company maintains insurance coverage against
some, but not all, potential losses. The Company's coverages include, but are
not limited to, operator's extra expense, physical damage on certain assets,
employer's liability, comprehensive general liability, automobile and workers'
compensation insurance. The Company believes that its insurance is adequate
and customary for companies of a similar size engaged in operations similar to
those of the Company, but losses could occur for uninsurable or uninsured
risks or in amounts in excess of existing insurance coverage. The occurrence
of an event that is not fully covered by insurance could have an adverse
impact on the Company's financial condition and results of operations.
UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET REVENUES
There are numerous uncertainties inherent in estimating quantities of proved
reserves, including many factors beyond the control of the Company. The
reserve information set forth in this Prospectus represents estimates based on
reports prepared by the Company's independent petroleum engineers, as well as
internally generated reports. Petroleum engineering is not an exact science.
Information relating to the Company's proved oil and natural gas reserves is
based upon engineering estimates. Estimates of economically recoverable oil
and natural gas reserves and of future net cash flows necessarily depend upon
a number of variable factors and assumptions, such as historical production
from the area compared with production from other producing areas, the assumed
effects of regulation by governmental agencies and assumptions concerning
future oil and natural gas prices, future operating costs, severance and
excise taxes, capital expenditures and workover and remedial costs, all of
which may in fact vary considerably from actual results. For these reasons,
estimates of classifications of such reserves based on risk of recovery and
estimates of expected future net cash flows prepared by different engineers or
by the same engineers at different times may vary substantially. Actual
production, revenues and expenditures with respect to the Company's reserves
will likely vary from estimates, and such variances may be material.
SUBORDINATION OF NOTES
The Indenture governing the Notes limits, but does not prohibit, the
incurrence by the Company of additional indebtedness that is senior in right
of payment to the Notes (including by reason of structural subordination of
the Notes to the indebtedness and other liabilities of the Company's
subsidiaries). In the event of bankruptcy, liquidation, reorganization or
other winding up of the Company, the assets of the Company will be available
to pay the Company's obligations on the Notes only after all Senior
Indebtedness (as defined herein) has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on the Notes. In addition,
under certain circumstances, no payments may be made with respect to principal
of, premium, if any, or interest on the Notes if a default exists with respect
to any Senior Indebtedness. See "Description of the Notes--Subordination."
As of December 31, 1996, on a pro forma basis after giving effect to the
offering of the Old Notes and the application of the proceeds therefrom as
described in "Use of Proceeds," the Company would have had approximately
$166.9 million of indebtedness that effectively would rank senior to the
Notes.
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In addition, all indebtedness and liabilities (including trade payables) of
the Company's Subsidiaries that are not Subsidiary Guarantors will be
effectively senior in right of payment to the Notes. Initially, it is not
expected that any Subsidiary will become a Subsidiary Guarantor. At December
31, 1996, Subsidiaries of the Company had total combined assets of $28.4
million and liabilities of $26.1 million (exclusive of net receivables from
the Company and assets and liabilities associated with sale/leaseback
transactions treated as operating leases in the consolidated financial
statements of the Company).
The Indenture imposes limits on the ability of the Company and its
Subsidiaries (as defined herein) to incur additional indebtedness and liens
and to enter into agreements that would restrict the ability of such
Subsidiaries to make distributions, loans or other payments to the Company.
The Indenture also imposes limits on the ability of the Company to transfer
assets to Restricted Subsidiaries or acquire Restricted Subsidiaries. However,
these limitations are subject to various qualifications. Subject to certain
limitations, the Company and its Subsidiaries may incur additional secured
indebtedness. For additional details of these provisions and the applicable
qualifications, see "Management's Discussions and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,"
"Description of the Notes--Subordination" and "--Certain Covenants."
FRAUDULENT CONVEYANCE CONSIDERATIONS RELATING TO FUTURE SUBSIDIARY GUARANTEES
The Company's obligations under the Notes may under certain circumstances be
guaranteed on an unsecured senior subordinated basis by existing and future
Restricted Subsidiaries. Various fraudulent conveyance laws have been enacted
for the protection of creditors and may be utilized by a court of competent
jurisdiction to subordinate or avoid any Subsidiary Guarantee issued by a
Subsidiary Guarantor. It is also possible that under certain circumstances a
court could hold that the direct obligations of a Subsidiary Guarantor could
be superior to the obligations under the Subsidiary Guarantee.
To the extent that a court were to find that at the time a Subsidiary
Guarantor entered into a Subsidiary Guarantee either (x) the Subsidiary
Guarantee was incurred by a Subsidiary Guarantor with the intent to hinder,
delay or defraud any present or future creditor or that a Subsidiary Guarantor
contemplated insolvency with a design to favor one or more creditors to the
exclusion in whole or in part of others or (y) the Subsidiary Guarantor did
not receive fair consideration or reasonably equivalent value for issuing the
Subsidiary Guarantee and, at the time it issued the Subsidiary Guarantee, the
Subsidiary Guarantor (i) was insolvent or rendered insolvent by reason of the
issuance of the Subsidiary Guarantee, (ii) was engaged or about to engage in a
business or transaction for which the remaining assets of the Subsidiary
Guarantor constituted unreasonably small capital or (iii) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, the court could avoid or subordinate the Subsidiary Guarantee in
favor of the Subsidiary Guarantor's other credits. Among other things, a legal
challenge of a Subsidiary Guarantee issued by a Subsidiary Guarantor on
fraudulent conveyance grounds may focus on the benefits, if any, realized by
the Subsidiary Guarantor as a result of the issuance by the Company of the
Notes. To the extent a Subsidiary Guarantee is avoided as a fraudulent
conveyance or held unenforceable for any other reason, the Holders of the
Notes would cease to have any claim in respect of such Subsidiary Guarantor
and would be creditors solely of the Company.
DEPENDENCE UPON KEY PERSONNEL
The success of the Company has been and will continue to be highly dependent
on the Company's Chairman of the Board of Directors and Chief Executive
Officer, Bob R. Simpson, its Vice Chairman of the Board and President, Steffen
E. Palko and a limited number of other senior management personnel. Loss of
the services of Mr. Simpson or Mr. Palko or any of such other individuals
could have a material adverse effect on the Company's operations. The Company
can make no assurance regarding the future affiliation of any of such persons
with the Company. See "Board of Directors and Management."
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REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Company must offer to repurchase the Notes upon the occurrence of
certain events. In the event of a Change of Control (as defined in the
Indenture), the Company must offer to repurchase all Notes then outstanding at
a purchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest to the date of purchase. See "Description of the Notes--
Certain Covenants--Change of Control."
Prior to repurchasing such Notes, the Company may be required to (i) repay
all or a portion of indebtedness under the Credit Agreement or (ii) obtain any
requisite consent to permit the repurchase. If the Company is unable to repay
all of such indebtedness or is unable to obtain the necessary consents, then
the Company will be unable to offer to repurchase the Notes and such failure
will constitute an Event of Default under the Indenture. There can be no
assurance that the Company will have sufficient funds available at the time of
any Change of Control to make any debt payment (including repurchases of
Notes) as described above.
The events that constitute a Change of Control under the Indenture may also
be events of default under the Credit Agreement or other senior indebtedness
of the Company and the Restricted Subsidiaries. Such events may permit the
lenders under such debt instruments to reduce the borrowing base thereunder or
accelerate the debt and, if the debt is not paid, to enforce security
interests on, or commence litigation that could ultimately result in a sale
of, substantially all the assets of the Company, thereby limiting the
Company's ability to raise cash to repurchase the Notes and receive the
special benefit of the offer-to-purchase provisions to the Holders of the
Notes. See "Description of the Credit Agreement."
GOVERNMENTAL REGULATION
The Company's operations are affected by extensive regulation pursuant to
various federal, state and local laws and regulations relating to the
exploration for, and the development, production, gathering and marketing of,
oil and natural gas and the release of material into the environment or
otherwise relating to protection of the environment. In particular, the
Company's oil and natural gas exploration, development and production, and its
activities in connection with the storage and transportation of liquid
hydrocarbons, are subject to stringent environmental regulations by
governmental authorities. Such regulations have increased the costs of
planning, designing, drilling, installing, operating and abandoning oil and
natural gas wells and other related facilities.
The Company may be required to expend significant resources, both financial
and managerial, to comply with environmental regulations and permitting
requirements. Although the Company believes that its operations are in general
compliance with all such laws and regulations, including applicable
environmental laws and regulations, risks of substantial costs and liabilities
are inherent in oil and natural gas operations, and there can be no assurance
that significant costs and liabilities will not be incurred in the future.
Moreover, it is possible that other developments, such as increasingly strict
environmental laws, regulations and enforcement policies thereunder, and
claims for damages to property, employees, other persons and the environment
resulting from the Company's operations, could result in substantial costs and
liabilities in the future.
The Company expects to maintain customary insurance coverage for its
operations, including coverage for sudden environmental damages, but does not
believe that insurance coverage for environmental damages that occur over time
will be available at a reasonable cost. Moreover, the Company does not believe
that insurance coverage against the full potential liability that could be
caused by sudden environmental damages is available at a reasonable cost.
Accordingly, the Company might be subject to liability because of the
prohibitive premium costs of insuring against certain hazards. See "Business
and Properties--Federal and State Regulation" and "--Environmental
Regulation."
RESTRICTIONS ON RESALE OF OLD NOTES
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.
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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 April 2, 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 that may be 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 or 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.
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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 , 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" means the latest time and date to
which the Exchange Offer has been extended.
As of the date of this Prospectus, $125 million aggregate principal amount
of Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about May , 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 TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE COMPANY.
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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 signer 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 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
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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) 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, 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
April 2, 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 April 2, 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 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
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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.
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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.
24
<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 Mail or Hand Delivery: By Facsimile Transmission:
The Bank of New York (for Eligible Institutions only):
Reorganization Section (212) 571-3080
101 Barclay Street--7E Attention: Mr. George Johnson
New York, New York 10286 Confirm by Telephone:
Attention: Mr. George Johnson (212) 815-3687
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 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
25
<PAGE>
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 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, assuming that
the holder has held the New Note as a capital asset, and will be long-term if
the holder has held the New Note for more than one year at the time of
disposition.
26
<PAGE>
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 April 22, 1996, the Internal Revenue Service proposed regulations (the
"Proposed Regulations") that, if enacted in their current form, 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 Proposed Regulations, if adopted in
their current form, generally would be effective for payments made after
December 31, 1997. Prospective investors should consult their tax advisors
concerning the potential adoption of the Proposed Regulations and the
potential effect of such regulations on an investment in the New Notes.
27
<PAGE>
USE OF PROCEEDS
There will be no proceeds to the Company from the Exchange Offer. The net
proceeds from the sale of the Old Notes, of approximately $121.1 million, were
applied to reduce indebtedness under the Credit Agreement. Borrowings under
the Credit Agreement, which were incurred primarily to fund oil and gas
property acquisitions, bear interest at a fluctuating rate per annum selected
by the Company from (i) the agent bank's prime rate plus a spread, (ii) bid
rates for certificates of deposit plus a spread and (iii) LIBOR plus a spread.
See "Description of the Credit Agreement." The interest rate borne by such
borrowings at December 31, 1996 was 7.0% per annum.
CAPITALIZATION
The following table sets forth, as of December 31, 1996, (i) the actual
capitalization of the Company at that date (as restated for the March 19, 1997
three-for-two common stock split), (ii) the pro forma capitalization of the
Company giving effect to the January 1997 conversion of $29.7 million
principal amount of convertible subordinated notes into common stock and (iii)
the adjusted pro forma capitalization of the Company, giving effect to the
adjustments in (ii), the offering of the Old Notes and the application of the
net proceeds from such offering as described in "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------------------------
PRO FORMA,
ACTUAL (A) PRO FORMA (B) AS ADJUSTED (C)
---------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt...................... $ 3,000 $ 3,000 $ --
======== ======== ========
Long-term debt (excluding current ma-
turities):
Credit Agreement.................... $285,000 $285,000 $166,900
Convertible subordinated notes...... 29,757 -- --
Notes offered hereby................ -- -- 125,000
-------- -------- --------
Total long-term debt............... 314,757 285,000 291,900
-------- -------- --------
Stockholders' equity:
Series A convertible preferred
stock, $.01 par value, 1,138,729
shares issued and outstanding...... 28,468 28,468 28,468
Common Stock, $.01 par value,
28,209,976 shares issued before the
note conversion and 30,138,218
shares issued after the note
conversion......................... 282 301 301
Additional paid-in capital.......... 164,577 193,877 193,877
Treasury stock (2,578,781 shares)... (40,219) (40,219) (40,219)
Unrealized gain on investment in eq-
uity securities.................... 638 638 638
Retained earnings (deficit)......... (11,078) (11,078) (11,078)
-------- -------- --------
Total stockholders' equity......... 142,668 171,987 171,987
-------- -------- --------
Total capitalization............... $457,425 $456,987 $463,887
======== ======== ========
</TABLE>
- --------
(a) Includes the effect of the March 19, 1997 three-for-two common stock
split.
(b) Includes pro forma adjustments for the effects of the January 1997
conversion of convertible subordinated notes and the March 19, 1997 three-
for-two stock split, but does not include the effects of the offering of
the Old Notes.
(c) Includes pro forma adjustments described in footnote (b), adjusted for the
effects of the offering of the Old Notes and application of the net
proceeds as discussed under "Use of Proceeds."
28
<PAGE>
RECENT DEVELOPMENTS
The following are results of operations for the three months ended March 31,
1997, compared with results for the three months ended March 31, 1996,
announced on April 24, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1997
--------- ---------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PRODUCTION
AND PER UNIT DATA)
<S> <C> <C>
Revenues:
Oil................................................... $ 16,303 $ 19,914
Gas................................................... 15,610 29,524
Total revenues........................................ 36,081 53,494
Earnings available to common stock...................... 4,671 10,650
Earnings per share:
Primary............................................... $ 0.17 $ 0.40
Fully diluted......................................... 0.17 0.38
Average sale prices:
Oil (per Bbl)......................................... $ 18.67 $ 21.36
Gas (per Mcf)......................................... 1.84 2.62
Average daily production:
Oil (Bbls)............................................ 9,593 10,359
Gas (Mcf)............................................. 93,217 125,245
</TABLE>
First quarter 1997 earnings of $10.7 million, or 40 cents per primary share
were more than double first quarter 1996 net income of $4.7 million or 17
cents per share. The increased quarterly earnings are the result of higher oil
and gas production and prices. Total revenues for the quarter were $53.5
million, a 48% increase from first quarter 1996 revenues of $36.1 million.
Revenues for the 1997 quarter include gains on sale of property and equity
securities of $0.2 million and $1.2 million, respectively.
On March 24, 1997, the Company announced an agreement, effective April 1,
1997, to acquire producing properties and undeveloped acreage in Oklahoma,
Kansas and Texas for $39.5 million from a subsidiary of Burlington Resources
Inc. The transaction is scheduled to close in May 1997. The properties are
primarily operated interests. The Company's internal engineers estimate
related proved reserves to be 36.5 billion cubic feet equivalent of natural
gas, of which more than 97% is gas. Approximately 30% of the purchase price is
attributable to 124 square miles (79,500 net acres) of undeveloped acreage
primarily located in Texas County, Oklahoma.
On March 24, 1997, the Company also announced entering into definitive
agreements to sell non-strategic producing properties for approximately $15
million. Closings of the sales are expected during the second quarter of 1997.
On April 10, 1997, the Company announced the authorization by its Board of
Directors to repurchase up to two million shares of its Common Stock, or about
7% of the shares outstanding. This repurchase program is in addition to the
three million share program (adjusted for the March 1997 three-for-two stock
split) announced in May 1996, and completed in April 1997.
29
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents selected financial information for each of the
years, and as of year-end, in the five-year period ended December 31, 1996,
which has been derived from the Company's audited consolidated financial
statements. This financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1992 1993 1994 1995 (a) 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA (b):
Revenues:
Oil.................... $31,921 $39,747 $53,324 $60,349 $75,013
Gas.................... 31,994 34,649 38,389 40,543 73,402
Gas gathering,
processing and
marketing............. 3,943 3,717 4,274 7,091 12,032
Other.................. (502)(c) 69 288 4,922 944
-------- -------- -------- -------- --------
Total revenues......... 67,356 78,182 96,275 112,905 161,391
-------- -------- -------- -------- --------
Expenses:
Production............. 21,744 29,223 32,368 35,338 39,365
Taxes on production and
property.............. 5,767 6,706 8,586 8,646 11,944
Depreciation, depletion
and amortization...... 19,979 25,108 31,709 36,892 37,858
Impairment (a)......... -- -- -- 20,280 --
General and
administrative........ 8,150 9,863 8,532 13,156 16,420
Gas gathering and
processing............ 1,316 1,492 1,646 2,528 6,905
Interest, net.......... 4,975 5,464 8,034 12,523 17,072
Trust development
costs................. 527 695 622 561 854
-------- -------- -------- -------- --------
Total expenses......... 62,458 78,551 91,497 129,924 130,418
-------- -------- -------- -------- --------
Income (loss) before
income tax and
extraordinary item.... 4,898 (369) 4,778 (17,019) 30,973
Income tax expense..... 154 3,643 1,730 (5,825) 10,669
-------- -------- -------- -------- --------
Net income (loss)
before extraordinary
item.................. 4,744 (4,012) 3,048 (11,194) 20,304
Extraordinary item..... -- -- -- 656 --
-------- -------- -------- -------- --------
Net income (loss)...... 4,744 (4,012) 3,048 (10,538) 20,304
Preferred stock
dividends............. -- -- -- -- 514
-------- -------- -------- -------- --------
Earnings (loss)
available to common
stock................. $4,744 $(4,012) (d) $3,048 $(10,538) $19,790
======== ======== ======== ======== ========
CONSOLIDATED BALANCE
SHEET DATA (b):
Property and equipment,
net................... $149,484 $228,551 $244,555 $364,474 $450,561
Total assets........... 176,831 258,019 292,451 402,675 523,070
Long-term debt......... 79,000 111,750 142,750 238,475 314,757
Owners' equity......... 76,056 115,168 113,333 130,700 142,668
OTHER FINANCIAL DATA
(b):
EBITDA (e)............. $30,150 $30,351 $44,777 $54,068 $85,541
Capital expenditures... 12,131 105,228 49,608 190,311 146,568
Ratio of earnings to
fixed charges (f)..... 1.8x 0.9x 1.5x -- 2.6x
Ratio of EBITDA to
interest expense...... 5.7x 5.4x 5.4x 4.2x 5.0x
Ratio of total debt to
EBITDA................ 2.6x 3.7x 3.2x 4.4x 3.7x
</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 year-to-year 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) Includes effect of a one-time, non-cash accounting charge of $4 million
for net deferred income tax liabilities recorded upon the Merger.
(e) 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.
(f) 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.
30
<PAGE>
SELECTED RESERVE AND OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- -------------------- -----------
(IN THOUSANDS EXCEPT PRODUCTION AND PER UNIT DATA)
<S> <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
Gas (Mcf).............. 51,205 51,260 58,182 78,408 101,845
Barrels of oil
equivalent (BOE)...... 13,283 15,511 19,194 22,745 26,558
AVERAGE SALES PRICE (d):
Oil (per Bbl).......... $ 18.37 $ 15.63 $ 15.38 $ 17.09 $ 21.38
Gas (per Mcf).......... 1.71 1.85 1.81 1.42 1.97
Production costs (per
BOE)................... $ 4.47 $ 5.16 $ 4.62 $ 4.26 $ 4.05
Production and property
taxes (per BOE)........ 1.19 1.19 1.23 1.04 1.23
RESERVE ADDITIONS (BOE):
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
Development and
exploitation.......... 10,730 19,462 21,826 21,061 45,038
--------- --------- --------- ---------- -----------
Total costs incurred... $ 12,205 $ 106,526 $ 49,926 $ 152,403 $ 150,853
========= ========= ========= ========== ===========
</TABLE>
- --------
(a) Proved reserves were estimated using oil and gas prices and production and
development costs as of December 31 of each such year, without escalation.
(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.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Cross Timbers Oil Company (the "Company") was organized in October 1990 to
ultimately acquire the business and properties of predecessor entities that
were created from 1986 through 1989. The Company completed its initial public
offering of common stock in May 1993.
The Company follows the successful efforts method of accounting. As of
October 1, 1995, the Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
recording a pre-tax, non-cash impairment charge of $20.3 million. The Company
has implemented the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, but continues to record compensation of stock-based
awards using Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees.
In addition to the adoption of accounting principles described above, the
following events affect the comparative results of operations and/or financial
condition for the years ended December 31, 1994, 1995 and 1996, and/or may
impact future operations and financial condition. Throughout Management's
Discussion and Analysis of Financial Condition and Results of Operations,
references to barrels of oil equivalent ("BOE") refer to quantities of
production for the indicated period (with gas quantities converted to barrels
on an energy equivalent ratio of six Mcf to one barrel).
Three-for-Two Stock Split. On March 19, 1997, the Company effected a three-
for-two stock split for common stockholders of record on March 12, 1997. All
per share amounts have been restated to reflect the stock split on a
retroactive basis.
January 1994 Acquisitions. In January 1994, the Company acquired an
additional interest in the Prentice Northeast Unit and certain other West
Texas oil-producing properties for $22.9 million. These acquisitions were
primarily financed by bank borrowings.
1995 Acquisitions. During 1995, the Company acquired predominantly gas-
producing properties for a total cost of $131 million, and a gas processing
plant and gathering facility for $29 million. The Santa Fe Acquisition, the
largest of these acquisitions, closed on August 1, 1995 and consisted of
mostly operated properties and related facilities in the Hugoton Field of
Kansas and Oklahoma. The 1995 acquisitions were primarily funded by bank
borrowings and proceeds from the 1995 common stock offering and asset sales.
1996 Acquisitions. During 1996, the Company acquired predominantly gas-
producing properties for a total cost of $110 million. The Enserch
Acquisition, the largest of these acquisitions, closed in July 1996 at a cost
of $39.4 million and primarily consisted of operated interests in the Green
River Basin of southwestern Wyoming. In November 1996, the Company acquired
additional interests in the Fontenelle Unit, the most significant property
included in the Enserch Acquisition, at a cost of $12.5 million. In December
1996, the Company acquired primarily operated interests in gas-producing
properties in the Ozona area of the Permian Basin of West Texas for $28
million. From July through December 1996, the Company acquired 16% of the
publicly traded outstanding units of beneficial interest in Cross Timbers
Royalty Trust at a total cost of $12.8 million. These 1996 acquisitions were
primarily funded by bank borrowings (see "Liquidity and Capital Resources--
Financing" below).
1994, 1995 and 1996 Development Programs. In 1994, the Company drilled 40
wells and implemented 67 workovers. In 1995, the Company drilled 40 wells and
performed 61 recompletions and workovers. During 1996, the Company drilled 48
oil wells and 52 gas wells and completed 125 recompletions and workovers.
During 1995 and 1996, oil development was concentrated in the Prentice
Northeast Unit of West Texas. Gas
32
<PAGE>
development focused on Major County, Oklahoma throughout this three-year
period. Fourth quarter 1996 development drilling also included the Fontenelle
Unit of southwestern Wyoming. The Company's exploratory expenditures were not
significant during these years.
1997 Development Program. The Company has budgeted 173 wells to be drilled
in its 1997 development program including 114 gas and 59 oil, and plans 80
workover/recompletion activities. Natural gas development will be concentrated
in the Fontenelle Unit in southwestern Wyoming, the Ozona area in West Texas
and in Major County, Oklahoma. Oil drilling will continue to be focused in the
Company's largest oil-producing property, the Prentice Northeast Unit of West
Texas, as well as in the University Block 9 Field, where the Company increased
its working interest to 100% in January 1997 at a cost of $12.5 million.
Approximately 10% to 20% of the 1997 budget will be allocated to higher-risk
projects, including step-out development wells and exploratory drilling. Much
of the higher-risk activity will focus on the Tubb Formation in Lea County,
New Mexico, where the Company plans to recomplete up to 22 wells and drill up
to 20 wells.
1995 Common Stock Offering. In August 1995, the Company sold 2,250,000
shares of common stock. The net proceeds of $29.5 million from this offering
were used to partially fund the Santa Fe Acquisition.
1996 Preferred Stock Exchange. In September 1996, pursuant to the Company's
exchange offer, a total of 1,324,111 shares of common stock were exchanged for
1,138,729 shares of Series A convertible preferred stock.
1996 and 1997 Conversion of Subordinated Notes. During November and December
1996, $27.7 million principal of the Company's 5 1/4% convertible subordinated
notes was converted by noteholders into 1,198,454 shares of common stock. In
January 1997, the remaining principal of $29.7 million was converted by
noteholders into 1,285,495 shares of common stock.
Treasury Stock. As part of its 1996 strategic acquisition plan, the Company
purchased 1.3 million shares of common stock at a total cost of $30.7 million.
An additional 483,000 shares have been purchased through March 10, 1997 at a
cost of $12.9 million. These purchases were primarily funded by bank
borrowings.
Investment in Equity Securities. During 1994, the Company acquired 6.6% of
the common stock of Plains Petroleum Company, a publicly traded independent
oil and gas producer, at a total cost of $15.2 million. The Company sold its
investment in Plains Petroleum in 1995 at a gain of $1.6 million. During 1996,
the Company acquired less than 5% of a publicly traded independent oil and gas
producer at a total cost of $16.1 million.
Property Sales. During 1994, the Company recorded a net loss on property
sales of $100,000. During 1995 and 1996, sales of producing properties
resulted in net gains of $3 million and $500,000, respectively.
Stock Incentive Compensation. Stock incentive compensation includes stock
appreciation right ("SAR") compensation and performance share compensation,
and is the result of these stock awards and subsequent increases in the
Company's stock price. In 1994, SAR compensation was $700,000 (cash payments
of $10,000). During 1995, stock incentive compensation totaled $5.1 million,
which included SAR compensation of $2.3 million (cash payments of $800,000)
and non-cash performance share compensation of $2.8 million. During 1996,
stock incentive compensation totaled $6.2 million, which included SAR
compensation of $3.7 million (cash payments of $7.1 million, partially offset
by prior accruals) and non-cash performance share compensation of $2.5
million. Exercises and forfeitures under the 1991 Stock Incentive Plan have
reduced outstanding stock incentive units (including SARs) from 447,000 at
year-end 1994 to 371,000 at year-end 1995 and 23,000 (34,000 after the three-
for-two stock split) at year-end 1996.
Extraordinary Item. During 1995, the Company recognized an extraordinary
gain of $700,000 (net of income tax of $300,000) as a result of the purchase
and early retirement of $8.3 million principal amount of the
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Company's 5 1/4% convertible subordinated notes. During 1996, the Company
redeemed, purchased and retired a total of $9 million principal amount of the
notes at a loss before income tax of $400,000. This loss was not presented as an
extraordinary item because it was not material to 1996 earnings. These purchases
were primarily funded by bank borrowings.
Product Prices. Oil and gas prices are affected not only by supply and
demand factors, but are also subject to substantial seasonal, political and
other fluctuations that are generally beyond the ability of the Company to
control or predict.
Crude oil prices are generally affected by global politics and supply,
particularly among OPEC members. Despite the anticipation of and eventual
resumption of Iraqi exports, 1996 oil prices reached their highest levels
since the Persian Gulf War in 1990. The average posted price per barrel of
West Texas Intermediate ("WTI") oil, a benchmark crude, was $15.63, $16.77 and
$20.45 in 1994, 1995 and 1996, respectively. Posted WTI prices fluctuated in
1996 between a monthly average low of $17.21 and high of $23.39. The average
posted WTI price for January and February 1997 was $21.98. Improvement in oil
prices from 1995 to 1996 have generally been attributed to global economic
growth and diminished excess production capacity. Crude oil prices in 1997
will continue to largely depend on these factors. Based on 1996 production,
the Company estimates that a $1.00 per barrel increase or decrease in the
average oil sales price would result in approximately a $3 million change in
1997 annual income before income tax.
Natural gas prices are generally influenced by national and regional supply
and demand, which is often dependent upon the weather. Specific gas prices are
also based on the location of production, pipeline capacity, gathering charges
and the energy content of the gas. Throughout most of 1995, gas prices were
relatively weak, primarily because of unseasonably warm weather. Gas prices
began to increase in fourth quarter 1995 when low storage levels and colder
than expected weather began to escalate prices. During 1996, U.S. gas
consumption reached record highs, and prices were at their highest level since
1985. While domestic demand continues to grow, gas prices in 1997 will largely
depend on the severity of winter weather, gas storage levels and price
competition from other energy sources. Based on 1996 production, the Company
estimates that a $0.10 per Mcf increase or decrease in the average gas sales
price would result in approximately a $3 million change in 1997 annual income
before income tax.
RESULTS OF OPERATIONS
1996 Compared to 1995
Earnings available to common stock for 1996 were $19.8 million as compared
to a net loss of $10.5 million for 1995. Significantly improved earnings are
the result of higher oil and gas prices and increased gas production from the
1995 and 1996 acquisitions and development programs. Additionally, 1995
results included a $20.3 million, pre-tax, non-cash impairment charge recorded
upon adoption of SFAS 121. Results for 1995 and 1996 included the effects of
stock incentive compensation of $5.1 million and $6.2 million, respectively.
Also included in 1995 results were net gains on sale of properties and equity
securities of $3 million and $1.6 million, respectively, and a $700,000
extraordinary gain on the Company's purchase and retirement of a portion of
its convertible subordinated notes. Earnings for 1996 have been reduced by
dividends of $500,000 on preferred stock that was issued in September 1996.
Revenues for 1996 were $161.4 million, or 43% above 1995 revenues of $112.9
million. Oil revenue increased $14.7 million or 24% primarily because of a 25%
increase in oil prices from an average of $17.09 in 1995 to $21.38 in 1996
(see "General--Product Prices" above). The Company's 1996 average oil price
was above the average WTI price of $20.45 because of improved oil marketing
margins. Oil production declined 1% from 1995 to 1996 primarily because of
property sales and natural decline, largely offset by the effects of the 1995
and 1996 acquisitions and development programs.
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<PAGE>
Gas revenue increased $32.9 million or 81% because of a 39% price increase
(see "General--Product Prices" above) combined with a 30% increase in
production. Increased gas production was attributable to the 1995 and 1996
acquisitions and development programs.
Gas gathering, processing and marketing revenues increased $4.9 million
primarily because of revenues from the gas processing plant and gathering
facility acquired as part of the Santa Fe Acquisition on August 1, 1995. Other
revenues decreased $4 million primarily because of net gains on sale of
property and equity securities in 1995.
Expenses for 1996 totaled $130.4 million as compared with total 1995
expenses of $129.9 million. Expenses for 1995 included the $20.3 million
impairment charge recorded upon adoption of SFAS No. 121 in October 1995. All
expenses other than impairment increased in 1996 primarily because of the 1995
and 1996 acquisitions.
Production expenses increased $4 million or 11%. Per BOE, production expense
decreased from $4.26 to $4.05. This decrease is primarily because the 1995 and
1996 acquisitions were predominantly gas-producing properties that generally
have lower production costs per BOE.
Taxes on production and property increased 38% or $3.3 million because of
increased oil and gas revenues. Taxes on production and property per BOE only
increased 18% from $1.04 to $1.23 because of property tax reductions on
properties acquired before 1995 that largely offset property taxes related to
the 1995 and 1996 acquisitions.
Depreciation, depletion and amortization ("DD&A") increased $1 million, or
3%, primarily because of the 1995 and 1996 acquisitions and development
programs. On a BOE basis, DD&A decreased from $4.44 in 1995 to $3.89 in 1996.
Decreased DD&A per BOE is the result of increased proved reserve estimates at
January 1, 1996, reduced depletable costs resulting from the SFAS 121
provision recorded in fourth quarter 1995, and the sale and operating
leaseback of the Tyrone gas processing plant and related gathering system.
General and administrative expense increased $3.3 million, or 25%, because
of Company growth and increased stock incentive compensation. Excluding stock
incentive compensation, general and administrative expense per BOE was $1.04
in 1996 as compared to $0.97 in 1995.
Gas gathering and processing expense increased from $2.5 million in 1995 to
$6.9 million in 1996. This increase was primarily because of rental expense
related to the Tyrone plant and gathering system lease that began in March
1996. This increase offsets related decreases in DD&A and interest.
Interest expense increased $4.5 million or 36% primarily because of
increased debt to partially fund the 1995 and 1996 acquisitions and purchases
of treasury stock and equity securities. Weighted average principal
outstanding during 1996 was $259 million at an average interest rate of 6.4%
compared with weighted average principal of $195.1 million at 6.2% for 1995.
Interest expense per BOE increased from $1.51 in 1995 to $1.76 in 1996
primarily because of financing expenditures for other than oil and gas
producing properties with bank and other short-term borrowings.
1995 Compared to 1994
Net loss for 1995 was $10.5 million as compared to net income of $3 million
for 1994. The loss for 1995 included a $20.3 million pre-tax, non-cash
impairment charge recorded upon adoption of SFAS No. 121, and a pre-tax charge
of $5.1 million for predominantly non-cash stock incentive compensation. Also
included in 1995 results were net gains on sale of properties and equity
securities of $3 million and $1.6 million, respectively, and a $700,000
extraordinary gain on the Company's purchase and retirement of a portion of
its convertible subordinated notes.
Revenues for 1995 were $112.9 million, or 17% above 1994 revenues of $96.3
million. Oil revenue increased $7 million or 13% primarily because of an 11%
increase in oil prices from an average of $15.38 in
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<PAGE>
1994 to $17.09 in 1995. The Company's 1995 average oil price was above the
average WTI price of $16.77 because of improved oil marketing margins. Oil
production increased 2% from 1994 as a result of the 1995 acquisitions,
partially offset by reduced production from natural decline and property
sales.
Gas revenue increased $2.2 million or 6% because of a 35% increase in
production, attributable to the 1995 acquisitions and the 1994 and 1995
development programs. The effects of increased production were largely offset
by a 22% decline in average gas prices. Part of the decline in the Company's
average gas price is because of a lower energy content and higher
transportation differential for production from the Hugoton Field.
Additionally, the 1994 average price was supported by sales of 25,000 Mcf per
day under contract at $2.00 per Mcf during the last six months of the year.
Gas gathering, processing and marketing revenues increased $2.8 million
primarily because of revenues from the gas processing plant and gathering
facility acquired as part of the Santa Fe Acquisition on August 1, 1995. Other
revenues increased $4.6 million because of net gains of $3 million from
property sales and a gain of $1.6 million from sale of equity securities.
Expenses for 1995 totaled $129.9 million, a $38.4 million or 42% increase
from total 1994 expenses of $91.5 million. Included in 1995 expenses is the
$20.3 million impairment charge recorded upon adoption of SFAS No. 121 in
October 1995. Other expense increases were generally attributable to the 1995
acquisitions.
Production expenses increased $3 million or 9%. Per BOE, production expense
decreased from $4.62 to $4.26. This decrease is generally because the 1995
acquisitions were predominantly gas-producing properties and therefore have
lower production costs per BOE.
Taxes on production and property increased only 1% or $100,000. Increased
taxes from the 1995 acquisitions were almost completely offset by decreased
property taxes on properties acquired before 1995, resulting in a decrease in
taxes on production and property per BOE from $1.23 to $1.04.
DD&A increased $5.2 million, or 16%, primarily because of the 1995
acquisitions, the largest of which closed on August 1. On a BOE basis, DD&A
decreased from $4.53 in 1994 to $4.44 in 1995.
General and administrative expense increased $4.6 million, or 54%, primarily
because of increased stock incentive compensation of $4.4 million. Excluding
stock incentive compensation, general and administrative expense per BOE was
$0.97 in 1995 or 13% below $1.11 in 1994.
Gas gathering and processing expense increased by $900,000 or 54% from 1994
to 1995. This increase was primarily because of operating expenses related to
the Tyrone gas processing and gathering facility acquired August 1, 1995.
Interest expense increased $4.5 million or 56% because of increased debt to
partially fund the 1995 acquisitions and an increase in interest rates.
Weighted average principal outstanding during 1995 was $195.1 million at an
average interest rate of 6.2% compared with weighted average principal of
$135.3 million at 5.5% for 1994. Interest expense per BOE was $1.15 in 1994
and $1.51 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow from operating
activities, public offerings of equity and debt, and bank debt. The Company's
cash requirements, other than for operations, are generally for the
acquisition and development of oil and gas properties, and debt and dividend
payments. The Company believes that its sources of liquidity are adequate to
fund its cash requirements during 1997.
Cash provided by operating activities was $42.3 million in 1994, compared to
$32.9 million in 1995 and $59.7 million in 1996. The fluctuation from 1995 to
1996 was primarily because of increased oil and gas prices and gas production,
partially offset by stock incentive compensation payments that increased $6.3
million, while
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<PAGE>
the fluctuation from 1994 to 1995 was almost entirely due to timing of
realization of accounts receivable, inventory and payables. Before changes in
working capital, cash flow from operations was $37.8 million, $40.4 million
and $68.3 million in 1994, 1995 and 1996, respectively.
The January 1994, 1995 and 1996 acquisitions were primarily financed by
proceeds from long-term debt borrowings. The 1995 acquisitions were also
partially funded by proceeds from public offerings of common stock.
Development expenditures and dividend payments have generally been funded by
cash flow from operations.
Financial Condition
Total assets increased from $403 million at December 31, 1995 to $523
million at December 31, 1996, primarily because of the 1996 acquisitions. As
of December 31, 1996, total capitalization of the Company was $457 million, of
which 69% was long-term debt. This compares with capitalization of $369
million at December 31, 1995, of which 65% was long-term debt. The increase in
the debt-to-capitalization ratio from year-end 1995 to 1996 is because of
increased borrowings under the Company's loan agreement to fund the 1996
acquisitions and other capital expenditures (see "Financing" below). After
considering the effect of the January 1997 conversion of subordinated notes,
the pro forma debt-to-capitalization ratio at December 31, 1996 was 62%.
Working Capital
The Company generally uses available cash to reduce bank debt and,
therefore, does not maintain large cash and cash equivalent balances. Short-
term liquidity needs are satisfied by bank commitments under the loan
agreement (see "Financing" below). Because of this, and since the Company's
principal source of operating cash flows (i.e., proved reserves to be produced
in the following year) cannot be reported as working capital, the Company
often has low or negative working capital.
Financing
Total borrowing commitments from commercial banks under the Revolving Credit
Agreement ("loan agreement") were $300 million at December 31, 1996. The loan
agreement provides for a revolving facility with scheduled reductions of
borrowing commitment that generally occur each June 30 and December 31. As of
December 31, 1996, borrowing commitments were scheduled to be reduced to $285
million on December 31, 1997. In connection with a property acquisition in
January 1997, borrowing commitments were increased to $306 million, which will
be reduced to $291 million on December 31, 1997. As a result of an amendment
to the Credit Agreement in connection with the Offering, such amounts will be
adjusted. See "Description of the Credit Agreement." Borrowings under the loan
agreement mature on June 30, 2002, but may be prepaid at any time without
penalty. The Company has periodically renegotiated its loan agreement to
increase borrowing commitments and extend the revolving facility; however,
there is no assurance that the Company will continue to do so in the future.
Loan capacity under the loan agreement is redetermined annually using
present value and cash flow parameters based on year-end estimated oil and gas
reserves. If the redetermined loan capacity is less than total borrowings
commitments, then such commitments will be reduced by the difference. If
borrowings exceed the redetermined capacity, the Company must reduce
borrowings to a level equal to the redetermined capacity within a specified
period.
During 1995, the Company purchased and retired $8.3 million principal amount
of its 5 1/4% convertible subordinated notes, resulting in an extraordinary
gain of $700,000. During 1996, the Company redeemed, purchased and retired a
total of $9 million principal amount of the notes at a loss of $430,000. Note
purchases were primarily funded by bank borrowings under the loan agreement.
In November and December 1996, principal of $27.7 million was converted at the
option of noteholders into 1,198,454 shares of common stock. In January 1997,
principal of $29.7 million was converted into 1,285,495 shares of common
stock. As of January 21, 1997, no notes remain outstanding.
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<PAGE>
In August 1995, the Company sold 2.3 million shares of common stock for net
proceeds of $29.5 million that were used to partially fund the Santa Fe
Acquisition.
In September 1996, pursuant to the Company's exchange offer, a total of
1,324,111 shares of common stock were exchanged for 1,138,729 shares of Series
A convertible preferred stock.
Capital Expenditures
In May 1996, the Company announced its plan to make strategic acquisitions
totaling $120 million over the following 18 months, including additional
interests in and around the Company's operations, as well as purchases of up
to two million shares of the Company's common stock. This goal excludes the
previously announced Enserch Acquisition. Since that date and through December
1996, the Company purchased producing properties totaling approximately $66
million (excluding the Enserch Acquisition of $39.4 million) and 1.3 million
treasury shares at a total cost of $30.7 million. These purchases were
primarily funded by bank debt. Producing property acquisitions include the
purchase of 16% of the outstanding beneficial units ("Units") of Cross Timbers
Royalty Trust at a total cost of $12.8 million. After the Company completed
its program to purchase one million Units in January 1997, the Board of
Directors authorized the purchase of up to one million additional Units.
