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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 1997
--------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-10662
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CROSS TIMBERS OIL COMPANY
(Exact name of registrant 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, Texas 76102
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(Address of principal executive offices) (Zip Code)
(817) 870-2800
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(Registrant's telephone number, including area code)
NONE
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(Former name, former address and former fiscal year, if change since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_____
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding as of April 30, 1997
---------------------------- --------------------------------
Common stock, $.01 par value 26,226,971
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CROSS TIMBERS OIL COMPANY
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
at March 31, 1997 and December 31, 1996.................. 3
Consolidated Statements of Operations
for the Three Months Ended March 31, 1997 and 1996....... 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1997 and 1996....... 5
Notes to Consolidated Financial Statements................ 6-8
Report of Independent Public Accountants.................. 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 10-13
PART II. OTHER INFORMATION
Item 5. Other Information......................................... 14
Item 6. Exhibits and Reports on Form 8-K.......................... 14-15
Signatures................................................ 16
</TABLE>
2
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<TABLE>
<CAPTION>
P A R T I. F I N A N C I A L I N F O R M A T I O N
CROSS TIMBERS OIL COMPANY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(in thousands) MARCH 31,
1997 DECEMBER 31,
(Unaudited) 1996
----------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................... $ 303 $ 3,937
Accounts receivable, net..................................... 33,380 44,320
Inventory.................................................... 199 18
Deferred income tax benefit.................................. - 558
Other current assets......................................... 1,864 2,947
--------- ---------
Total Current Assets........................................ 35,746 51,780
--------- ---------
Property and Equipment, at cost - successful efforts method:
Producing properties......................................... 671,305 639,990
Undeveloped properties....................................... 3,587 2,493
Gas gathering and other...................................... 17,191 16,470
--------- ---------
Total Property and Equipment.............................. 692,083 658,953
Accumulated depreciation, depletion and amortization......... (218,884) (208,392)
--------- ---------
Net Property and Equipment................................ 473,199 450,561
--------- ---------
Investment in Equity Securities, at market value.............. 16,947 16,714
--------- ---------
Other Assets.................................................. 3,431 4,015
--------- ---------
TOTAL ASSETS.................................................. $ 529,323 $ 523,070
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities..................... $ 41,207 $ 45,729
Payable to Royalty Trust..................................... 2,249 2,770
Accrued stock incentive compensation......................... 405 483
Deferred income tax, current................................. 378 -
Short-term debt (Note 2)..................................... - 3,000
--------- --------
Total Current Liabilities................................... 44,239 51,982
--------- --------
Long-term Debt (Note 2)....................................... 303,400 314,757
--------- --------
Deferred Income Tax........................................... 14,718 10,323
--------- --------
Other Long-term Liabilities................................... 3,255 3,340
--------- --------
Commitments (Note 3)
Stockholders' Equity:
Series A convertible preferred stock ($.01 par value,
25,000,000 shares authorized, 1,138,729 issued,
at liquidation value of $25)................................ 28,468 28,468
Common stock ($.01 par value, 100,000,000 shares authorized,
30,177,414 and 28,209,976 shares issued).................... 302 282
Additional paid-in capital................................... 194,671 164,577
Treasury stock (3,572,543 and 2,578,781 shares).............. (58,203) (40,219)
Unrealized gain on investment in equity securities........... 364 638
Retained earnings (deficit).................................. (1,891) (11,078)
--------- --------
Total Stockholders' Equity.................................. 163,711 142,668
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................... $ 529,323 $523,070
========= ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
CROSS TIMBERS OIL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- --------------------------------------------------------------------------------
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
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<S> <C> <C>
REVENUES
Oil......................................... $19,914 $16,303
Gas......................................... 29,524 15,610
Gas gathering, processing and marketing..... 2,733 3,853
Other....................................... 1,323 315
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Total Revenues.............................. 53,494 36,081
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EXPENSES
Production.................................. 10,343 9,666
Taxes on production and property............ 4,177 2,753
Depreciation, depletion and amortization.... 10,969 9,101
General and administrative.................. 3,535 2,560
Gas gathering and processing................ 2,098 891
Interest, net............................... 5,275 3,951
Trust development costs..................... 74 188
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Total Expenses.............................. 36,471 29,110
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INCOME BEFORE INCOME TAX..................... 17,023 6,971
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INCOME TAX
Current..................................... 256 419
Deferred.................................... 5,672 1,881
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Total Income Tax............................ 5,928 2,300
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NET INCOME................................... 11,095 4,671
Preferred Stock Dividends................... 445 -
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EARNINGS AVAILABLE TO COMMON STOCK........... $10,650 $ 4,671
======= =======
EARNINGS PER COMMON SHARE (Note 4)
Primary..................................... $ 0.40 $ 0.17
======= =======
Fully diluted............................... $ 0.38 $ 0.17
======= =======
DIVIDENDS DECLARED PER COMMON SHARE.......... $ 0.055 $ 0.050
======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING... 26,930 27,601
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
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CROSS TIMBERS OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands)
(Note 5)
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................... $ 11,095 $ 4,671
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization.................... 10,969 9,101
Stock incentive compensation................................ 266 (746)
Deferred income tax......................................... 5,672 1,881
Gain from sale of property and equity securities............ (1,427) (61)
Other non-cash items........................................ 626 376
Changes in working capital (a)................................ 11,939 1,639
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES......................... 39,140 16,861
-------- --------
INVESTING ACTIVITIES
Proceeds from sale of equity securities....................... 7,039 -
Investment in equity securities............................... (6,479) (16,080)
Proceeds from sale of property and equipment.................. 501 28,294
Property acquisitions......................................... (21,462) (3,072)
Development costs............................................. (17,368) (3,493)
Gas gathering and other additions............................. (860) (1,521)
-------- --------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES.................. (38,629) 4,128
-------- --------
FINANCING ACTIVITIES
Proceeds from long-term debt.................................. 62,500 21,000
Payments on long-term debt.................................... (47,130) (37,725)
Common and preferred stock dividends.......................... (1,870) (1,379)
Proceeds from stock option exercises.......................... 118 418
Purchases of treasury stock................................... (17,763) (225)
-------- --------
CASH USED BY FINANCING ACTIVITIES............................. (4,145) (17,911)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... (3,634) 3,078
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................. 3,937 2,212
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................... $ 303 $ 5,290
======== ========
(a) CHANGES IN WORKING CAPITAL
Accounts receivable......................................... $ 8,522 $ (1,045)
Inventory................................................... (181) -
Other current assets........................................ 1,051 574
Accounts payable, accrued liabilities and payable to
Royalty Trust.............................................. 2,547 2,110
-------- --------
DECREASE IN WORKING CAPITAL.................................. $ 11,939 $ 1,639
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
CROSS TIMBERS OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Cross Timbers Oil
Company ("the Company"), with the exception of the consolidated balance sheet at
December 31, 1996, have not been audited by independent public accountants. In
the opinion of the Company's management, the accompanying financial statements
reflect all adjustments necessary to present fairly the financial position at
March 31, 1997 and the results of operations and cash flows of the Company for
the three months ended March 31, 1997 and 1996. All such adjustments are of a
normal recurring nature. Certain amounts presented in prior period financial
statements have been reclassified for consistency with current period
presentation. The results for interim periods are not necessarily indicative of
annual results.
Certain disclosures have been condensed or omitted from these financial
statements. Accordingly, these financial statements should be read with the
Company's consolidated financial statements included in the Company's 1996
annual report on Form 10-K.
2. LONG-TERM DEBT
In January 1997, $29.7 million principal amount of the Company's 5 1/4%
convertible subordinated notes was converted by note holders into 1,928,242
shares of common stock and $29,000 was redeemed. As of January 21, 1997, no
5 1/4% convertible subordinated notes remained outstanding.
On April 2, 1997, the Company sold $125 million of 9 1/4% senior
subordinated notes ("Notes") to qualified institutional buyers pursuant to Rule
144A of the Securities Act of 1933. The Notes are general unsecured indebtedness
that is subordinate to bank borrowings under the Revolving Credit Agreement. The
Notes mature on April 1, 2007 and interest is payable each April 1 and October
1. The Notes are redeemable at the option of the Company on April 1, 2002 at a
price of 104.625%, and thereafter at prices declining ratably annually to 100%
on April 1, 2005, plus accrued interest through the redemption date. In
addition, on or prior to April 1, 2000, the Company may, subject to certain
requirements, redeem up to one-third of the Notes with the net proceeds from one
or more public equity offerings at a price equal to 109.25% plus accrued
interest. Upon a change in control (as defined) of the Company, Note holders
have the right to require the Company to purchase all or a portion of their
Notes at 101% plus accrued interest. See also Note 3.
On March 31, 1997, outstanding bank borrowings and short-term borrowings
were $300 million and $3.4 million respectively. On April 2, outstanding bank
borrowings were reduced to $181.9 million after applying net proceeds of $121.5
million (before estimated offering expenses of $454,000) from the sale of the
Notes. As of April 2, 1997, total bank borrowing commitments were $274 million,
with resulting unused borrowing capacity of $92.1 million. Because of this
increased borrowing capacity, short-term borrowings at March 31 were
reclassified to long-term debt. Borrowing commitments will be reduced to $265.8
million and $257.6 million on June 30, 1997 and December 31, 1997, respectively.
As of April 2, 1997, there are no maturities of long-term debt through
1999; maturities in 2000 and 2001 are $45 million and $44.1 million,
respectively.
3. COMMITMENTS
The Company has entered contracts with two purchasers to sell a total of
60,000 Mcf of gas per day from June through October for delivery in Oklahoma at
a weighted average sales price of $1.97 per Mcf, before Btu and gathering charge
adjustments. The Company has also entered in a commodity price swap agreement
effectively fixing the Company's gas price on notional volumes of 10,000 Mcf per
day of Oklahoma deliveries from June through October at $1.93 per Mcf, before
Btu and gathering charge adjustments.
6
<PAGE>
The Company has entered a registration rights agreement with the purchasers
of the Notes (Note 2) to use its best efforts to register notes ("Exchange
Notes") with the Securities and Exchange Commission ("Commission") that the
purchasers may exchange for the Notes, and to effect the offering of such
exchange ("Exchange Offering"). The Exchange Notes will have substantially
identical terms as the Notes, except that the Exchange Notes will not have
transfer restrictions. The Company's registration statement on Form S-4 to
register the Exchange Notes was declared effective by the Commission on May 14,
1997. If the Exchange Offering is not consummated by September 29, 1997, the
interest rate on the Notes will increase by 0.50% per annum .
4. COMMON SHARES OUTSTANDING AND EARNINGS PER COMMON SHARE
On March 19, 1997, the Company effected a three-for-two common stock split.
All share and per share amounts have been restated to reflect the stock split on
a retroactive basis.