The Company continues to pursue acquisitions that meet its criteria,
although there are no assurances that such properties will be available. The
Company plans to fund future acquisitions through a combination of cash flow
from operations and bank borrowings; proceeds from public equity and debt
transactions may also be utilized. The Company's base acquisition budget for
1997 is $50 million. If attractive acquisition opportunities arise during
1997, the Company could significantly exceed its base acquisition budget.
In 1996, capitalized expenditures for exploitation and development totaled
$32.3 million, compared to the budget of $40 million. Exploitation and
development costs incurred for 1996 totaled $44.8 million. Exploration
expenses in 1996 totaled $280,000. The Company has budgeted $70 million for
the 1997 development program. As it has done historically, the Company expects
to fund the 1997 development program from cash flow from operations. Since
there are no material long-term commitments associated with this budget, the
Company has the flexibility to adjust its actual development expenditures in
response to changes in product prices, industry conditions, and the effects of
the Company's acquisition and development programs.
A portion of the Company's existing properties are operated by third parties
which control the timing and amount of expenditures required to exploit the
Company's interests in such properties. Therefore, the Company can give no
assurances regarding the timing or amount of such expenditures.
To date, the Company's expenditures to comply with environmental or safety
regulations have not been significant, and the Company currently does not
expect such expenditures to be significant during 1997. However, developments
such as new regulations, enforcement policies or claims for damages could
result in significant future costs.
In March 1996, the Company sold its Tyrone gas processing plant and related
gathering system for $28 million and entered an agreement to lease the
facility from the buyers for an initial term of eight years at annual rentals
of $4 million, and with fixed renewal options for an additional 13 years. In
November 1996, the Company sold its gathering system in Major County, Oklahoma
for $8 million and entered an agreement to lease the facility from the buyers
for an initial term of eight years at annual rental of $1.6 million and with
renewal options for an additional 10 years. Proceeds of these sales were used
to reduce borrowings under the loan agreement.
Dividends
Since the Company's inception, the Board of Directors has declared quarterly
dividends of $0.075 per common share ($0.05 per share on a post-split basis).
In February 1997, the Board of Directors increased the quarterly dividend 10%
to $0.055 per share on a post-split basis, or $6.1 million annually.
Continuance of
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dividends is dependent upon available cash flow, as well as other factors. In
addition, the Company's loan agreement restricts the amount of common stock
dividends to 25% of operating cash flow for the last four quarters.
Cumulative dividends on Series A convertible preferred stock are paid
quarterly, when declared by the Board of Directors, based on an annual rate of
$1.5625 per share, or $1.8 million annually.
PRODUCTION IMBALANCES
The Company has gas production imbalance positions that are the result of
partial interest owners selling more or less than their proportionate share of
gas on jointly owned wells. Imbalances are generally settled by
disproportionate gas sales over the remaining life of the well or by cash
payment by the overproduced party to the underproduced party. The Company uses
the entitlement method of accounting for natural gas sales. At December 31,
1996, the Company's consolidated balance sheet includes a net receivable of $4
million for a net underproduced balancing position of 821,000 Mcf of natural
gas and 6,824,000 Mcf of carbon dioxide. Production imbalances do not have,
and are not expected to have, a significant impact on the Company's liquidity
or operations.
DERIVATIVES
The Company uses derivatives on a limited basis to hedge interest rate and
product price risks, as opposed to their use for trading purposes. To reduce
variable interest rate exposure on debt, the Company had entered into a series
of interest rate swap agreements, the last of which expired September 1996.
The Company had no other significant derivative transactions or balances from
1994 to 1996.
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<PAGE>
BUSINESS AND PROPERTIES
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, 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 in the future.
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>
- --------
(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.
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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.
Approximately 200 of these locations will require certain regulatory approvals
and legislation in Oklahoma prior to drilling. 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.
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.
41
<PAGE>
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.
SIGNIFICANT PROPERTIES
The following table summarizes proved reserves and discounted present value,
before income tax, of proved reserves by the Company's major operating areas
at December 31, 1996 (In thousands):
<TABLE>
<CAPTION>
DISCOUNTED
PROVED PRESENT VALUE
RESERVES BEFORE INCOME
-------------- TAX OF
OIL GAS PROVED
(BBL) (MCF) RESERVES
------ ------- --------------
<S> <C> <C> <C> <C>
Permian Basin.................................... 31,274 77,655 $346,520 36.6%
Mid-Continent.................................... 8,512 165,334 306,730 32.4
Hugoton.......................................... 362 161,318 167,160 17.7
Rocky Mountain................................... 1,673 127,554 107,269 11.3
Other (a)........................................ 619 8,677 18,471 2.0
------ ------- -------- -----
Total............................................ 42,440 540,538 $946,150 100.0%
====== ======= ======== =====
</TABLE>
- --------
(a) Includes 396,000 Bbls and 6,431,000 Mcf and discounted present value
before income tax of $12,242,000 related to the Company's 16% ownership of
Units of Cross Timbers Royalty Trust at December 31, 1996.
42
<PAGE>
PERMIAN BASIN AREA
Prentice Field. The Prentice Field is located in Terry and Yoakum Counties,
Texas. In 1993, the Company acquired its initial interest in the Prentice
Northeast Unit in three separate transactions, accumulating a 62.1% interest.
In January 1994, the Company purchased an additional 29.4% interest in the
Prentice Northeast Unit, increasing the Company's total ownership to 91.5%.
The Company assumed operations of the Unit effective March 1, 1994. Current
net production from the 153-well Unit is approximately 2,650 Bbls of oil and
580 Mcf of gas per day. The Company also owns an interest in 80 gross (1.7
net) non-operated wells.
Discovered in 1950, the Prentice Field produces from carbonate reservoirs in
the Clear Fork and Glorieta formations at depths ranging from 6,000 to 7,000
feet. The Prentice Field has been separated into several waterflood units for
secondary-recovery operations. The Prentice Northeast Unit was formed in 1964
with waterflood operations commencing a year later. Development potential
exists through infill drilling and improvement of waterflood efficiency.
Tertiary recovery potential also exists through carbon dioxide flooding.
During 1996, the Company drilled 28 development wells in the Prentice
Northeast Unit. The Company plans to drill a total of 31 wells during 1997.
Twenty-six of these wells are 10-acre infill wells based on the success of the
1996 program. The remaining five wells are 20-acre wells strategically located
to test the deeper reservoirs discovered in 1995.
Russell Field. The Russell Field is located in Gaines County, Texas. The
Company owns an interest in 25 gross (23.4 net) wells that it operates and 139
gross (43.6 net) wells operated by others. Current net daily oil and gas
production is approximately 990 Bbls and 530 Mcf.
The Russell Field, discovered in 1943, produces from the San Andres,
Glorieta, Middle Clear Fork and Devonian formations at depths ranging from
4,800 to 10,800 feet. Exploitation potential exists through restimulations,
recompletions, infill drilling, and the implementation of secondary recovery
operations in the Middle Clear Fork and San Andres formations.
During 1996, the Company performed four recompletions to the Glorieta and
San Andres formations. The Company and its working interest partners plan to
drill five Middle Clear Fork and Glorieta wells during 1997.
Ozona Area. The Company acquired interests in 1996 in the Henderson, Ozona,
and Davidson Ranch fields located in Crockett County, Texas. The Company
acquired interests in 88 gross (49.1 net) wells that it operates and 124 gross
(26.3 net) wells operated by others. Current net daily production is
approximately 8.1 MMcf and 43 Bbls.
Oil and gas were first discovered in the Ozona area in 1962. Production is
from the Pennsylvanian Canyon sandstones and Strawn carbonates at depths
ranging from 6,500 to 9,000 feet. Development potential for this area includes
infill drilling, field extension and delineation drilling, and the possibility
of horizontal drilling in the Strawn Formation.
During 1997, the Company plans to drill a total of 32 wells divided equally
between the Henderson and Ozona Fields. The Company expects this to be one of
the most active gas development areas for the Company.
University Block 9. The University Block 9 Field is located in Andrews
County, Texas. The Company owns an interest in 36 gross (30.1 net) wells that
it operates. Current net daily production is approximately 700 Bbls of oil and
750 Mcf of gas.
The University Block 9 Field was discovered in 1953. Productive zones are of
Wolfcamp, Pennsylvanian, and Devonian age at 8,400, 8,700 and 10,400 feet,
respectively. The Company recently completed an acquisition which gave it 100%
working interest and operation of the Wolfcamp Unit, Penn Unit, and 13 of the
14 active Devonian wells. Development potential includes proper wellbore
utilization, recompletions, infill drilling and improvement of waterflood
efficiency.
43
<PAGE>
During 1996, the Company drilled 2 gross (2 net) Devonian wells. During
1997, the Company plans to drill 15 wells, making this field one of the most
active oil development areas for the Company.
MID-CONTINENT AREA
Major County Area. The Company is one of the largest producers in the
Ringwood, Northwest Okeene and Cheyenne Valley fields in Major County,
Oklahoma. The Company operates 426 gross (364.2 net) wells and has an interest
in 199 gross (45.4 net) wells operated by others. Current net daily oil and
gas production is approximately 930 Bbls and 32,700 Mcf.
Oil and gas were first discovered in the Major County area in 1945. The
fields in the Major County area are located in the Anadarko Basin and are
characterized by oil and gas production from a variety of structural and
stratigraphic traps. Productive zones range from 6,500 to 9,400 feet and
include the Oswego, Red Fork, Chester, Manning, Mississippian, Hunton and
Arbuckle formations.
The Company develops the Major County area primarily through mechanical
improvements, restimulations, recompletions to shallower zones and development
drilling. During 1996, the Company participated in the drilling of 33 gross
wells and has budgeted 21 gross (11.1 net) wells in Major County for 1997. The
primary area for drilling during 1997 is located in the western portion of the
County, and the Company will target the Mississippian and Chester formations.
A subsidiary of the Company operates a gathering system and pipeline in the
Major County area. The gathering system collects gas from 425 wells through
300 miles of pipeline in the Major County area. The gathering system has
current throughput of approximately 30,000 Mcf per day, 70% of which is
produced from Company operated wells. Estimated capacity of the gathering
system is 40,000 Mcf per day. Gas is delivered to a processing plant owned and
operated by a third party, and then transmitted by a 26-mile Company-operated
pipeline to connections with other pipelines.
The Company has operated its Major County gathering system since 1994.
Through its direct maintenance and management, the Company has achieved
operating cost reductions and improved reliability. During 1994 and 1995, the
gathering system was converted from centralized to field compression through
the installation of four field compression stations. Field compression has
allowed the system to operate more efficiently and to expand into previously
inaccessible areas.
Elk City Field. The Elk City Field is located in Beckham and Washita
Counties of western Oklahoma. The Company operates the Elk City Unit with 35
gross (31.6 net) wells and owns an interest in 9 gross (1.5 net) wells
operated by others. Current net production of the Elk City Field is
approximately 180 Bbls of oil and 5,200 Mcf of gas per day.
The Elk City Field was discovered in 1947 and has been extensively
developed. Production is from the Hoxbar (9,500 feet), Atoka (13,100 feet) and
Morrow (15,500 feet) zones. The Company's primary development activities in
this field have been to initiate mechanical efficiencies and to recomplete
additional productive intervals. Recompletions and zone isolations have been
successful and additional opportunities for these types of workovers remain in
the field. Recent recompletions to the Atoka Formation have resulted in
significant reserve additions. There are several other deep wellbores with
similar recompletion potential.
HUGOTON AREA
The Hugoton Field, discovered in 1922, covers parts of Texas, Oklahoma and
Kansas and is the largest gas field in the United States. It is estimated that
5 million productive acres exist in the entire field. The Company owns an
interest in 349 gross (327.9 net) wells that it operates and 116 gross (25.8
net) wells operated by others. Current net production averages approximately
34,400 Mcf of gas per day and 110 Bbls of oil per day.
Approximately 70% of the Company's Hugoton gas production is delivered to
the Tyrone Plant, a gas processing plant operated by the Company. In May 1996,
the Company completed the installation of a field
44
<PAGE>
compressor on the southern end of the Tyrone gathering system. This unit
compresses gas from 44 wells, 31 of which are owned by the Company, and has
resulted in a significant production increase. The Company also completed the
installation and start-up of a residue compressor and 11.5 miles of high
pressure residue pipeline during August 1996. The installation of these
facilities has allowed the Company to operate the Tyrone Plant more
efficiently and provides access to three additional interstate pipelines.
While much of the Kansas portion of the Hugoton Field has been infill
drilled on 320-acre spacing, the Company believes that there are up to 50
additional potential infill drilling locations. The Oklahoma portion is
drilled on 640-acre spacing. The Company believes that there are approximately
200 potential infill drilling locations, subject to regulatory approval and
the enactment of new legislation in Oklahoma.
During 1996, the Company installed artificial lift on 53 wells along with
drilling five gross (4.8 net) wells in the Kansas portion of the Hugoton
Field. The Company plans to drill 10 wells to the Council Grove and Chase
formations during 1997.
ROCKY MOUNTAIN AREA
Green River Basin. The Green River Basin is located in southwestern Wyoming.
The Company acquired interests in 110 gross (100.2 net) wells that it operates
and 37 gross (8.3 net) wells operated by others in the Fontenelle, Nitchie
Gulch and Pine Canyon fields during 1996. Current net daily production is
approximately 18,500 Mcf of gas and 70 Bbls of oil.
Gas production was discovered in the Fontenelle area in the early 1970's.
The producing reservoirs are the Cretaceous Frontier and Dakota sandstones at
depths ranging from 7,500 to 10,000 feet. Exploitation potential for the
fields in this area includes restimulations, recompletions and development
drilling.
During 1996, the Company drilled 10 gross (9.8 net) wells, of which eight
were completed in 1996 with the remaining two wells being completed in early
1997. The Company plans to drill approximately 30 wells during 1997, targeting
the Frontier Formation, making this one of the Company's most active
development areas.
The Company announced on March 24, 1997 that it had entered into an
agreement with Burlington Resources, Inc. to acquire producing properties in
Oklahoma, Kansas and Texas for $39.5 million, effective April 1, 1997. The
purchase, expected to close in May 1997, is subject to third party consents,
purchase price adjustments and approval of the seller's board of directors,
which is expected before the end of April. The purchase will be funded with
borrowings under the Credit Agreement.
The properties to be acquired are primarily operated interests concentrated
in northwestern Oklahoma and the Panhandle areas of Oklahoma and Texas and in
southwestern Kansas. The Company's internal engineers estimate proved reserves
attributable to the acquisition to be 36.5 Bcf equivalent (approximately 6.1
million BOE), of which more than 97% is natural gas. Current net daily
production averages 5.5 MMcf of gas equivalent (approximately 917 BOE) from
130 gross (65 net) wells with an estimated reserve-to-production index of 17.5
years. These estimates are preliminary, are based upon information available
from the seller in connection with the acquisition and have not been reviewed
by independent petroleum engineers. Approximately 30% of the purchase price is
attributable to 124 square miles (79,500 net acres) of undeveloped acreage
primarily located in Texas County, Oklahoma.
The Panhandle area and Kansas properties are located in Texas County,
Oklahoma; Seward and Stevens counties, Kansas; and Roberts County, Texas.
These properties are comprised of 91 gross (32 net) wells of which 37 gross
wells will be operated by the Company. Current production is approximately 2.6
MMcf of gas equivalent (approximately 433 BOE) per day, primarily from the
Chester and Morrow formations between 6,000 and 7,000 feet. More than 71,000
of the undeveloped acres purchased are for deep rights below the Company's
existing Texas County Chase production.
45
<PAGE>
The northwestern Oklahoma properties are located in Woods and Woodward
counties. These properties are comprised of 39 gross (33 net) wells of which
27 gross wells will be operated by the Company. Current production is
approximately 2.9 MMcf equivalent (approximately 483 BOE) per day primarily
from the Chester and Lansing/Kansas City formations between 5,000 and 7,000
feet. The acquisition also includes a gathering system for Woodward County
properties.
RESERVES
The following are estimated quantities of proved reserves and cash flows
therefrom as of December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Proved developed:
Oil (Bbls)............................... 26,948 28,946 31,883
Gas (Mcf)................................ 164,169 320,230 466,412
Proved undeveloped:
Oil (Bbls)............................... 6,633 11,042 10,557
Gas (Mcf)................................ 12,892 37,840 74,126
Total proved:
Oil (Bbls)............................... 33,581 39,988 42,440
Gas (Mcf)................................ 177,061 358,070 540,538
Estimated future net cash flows:
Before income tax........................ $406,128 $712,907 $1,737,024
After income tax......................... 344,591 581,888 1,286,037
Present value of estimated future net cash
flows, discounted at 10%:
Before income tax........................ $247,946 $405,706 $946,150
After income tax......................... 213,146 335,156 706,481
</TABLE>
Miller and Lents, Ltd. ("Miller and Lents"), an independent petroleum
engineering firm, prepared the estimates of the Company's proved reserves and
the future net cash flow (and present value thereof) attributable to proved
reserves at December 31, 1994, 1995 and 1996. As prescribed by the Commission,
such proved reserves were estimated using oil and gas prices and production
and development costs as of December 31 of each such year, without escalation.
See Note 11 to Consolidated Financial Statements appearing elsewhere in this
Offering Memorandum for additional information regarding estimated proved
reserves.
There are numerous uncertainties inherent in estimating quantities of proved
reserves, including many factors beyond the control of the Company. Reserve
engineering is a subjective process of estimating subsurface accumulations of
oil and gas that cannot be measured in an exact manner, and the accuracy of
any reserve estimate is a function of the quality of available data and the
interpretation thereof. As a result, estimates by different engineers often
vary, sometimes significantly. In addition, physical factors, such as the
results of drilling, testing and production subsequent to the date of an
estimate, as well as economic factors, such as change in product prices, may
justify revision of such estimates. Accordingly, oil and gas quantities
ultimately recovered will vary from reserve estimates.
During 1995, the Company filed estimates of oil and gas reserves as of
December 31, 1995 with the U. S. Department of Energy on Form EIA-23. These
estimates were consistent with the reserve data reported in Note 11 to
Consolidated Financial Statements for the year ended December 31, 1995, with
the exception that Form EIA-23 includes only reserves from properties operated
by the Company.
EXPLORATION AND PRODUCTION DATA
For the following data, "gross" refers to the total wells or acres in which
the Company owns a working interest and "net" refers to gross wells or acres
multiplied by the percentage working interest owned by the Company. Although
many of the Company's wells produce both oil and gas, a well is categorized as
an oil well or a gas well based upon the ratio of oil to gas production.
46
<PAGE>
PRODUCING WELLS
The following table summarizes the Company's producing wells as of December
31, 1996, all of which are located in the United States.
<TABLE>
<CAPTION>
OPERATED WELLS NON-OPERATED WELLS TOTAL(a)
--------------- ------------------- -------------
GROSS NET GROSS NET GROSS NET
--------------- ------------------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Oil........................... 595 530.3 3,050 192.2 3,645 722.5
Gas........................... 970 841.8 694 130.8 1,664 972.6
------ -------- --------- --------- ----- -------
Total......................... 1,565 1,372.1 3,744 323.0 5,309 1,695.1
====== ======== ========= ========= ===== =======
</TABLE>
- --------
(a) One gross (0.2 net) oil well and 4 gross (2.1 net) gas wells are dual
completions.
DRILLING ACTIVITY
The following table summarizes the number of development wells drilled by
the Company during the periods indicated. There were no exploratory wells
drilled during 1994, 1995 or 1996. As of December 31, 1996, the Company was in
the process of drilling 20 gross (15.8 net) wells.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---------- ---------- ----------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Completed as--
Oil wells.................................... 51 4.5 71 17.3 92 45.5
Gas wells.................................... 30 24.4 24 16.8 70 38.1
Non-Productive................................. 1 1.0 2 1.1 4 2.7
--- ---- --- ---- --- ----
Total(a)................................... 82 29.9 97 35.2 166 86.3
=== ==== === ==== === ====
</TABLE>
- --------
(a) Included in totals are 50 gross (2.1 net), 61 gross (3.2 net) and 85 gross
(10.4 net) wells drilled on non-operated interests in 1994, 1995 and 1996,
respectively. Excluded from the above totals are 31 gross (0.6 net) and 21
gross (0.4 net) carbon dioxide wells drilled on non-operated interests in
1995 and 1996, respectively.
ACREAGE
The following table summarizes developed and undeveloped leasehold acreage
in which the Company owned a working interest as of December 31, 1996.
Excluded from this summary is acreage in which the Company's interest is
limited to royalty, overriding royalty and other similar interests.
<TABLE>
<CAPTION>
DEVELOPED(a)(b) UNDEVELOPED
--------------- ------------
GROSS NET GROSS NET
------- ------- ------ -----
<S> <C> <C> <C> <C>
Oklahoma........................................... 320,254 255,096 761 687
Texas.............................................. 91,505 66,762 656 199
Kansas............................................. 75,018 64,805 2,960 817
New Mexico......................................... 59,495 24,970 6,118 3,192
Wyoming............................................ 40,685 21,712 -- --
Other.............................................. 9,455 6,855 -- --
------- ------- ------ -----
Total............................................. 596,412 440,200 10,495 4,895
======= ======= ====== =====
</TABLE>
- --------
(a) "Developed acres" are acres spaced or assignable to productive wells.
(b) Certain leasehold acreage in Oklahoma and Texas is subject to a 75% net
profits interest conveyed to the Cross Timbers Royalty Trust.
47
<PAGE>
OIL AND GAS SALES PRICES AND PRODUCTION COSTS
The following table shows the average sales prices per Bbl of oil (including
condensate) and Mcf of gas (including natural gas liquids) produced and the
production costs and production and property taxes per BOE:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Average sales prices(a):
Oil (per Bbl)..................................... $ 15.38 $ 17.09 $ 21.38
Gas (per Mcf)..................................... 1.81 1.42 1.97
Production costs per BOE: .......................... 4.62 4.26 4.05
Production and property taxes per BOE: ............. 1.23 1.04 1.23
</TABLE>
- --------
(a) Average sales price data includes the effects of hedging activities which
have not been significant.
DELIVERY COMMITMENTS
The Company sells to a single purchaser approximately 10,000 Mcf of gas per
day through July 1998 and 11,650 Mcf of gas per day from August 1998 through
July 2005. The Company has also entered into contracts to sell a total of
25,000 Mcf of gas per day from January through March 1997. Deliveries under
these contracts are generally in Oklahoma, where the Company's production and
reserves are adequate to meet these sales commitments.
The Company has committed to sell between 1,460,000 and 1,825,000 Mcf of gas
annually to a cogeneration facility under a take-or-pay contract that expires
in September 2004. The Company generally purchases gas to fill this
commitment.
COMPETITION AND MARKETS
The Company faces competition from other oil and gas companies in all
aspects of its business, including the acquisition of producing properties and
oil and gas leases, marketing oil and gas, and obtaining goods, services and
labor. Many of its competitors have substantially larger financial and other
resources than the Company. Competition for property purchases is affected by
available funds, available information about the property and the Company's
standards established for minimum projected return on investment. Because
gathering systems are the only practical method for the intermediate
transportation of natural gas, competition for natural gas delivery is
presented by other pipelines and gas gathering systems. Competition is also
presented by alternative fuel sources, including heating oil and other fossil
fuels. Because of the relatively long-lived nature of the Company's oil and
gas reserves and management's expertise in exploiting these reserves,
management believes that it effectively competes in the market.
The Company's ability to market oil and gas depends on many factors beyond
its control, including the extent of domestic production and imports of oil
and gas, the proximity of the Company's gas production to pipelines, the
available capacity in such pipelines, the demand for oil and gas, the effects
of weather and the effects of federal and state regulation. The Company can
give no assurance that it will always be able to market all of its production
or obtain favorable prices. The Company does not currently believe, however,
that the loss of any of its current oil or gas purchasers would have a
material adverse effect on its operations.
Decreases in oil and gas prices have had, and could have in the future, an
adverse effect on the Company's acquisition and development programs, proved
reserves, revenues, profitability, cash flow and dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
General--Product Prices."
FEDERAL AND STATE REGULATION
GENERAL. There have been, and continue to be, numerous federal and state
laws and regulations governing the oil and gas industry that are often changed
in response to the current political or economic environment.
48
<PAGE>
Compliance with this regulatory burden is often difficult and costly and may
carry substantial penalties for noncompliance. The following are some specific
regulations that may affect the Company. The Company cannot predict the impact
of future legislative or regulatory initiatives.
Federal Regulation of Natural Gas. The interstate transportation and sale
for resale of natural gas is subject to federal regulation, including
regulation of tariffs charged and various other matters, by the Federal Energy
Regulatory Commission ("FERC"). The gathering system and 26-mile pipeline
operated by the Company have been declared exempt from FERC jurisdiction, and
FERC has allowed the Company to sell on a non-regulated basis. Federal
wellhead price controls on all domestic gas were terminated on January 1,
1993. The Company cannot predict the impact of government regulation on any
natural gas facilities.
In 1992, FERC issued Orders Nos. 636 and 636-A, requiring operators of
pipelines to unbundle transportation services from sales services and allow
customers to pay for only the services they require, regardless of whether
they purchase gas from such pipelines or from other suppliers. The United
States Court of Appeals upheld the unbundling provisions and other components
of FERC's orders but remanded several issues to FERC for further explanation.
On February 27, 1997, FERC issued Order No. 636-C addressing the Court's
concerns. FERC's orders remain subject to judicial review and may be changed
as a result of that review. Although FERC's regulations should generally
facilitate the transportation of gas produced from the Company's properties
and direct access to end-user markets, the impact of these regulations on
marketing the Company's production or on its gas transportation business
cannot be predicted. The Company does not believe, however, that it will be
affected any differently than other natural gas producers and marketers with
which it competes.
Federal Regulation of Oil. Sales of crude oil, condensate and natural gas
liquids are not currently regulated and are made at market prices. The net
price received from the sale of these products is affected by market
transportation costs. A significant part of the Company's oil production is
transported by pipeline. The Energy Policy Act of 1992 required FERC to adopt
a simplified ratemaking methodology for interstate oil pipelines. In 1993 and
1994, FERC issued Order Nos. 561 and 561-A, adopting rules that established
new rate methods for such pipelines. Under the new rules, effective January 1,
1995, interstate oil pipelines can change rates based on an inflation index,
although other rate mechanisms may be used in specific circumstances. The
United States Court of Appeals upheld FERC's orders in 1996. The Company
cannot predict the effect these rules may have on the cost of moving oil to
market.
State Regulation. The oil and gas operations of the Company are subject to
various types of regulation at the state and local levels. Such regulation
includes requirements for drilling permits, the method of developing new
fields, the spacing and operations of wells and waste prevention. The
production rate may be regulated and the maximum daily production allowable
from oil and gas wells may be established on a market demand or conservation
basis. These regulations may limit the Company's production from its wells and
the number of wells or locations the Company can drill.
The Company may become party to agreements relating to the construction or
operations of pipeline systems for the transportation of natural gas. To the
extent that such gas is produced, transported and consumed wholly within one
state, such operations may in certain instances be subject to the state's
administrative authority charged with regulating pipelines. The rates the
Company could charge for gas, the transportation of gas, and the construction
and operation of such pipelines would be subject to the regulations governing
such matters. Certain states are considering regulations with respect to
gathering systems. The Company cannot predict whether any rules will be
adopted or, if adopted, the effect these rules may have on the gathering
systems operated by the Company.
Federal, State or Indian Leases. The Company's operations on federal, state
or Indian oil and gas leases are subject to numerous restrictions, including
nondiscrimination statutes. Such operations must be conducted pursuant to
certain on-site security regulations and other permits and authorizations
issued by the Bureau of Land Management, Minerals Management Service and other
agencies.
49
<PAGE>
ENVIRONMENTAL REGULATION
Various federal, state and local laws regulating the discharge of materials
into the environment, or otherwise relating to the protection of the
environment, directly impact oil and gas exploration, development, production
and processing operations, and consequently may impact the Company's
operations and costs. Management believes that the Company is in material
compliance with applicable environmental laws and regulations. To date, the
Company has not expended a material amount of funds to comply with such
regulations, and management does not currently anticipate that future
compliance will have a materially adverse effect on the consolidated financial
position or results of operations of the Company.
EMPLOYEES
The Company had 306 employees as of December 31, 1996. None of the Company's
employees is represented by a union. The Company considers its relations with
its employees to be good.
50
<PAGE>
BOARD OF DIRECTORS AND MANAGEMENT
EXECUTIVE OFFICERS
The following is a list of the executive officers of the Company and their
principal positions with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Bob R. Simpson................... 48 Chairman of the Board of Directors
and Chief Executive Officer
Steffen E. Palko................. 46 Vice Chairman of the Board and President
Senior Vice President and Chief Financial
Louis G. Baldwin................. 47 Officer
Keith A. Hutton.................. 38 Senior Vice President--Asset Development
Bennie G. Kniffen................ 46 Senior Vice President and Controller
Larry B. McDonald................ 50 Senior Vice President--Operations
Kenneth F. Staab................. 40 Senior Vice President--Engineering
Thomas L. Vaughn................. 50 Senior Vice President--Operations
Vaughn O. Vennerberg II.......... 42 Senior Vice President--Land
</TABLE>
The background of these officers is as follows:
Bob R. Simpson was a co-founder of the Company with Mr. Palko and has been
Chairman and Chief Executive Officer of the Company since July 1, 1996. Prior
thereto, Mr. Simpson served as Vice Chairman and Chief Executive Officer or
held similar positions with the Company since 1986. Mr. Simpson was Vice
President of Finance and Corporate Development (1979-1986) and Tax Manager
(1976-1979) of Southland Royalty Company.
Steffen E. Palko was a co-founder with Mr. Simpson of the Company and has
been Vice Chairman and President or held similar positions with the Company
since 1986. Mr. Palko was Vice President--Reservoir Engineering (1984-1986)
and Manager of Reservoir Engineering (1982-1984) of Southland Royalty Company.
Louis G. Baldwin has been Senior Vice President and Chief Financial Officer
or held similar positions with the Company since 1986. Mr. Baldwin was
Assistant Treasurer (1979-1986) and Financial Analyst (1976-1979) of Southland
Royalty Company.
Keith A. Hutton has been Senior Vice President--Asset Development or held
similar positions with the Company since 1987. From 1982 to 1987, Mr. Hutton
was a Reservoir Engineer with Sun Exploration & Production Company.
Bennie G. Kniffen has been Senior Vice President and Controller or held
similar positions with the Company since 1986. From 1976 to 1986, Mr. Kniffen
held the position of Director of Auditing or similar positions with Southland
Royalty Company.
Larry B. McDonald has been Senior Vice President--Operations or held similar
positions with the Company since 1990. Prior to that time, Mr. McDonald owned
and operated McDonald Energy, Inc. (1986-1990).
Kenneth F. Staab has been Senior Vice President--Engineering or held similar
positions with the Company since 1986. Prior to that time, Mr. Staab was a
Reservoir Engineer with Southland Royalty Company (1982-1986).
Thomas L. Vaughn has been Senior Vice President--Operations or held similar
positions with the Company since 1988. Prior to that time, Mr. Vaughn owned
and operated Vista Operating Company (1986-1988).
Vaughn O. Vennerberg II has been Senior Vice President--Land or held similar
positions with the Company since 1987. Prior to that time, Mr. Vennerberg was
Land Manager with Hutton Gas Operating Company (1986-1987).
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<PAGE>
BOARD OF DIRECTORS
The following is a list of the members of the Company's Board of Directors
and their principal occupations.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
---- --------------------
<C> <S>
Bob R. Simpson.............. Chairman of the Board of Directors and Chief
Executive Officer of the Company
Steffen E. Palko............ Vice Chairman of the Board and President of the
Company
Charles B. Chitty........... Private Investor
J. Luther King, Jr. ........ President, Principal and Principal Portfolio
Manager/Analyst of Luther King Capital
Management Corporation (an investment
management firm)
Scott G. Sherman............ Sole owner of Sherman Enterprises (a personal
investment firm)
J. Richard Seeds............ Career Guidance Counselor with the Springtown,
Texas Independent School District
</TABLE>
52
<PAGE>
DESCRIPTION OF THE CREDIT AGREEMENT
The following description of the Credit Agreement as in effect as of the
date of this Prospectus does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Credit Agreement. A copy of the
Credit Agreement has been filed as an exhibit to the appropriate periodic
report of the Company filed with the Commission (see "Available Information")
and is incorporated by reference in the Registration Statement of which this
Prospectus forms a part.
On June 15, 1995, the Company entered into the Credit Agreement, which
provides for a revolving line of credit. Borrowings under the Credit Agreement
are limited to the lesser of $274 million (the "Commitment") and the Borrowing
Base (as defined therein). The Borrowing Base, which generally is determined
annually, is based on the cash flow from, and the value assigned to, the
Company's oil and gas reserves. At the completion of the offering of the Old
Notes, the Borrowing Base was set at $274 million. Borrowings under the Credit
Agreement mature on June 30, 2002, and the Commitment decreases semi-annually
on each June 30 and December 31 until that date. The Company's Credit
Agreement Obligations are unsecured.
Borrowings under the Credit Agreement bear interest at any of the following
rates selected from time to time by the Company: (i) the prime rate, plus a
spread ranging from 0% to 0.25%, (ii) a rate based on certain dealers' bids
for certificates of deposit plus a spread ranging from 0.875% to 1.375% and
(iii) the London Interbank Offered Rate ("LIBOR") plus a spread ranging from
0.75% to 1.25%. The spread under each alternative rate increases as the amount
outstanding as a percentage of the Borrowing Base increases. Interest payments
are due quarterly if based on the prime rate and the earlier of quarterly or
at maturity if based on the certificate of deposit or LIBOR rate.
The Credit Agreement currently contains negative covenants that include,
among other things: (i) limitation on the incurrence of additional
indebtedness, (ii) a requirement to maintain certain coverage ratios, (iii)
limitation on the Company's total indebtedness, (iv) the right of the Banks
(as defined therein) to perfect a security interest in the Borrowing Base
properties if certain financial ratios are not met, (v) prohibition on the
repurchase or prepayment of the Notes (including a repurchase upon the
occurrence of a Change of Control or, under certain circumstances, an Asset
Sale) and (vi) certain restrictions on the payment of dividends.
Events of Default under the Credit Agreement include, among other things:
(i) the Company's failure to pay principal within one day or interest within
five days of their respective due dates, (ii) a default in the performance of
any covenant in the Credit Agreement that has not been timely remedied, (iii)
a default occurring in the payment of any Company indebtedness in excess of
$1,000,000 or with respect to a material obligation under any note or loan
agreement that has not been timely cured or if indebtedness under any loan
agreement is accelerated and not promptly paid or extended, (iv) bankruptcy,
insolvency or dissolution and (v) a deficiency in the Borrowing Base or cash
flow coverage ratio that has not been timely cured.
53
<PAGE>
DESCRIPTION OF THE NOTES
The Old Notes have been, and the New Notes will be, issued under an
indenture dated as of April 1, 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 class of debt securities
under the Indenture. Holders of Old Notes who do not exchange their Old Notes
for New Notes pursuant to the Exchange Offer 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 Notes will vote together for all such purposes. Accordingly,
at any time after the Exchange Offer is consummated, all references herein to
specified percentages in aggregate principal amount of the outstanding Notes
means 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 $125,000,000 aggregate principal amount.
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples thereof. Principal of, premium,
if any, and interest on the Notes will be payable, and the Notes will be
transferable, at the office or agency of the Company in the City of New York
maintained for such purposes, which initially will be 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
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.
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The Notes will mature on April 1, 2007. Interest on the Notes will accrue at
the rate of 9 1/4% per annum and will be payable semiannually on April 1 and
October 1 of each year, commencing October 1, 1997, to the Person in whose
name the Note is registered in the Note Register at the close of business on
the March 15 or September 15 next preceding such interest payment date.
Interest will be computed on the basis of a 360-day year comprised of 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 April 1, 2002, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest, 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
54
<PAGE>
prior to the redemption date), if redeemed during the 12-month period
beginning on April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PRICE
---- -------
<S> <C>
2002............................................................. 104.625%
2003............................................................. 103.085%
2004............................................................. 101.545%
2005 and thereafter.............................................. 100.000%
</TABLE>
In addition, at any time and from time to time prior to April 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 109.25%,
plus accrued and unpaid interest, 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
$83,300,000 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, 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, 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. See "Risk Factors--Subordination of Notes."
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
55
<PAGE>
Company, whether voluntary or involuntary or (c) any assignment for the
benefit of creditors or other marshaling 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, that, in either
case, would give rise to a Non-payment Default pursuant to any provision under
which a Non-
56
<PAGE>
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 December 31, 1996, after giving pro forma effect 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 $166.9
million. See "Use of Proceeds," "Capitalization" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." 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 may be Senior Indebtedness or Indebtedness of
Subsidiaries to which the Notes will 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. 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 no Indebtedness of the Company which is pari passu in right
of payment with the Notes.
SUBSIDIARY GUARANTEES OF THE NOTES
Under the circumstances described below, 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. No
Subsidiaries of the Company initially executed and delivered the Indenture as
a Subsidiary Guarantor. In the event that the Notes are guaranteed 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
57
<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.
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<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 the date of this Indenture; 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 the
date of the Indenture 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 the
first day of the first month after the date of the Indenture 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 the date of the
Indenture by the Company as capital contributions to the Company (other
than from any Restricted Subsidiary), plus
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(C) the aggregate net cash proceeds received after the date of the
Indenture 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
(D) the aggregate net cash proceeds received after the date of the
Indenture 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 the date of the
Indenture 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 the date of the Indenture
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 the
date of the Indenture, 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
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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
(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
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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 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 does 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
is 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, 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
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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.
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, 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.
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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.
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,
however, 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, however, 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
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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 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, however, 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) are 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)
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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.
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 the consummation of
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
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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.
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 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, however, that the aggregate
principal amount of such Indebtedness shall exceed $5,000,000; and 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
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(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
(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 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
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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 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 occurs and is continuing and is known to the Trustee, the
Trustee shall mail to each Holder of the Notes notice of the 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 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
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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 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 with respect to
the Notes ("covenant defeasance").
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 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
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 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.
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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, maintaining the qualification of, the Indenture
under the Trust Indenture Act, 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 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 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.
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 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
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on, and transfers thereof are effected only through, records maintained by the
Depositary 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
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,
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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 form
registered in the name of such Person or such Person's nominee ("Certificated
Securities"). 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 or any
successor depositary (the "Depositary") notifies the Company in writing that
the Depositary 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 Securities under the
Indenture, then, upon surrender by the Depositary of its Global Note,
Certificated Securities will be issued to each Person that the Depositary
identifies as the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Depositary 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 the Depositary for all purposes (including with
respect to the registration and delivery, and the respective principal
amounts, of the Notes to be issued).
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
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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, however, that, in the case of each of the determinations made
pursuant to clauses (A) through (D), such increases and decreases shall be as
estimated by the Company's petroleum engineers, unless in the event that there
is a Material Change as a result of such acquisitions, dispositions or
revisions, then the discounted future net revenues utilized for purposes of
this clause (a)(i) shall be confirmed in writing by a nationally recognized
firm of independent petroleum engineers, (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
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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 (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, however, 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.
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"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 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 (A) the amount of deferred
revenues that are amortized during such period and are attributable to
reserves that are subject to Volumetric Production Payments and (B) amounts
recorded in accordance with GAAP as repayments of principal and interest
pursuant to Dollar-Denominated Production Payments, to (b) the sum of such
Consolidated Interest Expense for such period; provided, however, that (i) 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
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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 "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.
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"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.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization, impairment and other non-cash expenses
of the Company and its Restricted Subsidiaries reducing Consolidated Net
Income for such period, determined on a consolidated basis in accordance with
GAAP (excluding any such non-cash charge which requires an accrual of or
reserve for cash charges for any future period).
"Credit Agreement" means the Revolving Credit Agreement dated June 15, 1995
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
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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 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, however, 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.
"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
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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
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.
"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
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oil and gas reserves of the Company and its Restricted Subsidiaries,
calculated in accordance with clause (a) (i) of the definition of Adjusted
Consolidated Net Tangible Assets; provided, however, that the following will
be excluded from the calculation of Material Change: (i) any acquisitions
during the quarter of oil and gas reserves that have been estimated by a
nationally recognized firm of independent petroleum engineers and on which a
report or reports exist and (ii) any disposition of properties held at the
beginning of such quarter that have been disposed of 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.
"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,
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refining, selling and transporting of any production from such interests or
properties, (iii) any business relating to or arising from exploration for or
development, production, treatment, processing, storage, 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) $300,000,000 and (B) an
amount equal to the sum of (x) $150,000,000 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
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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 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, excluding, however,
Investments in corporations; (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);
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(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;
(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
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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.
"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.
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"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
"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 (i) a Public Market exists in the shares of common stock
of the Company and (ii) 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
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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 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 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 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
87
<PAGE>
(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 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.
EXCHANGE OFFER; REGISTRATION RIGHTS
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, for the benefit of the holders of the Old Notes, at the
Company's cost, to use its reasonable best efforts (i) to file with the
Commission the Exchange Offer Registration Statement with respect to the
Exchange Offer within 45 days after the date of original issuance of the Old
Notes, (ii) to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act within 105 days of the date of original
issuance of the Old Notes, (iii) to keep the Exchange Offer Registration
Statement effective until the closing of the Exchange Offer, and (iv) to cause
the Exchange Offer to be consummated within 180 days of the original issuance
date of the Old Notes. Promptly after the Exchange Offer Registration
Statement has been declared effective, the Company will offer the New Notes in
exchange for surrender of the Old Notes. The Company will keep the Exchange
Offer open for not less than 30 days (or longer if required by applicable law)
after the date notice of the Exchange Offer has been mailed to the holders of
the Old Notes.
In the event that the Exchange Offer is not consummated within 180 days
after the original issuance of the Old Notes, or upon the request of the
Initial Purchasers in certain circumstances, the Company will, in lieu of
effecting (or, in the case of such a request by the Initial Purchasers, in
addition to effecting) the registration of the New Notes pursuant to the
Exchange Offer Registration Statement (i) as promptly as practicable, file
with the Commission the Shelf Registration Statement covering resales of the
Old Notes, (ii) use its best efforts to cause the Shelf Registration Statement
to be declared effective under the Securities Act by the 180th day after the
date of original issuance of the Old Notes (or promptly in the event of a
request by the Initial Purchasers)
88
<PAGE>
and (iii) use their best efforts to keep effective the Shelf Registration
Statement until two years after its effective date (or until one year after
such effective date if such Shelf Registration Statement is filed at the
request of the Initial Purchasers) or until all of the Old Notes covered by
such Shelf Registration Statement have been sold. In the event of the filing
of a Shelf Registration Statement, the Company will provide to each Holder of
the Old Notes copies of the prospectus which is a part of the Shelf
Registration Statement and notify each such Holder when the Shelf Registration
Statement has become effective. A Holder of Notes that sells such Old Notes
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
In addition, each Holder of the Old Notes 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 in order to have its
Old Notes included in the Shelf Registration Statement and to benefit from the
provisions regarding the increase in the interest rate borne by the Old Notes
described in the second succeeding paragraph.
Each Old Note contains a legend to the effect that the Holder of such Old
Notes, by its acceptance thereof, is deemed to have agreed to be bound by the
provisions of the Registration Rights Agreement. In that regard, each Holder
is deemed to have agreed that, upon receipt of notice from the Company of the
occurrence of any event that makes any statement in the prospectus that is
part of the Shelf Registration Statement (or, in the case of Participating
Broker-Dealers, the prospectus that is a part of the Exchange Offer
Registration Statement) untrue in any material respect or that requires the
making of any changes in such prospectus in order to make the statements
therein not misleading or of certain other events specified in the
Registration Rights Agreement, such Holder (or Participating Broker-Dealer, as
the case may be) will suspend the sale of Old Notes pursuant to such
prospectus until the Company has amended or supplemented such prospectus to
correct such misstatement or omission, has furnished copies of the amended or
supplemented prospectus to such holder (or Participating Broker-Dealer, as the
case may be) or the Company has given notice that the sale of the Old Notes
may be resumed, as the case may be. If the Company shall give such notice to
suspend the sale of the Old Notes, it shall extend the relevant period
referred to above during which it is required to keep effective the Shelf
Registration Statement (or the period during which Participating Broker-
Dealers are entitled to use the prospectus included in the Exchange Offer
Registration Statement in connection with the resale of Exchange Notes, as the
case may be) by the number of days during the period from and including the
date of the giving of such notice to and including the date when holders shall
have received copies of the supplemented or amended prospectus necessary to
permit resales of the Old Notes or to and including the date on which the
Company has given notice that the sale of Old Notes may be resumed, as the
case may be.
In the event that the Exchange Offer is not consummated or a Shelf
Registration Statement with respect to the Old Notes is not declared effective
on or prior to the 180th day following the date of original issuance of the
Old Notes, the interest rate borne by the Old Notes shall be increased by .50%
per annum following such 180th day. Upon the consummation of the Exchange
Offer after the 180th day, the interest rate on the Old Notes from the date of
such consummation will be reduced to the original Old Note interest rate.
The Registration Rights Agreement is governed by, and shall be construed in
accordance with, the laws of the State of New York. The summary herein of
certain provisions of the Registration Rights Agreement is not complete and is
subject to, and is qualified in its entirety by reference to, all the
provisions of the Registration Rights Agreement, a copy of which is filed as
an exhibit to the Registration Statement of which this Prospectus forms a
part. In addition, the information set forth above concerning certain
interpretations of and positions taken by the staff of the Commission is not
intended to constitute legal advice and prospective investors should consult
their own legal advisors with respect to such matters.
89
<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 July , 1997 (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 Merrill
Lynch 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 September 29, 1997.
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.
EXPERTS
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.
90
<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.
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.
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.
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.
91
<PAGE>
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.
92
<PAGE>
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- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE INITIAL PURCHASERS OR ANY OF THEIR RESPEC-
TIVE AFFILIATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE NOTES IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY EXCHANGE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 14
The Exchange Offer....................................................... 20
Use of Proceeds.......................................................... 28
Capitalization........................................................... 28
Recent Developments...................................................... 29
Selected Historical Financial Data....................................... 30
Selected Reserve and Operating Data...................................... 31
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 32
Business and Properties.................................................. 40
Board of Directors and Management........................................ 51
Description of the Credit Agreement...................................... 53
Description of the Notes................................................. 54
Exchange Offer; Registration Rights...................................... 88
Plan of Distribution..................................................... 90
Legal Matters............................................................ 90
Experts.................................................................. 90
Glossary of Certain Oil and Gas Terms.................................... 91
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$125,000,000
EXCHANGE OFFER
[LOGO OF CROSS TIMBERS OIL COMPANY APPEARS HERE]
CROSS TIMBERS OIL COMPANY
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007
----------------
PROSPECTUS
----------------
MAY , 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 April 1, 1997, between the Company and The Bank
of New York, as Trustee.
4.2 --Form of 9 1/4% Series A Senior Subordinated Notes due 2007.
4.3 --Form of 9 1/4% Series B Senior Subordinated Notes due 2007.
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).
23.1 --Consent of Arthur Andersen & Co.
23.2 --Consent of Kelly, Hart & Hallman, P.C., to the use of their opinion
filed as Exhibit 5.1 (set forth in their opinion filed as Exhibit 5.1).
24.1 --Powers of attorney (set forth on the signature page hereof).
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
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>
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 REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT WORTH, STATE OF
TEXAS, ON MAY 6, 1997.
Cross Timbers Oil Company
/s/ Bob R. Simpson
By: _________________________________
BOB R. SIMPSON
CHAIRMAN OF THE BOARD
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY AUTHORIZES AND APPOINTS BOB R. SIMPSON AND LOUIS G. BALDWIN, AND
EACH OF THEM, EITHER ONE OF WHOM MAY ACT WITHOUT THE JOINDER OF THE OTHER, AS
HIS ATTORNEY-IN-FACT TO SIGN ON HIS BEHALF INDIVIDUALLY AND IN THE CAPACITY
STATED BELOW ALL AMENDMENTS AND POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION
STATEMENT AS SUCH ATTORNEY-IN-FACT MAY DEEM NECESSARY OR APPROPRIATE.
/s/ Bob R. Simpson Director and May 6, 1997
- ------------------------------------- Chairman of the
BOB R. SIMPSON Board (Principal
Executive Officer)
/s/ Steffen E. Palko Director, Vice May 6, 1997
- ------------------------------------- Chairman of the
STEFFEN E. PALKO Board and President
(Principal
Executive Officer)
Director
- -------------------------------------
CHARLES B. CHITTY
/s/ J. Luther King, Jr. Director May 6, 1997
- -------------------------------------
J. LUTHER KING, JR.
/s/ Scott G. Sherman Director May 6, 1997
- -------------------------------------
SCOTT G. SHERMAN
/s/ J. Richard Seeds Director May 6, 1997
- -------------------------------------
J. RICHARD SEEDS
/s/ Louis G. Baldwin Senior Vice May 6, 1997
- ------------------------------------- President and Chief
LOUIS G. BALDWIN Financial Officer
(Principal
Financial Officer)
/s/ Bennie G. Kniffen Senior Vice May 6, 1997
- ------------------------------------- President and
BENNIE G. KNIFFEN Controller
(Principal
Accounting Officer)
II-3
<PAGE>
EXHIBIT 4.1
- --------------------------------------------------------------------------------
CROSS TIMBERS OIL COMPANY
AND
THE BANK OF NEW YORK
Trustee
----------------------
Indenture
Dated as of April 1, 1997
----------------------
$125,000,000
9 1/4% Series A Senior Subordinated Notes due 2007
and
9 1/4% Series B Senior Subordinated Notes due 2007
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions............................................... 1
Section 1.2 Other Definitions......................................... 30
Section 1.3 Incorporation by Reference of Trust Indenture Act......... 30
Section 1.4 Rules of Construction..................................... 31
ARTICLE II
THE SECURITIES
Section 2.1 Forms Generally........................................... 31
Section 2.2 Title and Terms........................................... 32
Section 2.3 Denominations............................................. 33
Section 2.4 Execution, Authentication, Delivery and Dating............ 33
Section 2.5 Temporary Securities...................................... 34
Section 2.6 Security Register and Depositary.......................... 35
Section 2.7 Transfer and Exchange..................................... 35
Section 2.8 Additional Provisions for Global Securities............... 43
Section 2.9 Mutilated, Destroyed, Lost and Stolen Securities.......... 43
Section 2.10 Payment of Interest; Interest Rights Preserved............ 44
Section 2.11 Persons Deemed Owners..................................... 45
Section 2.12 Cancellation.............................................. 45
Section 2.13 Computation of Interest................................... 46
Section 2.14 CUSIP Numbers............................................. 46
ARTICLE III
SATISFACTION AND DISCHARGE
Section 3.1 Satisfaction and Discharge of Indenture................... 46
Section 3.2 Application of Trust Money................................ 47
-i-
<PAGE>
ARTICLE IV
REMEDIES
Section 4.1 Events of Default......................................... 48
Section 4.2 Acceleration of Maturity; Rescission and Annulment........ 51
Section 4.3 Collection of Indebtedness and Suits for Enforcement
by Trustee..................................................... 52
Section 4.4 Trustee May File Proofs of Claim.......................... 53
Section 4.5 Trustee May Enforce Claims Without Possession
of Securities.................................................. 54
Section 4.6 Application of Money Collected............................ 54
Section 4.7 Limitation on Suits....................................... 55
Section 4.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest........................................... 55
Section 4.9 Restoration of Rights and Remedies........................ 56
Section 4.10 Rights and Remedies Cumulative............................ 56
Section 4.11 Delay or Omission Not Waiver.............................. 56
Section 4.12 Control by Holders........................................ 56
Section 4.13 Waiver of Past Defaults................................... 57
Section 4.14 Waiver of Stay, Extension or Usury Laws................... 57
Section 4.15 Undertaking for Costs..................................... 57
ARTICLE V
THE TRUSTEE
Section 5.1 Notice of Defaults........................................ 58
Section 5.2 Certain Rights of Trustee................................. 58
Section 5.3 Trustee Not Responsible for Recitals or Issuance
of Securities.................................................. 59
Section 5.4 May Hold Securities....................................... 60
Section 5.5 Money Held in Trust....................................... 60
Section 5.6 Compensation and Reimbursement............................ 60
Section 5.7 Corporate Trustee Required; Eligibility................... 61
Section 5.8 Conflicting Interests..................................... 61
Section 5.9 Resignation and Removal; Appointment of Successor......... 61
Section 5.10 Acceptance of Appointment by Successor.................... 63
Section 5.11 Merger, Conversion, Consolidation or Succession
to Business.................................................... 63
Section 5.12 Preferential Collection of Claims Against Company......... 64
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ARTICLE VI
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 6.1 Disclosure of Names and Addresses of Holders............... 64
Section 6.2 Reports By Trustee......................................... 64
Section 6.3 Reports by Company......................................... 64
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 7.1 Company May Consolidate, etc., Only on Certain Terms....... 65
Section 7.2 Successor Substituted...................................... 67
ARTICLE VIII
SUPPLEMENTAL INDENTURES
Section 8.1 Supplemental Indentures without Consent of Holders......... 67
Section 8.2 Supplemental Indentures with Consent of Holders............ 68
Section 8.3 Execution of Supplemental Indentures....................... 69
Section 8.4 Effect of Supplemental Indentures.......................... 70
Section 8.5 Conformity with Trust Indenture Act........................ 70
Section 8.6 Reference in Securities to Supplemental Indentures......... 70
Section 8.7 Notice of Supplemental Indentures.......................... 70
ARTICLE IX
COVENANTS
Section 9.1 Payment of Principal, Premium, if any, and Interest........ 70
Section 9.2 Maintenance of Office or Agency............................ 71
Section 9.3 Money for Security Payments to Be Held in Trust............ 71
Section 9.4 Corporate Existence........................................ 72
Section 9.5 Payment of Taxes and Other Claims.......................... 73
Section 9.6 Maintenance of Properties.................................. 73
Section 9.7 Insurance.................................................. 73
Section 9.8 Statement by Officers as to Default........................ 74
Section 9.9 Reports.................................................... 74
Section 9.10 Limitation on Restricted Payments.......................... 75
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Section 9.11 Limitation on Indebtedness................................. 79
Section 9.12 Limitation on Non-Guarantor Restricted Subsidiaries........ 79
Section 9.13 Limitation on Issuances and Sales of Restricted
Subsidiary Stock................................................ 81
Section 9.14 Limitation on Liens........................................ 81
Section 9.15 Change of Control.......................................... 82
Section 9.16 Limitation on Disposition of Proceeds of Asset Sales....... 83
Section 9.17 Limitation on Transactions with Affiliates................. 85
Section 9.18 Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries.................. 86
Section 9.19 Limitation on Other Senior Subordinated Indebtedness....... 87
Section 9.20 Limitation on Conduct of Business.......................... 87
Section 9.21 Registration Rights Agreement.............................. 87
Section 9.22 Waiver of Certain Covenants................................ 87
ARTICLE X
REDEMPTION OF SECURITIES
Section 10.1 Right of Redemption........................................ 87
Section 10.2 Applicability of Article................................... 88
Section 10.3 Election to Redeem; Notice to Trustee...................... 88
Section 10.4 Selection by Trustee of Securities to Be Redeemed.......... 88
Section 10.5 Notice of Redemption....................................... 89
Section 10.6 Deposit of Redemption Price................................ 89
Section 10.7 Securities Payable on Redemption Date...................... 90
Section 10.8 Securities Redeemed in Part................................ 90
ARTICLE XI
DEFEASANCE AND COVENANT DEFEASANCE
Section 11.1 Company's Option to Effect Defeasance or Covenant
Defeasance................................................ 90
Section 11.2 Defeasance and Discharge.............................. 91
Section 11.3 Covenant Defeasance................................... 91
Section 11.4 Conditions to Defeasance or Covenant Defeasance....... 92
Section 11.5 Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions............. 93
Section 11.6 Reinstatement......................................... 94
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ARTICLE XII
GUARANTEES
Section 12.1 Unconditional Guarantee.................................... 94
Section 12.2 Subsidiary Guarantors May Consolidate, etc. on
Certain Terms.................................................. 96
Section 12.3 Release of a Subsidiary Guarantor.......................... 96
Section 12.4 Limitation of Subsidiary Guarantor's Liability............. 97
Section 12.5 Contribution............................................... 97
Section 12.6 Execution and Delivery of Notation of Subsidiary
Guarantee...................................................... 97
Section 12.7 Severability............................................... 98
Section 12.8 Subsidiary Guarantees Subordinated to Guarantor
Senior Indebtedness............................................ 98
Section 12.9 Subsidiary Guarantors Not to Make Payments with Respect
to Subsidiary Guarantees in Certain Circumstances.............. 99
Section 12.10 Subsidiary Guarantees Subordinated to Prior Payment of
All Guarantor Senior Indebtedness upon Dissolution, etc.......100
Section 12.11 Holders to be Subrogated to Rights of Holders of
Guarantor Senior Indebtedness..................................102
Section 12.12 Obligations of the Subsidiary Guarantors Unconditional.....102
Section 12.13 Trustee Entitled to Assume Payments Not Prohibited
in Absence of Notice...........................................103
Section 12.14 Application by Trustee of Money Deposited with it..........103
Section 12.15 Subordination Rights Not Impaired by Acts or Omissions
of Subsidiary Guarantors or Holders of Guarantor Senior
Indebtedness...................................................104
Section 12.16 Holders Authorize Trustee to Effectuate Subordination
of Subsidiary Guarantees.......................................104
Section 12.17 Right of Trustee to Hold Guarantor Senior Indebtedness.....104
Section 12.18 Article XII Not to Prevent Events of Default...............105
Section 12.19 Payment....................................................105
ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1 Securities Subordinate to Senior Indebtedness..............105
Section 13.2 Payment Over of Proceeds upon Dissolution, etc.............105
Section 13.3 Suspension of Payment When Senior Indebtedness in Default..107
Section 13.4 Trustee's Relation to Senior Indebtedness..................108
Section 13.5 Subrogation to Rights of Holders of Senior Indebtedness....109
Section 13.6 Provisions Solely To Define Relative Rights................109
Section 13.7 Trustee To Effectuate Subordination........................110
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Section 13.8 No Waiver of Subordination Provisions......................110
Section 13.9 Notice to Trustee..........................................111
Section 13.10 Reliance on Judicial Order or Certificate of
Liquidating Agent..............................................112
Section 13.11 Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights...............................112
Section 13.12 Article Applicable to Paying Agents........................112
Section 13.13 No Suspension of Remedies..................................112
ARTICLE XIV
MISCELLANEOUS
Section 14.1 Compliance Certificates and Opinions.......................113
Section 14.2 Form of Documents Delivered to Trustee.....................113
Section 14.3 Acts of Holders............................................114
Section 14.4 Notices, etc. to Trustee, Company and
Subsidiary Guarantors..........................................115
Section 14.5 Notice to Holders; Waiver..................................116
Section 14.6 Effect of Headings and Table of Contents...................116
Section 14.7 Successors and Assigns.....................................116
Section 14.8 Separability Clause........................................116
Section 14.9 Benefits of Indenture......................................117
Section 14.10 Governing Law; Trust Indenture Act Controls................117
Section 14.11 Legal Holidays.............................................117
Section 14.12 No Recourse Against Others.................................118
Section 14.13 Duplicate Originals........................................118
Section 14.14 No Adverse Interpretation of Other Agreements..............118
EXHIBIT A FORM OF SECURITY...........................................A-1
EXHIBIT B FORM OF NOTATION RELATING TO SUBSIDIARY GUARANTEES.........B-1
EXHIBIT C CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF SECURITIES....................C-1
EXHIBIT D TRANSFEREE LETTER OF REPRESENTATIONS.......................D-1
EXHIBIT E FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATION S....................E-1
NOTE: THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE
DEEMED TO BE A PART OF THE INDENTURE.
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Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of April 1, 1997
Trust Indenture Indenture
Act Section Section
(S) 310(a)(1)............................................. 5.7
(a)(2)............................................. 5.7
(b)................................................ 5.7, 5.8
(S) 312(c)................................................ 6.1
(S) 313................................................... 6.2
(S) 314(a)................................................ 6.3
(a)(4)............................................. 9.8(a)
(c)(1)............................................. 14.1
(c)(2)............................................. 14.1
(e)................................................ 14.1
(S) 315(b)................................................ 5.1
(S) 316(a) (last
sentence).......................................... 1.1 ("Outstanding")
(a)(1)(A).......................................... 4.2, 4.12
(a)(1)(B).......................................... 4.13
(b)................................................ 4.8
(c)................................................ 14.3(d)
(S) 317(a)(1)............................................. 4.3
(a)(2)............................................. 4.4
(b)................................................ 9.3
(S) 318(a)................................................ 14.10(b)
Note: This reconciliation and tie shall not, for any purpose,
be deemed to be a part of the Indenture.
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INDENTURE, dated as of April 1, 1997 between CROSS TIMBERS OIL COMPANY, a
Delaware corporation (hereinafter called the "Company") and The Bank of New
York, a New York banking corporation, trustee (hereinafter called the
"Trustee").
RECITALS OF THE COMPANY
Each party agrees as follows for the benefit of the other parties and for
the equal and ratable benefit of the Holders of the Company's 9 1/4% Series A
Senior Subordinated Notes due 2007 (the "Series A Securities") and the Company's
9 1/4% Series B Senior Subordinated Notes due 2007 (the "Series B Securities"
and, collectively with the Series A Securities, the "Securities" or each, a
"Security").
This Indenture is subject to the provisions of the Trust Indenture Act of
1939, as amended, that are required to be part of this Indenture and shall, to
the extent applicable, be governed by such provisions.
All things necessary have been done to make the Securities, when executed
by the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company and the Trustee, in accordance with their and its
terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an 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
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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 Securities 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 Securities and a final Stated Maturity later
than the final Stated Maturity of the Securities.
"Act," when used with respect to any Holder, has the meaning specified in
Section 14.3.
"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 (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
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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 was still using the successful efforts method of accounting.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
amount by which the fair value of the Properties of such Subsidiary Guarantor
exceeds the total amount of liabilities, including, without limitation,
contingent liabilities (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), but excluding liabilities under
the Subsidiary Guarantee, of such Subsidiary Guarantor at such date.
"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
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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 (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 of Article VII hereof; (ii) any transfer of properties or
assets to an Unrestricted Subsidiary, if permitted under Section 9.10 hereof;
(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 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
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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.
"Bank Co-agents" mean Morgan Guaranty Trust Company of New York and
NationsBank of Texas, N.A. as co-agents or any successor or replacement agents
under the Credit Agreement.
"Board of Directors" means, with respect to the Company, either the board
of directors of the Company or any duly authorized committee of such board of
directors, and, with respect to any Restricted Subsidiary, either the board of
directors of such Restricted Subsidiary or any duly authorized committee of that
board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by its Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee, and with respect to a Restricted
Subsidiary, a copy of a resolution certified by the Secretary or an Assistant
Secretary of such Restricted Subsidiary to have been duly adopted by its Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in the Borough of Manhattan,
The City of New York, New York, or the city in which the Trustee's Corporate
Trust Office is located, are authorized or obligated by law or executive order
to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents in the equity
interests (however designated) in such Person, and any rights (other than debt
securities convertible into an equity interest), 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
this 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 (a) 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
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or instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof); (b) demand 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; (c) 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; (d) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clause (a) above entered into with any commercial bank meeting the
specifications of clause (b) above; and (e) overnight bank deposits and bankers'
acceptances at any commercial bank meeting the qualifications specified in
clause (b) 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, (i) 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 (A) the stockholders of the
Company immediately prior to such merger or consolidation, or (B) 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 (ii) 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% 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.
"Code" shall mean the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and interpretations
thereof or thereunder issued by the Internal Revenue Service.
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"Commission" or "SEC" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Company" means the Person named as the "Company" in the first paragraph of
this Indenture, until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated 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 Section 9.11
hereof 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
Section 9.11 hereof shall be computed based upon the average daily balance of
such Indebtedness during the applicable period, provided that such average daily
balance shall be reduced by the amount of any repayment of Indebtedness under a
revolving credit facility during the applicable period, which repayment
permanently reduced the commitments or amounts available to be reborrowed under
such facility, (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.
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"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 (a) the interest expense of the Company and its Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, (i) any amortization of debt discount,
(ii) the net cost under Interest Rate Protection Obligations (including any
amortization of discounts), (iii) the interest portion of any deferred payment
obligation, (iv) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and (v) all
accrued interest, in each case to the extent attributable to such period, (b) to
the extent any Indebtedness of any Person (other than the Company or a
Restricted Subsidiary) is guaranteed by the Company or any Restricted
Subsidiary, the aggregate amount of interest paid or accrued by such other
Person during such period attributable to any such Indebtedness, in each case to
the extent attributable to that period, (c) the aggregate amount of the interest
component of Capitalized Lease Obligations paid, 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 (d) 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.
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"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.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization, impairment and other non-cash expenses of
the Company and its Restricted Subsidiaries reducing Consolidated Net Income for
such period, determined on a consolidated basis in accordance with GAAP
(excluding any such non-cash charge which requires an accrual of or reserve for
cash charges for any future period).
"Corporate Trust Office" means the principal corporate trust office of the
Trustee, at which at any particular time its corporate trust business shall be
administered, which office at the date of execution of this Indenture is located
at 101 Barclay Street, Floor 21 West, New York, New York 10286, Attention:
Corporate Trust Administration.
"Credit Agreement" means the Revolving Credit Agreement dated June 15, 1995
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, including
any notes and guarantees executed in connection therewith, 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, whether or not with the same
lenders or agents, 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.
"Defaulted Interest" has the meaning specified in Section 2.10 hereof.
"Definitive Securities" means Securities that are in the form set forth in
Exhibit A attached hereto (but without including the text referred to in
footnote 1 thereto).
"Depositary" means with respect to the Securities issuable or issued in
whole or in part in global form, the Person specified in Section 2.6 hereof as
the Depositary with respect to the
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Securities, until a successor shall have been appointed and become such pursuant
to the applicable provision of this Indenture, and, thereafter, "Depositary"
shall mean or include such successor.
"Designated Guarantor Senior Indebtedness" means, with respect to a
Subsidiary Guarantor, (a) all Guarantor Senior Indebtedness of such Subsidiary
Guarantor under the Credit Agreement Obligations and (b) any other Guarantor
Senior Indebtedness which (i) at the time of incurrence equals or exceeds
$10,000,000 in aggregate principal amount and (ii) is specifically designated by
such Subsidiary Guarantor in the instrument evidencing such Guarantor Senior
Indebtedness as "Designated Guarantor Senior Indebtedness" for purposes of this
Indenture.
"Designated Senior Indebtedness" means (a) all Senior Indebtedness
constituting Credit Agreement Obligations and (b) any other Senior Indebtedness
which (i) at the time of incurrence equals or exceeds $10,000,000 in aggregate
principal amount and (ii) is specifically designated by the Company in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" for purpose of this 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 this 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.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations, rulings and
interpretations thereof issued by the Internal Revenue Service or the Department
of Labor thereunder.
"ERISA Affiliate" shall mean any subsidiary or trade or business (whether
or not incorporated) which is a member of a group of which the Company is a
member and which is under common control within the meaning of Section 414 of
the Code (such rules and regulations shall also be deemed to apply to foreign
corporations and entities).
"Event of Default" has the meaning specified in Section 4.1 hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor act thereto.
"Exchange Offer" means the offer by the Company to the Holders of all
outstanding Transfer Restricted Securities to exchange all such outstanding
Transfer Restricted Securities held by such
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Holders for Series B Securities, in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
"Fair Market Value" means the fair market value of a Property (including
shares of Capital Stock) or Redeemable Capital Stock as determined by a Board
Resolution of the Company adopted in good faith, which determination shall be
conclusive for purposes of this Indenture; provided, however, that unless
otherwise specified herein, the Board of Directors shall be under no obligation
to obtain any valuation or assessment from any investment banker, appraiser or
other third party.
"Federal Bankruptcy Code" means the United States Bankruptcy Code of Title
11 of the United States Code, as amended from time to time.
"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 this Indenture.
"Global Security" means a Security that is issued in global form in the
name of Cede & Co. or such other name as may be requested by an authorized
representative of the Depositary, and that contains the paragraph referred to in
footnote 1 and the additional schedule referred to in the form of Security
attached hereto as Exhibit A.
"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 (present and future) created, incurred, assumed or guaranteed by such
Subsidiary Guarantor (and all renewals, substitutions, refinancings or
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
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will not include (a) Indebtedness of such Subsidiary Guarantor evidenced by its
Subsidiary Guarantee, (b) 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, (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 such Subsidiary Guarantor, (d) any repurchase, redemption or other obligation
in respect of Redeemable Capital Stock of such Subsidiary Guarantor, (e) to the
extent it might constitute Indebtedness, any liability for federal, state, local
or other taxes owed or owing by such Subsidiary Guarantor, (f) 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
Subsidiary, and (g) that portion of any Indebtedness of such Subsidiary
Guarantor which at the time of issuance is issued in violation of this 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 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
definition of "Insolvency or Liquidation Proceedings."
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade accounts payable and other
accrued current liabilities incurred in the ordinary course of business, 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
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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 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 this Indenture, and if such price is based upon, or
measured by, the Fair Market Value of such Redeemable Capital Stock, such fair
market value shall be determined in good faith by the board of directors of the
issuer of such Redeemable Capital Stock, provided, 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.
"Indenture" means this instrument as originally executed and as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Initial Purchasers" means Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Bear, Stearns & Co. Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation, as initial purchasers in the Offering.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
(a) an insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization proceeding or other similar case or proceeding in
connection therewith, relating to such Person or to its creditors, as such, or
its assets, (b) any liquidation, dissolution or other winding-up of such Person,
whether voluntary or involuntary, or (c) any assignment for the benefit of
creditors or any other marshaling of assets and liabilities of such Person.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
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"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 Section 9.11 hereof, 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 as a result of Asset Sales permitted under Section 9.16
hereof.
"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.
"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) of the definition of Adjusted Consolidated Net
Tangible Assets; provided, however, that the following will be excluded from the
calculation of Material Change: (a) 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 (b)
any disposition of properties held at the beginning of such quarter that have
been disposed of as provided in Section 9.16 hereof.
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"Maturity" means, with respect to any Security, the date on which any
principal of such Security becomes due and payable as provided therein or
herein, 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.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, Section 414 of the Code or Section 3(37) of ERISA
(or any similar type of plan established or regulated under the laws of any
foreign country) to which the Company or any ERISA Affiliate is making or
accruing or has made or accrued an obligation to make contributions.
"Multiple Employer Plan" shall mean any employee benefit plan within the
meaning of Section 3(3) of ERISA, other than a Multiemployer Plan, subject to
Title IV of ERISA, to which the Company or any ERISA Affiliate and an employer
other than an ERISA Affiliate or the Company contribute and which is subject to
Section 4064 of ERISA.
"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 (a) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel and investment banks) related to such Asset Sale, (b) provisions for all
taxes payable as a result of such Asset Sale, (c) 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 (d) 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 (a) all current assets of the Company and its
Restricted Subsidiaries, minus (b) 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-payment Default" means, for purposes of Article XIII hereof, any event
(other than a Payment Default) the occurrence of which entitles one or more
persons to act to accelerate the maturity of any Designated Senior Indebtedness.
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"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 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 Securities as a result of any Asset Sale, Change
of Control or redemption) owing in respect of, the Securities payable pursuant
to the terms of the Securities or this Indenture or upon acceleration of the
Securities.
"Offering" means the Offering of the Series A Securities pursuant to the
Offering Memorandum.
"Offering Memorandum" means the Offering Memorandum of the Company, dated
March 26, 1997, relating to the Offering.
"Officer" means, with respect to any Person, the Chairman of the Board, the
President, any Vice President, the Chief Financial Officer or the Treasurer of
such Person.
"Officers' Certificate" means a certificate signed by the Chairman, the
President or a Vice President, and by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Oil and Gas Business" means (a) the acquisition, exploration, development,
operation and disposition of interests in oil, gas and other hydrocarbon
properties, (b) the gathering, marketing, treating, processing, storage,
refining, selling and transporting of any production from such interests or
Properties, (c) any business relating 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 (d) any activity necessary, appropriate or
incidental to the activities described in the foregoing clauses (a) through (c)
of this definition.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company (or any Subsidiary Guarantor, if applicable), including an
employee of the Company (or any Subsidiary Guarantor, if applicable), and who
shall be reasonably acceptable to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
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(a) theretofore canceled by the Trustee or delivered to the Trustee for
cancellation;
(b) Securities or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent) for
the Holders of such Securities; provided that, if such Securities are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made;
(c) Securities, except to the extent provided in Sections 11.2 and 11.3
hereof, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article XI hereof; and
(d) Securities which have been paid pursuant to Section 2.9 hereof or in
exchange for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in respect
of which there shall have been presented to the Trustee proof satisfactory to it
that such Securities are held by a bona fide purchaser in whose hands the
Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities owned
by the Company, any Subsidiary Guarantor, or any other obligor upon the
Securities or any Affiliate of the Company, any Subsidiary Guarantor, or such
other obligor shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in making such
calculation or in relying upon any such request, demand, authorization,
direction, consent, notice or waiver, only Securities which a Responsible
Officer of the Trustee actually knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company, any Subsidiary Guarantor, or any other obligor upon the
Securities or any Affiliate of the Company, any Subsidiary Guarantor, or such
other obligor.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is
pari passu in right of payment to the Securities.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of (and premium, if any,
on) or interest on any Securities on behalf of the Company.
"Payment Default" means 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
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interest on, or of unreimbursed amounts under drawn letter of credit or fees
relating to letter of credit constituting, any Designated Senior Indebtedness.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PBGC Plan" shall mean any employee pension benefit plan as defined in
Section 3(2) of ERISA sponsored by the Company or an ERISA Affiliate (excluding
any Multiemployer Plan and any Multiple Employer Plan) and which is subject to
Title IV of ERISA or Section 412 of the Code.
"Permitted Guarantor Junior Securities" means with respect to any
Subsidiary Guarantor, so long as the effect of any exclusion employing this
definition is not to cause such Subsidiary Guarantee to be treated in any case
or proceeding or similar event described in clause (a), (b) or (c) of the
definition of Insolvency or Liquidation Proceeding as part of the same class of
claims as Guarantor Senior Indebtedness of such Subsidiary Guarantor or any
class of claims pari passu with, or senior to, Guarantor Senior Indebtedness of
such Subsidiary Guarantor, for any payment or distribution, debt or equity
securities of such Subsidiary Guarantor or any successor corporation provided
for or by a plan of reorganization or readjustment that are subordinated at
least to the same extent that such Subsidiary Guarantee is subordinated to the
payment of all Guarantor Senior Indebtedness of such Subsidiary Guarantor when
outstanding; provided that (i) if a new corporation results from such
reorganization or readjustment, such corporation assumes any Guarantor Senior
Indebtedness of such Subsidiary Guarantor not paid in full in cash or Cash
Equivalents in connection with such reorganization or readjustment and (ii) the
rights of the holders of such Guarantor Senior Indebtedness are not, without the
consent of such holders, altered by such reorganization or readjustment.
"Permitted Indebtedness" means any of the following:
(a) 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 (i) $300 million and (ii) an amount
equal to the sum of (A) $150 million and (B) 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 Section 9.16(b)(i) (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 (a)
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 (a) (and clause (a) of the definition of
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"Permitted Subsidiary Indebtedness"), shall not at any one time exceed the
Maximum Credit Amount;
(b) Indebtedness of the Company under the Securities;
(c) Indebtedness of the Company outstanding on the date of this
Indenture (and not repaid or defeased with the proceeds of the Offering);
(d) 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;
(e) Indebtedness of the Company to any Restricted Subsidiaries;
(f) in-kind obligations relating to net gas balancing positions arising
in the ordinary course of business and consistent with past practice;
(g) Indebtedness in respect of bid, performance or surety bonds issued
for the account of the Company or any Restricted Subsidiary in the ordinary
course of business, including guarantees and letters of credit supporting such
bid, performance, surety or other reimbursement obligations (in each case other
than for an obligation for money borrowed);
(h) 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 (d), (g) and (h) of this definition, including any successive
refinancings by the Company, so long as (i) 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 (ii) in the case of any refinancing of Subordinated
Indebtedness, such new Indebtedness is made subordinate to the Securities at
least to the same extent as the Indebtedness being refinanced and (iii) 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;
(i) Non-Recourse Indebtedness; and
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(j) 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: (a) Investments in Cash
Equivalents; (b) Investments in the Company or any of its Restricted
Subsidiaries; (c) 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; (d)
Investments by the Company or any of its Restricted Subsidiaries in another
Person, if as a result of such Investment (i) such other Person becomes a
Restricted Subsidiary of the Company or (ii) 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; (e) 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, excluding, however, Investments in corporations; (f)
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; (g) Investments in units of
any oil and gas royalty trust; or (h) 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 Junior Securities" means, so long as the effect of any exclusion
employing this definition is not to cause the Securities to be treated in any
case or proceeding or similar event described in clause (a), (b) or (c) of the
definition of Insolvency or Liquidation Proceeding as part of the same class of
claims as Senior Indebtedness or any class of claims pari passu with, or senior
to, Senior Indebtedness, for any payment or distribution, debt or equity
securities of the Company or any successor corporation provided for or by a plan
of reorganization or readjustment that are subordinated at least to the same
extent that the Securities are subordinated to the payment of all Senior
Indebtedness when outstanding; provided that (i) if a new corporation results
from such reorganization or readjustment, such corporation assumes any Senior
Indebtedness not paid in full in cash or Cash Equivalents in connection with
such reorganization or readjustment and (ii) the rights of the holders of such
Senior Indebtedness are not, without the consent of such holders, altered by
such reorganization or readjustment.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date the Securities are first issued;
(b) Liens securing the Securities;
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(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;
(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;
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(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
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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.
"Permitted Subsidiary Indebtedness" means any of the following:
(a) 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
(a) of the definition of "Permitted Indebtedness");
(b) Indebtedness of any Restricted Subsidiary outstanding on the date of
this Indenture;
(c) 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;
(d) the Subsidiary Guarantees (and any assumption of the obligations
guaranteed thereby);
(e) Indebtedness of any Restricted Subsidiary relating to guarantees by
such Restricted Subsidiary of Permitted Indebtedness pursuant to clause (a) of
the definition of "Permitted Indebtedness;"
(f) in-kind obligations relating to net gas balancing positions arising
in the ordinary course of business and consistent with past practice;
(g) 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
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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);
(h) Indebtedness of any Restricted Subsidiary to any other Restricted
Subsidiary or to the Company;
(i) Indebtedness relating to guarantees by any Restricted Subsidiary
permitted to be incurred pursuant to Section 9.12(a) hereof;
(j) Non-Recourse Indebtedness; and
(k) 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
(i) 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
(ii) 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.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 2.9 hereof in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Security shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Security.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the date of this Indenture, including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
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"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, Capital Stock in any other Person.
"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 Securities and Exchange 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 Securities 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.
"Redemption Date," when used with respect to any Security to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
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"Registrable Securities" shall have the meaning assigned to such term in
the Registration Rights Agreement.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of April 2, 1997, among the Company and the Initial
Purchasers.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the March 15 or September 15 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Reportable Event" shall mean any event described in Section 4043
(excluding subsections (b)(7) and (b)(9)) of ERISA and the regulations issued
thereunder (other than a Reportable Event not subject to the provision for
thirty-day notice to the PBGC under such regulations).
"Responsible Officer," when used with respect to the Trustee, means any
officer in the corporate trust department of the Trustee, and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of this Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of this Indenture.
"S&P" means Standard and Poor's Corporation 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.
"Securities" means the Series A Securities and the Series B Securities
treated as a single class of Securities. For purposes of this Indenture, the
term "Securities" shall, except where the context otherwise requires, include
the Subsidiary Guarantees, if any.
"Securities Act" means the Securities of 1933, as amended, and any
successor statute.
"Security Custodian means the Trustee, as custodian with respect to the
Securities in global form, or any successor entity thereto.
"Security Register" and "Securities Registrar" shall have the meanings
specified in Section 2.6 hereof.
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"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 this
Indenture or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Securities.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a)
Indebtedness evidenced by the Securities, (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 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 this 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 definition of "Insolvency or
Liquidation Proceeding."
"Senior Representative" means the Bank Co-agents or any other
representatives designated in writing to the Trustee of the holders of any class
or issue of Designated Senior Indebtedness; provided that, in the absence of a
representative of the type described above, any holder or holders of a majority
of the principal amount outstanding of any class or issue of Designated Senior
Indebtedness may collectively act as Senior Representative for such class or
issue, subject to the provisions of any agreements relating to such Designated
Senior Indebtedness.
"Series A Securities" means the Company's 9 1/4% Series A Senior Notes due
2007 to be issued pursuant to this Indenture.
"Series B Securities" means the Company's 9 1/4% Series B Senior Notes due
2007 to be issued pursuant to this Indenture in the Exchange Offer.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 2.10 hereof.
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"Stated Maturity" means, when used with respect to any Security or any
installment of interest thereon, the date specified in such Security as the
fixed date on which the principal of such Security or such installment of
interest is due and payable, and, when used with respect to any other
Indebtedness or any installment of interest thereon, means the date specified in
the instrument evidencing or governing such Indebtedness as the fixed date on
which the principal of such Indebtedness or such installment of interest is due
and payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is
expressly subordinated in right of payment to the Securities.
"Subsidiary" means, with respect to any Person, (a) 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 (b) 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 Securities by any
Subsidiary Guarantor in accordance with the provisions of Section 12.1 hereof.
"Subsidiary Guarantor" means (a) each of the Company's Restricted
Subsidiaries that becomes a guarantor of the Securities in compliance with the
provisions of Section 9.12 or Section 12.1 hereof and (b) each of the Company's
Subsidiaries executing a supplemental indenture in which such Subsidiary agrees
to be bound by the terms of this Indenture and to guarantee on an unsubordinated
basis the payment of the Securities pursuant to the provisions of Article XII
hereof.