Fully diluted earnings per share includes the effect of outstanding stock
options (calculated on the treasury stock method) and Series A convertible
preferred stock and 5 1/4% convertible subordinated notes, as if converted on
January 1, 1997.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which
changes the method of computing and disclosing earnings per share for periods
ending after December 15, 1997. The Company has determined that basic and
diluted earnings per share (as defined by SFAS No. 128) would be the same as
primary and fully diluted earnings per share, respectively, for the three months
ended March 31, 1997 and 1996.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The following are total interest and income tax payments during each of the
periods (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
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<S> <C> <C>
Interest........ $5,019 $2,940
Income tax...... 392 -
</TABLE>
The accompanying consolidated statements of cash flows excludes the
following non-cash equity transactions during the three-month periods ended
March 31, 1997 and 1996:
- Conversion of $29.7 million principal amount of 5 1/4% convertible
subordinated notes into 1,928,242 shares of common stock in January
1997 (Note 2)
- Vesting of 102,750 performance shares and issuance of 5,250
performance shares during January and February 1997 (Note 6)
- Receipt of 11,293 shares (valued at $222,000) and 13,642 shares
(valued at $162,000) of common stock for the option price of
exercised stock options in 1997 and 1996, respectively
6. STOCK INCENTIVE PLANS
During the three months ended March 31, 1997, the Company recognized
performance share compensation of $345,000 related to vesting of 102,750
performance shares in January and issuance of 5,250 performance shares in
February. There were no stock option grants during the three months ended March
31, 1997.
7
<PAGE>
7. ACQUISITIONS
From July 1996 through March 1997, the Company purchased 19% of the
outstanding units of beneficial interest in the Royalty Trust ("Units") at a
cost of $15.4 million, funded primarily with bank debt. The Board of Directors
has authorized the purchase of up to two million, or 33%, of the outstanding
Units.
On July 19, 1996, the Company acquired primarily gas-producing properties
in the Green River Basin of southwestern Wyoming from Enserch Exploration
("Enserch Acquisition") for an adjusted purchase price of $39.4 million. The
properties primarily consist of operated interests in the Fontenelle, Nitchie
Gulch and Pine Canyon fields. On November 21, 1996, the Company acquired
additional interests in the Fontenelle Unit, the most significant property
included in the Enserch Acquisition, for an estimated adjusted purchase price of
$12.5 million. These acquisitions were funded by bank debt and cash flow from
operations.
On December 2, 1996, the Company acquired primarily gas-producing
properties in the Northern Val Verde area of the Permian Basin of West Texas.
The properties are primarily operated interests in the Henderson, Ozona and
Davidson Ranch fields. The adjusted purchase price of $28.1 million was funded
by bank debt and cash flow from operations.
These acquisitions have been recorded using the purchase method of
accounting. The following presents unaudited pro forma results of operations
for the three months ended March 31, 1996 and the year ended December 31, 1996,
as if these acquisitions had been consummated as of January 1, 1996. These pro
forma results are not necessarily indicative of future results.
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
-----------------------------
Three Months Year Ended
(in thousands, except per share data) Ended March 31, December 31,
1996 1996
--------------- ------------
<S> <C> <C>
Revenues............................ $40,493 $174,722
======= ========
Income before income tax............ $ 7,152 $ 20,199
======= ========
Earnings available to common stock.. $ 4,790 $ 19,685
======= ========
Earnings per common share........... $ 0.17 $ 0.74
======= ========
</TABLE>
On May 14, 1997, the Company acquired producing properties and undeveloped
acreage in Oklahoma, Kansas and Texas for $39.5 million from a subsidiary of
Burlington Resources Inc. The purchase price will be reduced by net revenues
from the effective date of April 1, 1997 through the May 14 closing date. 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. The Company funded the
acquisition with bank debt and cash flow from operations.
8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Cross Timbers Oil Company:
We have reviewed the accompanying consolidated balance sheet of Cross Timbers
Oil Company (a Delaware Corporation) as of March 31, 1997 and the related
consolidated statements of operations and cash flows for the three-month periods
ended March 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Cross Timbers Oil Company as of
December 31, 1996 included in the Company's 1996 annual report on Form 10-K, and
in our report dated March 13, 1997, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1996 is fairly stated, in all
material respects, in relation to the consolidated balance sheet included in the
Company's 1996 annual report on Form 10-K from which it has been derived.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
April 23, 1997
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with management's
discussion and analysis contained in the Company's 1996 annual report on Form
10-K, as well as with the consolidated financial statements and notes thereto
included in this quarterly report on Form 10-Q.
OIL AND GAS PRODUCTION AND PRICES
- -----------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------
Increase
1997 1996 (Decrease)
------------ ----------- ----------
<S> <C> <C> <C>
TOTAL PRODUCTION
Oil (Bbls)................. 932,323 873,004 7%
Gas (Mcf).................. 11,272,073 8,482,743 33%
BOE........................ 2,811,002 2,286,795 23%
AVERAGE DAILY PRODUCTION
Oil (Bbls)................. 10,359 9,593 8%
Gas (Mcf).................. 125,245 93,217 34%
BOE........................ 31,233 25,130 24%
AVERAGE SALES PRICE
Oil per Bbl................ $ 21.36 $ 18.67 14%
Gas per Mcf................ $ 2.62 $ 1.84 42%
</TABLE>
_________________________
Bbl - Barrel
Mcf - Thousand cubic feet
BOE - Barrel of oil equivalent
Oil production increased because of development activity and acquisitions,
partially offset by property sales and natural decline. Increased gas
production is primarily attributable to the acquisitions and development
activity.
The average posted price for West Texas Intermediate ("WTI"), a benchmark
crude, was $21.01 per barrel for first quarter 1997, compared to $18.07 for
first quarter 1996. The Company's average oil price includes oil marketing
margins, which are partially offset by lower priced sour crude sales and
transportation charges. As the market reacted to concerns about oversupplies,
oil prices steadily declined during the first quarter of 1997 from December 1996
and January 1997 highs. The average posted WTI price for April 1997 was
$18.11, but has rebounded in May to $19.50.
After reaching highs in December 1996 and January 1997, natural gas prices
subsequently declined with warmer than normal late winter weather. Gas prices
have rebounded in April and May because of cooler than normal spring weather.
The Company has entered sales contracts and commodity price swap agreements
effectively fixing its price from June through October 1997 on 60,000 Mcf per
day at an average price of $1.97 and 10,000 Mcf per day at $1.93, before Btu and
gathering charge adjustments. See Note 3 to Consolidated Financial Statements.
10
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
First quarter 1997 earnings were $10.7 million compared to $4.7 million for
first quarter 1996. Record quarterly earnings were primarily the result of
higher oil and gas production and prices.
Total revenues for the 1997 quarter were $53.5 million, a 48% increase over
first quarter 1996 revenues of $36.1 million. Oil revenue increased $3.6 million
(22%) because of the 14% increase in average prices and the 7% increase in
production. Gas revenue increased $13.9 million (89%) as a result of the 42%
increase in average prices and the 33% increase in production. Gas gathering,
processing and marketing revenues decreased $1.1 million (29%) primarily because
of a 66% decline in gas marketing margins. Other revenues of $1.3 million in
first quarter 1997 included gains on sale of property and equity securities of
$200,000 and $1.2 million, respectively.
Expenses for first quarter 1997 totaled $36.5 million, a 25% increase
compared to $29.1 million total expenses for the first quarter of 1996.
Production expense increased $700,000 (7%) and depreciation, depletion and
amortization ("DD&A") increased $1.9 million (21%) primarily because of the 1996
acquisitions. Taxes on production and property for first quarter 1997 increased
$1.4 million (52%) over first quarter 1996 because of increased oil and gas
revenues and property taxes related to the 1996 acquisitions.
General and administrative expense increased $1 million (38%) primarily
because of Company growth and a $400,000 increase in stock incentive
compensation related to vesting and grants of performance shares. Interest
expense increased $1.3 million (34%) because of borrowings to fund the 1996
acquisitions (net of subordinated note conversions into common stock) and an
increase in the weighted average interest rate from 6.2% in first quarter 1996
to 6.9% in first quarter 1997. Gas gathering and processing expense increased
$1.2 million (135%) because of lease rentals that began following the sales and
operating leasebacks of the Tyrone plant in March 1996 and the Major County,
Oklahoma gathering system in November 1996.
COMPARATIVE EXPENSES PER BARREL OF OIL EQUIVALENT PRODUCTION
The following are expenses on a barrel of oil equivalent (BOE) produced
basis:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
Increase
1997 1996 (Decrease)
------- ------- ----------
<S> <C> <C> <C>
Production............................... $3.68 $4.23 (13%)
Taxes on production and property......... 1.49 1.20 24%
Depreciation, depletion and
amortization (DD&A) (a)................ 3.69 3.49 6%
General and administrative (G&A)......... 1.26 1.12 13%
Interest................................. 1.88 1.73 9%
</TABLE>
____________________________________________
(a) Includes only DD&A directly related to oil and gas production.
Production- Decreased production expense per BOE is because of lower operating
costs of gas-producing properties acquired in 1996, the timing of workovers and
operating efficiencies initiated after acquiring operated properties.
Taxes on production and property- Increased taxes per BOE are primarily because
of increased property tax rates and increased production taxes resulting from
higher oil and gas prices.
11
<PAGE>
DD&A- Increased DD&A per BOE is primarily related to increased exploitation and
development costs of producing properties.
G&A- Increased G&A per BOE is attributable to stock incentive compensation.
Excluding stock incentive compensation, G&A per BOE was $1.16 and $1.19 for the
first quarter of 1997 and 1996, respectively.
Interest- Increased interest expense per BOE is because of an 11% increase in
the weighted average interest rate.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
CASH FLOW AND WORKING CAPITAL
Cash provided by operating activities was $39.1 million for the first
quarter of 1997 compared to $16.9 million for the comparable 1996 period.
Operating cash flow (defined as cash provided by operating activities before
changes in working capital) increased 79% from $15.2 million for the first
quarter of 1996 to $27.2 million for the same 1997 period. Stock appreciation
right payments reduced first quarter 1996 operating cash flow by $500,000.
During the quarter ended March 31, 1997, proceeds from bank and short-term
borrowings of $62.5 million, operating activities of $39.1 million, property and
equity security sales of $7.5 million and stock option exercises of $100,000
were used to fund property acquisitions, development costs, other capital
additions and investments in equity securities of $46.1 million, debt payments
of $47.1 million, treasury stock purchases of $17.7 million and dividends of
$1.9 million. The resulting decrease in cash and cash equivalents for the period
was $3.6 million.
Other significant changes in current assets during the first three months
of 1997 were a $10.9 million decrease in accounts receivable because of lower
March product prices and a $1.1 million decrease in other current assets
resulting from year-end tubular stock that was used in first quarter
exploitation and development.
Total current liabilities decreased $7.7 million during first quarter 1997.
Accounts payable and accrued liabilities declined $4.5 million primarily because
of lower drilling and development related payables and lower gas gathering,
processing and marketing payables attributable to lower March gas prices. Short-
term debt declined $3 million because of increased bank borrowing capacity
following the sale of senior subordinated notes on April 2, 1997. See Note 2 to
Consolidated Financial Statements.
ACQUISITIONS AND DEVELOPMENT
Exploitation and development costs incurred by the Company for the first
three months of 1997 were $11.7 million; expenditures for exploitation and
development for this period totaled $17.4 million. This compares with
exploitation and development expenditures of $3.5 million during the first
quarter of 1996. Although actual exploitation and development expenditures may
vary significantly due to many factors, the Company anticipates its 1997
expenditures for exploitation and development activities to approximate its
previously announced $70 million budget. Such expenditures are expected to be
funded by cash flow from operations. During the quarter ended March 31, 1997,
the Company's purchases of equity securities (for non-trading purposes) totaled
$6.5 million; proceeds from sales of equity securities totaled $7 million.
On April 10, 1997, the Company announced that its Board of Directors
authorized the purchase of up to two million shares of the Company's common
stock, or about 7% of shares outstanding. These purchases are in addition to the
three million share program (adjusted for the March 1997 three-for-two stock
split) announced in May 1996, which was completed in April 1997.