"Transfer Restricted Securities" means the Registrable Securities under the
Registration Rights Agreement.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as
amended and in force at the date as of which this Indenture was executed, except
as provided in Section 8.5 hereof.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Unrestricted Subsidiary" means (a) 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 (b) 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 (i) neither
the Company nor any Restricted Subsidiary is directly or indirectly liable
pursuant to the terms of any Indebtedness of such Subsidiary, (ii) no default
with respect to
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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, (iii) neither
the Company nor any Restricted Subsidiary has made an Investment in such
Subsidiary unless such Investment was made pursuant to, and in accordance with,
Section 9.10 hereof (other than Investments of the type described in clause (d)
of the definition of Permitted Investments), and (iv) such designation shall not
result in the creation or imposition of any Lien on any of the Properties of the
Company or any Restricted Subsidiary (other than any Permitted Lien or any Lien
the creation or imposition of which shall have been in compliance with Section
9.14 hereof); provided, however, that with respect to clause (i), the Company or
a Restricted Subsidiary may be liable for Indebtedness of an Unrestricted
Subsidiary if (A) such liability constituted a Permitted Investment or a
Restricted Payment permitted by Section 9.10 hereof, in each case at the time of
incurrence, or (B) 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, (x) no Default or Event of Default shall have
occurred and be continuing, (y) the Company could incur $1.00 of additional
Indebtedness (not including the incurrence of Permitted Indebtedness) under
Section 9.11(a) hereof and (z) if any of the Properties of the Company or any of
its Restricted Subsidiaries would upon such designation become subject to any
Lien (other than a Permitted Lien), the creation or imposition of such Lien
shall have been in compliance with Section 9.14 hereof.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent 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.
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Section 1.2 Other Definitions.
Defined
Term in Section
---- ----------
"Agent Members 2.8(b)
"Change of Control Notice" 9.15(c)
"Change of Control Offer" 9.15(a)
"Change of Control Purchase Date" 9.15(c)
"Change of Control Purchase Price" 9.15(a)
"Defaulted Interest" 2.10
"Funding Guarantor" 12.5
"Excess Proceeds" 9.16(b)
"Net Proceeds Deficiency" 9.16(c)
"Net Proceeds Offer" 9.16(c)
"Net Proceeds Payment Date" 9.16(c)
"Offered Price" 9.16(c)
"Pari Passu Indebtedness Amount" 9.16(c)
"Pari Passu Offer" 9.16(c)
"Payment Amount" 9.16(b)
"Payment Blockage Notice" 13.3(b)
"Payment Blockage Period" 13.3(b)
"Permitted Payments" 9.10(b)
"Purchase Notice" 9.16(c)
"Restricted Payment" 9.10(a)
"Subsidiary Guarantor Non-payment Defaul 12.9(b)
"Subsidiary Guarantor Payment Default" 12.9(a)
"Subsidiary Guarantor Payment Notice" 12.9(b)
"Surviving Entity" 7.1(a)
"Trigger Date" 9.16(c)
"U.S. Government Obligations" 11.4(a)
Section 1.3 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities,
"indenture security holder" means a Holder,
"indenture to be qualified" means this Indenture,
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"indenture trustee" or "institutional trustee" means the Trustee, and
"obligor" on the indenture securities means the Company or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule and
not otherwise defined herein have the meanings assigned to them therein.
Section 1.4 Rules of Construction.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(a) The terms defined in this Article have the meanings assigned to them
in this Article, and include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP;
(c) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(d) unless the context otherwise requires, the word "or" is not
exclusive;
(e) provisions apply to successive events and transactions; and
(f) references to agreements and other instruments include subsequent
amendments and waivers but only to the extent not prohibited by this Indenture.
ARTICLE II
THE SECURITIES
Section 2.1 Forms Generally.
The Definitive Securities shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers executing such Securities or notations of Subsidiary Guarantees,
as the case may be, as evidenced by their execution of such Securities or
notations of Subsidiary Guarantees, as the case may be.
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Securities (including the notations thereon relating to the Subsidiary
Guarantees and the Trustees certificate of authentication) bought and sold shall
be issued initially in the form of one or more permanent Global Securities
substantially in the form set forth in Exhibit A attached hereto deposited with
the Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. Subject to the limitation
set forth in Section 2.2, the principal amount of the Global Securities may be
increased or decreased from time to time by adjustments made on the records of
the Trustee as custodian for the Depositary, as hereinafter provided.
Securities (including the notations thereon relating to any Subsidiary
Guarantees and the Trustees certificate of authentication) offered and sold
other than as described in the preceding paragraph shall be issued in the form
of Definitive Securities in registered form in substantially the form set forth
in Exhibit A.
The Securities, the notations thereon relating to any Subsidiary Guarantees
and the Trustee's certificate of authentication shall be in substantially the
forms set forth in Exhibit A attached hereto, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities
or notations of Subsidiary Guarantees, as the case may be, as evidenced by their
execution of the Securities or notations of Subsidiary Guarantees, as the case
may be. Any portion of the text of any Security may be set forth on the reverse
thereof, with an appropriate reference thereto on the face of the Security. The
Securities may also have set forth on the reverse side thereof a form of
assignment and forms to elect purchase by the Company pursuant to Sections 9.15
and 9.16 hereof.
Section 2.2 Title and Terms.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is limited to $125,000,000 except for Securities
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities pursuant to Section 2.5, 2.7, 2.9, 8.6,
9.15, 9.16 or 10.8 hereof.
The Securities shall be known and designated as the "9 1/4% Series A Senior
Subordinated Notes due 2007" and the "9 1/4% Series B Senior Subordinated Notes
due 2007" of the Company. Their Stated Maturity shall be April 1, 2007, and they
shall bear interest at the rate of 9 1/4% per annum from April 2, 1997, or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, payable semiannually on April 1 and October 1 in each year,
commencing October 1, 1997, and at said Stated Maturity, until the principal
thereof is paid or duly provided for.
The principal of (and premium, if any, on) and interest on the Securities
shall be payable at the office or agency of the Company maintained for such
purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose; provided,
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however, that, at the option of the Company, interest may be paid (i) by check
mailed to addresses of the Persons entitled thereto as such addresses shall
appear on the Security Register, or (ii) with respect to any Holder owning
Securities in the principal amount of $500,000 or more, by wire transfer to an
account maintained by the Holder located in the United States, as specified in a
written notice to the Trustee, received prior to the relevant Regular Record
Date, by any such Holder requesting payment by wire transfer and specifying the
account to which transfer is requested.
The Securities shall be redeemable as provided in Article X hereof.
The Securities shall be subject to defeasance at the option of the Company
as provided in Article XI hereof.
The Securities shall be guaranteed by the Subsidiary Guarantors as provided
in Article XII hereof.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIII hereof.
Section 2.3 Denominations.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
Section 2.4 Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman,
its President or one of its Vice Presidents, under its corporate seal reproduced
thereon and attested by its Secretary or one of its Assistant Secretaries. The
signature of any of these officers on the Securities may be manual or facsimile
signatures of the present or any future such authorized officer and may be
imprinted or otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company and, if
guaranteed by a Subsidiary Guarantor, having the notation of Subsidiary
Guarantees executed by the Subsidiary Guarantors to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Securities, and the Trustee in accordance with such Company
Order shall authenticate and deliver such Securities with the notation of
Subsidiary Guarantees, if any, thereon as provided in this Indenture.
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Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
In case the Company, pursuant to and in compliance with Article VII hereof,
shall be consolidated or merged with or into any other Person or shall convey,
transfer, lease or otherwise dispose of its Properties substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have executed an indenture
supplemental hereto with the Trustee pursuant to Article VII hereof, any of the
Securities authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Securities executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Securities at the time Outstanding for Securities authenticated
and delivered in such new name.
Section 2.5 Temporary Securities.
Pending the preparation of Definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the Definitive Securities in lieu of which they are issued and having the
notations of Subsidiary Guarantees, if any, thereon and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities and notations of Subsidiary Guarantees may determine,
as conclusively evidenced by their execution of such Securities and notations of
Subsidiary Guarantees.
If temporary Securities are issued, the Company will cause Definitive
Securities to be prepared without unreasonable delay. After the preparation of
Definitive Securities, the temporary Securities shall be exchangeable for
Definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 9.2
hereof, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary
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Securities, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of Definitive Securities of
authorized denominations having notations of Subsidiary Guarantees, if any,
thereon. Until so exchanged, the temporary Securities shall in all respects be
entitled to the same benefits under this Indenture as Definitive Securities.
Section 2.6 Security Register and Depositary.
The Company shall cause to be kept at the Corporate Trust Office a register
(the register maintained in such office and in any other office or agency
designated pursuant to Section 9.2 hereof being herein sometimes referred to as
the "Security Register") in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration of Securities and
of transfers of Securities. The Security Register shall be in written form or
any other form capable of being converted into written form within a reasonable
time. At all reasonable times and during normal business hours, the Security
Register shall be open to inspection by the Trustee. The Trustee is hereby
initially appointed as security registrar (the "Security Registrar") for the
purpose of registering Securities and transfers of Securities as herein
provided.
The Company initially appoints The Depository Trust Company to act as
Depositary with respect to the Global Security.
Section 2.7 Transfer and Exchange.
(a) Transfer and Exchange of Definitive Securities. When Definitive
Securities are presented to the Securities Registrar with the request:
(x) to register the transfer of the Definitive Securities, or
(y) to exchange such Definitive Securities for an equal principal
amount of Definitive Securities of other authorized denominations,
the Securities Registrar shall register the transfer or make the exchange as
requested if its requirement for such transactions are met; provided, however,
that the Definitive Securities presented or surrendered for registration of
transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Securities Registrar duly executed by
the Holder thereof or by his attorney, duly authorized in writing; and
(ii) in the case of Transfer Restricted Securities that are Definitive
Securities, shall be accompanied by the following additional information and
documents, as applicable, upon which the Securities Registrar may conclusively
rely:
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(A) if such Transfer Restricted Securities are being delivered
to the Registrar by a Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to that effect (in
substantially the form of Exhibit C hereto); or
(B) if such Transfer Restricted Securities are being transferred
(1) to a "qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act or
(2) pursuant to an exemption from registration in accordance with Rule 144
under the Securities Act (and based upon an opinion of counsel if the
Company or the Trustee so requests) or (3) pursuant to an effective
registration statement under the Securities Act, a certification to that
effect from such Holder (in substantially the form of Exhibit C hereto); or
(C) if such Transfer Restricted Securities are being transferred
to an institutional "accredited investor," within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act pursuant to a private
placement exemption from the registration requirements of the Securities
Act (and based upon an opinion of counsel if the Company or the Trustee so
requests), a certification to that effect from such Holder (in
substantially the form of Exhibit C hereto) and a certification from the
applicable transferee (in substantially the form of Exhibit D hereto);
(D) if such Transfer Restricted Securities are being transferred
pursuant to an exemption from registration in accordance with Rule 904
under the Securities Act (and based upon an opinion of counsel if the
Company or the Trustee so requests), certifications to that effect from
such Holder (in substantially the form of Exhibits C and E hereto); or
(E) if such Transfer Restricted Securities are being transferred
in reliance on another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel if the Company or the
Trustee so requests), a certification to that effect from such Holder (in
substantially the form of Exhibit C hereto).
(b) Restriction on Transfer of a Definitive Security for a Beneficial
Interest in a Global Security. A Definitive Security may not be exchanged for a
beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive
Security, duly endorsed or accompanied by appropriate instruments of transfer,
in form satisfactory to the Trustee, together with:
(i) if such Definitive Security is a Transfer Restricted
Security, certification, substantially in the form of Exhibit C hereto,
upon which the Trustee may conclusively rely, that such Definitive Security
is being transferred to a "qualified
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institutional buyer" (as defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act; or
(ii) if such Definitive Security is a Transfer Restricted
Security and is being transferred pursuant to an exemption from
registration in accordance with Rule 904 under the Securities Act (and
based upon an opinion of counsel if the Company or the Trustee so
requests), certifications to that effect from such Holder (in substantially
the form of Exhibits C and E hereto); and
(iii) whether or not such Definitive Security is a Transfer
Restricted Security, written instructions directing the Trustee to make, or
direct the Security Custodian to make, an endorsement on the Global
Security to reflect an increase in the aggregate principal amount of the
Securities represented by the Global Security;
then the Trustee shall cancel such Definitive Security in accordance with
Section 2.12 hereof and cause, or direct the Security Custodian to cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Security Custodian, the aggregate principal amount of
Securities represented by the Global Security to be increased accordingly. If
no Global Securities are then outstanding, the Company shall issue and the
Trustee shall authenticate a new Global Security in the appropriate principal
amount.
(c) Transfer and Exchange of Global Securities. The transfer
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depositary, in accordance with this Indenture (including
the restrictions on transfer set forth herein) and the procedures of the
Depositary therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act.
(d) Transfer of a Beneficial Interest in a Global Security for
a Definitive Security.
(i) Any Person having a beneficial interest in a Global
Security may upon request exchange such beneficial interest for a
Definitive Security. Upon receipt by the Trustee of written instructions or
such other form of instructions as is customary for the Depositary, from
the Depositary or its nominee on behalf of any Person having a beneficial
interest in a Global Security, and in the case of a Transfer Restricted
Security, the following additional information and documents (all of which
may be submitted by facsimile), upon which the Trustee may conclusively
rely:
(A) if such beneficial interest is being
transferred to the Person designated by the Depositary as being the
beneficial owner, a certification from such Person to that effect (in
substantially the form of Exhibit C hereto); or
(B) if such beneficial interest is being
transferred (1) to a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) in
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accordance with Rule 144A under the Securities Act or (2) pursuant to
an exemption from registration in accordance with Rule 144 under the
Securities Act (and based upon an opinion of counsel if the Company
or the Trustee so requests) or (3) pursuant to an effective
registration statement under the Securities Act, a certification to
that effect from the transferor (in substantially the form of Exhibit
C hereto); or
(C) if such beneficial interest is being
transferred to an institutional "accredited investor," within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act
pursuant to a private placement exemption from the registration
requirements of the Securities Act (and based upon an opinion of
counsel if the Company or the Trustee so requests), a certification
to that effect from such transferor (in substantially the form of
Exhibit C hereto) and a certification from the applicable transferee
(in substantially the form of Exhibit D hereto); or
(D) if such beneficial interest is being
transferred pursuant to an exemption from registration in accordance
with Rule 904 under the Securities Act (and based upon an opinion of
counsel if the Company or the Trustee so requests), certifications to
that effect from such transferor (in substantially the form of
Exhibits C and E hereto); or
(E) if such beneficial interest is being
transferred in reliance on another exemption from the registration
requirements of the Securities Act (and based upon an opinion of
counsel if the Company so requests), a certification to that effect
from such transferor (in substantially the form of Exhibit C hereto);
the Trustee or the Security Custodian, at the direction of the Trustee, shall,
in accordance with the standing instructions and procedures existing between the
Depositary and the Security Custodian, cause the aggregate principal amount of
Global Securities to be reduced accordingly and, following such reduction, the
Company shall execute and the Trustee shall authenticate and deliver to the
transferee a Definitive Security in the appropriate principal amount.
(ii) Definitive Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this Section 2.7(d) shall be
registered in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
deliver such Definitive Securities to the Persons in whose names such
Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.7), a Global Security
may not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee
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of the Depositary to the Depositary or another nominee of the Depositary or by
the Depositary or any such nominee to a successor Depositary or a nominee of
such successor Depositary.
(f) Authentication of Definitive Securities in Absence of Depositary.
If at any time:
(i) the Depositary for the Securities notifies the Company that
the Depositary is unwilling or unable to continue as Depositary for the
Global Securities and a successor Depositary for the Global Securities is
not appointed by the Company within 90 days after delivery of such notice;
(ii) an Event of Default has occurred and is continuing and the
Security Registrar has received a request from the Depositary to issue
Definitive Securities in lieu of all or a portion of the Global Security
(in which case the Company shall deliver Definitive Securities within 30
days of such request); or
(ii) the Company, at its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of Definitive Securities
under this Indenture,
then the Company will execute, and the Trustee will authenticate and deliver
Definitive Securities, in an aggregate principal amount equal to the principal
amount of the Global Securities, in exchange for such Global Securities and
registered in such names as the Depositary shall instruct the Trustee or the
Company in writing.
(g) Legends.
(i) Except as permitted by the following paragraph (ii), each
Security certificate evidencing the Global Securities and the Definitive
Securities (and all Securities issued in exchange therefor or substitution
thereof) shall bear a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF
THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DAY ON WHICH CROSS TIMBERS OIL
COMPANY (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE
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"RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT IS ACQUIRING SUCH SECURITY FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D)
PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT ("INSTITUTIONAL ACCREDITED
INVESTOR") THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF ANOTHER INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT,
SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
Each Security certificate evidencing the Global Securities also shall bear the
paragraph referred to in footnote 1 in the form of Security attached hereto as
Exhibit A.
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act or an
effective registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security that
is a Definitive Security, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a Definitive
Security that does not bear the legend set forth in (i) above and
rescind any restriction on the transfer of such Transfer Restricted
Security; and
(B) in the case of any Transfer Restricted Security
represented by a Global Security, such Transfer Restricted Security
shall not be required to bear the legend set forth in (i) above if all
other interests in such Global Security have been
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or are concurrently being sold or transferred pursuant to Rule 144
under the Securities Act or pursuant to an effective registration
statement under the Securities Act, but such Transfer Restricted
Security shall continue to be subject to the provisions of Section
2.7(c) hereof; provided, however, that with respect to any request for
an exchange of a Transfer Restricted Security that is represented by a
Global Security for a Definitive Security that does not bear a legend
set forth in (i) above, which request is made in reliance upon Rule
144 under the Securities Act, the Holder thereof shall certify in
writing to the Registrar that such request is being made pursuant to
Rule 144 under the Securities Act (such certification to be
substantially in the form of Exhibit C hereto).
(ii) Notwithstanding the foregoing, upon consummation of the
Exchange Offer, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.4 hereof, the Trustee
shall authenticate Series B Securities in exchange for Series A Securities
accepted for exchange in the Exchange Offer, which Series B Securities
shall not bear the legend set forth in (i) above, and the Registrar shall
rescind any restriction on the transfer of such Securities, in each case
unless the Holder of such Series A Securities is either (A) a broker-
dealer, (B) a Person participating in the distribution of the Series A
Securities or (C) a Person who is an affiliate (as defined in Rule 144
under the Securities Act) of the Company. The Company shall identify to the
Trustee such Holders of the Securities in a written certification signed by
an Officer of the Company and, absent certification from the Company to
such effect, the Trustee shall assume that there are no such Holders.
(h) Cancellation and/or Adjustment of Global Security. At such time as
all beneficial interests in a Global Security have either been exchanged for
Definitive Securities, redeemed, repurchased or canceled, such Global Security
shall be returned to or retained and cancelled by the Trustee. At any time prior
to such cancellation, if any beneficial interest in a Global Security is
exchanged for Definitive Securities, redeemed, repurchased or cancelled, the
principal amount of Securities represented by such Global Security shall be
reduced and an endorsement shall be made on such Global Security, by the Trustee
or the Security Custodian, at the direction of the Trustee to reflect such
reduction.
(i) General Provisions with respect to Transfer and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Definitive
Securities and Global Securities at the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange or redemption of Securities (except as
otherwise expressly permitted herein), but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than such transfer tax
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or similar governmental charge payable upon exchanges pursuant to the last
paragraph of Section 2.4 or Sections 2.5, 8.6 or 10.8 hereof).
(iii) The Trustee shall authenticate Definitive Securities and
Global Securities in accordance with the provisions of Section 2.4 hereof.
(iv) Notwithstanding any other provisions of this Indenture to
the contrary, the Company shall not be required to register the transfer or
exchange of a Security between the record date and the next succeeding
Interest Payment Date.
(v) Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, Securities by the Depositary, or for
maintaining, supervising or reviewing any records of the Depositary
relating to such Securities. Neither the Company nor the Trustee shall be
liable for any delay by the related Global Security Holder or the
Depositary in identifying the beneficial owners of the related Securities
and each such Person may conclusively rely on, and shall be protected in
relying on, instructions from such Global Security Holder or the Depositary
for all purposes (including with respect to the registration and delivery,
and the respective principal amounts, of the Securities to be issued).
(vi) Neither the Trustee, the Security Registrar nor the Company
shall be required (a) to issue, register the transfer of or exchange any
Security during a period beginning at the opening of business 15 days
before the mailing of a notice of redemption of Securities selected for
redemption under Section 10.4 hereof and ending at the close of business on
the day of such mailing of the relevant notice of redemption, or (b) to
register the transfer of or exchange any Security so selected for
redemption in whole or in part, except the unredeemed portion of any
Security being redeemed in part.
(vii) All Securities and the Subsidiaries Guarantees, if any,
noted thereon issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company and the respective
Subsidiary Guarantors, if any, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Securities surrendered upon
such registration of transfer or exchange.
(viii) Each Holder of a Security agrees to indemnify the Company
and the Trustee against any liability that may result from the transfer,
exchange or assignment of such Holder's Security in violation of any
provision of this Indenture and/or applicable federal or state securities
law.
(ix) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security other than to require delivery of
such certificates and other documentation or evidence as are expressly
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required by, and to do so if and when expressly required by the terms of,
this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
Section 2.8 Additional Provisions for Global Securities.
(a) The Global Security initially shall be registered in the name
of the Depositary for such Global Security or the nominee of such Depositary and
be delivered to the Trustee as custodian for such Depositary.
(b) Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary, or the Trustee as its
custodian, or under the Global Security, and the Depositary may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee, from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or shall impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a holder of any
Security.
(c) The registered holder of the Global Security may grant proxies
and otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
Section 2.9 Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee or (b) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute, any Subsidiary Guarantors shall execute the notations of
Subsidiary Guarantees, and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, having the notations of Subsidiary Guarantees, if any, thereon bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in
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relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company and the respective Subsidiary
Guarantors, if any, whether or not the mutilated, destroyed, lost or stolen
Security shall be at any time enforceable by anyone, and shall be entitled to
all benefits of this Indenture equally and proportionately with any and all
other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
Section 2.10 Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest at the office or
agency of the Company maintained for such purpose pursuant to Section 9.2
hereof.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the Regular Record Date by virtue of having been such
Holder, and such defaulted interest and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Securities (such defaulted interest
and interest thereon herein collectively called "Defaulted Interest") may be
paid by the Company, at its election in each case, as provided in clause (a) or
(b) below:
(a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited shall be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days prior to
the date of the proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such Special Record Date, and in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be given
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in the manner provided for in Section 14.5 hereof, not less than 10 days prior
to such Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so given, such
Defaulted Interest shall be paid to the Persons in whose names the Securities
(or their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable pursuant to
the following clause (b).
(b) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Section 2.11 Persons Deemed Owners.
Prior to the due presentment of a Security for registration of transfer,
the Company, the Subsidiary Guarantors, if any, the Security Registrar, the
Trustee and any agent of the Company, the Subsidiary Guarantors or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any, on) and (subject to Section 2.10 hereof) interest on such Security and
for all other purposes whatsoever, whether or not such Security be overdue, and
none of the Company, the Subsidiary Guarantors, if any, the Security Registrar,
the Trustee or any agent of the Company, the Subsidiary Guarantors or the
Trustee shall be affected by notice to the contrary.
Section 2.12 Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly cancelled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities cancelled as provided in this Section,
except as expressly permitted by this Indenture. All cancelled Securities held
by the Trustee shall be delivered to the Company.
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Section 2.13 Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Section 2.14 CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the CUSIP numbers.
ARTICLE III
SATISFACTION AND DISCHARGE
Section 3.1 Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of
Securities, as expressly provided for in this Indenture) as to all Outstanding
Securities, and the Trustee, at the expense of the Company, shall, upon payment
of all amounts due the Trustee under Section 5.6 hereof, execute proper
instruments acknowledging satisfaction and discharge of this Indenture when
(a) either
(i) all Securities theretofore authenticated and delivered
(other than (A) Securities which have been mutilated, destroyed, lost or
stolen and which have been replaced or paid as provided in Section 2.9
hereof and (B) Securities for whose payment money or United States
governmental obligations of the type described in clause (a) of the
definition of Cash Equivalents has theretofore been deposited in trust with
the Trustee or any Paying Agent or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust,
as provided in Section 9.3 hereof) have been delivered to the Trustee for
cancellation, or
(ii) all such Securities not theretofore delivered to the
Trustee for cancellation
(A) have become due and payable, or
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(B) will become due and payable at their Stated Maturity
within one year, or
(C) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of (ii)(A), (ii)(B) or (ii)(C) above, has
irrevocably deposited or caused to be deposited with the Trustee as trust funds
in trust for the purpose an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest to the date of
such deposit (in the case of Securities which have become due and payable) or to
the Stated Maturity or Redemption Date, as the case may be, together with
instructions from the Company irrevocably directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be;
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each satisfactory in form to the Trustee, which, taken
together, state that all conditions precedent herein relating to the
satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 5.6 hereof and, if money
shall have been deposited with the Trustee pursuant to subclause (B) of clause
(a)(i) of this Section, the obligations of the Trustee under Section 3.2 hereof
and the last paragraph of Section 9.3 hereof shall survive.
Section 3.2 Application of Trust Money.
Subject to the provisions of the last paragraph of Section 9.3 hereof, all
money deposited with the Trustee pursuant to Section 3.1 hereof shall be held in
trust and applied by it, in accordance with the provisions of the Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
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ARTICLE IV
REMEDIES
Section 4.1 Events of Default.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of the principal of or premium, if any, on
any of the Securities, 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
(b) default in the payment of any installment of interest on any of the
Securities, when it becomes due and payable, and the continuance of such
default for a period of 30 days; or
(c) default in the performance or breach of the provisions of Article
VII hereof, the failure to make or consummate a Change of Control Offer in
accordance with Section 9.15 hereof or the failure to make or consummate a Net
Proceeds Offer in accordance with the provisions of Section 9.16 hereof; or
(d) the Company or any Subsidiary Guarantor shall fail to perform or
observe any other term, covenant or agreement contained in the Securities, any
Subsidiary Guarantee or this Indenture (other than a default specified in (a),
(b) or (c) above) for a period of 30 days after written notice of such failure
requiring the Company to remedy the same shall have been given (i) to the
Company by the Trustee or (ii) to the Company and the Trustee by the holders of
at least 25% in aggregate principal amount of the Securities then outstanding;
or
(e) the occurrence and continuation beyond any applicable grace period
of any default in the payment of the principal of (or premium, if any, on) or
interest on any Indebtedness of the Company (other than the Securities) or any
Restricted Subsidiary for money borrowed when due, or any other default 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 this Indenture and any consequential
acceleration of the Securities shall be automatically rescinded, so long as such
rescission does not conflict with any judgment or decree; or
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(f) 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 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 this
Indenture and any consequential acceleration of the Securities shall be
automatically rescinded, so long as (i) such rescission does not conflict with
any judgment or decree and (ii) the holder of such Indebtedness shall not have
applied any such property or assets in satisfaction of such Indebtedness; or
(g) 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 this
Indenture); or
(h) if (i) any material "accumulated funding deficiency" (as defined in
Section 302 of ERISA or Section 412 of the Code), shall exist with respect to
any PBGC Plan or Multiple Employer Plan (unless a waiver or extension is
obtained under Section 412(d) or (e) of the Code and Sections 303 and 304 of
ERISA), if such accumulated funding deficiency would give rise to a material
liability of the Company, (ii) a Reportable Event shall occur with respect to
any PBGC Plan or Multiple Employer Plan, which Reportable Event is likely to
result in the termination of such PBGC Plan or Multiple Employer Plan for
purposes of Title IV of ERISA and to give rise to a material liability of the
Company, (iii) proceedings to have a trustee appointed shall commence, or a
trustee shall be appointed to terminate or administer a PBGC Plan or Multiple
Employer Plan, which proceeding is likely to result in the termination of such
PBGC Plan or Multiple Employer Plan and to give rise to a material liability of
the Company with respect to such termination, (iv) a notice of intent to
terminate a PBGC Plan or Multiple Employer Plan in a distress termination under
Section 4041(c) of ERISA is furnished to participants, (v) any Multiemployer
Plan is in reorganization or is insolvent and the circumstances are such that
such reorganization or insolvency will likely result in a material liability to
the Company, (vi) there is a complete or partial withdrawal from a Multiemployer
Plan under circumstances that would likely subject the Company to material
liability, or (vii) any event or condition described in (i) through (vi) above
(determined without regard to whether the event or condition taken alone would
or could result in a material liability) shall occur or exist with respect to a
PBGC Plan, Multiple Employer Plan or Multiemployer Plan which in combination
with one or more of any events described in (i) through (vi) above (determined
without regard to whether the event or condition taken alone would or could
result in a material liability) that has occurred or exists, would likely
subject the Company, any Subsidiary Guarantor or any other Restricted Subsidiary
to any material tax, penalty or other liability (for purposes of this paragraph
(i) the term "material" and "material liability" shall mean any tax, penalty or
liability in excess of $5,000,000); or
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(i) 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
(j) the entry of a decree or order by a court having jurisdiction in
the premises (i) for relief in respect of the Company or any Restricted
Subsidiary in an involuntary case or proceeding under the Federal Bankruptcy
Code or any other applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (ii) 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 the Federal Bankruptcy Code or any other 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 Subsidiary Guarantor or any other 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
(k) the commencement by the Company or any Restricted Subsidiary of a
voluntary case or proceeding under the Federal Bankruptcy Code or any other
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 Subsidiary Guarantor or any
other Restricted Subsidiary to the entry of a decree or order for relief in
respect thereof in an involuntary case or proceeding under the Federal
Bankruptcy Code or any other 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
Subsidiary Guarantor or any other 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 Subsidiary Guarantor or any other 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 Subsidiary Guarantor or any
other Restricted Subsidiary in furtherance of any such action.
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Section 4.2 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in Section
4.1(j) or (k) hereof) 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 Securities then outstanding, by notice to the Trustee and the
Company, may declare all unpaid principal of, premium, if any, and accrued
interest on all of the Securities to be due and payable immediately, upon which
declaration all amounts payable in respect of the Securities shall be
immediately due and payable. If an Event of Default specified in Section 4.1(j)
or (k) occurs and is continuing, then the principal of, premium, if any, and
accrued interest on all of the Securities 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.
At any time after a declaration of acceleration has been made and before a
judgment or decree for payment of the money due has been obtained by the Trustee
as hereinafter in this Article provided, the Holders of a majority in aggregate
principal amount of the Securities Outstanding, by written notice to the Company
and the Trustee, may rescind such declaration and its consequences if
(a) the Company or any Subsidiary Guarantor has paid or deposited with
the Trustee a sum sufficient to pay
(i) all sums paid or advanced by the Trustee under this Indenture
and the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel,
(ii) all overdue interest on all Outstanding Securities,
(iii) all unpaid principal of (and premium, if any, on) any
Outstanding Securities which has become due otherwise than by such
declaration of acceleration including any securities required to have been
purchased on a Change of Control Date or Net Proceeds Payment Date pursuant
to a Change of Control Offer or a Net Proceeds Offer, as applicable, and
interest on such unpaid principal at the rate borne by the Securities, 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 Securities which has become due otherwise than by such declaration of
acceleration (without duplication of any amount deposited pursuant to
clauses (ii) and (iii) above);
(b) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction; and
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(c) all Events of Default, other than the nonpayment of principal of
(or premium, if any, on), and interest on Securities that has become due solely
by such declaration of acceleration, have been cured or waived as provided in
Section 4.13 hereof.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the foregoing, in the event of a declaration of
acceleration in respect of the Securities because of an Event of Default
specified in (A) Section 4.1(e) hereof shall have occurred and be continuing,
such declaration of acceleration and any consequential acceleration shall be
automatically rescinded if the Indebtedness that is the subject of such Event of
Default has been repaid, or if the default relating to such Indebtedness is
waived or cured and if such Indebtedness has been accelerated, then the holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness (provided, in each case, that such repayment, waiver, cure or
rescission is effected within a period of 10 days from the continuation of such
default beyond the applicable grace period or the occurrence of such
acceleration), or (B) Section 4.1(f) hereof shall have occurred and be
continuing, such declaration and any consequential acceleration shall be
automatically rescinded if the proceedings or enforcement action with respect to
the Indebtedness that is the subject of such Event of Default are terminated or
rescinded, or such Indebtedness has been repaid and only so long as the holder
of such Indebtedness shall not have applied any Property referenced in such
Section 4.1(f) hereof in satisfaction of such Indebtedness, and, in the case of
both (A) and (B) above, written notice of such repayment, or cure or waiver and
rescission, as the case may be, shall have been given to the Trustee by the
Company and countersigned by the holders of such Indebtedness or a trustee,
fiduciary or agent for such holders or other evidence satisfactory to the
Trustee of such events is provided to the Trustee, within 30 days after such
declaration of acceleration in respect of the Securities, and no other Event of
Default has occurred during such 30-day period which has not been cured or
waived during such period, and so long as such recision of the declaration of
acceleration of the Securities does not conflict with any judgement or decree as
certified to the Trustee by the Company.
Section 4.3 Collection of Indebtedness and Suits for Enforcement by Trustee.
Subject to Article XIII, the Company covenants that if
(a) default is made in the payment of any installment of interest on
any Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof or with respect to any Security
required to have been purchased by the Company on the Change of Control Purchase
Date or the Net Proceeds Payment Date pursuant to a Change of Control Offer or a
Net Proceeds Offer, as applicable,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and
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premium, if any) and interest, and interest on any overdue principal (and
premium, if any) and, to the extent that payment of such interest shall be
legally enforceable, upon any overdue installment of interest, at the rate borne
by the Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the Property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in any provision of the Securities,
this Indenture or the Registration Rights Agreement in aid of the exercise of
any power granted therein or herein, or to enforce any other proper remedy.
Section 4.4 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, any Subsidiary Guarantor or any
other obligor upon the Securities or the Property of the Company, any Subsidiary
Guarantor or of such other obligor or their creditors, the Trustee (irrespective
of whether the principal of the Securities shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Company, any Subsidiary Guarantor or
such other obligor for the payment of overdue principal, premium, if any, or
interest) shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(a) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities and
to file such other papers or documents and take any other actions including
participation as a full member of any creditor or other committee as may be
necessary or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(b) to collect and receive any moneys or other Property payable or
deliverable on any such claims and to distribute the same;
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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 5.6 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or any Subsidiary Guarantees or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 4.5 Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities or
any Subsidiary Guarantees may be prosecuted and enforced by the Trustee without
the possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name and as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Securities in
respect of which such judgment has been recovered.
Section 4.6 Application of Money Collected.
Subject to Sections 12.8, 12.9 and 12.10 and Article XIII, any money
collected by the Trustee pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee and, in the case of
the distribution of such money on account of principal (or premium, if any) or
interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 5.6
hereof;
SECOND: To the payment of the amounts then due and unpaid for principal of
(and premium, if any, on) and interest on the Securities in respect of which or
for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Securities for principal (and premium, if any) and interest, respectively;
and
THIRD: The balance, if any, to the Company.
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Section 4.7 Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority or more in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
Section 4.8 Unconditional Right of Holders to Receive Principal, Premium and
Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, Article XI hereof) and in
such Security of the principal of (and premium, if any, on) and (subject to
Section 2.10 hereof) interest on, such Security on the respective Stated
Maturities expressed in such Security (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such payment,
and such rights shall not be impaired without the consent of such Holder.
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Section 4.9 Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, any Subsidiary Guarantors, the Trustee and the
Holders shall be restored severally and respectively to their former positions
hereunder and thereunder and all rights and remedies of the Trustee and the
Holders shall continue as though no such proceeding had been instituted.
Section 4.10 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
2.9 hereof, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 4.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
Section 4.12 Control by Holders.
The Holders of not less than a majority in principal amount of the
Outstanding Securities shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture,
(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
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(c) the Trustee need not take any action which might involve it in
personal liability or be unduly prejudicial to the Holders not joining therein.
Section 4.13 Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal amount of
the outstanding Securities may on behalf of the Holders of all the Securities
waive any existing Default or Event of Default hereunder and its consequences,
except a Default or Event of Default
(a) in respect of the payment of the principal of, premium, if any, or
interest on any Security, or
(b) in respect of a covenant or provision hereof which under Article
VIII hereof cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
Upon any such waiver, such Default or Event of Default shall cease to exist
for every purpose under this Indenture, but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
Section 4.14 Waiver of Stay, Extension or Usury Laws.
The Company covenants, and each Subsidiary Guarantor shall covenant, (to
the extent that each may lawfully do so) that it will not at any time insist
upon, plead or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension, or usury law or other law, which would prohibit or
forgive the Company or any Subsidiary Guarantor from paying all or any portion
of the principal of (premium, if any, on) and/or interest on the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) the Company hereby expressly waives, and each
Subsidiary Guarantor shall expressly waive all benefit or advantage of any such
law, and the Company covenants and each subsidiary Guarantor shall covenant that
it will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
Section 4.15 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorney's fees and
expenses, against any party litigant in the suit, having due regard to the
merits and good faith of the claims or defenses made by the party litigant.
This Section 4.15 does not apply to a suit by the
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Trustee, a suit by a Holder pursuant to Section 4.8 hereof, or a suit by Holders
of more than 10% in principal amount of the then Outstanding Securities.
ARTICLE V
THE TRUSTEE
Section 5.1 Notice of Defaults.
Within 60 days after the occurrence of any Default hereunder, the Trustee
shall transmit in the manner and to the extent provided in TIA Section 313(c),
notice of such Default hereunder known to the Trustee, unless such Default shall
have been cured or waived; provided, however, that, except in the case of a
Default in the payment of the principal of (or premium, if any, on) or interest
on any Security, the Trustee shall be protected in withholding such notice if
and so long as the board of directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determines that the withholding of such notice is in the interest of the
Holders; and provided, further, that in the case of any Default of the character
specified in Section 4.1(e) hereof, no such notice to Holders shall be given
until at least 60 days after the occurrence thereof.
Section 5.2 Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through 315(d):
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its selection, and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon;
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(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(h) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture; and
(i) the Trustee shall not be deemed to have notice of any Event of
Default unless a Responsible Officer of the Trustee has actual knowledge thereof
or unless written notice of any event which is in fact such a default is
received by the Trustee at the Corporate Trust Office of the Trustee, and such
notice references the Securities and this Indenture.
The Trustee shall not be required to advance, expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
Section 5.3 Trustee Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities and the notations of
Subsidiary Guarantees thereon, except for the Trustee's certificates of
authentication, shall be taken as the statements of the Company or the
Subsidiary Guarantors, as the case may be, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Securities, except
that the Trustee represents that it is duly authorized to execute and deliver
this Indenture, authenticate the Securities and perform its obligations
hereunder, and that the statements made by it in a Statement of Eligibility on
Form T-1 supplied to the Company are true and accurate, subject to the
qualifications set forth herein. The
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Trustee shall not be accountable for the use or application by the Company of
Securities or the proceeds thereof.
Section 5.4 May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any other agent of
the Company, any Subsidiary Guarantor or of the Trustee, in its individual or
any other capacity, may become the owner or pledgee of Securities and, subject
to TIA Sections 310(b) and 311, may otherwise deal with the Company and any
Subsidiary Guarantor with the same rights it would have if it were not the
Trustee, Paying Agent, Security Registrar or such other agent.
Section 5.5 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Company or any Subsidiary Guarantor.
Section 5.6 Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Trustee from time to time such compensation as shall
be agreed in writing from time to time between the Company and the Trustee for
all services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel, except any such expense, disbursement
or advance as may be attributable to the Trustee's negligence or bad faith); and
(c) to indemnify the Trustee or any predecessor Trustee for, and to
hold it harmless against, any and all loss, liability, damage, claim or expense,
including taxes (other than taxes based on the income of the Trustee) incurred
without negligence or bad faith on its part, (i) arising out of or in connection
with the acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder or (ii) in
connection with enforcing this indemnification provision.
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The obligations of the Company under this Section 5.6 to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture or any other termination under any Insolvency or
Liquidation Proceeding. As security for the performance of such obligations of
the Company, the Trustee shall have a claim and lien prior to the Securities
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for payment of principal of (and premium, if any, on) or
interest on particular Securities. Such lien shall survive the satisfaction and
discharge of this Indenture or any other termination under any Insolvency or
Liquidation Proceeding.
When the Trustee incurs expenses or renders services after the occurrence
of an Event of Default specified in paragraphs (j) or (k) of Section 4.1 of this
Indenture, such expenses and the compensation for such services are intended to
constitute expenses of administration under any Insolvency or Liquidation
Proceeding.
Section 5.7 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be eligible to
act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and
surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of federal,
state, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section 5.7, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 5.8 Conflicting Interests.
The Trustee shall comply with the provisions of Section 310(b) of the Trust
Indenture Act.
Section 5.9 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 5.10 hereof.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If the instrument of acceptance by a successor Trustee required
by Section 5.10 hereof shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition, at the expense of the Company, any court of competent jurisdiction for
the appointment of a successor Trustee.
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(c) The Trustee may be removed at any time by Act of the Holders of not
less than a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company. If the instrument of acceptance by
a successor Trustee required by Section 5.10 shall not have been delivered to
the Trustee within 30 days after the giving of such notice of removal, the
Trustee being removed may petition, at the expense of the Company, any court of
competent jurisdiction for the appointment of a successor Trustee.
(d) If at any time:
(i) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(ii) the Trustee shall cease to be eligible under Section 5.7
hereof and shall fail to resign after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Security for
at least six months, or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (A) the Company, by a Board Resolution, may remove the
Trustee, or (B) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee. Such
successorship may, but need not be, evidenced by a supplemental indenture.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner
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provided for in Section 13.5 hereof. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
Section 5.10 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of all amounts due it under
Section 5.6 hereof, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 5.11 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities;
and in case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee;
and in all such cases such certificates shall have the full force which it is
anywhere in the Securities or in this Indenture; provided, however, that the
right to adopt the certificate of authentication of any predecessor Trustee or
to authenticate Securities in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.
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Section 5.12 Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor under the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company or any such other obligor.
ARTICLE VI
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 6.1 Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding the same, agrees with
the Company, the Subsidiary Guarantors, if any, the Security Registrar and the
Trustee that none of the Company, the Subsidiary Guarantors, the Security
Registrar or the Trustee, or any agent of either of them, shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the Holders in accordance with TIA Section 312, regardless of
the source from which such information was derived, and that the Trustee shall
not be held accountable by reason of mailing any material pursuant to a request
made under TIA Section 312(b).
Section 6.2 Reports By Trustee.
Within 60 days after May 15 of each year commencing with May 15, 1997, the
Trustee shall transmit by mail to the Holders, as their names and addresses
appear in the Security Register, a brief report dated as of such May 15 in
accordance with and to the extent required under TIA Section 313(a). The
Trustee shall also comply with TIA Sections 313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if the Securities
become listed on any stock exchange or automatic quotation system.
A copy of each Trustee's report, at the time of its mailing to Holders of
Securities, shall be mailed to the Company and filed with the Commission and
each stock exchange, if any, on which the Securities are listed.
Section 6.3 Reports by Company.
The Company (and any Subsidiary Guarantor, if applicable) shall:
(a) file with the Trustee, and provide to each Holder, without cost to
such Holder, within 15 days after the Company (and any Subsidiary Guarantor, if
applicable) is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may from time
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to time by rules and regulations prescribe) which the Company (and any
Subsidiary Guarantor, if applicable) may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company
(and any Subsidiary Guarantor, if applicable) is not required to file
information, documents or reports pursuant to either of said Sections, then it
shall file with the Trustee and the Commission, in accordance with the rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations;
(b) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
(and any Subsidiary Guarantor, if applicable) with the conditions and covenants
of this Indenture as may be required from time to time by such rules and
regulations; and
(c) transmit by mail to all Holders, in the manner and to the extent
provided in TIA Section 313(c), within 30 days after the filing thereof with
Trustee, such summaries of any information, documents and reports required to be
filed by the Company (and any Subsidiary Guarantor, if applicable) pursuant to
paragraphs (a) and (b) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission. Delivery of such
reports, information and documents to the Trustee is for informational purposes
only and the Trustee's receipt of such shall not constitute constructive notice
of any information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 7.1 Company May Consolidate, etc., Only on Certain Terms.
The Company shall not, in any single transaction or a series of related
transactions, merge or consolidate with or into any other Person, or sell,
assign, convey, transfer or lease or otherwise dispose of all or substantially
all its Properties to any Person or group of Affiliated Persons, and the Company
shall not permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all of the
Properties of the Company and its Restricted Subsidiaries on a consolidated
basis to any other Person or group of Affiliated Persons, unless at the time and
after giving affect thereto:
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(a) either (i) if the transaction or transactions is a merger or
consolidation, the Company shall be the surviving Person of such merger or
consolidation, or (ii) the Person (if other than the Company) formed by such
consolidation or into which the Company or such Restricted Subsidiary is merged
or to which the Properties 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 this
Indenture executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company for the due and punctual payment of
the principal of (and premium, if any, on) and interest on all the Securities
and the performance and observance of every covenant of this Indenture on the
part of the Company to be performed or observed, and this Indenture shall remain
in full force and effect;
(b) 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 the Company or any of its
Restricted Subsidiaries which becomes the obligation of the Company or any of
its Restricted Subsidiaries in connection with or as a result of such
transaction or transactions as having been incurred at the time of such
transaction or transactions), no Default or Event of Default shall have occurred
and be continuing;
(c) except in the case of the consolidation or merger of any Restricted
Subsidiary with or into the Company, immediately after giving effect to such
transaction or transactions on a pro forma basis, the Consolidated Net Worth of
the Company (or the Surviving Entity if the Company is not the continuing
obligor under this Indenture) is at least equal to the Consolidated Net Worth of
the Company immediately before such transaction or transactions (calculated in
each case, in accordance with GAAP);
(d) 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 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 full 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 this Indenture) could
incur $1.00 of additional Indebtedness (excluding Permitted Indebtedness) under
Section 9.11(a) hereof;
(e) each Subsidiary Guarantor unless it is the party to the
transactions described above, shall have by supplemental indenture confirmed
that its Subsidiary Guarantee shall apply to such Person's obligations under
this Indenture and the Securities;
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(f) if any of the Properties of the Company or any of its Restricted
Subsidiaries would upon such transaction or series of related transactions
become subject to any Lien (other than a Permitted Lien), the creation or
imposition of such Lien shall have been in compliance with Section 9.14 hereof;
and
(g) the Company or such Person shall have delivered to the Trustee (i)
an Officers' Certificate in form and substance reasonably acceptable to the
Trustee, stating that such consolidation, merger, conveyance, transfer, lease or
other disposition and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture, complies with this Indenture
and that all conditions precedent herein relating to such transaction or
transactions have been satisfied and (ii) an Opinion of Counsel stating that the
requirements of Section 7.1(a) hereof have been complied with.
Section 7.2 Successor Substituted.
Upon any consolidation of the Company with or merger of the Company with or
into any other corporation or any sale, assignment, lease, conveyance, transfer
or other disposition of all or substantially all of the Properties of the
Company to any Person in accordance with Section 7.1 hereof, the successor
Person formed by such consolidation or into which the Company is merged or to
which such sale, assignment, conveyance, transfer or other disposition (other
than by lease) is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and in the event of any such sale, assignment, lease, conveyance, transfer or
other disposition, the Company (which term shall for this purpose mean the
Person named as the "Company" in the first paragraph of this Indenture or any
successor Person which shall theretofore become such in the manner described in
Section 7.1 hereof), except in the case of a lease, shall be discharged of all
obligations and covenants under this Indenture and the Securities and the
Company may be dissolved and liquidated and such dissolution and liquidation
shall not cause a Change of Control under clause (e) of the definition thereof
to occur unless the merger, or the sale, assignment, lease, conveyance, transfer
or other disposition of all or substantially all of the Properties of the
Company to any Person otherwise results in a Change of Control.
ARTICLE VII
SUPPLEMENTAL INDENTURES
Section 8.1 Supplemental Indentures without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, any Subsidiary Guarantors, when authorized by a Board Resolution,
and the Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
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(a) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company contained
herein and in the Securities; or
(b) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the Company; or
(c) to add any additional Events of Default; or
(d) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee pursuant to the requirements of Sections 5.9 and 5.10
hereof; or
(e) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision herein,
or to qualify, or maintain the qualification of, the Indenture under the TIA or
to make any other provisions with respect to matters or questions arising under
this Indenture or the Registration Rights Agreement; provided that such action
shall not adversely affect the interests of the Holders in any material respect;
or
(f) to secure the Securities pursuant to the requirements of Section
9.14 hereof or otherwise; or
(g) to add any Person as a Subsidiary Guarantor as provided in Section
12.1 hereof or as contemplated by the definition of "Permitted Subsidiary
Indebtedness" to evidence the succession of another Person to any Subsidiary
Guarantor and the assumption by any such successor of the covenants and
agreements of such Subsidiary Guarantor contained herein, in the Securities and
in the Subsidiary Guarantee; or
(h) to release a Subsidiary Guarantor from its Subsidiary Guarantee
pursuant to Section 9.12 hereof; or
(i) to provide for uncertificated Securities in addition to or in place
of certificated Securities.
Section 8.2 Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, any
Subsidiary Guarantors, when authorized by a Board Resolution, and the Trustee
may enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Security
affected thereby:
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(a) change the Stated Maturity of the principal of, or any installment
of interest on, any Security, or reduce the principal amount thereof or the rate
of interest thereon or any premium payable upon the redemption thereof, or
change the coin or currency in which any Security or any premium or the interest
thereon is payable, or impair the right to institute suit for the enforcement of
any such payment after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date); or
(b) reduce the percentage of aggregate principal amount of the
Outstanding Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture; or
(c) modify any of the provisions of this Section or Sections 4.13 and
9.22 hereof, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby;
(d) modify Section 9.12 hereof or any provisions of this Indenture
relating to any Subsidiary Guarantees in a manner adverse to the Holders
thereof; or
(e) 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 to
make and consummate a Net Proceeds Offer with respect to any Asset Sale or
modify any of the provisions or definitions with respect thereto.
It shall not be necessary for any Act of the Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 8.3 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
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Section 8.4 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 8.5 Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 8.6 Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company, with the notations of Subsidiary Guarantees thereon executed by the
Subsidiary Guarantors, if any, and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
Section 8.7 Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 8.2 hereof, the
Company shall give notice thereof to the Holders of each Outstanding Security
affected, in the manner provided for in Section 14.5 hereof, setting forth in
general terms the substance of such supplemental indenture.
ARTICLE IX
COVENANTS
Section 9.1 Payment of Principal, Premium, if any, and Interest.
The Company covenants and agrees for the benefit of the Holders that it
will duly and punctually pay the principal of (and premium, if any, on) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture. The Company shall pay interest (including post-petition
interest in any proceeding under the Federal Bankruptcy Code or any similar
state bankruptcy law) on overdue principal, and premium, if any, at the rate
borne by the Securities to the extent lawful; and it shall pay interest
(including post-petition interest in any proceeding under the Federal Bankruptcy
Code or any similar state bankruptcy law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.
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Section 9.2 Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of New
York, an office or agency where Securities may be presented or surrendered for
payment, where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities, the Subsidiary Guarantees and this Indenture may be served. The
office of The Bank of New York, located at 101 Barclay Street, Floor 21 West,
New York, New York 10286, Attention: Corporate Trust Administration shall be
such office or agency of the Company, unless the Company shall designate and
maintain some other office or agency for one or more of such purposes. The
Company will give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the aforementioned office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies (in or outside of The City of New York) where the Securities may be
presented or surrendered for any or all such purposes and may from time to time
rescind any such designation; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in the Borough of Manhattan, The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and any change in the location of any such other
office or agency.
Section 9.3 Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it shall, on
or before each due date of the principal of (and premium, if any, on) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will, on or before 11:00 A.M., New York City time, on each due
date of the principal of (and premium, if any, on), or interest on, any
Securities, deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due, such sum to be held in trust
for the benefit of the Persons entitled to such principal, premium or interest,
and (unless such Paying Agent is the Trustee) the Company shall promptly notify
the Trustee of such action or any failure so to act.
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
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(a) hold all sums held by it for the payment of the principal of (and
premium, if any, on) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal (and
premium, if any) or interest; and
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
sums.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (and premium, if any,
on) or interest on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
Section 9.4 Corporate Existence.
Except as expressly permitted by Article VII hereof, Section 9.16 hereof or
other provisions of this Indenture, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Restricted Subsidiary; provided, however, that the Company shall not be required
to preserve any such existence of its Restricted Subsidiaries, right or
franchise, if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not
disadvantageous in any material respect to the Holders.
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Section 9.5 Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or Property of the Company or any
Restricted Subsidiary and (b) all lawful claims for labor, materials and
supplies, which, if unpaid, might by law become a Lien upon the Property of the
Company or any Restricted Subsidiary; provided, however, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which
appropriate provision has been made in accordance with GAAP.
Section 9.6 Maintenance of Properties.
The Company shall cause all material Properties owned by the Company or any
Restricted Subsidiary and used or held for use in the conduct of its business or
the business of any Restricted Subsidiary to be maintained and kept in good
condition, repair and working order (ordinary wear and tear excepted), all as in
the judgment of the Company may be necessary so that its business may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
maintenance of any of such Properties if such discontinuance is, in the judgment
of the Company, desirable in the conduct of its business or the business of any
Restricted Subsidiary and not disadvantageous in any material respect to the
Holders. Notwithstanding the foregoing, nothing contained in this Section 9.6
shall limit or impair in any way the right of the Company and its Restricted
Subsidiaries to sell, divest and otherwise to engage in transactions that are
otherwise permitted by this Indenture.
Section 9.7 Insurance.
The Company shall at all times keep all of its and its Restricted
Subsidiaries' Properties which are of an insurable nature insured with insurers,
believed by the Company to be responsible, against loss or damage to the extent
that property of similar character is usually so insured by corporations
similarly situated and owning like properties.
The Company may adopt such other plan or method of protection, in lieu of
or supplemental to insurance with insurers, whether by the establishment of an
insurance fund or reserve to be held and applied to make good losses from
casualties, or otherwise, conforming to the systems of self-insurance maintained
by corporations similarly situated and owning like properties, as may be
determined by the Board of Directors.
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Section 9.8 Statement by Officers as to Default.
(a) The Company shall deliver to the Trustee, within 90 days after the
end of each fiscal year of the Company and within 45 days of the end of each of
the first, second and third quarters of each fiscal year of the Company, an
Officers' Certificate, one of the signers of which shall be the principal
executive officer, principal financial officer or principal accounting officer
of the Company, stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal quarter or fiscal year, as applicable,
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of such Officer's knowledge the
Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions hereof (or, if a
Default or Event of Default shall have occurred, describing all such Defaults or
Events of Default of which such Officer may have knowledge and what action the
Company is taking or proposes to take with respect thereto). Such Officers'
Certificate shall comply with TIA Section 314(a)(4). For purposes of this
Section 9.8(a), such compliance shall be determined without regard to any period
of grace or requirement of notice under this Indenture.
(b) The Company and any Subsidiary Guarantors shall, so long as any of
the Securities are outstanding, deliver to the Trustee forthwith upon any
Officer becoming aware of any Default or Event of Default or default in the
performance of any covenant, agreement or condition contained in this Indenture,
an Officers' Certificate specifying such Default or Event of Default and what
action the Company or any Subsidiary Guarantor proposes to take with respect
thereto within 10 days of its occurrence.
Section 9.9 Reports.
The Company and any Subsidiary Guarantors shall 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)
will also be required (a) to file with the Trustee, and provide to each holder
of Securities, 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 any
Subsidiary Guarantors, if applicable) would be required to file such reports and
documents if the Company (and any 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 Securities promptly upon written request. The Company is obligated to make
available, upon request, to any Holder of Securities 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
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15(d) of the Exchange Act and, for so long as any Transfer Restricted Securities
remain outstanding, the Company shall furnish to all Holders and prospective
purchasers of the Securities designated by the Holders of Transfer Restricted
Securities, promptly upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) of the Securities Act. The Company and
each Subsidiary Guarantor also shall comply with other provisions of TIA Section
314(a).
Section 9.10 Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, take the following actions:
(i) declare or pay any dividend 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 the date of this Indenture, 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 this
Indenture, which property or
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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 this 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 Section
9.11 hereof and (3) the aggregate amount of all Restricted Payments
declared or made after the date of this Indenture shall not exceed the sum
(without duplication) of the following:
(I) 50% of the aggregate cumulative Consolidated Net
Income of the Company accrued on a cumulative basis during the
period beginning on the first day of the first month after the date
of this Indenture 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
(II) the aggregate net cash proceeds received after the
date of this Indenture by the Company as capital contributions to
the Company (other than from any Restricted Subsidiary), plus
(III) the aggregate net cash proceeds received after the
date of this Indenture 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
(IV) the aggregate net cash proceeds received after the
date of this Indenture 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
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(V) the aggregate net cash proceeds received after the
date of this Indenture 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
(VI) 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 the date of this Indenture 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 the date of this Indenture, plus
(VII) $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;
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(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 Securities 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 Securities 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 Securities; and
(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, (i) 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 (ii) 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
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Company that are available on the date of determination. If the Company makes a
Restricted Payment which, at the time of the making of such Restricted Payment,
would in the good faith determination of the Company be permitted under the
requirements of this Indenture, such Restricted Payment shall be deemed to have
been made in compliance with this Indenture notwithstanding any subsequent
adjustments made in good faith to the Company's financial statements affecting
Consolidated Net Income of the Company for any period.
Section 9.11 Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, 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 (i) 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: (x) 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; (y) 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 (z) 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 (ii) 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.
Section 9.12 Limitation on Non-Guarantor Restricted Subsidiaries.
(a) The Company shall 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 this Indenture providing for a Subsidiary
Guarantee of the Securities by such Restricted Subsidiary which Subsidiary
Guarantee will be subordinated to Guarantor Senior Indebtedness (but no other
Indebtedness) to the same extent that the Securities 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
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same extent as such Subordinated Indebtedness is subordinated to the Securities;
(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 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 (x) any
guarantee of any Restricted Subsidiary that (1) existed at the time such Person
became a Restricted Subsidiary of the Company and (2) was not incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary of the Company or (y) any guarantee of any Restricted Subsidiary of
Indebtedness of the Company described in clause (i) of the definition of
Permitted Indebtedness.
(b) 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 this 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 Section 9.12(a) hereof or
(ii) the aggregate Fair Market Value 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 this
Indenture, any Subsidiary Guarantee incurred by a Restricted Subsidiary pursuant
to this Section 9.12 shall provide
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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 this 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 Restricted Subsidiary (in each case
to the extent not prohibited by this Indenture), or (iii) (x) the release or
discharge of all guarantees by such Restricted Subsidiary of any Indebtedness
other than 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.
Section 9.13 Limitation on Issuances and Sales of Restricted Subsidiary Stock.
The Company (a) shall not permit any Restricted Subsidiary to issue any
Preferred Stock (other than to the Company or a Wholly Owned Restricted
Subsidiary) and (b) shall 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 (i) 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
this Indenture, or (ii) 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.
Section 9.14 Limitation on Liens.
The Company shall not, and shall 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 this Indenture or thereafter acquired, or any
income, profits or proceeds therefrom, or assign or otherwise convey any right
to receive income thereon, unless (a) in the case of any Lien securing
Subordinated Indebtedness, the Securities are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Lien and (b) in
the case of any other Lien, the Securities are directly secured equally and
ratably with the obligation or liability secured by such Lien.
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Section 9.15 Change of Control.
(a) Upon the occurrence of a Change of Control, the Company shall be
obligated to make an offer to purchase (a "Change of Control Offer") all of the
then outstanding Securities, in whole or in part, from the Holders of such
Securities in integral multiples of $1,000, at a purchase price (the "Change of
Control Purchase Price") equal to 101% of the aggregate principal amount of such
Securities, plus accrued and unpaid interest, if any, to the Change of Control
Purchase Date (as defined below), in accordance with the procedures set forth in
paragraphs (b), (c) and (d) of this Section. The Company shall, subject to the
provisions described below, be required to purchase all Securities properly
tendered into the Change of Control Offer and not withdrawn. The Company will
not be required to make a Change of Control Offer upon a Change of Control if a
third party makes the Change of Control Offer at the same purchase price, at the
same times and otherwise in substantial compliance with the requirements
applicable to a Change of Control Offer made by the Company and purchases all
Securities validly tendered and not withdrawn under such Change of Control
Offer.
(b) 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 (as defined below).
(c) Not later than the 30th day following any Change of Control, the
Company shall give to the Trustee in the manner provided in Section 14.4 and
each Holder of the Securities in the manner provided in Section 14.5, a notice
(the "Change of Control Notice") stating:
(1) that a Change in Control has occurred and that such
Holder has the right to require the Company to repurchase such Holder's
Securities, or portion thereof, at the Change of Control Purchase Price;
(2) any information regarding such Change of Control
required to be furnished pursuant to Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder;
(3) a purchase date (the "Change of Control Purchase
Date") which shall be on a Business Day and no earlier than 30 days nor
later than 70 days from the date the Change of Control occurred;
(4) that any Security, or portion thereof, not tendered
or accepted for payment will continue to accrue interest;
(5) that unless the Company defaults in depositing
money with the Paying Agent in accordance with the last paragraph of
clause (d) of this Section 9.15, or payment is otherwise prevented, any
Security, or portion thereof,
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accepted for payment pursuant to the Change of Control Offer shall cease
to accrue interest after the Change of Control Purchase Date; and
(6) the instructions a Holder must follow in order to
have its Securities repurchased in accordance with paragraph (d) of this
Section.
(d) Holders electing to have Securities purchased will be required to
surrender such Securities to the Company at the address specified in the Change
of Control Notice at least five Business Days prior to the Change of Control
Purchase Date. Holders will be entitled to withdraw their election if the
Company receives, not later than three Business Days prior to the Change of
Control Purchase Date, a facsimile transmission or letter setting forth the name
of the Holder, the certificate number(s) and principal amount of the Securities
delivered for purchase by the Holder as to which his election is to be withdrawn
and a statement that such Holder is withdrawing his election to have such
Securities purchased. Holders whose Securities are purchased only in part will
be issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.
Section 9.16 Limitation on Disposition of Proceeds of Asset Sales.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, in any Asset Sale unless (i) the Company or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the Fair Market Value of the Properties sold or otherwise
disposed of pursuant to the Asset Sale 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
Securities) 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 (i) apply the Net Cash Proceeds thereof to
permanently reduce Senior Indebtedness or to permanently reduce Guarantor Senior
Indebtedness, or (ii) invest all or any part of the Net Cash Proceeds thereof,
within 365 days after such Asset Sale, in Properties which replace the
Properties that were the subject of the Asset Sale or in Properties 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," subject
to disposition as provided below.
(c) When the aggregate amount of Excess Proceeds equals or exceeds
$15,000,000 (the "Trigger Date") the Company shall make an offer to purchase,
from all Holders of the Securities 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
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Securities and any then outstanding Pari Passu Indebtedness equal to such Excess
Proceeds as follows:
(i) (A) No later than the 30th day following the Trigger Date,
the Company shall give to the Trustee in the manner provided in Section
14.4 hereof and each Holder of the Securities in the manner provided in
Section 14.5 hereof, notice (a "Purchase Notice") offering to purchase (a
"Net Proceeds Offer") from all Holders of the Securities the maximum
principal amount (expressed as a multiple of $1,000) of Securities that may
be purchased out of an amount (the "Payment Amount") equal to the product
of such Excess Proceeds multiplied by a fraction, the numerator of which is
the outstanding principal amount of the Securities and the denominator of
which is the sum of the outstanding principal amount of the Securities and
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 Securities 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 Securities shall be payable in
cash in an amount equal to 100% of the principal amount of the Securities
tendered pursuant to a Net Proceeds Offer, plus accrued and unpaid
interest, if any, to the date such Net Proceeds Offer is consummated (the
"Offered Price"), in accordance with paragraph (d) of this Section. To the
extent that the aggregate Offered Price of the Securities tendered pursuant
to a Net Proceeds Offer is less than the Payment Amount relating thereto or
the aggregate amount of the Pari Passu Indebtedness that is purchased or
repaid pursuant to the Pari Passu Offer is less than the Pari Passu
Indebtedness Amount (such shortfall constituting a "Net Proceeds
Deficiency"), the Company may use such Net Proceeds Deficiency, or a
portion thereof, for general corporate purposes, subject to the limitations
of Section 9.10 hereof.
(iii) If the aggregate Offered Price of Securities validly
tendered and not withdrawn by Holders thereof exceeds the Payment Amount,
Securities to be purchased will be selected on a pro rata basis. Upon
completion of such Net Proceeds Offer and Pari Passu Offer, the amount of
Excess Proceeds shall be reset to zero.
(iv) The Purchase Notice shall set forth a purchase date (the
"Net Proceeds Payment Date"), which shall be on a Business Day no earlier
than 30 days nor later than 70 days from the Trigger Date. The Purchase
Notice shall also state (i) that a Trigger Date with respect to one or more
Asset Sales has occurred and that such Holder has the right to require the
Company to repurchase such Holders Securities at the Offered Price, subject
to the limitations described in the forgoing paragraph (3), (ii) any
information regarding such Net Proceeds Offer required to be furnished
pursuant to Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder, (iii) that any Security, or portion
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thereof, not tendered or accepted for payment will continue to accrue
interest, (iv) that, unless the Company defaults in depositing money with
the Paying Agent in accordance with the last paragraph of clause (d) of
this Section 9.16, or payment is otherwise prevented, any Security, or
portion thereof, accepted for payment pursuant to the Net Proceeds Offer
shall cease to accrue interest after the Net Proceeds Payment Date, and (v)
the instructions a Holder must follow in order to have its Securities
repurchased in accordance with paragraph (d) of this Section.
(d) Holders electing to have Securities purchased will be required to
surrender such Securities to the Company at the address specified in the
Purchase Notice at least five Business Days prior to the Net Proceeds Payment
Date. Holders will be entitled to withdraw their election if the Company
receives, not later than three Business Days prior to the Net Proceeds Payment
Date, a facsimile transmission or letter setting forth the name of the Holder,
the certificate number(s) and principal amount of the Securities delivered for
purchase by the Holder as to which his election is to be withdrawn and a
statement that such Holder is withdrawing his election to have such Securities
purchased. Holders whose Securities are purchased only in part will be issued
new Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
On the Net Proceeds Payment Date, the Company shall (i) accept for payment
Securities or portions thereof tendered pursuant to a Net Proceeds Offer in an
aggregate principal amount equal to the Payment Amount or such lesser amount of
Securities as has been tendered, (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Securities or portions thereof so
tendered in an aggregate principal amount equal to the Payment Amount or such
lesser amount and (iii) deliver or cause to be delivered to the Trustee the
Securities so accepted. The Paying Agent shall promptly mail or deliver to
Holders of the Securities so accepted payment in an amount equal to the purchase
price, and the Company shall execute and the Trustee will promptly authenticate
and mail or make available for delivery to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security which any such
Holder did not surrender for purchase. Any Securities not so accepted will be
promptly mailed or delivered to the Holder thereof. The Company shall announce
the results of a Net Proceeds Offer on or as soon as practicable after the Net
Proceeds Payment Date. For purposes of this Section 9.16, the Trustee will act
as the Paying Agent.
(e) The Company shall 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.
Section 9.17 Limitation on Transactions with Affiliates.
The Company shall not, and shall 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 (a) such transaction
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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, (b) 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 (a) above and such
transaction or series of transactions has been approved by the Board of
Directors of the Company and (c) 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 (b) 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 (a) above or 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 (i) 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 (ii) 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 Section 9.10 hereof.
Section 9.18 Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make
any other distributions on or in respect of its Capital Stock to the Company or
any 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 this Indenture, (ii)
any agreement or other instrument of a Person acquired by the Company or any
Restricted Subsidiary in existence at the time of such acquisition (but not
created in contemplation thereof), which 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 Securities than those under or
pursuant to the agreement evidencing the Indebtedness so extended, renewed,
refinanced or replaced.
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Section 9.19 Limitation on Other Senior Subordinated Indebtedness.
The Company shall 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 Securities, or is expressly subordinated in right of payment to the
Securities.
Section 9.20 Limitation on Conduct of Business.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in the conduct of any business other than the Oil and
Gas Business, except that the Company and the Restricted Subsidiaries may engage
in any business other than the Oil and Gas Business; provided that the
consolidated assets of the Company and the Restricted Subsidiaries used in such
business shall not exceed, at any time, 10% of Adjusted Consolidated Net
Tangible Assets.
Section 9.21 Registration Rights Agreement.
The Company shall perform its obligations under the Registration Rights
Agreement and shall comply in all material respects with the terms and
conditions contained therein including, without limitation, the payment of
additional interest as described in Section 2(e) of the Registration Rights
Agreement.
Section 9.22 Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Sections 9.5 through 9.11, Sections 9.13 and
9.14 and Sections 9.17 through 9.20 hereof if, before or after the time for such
compliance, the Holders of at least a majority in principal amount of the
Outstanding Securities and the Subsidiary Guarantors, by act of such Holders and
written agreement of the Subsidiary Guarantors, waive such compliance in such
instance with such term, provision or condition, but no such waiver shall extend
to or affect such term, provision or condition except to the extent so expressly
waived, and, until such waiver shall become effective, the obligations of the
Company and the duties of the Trustee in respect of any such term, provision or
condition shall remain in full force and effect.
ARTICLE X
REDEMPTION OF SECURITIES
Section 10.1 Right of Redemption.
The Securities may be redeemed, at the option of the Company, in whole or
in part, at any time on or after April 1, 2002, upon not less than 30 or more
than 60 days' notice to each Holder of Securities to be redeemed, subject to the
conditions and at the Redemption Prices (expressed as
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percentages of principal amount) specified in the form of Security, together
with accrued and unpaid interest, if any, to the Redemption Date. In addition,
at any time and from time to time prior to April 1, 2000, the Company may, at
its option, redeem Securities in an amount in the aggregate equal to up to
33 1/3% of the aggregate principal amount of Securities originally issued under
this Indenture with the net proceeds of one or more Public Equity Offerings by
the Company at a Redemption Price (expressed as a percentage of principal
amount) of 109.25%, plus accrued and unpaid interest, if any, to the applicable
Redemption Date (subject to the right of Holders of Securities on the relevant
record date to receive interest due on the relevant Interest Payment Date);
provided, however, that at least $83,300,000 aggregate principal amount of the
Securities must remain outstanding after each such redemption. In order to
effect the foregoing redemption, the Company must mail notice of redemption
under Section 10.5 hereof 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.
Section 10.2 Applicability of Article.
Redemption of Securities at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
Section 10.3 Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to Section
10.1 hereof shall be evidenced by a Board Resolution. In case of any redemption
at the election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 10.4 hereof. Any election to
redeem Securities shall be revocable until the Company gives a notice of
redemption pursuant to Section 10.5 hereof to the Holders of Securities to be
redeemed.
Section 10.4 Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not less than 30 days nor more than
60 days prior to the Redemption Date by the Trustee, from the Outstanding
Securities not previously called for redemption, pro rata, by lot or by any
other method as the Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions of the principal of
Securities; provided, however, that any such partial redemption shall be in
integral multiples of $1,000.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption and, in the case of any Securities selected for partial
redemption, the principal amount thereof to be redeemed.
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For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed.
Section 10.5 Notice of Redemption.
Notice of redemption shall be given in the manner provided for in Section
14.5 hereof not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed.
All notices of redemption shall identify the Securities to be redeemed
(including CUSIP number) and shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of a partial redemption, the principal amounts)
of the particular Securities to be redeemed;
(d) that on the Redemption Date the Redemption Price (together with
accrued interest, if any, to the Redemption Date payable as provided in Section
10.7 hereof) will become due and payable upon each such Security, or the portion
thereof, to be redeemed, and that, unless the Company shall default in the
payment of the Redemption Price and any applicable accrued interest, interest
thereon will cease to accrue on and after said date; and
(e) the place or places where such Securities are to be surrendered for
payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. Failure to give such
notice by mailing to any Holder of Securities or any defect therein shall not
affect the validity of any proceedings for the redemption of other Securities.
Section 10.6 Deposit of Redemption Price.
On or before 11:00 A.M., New York City time, on any Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 9.3 hereof) an amount of money sufficient to pay the
Redemption Price of, and accrued and unpaid interest on, all the Securities
which are to be redeemed on such Redemption Date.
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Section 10.7 Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued and unpaid interest,
if any, to the Redemption Date), and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued and
unpaid interest) such Securities shall cease to bear interest. Upon surrender
of any such Security for redemption in accordance with said notice, such
Security shall be paid by the Company at the Redemption Price, together with
accrued and unpaid interest, if any, to the Redemption Date; provided, however,
that installments of interest whose Stated Maturity is on or prior to the
Redemption Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
2.10 hereof.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Securities.
Section 10.8 Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at
the office or agency of the Company maintained for such purpose pursuant to
Section 9.2 hereof (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal amount of the Security so
surrendered.
ARTICLE XI
DEFEASANCE AND COVENANT DEFEASANCE
Section 11.1 Company's Option to Effect Defeasance or Covenant Defeasance.
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 11.2 or Section 11.3
hereof be applied to all Outstanding Securities upon compliance with the
conditions set forth below in this Article XI.
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Section 11.2 Defeasance and Discharge.
Upon the Company's exercise under Section 11.1 hereof of the option
applicable to this Section 11.2, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth in Section 11.4 hereof are satisfied
(hereinafter, "legal defeasance"). For this purpose, such legal defeasance
means that the Company and the Subsidiary Guarantors shall be deemed (a) to have
paid and discharged their respective obligations under the Outstanding
Securities; provided, however that the Securities shall continue to be deemed to
be "Outstanding" for purposes of Section 11.5 hereof and the other Sections of
this Indenture referred to in clauses (i) and (ii) below, and (b) to have
satisfied all their other obligations under such Securities and this Indenture
insofar as such Securities are concerned (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of Outstanding Securities to receive,
solely from the trust fund described in Section 11.4 hereof and as more fully
set forth in such Section, payments in respect of the principal of (and premium,
if any, on) and interest on such Securities when such payments are due (or at
such time as the Securities would be subject to redemption at the option of the
Company in accordance with this Indenture), (ii) the respective obligations of
the Company and any Subsidiary Guarantors under Sections 2.4, 2.5, 2.6, 2.7,
2.8, 2.9, 4.8, 4.14, 5.6, 5.9, 5.10, 9.1, 9.2, 9.3, 9.4, 12.1 (to the extent it
relates to the foregoing Sections and Article XI hereof), 12.4 and 12.5 hereof,
(iii) the rights, powers, trusts, duties and immunities of the Trustee
hereunder, and (iv) the obligations of the Company and any Subsidiary Guarantors
under this Article XI. Subject to compliance with this Article XI, the Company
may exercise its option under this Section 11.2 notwithstanding the prior
exercise of its option under Section 11.3 hereof with respect to the Securities.
Section 11.3 Covenant Defeasance.
Upon the Company's exercise under Section 11.1 hereof of the option
applicable to this Section 11.3, the Company shall be released from its
obligations under any covenant contained in Article VII and in Sections 9.6
through 9.20 hereof with respect to the Outstanding Securities on and after the
date the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Sections 4.1(c) or 4.1(d) hereof, but, except as specified above, the remainder
of this Indenture and such Securities shall be unaffected thereby.
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Section 11.4 Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section 11.2
or Section 11.3 hereof to the Outstanding Securities:
(a) The Company or any Subsidiary Guarantor shall irrevocably have
deposited or caused to be deposited with the Trustee (or another trustee
satisfying the requirements of Section 5.7 hereof who shall agree to comply with
the provisions of this Article XI applicable to it) as trust funds in trust for
the purpose of making the following payments, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of such Securities, (i)
cash in U.S. Dollars in an amount, or (ii) U.S. Government Obligations which
through the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the due
date of any payment, money in an amount, or (iii) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by the Trustee (or
other qualifying trustee) to pay and discharge, the principal of (and premium,
if any, on) and interest on the Outstanding Securities on the Stated Maturity
(or Redemption Date, if applicable) of such principal (and premium, if any) or
installment of interest; provided that the Trustee shall have been irrevocably
instructed in writing by the Company to apply such money or the proceeds of such
U.S. Government Obligations to said payments with respect to the Securities.
Before such a deposit, the Company may give to the Trustee, in accordance with
Section 10.3 hereof, a notice of its election to redeem all of the Outstanding
Securities at a future date in accordance with Article X hereof, which notice
shall be irrevocable. Such irrevocable redemption notice, if given, shall be
given effect in applying the foregoing. For this purpose, "U.S. Government
Obligations" means securities that are (x) direct obligations of the United
States of America for the timely payment of which its full faith and credit is
pledged or (y) obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America the timely payment
of which is unconditionally guaranteed as a full faith and credit obligation by
the United States of America, which, in either case, are not callable or
redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act), as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
(b) No Default or Event of Default with respect to the Securities shall
have occurred and be continuing on the date of such deposit.
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(c) Such legal defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest under this Indenture or the Trust
Indenture Act with respect to any securities of the Company.
(d) Such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under any other material
agreement or instrument to which the Company or any Subsidiary Guarantor is a
party or by which it is bound, as evidenced to the Trustee in an Officers'
Certificate delivered to the Trustee concurrently with such deposit.
(e) In the case of an election under Section 11.2 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable Federal income tax laws; in either case providing that
the Holders of the Outstanding Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such legal defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such legal defeasance had
not occurred (it being understood that (x) such Opinion of Counsel shall also
state that such ruling or applicable law is consistent with the conclusions
reached in such Opinion of Counsel and (y) the Trustee shall be under no
obligation to investigate the basis of correctness of such ruling).
(f) In the case of an election under Section 11.3 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Securities will not recognize income, gain or loss
for federal income tax purposes as a result of such covenant defeasance and will
be subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such covenant defeasance had not
occurred.
(g) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the legal defeasance under Section
11.2 hereof or the covenant defeasance under Section 11.3 (as the case may be)
have been complied with.
Section 11.5 Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 9.3 hereof, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee--collectively for purposes of this
Section 11.5, the "Trustee") pursuant to Section 11.4 hereof in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due
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thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 11.4 hereof or the principal and interest received
in respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the Outstanding Securities.
Anything in this Article XI to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 11.4
hereof which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent legal defeasance or covenant defeasance, as
applicable, in accordance with this Article.
Section 11.6 Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 11.5 hereof by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's and any Subsidiary Guarantors' obligations
under this Indenture and the Securities shall be revived and reinstated as
though no deposit had occurred pursuant to Section 11.2 or 11.3 hereof, as the
case may be, until such time as the Trustee or Paying Agent is permitted to
apply all such money in accordance with Section 11.5 hereof; provided, however,
that if the Company or any Subsidiary Guarantor makes any payment of principal
of (or premium, if any, on) or interest on any Security following the
reinstatement of its obligations, the Company or such Subsidiary Guarantor shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE XII
GUARANTEES
Section 12.1 Unconditional Guarantee.
Each Restricted Subsidiary that hereafter becomes a Subsidiary Guarantor
shall unconditionally, jointly and severally, guarantee (each such guarantee to
be referred to herein as a "Subsidiary Guarantee," with all such guarantees
being referred to herein as the "Subsidiary Guarantees") to each Holder of
Securities authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, the full and prompt performance of the Company's
obligations under this Indenture and the Securities and that:
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(a) the principal of (or premium, if any, on) and interest on the
Securities will be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of
and interest on the Securities, if any, to the extent lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or thereunder
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and
(b) in case of any extension of time of payment or renewal of any
Securities or of any such other obligations, the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at Stated Maturity, by acceleration or otherwise;
subject, however, in the case of clauses (a) and (b) above, to the limitations
set forth in Section 12.4 hereof.
Failing payment when due of any amount so guaranteed or any performance so
guaranteed for whatever reason, the Subsidiary Guarantors will be jointly and
severally obligated to pay the same immediately. The obligations of each
Subsidiary Guarantor hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of the Securities or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
of the Securities with respect to any provisions hereof or thereof, the recovery
of any judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor. Each Subsidiary Guarantor shall waive diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding first
against the Company, protest, notice and all demands whatsoever and shall
covenant that its Subsidiary Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities, this Indenture and
in the Subsidiary Guarantee. If any Holder or the Trustee is required by any
court or otherwise to return to the Company, any Subsidiary Guarantor, or any
custodian, trustee, liquidator or other similar official acting in relation to
the Company or any Subsidiary Guarantor, any amount paid by the Company or any
Subsidiary Guarantor to the Trustee or such Holder, the Subsidiary Guarantee, to
the extent theretofore discharged, shall be reinstated in full force and effect.
No Subsidiary Guarantor shall be entitled to any right of subrogation in
relation to the Holders in respect of any obligations guaranteed by the
Subsidiary Guarantee until payment in full of all obligations guaranteed
thereby. Each Subsidiary Guarantor shall further agree that, as between each
Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (i) the maturity of the obligations guaranteed by the Subsidiary
Guarantee may be accelerated as provided in Article IV hereof for the purposes
of the Subsidiary Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed by the Subsidiary Guarantee, and (ii) in the event of any
acceleration of such obligations as provided in Article IV hereof, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Subsidiary Guarantor for the purpose of the Subsidiary
Guarantee.
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Section 12.2 Subsidiary Guarantors May Consolidate, etc. on Certain Terms.
(a) Except as set forth in Articles VII and IX hereof, nothing
contained in this Indenture or in any of the Securities shall prevent any
consolidation or merger of a Subsidiary Guarantor with or into the Company or
another Subsidiary Guarantor or shall prevent any sale or conveyance of the
assets of a Subsidiary Guarantor as an entirety or substantially as an entirety,
to the Company or another Subsidiary Guarantor.