As of the end of March, the Company had completed drilling 11 oil wells and
seven gas wells in 1997. A total of 12 recompletions and workovers were also
completed in the first quarter. Oil development during the
12
<PAGE>
quarter focused on the Prentice Northeast Unit in West Texas, while gas
development has been concentrated in the Fontenelle Unit in the Green River
Basin of Wyoming.
Six of the 11 oil wells drilled to date have been 10-acre infill wells in
the Prentice Northeast Unit where 31 wells are to be drilled by year-end. Three
of the seven gas wells are located in the Fontenelle Unit; wells completed in
the Fontenelle Unit during the first quarter have exceeded expectations with
daily rates averaging 1,500 Mcf per well. Thirty wells are expected to be
completed by year-end in the Fontenelle Unit where one rig is currently active
and a second is scheduled to begin drilling by the end of May.
DEBT AND EQUITY
During the first quarter of 1997, long-term debt and short-term debt
decreased $11.4 million and $3 million, respectively, reflecting the $29.7
million conversion of the Company's 5 1/4% subordinated notes into common stock,
offset by bank and short-term borrowings of $15.3 million that were used to
partially fund property acquisitions and treasury stock purchases. Stockholders'
equity at March 31, 1997 increased $21 million from year-end primarily because
of the $29.7 million conversion of subordinated notes into common stock and
first quarter earnings of $10.7 million, partially offset by treasury stock
additions of $18 million and common stock dividends of $1.5 million.
A three-for-two common stock split was effected on March 19, 1997. All
share and per share amounts have been restated for the effect of this stock
split.
On April 2, 1997, the Company sold $125 million of 9 1/4% senior
subordinated notes to qualified institutional buyers pursuant to Rule 144A of
the Securities Act of 1933. The notes are general unsecured indebtedness that is
subordinate to bank borrowings under the Revolving Credit Agreement. The notes
mature on April 1, 2007 and interest is payable each April 1 and October 1. See
Note 2 to Consolidated Financial Statements.
DIVIDENDS
In February 1997, the Board of Directors of the Company declared a first
quarter common stock dividend of $0.055 per share, or a total of $1.5 million,
paid in April 1997. Dividends paid by the Company or its predecessors from
September 1992 through January 1997 were at the rate of $0.05 per share.
ACCOUNTING PRONOUNCEMENTS
- -------------------------
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which
changes the method of computing and disclosing earnings per share for periods
ending after December 15, 1997. Upon the Company's adoption as of December 31,
1997, restatement of some prior periods may require disclosure of diluted
earnings which was not required under previous accounting standards since the
dilution was less than 3%. The Company has determined that basic and diluted
earnings per share (as defined by SFAS No. 128) would be the same as primary and
fully diluted earnings per share, respectively, disclosed for the three months
ended March 31, 1997 and 1996.
13
<PAGE>
P A R T I I. O T H E R I N F O R M A T I O N
ITEMS 1. THROUGH 4.
Not applicable.
ITEM 5. OTHER INFORMATION
On April 10, 1997, the Company announced that its Board of Directors
authorized the purchase of up to two million shares of the Company's common
stock, or about 7% of shares outstanding. These purchases are in addition to the
three million share program (adjusted for the March 1997 three-for-two stock
split) announced in May 1996, which was completed in April 1997.
On May 14, 1997, the Company acquired producing properties and undeveloped
acreage in Oklahoma, Kansas and Texas for $39.5 million from a subsidiary of
Burlington Resources Inc. The purchase price will be reduced by net revenues
from the effective date of April 1, 1997 through the May 14 closing date. 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. Current daily production from the
acquired interests averages 5.5 million cubic feet of gas equivalent.
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 Company funded the acquisition with bank debt and cash flow from
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Number
and Description Page
--------------- ------
<S> <C>
4.1 Indenture dated as of April 1, 1997
between Cross Timbers Oil Company and
The Bank of New York as Trustee,
relating to $125,000,000 9-1/4% Senior
Subordinated Notes due 2007 (incorporated
by reference to Exhibit 4.1 to Registration
Statement on Form S-4, File No. 333-26603)
10.1 Purchase Agreement - $125,000,000
9 1/4% Senior Subordinated Notes due
2007, among Cross Timbers Oil Company,
Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated,
Bear Stearns & Co. Inc. and Donaldson,
Lufkin & Jenrette Securities
Corporation
10.2 Registration Rights Agreement among
Cross Timbers Oil Company, Merrill
Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Bear
Stearns & Co. Inc. and Donaldson,
Lufkin & Jenrette Securities
Corporation
11 Computation of per share earnings
15 Letter re unaudited interim financial information
15.1 Awareness letter of Arthur Andersen LLP
</TABLE>
14
<PAGE>
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter
ended March 31, 1997 and through May 15, 1997:
On January 3, 1997, the Company filed a report on Form 8-K dated
December 20, 1996 regarding issuance of its redemption notice
for its remaining 5 1/4% convertible subordinated notes.
On February 4, 1997, the Company filed a report on Form 8-K
dated January 15, 1997 regarding completion of its previously
announced program to purchase one million units of beneficial
interest ("Units") in Cross Timbers Royalty Trust and its plans
to purchase up to one million additional Units, results of its
redemption notice for its remaining 5 1/4% convertible
subordinated notes, and preliminary estimates of fourth quarter
1996 earnings and cash flow.
On March 26, 1997, the Company filed a report on Form 8-K dated
March 12, 1997 regarding its intention to offer $165 million of
Senior Subordinated Notes due 2007 pursuant to Rule 144A of the
Securities Act of 1933.
On April 9, 1997, the Company filed a report on Form 8-K dated
April 2, 1997 regarding its completion of the sale of $125
million of 9 1/4% Senior Subordinated Notes due 2007 pursuant to
Rule 144A of the Securities Act of 1933.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROSS TIMBERS OIL COMPANY
Date: May 15, 1997 By: BENNIE G. KNIFFEN
---------------------------------
Bennie G. Kniffen
Senior Vice President and Controller
(Principal Accounting Officer and
Duly Authorized Officer)
16
<PAGE>
EXHIBIT 10.1
$125,000,000
CROSS TIMBERS OIL COMPANY
(a Delaware corporation)
9 1/4% Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
------------------
March 26, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
as Representatives of the several Initial Purchasers
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Cross Timbers Oil Company, a Delaware corporation (the "Company"), confirms
its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Initial Purchasers named in
Schedule A hereto (collectively, the "Initial Purchasers", which term shall also
include any initial purchaser substituted as hereinafter provided in Section 11
hereof), for whom Merrill Lynch, Bear, Stearns & Co. Inc. and Donaldson, Lufkin
& Jenrette Securities Corporation are acting as representatives (in such
capacity, the "Representatives"), with respect to the issue and sale by the
Company and the purchase by the Initial Purchasers, acting severally and not
jointly, of the respective principal amounts set forth in said Schedule A of
$125,000,000 aggregate principal amount of the Company's 9 1/4% Senior
Subordinated Notes due 2007 (the "Securities"). The Securities are to be issued
pursuant to an indenture dated as of April 1, 1997 (the "Indenture") between the
Company and The Bank of New York, as trustee (the "Trustee"). Securities issued
in book-entry form will be issued to Cede & Co. as nominee of The Depository
Trust Company ("DTC") pursuant to a letter agreement, to be dated as of the
Closing Time (as defined in Section 2(b)) (the "DTC Agreement"), among the
Company, the Trustee and DTC.
<PAGE>
The Company understands that the Initial Purchasers propose to make an
offering of the Securities on the terms and in the manner set forth herein and
agrees that the Initial Purchasers may resell, subject to the conditions set
forth herein, all or a portion of the Securities to purchasers ("Subsequent
Purchasers") at any time after the date of this Agreement. The Securities are
to be offered and sold through the Initial Purchasers without being registered
under the Securities Act of 1933, as amended (the "1933 Act"), in reliance upon
exemptions therefrom. Pursuant to the terms of the Securities and the
Indenture, investors that acquire Securities may only resell or otherwise
transfer such Securities if such Securities are hereafter registered under the
1933 Act or if an exemption from the registration requirements of the 1933 Act
is available (including the exemption afforded by Rule 144A ("Rule 144A") or
Regulation S ("Regulation S") of the rules and regulations promulgated under the
1933 Act by the Securities and Exchange Commission (the "Commission")).
The Company has prepared and delivered to each Initial Purchaser copies of
a preliminary offering memorandum dated March 14, 1997 (the "Preliminary
Offering Memorandum") and has prepared and will deliver to each Initial
Purchaser, on the date hereof or the next succeeding business day, copies of a
final offering memorandum dated March 26, 1997 (the "Final Offering
Memorandum"), each for use by such Initial Purchaser in connection with its
solicitation of purchases of, or offering of, the Securities. "Offering
Memorandum" means, with respect to any date or time referred to in this
Agreement, the most recent offering memorandum (whether the Preliminary Offering
Memorandum or the Final Offering Memorandum, or any amendment or supplement to
either such document), including exhibits thereto and any documents incorporated
therein by reference, which has been prepared and delivered by the Company to
the Initial Purchasers in connection with their solicitation of purchases of, or
offering of, the Securities.
At the Closing Time, and as a condition to the obligations of the Initial
Purchasers hereunder, the Company and each of the Initial Purchasers will enter
into a Registration Rights Agreement (the "Registration Rights Agreement"),
substantially in the form attached hereto as Exhibit A. Pursuant to the
Registration Rights Agreement, the Company will agree, among other things, to
use its reasonable best efforts to file with, and cause to be declared effective
by, the Commission a registration statement with respect to a registered
exchange offer under the 1933 Act, relating to the offer to exchange the
Securities for like respective principal amount of debt securities of the
Company identical in all material respects to the Securities.
All references in this Agreement to financial statements and schedules and
other information which is "contained," "included" or "stated" in the Offering
Memorandum (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules and other information which
are incorporated by reference in the Offering Memorandum; and all references in
this Agreement to amendments or supplements to the Offering Memorandum shall be
deemed to mean and include the filing of any document under the Securities
Exchange Act of 1934 (the "1934 Act") which is incorporated by reference in the
Offering Memorandum.
2
<PAGE>
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Initial Purchaser as of the date hereof and as
of the Closing Time referred to in Section 2(b) hereof, and agrees with each
Initial Purchaser as follows:
(i) Similar Offerings. The Company has not, directly or
-----------------
indirectly, solicited any offer to buy or offered to sell, and will not,
directly or indirectly, solicit any offer to buy or offer to sell, in the
United States or to any United States citizen or resident, any security
which is or would be integrated with the sale of the Securities in a manner
that would require the Securities to be registered under the 1933 Act.
(ii) Offering Memorandum. The Offering Memorandum does
-------------------
not, and at the Closing Time will not, include an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that this representation, warranty and
agreement shall not apply to statements in or omissions from the Offering
Memorandum made in reliance upon and in conformity with information
furnished to the Company in writing by any Initial Purchaser through the
Representatives expressly for use in the Offering Memorandum.