(b) Except as set forth in Articles VII and IX hereof, nothing
contained in this Indenture or in any of the Securities shall prevent any
consolidation or merger of a Subsidiary Guarantor with or into a corporation or
corporations other than the Company or a Subsidiary Guarantor (whether or not
affiliated with the Subsidiary Guarantor), or successive consolidations or
mergers in which a Subsidiary Guarantor or its successor or successors shall be
a party or parties, or shall prevent any sale or conveyance of the Properties of
a Subsidiary Guarantor as an entirety or substantially as an entirety, to a
corporation other than the Company or another Subsidiary Guarantor (whether or
not Affiliated with the Subsidiary Guarantor) authorized to acquire and operate
the same; provided, however, that, subject to Sections 12.2(a) and 12.3 hereof,
(A) immediately after such transaction, and giving effect thereto, no Default or
Event of Default shall have occurred as a result of such transaction and be
continuing, (B) such transaction shall not violate any of the covenants in
Sections 9.1 through 9.19 hereof, and (C) each Subsidiary Guarantor shall
covenant and agree that, upon any such consolidation, merger, sale or
conveyance, such Subsidiary Guarantor's Subsidiary Guarantee set forth in this
Article XII and in a notation to the Securities, and the due and punctual
performance and observance of all of the covenants and conditions of this
Indenture to be performed by such Subsidiary Guarantor, shall be expressly
assumed (in the event that the Subsidiary Guarantor is not the surviving
corporation in the merger), by supplemental indenture satisfactory in form to
the Trustee, executed and delivered to the Trustee, by such corporation formed
by such consolidation, or into which the Subsidiary Guarantor shall have merged,
or by the corporation that shall have acquired such Property (except to the
extent the following Section 12.3 would result in the release of such Subsidiary
Guarantee in which case such surviving corporation does not have to execute any
such supplemental indenture). In the case of any such consolidation, merger,
sale or conveyance and upon the assumption by the successor corporation, by
supplemental indenture executed and delivered to the Trustee and satisfactory in
form to the Trustee of the due and punctual performance of all of the covenants
and conditions of this Indenture to be performed by the Subsidiary Guarantor,
such successor corporation shall succeed to and be substituted for the
Subsidiary Guarantor with the same effect as if it had been named herein as a
Subsidiary Guarantor.
Section 12.3 Release of a Subsidiary Guarantor.
The Subsidiary Guarantee of any Restricted Subsidiary may be released upon
the terms and subject to the conditions set forth in Section 9.12 (c) hereof.
Each Subsidiary Guarantor that is designated as an Unrestricted Subsidiary in
accordance with the provisions of this Indenture shall be released from all of
its Subsidiary Guarantee and related obligations set forth in this Indenture for
so long as it remains an Unrestricted Subsidiary. The Trustee shall deliver an
appropriate instrument
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evidencing such release upon receipt of a Company Request accompanied by an
Officers' Certificate and an Opinion of Counsel certifying that such sale or
other disposition was made by the Company in accordance with the provisions of
this Indenture. Any Subsidiary Guarantor not so released remains liable for the
full amount of principal of (and premium, if any, on) and interest on the
Securities as provided in this Article XII.
Section 12.4 Limitation of Subsidiary Guarantor's Liability.
Each Subsidiary Guarantor shall confirm, and by its acceptance hereof each
Holder hereby confirms, that it is the intention of all such parties that the
Guarantee by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee not
constitute a fraudulent transfer or conveyance for purposes of any federal or
state law. To effectuate the foregoing intention, the Holders hereby irrevocably
agree, and each Subsidiary Guarantor shall irrevocably agree, that the
obligations of each Subsidiary Guarantor under its Subsidiary Guarantee shall be
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities (including, but not limited to, Guarantor
Senior Indebtedness) of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to Section 12.5 hereof, result in the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. This Section 12.4 is for the benefit of the creditors of each
Subsidiary Guarantor.
Section 12.5 Contribution.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors shall agree, inter se, that in
the event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under its Subsidiary Guarantee, such Funding Guarantor
shall be entitled to a contribution from each other Subsidiary Guarantor (if
any) in a pro rata amount based on the Adjusted Net Assets of each Subsidiary
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Securities or any other Subsidiary Guarantor's
obligations with respect to its Subsidiary Guarantee.
Section 12.6 Execution and Delivery of Notation of Subsidiary Guarantee.
To evidence the Subsidiary Guarantee set forth in Section 12.1 hereof, the
Company shall cause each Subsidiary Guarantor to execute the notation of
Subsidiary Guarantee in substantially the form set forth in Exhibit B attached
hereto to be endorsed on each Security ordered to be authenticated and delivered
by the Trustee, and shall cause this Indenture or a supplemental indenture to be
executed on behalf of each Subsidiary Guarantor by its President or one of its
Vice Presidents and attested to by one of its Secretaries or Assistant
Secretaries. Each Subsidiary Guarantor shall agree that its Subsidiary Guarantee
set forth in Section 12.1 hereof shall remain in full force and effect
notwithstanding any failure to endorse on each Security a notation of such
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Subsidiary Guarantee. Each such notation of Subsidiary Guarantee shall be signed
on behalf of each Subsidiary Guarantor by two Officers, or an Officer and an
Assistant Secretary or one Officer shall sign and one Officer or an Assistant
Secretary (each of whom shall, in each case, have been duly authorized by all
requisite corporate actions) shall attest to such notation of Subsidiary
Guarantee prior to the authentication of the Security on which it is endorsed,
and the delivery of such Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set
forth in this Indenture on behalf of the Subsidiary Guarantors. Such signatures
upon the notation of Subsidiary Guarantee may be by manual or facsimile
signature of such officers and may be imprinted or otherwise reproduced on the
Subsidiary Guarantee, and in case any such officer who shall have signed the
notation of Subsidiary Guarantee shall cease to be such officer before the
Security on which such notation of Subsidiary Guarantee is endorsed shall have
been authenticated and delivered by the Trustee or disposed of by the Company,
such Security nevertheless may be authenticated and delivered or disposed of as
though the person who signed the notation of Subsidiary Guarantee had not ceased
to be such officer of the Subsidiary Guarantor.
Section 12.7 Severability.
In case any provision of the Subsidiary Guarantee shall be invalid, illegal
or unenforceable, that portion of such provision that is not invalid, illegal or
unenforceable shall remain in effect, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 12.8 Subsidiary Guarantees Subordinated to Guarantor Senior
Indebtedness.
Each Subsidiary Guarantor shall covenant and agree, and each Holder of a
Security, by his acceptance of the Subsidiary Guarantees, covenants and agrees,
for the benefit of the holders, from time to time, of Guarantor Senior
Indebtedness, that the payments by such Subsidiary Guarantor in respect of its
Subsidiary Guarantee are subordinated and subject in right of payment, to the
extent and in the manner provided in this Article XII, to the prior payment in
full of all Guarantor Senior Indebtedness of such Subsidiary Guarantor, whether
outstanding on the date of this Indenture or thereafter created, incurred,
assumed or guaranteed; provided, however, that the Subsidiary Guarantees of the
Subsidiary Guarantors, the Indebtedness represented thereby and the payment of
the principal of (and premium, if any, on) and the interest on the Securities
pursuant to the Subsidiary Guarantees in all respects shall rank pari passu
with, or prior to, all existing and future unsecured indebtedness (including,
without limitation, Indebtedness) of the Subsidiary Guarantors that is
subordinated to the Guarantor Senior Indebtedness.
This Article XII shall constitute a continuing offer to all Persons who, in
reliance upon such provisions, become holders of, or continue to hold, Guarantor
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Guarantor Senior Indebtedness, and such holders are made obligees hereunder
and any of them may enforce such provisions.
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Section 12.9 Subsidiary Guarantors Not to Make Payments with Respect to
Subsidiary Guarantees in Certain Circumstances.
(a) No payment or distribution of any Property of any Subsidiary
Guarantor of any kind or character (other than Permitted Guarantor Junior
Securities) may be made by such Subsidiary Guarantor in respect of its
Subsidiary Guarantee upon the happening of any default in respect of the payment
or required prepayment of any of its Guarantor Senior Indebtedness when the same
becomes due and payable (a "Subsidiary Guarantor Payment Default"), unless and
until such Subsidiary Guarantor Payment Default shall have been cured or waived
in writing or shall have ceased to exist or such Guarantor Senior Indebtedness
shall have been paid in full or otherwise discharged, after which such
Subsidiary Guarantor shall resume making any and all required payments in
respect of its Subsidiary Guarantee, including any missed payments.
(b) Upon the happening of any event (other than a Subsidiary
Guarantor Payment Default) the occurrence of which entitles one or more Persons
to accelerate the maturity of any Designated Guarantor Senior Indebtedness (a
"Subsidiary Guarantor Non-payment Default"), and receipt by the applicable
Subsidiary Guarantor and a Responsible Officer of the Trustee, on behalf of the
Trustee, of written notice thereof from one or more of the holders of such
Designated Guarantor Senior Indebtedness or their representative (a "Subsidiary
Guarantor Payment Notice"), then, unless and until such Subsidiary Guarantor
Non-payment Default shall have been cured or waived in writing or shall have
ceased to exist or such Designated Guarantor Senior Indebtedness is paid in full
or otherwise discharged or the holders (or a representative of the holders) of
such Designated Guarantor Senior Indebtedness give their written approval, no
payment or distribution shall be made by such Subsidiary Guarantor in respect of
its Subsidiary Guarantee (other than Permitted Guarantor Junior Securities);
provided, however, that these provisions will not prevent the making of any
payment for more than 179 days after a Subsidiary Guarantor Payment Notice shall
have been given after which, subject to Section 12.9(a), such Subsidiary
Guarantor will resume making any and all required payments in respect of its
Subsidiary Guarantee, including any missed payments. Notwithstanding any other
provision of this Indenture, only one Subsidiary Guarantor Payment Notice shall
be given with respect to any Subsidiary Guarantee within any 360 consecutive day
period. No Subsidiary Guarantor Non-payment Default with respect to Designated
Guarantor Senior Indebtedness that existed or was continuing on the date of any
Subsidiary Guarantor Payment Notice with respect to the Designated Guarantor
Senior Indebtedness initiating such Subsidiary Guarantor Payment Notice shall
be, or can be, made the basis for the commencement of a subsequent Subsidiary
Guarantor Payment Notice with respect to such Subsidiary Guarantee, whether or
not within a period of 360 consecutive days, unless such default shall have 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 Subsidiary
Guarantor Payment Notice, that, in either case, would give rise to a Subsidiary
Guarantor Non-payment Default pursuant to any provision under which a Subsidiary
Guarantor Non-payment Default previously existed or was continuing shall
constitute a new Subsidiary Guarantor Non-payment Default for this purpose;
provided that, in the case of a breach of a particular financial covenant, such
Subsidiary Guarantor shall have been in compliance for at least one full 90
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consecutive day period commencing after the date of commencement of such
Subsidiary Guarantor Payment Notice). In no event shall a Subsidiary Guarantor
Payment Notice extend beyond 179 days from the date of its receipt and there
must be a 181 consecutive day period in any 360 consecutive day period during
which no Subsidiary Guarantor Payment Notice is in effect with respect to such
Subsidiary Guarantee.
(c) In the event that, notwithstanding the foregoing, a
Subsidiary Guarantor shall make any payment in respect of its Subsidiary
Guarantee to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section 12.9, then and in such event such payment
shall be paid over and delivered forthwith to the Company. In the event that a
Subsidiary Guarantor shall make any payment in respect of its Subsidiary
Guarantee to the Trustee and a Responsible Officer of the Trustee, on behalf of
the Trustee, shall receive written notice of a Subsidiary Guarantor Payment
Default or a Subsidiary Guarantor Non-payment Default from one or more of the
Holders of Guarantor Senior Indebtedness (or their representative) prior to
making any payment to Holders in respect of the Subsidiary Guarantee and prior
to 11:00 a.m. Eastern Time on the date which is two Business Days prior to the
date upon which by the terms hereof any money may become payable for any
purpose, such payments shall be paid over by the Trustee and delivered forthwith
to the Company. Each Subsidiary Guarantor shall give prompt written notice to
the Trustee of any default under any of its Guarantor Senior Indebtedness or
under any agreement pursuant to which its Guarantor Senior Indebtedness may have
been issued.
Section 12.10 Subsidiary Guarantees Subordinated to Prior Payment of All
Guarantor Senior Indebtedness upon Dissolution, etc.
Upon any distribution of Properties of any Subsidiary Guarantor or payment
on behalf of a Subsidiary Guarantor in the event of any Insolvency or
Liquidation Proceeding with respect to such Subsidiary Guarantor:
(a) the holders of such Subsidiary Guarantor's Guarantor Senior
Indebtedness shall be entitled to receive payment in full of such Guarantor
Senior Indebtedness (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Indebtedness, whether
or not a claim for such interest would be allowed in such a proceeding) before
the Holders are entitled to receive any direct or indirect payment or
distribution of any kind or character, whether in cash, property or securities
(other than Permitted Guarantor Junior Securities), on account of any payment in
respect of such Subsidiary Guarantor's Subsidiary Guarantee;
(b) any direct or indirect payment or distribution of Properties
of such Subsidiary Guarantor of any kind or character, whether in cash, property
or securities (other than a payment or distribution in the form of Permitted
Guarantor Junior Securities), by set-off or otherwise, to which the Holders or
the Trustee, on behalf of the Holders, would be entitled except for the
provisions of this Article XII, shall be paid by the Subsidiary Guarantor or by
any liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise, directly to the holders of such Guarantor Senior Indebtedness or
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their representative or representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Guarantor
Indebtedness may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of such Guarantor Senior Indebtedness held or
represented by each, to the extent necessary to make payment in full of all such
Guarantor Senior Indebtedness, after giving effect to any concurrent payment or
distribution to the holders of such Guarantor Senior Indebtedness;
(c) in the event that, notwithstanding the foregoing provisions
of this Section 12.10, any direct or indirect payment or distribution of
Properties of such Subsidiary Guarantor of any kind or character, whether in
cash, property or securities (other than a payment or distribution in the form
of Permitted Guarantor Junior Securities), shall be received by the Trustee or
the Holders before all such Guarantor Senior Indebtedness is paid in full or
otherwise discharged, such Properties shall be received and held in trust for
and shall be paid over to the holders of such Guarantor Senior Indebtedness
remaining unpaid or their representatives, for application to the payment of
such Guarantor Senior Indebtedness until all such Guarantor Senior Indebtedness
shall have been paid or provided for in full, after giving effect to any
concurrent payment or distribution to the holders of such Guarantor Senior
Indebtedness;
(d) to the extent any payment of or distribution in respect of
Senior Indebtedness (whether by or on behalf of the Company or any Subsidiary
Guarantor, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar Person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then if such payment or distribution is recovered by,
or paid over to, such receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar person, the Senior Indebtedness or part thereof
originally intended to be satisfied shall be deemed to be reinstated and
outstanding as if such payments had not occurred; and
(e) to the extent that the obligation to repay any Senior
Indebtedness is declared to be fraudulent, invalid or otherwise set aside under
any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then the obligation so declared fraudulent, invalid or otherwise set aside (and
all other amounts that would come due with respect thereto had such obligation
not been so affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes hereof as if such declaration, invalidity or
setting aside had not occurred.
The Company or a Subsidiary Guarantor shall give prompt written notice to a
Responsible Officer of the Trustee, on behalf of the Trustee, of the occurrence
of any Insolvency or Liquidation Proceeding with respect to such Subsidiary
Guarantor.
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Section 12.11 Holders to be Subrogated to Rights of Holders of Guarantor Senior
Indebtedness.
After the payment in full of all Guarantor Senior Indebtedness of a
Subsidiary Guarantor, the Holders shall be subrogated (equally and ratably with
the holders of all other Indebtedness of such Subsidiary Guarantor which by its
express terms is subordinated to such Guarantor Senior Indebtedness to
substantially the same extent as such Subsidiary Guarantee is so subordinated
and which is entitled to like rights of subrogation as a result of payments made
to the holders of such Guarantor Senior Indebtedness) to the rights of the
holders of such Guarantor Senior Indebtedness to receive payments or
distributions of cash, property and securities of such Subsidiary Guarantor
applicable to such Guarantor Senior Indebtedness until all amounts owing on the
Securities shall be paid in full, and for the purpose of such subrogation no
payments or distributions to the holders of such Guarantor Senior Indebtedness
by or on behalf of such Subsidiary Guarantor or by or on behalf of the Holders
by virtue of this Article XII which otherwise would have been made to the
Holders shall, as between such Subsidiary Guarantor, its creditors other than
the holders of Guarantor Senior Indebtedness, and the Holders of the Securities,
be deemed to be a payment or distribution by such Subsidiary Guarantor to or on
account of such Guarantor Senior Indebtedness, it being understood that the
subordination provisions of this Article XII are, and are intended solely for,
the purpose of defining the relative rights of the Holders, on the one hand, and
the holders of Guarantor Senior Indebtedness, on the other hand.
Section 12.12 Obligations of the Subsidiary Guarantors Unconditional.
Nothing contained in this Article XII or elsewhere in this Indenture or in
any Security is intended to or shall impair, as between Subsidiary Guarantors
and the Holders, the obligation of the Subsidiary Guarantors under the
Subsidiary Guarantees, or is intended to or shall affect the relative rights of
the Holders and creditors of the Subsidiary Guarantors, nor shall anything
herein or therein prevent the Trustee or any Holder from exercising all remedies
otherwise permitted by applicable law upon Default under this Indenture subject
to the rights, if any, under this Article XII of the holders of Guarantor Senior
Indebtedness in respect of cash, property or securities of any Subsidiary
Guarantor received upon the exercise of any such remedy. Upon any distribution
of Properties of a Subsidiary Guarantor referred to in this Article XII, the
Trustee, subject to the provisions of Section 5.2 hereof, and the Holders of the
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of a trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, or agent or other person making any distribution to the Trustee or
to the Holders of the Securities, for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the related
Guarantor Senior Indebtedness and other indebtedness of such Subsidiary
Guarantor, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
XII.
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Section 12.13 Trustee Entitled to Assume Payments Not Prohibited in Absence of
Notice.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts (other than the existence of a Payment Default or a
Payment Blockage Period) that would prohibit the making of any payment to or by
the Trustee, unless a Responsible Officer of the Trustee, on behalf of the
Trustee, shall have received at the Corporate Trust Office written notice
thereof from a Subsidiary Guarantor or from one or more holders of Guarantor
Senior Indebtedness or Designated Guarantor Senior Indebtedness, in the case of
a Subsidiary Guarantor Non-payment Default, or from any representative thereof;
and, prior to the receipt of any such written notice, the Trustee, subject to
TIA Sections 315(a) through 315(d), shall be entitled to assume conclusively
that no such facts exist. The Trustee shall be entitled to rely on the delivery
to it of a written notice by a Person representing himself to be a holder of
Guarantor Senior Indebtedness or Designated Guarantor Senior Indebtedness, in
the case of a Subsidiary Guarantor Non-payment Default (or a representative on
behalf of such holder), to establish that such notice has been given by a holder
of Guarantor Senior Indebtedness or Designated Guarantor Senior Indebtedness, in
the case of a Subsidiary Guarantor Non-payment Default, or a representative on
behalf of any such holder or holders.
Section 12.14 Application by Trustee of Money Deposited with it.
Except as provided in Article XIV, any deposit of money by a Subsidiary
Guarantor with the Trustee or any Paying Agent (whether or not in trust) for any
payment in respect of the related Subsidiary Guarantee shall be subject to the
provisions of Sections 12.8, 12.9, 12.10 and 12.11 hereof except that, if a
Payment Default does not exist, a Payment Blockage Period is not in effect and
if prior to 11:00 a.m. Eastern time on the date which is one Business Day prior
to the date on which by the terms of this Indenture any such money may become
payable for any purpose, the Trustee or, in the case of any such deposit of
money with a Paying Agent, the Paying Agent shall not have received with respect
to such money the notice provided for in Section 12.13 hereof, then the Trustee
or such Paying Agent, as the case may be, shall have full power and authority to
receive such money and to apply the same to the purpose for which it was
received, and shall not be affected by any notice to the contrary which may be
received by it on or after 11:00 a.m., Eastern time, one Business Day prior to
such payment date. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article XII, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article XII, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
The Trustee, however, shall not be deemed to owe any fiduciary duty to the
holders of Guarantor Senior Indebtedness but shall have only such obligations to
such holders as are expressly set forth in this Article XII.
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Section 12.15 Subordination Rights Not Impaired by Acts or Omissions of
Subsidiary Guarantors or Holders of Guarantor Senior
Indebtedness.
No right of any present or future holders of any Guarantor Senior
Indebtedness of a Subsidiary Guarantor to enforce subordination as provided
herein shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of such Subsidiary Guarantor or by any act or failure
to act by any such holder, or by any noncompliance by such Subsidiary Guarantor
with the terms of this Indenture, regardless of any knowledge thereof which any
such holder may have or be otherwise charged with.
Without in any way limiting the generality of the preceding paragraph of
this Section, the holders of Guarantor Senior Indebtedness may, at any time and
from time to time, without the consent of or notice to the Trustee or the
Holders of the Securities, without incurring responsibility to the Holders of
the Securities and without impairing or releasing the subordination or other
benefits provided in this Article, or the obligations hereunder of the Holders
of the Securities to the holders of Guarantor Senior Indebtedness, do any one or
more of the following: (a) change the manner, place or terms of payment or
extend the time of payment of, or renew, exchange, amend, increase or alter,
Guarantor Senior Indebtedness or the term of any instrument evidencing the same
or any agreement under which Guarantor Senior Indebtedness is outstanding or any
liability of any obligor thereon (unless such change, extension or alteration
results in such Indebtedness no longer being Guarantor Senior Indebtedness as
defined in this Indenture); (b) sell, exchange, release or otherwise deal with
any Property pledged, mortgaged or otherwise securing Guarantor Senior
Indebtedness; (c) settle or compromise any Guarantor Senior Indebtedness or any
liability of any obligor thereon or release any Person liable in any manner for
the collection of Guarantor Senior Indebtedness; and (d) exercise or refrain
from exercising any rights against the Company and any other Person.
Section 12.16 Holders Authorize Trustee to Effectuate Subordination of
Subsidiary Guarantees.
Each Holder, by his acceptance thereof, authorizes and expressly directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article XII and appoints the
Trustee as his attorney-in-fact for such purpose, including, in the event of any
Insolvency or Liquidation Proceeding with respect to any Subsidiary Guarantor,
the immediate filing of a claim for the unpaid balance of his Securities
pursuant to the related Subsidiary Guarantee in the form required in said
proceedings and the causing of said claim to be approved.
Section 12.17 Right of Trustee to Hold Guarantor Senior Indebtedness.
The Trustee shall be entitled to all of the rights set forth in this
Article XII in respect of any Guarantor Senior Indebtedness at any time held by
it to the same extent as any other holder of Guarantor Senior Indebtedness, and
nothing in this Indenture shall be construed to deprive the Trustee of any of
its rights as such holder.
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Section 12.18 Article XII Not to Prevent Events of Default.
The failure to make a payment on account of the Subsidiary Guarantees by
reason of any provision in this Article XII shall not be construed as preventing
the occurrence of an Event of Default under this Indenture.
Section 12.19 Payment.
For purposes of this Article XII, a payment with respect to any Subsidiary
Guarantee or with respect to principal of or interest on any Security or any
Subsidiary Guarantee shall include, without limitation, payment of principal of
and interest on any Security, any depositing of funds under Article IV hereof,
any payment on account of any repurchase or redemption of any Security and any
payment or recovery on any claim (whether for rescission or damages and whether
based on contract, tort, duty imposed by law, or any other theory of liability)
relating to or arising out of the offer, sale or purchase of any Security.
ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1 Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees for the benefit of the
holders, from time to time, of Senior Indebtedness, that, to the extent and in
the manner hereinafter set forth in this Article XIII, the Indebtedness
represented by the Securities and the payment of and distributions of or with
respect to the Note Obligations are hereby expressly made subordinate and
subject in right of payment as provided in this Article XIII to the prior
payment in full in cash or Cash Equivalents of all amounts payable under all
existing and future Senior Indebtedness which includes, without limitation, all
Credit Agreement Obligations of the Company.
This Article XIII shall constitute a continuing offer to all persons who,
in reliance upon such provisions, become holders of, or continue to hold Senior
Indebtedness; and such provisions are made for the benefit of the holders of
Senior Indebtedness; and such holders are made obligees hereunder and they or
each of them may enforce such provisions.
Section 13.2 Payment Over of Proceeds upon Dissolution, etc.
In the event of an Insolvency or Liquidation Proceeding with respect to the
Company:
(i) the holders of all Senior Indebtedness shall be
entitled to receive payment in full in cash or Cash Equivalents of all
Senior Indebtedness (including interest after the commencement of such
proceeding at the rate specified in the applicable Senior
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Indebtedness, whether or not a claim for such interest would be allowed in
such proceeding) before the Holders of the Securities are entitled to
receive any direct or indirect payment or distribution whether in cash,
property or securities (excluding Permitted Junior Securities of the
Company) on account of the Note Obligations;
(ii) any direct or indirect payment or distribution of
properties or assets of the Company of any kind or character, whether in
cash, property or securities (excluding Permitted Junior Securities of the
Company), by set-off or otherwise, to which the Holders or the Trustee
would be entitled but for the provisions of this Article XIII shall be paid
by the liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holders of Senior Indebtedness or
their representative or representatives or to the trustee or trustees under
any indenture under which any instruments evidencing any of such Senior
Indebtedness may have been issued, ratably according to the aggregate
amounts remaining unpaid on account of the Senior Indebtedness held or
represented by each, to the extent necessary to make payment in full in
cash or cash equivalents of all Senior Indebtedness remaining unpaid, after
giving effect to any concurrent payment or distribution to the holders of
such Senior Indebtedness;
(iii) in the event that, notwithstanding the foregoing
provisions of this Section 13.2, the Trustee or the Holder of any Security
shall have received 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 any Note Obligations
before all Senior Indebtedness is paid or provided for in full, then and in
such event such payment or distribution (excluding Permitted Junior
Securities of the Company) shall be paid over or delivered forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee,
agent or other person making payment or distribution of assets of the
Company for application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay all Senior Indebtedness in full,
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Indebtedness;
(iv) to the extent any payment of or distribution in
respect of Senior Indebtedness (whether by or on behalf of the Company or
any Subsidiary Guarantor, as proceeds of security or enforcement of any
right of setoff or otherwise) is declared to be fraudulent or preferential,
set aside or required to be paid to any receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person under any bankruptcy,
insolvency, receivership, fraudulent conveyance or similar law, then if
such payment or distribution is recovered by, or paid over to, such
receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar person, the Senior Indebtedness or part thereof originally intended
to be satisfied shall be deemed to be reinstated and outstanding as if such
payments had not occurred; and
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(v) to the extent that the obligation to repay any Senior
Indebtedness is declared to be fraudulent, invalid or otherwise set aside
under any bankruptcy, insolvency, receivership, fraudulent conveyance or
similar law, then the obligation so declared fraudulent, invalid or
otherwise set aside (and all other amounts that would come due with respect
thereto had such obligation not been so affected) shall be deemed to be
reinstated and outstanding as Senior Indebtedness for all purposes hereof
as if such declaration, invalidity or setting aside had not occurred.
The consolidation of the Company with, or the merger of the Company with or
into, another person or the liquidation or dissolution of the Company following
the conveyance, transfer or lease of its properties and assets substantially as
an entirety to another person upon the terms and conditions set forth in Article
VII hereof shall not be deemed a dissolution, winding-up, liquidation,
reorganization, assignment for the benefit of creditors or marshalling of assets
and liabilities of the Company for the purposes of this Article if the person
formed by such consolidation or the surviving entity of such merger or the
person which acquires by conveyance, transfer or lease such properties and
assets substantially as an entirety, as the case may be, shall, as a part of
such consolidation, merger, conveyance, transfer or lease, comply with the
conditions set forth in such Article VII hereof to the extent applicable.
Section 13.3 Suspension of Payment When Senior Indebtedness in Default.
(a) Unless Section 13.2 hereof shall be applicable, upon the
occurrence of a Payment Default, no direct or indirect payment or distribution
of any assets of the Company of any kind or character shall be made by or on
behalf of the Company on account of the Note Obligations or on account of the
purchase or redemption or other acquisition of any Note Obligations unless and
until such Payment Default shall have been cured or waived or shall have ceased
to exist or such Designated Senior Indebtedness shall have been discharged or
paid in full in cash in Cash Equivalents, after which, subject to Section 13.2
hereof (if applicable), the Company shall resume making any and all required
payments in respect of the Securities and the other Note Obligations, including
any missed payments.
(b) Unless Section 13.2 hereof shall be applicable, upon (i) the
occurrence of a Non-payment Default and (ii) receipt by the Trustee from a
Senior Representative of written notice (a "Payment Blockage Notice") of such
occurrence stating that such notice is a Payment Blockage Notice pursuant to
this Section 13.3(b) of this Indenture, no payment or distribution of any assets
of the Company of any kind or character shall be made by or on behalf of the
Company on account of any Note Obligations or on account of the purchase or
redemption or other acquisition of Note Obligations for a period ("Payment
Blockage Period") commencing on the date of receipt by the Trustee of such
notice unless and until the earlier to occur of the following events (subject to
any blockage of payments that may then be in effect under Section 13.2 hereof or
subsection (a) of this Section 13.3 hereof) (w) 179 days shall have elapsed
since receipt of such written notice by the Trustee, (x) the date, as set forth
in a written notice to the Company or the Trustee from the Senior Representative
initiating such Payment Blockage Period, on which such Non-payment Default shall
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have been cured or waived or shall have ceased to exist (provided that no other
Payment Default or Non-Payment Default has occurred and is then continuing after
giving effect to such cure or waiver), (y) such Designated Senior Indebtedness
shall have been discharged or paid in full in cash or Cash Equivalents or (z)
such Payment Blockage Period shall have been terminated by written notice to the
Company or the Trustee from the Senior Representative initiating such Payment
Blockage Period, after which, subject to Sections 13.2 and 13.3(a) hereof (if
applicable), the Company shall promptly resume making any and all required
payments in respect of the Note Obligations, including any missed payments.
Notwithstanding any other provision of this Indenture, only one Payment Blockage
Period 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 shall 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 shall have 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, 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 shall a
Payment Blockage Period extend beyond 179 days from the date of the receipt of
the notice referred to in clause (ii) hereof and there must be a 181 consecutive
day period in any 360 consecutive day period during which no Payment Blockage
Period is in effect pursuant to this Section 13.3(b).
(c) In the event that, notwithstanding the foregoing, the
Trustee or the Holder of any Security shall have received any payment or
distribution prohibited by the foregoing provisions of this Section 13.3, then
and in such event such payment or distribution shall be paid over and delivered
forthwith to the Senior Representatives or as a court of competent jurisdiction
shall direct for application to the payment of any due and unpaid Senior
Indebtedness, to the extent necessary to pay all such due and unpaid Senior
Indebtedness in cash or Cash Equivalents, after giving effect to any concurrent
payment to or for the holders of Senior Indebtedness.
Section 13.4 Trustee's Relation to Senior Indebtedness.
With respect to the holders of Senior Indebtedness, notwithstanding any
other provisions of this Indenture, the Trustee undertakes to perform or to
observe only such of its covenants and obligations as are specifically set forth
in this Article XIII, and no implied covenants or obligations with respect to
the holders of Senior Indebtedness shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and the Trustee shall not be liable to any holder
of Senior Indebtedness if it shall mistakenly (but not as a result of willful
misconduct or gross negligence of the Trustee) pay over or
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deliver to Holders, the Company or any other person moneys or assets to which
any holder of Senior Indebtedness shall be entitled by virtue of this Article
XIII or otherwise.
Section 13.5 Subrogation to Rights of Holders of Senior Indebtedness.
Upon the payment in full of cash or Cash Equivalents of all Senior
Indebtedness, the Holders of the Securities shall be subrogated (equally and
ratably with the holders of all indebtedness of the Company which by its express
terms is subordinated to Senior Indebtedness to substantially the same extent as
the Securities are so subordinated and which is entitled to like rights of
subrogation as a result of the payments made to the holders of Senior
Indebtedness) to the rights of the holders of such Senior Indebtedness to
receive payments and distributions of cash, property and securities applicable
to the Senior Indebtedness until the principal of, premium, if any, and interest
on the Securities shall be paid in full in cash or Cash Equivalents. For
purposes of such subrogation, no payments or distributions to the holders of
Senior Indebtedness of any cash, property or securities to which the Holders of
the Securities or the Trustee would be entitled except for the provisions of
this Article XIII, and no payments over pursuant to the provisions of this
Article XIII to the holders of Senior Indebtedness by Holders of the Securities
or the Trustee shall, as among the Company, its creditors other than holders of
Senior Indebtedness, and the Holders of the Securities, be deemed to be payment
or distribution by the Company to or on account of the Senior Indebtedness.
If any payment or distribution to which the Holders would otherwise have
been entitled but for the provisions of this Article XIII shall have been
applied, pursuant to the provisions of this Article XIII, to the payment of all
amounts payable under the Senior Indebtedness of the Company and such payments
or distributions received by such holders of such Senior Indebtedness shall be
in excess of the amount sufficient to pay all amounts payable under or in
respect of such Senior Indebtedness in full in cash or cash equivalents, then
and in such case the Holders shall be entitled to receive the amount of such
excess from the Company upon and to the extent of any return of such excess by
the holders of such Senior Indebtedness.
Section 13.6 Provisions Solely To Define Relative Rights.
The provisions of this Article XIII are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article XIII or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of, premium, if any, and
interest on the Securities as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against the
Company of the Holders of the Securities and creditors of the Company other than
the holders of the Senior Indebtedness; or (c) prevent the Trustee or the Holder
of any Security from exercising all remedies otherwise permitted by applicable
law upon a Default or an Event of Default under this Indenture, subject to the
rights, if any, under this Article XIII of the holders of Senior Indebtedness.
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The failure to make a payment on account of any Note Obligations by reason
of any provision of this Article XIII shall not be construed as preventing the
occurrence of a Default or an Event of Default hereunder.
Section 13.7 Trustee To Effectuate Subordination.
Each Holder of a Security by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article XIII and appoints the
Trustee his attorney-in-fact for any and all such purposes, including, in the
event of any dissolution, winding-up, liquidation or reorganization of the
Company whether in bankruptcy, insolvency, receivership proceedings, or
otherwise, the timely filing of a claim for the unpaid balance of the
Indebtedness of the Company owing to such Holder in the form required in such
proceedings and the causing of such claim to be approved. If the Trustee does
not file such a claim prior to 30 days before the expiration of the time to file
such a claim, the holders of Senior Indebtedness, or any Senior Representative,
may file such a claim on behalf of Holders of the Securities.
Section 13.8 No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section 13.8, the holders of Senior Indebtedness may, at any time and from time
to time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
XIII or the obligations hereunder of the Holders of the Securities to the
holders of Senior Indebtedness, do any one or more of the following: (1) change
the manner, place or terms of payment or extend the time of payment of, or renew
or alter, Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding or any liability of any
obligor thereon; (2) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (3) settle or
compromise any Senior Indebtedness or any liability of any obligor thereon or
release any person liable in any manner for the collection or payment of Senior
Indebtedness; and (4) exercise or refrain from exercising any rights against the
Company and any other person; provided, however, that in no event shall any such
actions limit the right of the Holders of the Securities to take any action to
accelerate the maturity of the Securities pursuant to Article IV hereof or to
pursue any rights or remedies hereunder or under applicable laws if the taking
of such action does not otherwise violate the terms of this Indenture.
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Section 13.9 Notice to Trustee.
(a) The Company shall give prompt written notice to the Trustee
of any fact (other than the existence of a Payment Default or a Payment Blockage
Period) known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the Securities. Notwithstanding the provisions
of this Article XIII or any other provision of this Indenture, the Trustee shall
not be charged with knowledge of the existence of any facts (other than the
existence of a Payment Default or a Payment Blockage Period) which would
prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until a Responsible Officer of the Trustee, on behalf of
the Trustee, shall have received written notice thereof from the Company or a
holder of Senior Indebtedness or from any trustee, fiduciary or agent therefor;
and, prior to the receipt of any such written notice, the Trustee, subject to
the provisions of this Section 13.9, shall be entitled in all respects to assume
that no such facts exist; provided, however, that if a Payment Default does not
exist, a Payment Blockage Period is not in effect and the Trustee shall not have
received the notice provided for in this Section 13.9 at least one Business Day
prior to the date upon which by the terms hereof any money may become payable
for any purpose under this Indenture (including, without limitation, the payment
of the principal of, premium, if any, or interest on any Security), then,
anything herein contained to the contrary notwithstanding but without limiting
the rights and remedies of the holders of Senior Indebtedness or any trustee,
fiduciary or agent thereof, the Trustee shall have full power and authority to
receive such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it within one Business Day prior to such date; nor shall the Trustee
be charged with knowledge of the curing of any such default or the elimination
of the act or condition preventing any such payment unless and until the Trustee
shall have received an Officers' Certificate to such effect.
(b) Subject to TIA Sections 315(a) through 315(d), the Trustee
shall be entitled to rely on the delivery to it of a written notice to a
Responsible Officer of the Trustee, on behalf of the Trustee, by a person
representing himself to be a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor). In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article XIII, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such person, the extent to which such person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such person under this Article XIII, and if such evidence is not furnished, the
Trustee may defer any payment to such person pending judicial determination as
to the right of such person to receive such payment.
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Section 13.10 Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article XIII, the Trustee, subject to TIA Sections 315(a) through 315(d),
and the Holders, shall be entitled to rely upon any order or decree entered by
any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding-up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
Trustee or to the Holders, for the purpose of ascertaining the persons entitled
to participate in such payment or distribution, the holders of Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereof, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XIII.
Section 13.11 Rights of Trustee as Holder of Senior Indebtedness; Preservation
of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article XIII with respect to any Senior Indebtedness which may
at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article XIII shall apply to claims
of, or payments to, the Trustee under or pursuant to Section 5.6 hereof.
Section 13.12 Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article XIII shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article XIII in addition to or in place of the Trustee; provided,
however, that Section 13.11 hereof shall not apply to the Company or any
Affiliate of the Company if it or such Affiliate acts as Paying Agent.
Section 13.13 No Suspension of Remedies.
Nothing contained in this Article XIII shall limit the right of the Trustee
or the Holders of Securities to take any action to accelerate the maturity of
the Securities pursuant to Article IV hereof or to pursue any rights or remedies
hereunder or under applicable law, subject to the rights, if any, under this
Article XIII of the holders, from time to time, of Senior Indebtedness.
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ARTICLE XIV
MISCELLANEOUS
Section 14.1 Compliance Certificates and Opinions.
Upon any application or request by the Company and/or any Subsidiary
Guarantor to the Trustee to take any action under any provision of this
Indenture, the Company and/or such Subsidiary Guarantor, as the case may be,
shall furnish to the Trustee such certificates and opinions as may be required
under the Trust Indenture Act or this Indenture. Each such certificate and each
such opinion shall be in the form of an Officers' Certificate or an Opinion of
Counsel, as applicable, and shall comply with the requirements of this
Indenture.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(i) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
The certificates and opinions provided pursuant to this Section 14.1 and
the statements required by this Section 14.1 shall comply in all respects with
TIA Sections 314(c) and (e).
Section 14.2 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
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Any certificate or opinion of an Officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such Opinion of Counsel may be based, insofar as it relates to
factual matters, upon an Officers' Certificate of an Officer or Officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate with respect to such matters
is erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 14.3 Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership, principal amount and serial numbers of
Securities held by any Person, and the date of holding the same, shall be proved
by the Security Register.
(d) If the Company shall solicit from the Holders of Securities
any request, demand, authorization, direction, notice, consent, waiver or other
Act, the Company may, at its option, by or pursuant to a Board Resolution, fix
in advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or
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other Act, but the Company shall have no obligation to do so. Notwithstanding
TIA Section 316(c), such record date shall be the record date specified in or
pursuant to such Board Resolution, which shall be a date not earlier than the
date 30 days prior to the first solicitation of Holders generally in connection
therewith and not later than the date such solicitation is completed. If such a
record date is fixed, such request, demand, authorization, direction, notice,
consent, waiver or other Act may be given before or after such record date, but
only the Holders of record at the close of business on such record date shall be
deemed to be Holders for the purposes of determining whether Holders of the
requisite proportion of Outstanding Securities have authorized or agreed or
consented to such request, demand, authorization, direction, notice, consent,
waiver or other Act, and for that purpose the Outstanding Securities shall be
computed as of such record date; provided that no such authorization, agreement
or consent by the Holders on such record date shall be deemed effective unless
it shall become effective pursuant to the provisions of this Indenture not later
than eleven months after the record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Security.
Section 14.4 Notices, etc. to Trustee, Company and Subsidiary Guarantors.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(i) the Trustee by any Holder or by the Company or any
Subsidiary Guarantor shall be sufficient for every purpose hereunder if
made, given, furnished or filed in writing and delivered in person or
mailed by certified or registered mail (return receipt requested) to the
Trustee at its Corporate Trust Office; or
(ii) the Company or any Subsidiary Guarantor by the Trustee
or by any Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and delivered in person
or mailed by certified or registered mail (return receipt requested) to the
Company addressed to it or a Subsidiary Guarantor, as applicable, at the
Company's principal office located at 810 Houston Street, Suite 2000, Fort
Worth, Texas 76102, or at any other address otherwise furnished in writing
to the Trustee by the Company.
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Section 14.5 Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders by the
Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular mail
service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
Section 14.6 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 14.7 Successors and Assigns.
All covenants and agreements in this Indenture by the Company and any
Subsidiary Guarantors shall bind their respective successors and assigns,
whether so expressed or not. All agreements of the Trustee in this Indenture
shall bind its successor.
Section 14.8 Separability Clause.
In case any provision in this Indenture or in the Securities or the
Subsidiary Guarantees shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and a Holder shall have no claim therefore against
any party hereto.