(iii) Incorporated Documents. The Offering Memorandum as
----------------------
delivered from time to time shall incorporate by reference the most recent
Annual Report of the Company on Form 10-K filed with the Commission and
each Quarterly Report of the Company on Form 10-Q and each Current Report
of the Company on Form 8-K filed with the Commission since the end of the
fiscal year to which such Annual Report relates. The documents incorporated
or deemed to be incorporated by reference in the Offering Memorandum at the
time they were or hereafter are filed with the Commission complied and will
comply in all material respects with the requirements of the 1934 Act and
the rules and regulations of the Commission thereunder (the "1934 Act
Regulations"), and, when read together with the other information in the
Offering Memorandum, at the date of the Offering Memorandum and at the
Closing Time, do not and will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(iv) Independent Accountants. The accountants who
-----------------------
certified the financial statements and supporting schedules included in the
Offering Memorandum are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of
Regulation S-X under the 1933 Act.
(v) Financial Statements. The financial statements,
--------------------
together with the related schedules and notes, included in the Offering
Memorandum present fairly in all material respects the financial position
of the Company and its consolidated subsidiaries at the
3
<PAGE>
dates indicated and the statement of operations, stockholders' equity and
cash flows of the Company and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved. The financial statement schedules,
if any, included in the Offering Memorandum present fairly in all material
respects in accordance with GAAP the information required to be stated
therein. The selected financial data and the summary financial information
included in the Offering Memorandum present fairly in all material respects
the information shown therein and have been compiled on a basis consistent
with that of the audited financial statements included in the Offering
Memorandum. The column entitled "Pro Forma, As Adjusted," in the section of
the Offering Memorandum entitled "Capitalization" presents fairly in all
material respects the information shown therein, has been prepared in
accordance with the Commission's rules and guidelines with respect to pro
forma financial statements and has been properly compiled on the bases
described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein.
(vi) No Material Adverse Change in Business. Since the
--------------------------------------
respective dates as of which information is given in the Offering
Memorandum, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise (a "Material Adverse Effect"),
whether or not arising in the ordinary course of business, (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered as
one enterprise, and (C) except for regular quarterly dividends on the
common stock, par value $0.01 per share, of the Company (the "Common
Stock") and on the Series A Convertible Preferred Stock, par value $0.01
per share, of the Company (the "Series A Preferred Stock") in amounts per
share that are consistent with past practice, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class
of its capital stock.
(vii) Good Standing of the Company. The Company has been
----------------------------
duly organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum and to enter into and
perform its obligations under this Agreement, the Indenture, the Securities
and the Registration Rights Agreement; and the Company is duly qualified as
a foreign corporation to transact business and is in good standing in each
other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.
(viii) Good Standing of Subsidiaries. The only direct or
-----------------------------
indirect subsidiaries of the Company are the corporations listed on
Schedule B hereto. Each subsidiary of the Company has been duly organized
and is validly existing as a corporation in good
4
<PAGE>
standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Offering Memorandum and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing
would not result in a Material Adverse Effect; except as otherwise
disclosed in the Offering Memorandum, all of the issued and outstanding
capital stock of each subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company,
directly or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of the subsidiaries was issued in
violation of any preemptive or similar rights arising by operation of law,
or under the charter or by-laws of any subsidiary or under any agreement to
which the Company or any subsidiary is a party.
(ix) Capitalization. The issued and outstanding capital
--------------
stock of the Company is as set forth in the Offering Memorandum in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
employee benefit plans referred to in the Offering Memorandum or pursuant
to the exercise of convertible securities or options referred to in the
Offering Memorandum).
(x) Authorization of Agreement. This Agreement has been
--------------------------
duly authorized, executed and delivered by the Company.
(xi) Authorization of the Indenture and the Registration
----------------------------------------------------
Rights Agreement. The Indenture and the Registration Rights Agreement have
----------------
been duly authorized by the Company and, at the Closing Time, will have
been duly executed and delivered by the Company and will constitute valid
and binding agreements of the Company, enforceable against the Company in
accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally, or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(xii) Authorization of the Securities. The Securities
-------------------------------
have been duly authorized and, at the Closing Time, will have been duly
executed by the Company and, when authenticated in the manner provided for
in the Indenture and delivered against payment of the purchase price
therefor will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law), and will be in the form contemplated by, and entitled to
the benefits of, the Indenture.
5
<PAGE>
(xiii) Description of the Securities and the Indenture.
-----------------------------------------------
The Securities and the Indenture will conform in all material respects to
the respective statements relating thereto contained in the Offering
Memorandum and will be in substantially the respective forms previously
delivered to the Initial Purchasers.
(xiv) Absence of Defaults and Conflicts. Neither the
---------------------------------
Company nor any of its subsidiaries is in violation of its charter or by-
laws or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its subsidiaries is
a party or by which any of them may be bound, or to which any of the
property or assets of the Company or any of its subsidiaries is subject
(collectively, "Agreements and Instruments") except for such defaults that
would not result in a Material Adverse Effect; and the execution, delivery
and performance of this Agreement, the Registration Rights Agreement, the
Indenture and the Securities and any other agreement or instrument entered
into or issued or to be entered into or issued by the Company in connection
with the transactions contemplated hereby or thereby or in the Offering
Memorandum and the consummation of the transactions contemplated herein and
in the Offering Memorandum (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities as
described in the Offering Memorandum under the caption "Use of Proceeds")
and compliance by the Company with its obligations hereunder have been duly
authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or a Repayment Event
(as defined below) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to, the Agreements and Instruments except
for such conflicts, breaches or defaults or liens, charges or encumbrances
that, singly or in the aggregate, would not result in a Material Adverse
Effect, nor will such action result in any violation of any applicable law,
statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of its subsidiaries or any of
their assets or properties, which violation would result in a Material
Adverse Effect, nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any of its
subsidiaries. No event of default exists under any contract, indenture,
mortgage, loan agreement, note, lease or other agreement or instrument
constituting Senior Indebtedness (as defined in the Indenture). As used
herein, a "Repayment Event" means any event or condition which gives the
holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or any of its subsidiaries.
(xv) Absence of Labor Dispute. No labor dispute with the
------------------------
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or
any of its subsidiaries' principal suppliers, manufacturers,
6
<PAGE>
customers or contractors, which, in either case, may reasonably be expected
to result in a Material Adverse Effect.
(xvi) Absence of Proceedings. Except as disclosed in the
----------------------
Offering Memorandum, there is no action, suit, proceeding, inquiry or
investigation before or by any court or governmental agency or body,
domestic or foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or any subsidiary thereof
which might reasonably be expected to result in a Material Adverse Effect,
or which might reasonably be expected to materially and adversely affect
the properties or assets of the Company or any of its subsidiaries or the
consummation of this Agreement, the Indenture, the Securities or the
Registration Rights Agreement or the performance by the Company of its
obligations hereunder. The aggregate of all pending legal or governmental
proceedings to which the Company or any subsidiary thereof is a party or of
which any of their respective property or assets is the subject which are
not described in the Offering Memorandum, including ordinary routine
litigation incidental to the business, could not reasonably be expected to
result in a Material Adverse Effect.
(xvii) Possession of Intellectual Property. The Company
-----------------------------------
and its subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, and neither the Company nor any of its subsidiaries
has received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or any of its subsidiaries therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.
(xviii) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities hereunder or the consummation of the transactions
contemplated by this Agreement or the Registration Rights Agreement, except
such as may be required under state securities laws, and, in the case of
the performance of the Company's obligations under the Registration Rights
Agreement, such as may be required under the federal securities laws.
(xix) Possession of Licenses and Permits. The Company
----------------------------------
and its subsidiaries possess such certificates, permits, licenses,
approvals, consents and other authorizations (collectively, "Governmental
Licenses") issued by the appropriate federal, state, local or foreign
regulatory agencies or bodies necessary to conduct the business now
7
<PAGE>
conducted by them; the Company and its subsidiaries are in compliance with
the terms and conditions of all such Governmental Licenses, except where
the failure so to comply would not, singly or in the aggregate, have a
Material Adverse Effect; all of the Governmental Licenses are valid and in
full force and effect, except where the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full force
and effect would not have a Material Adverse Effect; and neither the
Company nor any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material Adverse
Effect.
(xx) Title to Property. The Company and its subsidiaries
-----------------
have good and defensible title to their producing oil and gas properties,
and any gas gathering properties that it owns, free and clear of all liens,
encumbrances and defects, except (a) those described in the Offering
Memorandum, (b) liens securing taxes and other governmental charges, or
claims of materialmen, mechanics and similar persons, not yet due and
payable, (c) liens and encumbrances under operating agreements, unitization
and pooling agreements, and gas sales contracts, securing payment of
amounts not yet due and payable and of a scope and nature customary in the
oil and gas industry and (d) liens, encumbrances and defects that do not in
the aggregate materially affect the value of such oil and gas properties or
gas gathering properties or materially interfere with the use made or
proposed to be made of such properties by the Company and its subsidiaries.
Except to the extent described in the Offering Memorandum, the oil, gas and
mineral leases, coal methane leases, options to lease, drilling concessions
or other property interests therein held by the Company and its
subsidiaries reflect in all material respects the right of the Company and
its subsidiaries, as the case may be, to explore or receive production from
the undeveloped properties described in the Offering Memorandum, and the
care taken by the Company and its subsidiaries with respect to acquiring or
otherwise procuring such leases, options to lease, drilling concessions and
other property interests was generally consistent with standard industry
practices for acquiring or procuring leases and interests therein to
explore such for hydrocarbons. All other leases and subleases material to
the business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries holds
properties described in the Offering Memorandum are in full force and
effect, and neither the Company nor any of its subsidiaries has actual
notice of any material claim of any sort that has been asserted by anyone
adverse to the rights of the Company or any subsidiary under any of such
leases or subleases, or affecting or questioning the rights of the Company
or such subsidiary to the continued possession of the leased or subleased
premises under any such lease or sublease.
(xxi) Tax Returns. All United States federal income tax
-----------
returns of the Company and its subsidiaries required by law to be filed
have been filed and all taxes shown by such returns or otherwise assessed,
which are due and payable, have been paid, except assessments against which
appeals have been or will be promptly taken and as to which adequate
reserves have been provided. The Company and its subsidiaries have filed
all other tax returns that are required to have been filed by them pursuant
to applicable foreign, state, local or other law except insofar as the
failure to file such returns would not result in a
8
<PAGE>
Material Adverse Effect, and has paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Company and its
subsidiaries, except for such taxes, if any, as are being contested in good
faith and as to which adequate reserves have been provided. The charges,
accruals and reserves on the books of the Company in respect of any income
and corporation tax liability for any years not finally determined are
adequate to meet any assessments or re-assessments for additional income
tax for any years not finally determined, except to the extent of any
inadequacy that would not result in a Material Adverse Effect.
(xxii) Environmental Laws. Except as described in the
------------------
Offering Memorandum and except such matters as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company nor
any of its subsidiaries is in violation of any federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative order, consent, decree or
judgment thereof, including any judicial or administrative order, consent,
decree or judgment relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) the Company
and its subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance
with their requirements, (C) there are no pending or, to the knowledge of
the Company threatened administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental Law
against the Company or any of its subsidiaries and (D) there are no events
or circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its subsidiaries relating to Hazardous Materials or
Environmental Laws.
(xxiii) Internal Accounting Controls. The Company and its
----------------------------
subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurances that (A) transactions are executed in
accordance with management's general or specific authorization, (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain accountability for assets, (C) access to assets is permitted
only in accordance with management's general or specific authorization and
(D) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences.