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Section 14.9 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person (other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder, the Holders, the holders of
Senior Indebtedness, the holders of Guarantor Senior Indebtedness and, to the
extent set forth in Section 12.4 hereof, creditors of Subsidiary Guarantors) any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 14.10 Governing Law; Trust Indenture Act Controls.
(a) THIS INDENTURE, THE SUBSIDIARY GUARANTEES, IF ANY, AND THE
SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. THE
COMPANY IRREVOCABLY SUBMITS AND WILL CAUSE EACH SUBSIDIARY GUARANTOR TO
IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN, THE CITY OF
NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE, THE SECURITIES OR A SUBSIDIARY GUARANTEE, AND THE COMPANY IRREVOCABLY
AGREES AND WILL CAUSE EACH SUBSIDIARY GUARANTOR TO IRREVOCABLY AGREE THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED BY
ANY SUCH COURT.
(b) This Indenture is subject to the provisions of the Trust
Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
If and to the extent that any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by Sections 310 and 318, inclusive, of the
Trust Indenture Act, or conflicts with any provision (an "incorporated
provision") required by or deemed to be included in this Indenture by operation
of such Trust Indenture Act sections, such imposed duties or incorporated
provision shall control. If any provision of this Indenture modifies or excludes
any provision of the Trust Indenture Act that may be so modified or excluded,
the latter provision shall be deemed to apply to this Indenture as so modified
or excluded, as the case may be.
Section 14.11 Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, or Stated
Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities or
any Subsidiary Guarantees) payment of interest or principal (and premium, if
any) need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date, Redemption Date or at the Stated Maturity or Maturity; provided that no
interest shall accrue for the period from
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and after such Interest Payment Date, Redemption Date, Stated Maturity or
Maturity, as the case may be.
Section 14.12 No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company shall
not have any liability for any obligations of the Company under the Securities
or this Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder, by accepting any of the Securities,
waives and releases all such liability to the extent permitted by applicable
law.
Section 14.13 Duplicate Originals.
The parties may sign any number of copies or counterparts of this
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
Section 14.14 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or any of its Subsidiaries. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
ISSUER:
CROSS TIMBERS OIL COMPANY
a Delaware corporation
By:_________________________________________
Name: ____________________________________
Title:____________________________________
TRUSTEE:
THE BANK OF NEW YORK
as Trustee
By:_________________________________________
Name: ____________________________________
Title:____________________________________
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EXHIBIT A
FORM OF SECURITY
CROSS TIMBERS OIL COMPANY
9 1/4% SERIES [A/B] SENIOR SUBORDINATED NOTE DUE 2007
[FORM OF FACE]
No. _____ $__________
CUSIP No. ________________/*/
Cross Timbers Oil Company, a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
________________________ or registered assigns the principal sum of
_______________ Dollars on April 1, 2007, at the office or agency of the Company
referred to below, and to pay interest thereon, commencing on October 1, 1997
and continuing semiannually thereafter, on April 1 and October 1 of each year,
from April 2, 1997, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, at the rate of 9 1/4% per annum,
until the principal hereof is paid or duly provided for, and (to the extent
lawful) to pay on demand, interest on any overdue interest at the rate borne by
the Securities from the date on which such overdue interest becomes payable to
the date payment of such interest has been made or duly provided for. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the March 15 or September 15 (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date. Any such interest not so
punctually paid or duly provided for shall forthwith cease to be payable to the
Holder on such Regular Record Date, and such defaulted interest, and (to the
extent lawful) interest on such defaulted interest at the rate borne by the
Securities, may be paid to the Person in whose name this Security (or one or
more Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities not less than 10
days prior to such Special Record Date, or may be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture. Interest on the
Securities shall be computed on the basis of a 360-day year comprised of twelve
30-day months.
Payment of the principal of, premium, if any, and interest on this Security
will be made at the office or agency of the Company maintained for that purpose
in the City of New York, or at such
__________________________
/*/ So long as the restrictive legend is included on a Definitive
Security, a CUSIP number is not needed for a Definitive Security
transferred to an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933).
A-1
<PAGE>
other office or agency of the Company as may be maintained for such purpose, in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts; provided however, that
payment of interest may be made at the option of the Company (i) by check mailed
to the registered holders of the Securities at their respective addresses as
shown on the Security Register or (ii) with respect to any Holder owning
Securities in the principal amount of $500,000 or more, by wire transfer to an
account maintained by the Holder located in the United States, as specified in a
written notice to the Trustee (received prior to the relevant record date) by
any such Holder requesting payment by wire transfer and specifying the account
to which transfer is requested.
[Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. The Depository Trust Company shall act as the Depositary until a
successor shall be appointed by the Company and the Registrar. Unless this
certificate is presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]/*/
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF
THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DAY ON WHICH CROSS TIMBERS OIL
COMPANY (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION
TERMINATION DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS
SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
("RULE 144A"), TO A PERSON IT
__________________________
/*/ This paragraph should be included only if the Security is issued in
global form.
A-2
<PAGE>
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN
THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR") THAT IS ACQUIRING SUCH
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL
ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO
CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
A-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
CROSS TIMBERS OIL COMPANY
[SEAL]
By: ______________________________
Name:
Title:
Attest:
__________________________
Secretary
Dated:______________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
The Bank of New York, as Trustee, Certifies that this is one of the 9 1/4%
Series [A/B] Senior Subordinated Notes due 2007 referred to in the within-
mentioned Indenture.
THE BANK OF NEW YORK
By: ________________________________
Authorized Signatory
A-4
<PAGE>
FORM OF REVERSE OF SECURITY
CROSS TIMBERS OIL COMPANY
9 1/4% SERIES [A/B] SENIOR SUBORDINATED NOTE DUE 2007
This Security is one of a duly authorized issue of securities of the
Company designated as its 9 1/4% [Series A/B] Senior Subordinated Notes due 2007
(herein called the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount to $125,000,000,
which may be issued under an indenture (herein called the "Indenture") dated as
of April 1, 1997, between the Company and The Bank of New York, as trustee
(herein called the "Trustee," which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
The Indebtedness evidenced by the Securities is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness (as defined in the
Indenture) and this Security is issued subject to such provisions. Each Holder
of this Security, by accepting the same, (i) agrees to and shall be bound by
such provisions, (ii) authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
as provided in the Indenture and (iii) appoints the Trustee as his attorney-in-
fact for such purpose.
The Securities are subject to redemption at the option of the Company, in
whole or in part, at any time on or after April 1, 2002, upon not less than 30
or more than 60 days notice at the following Redemption Prices (expressed as
percentages of principal amount) set forth below, if redeemed during the 12-
month period beginning on April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PRICE
---- -----
<S> <C>
2002...................... 104.625%
2003...................... 103.085%
2004...................... 101.545%
2005 and thereafter....... 100%
</TABLE>
together in the case of any such redemption with accrued and unpaid interest, if
any, to the Redemption Date (subject to the right of Holders of record on the
relevant Regular Record Date to receive interest due on an Interest Payment Date
that is on or prior to the Redemption Date), all as provided in the Indenture.
At any time and from time to time prior to April 1, 2000, the Company may,
at its option, redeem Securities in an amount in the aggregate equal to up to
33(1/3)% of the aggregate principal
A-5
<PAGE>
amount of Securities 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 109.25% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the applicable
Redemption Date (subject to the right of Holders of Securities on the relevant
record date to receive interest due on the relevant Interest Payment Date);
provided, however, that at least $83,300,000 aggregate principal amount of the
Securities 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.
In the case of any redemption of Securities, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Securities, or one or more Predecessor Securities, of record at
the close of business on the relevant Record Date referred to on the face
hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the Redemption Date. In the event of redemption or purchase of
this Security in part only, a new Security or Securities for the unredeemed or
unpurchased portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
The Securities do not have the benefit of any sinking fund obligations.
In the event of a Change of Control of the Company, and subject to certain
conditions and limitations provided in the Indenture, the Company will be
obligated to make an offer to purchase, on a Business Day not more than 70 or
less than 30 days following the occurrence of a Change of Control of the
Company, all of the then outstanding Securities validly tendered at a purchase
price equal to 101% of the principal amount thereof, together with accrued and
unpaid interest to the Change of Control Purchase Date, all as provided in the
Indenture.
In the event of Asset Sales, under certain circumstances, the Company will
be obligated to make a Net Proceeds Offer to purchase all or a specified portion
of each Holder's Securities at a purchase price equal to 100% of the principal
amount of the Securities, together with accrued and unpaid interest to the Net
Proceeds Payment Date.
As set forth in the Indenture, an Event of Default is generally (a) failure
to pay principal upon maturity, redemption or otherwise (including pursuant to a
Change of Control Offer or a Net Proceeds Offer); (b) default for 30 days in
payment of interest on any of the Securities; (c) default in the performance of
agreements relating to mergers, consolidations and sales of all or substantially
all assets or the failure to make or consummate a Change of Control Offer or a
Net Proceeds Offer; (d) failure for 30 days after notice to comply with any
other covenants in the Indenture or the Securities; (e) certain payment defaults
under, the acceleration prior to the maturity of, and the exercise of certain
enforcement rights with respect to, certain Indebtedness of the Company or any
Restricted Subsidiary in an aggregate principal amount in excess of $5,000,000;
(f) the failure of any Subsidiary Guarantee to be in full force and effect or
otherwise to be enforceable (except as
A-6
<PAGE>
permitted by the Indenture); (g) certain events giving rise to ERISA liability;
(h) certain final judgments against any Restricted Subsidiary in an aggregate
amount of $5,000,000 or more which remain unsatisfied and either become subject
to commencement of enforcement proceedings or remain unstayed for a period of 60
days; and (i) certain events of bankruptcy, insolvency or reorganization of the
Company or any Restricted Subsidiary. If any Event of Default occurs and is
continuing, the Trustee or the holders of at least 25% in aggregate principal
amount of the Outstanding Securities may declare the principal amount of all the
Securities to be due and payable immediately, except that (i) in the case of an
Event of Default arising from certain events of bankruptcy, insolvency or
reorganization of the Company or any Restricted Subsidiary, the principal amount
of the Securities will become due and payable immediately without further action
or notice, and (ii) in the case of an Event of Default which relates to certain
payment defaults, acceleration or the exercise of certain enforcement rights
with respect to certain Indebtedness, any acceleration of the Securities will be
automatically rescinded if any such Indebtedness is repaid or if the default
relating to such Indebtedness is cured or waived and if the holders thereof have
accelerated such Indebtedness then such holders have rescinded their declaration
of acceleration or if in certain circumstances the proceedings or enforcement
action with respect to the Indebtedness that is the subject of such Event of
Default is terminated or rescinded. No Holder may pursue any remedy under the
Indenture unless the Trustee shall have failed to act after notice of an Event
of Default and written request by Holders of at least 25% in principal amount of
the Outstanding Securities, and the offer to the Trustee of indemnity reasonably
satisfactory to it; however, such provision does not affect the right to sue for
enforcement of any overdue payment on a Security by the Holder thereof. Subject
to certain limitations, Holders of a majority in principal amount of the
Outstanding Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders notice of any continuing default
(except default in payment of principal, premium or interest) if it determines
in good faith that withholding the notice is in the interest of the Holders. The
Company is required to file quarterly reports with the Trustee as to the absence
or existence of defaults.
The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of the Company on this Security and (ii) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Security.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and any Subsidiary Guarantors and the rights of the Holders under the
Indenture at any time by the Company, any Subsidiary Guarantors and the Trustee
with the consent of the Holders of a majority in aggregate principal amount of
the Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by or on behalf of the Holder of this Security shall
be conclusive and binding upon such Holder and upon all future Holders of this
Security and of any
A-7
<PAGE>
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof whether or not notation of such consent or waiver is made upon
this Security. Without the consent of any Holder, the Company, any Subsidiary
Guarantors and the Trustee may amend or supplement the Indenture or the
Securities to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Securities in addition to or in place of Definitive Securities
and to make certain other specified changes and other changes that do not
adversely affect the rights of any Holder.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any, on)
and interest on this Security at the times, place, and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registerable on the Security Register of
the Company, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained for such purpose in the City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
A director, officer, incorporator, or stockholder of the Company or any
Subsidiary Guarantor, as such, shall not have any personal liability under this
Security or the Indenture by reason of his or its status as such director,
officer, incorporator or stockholder. Each Holder, by accepting this Security
with or without the notation of Subsidiary Guarantee endorsed hereon, waives and
releases all such liability. Such waiver and release are part of the
consideration for the issuance of this Security with the notation of Subsidiary
Guarantee endorsed hereon.
Prior to the time of due presentment of this Security for registration of
transfer, the Company, any Subsidiary Guarantors, the Trustee and any agent of
the Company or the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security is
overdue, and neither the Company, the Subsidiary Guarantors, if any, the Trustee
nor any agent shall be affected by notice to the contrary.
A-8
<PAGE>
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture. The Company will furnish to
any Holder upon written request and without charge a copy of the Indenture.
Requests may be made to the Company, 810 Houston Street, Suite 2000, Fort Worth,
Texas 76102.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders thereof. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identifying information
printed hereon.
This Security shall be governed by and construed in accordance with the
laws of the State of New York, without regard to conflicts of law principles.
A-9
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to ______________________________________________________
(Insert assignee's social security or tax I.D. number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
as agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
________________________________________________________________________________
Date: _________________ Your Signature:______________________________________
(Sign exactly as your name appears on
the face of this Security)
Signature Guarantee: ___________________________________________________________
(Participant in a Recognized Signature
Guaranty Medallion Program)
A-10
<PAGE>
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Security purchased by the Company pursuant to
Section 9.15 or Section 9.16 of the Indenture, check the appropriate box:
Section 9.15 [ ] Section 9.16 [ ]
If you want to have only part of this Security purchased by the Company
pursuant to Section 9.15 or Section 9.16 of the Indenture, state the amount in
integral multiples of $1,000:
$__________
Date:_________________ Signature:_________________________________
(Sign exactly as your name
appears on the other side of
this Security)
Signature Guarantee:___________________________________________________________
(Participant in a Recognized Signature
Guaranty Medallion Program)
A-11
<PAGE>
[SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES*
The following exchanges of a part of this Global Security for Definitive
Securities have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of Amount of of this Global Signature of
decrease in increase in Security following authorized signatory
Principal Amount Principal Amount such decrease of Trustee or
Date of Exchange of this Global Security of this Global Security (or increase) Security Custodian]*
- ------------------ ----------------------- ----------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
__________________________
/*/ This should be included only if the Security is issued in global form.
A-12
<PAGE>
EXHIBIT B
FORM OF NOTATION RELATING TO SUBSIDIARY GUARANTEES
The form of notation to be set forth on each Security relating to the
Subsidiary Guarantees shall be in substantially the following form:
SUBSIDIARY GUARANTEE
Subject to the limitations set forth in the Indenture, the Subsidiary
Guarantors (as defined in the Indenture referred to in the Security upon which
this notation is endorsed and each hereinafter referred to as a "Subsidiary
Guarantor," which term includes any successor or additional Subsidiary Guarantor
under the Indenture) have, jointly and severally, unconditionally guaranteed (a)
the due and punctual payment of the principal (and premium, if any) of and
interest on the Securities, whether at maturity, acceleration, redemption or
otherwise, (b) the due and punctual payment of interest on the overdue principal
of and interest on the Securities, if any, to the extent lawful, (c) the due and
punctual performance of all other obligations of the Company to the Holders or
the Trustee, all in accordance with the terms set forth in the Indenture, and
(d) in case of any extension of time of payment or renewal of any Securities or
any of such other obligations, the same will be promptly paid in full when due
or performed in accordance with the terms of the extension or renewal, whether
at Stated Maturity, by acceleration or otherwise.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities and after giving effect to any collections from or payments made by
or on behalf of any other Subsidiary Guarantor in respect of the obligations of
such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to
its contribution obligations under the Indenture, result in the obligations of
such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Subsidiary Guarantor that makes a payment or distribution under a Subsidiary
Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in a pro rata amount based on the Adjusted Net Assets of each
Subsidiary Guarantor.
The obligations of the Subsidiary Guarantors to the Holders or the Trustee
pursuant to the Subsidiary Guarantee and the Indenture are expressly subordinate
to all Guarantor Senior Indebtedness to the extent set forth in Article XII of
the Indenture and reference is made to such Indenture for the precise terms of
such subordination.
No stockholder, officer, director or incorporator, as such, past, present
or future, of the Subsidiary Guarantors shall have any personal liability under
the Subsidiary Guarantee by reason of his or its status as such stockholder,
officer, director or incorporator.
B-1
<PAGE>
Any Subsidiary Guarantor may be released from its Subsidiary Guarantee upon
the terms and subject to the conditions provided in the Indenture.
All terms used in this notation of Subsidiary Guarantee which are defined
in the Indenture referred to in this Security upon which this notation of
Subsidiary Guarantee is endorsed shall have the meanings assigned to them in
such Indenture.
The Subsidiary Guarantee shall be binding upon each Subsidiary Guarantor
and its successors and assigns and shall inure to the benefit of the Trustee and
the Holders and, in the event of any transfer or assignment of rights by any
Holder or the Trustee, the rights and privileges herein conferred upon that
party shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions hereof and in the Indenture.
The Subsidiary Guarantee shall not be valid or obligatory for any purpose
until it has been executed by the manual or facsimile signature of an authorized
officer of each Subsidiary Guarantor and the certificate of authentication on
the Security upon which this Subsidiary Guarantee is noted shall have been
executed by the Trustee under the Indenture by the manual signature of one of
its authorized officers.
[SUBSIDIARY GUARANTOR]
Date: _______________ By: ____________________________________________
Name: _____________________________________
Title: _____________________________________
Attest:_______________________
Secretary
B-2
<PAGE>
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 9 1/4% Series [A/B] Senior Subordinated Notes due 2007 of Cross Timbers Oil
Company
This Certificate relates to $_____ principal amount of Securities held
in /*/______ book-entry or /*/______ definitive form by _____________________
(the "Transferor").
The Transferor/*/:
[ ] has requested the Trustee by written order to deliver in exchange
for its beneficial interest in the Global Securities held by the Depositary, a
Security or Securities in definitive registered form equal to its beneficial
interest in such Global Securities (or the portion thereof indicated above); or
[ ] has requested the Trustee by written order to exchange or register
the transfer of a Security or Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Indenture relative to the above captioned Securities and that the
transfer of this Security does not require registration under the Securities Act
(as defined below) because:/*/
[ ] Such Security is being acquired for the Transferor's own account
without transfer (in satisfaction of Section 2.07(a)(ii)(A) or Section
2.07(d)(i)(A) of the Indenture).
[ ] Such Security is being transferred (i) to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act")), in reliance on Rule 144A under the Securities Act or
(ii) pursuant to an exemption from registration in accordance with Rule 904
under the Securities Act (and in the case of clause (ii), based on an opinion of
counsel if the Company so requests and together with a certification in
substantially the form of Exhibit E to the Indenture).
[ ] Such Security is being transferred (i) in accordance with Rule 144
under the Securities Act (and based on an opinion of counsel if the Company so
requests) or (ii) pursuant to an effective registration statement under the
Securities Act.
__________________________
/*/ Check appropriate box.
C-1
<PAGE>
[ ] Such Security is being transferred to an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement exemption from the registration
requirements of the Securities Act (and based on an opinion of counsel if the
Company so requests) together with a certification in substantially the form of
Exhibit D to the Indenture.
[ ] Such Security is being transferred in reliance on and in compliance
with another exemption from the registration requirements of the Securities Act
(and based on an opinion of counsel if the Company so requests).
________________________________________________
[INSERT NAME OF TRANSFEROR]
By: ____________________________________________
Name:
Title:
Address:
Date: _________________
C-2
<PAGE>
EXHIBIT D
TRANSFEREE LETTER OF REPRESENTATIONS
Cross Timbers Oil Company
c/o The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attn: Corporate Trust Administration
Dear Sirs and Madams:
In connection with our proposed purchase of $_________ aggregate principal
amount of 9 1/4% Senior Subordinated Notes due 2007 (the "Securities") of Cross
Timbers Oil Company, a Delaware corporation (the "Company"):
1. We understand that the Securities have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any other
applicable securities laws, and may not be sold except as permitted in the
following sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing the Securities to offer, sell or otherwise
transfer such Securities prior to the date which is two years after the later of
the date of original issue and the last date on which the Company or any
affiliate of the Company was the owner of such Securities, or any predecessor,
thereto (the "Resale Restriction Termination Date") only (a) to the Company, (b)
pursuant to a registration statement that has been declared effective by the
Securities and Exchange Commission (the "SEC"), (c) for so long as the
Securities are eligible for resale pursuant to Rule 144A under the Securities
Act, to a person we reasonably believe is a qualified institutional buyer under
Rule 144A (a "QIB") that purchases for its own account or for the account of a
QIB to whom notice is given that the transfer is being made in reliance on Rule
144A, (d) pursuant to offers and sales to non-U.S. persons that occur outside of
the United States within the meaning of Regulation S under the Securities Act
("Regulation S"), (e) to an institutional "accredited investor" within the
meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities
Act (an "Institutional Accredited Investor") that is acquiring the Securities
for its own account or for the account of another Institutional Accredited
Investor for investment purposes and not with a view to, or for offer or sale in
connection with, any distribution thereof in violation of the regulations of the
Securities Act and any other applicable securities laws or (f) pursuant to any
other available exemption from the registration requirements of the Securities
Act, subject in each of the foregoing cases to any requirement of law that the
disposition of our property and the property of such investor account or
accounts be at all times within our or their control. The foregoing restrictions
on resale will not apply subsequent to the Resale Restriction Termination Date.
If any resale or other transfer of the Securities is proposed to be made
pursuant to clause (d) above prior to the Resale Restriction
D-1
<PAGE>
Termination Date, the transferor shall deliver a letter from the transferee
substantially in the form of this letter to the Trustee, which shall provide,
among other things, that the transferee is an Institutional Accredited Investor
and that it is acquiring such Securities for investment purposes and not for
distribution in violation of the Securities Act. We acknowledge that the Company
and the Trustee reserve the right prior to any offer, sale or other transfer
pursuant to clause (d) prior to the end of the one-year restricted period within
the meaning of Regulation S or pursuant to clauses (e) or (f) prior to the
Resale Restriction Termination Date of the Securities to require the delivery of
an opinion of counsel, certifications and/or other information satisfactory to
the Company and the Trustee.
2. We are either (a) an Institutional Accredited Investor purchasing for
our own account or for the account of another Institutional Accredited Investor
or (b) an institution that was outside the United States and was not a U.S.
person (and was not purchasing for the account or benefit of a U.S. person)
within the meaning of Regulation S at the time the buy order was originated.
3. We are acquiring the Securities purchased by us for our own account,
or for one or more accounts as to each of which we exercise sole investment
discretion, for investment purposes and not with a view to, or for offer or sale
in connection with any distribution in violation of, the Securities Act. We have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of investment in the Securities, we invest in
securities similar to the Securities in the normal course of our business and
we, and all accounts for which we are acting, are able to bear the economic
risks of investment in the Securities.
4. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy thereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
By:
---------------------------------
(Name of Purchaser)
Upon transfer, the Securities should be registered in the name of the new
beneficial owner as follows:
Name:
----------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
Taxpayer ID No:
--------------------------
D-2
<PAGE>
EXHIBIT E
FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATION S
_____________, ____
The Bank of New York, as Registrar
Attention: Corporate Trust Administration
Ladies and Gentlemen:
In connection with our proposed sale of certain 9 1/4% Series [A/B] Senior
Subordinated Notes due 2007 (the "Securities") of Cross Timbers Oil Company, a
Delaware corporation (the "Company"), we represent that:
(i) the offer of the Securities was not made to a person
in the United States;
(ii) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States;
(iii) no directed selling efforts have been made by us in
the United States in contravention of the requirements of Rule 903(b) or
Rule 904(b) of Regulation S under the U.S. Securities Act of 1933, as
applicable; and
(iv) the transaction is not part of a plan or scheme to
evade the registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S under the U.S. Securities Act of 1933.
Very truly yours,
-----------------------------------------------
[Name]
By: ---------------------------------------
Name:
Title:
Address:
E-1
<PAGE>
Exhibit 4.2
[FORM OF NOTE]
[FORM OF FACE OF NOTE]
CROSS TIMBERS OIL COMPANY
9 1/4% SERIES A SENIOR SUBORDINATED NOTE DUE 2007
No. R $
CUSIP No.
Cross Timbers Oil Company, a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to_________
or registered assigns the principal sum of____________Dollars on April 1, 2007,
at the office or agency of the Company referred to below, and to pay interest
thereon, commencing on October 1, 1997 and continuing semiannually thereafter,
on April 1 and October 1 of each year, from April 2, 1997, or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, at the rate of 9 1/4% per annum, until the principal hereof is paid or duly
provided for, and (to the extent lawful) to pay on demand, interest on any
overdue interest at the rate borne by the Securities from the date on which such
overdue interest becomes payable to the date payment of such interest has been
made or duly provided for. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the March 15 or September 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for shall forthwith
cease to be payable to the Holder on such Regular Record Date, and such
defaulted interest, and (to the extent lawful) interest on such defaulted
interest at the rate borne by the Securities, may be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture. Interest on the Securities shall be computed on the
basis of a 360-day year comprised of twelve 30-day months.
Payment of the principal of, premium, if any, and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the City of New York, or at such other office or agency of the
Company as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided however, that payment of interest may be
<PAGE>
made at the option of the Company (i) by check mailed to the registered holders
of the Securities at their respective addresses as shown on the Security
Register or (ii) with respect to any Holder owning Securities in the principal
amount of $500,000 or more, by wire transfer to an account maintained by the
Holder located in the United States, as specified in a written notice to the
Trustee (received prior to the relevant record date) by any such Holder
requesting payment by wire transfer and specifying the account to which transfer
is requested.
[Unless and until it is exchanged in whole or in part for Securities
in definitive form, this Security may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary. The Depository Trust Company shall act as the Depositary until a
successor shall be appointed by the Company and the Registrar. Unless this
certificate is presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]*
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF
THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DAY ON WHICH CROSS TIMBERS OIL
COMPANY (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION
TERMINATION DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS
SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
- -----------------
* This paragraph should be included only if the Note is issued in global form.
2
<PAGE>
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7)
OF RULE 501 UNDER THE SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR") THAT
IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF ANOTHER
INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO
CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
CROSS TIMBERS OIL COMPANY
[SEAL]
By:
-------------------------------
Louis G. Baldwin
Senior Vice President
Attest:
- ------------------------
Secretary
Dated:
-----------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
The Bank of New York, as Trustee, certifies that this is one of the 9 1/4%
Series A Senior Subordinated Notes due 2007 referred to in the within-mentioned
Indenture.
THE BANK OF NEW YORK
By:
----------------------------
Authorized Signatory
4
<PAGE>
[FORM OF REVERSE OF NOTE]
This Security is one of a duly authorized issue of securities of the
Company designated as its 9 1/4% Series A Senior Subordinated Notes due 2007
(herein called the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount to $125,000,000,
which may be issued under an indenture (herein called the "Indenture") dated as
of April 1, 1997, between the Company and The Bank of New York, as trustee
(herein called the "Trustee," which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
The Indebtedness evidenced by the Securities is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness (as defined in the
Indenture) and this Security is issued subject to such provisions. Each Holder
of this Security, by accepting the same, (i) agrees to and shall be bound by
such provisions, (ii) authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
as provided in the Indenture and (iii) appoints the Trustee as his attorney-in-
fact for such purpose.
The Securities are subject to redemption at the option of the Company, in
whole or in part, at any time on or after April 1, 2002, upon not less than 30
or more than 60 days notice at the following Redemption Prices (expressed as
percentages of principal amount) set forth below, if redeemed during the 12-
month period beginning on April 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Price
---- -----
<S> <C>
2002 104.625%
2003 103.085%
2004 101.545%
2005 and thereafter 100%
</TABLE>
together in the case of any such redemption with accrued and unpaid interest, if
any, to the Redemption Date (subject to the right of Holders of record on the
relevant Regular Record Date to receive interest due on an Interest Payment Date
that is on or prior to the Redemption Date), all as provided in the Indenture.
At any time and from time to time prior to April 1, 2000, the Company may,
at its option, redeem Securities in an amount in the aggregate equal to up to
33% of the aggregate principal amount of Securities 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
109.25% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the applicable Redemption Date (subject to the right of Holders of
Securities on the relevant record date to receive interest due on the relevant
Interest Payment Date); provided, however, that at least $83,300,000 aggregate
principal amount of the Securities
5
<PAGE>
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.
In the case of any redemption of Securities, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Securities, or one or more Predecessor Securities, of record at
the close of business on the relevant Record Date referred to on the face
hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the Redemption Date. In the event of redemption or purchase of
this Security in part only, a new Security or Securities for the unredeemed or
unpurchased portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
The Securities do not have the benefit of any sinking fund obligations.
In the event of a Change of Control of the Company, and subject to certain
conditions and limitations provided in the Indenture, the Company will be
obligated to make an offer to purchase, on a Business Day not more than 70 or
less than 30 days following the occurrence of a Change of Control of the
Company, all of the then outstanding Securities validly tendered at a purchase
price equal to 101% of the principal amount thereof, together with accrued and
unpaid interest to the Change of Control Purchase Date, all as provided in the
Indenture.
In the event of Asset Sales, under certain circumstances, the Company will
be obligated to make a Net Proceeds Offer to purchase all or a specified portion
of each Holder's Securities at a purchase price equal to 100% of the principal
amount of the Securities, together with accrued and unpaid interest to the Net
Proceeds Payment Date.
As set forth in the Indenture, an Event of Default is generally (a) failure
to pay principal upon maturity, redemption or otherwise (including pursuant to a
Change of Control Offer or a Net Proceeds Offer); (b) default for 30 days in
payment of interest on any of the Securities; (c) default in the performance of
agreements relating to mergers, consolidations and sales of all or substantially
all assets or the failure to make or consummate a Change of Control Offer or a
Net Proceeds Offer; (d) failure for 30 days after notice to comply with any
other covenants in the Indenture or the Securities; (e) certain payment
defaults under, the acceleration prior to the maturity of, and the exercise of
certain enforcement rights with respect to, certain Indebtedness of the Company
or any Restricted Subsidiary in an aggregate principal amount in excess of
$5,000,000; (f) the failure of any Subsidiary Guarantee to be in full force and
effect or otherwise to be enforceable (except as permitted by the Indenture);
(g) certain events giving rise to ERISA liability; (h) certain final judgments
against any Restricted Subsidiary in an aggregate amount of $5,000,000 or more
which remain unsatisfied and either become subject to commencement of
enforcement proceedings or remain unstayed for a period of 60 days; and (i)
certain events of bankruptcy, insolvency or reorganization of the Company or any
Restricted Subsidiary. If any Event of Default occurs and is continuing, the
Trustee or the holders of at least 25% in aggregate principal amount of the
Outstanding Securities may declare the principal amount of all the Securities to
be due and payable immediately, except that (i) in the case of an Event of
Default arising from certain events of bankruptcy, insolvency or reorganization
of the
6
<PAGE>
Company or any Restricted Subsidiary, the principal amount of the Securities
will become due and payable immediately without further action or notice, and
(ii) in the case of an Event of Default which relates to certain payment
defaults, acceleration or the exercise of certain enforcement rights with
respect to certain Indebtedness, any acceleration of the Securities will be
automatically rescinded if any such Indebtedness is repaid or if the default
relating to such Indebtedness is cured or waived and if the holders thereof have
accelerated such Indebtedness then such holders have rescinded their declaration
of acceleration or if in certain circumstances the proceedings or enforcement
action with respect to the Indebtedness that is the subject of such Event of
Default is terminated or rescinded. No Holder may pursue any remedy under the
Indenture unless the Trustee shall have failed to act after notice of an Event
of Default and written request by Holders of at least 25% in principal amount of
the Outstanding Securities, and the offer to the Trustee of indemnity reasonably
satisfactory to it; however, such provision does not affect the right to sue for
enforcement of any overdue payment on a Security by the Holder thereof. Subject
to certain limitations, Holders of a majority in principal amount of the
Outstanding Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders notice of any continuing default
(except default in payment of principal, premium or interest) if it determines
in good faith that withholding the notice is in the interest of the Holders.
The Company is required to file quarterly reports with the Trustee as to the
absence or existence of defaults.
The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of the Company on this Security and (ii) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Security.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and any Subsidiary Guarantors and the rights of the Holders under the
Indenture at any time by the Company, any Subsidiary Guarantors and the Trustee
with the consent of the Holders of a majority in aggregate principal amount of
the Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by or on behalf of the Holder of this Security shall
be conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security. Without the consent of any Holder, the
Company, any Subsidiary Guarantors and the Trustee may amend or supplement the
Indenture or the Securities to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Securities in addition to or in place of Definitive
Securities and to make certain other specified changes and other changes that do
not adversely affect the rights of any Holder.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any, on)
and interest on this Security at the times, place, and rate, and in the coin or
currency, herein prescribed.
7
<PAGE>
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registerable on the Security Register of
the Company, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained for such purpose in the City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
A director, officer, incorporator, or stockholder of the Company or any
Subsidiary Guarantor, as such, shall not have any personal liability under this
Security or the Indenture by reason of his or its status as such director,
officer, incorporator or stockholder. Each Holder, by accepting this Security
with or without the notation of Subsidiary Guarantee endorsed hereon, waives and
releases all such liability. Such waiver and release are part of the
consideration for the issuance of this Security with the notation of Subsidiary
Guarantee endorsed hereon.
Prior to the time of due presentment of this Security for registration of
transfer, the Company, any Subsidiary Guarantors, the Trustee and any agent of
the Company or the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security is
overdue, and neither the Company, the Subsidiary Guarantors, if any, the Trustee
nor any agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture. The Company will furnish
to any Holder upon written request and without charge a copy of the Indenture.
Requests may be made to the Company, 810 Houston Street, Suite 2000, Fort Worth,
Texas 76102.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders thereof. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identifying information
printed hereon.
This Security shall be governed by and construed in accordance with the
laws of the State of New York, without regard to conflicts of law principles.
8
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to_______________________________________________________
(Insert assignee's social security or tax I.D. number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_______________________________________________________
as agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date: Your Signature:
----------- -------------------------------
(Sign exactly as your name appears
on the face of this Security)
Signature Guarantee:
By:
------------------------------
(Participant in a Recognized Signature
Guaranty Medallion Program)
9
<PAGE>
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Security purchased by the Company pursuant to
Section 9.15 or Section 9.16 of the Indenture, check the appropriate box:
Section 9.15 [_] Section 9.16 [_]
If you elect to have only part of this Security purchased by the Company
pursuant to Section 9.15 or Section 9.16 of the Indenture, state the amount in
integral multiples of $1,000:
$
-------------
Date: Signature:
---------------- -------------------------------------
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee:
By:
------------------------------------
(Participant in a Recognized Signature
Guaranty Medallion Program)
10
<PAGE>
[SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES
The following exchanges of a part of this Global Security for Definitive
Securities have been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Amount
decrease in increase in of this Global Signature of
Principal Amount Principal Amount Security following authorized signatory
Date of of this Global of this Global such decrease of Trustee or
Exchange Security Security (or increase) Security Custodian]*
- -------- ---------------- ---------------- ------------------ -------------------
<S> <C> <C> <C> <C>
</TABLE>
- -----------------------------
* This should be included only if the Note is issued in global form.
11
<PAGE>
Exhibit 4.3
[FORM OF NOTE]
[FORM OF FACE OF NOTE]
CROSS TIMBERS OIL COMPANY
9 1/4% SERIES B SENIOR SUBORDINATED NOTE DUE 2007
No. R $
CUSIP No.
Cross Timbers Oil Company, a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to _______
or registered assigns the principal sum of ___________ Dollars on April 1, 2007,
at the office or agency of the Company referred to below, and to pay interest
thereon, commencing on October 1, 1997 and continuing semiannually thereafter,
on April 1 and October 1 of each year, from April 2, 1997, or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, at the rate of 9 1/4% per annum, until the principal hereof is paid or duly
provided for, and (to the extent lawful) to pay on demand, interest on any
overdue interest at the rate borne by the Securities from the date on which such
overdue interest becomes payable to the date payment of such interest has been
made or duly provided for. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the March 15 or September 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for shall forthwith
cease to be payable to the Holder on such Regular Record Date, and such
defaulted interest, and (to the extent lawful) interest on such defaulted
interest at the rate borne by the Securities, may be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture. Interest on the Securities shall be computed on the
basis of a 360-day year comprised of twelve 30-day months.
Payment of the principal of, premium, if any, and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the City of New York, or at such other office or agency of the
Company as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided however, that payment of interest may be
<PAGE>
made at the option of the Company (i) by check mailed to the registered holders
of the Securities at their respective addresses as shown on the Security
Register or (ii) with respect to any Holder owning Securities in the principal
amount of $500,000 or more, by wire transfer to an account maintained by the
Holder located in the United States, as specified in a written notice to the
Trustee (received prior to the relevant record date) by any such Holder
requesting payment by wire transfer and specifying the account to which transfer
is requested.
[Unless and until it is exchanged in whole or in part for Securities
in definitive form, this Security may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary. The Depository Trust Company shall act as the Depositary until a
successor shall be appointed by the Company and the Registrar. Unless this
certificate is presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]*
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
- ----------------
* This paragraph should be included only if the Note is issued in global form.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
CROSS TIMBERS OIL COMPANY
[SEAL]
By:
---------------------------------
Louis G. Baldwin
Senior Vice President
Attest:
- --------------------------
Secretary
Dated:
-----------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
The Bank of New York, as Trustee, certifies that this is one of the 9 1/4%
Series B Senior Subordinated Notes due 2007 referred to in the within-mentioned
Indenture.
THE BANK OF NEW YORK
By:________________________
Authorized Signatory
3
<PAGE>
[FORM OF REVERSE OF NOTE]
This Security is one of a duly authorized issue of securities of the
Company designated as its 9 1/4% Series B Senior Subordinated Notes due 2007
(herein called the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount to $125,000,000,
which may be issued under an indenture (herein called the "Indenture") dated as
of April 1, 1997, between the Company and The Bank of New York, as trustee
(herein called the "Trustee," which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
The Indebtedness evidenced by the Securities is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness (as defined in the
Indenture) and this Security is issued subject to such provisions. Each Holder
of this Security, by accepting the same, (i) agrees to and shall be bound by
such provisions, (ii) authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
as provided in the Indenture and (iii) appoints the Trustee as his attorney-in-
fact for such purpose.
The Securities are subject to redemption at the option of the Company, in
whole or in part, at any time on or after April 1, 2002, upon not less than 30
or more than 60 days notice at the following Redemption Prices (expressed as
percentages of principal amount) set forth below, if redeemed during the 12-
month period beginning on April 1 of the years indicated below:
Year Price
---- -----
2002 104.625%
2003 103.085%
2004 101.545%
2005 and thereafter 100%
together in the case of any such redemption with accrued and unpaid interest, if
any, to the Redemption Date (subject to the right of Holders of record on the
relevant Regular Record Date to receive interest due on an Interest Payment Date
that is on or prior to the Redemption Date), all as provided in the Indenture.
At any time and from time to time prior to April 1, 2000, the Company may,
at its option, redeem Securities in an amount in the aggregate equal to up to
33 1/3% of the aggregate principal amount of Securities 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
109.25% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the applicable Redemption Date (subject to the right of Holders of
Securities on the relevant record date to receive interest due on the relevant
Interest Payment Date); provided, however, that at least $83,300,000 aggregate
principal amount of the Securities
4
<PAGE>
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.
In the case of any redemption of Securities, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Securities, or one or more Predecessor Securities, of record at
the close of business on the relevant Record Date referred to on the face
hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the Redemption Date. In the event of redemption or purchase of
this Security in part only, a new Security or Securities for the unredeemed or
unpurchased portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
The Securities do not have the benefit of any sinking fund obligations.
In the event of a Change of Control of the Company, and subject to certain
conditions and limitations provided in the Indenture, the Company will be
obligated to make an offer to purchase, on a Business Day not more than 70 or
less than 30 days following the occurrence of a Change of Control of the
Company, all of the then outstanding Securities validly tendered at a purchase
price equal to 101% of the principal amount thereof, together with accrued and
unpaid interest to the Change of Control Purchase Date, all as provided in the
Indenture.
In the event of Asset Sales, under certain circumstances, the Company will
be obligated to make a Net Proceeds Offer to purchase all or a specified portion
of each Holder's Securities at a purchase price equal to 100% of the principal
amount of the Securities, together with accrued and unpaid interest to the Net
Proceeds Payment Date.