(xxiv) Insurance. The Company and its subsidiaries carry
---------
or are entitled to the benefits of insurance, with financially sound and
reputable insurers, in such amounts and
9
<PAGE>
covering such risks as is generally maintained by companies of established
repute engaged in the same or similar business, and all such insurance is
in full force and effect.
(xxv) Solvency. The Company is, and immediately after
--------
the Closing Time will be, Solvent. As used herein, the term "Solvent"
means, with respect to the Company on a particular date, that on such date
(A) the fair market value of the assets of the Company is greater than the
total amount of liabilities (including contingent liabilities) of the
Company, (B) the present fair salable value of the assets of the Company is
greater than the amount that will be required to pay the probable
liabilities of the Company on its debts as they become absolute and
matured, (C) the Company is able to realize upon its assets and pay its
debts and other liabilities, including contingent obligations, as they
mature, and (D) the Company does not have unreasonably small capital.
(xxvi) No Stabilization. Neither Company nor any of its
----------------
officers, directors or controlling persons has taken, directly or
indirectly, any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities.
(xxvii) Investment Company Act; Public Utility Holding
----------------------------------------------
Company Act. The Company is not, and upon the issuance and sale of the
-----------
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Offering Memorandum will not be (A) an
"investment company" or an entity "controlled" by an "investment company"
as such terms are defined in the Investment Company Act of 1940, as
amended, and the rules and regulations of the Commission promulgated
thereunder (the "1940 Act") or (B) a "holding company" or "affiliate" of a
"holding company" or "public utility," as such terms are defined in the
Public Utility Holding Company Act of 1935, and the rules and regulations
of the Commission promulgated thereunder (the "PUHCA").
(xxviii) Rule 144A Eligibility. The Securities are
---------------------
pursuant to Rule 144A and will not be, at the Closing Time, of the same
class as securities listed on a national securities exchange registered
under Section 6 of the 1934 Act, or quoted in a U.S. automated interdealer
quotation system.
(xxix) No General Solicitation. None of the Company, its
-----------------------
affiliates, as such term is defined in Rule 501(b) under the 1933 Act
("Affiliates"), or any person acting on its or any of their behalf (other
than the Initial Purchasers, as to whom the Company makes no
representation) has engaged or will engage, in connection with the offering
of the Securities, in any form of general solicitation or general
advertising within the meaning of Rule 502(c) under the 1933 Act.
(xxx) No Registration Required. Subject to compliance by
------------------------
the Initial Purchasers with the representations and warranties set forth in
Section 2 and the procedures set forth in Section 6 hereof, it is not
necessary in connection with the offer, sale and delivery
10
<PAGE>
of the Securities to the Initial Purchasers and to each Subsequent
Purchaser in the manner contemplated by this Agreement and the Offering
Memorandum to register the Securities under the 1933 Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended (the "1939
Act").
(xxxi) No Directed Selling Efforts. With respect to
---------------------------
those Securities sold in reliance on Regulation S, (A) none of the Company,
its Affiliates or any person acting on its or their behalf (other than the
Initial Purchasers, as to whom the Company makes no representation) has
engaged or will engage in any directed selling efforts within the meaning
of Regulation S and (B) each of the Company and its Affiliates and any
person acting on its or their behalf (other than the Initial Purchasers, as
to whom the Company makes no representation) has complied and will comply
with the offering restrictions requirement of Regulation S.
(xxxii) Petroleum Engineering Consultants. The
---------------------------------
information supplied by the Company to the independent petroleum
engineering consultants for the Company for purposes of preparing the
reserve reports and estimates of such consultants included in the Offering
Memorandum, including, without limitation, production, costs of operation
and development, current prices for production, agreements relating to
current and future operations and sales of production, was true and correct
in all material respects on the date supplied and was prepared in
accordance with customary industry practices; Miller and Lents, Ltd.,
independent consulting petroleum engineers, who prepared estimates of the
extent and value of proved oil and natural gas reserves of the Company are
independent with respect to the Company.
(b) Officer's Certificates. Any certificate signed by any
officer of the Company or any of its subsidiaries delivered to the
Representatives or to counsel for the Initial Purchasers shall be deemed a
representation and warranty by the Company to each Initial Purchaser as to
the matters covered thereby.
SECTION 2. Sale and Delivery to Initial Purchasers; Closing.
(a) Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Initial Purchaser, severally and not
jointly, and each Initial Purchaser, severally and not jointly, agrees to
purchase from the Company, a purchase price equal to 97.243% of the principal
amount thereof, the aggregate principal amount of Securities set forth in
Schedule A opposite the name of such Initial Purchaser, plus any additional
principal amount of Securities which such Initial Purchaser may become obligated
to purchase pursuant to the provisions of Section 11 hereof.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Securities shall be made at the office of Kelly, Hart &
Hallman, P.C., 201 Main Street, Suite 2500, Fort Worth, Texas, or at such other
place as shall be agreed upon by the Representatives and the Company, at 8:00
A.M. local time on the fourth business day after the date hereof (unless
postponed in accordance with the provisions of Section 11), or such other time
not later than ten business days
11
<PAGE>
after such date as shall be agreed upon by the Representatives and the Company
(such time and date of payment and delivery being herein called the "Closing
Time").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives, for the respective accounts of the Initial Purchasers of
certificates for the Securities to be purchased by them. It is understood that
each Initial Purchaser has authorized the Representatives, for its account, to
accept delivery of, receipt for, and make payment of the purchase price for, the
Securities which it has agreed to purchase. Merrill Lynch, individually and not
as representative of the Initial Purchasers, may (but shall not be obligated to)
make payment of the purchase price for the Securities to be purchased by any
Initial Purchaser whose funds have not been received by the Closing Time, but
such payment shall not relieve such Initial Purchaser from its obligations
hereunder.
(c) Qualified Institutional Buyer. Each Initial Purchaser
severally and not jointly represents and warrants to, and agrees with, the
Company that it is a "qualified institutional buyer" within the meaning of Rule
144A under the 1933 Act (a "Qualified Institutional Buyer") and an "accredited
investor" within the meaning of Rule 501(a) under the 1933 Act (an "Accredited
Investor").
(d) Denominations; Registration. Certificates for the
Securities shall be in such denominations ($1,000 or integral multiples thereof)
and registered in such names as the Representatives may request in writing at
least one full business day before the Closing Time. The certificates
representing the Securities shall be registered in the name of Cede & Co.
pursuant to the DTC Agreement and shall be made available for examination and
packaging by the Initial Purchasers in The City of New York not later than 10:00
A.M. on the last business day prior to the Closing Time.
SECTION 3. Covenants of the Company.
The Company covenants with each Initial Purchaser as follows:
(a) Offering Memorandum. The Company, as promptly as possible,
will furnish to each Initial Purchaser, without charge, such number of copies of
the Preliminary Offering Memorandum, the Final Offering Memorandum and any
amendments and supplements thereto and documents incorporated by reference
therein as such Initial Purchaser may reasonably request.
(b) Notice and Effect of Material Events. The Company will
immediately notify each Initial Purchaser, and confirm such notice in writing,
of (i) any filing made by the Company of information relating to the offering of
the Securities with any securities exchange or any other regulatory body in the
United States or any other jurisdiction, and (ii) prior to the completion of the
placement of the Securities by the Initial Purchasers as evidenced by a notice
in writing from the Initial Purchasers to the Company, any material changes in
or affecting the earnings, business affairs or business prospects of the Company
and its subsidiaries which (A) make any statement in the Offering Memorandum
false or misleading or (B) are not disclosed in the Offering Memorandum. In such
event or if during such time any event shall occur as a result of which it is
necessary, in the
12
<PAGE>
reasonable opinion of the Company, its counsel, the Initial Purchasers or
counsel for the Initial Purchasers, to amend or supplement the Final Offering
Memorandum in order that the Final Offering Memorandum not include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein not misleading in the light of the circumstances
then existing, the Company will forthwith amend or supplement the Final Offering
Memorandum by preparing and furnishing (in reasonable number) to each Initial
Purchaser an amendment or amendments of, or a supplement or supplements to, the
Final Offering Memorandum (in form and substance satisfactory in the reasonable
opinion of counsel for the Initial Purchasers) so that, as so amended or
supplemented, the Final Offering Memorandum will not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances existing at the time
it is delivered to a Subsequent Purchaser, not misleading.
(c) Amendment to Offering Memorandum and Supplements. The
Company will advise each Initial Purchaser promptly of any proposal to amend or
supplement the Offering Memorandum and will not effect such amendment or
supplement without the consent of the Initial Purchasers, which consent will not
be unreasonably withheld. Neither the consent of the Initial Purchasers, nor the
Initial Purchaser's delivery of any such amendment or supplement, shall
constitute a waiver of any of the conditions set forth in Section 5 hereof.
(d) Qualification of Securities for Offer and Sale. The Company
will use its best efforts, in cooperation with the Initial Purchasers, to
qualify the Securities for offering and sale under the applicable securities
laws of such jurisdictions as the Representatives may designate and will
maintain such qualifications in effect as long as required for the sale of the
Securities; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it is not so qualified
or to subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject.
(e) Rating of Securities. The Company shall take all reasonable
action necessary to enable Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc. ("S&P"), and Moody's Investors Service, Inc. ("Moody's") to provide
their respective credit ratings of the Securities.
(f) DTC. The Company will cooperate with the Representatives
and use its best efforts to permit the Securities to be eligible for clearance
and settlement through the facilities of DTC.
(g) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified in the
Offering Memorandum under "Use of Proceeds"
(h) Restriction on Sale of Securities. During a period of 90
days from the date of the Offering Memorandum, the Company will not, without the
prior written consent of Merrill Lynch, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, or otherwise
13
<PAGE>
dispose of, securities of the Company that are similar to, convertible into, or
exchangeable for, the Securities, except for the Exchange Notes (as such term is
defined in the Offering Memorandum).
SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the printing
and any filing of the Offering Memorandum (including financial statements and
any schedules or exhibits and any document incorporated therein by reference)
and of each amendment or supplement thereto, (ii) the printing and delivery to
the Initial Purchasers of this Agreement, the Indenture and such other documents
as may be required in connection with the offering, purchase, sale and delivery
of the Securities, (iii) the issuance and delivery of the certificates for the
Securities to the Initial Purchasers, including any charges of DTC in connection
therewith, (iv) the fees and disbursements of the Company's counsel, accountants
and other advisors (other than the Representatives), (v) the qualification of
the Securities under securities laws in accordance with the provisions of
Section 3(d) hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Initial Purchasers in connection therewith and
in connection with the preparation of the Blue Sky Survey, any supplement
thereto and any Legal Investment Survey, (vi) the fees and expenses of the
Trustee, including the fees and disbursements of counsel for the Trustee in
connection with the Indenture and the Securities, (vii) any fees payable in
connection with the rating of the Securities, and (viii) any fees payable to the
National Association of Securities Dealers, Inc. (the "NASD") in connection with
the initial and continued designation of the Securities as PORTAL securities
under the PORTAL Market Rules pursuant to NASD Rule 5322.1.
(b) Termination of Agreement. If this Agreement is terminated
by the Representatives in accordance with the provisions of Section 5 or Section
10(a)(i) hereof, the Company shall reimburse the Initial Purchasers for all of
their reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Initial Purchasers.
SECTION 5. Conditions of Initial Purchasers' Obligations.
The obligations of the several Initial Purchasers hereunder are
subject to the accuracy of the representations and warranties of the Company
contained in Section 1 hereof or in certificates of any officer of the Company
or any of its subsidiaries delivered pursuant to the provisions hereof, to the
performance by the Company of its covenants and other obligations hereunder, and
to the following further conditions:
(a) Opinion of Counsel for Company. At the Closing Time, the
Representatives shall have received the favorable opinion, dated as of the
Closing Time, of Kelly, Hart & Hallman, P.C., counsel for the Company, in form
and substance satisfactory to counsel for the Initial Purchasers, together with
signed or reproduced copies of such letter for each of the other Initial
Purchasers to the effect set forth in Exhibit B hereto and to such further
effect as counsel to the Initial Purchasers may reasonably request.
14
<PAGE>
(b) Opinion of Counsel for Initial Purchasers. At the Closing Time,
the Representatives shall have received the favorable opinion, dated as of the
Closing Time, of Andrews & Kurth, L.L.P., counsel for the Initial Purchasers,
together with signed or reproduced copies of such letter for each of the other
Initial Purchasers with respect to the matters set forth in (i) (solely as to
the incorporation status of the Company), (iv) through (vii), inclusive, (x)
(solely as to the information in the Offering Memorandum under "Description of
the Notes") and the penultimate paragraph of Exhibit B hereto. Such opinion
shall be limited to the laws of the State of Texas and the State of New York,
the federal law of the United States and the General Corporation Law of the
State of Delaware. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its subsidiaries and certificates of
public officials.
(c) Officers' Certificate. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of the Closing Time, to the effect that (i) there has
been no such material adverse change, (ii) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as though
expressly made at and as of the Closing Time, and (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Time.
(d) Accountant's Comfort Letter. At the time of the execution of
this Agreement, the Representatives shall have received from Arthur Andersen LLP
a letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Initial Purchasers containing statements and information of
the type ordinarily included in accountants' "comfort letters" to Initial
Purchasers with respect to the financial statements and certain financial
information contained in the Offering Memorandum.
(e) Bring-down Comfort Letter. At the Closing Time, the
Representatives shall have received from Arthur Andersen LLP a letter, dated as
of the Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (d) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to the Closing Time.
(f) Maintenance of Rating. At the Closing Time, the Securities shall
be rated at least B2 by Moody's and B by S&P, and the Company shall have
delivered to the Representatives a letter dated the Closing Time, from each such
rating agency, or other evidence satisfactory to the Representatives, confirming
that the Securities have such ratings; and since the date of this Agreement,
there shall not have occurred a downgrading in the rating assigned to the
Securities or any of the Company's other securities by any nationally recognized
securities rating agency, and no such
15
<PAGE>
securities rating agency shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of the
Securities or any of the Company's other securities.
(g) PORTAL. At the Closing Time, the Securities shall have been
designated for trading on PORTAL.
(h) Petroleum Engineering Consultants. At the time of execution of
this Agreement and also at the Closing Time, the Representatives shall have
received letters from Miller and Lents, Ltd. dated such date in form and
substance satisfactory to the Representatives.
(i) Registration Rights Agreement. At the Closing Time, the Company
shall have executed and delivered the Registration Rights Agreement.
(j) Additional Documents. At the Closing Time, counsel for the
Initial Purchasers shall have been furnished with such documents and opinions as
they may reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be reasonably satisfactory in form and substance to
the Representatives and counsel for the Initial Purchasers.
(k) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Representatives by notice to the Company at
any time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 7 and 8 shall survive any such termination and remain in
full force and effect.
Section 6. Subsequent Offers and Resales of the Securities.
(a) Offer and Sale Procedures. Each of the Initial Purchasers and
the Company hereby establish and agree to observe the following procedures in
connection with the offer and sale of the Securities:
(i) Offers and Sales only to Institutional Accredited
-------------------------------------------------
Investors, Qualified Institutional Buyers or Certain Non-U.S. Persons.
---------------------------------------------------------------------
Offers and sales of the Securities will be made only by the Initial
Purchasers or Affiliates thereof qualified to do so in the jurisdictions in
which such offers or sales are made. Each such offer or sale shall only be
made (A) to persons whom the offeror or seller reasonably believes to be
qualified institutional buyers (as defined in Rule 144A under the
Securities Act), (B) to a limited number of other institutional accredited
investors (as such term is defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D) that the offeror or seller reasonably believes to be and,
with respect to sales and deliveries, that are Accredited Investors
("Institutional Accredited Investors") or (C) non-U.S. persons
16
<PAGE>
outside the United States to whom the offeror or seller reasonably believes
offers and sales of the Securities may be made in reliance upon Regulation
S under the 1933 Act.
(ii) No General Solicitation. The Securities will be offered
-----------------------
by the Initial Purchasers only by approaching prospective Subsequent
Purchasers on an individual basis. No general solicitation or general
advertising (within the meaning of Rule 502(c) under the 1933 Act) will be
used in the United States in connection with the offering of the
Securities.
(iii) Purchases by Non-Bank Fiduciaries. In the case of a
---------------------------------
non-bank Subsequent Purchaser of a Security acting as a fiduciary for one
or more third parties, in connection with an offer and sale to such
purchaser pursuant to clause (a) (i) above, each third party shall, in the
judgment of the applicable Initial Purchaser, be an Institutional
Accredited Investor or a Qualified Institutional Buyer or a non-U.S. person
outside the United States.
(iv) Subsequent Purchaser Notification. Each Initial Purchaser
---------------------------------
will take reasonable steps to inform, and cause each of its U.S. affiliates
to take reasonable steps to inform, persons acquiring Securities from such
Initial Purchaser or affiliate, as the case may be, in the United States
that the Securities (A) have not been and will not be registered under the
1933 Act, (B) are being sold to them without registration under the 1933
Act in reliance on Rule 144A or in accordance with another exemption from
registration under the 1933 Act, as the case may be, and (C) may not be
offered, sold or otherwise transferred except (1) to the Company, (2)
outside the United States in accordance with Rule 904 of Regulation S, or
(3) inside the United States in accordance with (x) Rule 144A to a person
whom the seller reasonably believes is a Qualified Institutional Buyer that
is purchasing such Securities for its own account or for the account of a
Qualified Institutional Buyer to whom notice is given that the offer, sale
or transfer is being made in reliance on Rule 144A or (y) the exemption
from registration under the 1933 Act provided by Rule 144, if available.
(v) Restrictions on Transfer. The transfer restrictions and
------------------------
the other provisions set forth in Section 2.07 of the Indenture, including
the legend required thereby, shall apply to the Securities except as
otherwise agreed by the Company and the Initial Purchasers. Following the
sale of the Securities by the Initial Purchasers to Subsequent Purchasers
pursuant to the terms hereof, the Initial Purchasers shall not, in their
capacities as Initial Purchasers, be liable or responsible to the Company
for any losses, damages or liabilities suffered or incurred by the Company,
including any losses, damages or liabilities under the 1933 Act, arising
from or relating to any subsequent resale or transfer of any Security.
(vi) Delivery of Offering Memorandum. Each Initial Purchaser
-------------------------------
will deliver to each purchaser of the Securities from such Initial
Purchaser, in connection with its original distribution of the Securities,
a copy of the Offering Memorandum, as amended and supplemented at the date
of such delivery.
17
<PAGE>
(b) Covenants of the Company. The Company covenants with each
Initial Purchaser as follows:
(i) Due Diligence. In connection with the original
-------------
distribution of the Securities, the Company agrees that, prior to any offer
or resale of the Securities by the Initial Purchasers, the Initial
Purchasers and counsel for the Initial Purchasers shall have the right to
make reasonable inquiries into the business of the Company and its
subsidiaries. The Company also agrees to provide answers to each
prospective Subsequent Purchaser of Securities who so requests concerning
the Company and its subsidiaries (to the extent that such information is
available or can be acquired and made available to prospective Subsequent
Purchasers without unreasonable effort or expense and to the extent that
officers of the Company determine, in their reasonable judgment, such
information need not be kept confidential and the provision thereof is not
prohibited by applicable law) and the terms and conditions of the offering
of the Securities, as provided in the Offering Memorandum.
(ii) Integration. The Company agrees that it will not and will
-----------
cause its affiliates not to make any offer or sale of any class of
securities of the Company if, as a result of the doctrine of "integration"
referred to in Rule 502 under the 1933 Act, such offer or sale would render
invalid (for the purpose of (A) the sale of the Securities by the Company
to the Initial Purchasers, (B) the resale of the Securities by the Initial
Purchasers to Subsequent Purchasers or (C) the resale of the Securities by
such Subsequent Purchasers to others) the exemption from the registration
requirements of the 1933 Act provided by Section 4(2) thereof or Regulation
thereunder or by Rule 144A or otherwise.
(iii) Rule 144A Information. The Company agrees that, in order
---------------------
to render the Securities eligible for resale pursuant to Rule 144A under
the 1933 Act, while any of the Securities remain outstanding, it will make
available, upon request, to any holder of Securities or prospective
purchasers of Securities the information specified in Rule 144A(d)(4),
unless the Company furnishes information to the Commission pursuant to
Section 13 or 15(d) of the 1934 Act (such information, whether made
available to holders or prospective purchasers or furnished to the
Commission, is herein referred to as "Additional Information").
(iv) Restriction on Repurchases. Until the expiration of two
--------------------------
years after the original issuance of the Securities, the Company will not,
and will cause its affiliates not to, purchase or agree to purchase or
otherwise acquire any Securities which are "restricted securities" (as such
term is defined under Rule 144(a)(3) under the 1933 Act), whether as
beneficial owner or otherwise (except as agent acting as a securities
broker on behalf of and for the account of customers in the ordinary course
of business in unsolicited broker's transactions) unless, immediately upon
any such purchase, the Company or any Affiliate shall submit such
Securities to the Trustee for cancellation.
(c) Selling Restrictions for Offers and Sales Outside the United
States. Each Initial Purchaser understands that the Securities have not been and
will not be registered under the 1933 Act and may not be offered or sold within
the United States or to, or for the account or benefit
18
<PAGE>
of, U.S. persons except in accordance with Regulation S under the 1933 Act or
pursuant to an exemption from the registration requirements of the 1933 Act.
Each Initial Purchaser represents and agrees, that except as permitted by
Section 6(a) above, it has offered and sold Securities and will offer and sell
Securities (i) as part of their distribution at any time and (ii) otherwise
until forty days after the later of the date upon which the offering of the
Securities commences and the Closing Time, only in accordance with Rule 903 of
Regulation S or Rule 144A under the 1933 Act. Accordingly, neither the Initial
Purchasers, their affiliates nor any persons acting on their behalf have engaged
or will engage in any directed selling efforts with respect to Securities, and
the Initial Purchasers, their affiliates and any person acting on their behalf
have complied and will comply with the offering restriction requirements of
Regulation S. Each Initial Purchaser agrees that at or prior to confirmation of
a sale of Securities (other than a sale of Securities pursuant to Rule 144A), it
will have sent to each distributor, dealer or person receiving a selling
concession, fee or other remuneration that purchases Securities from it or
through it during the restricted period a confirmation or notice to
substantially the following effect:
"The Securities covered hereby have not been registered
under the United States Securities Act of 1933 (the
"Securities Act") and may not be offered or sold within the
United States or to or for the account or benefit of U.S.
persons (i) as part of their distribution at any time and
(ii) otherwise until forty days after the later of the date
upon which the offering of the Securities commenced and the
date of closing, except in either case in accordance with
Regulation S or Rule 144A under the Securities Act. Terms
used above have the meaning given to them by Regulation S."