As set forth in the Indenture, an Event of Default is generally (a) failure
to pay principal upon maturity, redemption or otherwise (including pursuant to a
Change of Control Offer or a Net Proceeds Offer); (b) default for 30 days in
payment of interest on any of the Securities; (c) default in the performance of
agreements relating to mergers, consolidations and sales of all or substantially
all assets or the failure to make or consummate a Change of Control Offer or a
Net Proceeds Offer; (d) failure for 30 days after notice to comply with any
other covenants in the Indenture or the Securities; (e) certain payment
defaults under, the acceleration prior to the maturity of, and the exercise of
certain enforcement rights with respect to, certain Indebtedness of the Company
or any Restricted Subsidiary in an aggregate principal amount in excess of
$5,000,000; (f) the failure of any Subsidiary Guarantee to be in full force and
effect or otherwise to be enforceable (except as permitted by the Indenture);
(g) certain events giving rise to ERISA liability; (h) certain final judgments
against any Restricted Subsidiary in an aggregate amount of $5,000,000 or more
which remain unsatisfied and either become subject to commencement of
enforcement proceedings or remain unstayed for a period of 60 days; and (i)
certain events of bankruptcy, insolvency or reorganization of the Company or any
Restricted Subsidiary. If any Event of Default occurs and is continuing, the
Trustee or the holders of at least 25% in aggregate principal amount of the
Outstanding Securities may declare the principal amount of all the Securities to
be due and payable immediately, except that (i) in the case of an Event of
Default arising from certain events of bankruptcy, insolvency or reorganization
of the
5
<PAGE>
Company or any Restricted Subsidiary, the principal amount of the Securities
will become due and payable immediately without further action or notice, and
(ii) in the case of an Event of Default which relates to certain payment
defaults, acceleration or the exercise of certain enforcement rights with
respect to certain Indebtedness, any acceleration of the Securities will be
automatically rescinded if any such Indebtedness is repaid or if the default
relating to such Indebtedness is cured or waived and if the holders thereof have
accelerated such Indebtedness then such holders have rescinded their declaration
of acceleration or if in certain circumstances the proceedings or enforcement
action with respect to the Indebtedness that is the subject of such Event of
Default is terminated or rescinded. No Holder may pursue any remedy under the
Indenture unless the Trustee shall have failed to act after notice of an Event
of Default and written request by Holders of at least 25% in principal amount of
the Outstanding Securities, and the offer to the Trustee of indemnity reasonably
satisfactory to it; however, such provision does not affect the right to sue for
enforcement of any overdue payment on a Security by the Holder thereof. Subject
to certain limitations, Holders of a majority in principal amount of the
Outstanding Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders notice of any continuing default
(except default in payment of principal, premium or interest) if it determines
in good faith that withholding the notice is in the interest of the Holders.
The Company is required to file quarterly reports with the Trustee as to the
absence or existence of defaults.
The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of the Company on this Security and (ii) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Security.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and any Subsidiary Guarantors and the rights of the Holders under the
Indenture at any time by the Company, any Subsidiary Guarantors and the Trustee
with the consent of the Holders of a majority in aggregate principal amount of
the Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by or on behalf of the Holder of this Security shall
be conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security. Without the consent of any Holder, the
Company, any Subsidiary Guarantors and the Trustee may amend or supplement the
Indenture or the Securities to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Securities in addition to or in place of Definitive
Securities and to make certain other specified changes and other changes that do
not adversely affect the rights of any Holder.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any, on)
and interest on this Security at the times, place, and rate, and in the coin or
currency, herein prescribed.
6
<PAGE>
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registerable on the Security Register of
the Company, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained for such purpose in the City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
A director, officer, incorporator, or stockholder of the Company or any
Subsidiary Guarantor, as such, shall not have any personal liability under this
Security or the Indenture by reason of his or its status as such director,
officer, incorporator or stockholder. Each Holder, by accepting this Security
with or without the notation of Subsidiary Guarantee endorsed hereon, waives and
releases all such liability. Such waiver and release are part of the
consideration for the issuance of this Security with the notation of Subsidiary
Guarantee endorsed hereon.
Prior to the time of due presentment of this Security for registration of
transfer, the Company, any Subsidiary Guarantors, the Trustee and any agent of
the Company or the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security is
overdue, and neither the Company, the Subsidiary Guarantors, if any, the Trustee
nor any agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture. The Company will furnish
to any Holder upon written request and without charge a copy of the Indenture.
Requests may be made to the Company, 810 Houston Street, Suite 2000, Fort Worth,
Texas 76102.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders thereof. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identifying information
printed hereon.
This Security shall be governed by and construed in accordance with the
laws of the State of New York, without regard to conflicts of law principles.
7
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
---------------------------------------------------
(Insert assignee's social security or tax I.D. number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
-------------------------------------------------------
as agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Date: Your Signature:
---------- ---------------------------------
(Sign exactly as your name appears
on the face of this Security)
Signature Guarantee:
By:
-----------------------------------
(Participant in a Recognized Signature
Guaranty Medallion Program)
8
<PAGE>
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Security purchased by the Company pursuant to
Section 9.15 or Section 9.16 of the Indenture, check the appropriate box:
Section 9.15 [_] Section 9.16 [_]
If you elect to have only part of this Security purchased by the Company
pursuant to Section 9.15 or Section 9.16 of the Indenture, state the amount in
integral multiples of $1,000:
$
--------------
Date: Signature:
---------------- --------------------------
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee:
By:
----------------------------
(Participant in a Recognized Signature
Guaranty Medallion Program)
9
<PAGE>
[SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES
The following exchanges of a part of this Global Security for Definitive
Securities have been made:
Signature of
Amount of Amount of Principal Amount authorized
decrease in increase in of this Global signatory
Principal Amount Principal Amount Security following of Trustee or
Date of of this Global of this Global such decrease Security
Exchange Security Security (or increase) Custodian]*
- -------- ---------------- ---------------- ------------------ --------------
- ----------------
* This should be included only if the Note is issued in global form.
10
<PAGE>
Exhibit 5.1
Kelly, Hart & Hallman
(a Professional Corporation)
201 Main Street, Suite 2500
Fort Worth, Texas 76102
May 6, 1997
Cross Timbers Oil Company
810 Houston Street, Suite 2000
Fort Worth, Texas 76102
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
This firm has acted as legal counsel to Cross Timbers Oil Company, a
Delaware corporation (the "Company"), in connection with the Registration
Statement on Form S-4 (the "Registration Statement") pertaining to the Company's
offering of up to $125,000,000 principal amount of 9 1/4% Series B Senior
Subordinated Notes due 2007 of the Company (the "New Notes").
In connection with this opinion, we have made the following assumptions:
(i) all documents submitted to or reviewed by us, including all amendments and
supplements thereto, are accurate and complete and if not originals are true and
correct copies of the originals; (ii) the signatures on each of such documents
by the parties thereto are genuine; (iii) each individual who signed such
documents had the legal capacity to do so; and (iv) all persons who signed such
documents on behalf of a corporation were duly authorized to do so. We have
assumed that there are no amendments, modifications or supplements to such
documents other than those amendments, modifications and supplements that are
known to us.
Based on the foregoing, and subject to the limitations and qualifications
set forth herein, we are of the opinion that:
1. The Company was incorporated, exists and is in good standing under the
laws of the State of Delaware.
2. The issuance of the New Notes has been duly authorized and, upon the
due execution, authentication and delivery of the New Notes in accordance with
the terms of the Indenture governing the New Notes between the Company and The
Bank of New York, as Trustee (the "Indenture"), against the exchange of a like
principal amount of 9 1/4% Series A Senior Subordinated Notes due 2007 of the
Company (the "Old Notes") in accordance with the terms and conditions set forth
in the Prospectus constituting a part of the Registration Statement, the New
Notes will be validly issued.
3. Upon the due execution, authentication and delivery of the New Notes
in accordance with the terms of the Indenture, against the exchange of a like
principal amount of Old Notes in
<PAGE>
Cross Timbers Oil Company
May 6, 1997
Page 2
accordance with the terms and conditions set forth in the Prospectus
constituting a part of the Registration Statement, the New Notes will constitute
enforceable obligations of the Company, except (a) as such enforceability is
limited by applicable bankruptcy, insolvency, fraudulent conveyance and other
debtor relief laws of general applicability and (b) that the remedies of
specific performance and injunctive and other forms of equitable relief are
subject to equitable defenses and to the discretion of the court before which
any proceeding may be brought.
This opinion is further limited and qualified in all respects as follows:
For purposes of rendering the opinion set forth in numbered paragraph 1
above, we have relied solely upon a certificate of the Secretary of State of the
State of Delaware dated May 5, 1997.
This opinion is specifically limited to matters of the existing laws of the
United States of America and the General Corporation Law of the State of
Delaware; provided, however that the opinion in numbered paragraph 2 relating to
provisions of the Indenture and the opinion in numbered paragraph 3 relating to
the enforceability of the New Notes are each limited solely to the existing laws
of the State of New York. Except as expressly stated in the foregoing sentence,
we express no opinion as to the applicability of the laws of any other
particular jurisdiction to the transactions described in this opinion.
This opinion is limited to the specific opinions expressly stated herein,
and no other opinion is implied or may be inferred beyond the specific opinions
expressly stated herein.
This opinion is intended solely for your benefit. It is not to be quoted
in whole or in part, disclosed, made available to or relied upon by any other
person, firm or entity without our express prior written consent.
This opinion is based upon our knowledge of the law and facts as of the
date hereof. We assume no duty to update or supplement this opinion to reflect
any facts or circumstances that may hereafter come to our attention or to
reflect any changes in any law that may hereafter occur or become effective.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the heading "Legal
Matters" in the Prospectus constituting a part of the Registration Statement.
Respectfully submitted,
KELLY, HART & HALLMAN
(a professional corporation)
<PAGE>
EXHIBIT 23.1
INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of Cross Timbers Oil Company on Form
S-4 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
May 6, 1997
<PAGE>
Exhibit 25.1
- -------------------------------------------------------------------------------
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)
[_]
--------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S.employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, NY 10286
(Address of principal executive offices) (Zip code)
--------------------
CROSS TIMBERS OIL COMPANY
(Exact name of obligor as specified in its charter)
Delaware 75-2347769
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
810 Houston Street, Suite 2000
Fort Worth, TX 76102
(Address of principal executive offices) (Zip code)
--------------------
9 1/4% Series B Senior Subordinated Notes due 2007
(Title of the indenture securities)
- --------------------------------------------------------------------------------
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
- --------------------------------------------------------------------------------
Name Address
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of 2 Rector Street, New York, NY 10006
the State of New York and Albany, N.Y. 12203
Federal Reserve Bank 33 Liberty Plaza, New York, NY 10045
of New York
Federal Deposit Washington, D.C. 20429
Insurance Corporation
New York Clearing New York, New York 10005
House Association
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-
29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of the
Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-
44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New York, and State
of New York, on the 6th day of May, 1997.
THE BANK OF NEW YORK
By:/s/ Mary LaGumina
-----------------------
Mary LaGumina
Assistant Vice President
3
<PAGE>
Exhibit 7
to
Form T-1
<PAGE>
Exhibit 7
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1996, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depository
institutions:
Noninterest-bearing balances and
currency and coin ......................... $ 4,404,522
Interest-bearing balances .................. 732,833
Securities:
Held-to-maturity securities ............... 789,964
Available-for-sale securities ............. 2,005,509
Federal funds sold in domestic offices
of the bank:
Federal funds sold ........................ 3,364,838
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................................. 28,728,602
LESS: Allowance for loan and
lease losses ............................ 584,525
LESS: Allocated transfer risk
reserve ................................. 429
Loans and leases, net of unearned
income, allowance, and reserve 28,143,648
Assets held in trading accounts ............. 1,004,242
Premises and fixed assets (including
capitalized leases) ....................... 605,668
Other real estate owned ..................... 41,238
Investments in unconsolidated
subsidiaries and associated
companies ................................. 205,031
Customers' liability to this bank on
acceptances outstanding ................... 949,154
Intangible assets ........................... 490,524
Other assets ................................ 1,305,839
-----------
Total assets ................................ $44,043,010
===========
LIABILITIES
Deposits:
In domestic offices ....................... $20,441,318
Noninterest-bearing ....................... 8,158,472
Interest-bearing .......................... 12,282,846
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ........ 11,710,903
Noninterest-bearing ....................... 46,182
<PAGE>
Interest-bearing.................... 11,664,721
Federal funds purchased in
domestic offices of the
bank:
Federal funds purchased............. 1,565,288
Demand notes issued to the U.S.
Treasury............................ 293,186
Trading liabilities................... 826,856
Other borrowed money:
With original maturity of one year
or less........................... 2,103,443
With original maturity of more than
one year.......................... 20,766
Bank's liability on acceptances
executed and outstanding............ 951,116
Subordinated notes and debentures..... 1,020,400
Other liabilities..................... 1,522,884
-----------
Total liabilities..................... 40,456,160
-----------
EQUITY CAPITAL
Common stock.......................... 942,284
Surplus............................... 525,666
Undivided profits and capital
reserves............................ 2,129,376
Net unrealized holding gains
(losses) on available-for-sale
securities.......................... ( 2,073)
Cumulative foreign currency
translation adjustments............. ( 8,403)
-----------
Total equity capital.................. 3,586,850
-----------
Total liabilities and equity
capital............................. $44,043,010
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot
Thomas A. Renyi Directors
Alan R. Griffith
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
Offer For Any and All Outstanding
9 1/4% Series A Senior Subordinated Notes
in Exchange for
9 1/4% Series B Senior Subordinated Notes
Which Have Been Registered Under The Securities Act Of 1933
Pursuant to the Prospectus dated May , 1997
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THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1997, UNLESS THE OFFER IS EXTENDED. TENDERS
-------------------------
MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent For The Exchange Offer Is:
The Bank Of New York
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<S> <C> <C>
By Hand or Overnight Facsimile Transmissions By Registered Or
Delivery: (Eligible Institutions Certified Mail:
Only):
The Bank of New York The Bank of New York
101 Barclay Street (212) 571-3080 101 Barclay Street, 7E
Corporate Trust Services Attention: George New York, New York 10286
Window Johnson Attention:
Ground Level To Confirm by Telephone Reorganization Section,
Attention: Reorganization or for Information Call: George Johnson
Section, (212) 815-3687
George Johnson
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Delivery of this letter of transmittal to an address other than as set
forth above or transmission of this letter of transmittal via facsimile to a
number other than as set forth above does not constitute a valid delivery.
The undersigned acknowledges receipt of the Prospectus, dated
May , 1997, as may be amended from time to time (the "Prospectus"), of Cross
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Timbers Oil Company, a Delaware corporation (the "Company"), and this Letter of
Transmittal, which together constitute the Company's offer (the "Exchange
Offer") to exchange an aggregate principal amount of up to $125,000,000 of 9
1/4% Series B Senior Subordinated Notes due April 1, 2007, which have been
registered under the Securities Act of 1933, as amended (the "Securities Act")
(the "New Notes"), of the Company for a like principal amount of the issued and
outstanding 9 1/4% Series A Senior Subordinated Notes due April 1, 2007 (the "
Old Notes") of the Company from the Holders thereof.
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PLEASE READ THE INSTRUCTIONS CONTAINED HEREIN CAREFULLY BEFORE
COMPLETING THIS LETTER OF TRANSMITTAL.
Capitalized terms used but not defined herein shall have the same
meanings respectively given to them in the Prospectus.
This Letter of Transmittal is to be completed by Holders of Old Notes
(as defined below) either if certificates for Old Notes ("Certificates") are to
be forwarded herewith or if tenders of Old Notes are to be made by book-entry
transfer to an account maintained by The Bank of New York (the "Exchange Agent")
at the Depository Trust Company (the "Book Entry Transfer Facility" or "DTC")
pursuant to the procedures set forth in "The Exchange Offer--Procedures for
Tendering Old Notes" in the Prospectus.
Holders of Old Notes whose Certificates are not immediately available
or who cannot deliver their Certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date (as defined in the Prospectus)
or who cannot complete the procedures for book-entry transfer on a timely basis,
must tender their Old Notes according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Procedures for Tendering Old Notes" in the
Prospectus. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
The undersigned has completed the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
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<CAPTION>
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DESCRIPTION OF OLD NOTES 1 2 3
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<S> <C> <C> <C>
Aggregate Principal
Principal Amount of
Name(s) and Address(es) of Certificate Amount of Old Notes
Holder(s): Number(s)* Old Notes Tendered
(Please fill in, if blank) (if less than
all)**
- --------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry Holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000 and
integral multiples of $1,000 in excess thereof, provided that if any Old
Notes are tendered for exchange in part, the untendered principal amount
thereof must be $1,000 or any integral multiple of $1,000 in excess thereof.
See Instruction 4. Unless otherwise indicated in the column, a Holder will
be deemed to have tendered all Old Notes represented by the Old Notes
indicated in Column 2. See Instruction 4.
- --------------------------------------------------------------------------------
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(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-------------------------------------
Account Number:
-------------------------------
Transaction Code Number:
----------------------
[_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
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Name of Holder(s):
------------------------------------
Window Ticket Number (if any):
------------------------
Date of Execution of Notice of Guaranteed Delivery: , 1997
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Name of Institution that Guaranteed Delivery:
------------------------------
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution:
---------------------------------
Account Number:
---------------------------
Transaction Code Number:
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[_] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT
NUMBER SET FORTH ABOVE.
[_] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR YOUR
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
--------------------------------------
Address:
--------------------------------------
--------------------------------------
--------------------------------------
(include zip code)
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above described aggregate
principal amount of the Company's 9 1/4% Series A Senior Subordinated Notes due
April 1, 2007 (the "Old Notes") in exchange for a like aggregate principal
amount of the Company's 9 1/4% Series B Senior Subordinated Notes due April 1,
2007, which have been registered under the Securities Act (the "New Notes"),
upon the terms and subject to the conditions set forth in the Prospectus,
receipt
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of which is acknowledged, and in this Letter of Transmittal (which, together
with the Prospectus, constitute the Exchange Offer).
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney's being deemed to be an irrevocable power
coupled with an interest) subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates to the Company together with all
accompanying evidences of transfer and authenticity to, or upon the order of,
the Company, upon receipt by the Exchange Agent, as the undersigned's agent, of
the New Notes to be issued in exchange for such Old Notes, (ii) present
Certificates for transfer, and to transfer the Old Notes on the books of the
Company and (iii) receive for the account of the Company all benefits and
otherwise exercise all rights of beneficial ownership of such Old Notes, all in
accordance with the terms and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. UPON
REQUEST, THE UNDERSIGNED WILL EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
If they are not already set forth above, please print the name(s) and
address(es) of the Holder(s) of the Old Notes tendered hereby as they appear on
the Certificates. The undersigned should indicate the Certificate number(s) of
the Old Notes that the undersigned wishes to tender in the appropriate boxes
above.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered by
book-entry transfer, such Old Notes will be credited to an account maintained at
DTC), without expense to the tendering Holder, promptly following the expiration
or termination of the Exchange Offer.
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The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer--Procedures for Tendering Old
Notes" in the Prospectus and in the instructions attached hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectus, the Company may
not be required to accept for exchange any of the Old Notes tendered hereby.
Unless otherwise indicated under "Special Issuance Instructions" below, the
undersigned hereby directs that the New Notes be issued in the name(s) of the
undersigned or, in the case of a book-entry transfer of Old Notes, that such New
Notes be credited to the account indicated above maintained at DTC. If
applicable, substitute Certificates not exchanged or not accepted for exchange
will be issued to the undersigned or, in the case of a book-entry transfer of
Old Notes, will be credited to the account indicated above maintained at DTC.
Similarly, unless otherwise indicated under "Special Delivery Instructions," New
Notes will be delivered to the undersigned at the address shown below the
undersigned's signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (II) ANY NEW NOTES TO BE RECEIVED BY THE UNDERSIGNED
ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED
HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF NEW NOTES TO BE
RECEIVED IN THE EXCHANGE OFFER AND (IV), IF THE UNDERSIGNED IS NOT A BROKER-
DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW NOTES. BY
TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF
TRANSMITTAL, A HOLDER OF OLD NOTES THAT IS A BROKER-DEALER REPRESENTS AND
AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE
DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO
THIRD PARTIES, THAT (A) THE BROKER-DEALER HOLDS SUCH OLD NOTES ONLY AS A
NOMINEE, OR (B) THE BROKER-DEALER ACQUIRED SUCH OLD NOTES FOR ITS OWN ACCOUNT AS
A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND THAT IT
WILL DELIVER A PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING
THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH NEW
NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH
BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) MAY USE THE
PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, IN
CONNECTION WITH RESALES OF NEW
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NOTES THAT SUCH PARTICIPATING BROKER-DEALER ACQUIRED FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR A PERIOD
ENDING 180 DAYS AFTER CONSUMMATION OF THE EXCHANGE OFFER OR, IF EARLIER, WHEN
SUCH PARTICIPATING BROKER-DEALER HAS DISPOSED OF ALL SUCH NEW NOTES. IN THAT
REGARD, EACH BROKER-DEALER THAT ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-
DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL,
AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY
EVENT OR THE DISCOVERY OF ANY FACT THAT MAKES ANY STATEMENT CONTAINED OR
INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR
THAT CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER
TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT
OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING, OR OF THE
OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS
AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES
PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE
PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND THE COMPANY HAS
FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING
BROKER-DEALER OR UNTIL THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE NEW
NOTES MAY BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES NOTICE TO SUSPEND
THE SALE OF THE NEW NOTES, IT SHALL EXTEND THE 180-DAY PERIOD REFERRED TO ABOVE
DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN
CONNECTION WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD
FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE
DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE
SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES
OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE
OF NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
with respect to such Old Notes prior to the original issue date of the New Notes
or, if no such interest has been paid or duly provided for, such Holders will
not receive any accrued interest on such Old Notes; and the undersigned hereby
irrevocably waives the right to receive any interest on such Old Notes accrued
from and after such Interest Payment Date or, if no such interest has been paid
or duly provided for, from and after April 2, 1997.
Upon request, the undersigned will execute and deliver any additional
documents that the Company or the Exchange Agent may deem necessary or desirable
to complete the sale, assignment and transfer of the Old Notes tendered hereby.
All authority herein conferred or
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agreed to be conferred in this Letter of Transmittal shall survive the death or
incapacity of the undersigned and all obligations of the undersigned hereunder
shall be binding upon the heirs, executors, administrators, personal
representatives, trustees in bankruptcy, legal representatives, successors and
assigns of the undersigned. Except as stated in the Prospectus, a tender of Old
Notes is irrevocable.
BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES" ABOVE AND DULY
SIGNING AND DELIVERING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED WILL BE
DEEMED TO HAVE TENDERED THE OLD NOTES AS SET FORTH IN SUCH BOX.
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HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 INCLUDED HEREWITH)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by Holder(s) exactly as name(s) appear(s) on Certificate(s)
hereby tendered or on the Note Register, or by any person(s) authorized to
become the Holder(s) by endorsements and documents transmitted herewith
(including such opinions of counsel, certifications and other information as may
be required by the Company for the Old Notes to comply with the restrictions on
transfer applicable to the Old Notes). If signature is by an attorney-in-fact,
executor, administrator, trustee, guardian, officer of a corporation or a person
acting in another fiduciary or representative capacity, please set forth the
signatory's full title. See Instruction 5.
SIGNATURE(S) OF HOLDER(S):
- ------------------------------------
- ------------------------------------
Date: , 1997
-----------------
Name(s):
-----------------------------------
-----------------------------------
(please print)
Capacity (full title):
-----------------------------
Address:
----------------------------------------
----------------------------------------
----------------------------------------
(include zip code)
Telephone Number (including area code):
-------------------------
Taxpayer Identification or Social Security Number(s):
----------------------
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GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5):
___________________________________
(authorized signature)
Date: ___________, 1997
Name of Firm: ________________________________
(please print)
Capacity (full title): _______________________
Address: ___________________________________
___________________________________
___________________________________
(include zip code)
Telephone Number (including area code): ___________________
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SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the New Notes or Old Notes not tendered are to be
issued in the name of someone other than the Holder of the Old Notes whose
name(s) appear(s) above.
Please issue:
[_] Old Notes not tendered to:
[_] New Notes to:
Name(s): _____________________________________
_____________________________________
(please print)
Capacity (full title): _______________________
Address: ___________________________________
___________________________________
___________________________________
(include zip code)
Telephone Number (including area code): ______________________
Taxpayer Identification or Social Security Number(s): _______________
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SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if New Notes or Old Notes not tendered are to be sent
to someone other than the Holder of the Old Notes whose name(s) appear(s) above,
or to such Holder(s) at an address other than that shown above.
Please mail:
[_] Old Notes not tendered to:
[_] New Notes, to:
Name(s): _____________________________________
_____________________________________
(please print)
Capacity (full title): _______________________
Address: ___________________________________
___________________________________
___________________________________
(include zip code)
Telephone Number (including area code): ______________________
Taxpayer Identification or Social Security Number(s): _______________
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INSTRUCTIONS
(FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER)
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed if either (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus. The Exchange
Agent must receive Certificates, or timely confirmation of a book-entry transfer
of such Old Notes into the Exchange Agent's account at DTC, as well as this
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, and any other documents
required by this Letter of Transmittal, at its address set forth herein on or
prior to the Expiration Date. Old Notes may be tendered in whole or in part in
the principal amount of $1,000 and integral multiples thereof; provided,
however, that, if any Old Notes are tendered for exchange in part, the
untendered principal amount thereof must be $1,000 or any integral multiple
thereof.
Holders who wish to tender their Old Notes (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the Expiration Date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Old Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for
Tendering Old Notes" in the Prospectus. Pursuant to such procedures: (i) such
tender must be made by or through an Eligible Institution (as defined below);
(ii) the Exchange Agent must receive a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form that the Company has
made available, on or prior to the Expiration Date; and (iii) the Exchange Agent
must receive the Certificates (or a book-entry confirmation (as defined in the
Prospectus)) representing all tendered Old Notes, in proper form for transfer,
together with a Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees and any other
documents required by this Letter of Transmittal, within five New York Stock
Exchange, Inc. trading days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in "The Exchange Offer--Procedures for
Tendering Old Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein and in the Prospectus, "Eligible Institution" means 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; and
(v) a savings association that is a participant in a Securities Transfer
Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND
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SOLE RISK OF THE TENDERING HOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN THE
EXCHANGE AGENT ACTUALLY RECEIVES ALL OF SUCH DOCUMENTS. IF DELIVERY IS BY MAIL,
THEN REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR
OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering Holder, by execution and delivery of this Letter of
Transmittal (or facsimile thereof), waives any right to receive any notice of
the acceptance of such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the Holder (which term, for
purposes of this document, shall include any participant in DTC whose
name appears on the Note Register as the owner of the Old Notes) of
Old Notes tendered herewith, unless such Holder(s) has completed
either "Special Issuance Instructions" or "Special Delivery
Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the Certificate number(s) and/or the
principal amount of Old Notes and any other required information should be
listed on a separate signed schedule that is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in the principal amount of $1,000 and integral multiples thereof;
provided, however, that, if any Old Notes are tendered for exchange in part, the
untendered principal amount thereof must be $1,000 or any integral multiple
thereof. If less than all the Old Notes evidenced by any Certificate submitted
are to be tendered, please indicate the principal amount of Old Notes that are
to be tendered in the box entitled "Principal Amount of Old Notes Tendered (if
less than all)." In such case, new Certificate(s) for the remainder of the Old
Notes that were evidenced by the old Certificate(s) will only be sent to the
Holder of the Old Notes, promptly after the Expiration Date. All Old Notes
represented by Certificates delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to be
effective on or prior to that time, the Exchange Agent must timely receive a
written, telegraphic, telex or facsimile transmission of such notice of
withdrawal at one of its addresses set forth above or in the Prospectus on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
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name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn and, if Certificates have been
tendered, the name of the Holder of the Old Notes as set forth on the
Certificate if different from that of the person who tendered such Old Notes.
If Certificates have been delivered or otherwise identified to the Exchange
Agent, then, prior to the physical release of such Certificates, the tendering
Holder must submit the serial numbers shown on the particular Certificates to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution, except in the case of Old Notes tendered for the account
of an Eligible Institution. If Old Notes have been tendered pursuant to the
procedures for book-entry transfer set forth in the Prospectus under "The
Exchange Offer--Procedures for Tendering Old Notes," the notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawal of Old Notes, in which case a notice of withdrawal will be effective
if timely delivered to the Exchange Agent by written, telegraphic, telex or
facsimile transmission. Withdrawals of tenders of Old Notes may not be
rescinded. Old Notes properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described in
the Prospectus under "The Exchange Offer--Procedures for Tendering Old Notes."
The Company will determine, in its sole discretion, all questions as to the
validity, form and eligibility (including time of receipt) of any such
withdrawal notice, and such determination shall be final and binding on all
parties. None of the Company, any affiliates or assigns of the Company, the
Exchange Agent or any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or shall incur
any liability for failure to give any such notification. Any Old Notes that have
been tendered but that are withdrawn will be returned to the Holder without cost
to such Holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the Holder(s) of the Old Notes tendered
hereby, the signature(s) must correspond exactly with the name(s) as written on
the face of the Certificate(s) without alteration, enlargement or any change
whatsoever.
If any tendered Old Notes are owned of record by two or more joint Holders,
all such Holders must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in another fiduciary or representative
capacity, such persons must so indicate when signing and must submit proper
evidence satisfactory to the Company, in its sole discretion, of each such
person's authority to act.
If this Letter of Transmittal is signed by the Holder(s) of the Old Notes
listed and transmitted hereby, no endorsement(s) of Certificate(s) or separate
bond power(s) are required unless New Notes are to be issued in the name of a
person other than the Holder(s).
15
<PAGE>
Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the Holder
of the Old Notes listed and transmitted hereby, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the name
or names of the Holder(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company or the Trustee may require in accordance with the restrictions on
transfer applicable to the Old Notes. Signatures on such Certificates or bond
powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be
issued in the name of a person other than the signatory of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signatory
of this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal must be completed. Certificates
for Old Notes not exchanged will be returned by mail or, if tendered by book-
entry transfer, by crediting the account indicated above maintained at DTC. See
Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion,
all questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Old Notes. Such
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders that it determines not to be in
proper form or the acceptance of which, or exchange for which, may, in the view
of counsel to the Company, be unlawful. The Company also reserves the absolute
right, subject to applicable law, to waive any of the conditions of the Exchange
Offer set forth in the Prospectus under "The Exchange Offer--Certain Conditions
to the Exchange Offer" or any conditions or irregularity in any tender of Old
Notes by any particular Holder, whether or not the Company waives similar
conditions or irregularities in the case of any other Holder. The Company's
interpretation of the terms and conditions of the Exchange Offer (including this
Letter of Transmittal and the instructions hereto) will be final and binding on
all parties. No tender of Old Notes will be deemed to have been validly made
until all irregularities with respect to such tender have been cured or waived.
None of the Company, any affiliates or assigns of the Company, the Exchange
Agent or any other person shall be under any duty to give notification of any
irregularities in tenders or shall incur any liability for failure to give such
notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front cover of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from a broker,
dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. federal income
tax law, a Holder whose tendered Old Notes are accepted for exchange is required
to provide the Exchange Agent with such Holder's correct taxpayer identification
16
<PAGE>
number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service (the "IRS") may
subject the Holder or other payee to a $50 penalty.
The box in Part 2 of the Substitute Form W-9 should be checked if the
tendering Holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
Holder must also complete the Certificate of Awaiting Taxpayer Identification
Number below in order to avoid backup withholding. Notwithstanding that the box
in Part 2 has been checked and the Certificate of Awaiting Taxpayer
Identification Number has been completed, the Exchange Agent will withhold 31%
of all payments made prior to the time that a properly certified TIN is provided
to the Exchange Agent. The Exchange Agent will retain such amounts withheld
during the 60 day period following the date of the Substitute Form W-9. If the
Holder furnishes the Exchange Agent with its TIN within 60 days after the date
of the Substitute Form W-9, the amounts retained during the 60 day period will
be remitted to the Holder and no further amounts shall be retained or withheld
from payments made to the Holder thereafter. If, however, the Holder has not
provided the Exchange Agent with its TIN within such 60 day period, amounts
withheld will be remitted to the IRS as backup withholding. In addition, 31% of
all payments made thereafter will be withheld and remitted to the IRS until a
correct TIN is provided.
The Holder is required to give the Exchange Agent the TIN of the Holder of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain Holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such Holders should nevertheless
complete the attached Substitute Form W-9 below and write "exempt" on the face
thereof to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8
signed under penalties of perjury attesting to its exempt status. Please
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which Holders are
exempt from backup withholding.
Backup withholding is not an additional U.S. federal income tax. Rather,
the U.S. federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of tax, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive satisfaction of any or all conditions to the Exchange Offer enumerated
herein or in the Prospectus.
11. NO CONDITIONAL TENDERS. The Company will not accept any alternative,
conditional, irregular or contingent tenders. By execution and delivery of this
Letter of Transmittal, a tendering Holder of Old Notes shall be deemed to have
irrevocably waived any right to receive notice of acceptance of such Old Notes
for exchange.
17
<PAGE>
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the Holder should
promptly notify the Exchange Agent, which will instruct the Holder as to the
steps that must be taken in order to replace the Certificate(s). In such event,
the Exchange Agent will be unable to process this Letter of Transmittal and
related documents until the Holder has followed the procedures for replacing
lost, destroyed or stolen Certificate(s).
13. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, a transfer tax is imposed because the New Notes are
to be delivered to, or are to be issued in the name of, any person other than
the Holder of the Old Notes tendered, or if a transfer tax is imposed for any
reason other than the exchange of Old Notes in connection with the Exchange
Offer, then the tendering Holder must pay the amount of any such transfer tax
(whether imposed on the Holder or any other person). If the tendering Holder
submits satisfactory evidence of payment of such taxes or exemption therefrom
with the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder.
IMPORTANT: THE EXCHANGE AGENT MUST RECEIVE THIS LETTER OF
TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER REQUIRED
DOCUMENTS ON OR PRIOR TO THE EXPIRATION DATE.
18
<PAGE>
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(See Instruction 9)
PAYER'S NAME: THE BANK OF NEW YORK
- --------------------------------------------------------------------------------
PART 1-PLEASE PROVIDE TIN:_______________________
YOUR TIN ON THE LINE Social Security Number or
AT RIGHT AND CERTIFY Employer Identification
BY SIGNING AND DATING Number
BELOW
- --------------------------------------------------------------------------------
PART 2 -- TIN Applied For [_]
- --------------------------------------------------------------------------------
SUBSTITUTE CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT:
Form W-9
Department Of The (1) the number shown on this form is my correct
Treasury taxpayer identification number (or I am waiting
Internal Revenue Service for a number to be issued to me).
Payor's Request For (2) I am not subject to backup withholding
Taxpayer because (a) I am exempt from backup withholding,
Identification Number or (b) I have not been notified by the Internal
("TIN") and Revenue Service ("IRS") that I am subject to
Certification backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to
backup withholding, and
(3) any other information provided on this form
is true and correct.
Signature______________________ Date ______, 1997
- --------------------------------------------------------------------------------
You must cross out Part (2) above if you have been notified by the IRS that you
are subject to backup withholding because of underreporting interest or
dividends on your tax return and you have not been notified by the IRS that
you are no longer subject to backup withholding.
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all payments made to me on account of the New Notes
shall be retained until I provide a taxpayer identification number to the
Exchange Agent and that, if I do not provide my taxpayer identification number
within 60 days, such retained amounts shall be remitted to the Internal
Revenue Service as backup withholding and 31% of all reportable payments made
to me thereafter will be withheld and remitted to the Internal Revenue Service
until I provide a taxpayer identification number.
Signature _____________________________ Date ________________, 1997
- --------------------------------------------------------------------------------
19
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- -------------------------------------------------- -----------------------------------------------------
GIVE THE GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF-- NUMBER OF --
- -------------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, or The legal entity
2. Two or more individuals The actual owner pension trust (Do not furnish
(joint account) of the account the identifying
or, if combined number of the
funds, any one personal
of the representative or
individuals(1) trustee unless
3. Husband and wife (joint The actual owner the legal entity
account) of the account itself is not
or, if designated in the
joint funds, account
either person(1) title.)(5)
4. Custodian account of a The minor(2) 10. Corporate account The corporation
minor (Uniform Gift to 11. Religious, charitable, or The organization
Minors Act) educational organization
5. Adult and minor (joint The adult or, if account
account) the minor is the 12. Partnership account held The partnership
only contributor, in the name of the business
the minor(1) 13. Association, club, or The organization
6. Account in the name of The ward, minor, other tax-exempt
guardian or committee for a or incompetent organization
designated ward, minor, or person(3) 14. A broker or registered The broker or
incompetent person nominee nominee
7. a. The usual revocable The grantor- 15. Account with the The public entity
savings trust account trustee(1) Department of Agriculture
(grantor is also in the name of a public
trustee) entity (such as a State or
b. So-called trust account The actual local government, school
that is not a legal or owner(1) district, or prison) that
valid trust under State receives agricultural
law program payments
8. Sole proprietorship The owner(4)
account
- -------------------------------------------------- -----------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a)
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of
1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not pro-
vided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends un-
der section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT
TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, inter-
est, or other payments to give taxpayer identification numbers to payers who
must report the payments to IRS. IRS uses the numbers for identification pur-
poses. Payers must be given the numbers whether or not recipients are required
to file tax returns. Beginning January 1, 1993, payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a taxpayer identification number to a payer. Certain penal-
ties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.-If you
fail to furnish your taxpayer identification number to a payer, you are sub-
ject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.-If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or im-
prisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
ANY AND ALL OUTSTANDING
9 1/4% SERIES A SENIOR SUBORDINATED NOTES
OF
CROSS TIMBERS OIL COMPANY
FULLY AND UNCONDITIONALLY GUARANTEED
BY
------------------------
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i) the
Holder's certificates ("Certificates") for 9 1/4% Series A Senior Subordinated
Notes due April 1, 2007 of the Company (the "Old Notes") are
not immediately available, (ii) the Holder cannot deliver the Old Notes, Letter
of Transmittal and all other required documents to The Bank of New York (the
"Exchange Agent") on or prior to 5:00 p.m. New York City time, on the Expiration
Date or (iii) the Holder cannot complete the procedures for delivery by book-
entry transfer on a timely basis. This Notice of Guaranteed Delivery may be
delivered by hand, overnight courier or mail, or transmitted by facsimile
transmission, to the Exchange Agent. See "The Exchange Offer--Procedures for
Tendering Old Notes" in the Prospectus. Capitalized terms not defined herein
have the meanings respectively given to them in the Prospectus.
The Exchange Agent For The Exchange Offer Is:
The Bank Of New York
<TABLE>
<S> <C> <C>
By Hand or Overnight Delivery: Facsimile Transmissions By Registered Or Certified Mail:
(Eligible Institutions Only):
The Bank of New York The Bank of New York
101 Barclay Street (212) 571-3080 101 Barclay Street, 7E
Corporate Trust Services Window Attention: George Johnson New York, New York 10286
Ground Level To Confirm by Telephone Attention: Reorganization Section,
Attention: Reorganization Section, or for Information Call: George Johnson
George Johnson (212) 815-6333
</TABLE>
<PAGE>
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of this Notice of Guaranteed Delivery via
facsimile to a number other than as set forth above will not constitute a valid
delivery.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS HERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
Ladies and Gentlemen:
The undersigned hereby tenders to Cross Timbers Oil Company, a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus dated May __, 1997 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Old Notes set forth
below pursuant to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer--Procedures for Tendering Old Notes."
Aggregate Principal Amount Tendered: $ *
-------------------
Name(s) of Holder(s):
-------------------------------
Certificate No(s):
------------------------
Total Principal Amount
Represented by Certificate(s): $
-----------------
If Old Notes will be tendered by book-entry transfer, please provide the
following information:
DTC Account Number:
---------------------------
Date:
------------------------------
- -------------
* Must be in denominations of a principal amount of $1,000 and any integral
multiple thereof.
2
<PAGE>
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN BELOW:
Signature(s) of Holder(s) or
Authorized Signatory: Date:
x , 1997
----------------------------------------- -------------
x , 1997
----------------------------------------- -------------
Telephone Number (including area code):
---------------------
Must be signed by Holder(s) of Old Notes exactly as name(s) appear(s) on
tendered Certificates or on a security position listing, or by person(s)
authorized to become Holder(s) by endorsement and documents transmitted with
this Notice of Guaranteed Delivery. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in another fiduciary or representative capacity, such person must
set forth his or her full title below.
Please print name(s) and address(es) below:
Name(s):
-----------------------------------
-----------------------------------
Capacity:
-----------------------------------
Address(es):
-----------------------------------
-----------------------------------
-----------------------------------
(include zip code)
THE GUARANTEE ON THE REVERSE SIDE HEREOF MUST BE COMPLETED
3
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, 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 (each of
the foregoing being referred to as an "Eligible Institution"), hereby guarantees
to deliver to the Exchange Agent, at one of its addresses set forth above,
either the Old Notes tendered hereby in proper form for transfer, or
confirmation of the book-entry transfer of such Old Notes to the Exchange
Agent's account at The Depository Trust Company, pursuant to the procedures for
book-entry transfer set forth in the Prospectus, in either case together with
one or more properly completed and duly executed Letter(s) of Transmittal (or
facsimiles thereof) and any other required documents within five business days
after the date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
- ------------------------------------- -------------------------------------
Name of Firm Authorized Signature
- ------------------------------------- -------------------------------------
Address (including zip code) Title
- ------------------------------------- -------------------------------------
(Please type or print name)
- -------------------------------------
Telephone Number (including area code): Date: , 1997
---------------
- --------------------------------
* * * * *
DO NOT SEND CERTIFICATES WITH THIS FORM. CERTIFICATES SHOULD ONLY BE SENT WITH
A PROPERLY COMPLETED LETTER OF TRANSMITTAL.
4