Terms used in the above paragraph have the meanings given to them by Regulation
S.
Each Initial Purchaser severally represents and agrees that it has not
entered and will not enter into any contractual arrangements with respect to the
distribution of the Securities, except with its affiliates or with the prior
written consent of the Company.
Section 7. Indemnification.
(a) Indemnification of Initial Purchasers. The Company agrees to
indemnify and hold harmless each Initial Purchaser and each person, if any, who
controls any Initial Purchaser within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Offering Memorandum or the Final Offering Memorandum (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
19
<PAGE>
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid
in settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
7(d) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Initial Purchaser through Merrill Lynch expressly for use in the Offering
Memorandum (or any amendment thereto) and provided, further, that this indemnity
agreement with respect to any Preliminary Offering Memorandum shall not inure to
the benefit of any Initial Purchaser from whom the person asserting any such
losses, liabilities, claims, damages or expenses purchased Securities, or any
person controlling such Initial Purchaser, if a copy of the Offering Memorandum,
as then amended or supplemented, was not sent or given by or on behalf of the
Initial Purchaser to such person at or prior to the written confirmation of the
sale of such Securities to such person and if the Offering Memorandum, as so
amended or supplemented, would have corrected any untrue statement or omission,
or alleged untrue statement or omission, giving rise to such loss, liability,
claim, damage or expense (provided the Company has delivered the Offering
Memorandum, as then amended or supplemented, to the several Initial Purchasers
in requisite quantity on a timely basis to permit such delivery or sending).
(b) Indemnification of Company and Directors. Each Initial Purchaser
severally agrees to indemnify and hold harmless the Company, its directors, and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Offering Memorandum in reliance upon and in conformity with written information
furnished to the Company by such Initial Purchaser through Merrill Lynch
expressly for use in the Offering Memorandum.
(c) Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not
20
<PAGE>
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 7(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 7(b) above, counsel to the
indemnified parties shall be selected by the Company. Notwithstanding the
foregoing, in case any action or proceeding shall be instituted and the
indemnified party shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein, and,
after written notice from the indemnifying party to such indemnified party, to
assume the defense thereof with counsel of its choice reasonably acceptable to
the indemnified parties in such action. Notwithstanding the election of the
indemnifying party to assume defense of such action or proceeding, the
indemnified party shall have the right, at its own expense, to employ one
additional firm as separate counsel and to participate in the defense of the
action or proceeding; provided that the indemnifying party shall pay the
reasonable fees and expenses of such separate counsel reasonably satisfactory to
the indemnifying party if (i) the indemnifying party shall have failed to employ
counsel to represent the indemnified party in a reasonably timely manner or (ii)
the defendants in any such action or proceeding include both the indemnified
party and the indemnifying party and counsel to the indemnified party shall have
concluded and notified the indemnifying party that in its reasonable judgment
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 7 or Section 8 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
21
<PAGE>
Section 8. Contribution.
If the indemnification provided for in Section 7 hereof is for any reason
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, liabilities, claims, damages or expenses referred to therein,
then each indemnifying party shall contribute to the aggregate amount of such
losses, liabilities, claims, damages and expenses incurred by such indemnified
party, as incurred, (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Initial
Purchasers on the other hand from the offering of the Securities pursuant to
this Agreement or (ii) if the allocation provided by clause (i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and of the Initial Purchasers on the other hand in
connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total initial purchasers' discount received by the Initial
Purchasers, bear to the aggregate initial offering price of the Securities.
The relative fault of the Company on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Initial Purchasers were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 8 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities purchased by it exceeds the amount of any
damages which such Initial Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission.
22
<PAGE>
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such Initial
Purchaser, and each director of the Company, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company.
The Initial Purchasers' respective obligations to contribute pursuant to this
Section 8 are several in proportion to the principal amount of Securities set
forth opposite their respective names in Schedule A hereto and not joint.
Section 9. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement
or in certificates of officers of the Company submitted pursuant hereto, shall
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of any Initial Purchaser or controlling person, or by or on
behalf of the Company, and shall survive delivery of the Securities to the
Initial Purchasers.
Section 10. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Offering
Memorandum, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or
elsewhere, any outbreak of hostilities or escalation thereof or other calamity
or crisis or any change or development involving a prospective change in
national or international political, financial or economic conditions, in each
case the effect of which is such as to make it, in the judgment of the
Representatives, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or limited by the Commission or New York Stock
Exchange, or if trading generally on the American Stock Exchange or the New York
Stock Exchange or in the NASDAQ National Market System has been suspended or
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal, New York or Texas authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4
23
<PAGE>
hereof, and provided further that Sections 1, 7 and 8 shall survive such
termination and remain in full force and effect.
Section 11. Default by One or More of the Initial Purchasers.
If one or more of the Initial Purchasers shall fail at the Closing Time to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Initial Purchasers, or any other Initial Purchasers, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth: if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
aggregate principal amount of the Securities to be purchased hereunder, each of
the non-defaulting Initial Purchasers shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Initial Purchasers, or
(b) if the number of Defaulted Securities exceeds 10% of the
aggregate principal amount of the Securities to be purchased hereunder, this
Agreement shall terminate without liability on the part of any non-defaulting
Initial Purchaser.
No action taken pursuant to this Section shall relieve any defaulting
Initial Purchaser from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement, either the Representatives or the Company shall have the right
to postpone the Closing Time for a period not exceeding seven days in order to
effect any required changes in the Offering Memorandum or in any other documents
or arrangements. As used herein, the term "Initial Purchaser" includes any
person substituted for an Initial Purchaser under this Section 11.
Section 12. Notices.
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any standard
form of telecommunication. Notices to the Initial Purchasers shall be directed
to the Representatives at North Tower, World Financial Center, New York, New
York 10281-1201, attention of Wood Steinberg, Vice President; notices to the
Company shall be directed to them at 810 Houston Street, Suite 2000, Fort Worth,
Texas 76102, attention of Louis G. Baldwin.
24
<PAGE>
Section 13. Parties.
This Agreement shall inure to the benefit of and be binding upon the
Initial Purchasers, the Company and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or corporation, other than the Initial Purchasers, the
Company and their respective successors and the controlling persons and officers
and directors referred to in Sections 7 and 8 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Initial Purchasers, the Company and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any Initial Purchaser shall be
deemed to be a successor by reason merely of such purchase.
Section 14. GOVERNING LAW AND TIME.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
Section 15. Effect of Headings.
The Section headings herein are for convenience only and shall not affect
the construction hereof.
25
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
CROSS TIMBERS OIL COMPANY
By: __________________________________
Name: Louis G. Baldwin
Title: Senior Vice President
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:_______________________________
Authorized Signatory
For themselves and as Representatives of the other Initial Purchasers named in
Schedule A hereto.
26
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Principal Amount
Name of Initial Purchaser of Securities
------------------------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated............. $ 75,000,000
Bear, Stearns & Co. Inc. ...................................... 25,000,000
Donaldson, Lufkin & Jenrette Securities Corporation............ 25,000,000
----------------
Total.......................................................... $ 125,000,000
================
</TABLE>
27
<PAGE>
SCHEDULE B
SUBSIDIARIES OF CROSS TIMBERS OIL COMPANY
<TABLE>
<CAPTION>
JURISDICTION OF INCORPORATION
-----------------------------
<S> <C>
Cross Timbers Operating Company Texas
Cross Timbers Energy Services, Inc. Texas
Cross Timbers Trading Company Texas
Ringwood Gathering Company Delaware
Timberland Gathering & Processing Company, Inc. Texas
WTW Properties, Inc. Texas
</TABLE>
28
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
as of April 2, 1997, among CROSS TIMBERS OIL COMPANY, a Delaware corporation
(the "Company"), and MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, BEAR, STEARNS & CO. INC. and DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION (the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated March 26,
1997 among the Company and the Initial Purchasers (the "Purchase Agreement"),
which provides for the sale by the Company to the Initial Purchasers of an
aggregate of $125,000,000 principal amount of the Company's 9 1/4% Series A
Senior Subordinated Notes due 2007 (the "Debt Securities"). In order to induce
the Initial Purchasers to enter into the Purchase Agreement, the Company has
agreed to provide to the Initial Purchasers and their direct and indirect
transferees the registration rights set forth in this Agreement. The execution
of this Agreement is a condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree, and all other
Holders (as defined below) of Registrable Securities (as defined below) from
time to time, by their acceptance thereof, shall be conclusively deemed to have
agreed, as follows:
Section 1. Definitions.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from time to
time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended from
time to time.
"Agreement" shall have the meaning set forth in the preamble.
"Closing Date" shall mean the date on which the Closing Time (as defined in
the Purchase Agreement) occurs.
"Company" shall have the meaning set forth in the preamble and also
includes the Company's successors.
"Debt Securities" shall have the meaning set forth in the preamble.
"Depositary" shall mean the Trustee, or any other exchange agent appointed
by the Company.
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<PAGE>
"Exchange Offer" shall mean the exchange offer by the Company of Exchange
Securities for Registrable Securities pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under the 1933 Act
effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form), and all amendments and supplements to such registration statement, in
each case including the Prospectus contained therein, all exhibits thereto and
all material incorporated by reference therein.
"Exchange Securities" shall mean 9 1/4% Series B Senior Subordinated Notes
due 2007 issued by the Company under the Indenture containing terms identical in
all material respects to the Debt Securities (except that (i) interest on the
Exchange Securities shall accrue from the last date on which interest was paid
or duly provided for on the Debt Securities or, if no such interest has been
paid, from April 2, 1997, (ii) the transfer restrictions on the Debt Securities
shall be eliminated and (iii) certain provisions relating to an increase in the
stated rate of interest on the Debt Securities shall be eliminated), to be
offered to Holders of Debt Securities in exchange for Debt Securities pursuant
to the Exchange Offer.
"Holders" shall mean each of the Initial Purchasers, for so long as it owns
any Registrable Securities, and each of its successors, assigns and direct and
indirect transferees who shall at the time be owners of Registrable Securities
under the Indenture; provided, however, that the term Holder shall exclude any
underwriter who purchased Registrable Securities for distribution in an
underwritten public offering pursuant to an effective Registration Statement.
"Indenture" shall mean the Indenture relating to the Debt Securities dated
as of April 1, 1997 between the Company and The Bank of New York, as trustee, as
the same may be amended from time to time in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the preamble.
"Majority Holders" shall mean the Holders of a majority of the aggregate
principal amount of outstanding Registrable Securities; provided, however, that
whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities directly or
indirectly held by the Company shall be disregarded in determining whether such
consent or approval was given by the Holders of such required percentage or
amount; and provided, further, that whenever the consent or approval of Holders
of Registrable Securities is required hereunder with regard to matters related
to a registered underwritten or similar offering or with regard to matters
pertaining to a Registration Statement, Registrable Securities held by Holders
not participating in such registered underwritten or similar offering, or
Registrable Securities not registered pursuant to such Registration Statement
(or, at any time prior to the filing of a Subject Registration Statement and
after the determination to file such Subject Registration Statement is made,
Registrable Securities whose Holders have not requested that such Registrable
Securities be
-2-
<PAGE>
included in such Subject Registration Statement), as the case may be, shall be
disregarded in determining whether such consent or approval was given by the
Holders of such required percentage or amount.
"Merrill Lynch" shall mean Merrill Lynch, Pierce, Fenner & Smith
Incorporated, on behalf of the Initial Purchasers.
"Person" shall mean an individual, partnership, corporation, trust,
unincorporated organization, limited liability company, joint stock company,
joint venture, charitable foundation or other entity, or a government or any
agency or political subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Subject Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated or deemed to be
incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the preamble.
"Purchaser Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b)(iii) of this
Agreement with respect to offers and sales of Registrable Securities held by any
or all of the Initial Purchasers (except Registrable Securities which the
Initial Purchasers have elected not to include in such Purchaser Shelf
Registration Statement or the Initial Purchasers of which have not complied with
their obligations under the penultimate paragraph of Section 3 hereof or under
the penultimate sentence of Section 2(b) hereof) after completion of the
Exchange Offer on an appropriate form under Rule 415 under the 1933 Act, or any
similar rule that may be adopted by the SEC, and all amendments and supplements
to such registration statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated or deemed to be incorporated by reference therein.
"Registrable Securities" shall mean the Debt Securities; provided, however,
that any Debt Securities shall cease to be Registrable Securities when (i) a
Registration Statement with respect to such Debt Securities shall have been
declared effective under the 1933 Act and such Debt Securities shall have been
disposed of pursuant to such Registration Statement, (ii) such Debt Securities
shall have been sold to the public pursuant to Rule 144 (or any similar
provision then in force, but not Rule 144A) under the 1933 Act, (iii) such Debt
Securities shall have become eligible for resale pursuant to Rule 144(k) under
the 1933 Act, (iv) such Debt Securities shall have ceased to be outstanding or
(v) such Debt Securities have been exchanged for Exchange Securities upon
consummation of the Exchange Offer.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC or National
-3-
<PAGE>
Association of Securities Dealers, Inc. ("NASD") registration and filing fees,
(ii) all fees and expenses incurred in connection with compliance with state
securities or blue sky laws (including reasonable fees and disbursements of one
firm of legal counsel for any underwriters and Holders in connection with blue
sky qualification of any of the Exchange Securities or Registrable Securities),
(iii) all expenses of printing and distributing any Registration Statement, any
Prospectus and any amendments or supplements thereto, (iv) all rating agency
fees, (v) the fees and disbursements of counsel(s) for the Company and of the
independent public accountants of the Company, including the expenses of "cold
comfort" letters required by this Agreement, (vi) the fees and expenses of the
Trustee, and any escrow agent or custodian, (vii) all fees and expenses incurred
in connection with listing the Debt Securities or the Exchange Securities, as
the case may be, on any securities exchange or on any securities quotation
system and (viii) the reasonable fees and expenses of any special experts
retained by the Company in connection with any Registration Statement, but
excluding fees of counsel to the underwriters or the Holders and underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of Registrable Securities by a Holder.
"Registration Statement" shall mean any registration statement of the
Company which covers any of the Exchange Securities or Registrable Securities
pursuant to the provisions of this Agreement, and all amendments and supplements
to any such Registration Statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated or deemed to be incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to Section
2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration statement
of the Company pursuant to the provisions of Section 2(b)(i) or (ii) of this
Agreement which covers all of the Registrable Securities (except Registrable
Securities which the Holders have elected not to include in such Shelf
Registration Statement or the Holders of which have not complied with their
obligations under the penultimate paragraph of Section 3 hereof or under the
penultimate sentence of Section 2(b) hereof) on an appropriate form under Rule
415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and
all amendments and supplements to such registration statement, including post-
effective amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated or deemed to be incorporated
by reference therein.
"Subject Registration Statement" shall mean a Shelf Registration Statement
or a Purchaser Shelf Registration Statement or both (as the context requires).
"Trustee" shall mean the trustee with respect to the Debt Securities under
the Indenture.
All references herein to information which is "included" or "contained" in
a Registration Statement or Prospectus, and all references of like import, shall
include the information (including financial statements) incorporated or deemed
to be incorporated by reference therein, and all references herein to amendments
or supplements to a Registration Statement or Prospectus shall
-4-
<PAGE>
include any documents filed by the Company under the 1934 Act which are deemed
to be incorporated by reference therein.
Section 2. Registration Under the 1933 Act.
(a) Exchange Offer Registration. To the extent not prohibited by
---------------------------
law (including, without limitation, any applicable interpretation of the staff
of the SEC), the Company shall use its reasonable best efforts (i) to file
within 45 days after the Closing Date an Exchange Offer Registration Statement
covering the offer by the Company to the Holders to exchange all of the
Registrable Securities (except Registrable Securities held by an Initial
Purchaser and acquired directly from the Company if such Initial Purchaser is
not permitted, in the reasonable opinion of counsel to the Initial Purchasers,
pursuant to applicable law or SEC interpretation, to participate in the Exchange
Offer) for Exchange Securities, (ii) to cause such Exchange Offer Registration
Statement to be declared effective by the SEC within 105 days after the Closing
Date, (iii) to cause such Exchange Offer Registration Statement to remain
effective until the closing of the Exchange Offer and (iv) to consummate the
Exchange Offer within 180 days following the Closing Date. The Exchange
Securities will be issued under the Indenture. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company shall promptly commence the
Exchange Offer, it being the objective of such Exchange Offer to enable each
Holder (other than Participating Broker-Dealers (as defined in Section 3(f)
hereof) and broker-dealers who purchased Debt Securities directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the 1933 Act) eligible and electing to exchange Registrable Securities for
Exchange Securities (assuming that such Holder is not an affiliate of the
Company, acquires the Exchange Securities in the ordinary course of such
Holder's business and has no arrangements or understandings with any person to
participate in the distribution (within the meaning of the 1933 Act) of Exchange
Securities) to trade or sell such Exchange Securities from and after their
receipt without any limitations or restrictions under the 1933 Act and without
material restrictions under the securities laws of a substantial proportion of
the several states of the United States.
In connection with the Exchange Offer, the Company shall:
(A) mail to each Holder a copy of the Prospectus forming
part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(B) keep the Exchange Offer open for not less than 30 days
after the date notice thereof is mailed to the Holders (or longer if
required by applicable law);
(C) use the services of the Depositary for the Exchange
Offer;
(D) permit Holders to withdraw tendered Registrable
Securities at any time prior to the close of business, New York City
time, on the last business day on which the Exchange Offer shall
remain open, by sending to the institution specified
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<PAGE>
in the notice, a telegram, telex, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of
Registrable Securities delivered for exchange and a statement that
such Holder is withdrawing his election to have such Debt Securities
exchanged; and
(E) otherwise comply in all respects with all applicable
laws relating to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer, the
Company shall:
(x) accept for exchange Registrable Securities duly
tendered and not validly withdrawn pursuant to the Exchange Offer in
accordance with the terms of the Exchange Offer Registration Statement
and the letter of transmittal which is an exhibit thereto;
(y) deliver, or cause to be delivered, to the Trustee
for cancellation all Registrable Securities so accepted for exchange
by the Company; and
(z) cause the Trustee promptly to authenticate and
deliver Exchange Securities to each Holder of Registrable Securities
equal in amount to the Registrable Securities of such Holder so
accepted for exchange.
Interest on each Exchange Security will accrue from the last date on which
interest was paid or duly provided for on the Registrable Securities surrendered
in exchange therefor or, if no interest has been paid on the Registrable
Securities, from April 2, 1997. The Exchange Offer shall not be subject to any
conditions, other than (1) that the Exchange Offer, or the making of any
exchange by a Holder, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (2) that no action or proceeding shall
have been instituted or threatened in any court or by or before any governmental
agency or body with respect to the Exchange Offer, (3) that there shall not have
been adopted or enacted any law, statute, rule or regulation prohibiting or
limiting the Exchange Offer, (4) that there shall not have been declared by
United States federal or Texas or New York state authorities a banking
moratorium, (5) that trading on the New York Stock Exchange or generally in the
United States over-the-counter market shall not have been suspended by order of
the SEC or any other governmental authority and (6) such other conditions as may
be reasonably acceptable to Merrill Lynch which, in the Company's judgment,
would reasonably be expected to impair the ability of the Company to proceed
with the Exchange Offer. In addition, each Holder of Registrable Securities
(other than Participating Broker-Dealers) who wishes to exchange such
Registrable Securities for Exchange Securities in the Exchange Offer will be
required to represent that (I) it is not an affiliate of the Company, (II) any
Exchange Securities to be received by it were acquired in the ordinary course of
business and (III) it is not engaged in, and does not intend to engage in, and
has no arrangement or understanding with any person to participate in, the
distribution (within the meaning of the 1933 Act) of the Exchange Securities.
Each Participating Broker-Dealer shall be required to make such representations
as, in the reasonable judgment of the Company, may be necessary under applicable
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<PAGE>
SEC rules, regulations or interpretations or customary in connection with
similar exchange offers. Each Holder (including Participating Broker-Dealers)
shall be required to make such other representations as may be reasonably
necessary under applicable SEC rules, regulations or interpretations to render
the use of Form S-4 or another appropriate form under the 1933 Act available and
will be required to agree to comply with their agreements and covenants set
forth in this Agreement. The Exchange Offer shall be subject to the further
condition that no stop order, injunction or similar order shall have been issued
or obtained by the SEC or any state securities authority suspending the
effectiveness of the Exchange Offer Registration Statement and no proceedings
shall have been initiated or, to the knowledge of the Company, threatened for
that purpose. To the extent permitted by law, the Company shall, upon request of
Merrill Lynch, inform the Initial Purchasers of the names and addresses of the
Holders to whom the Exchange Offer is made, and the Initial Purchasers shall
have the right to, and, if requested by the Company, shall, contact such Holders
and otherwise facilitate the tender of Registrable Securities in the Exchange
Offer.
Prior to effectiveness of the Exchange Offer Registration Statement, the
Company shall, if requested by the staff of the SEC, provide a supplemental
letter to the SEC (aa) stating that the Company is registering the Exchange
Offer in reliance on the position of the SEC enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988) and Morgan Stanley and Co., Inc.
(available June 5, 1991) and (bb) including a representation that the Company
has not entered into any arrangement or understanding with any Person to
distribute the Exchange Securities and that, to the best of the Company's
information and belief, each Holder participating in the Exchange Offer is
acquiring the Exchange Securities in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the distribution
of the Exchange Securities received in the Exchange Offer.
If in the reasonable opinion of counsel to the Company there is a question
as to whether the Exchange Offer is permitted by applicable law, the Company
hereby agrees to seek a no-action letter or other favorable decision from the
SEC allowing the Company to consummate the Exchange Offer. The Company hereby
agrees to pursue the issuance of such a decision to the SEC staff level, but
shall not be required to take action to effect a change of stated or recognized
SEC policy. The Company hereby agrees, however, to (xx) participate in
telephonic conferences with the SEC and the staff of the SEC, (yy) deliver to
the staff of the SEC an analysis prepared by counsel to the Company setting
forth the legal bases, if any, upon which such counsel has concluded that the
Exchange Offer should be permitted and (zzz) diligently pursue a resolution
(which need not be favorable) by the staff of the SEC of such submission.
(b) Shelf Registration. (i) If, because of any change in law or
------------------
applicable interpretations thereof by the staff of the SEC, the Company is not
permitted to effect the Exchange Offer as contemplated by Section 2(a) hereof,
or (ii) if for any other reason the Exchange Offer Registration Statement is not
declared effective within 105 days after the Closing Date or the Exchange Offer
is not consummated within 180 days after the Closing Date, or (iii) upon the
request of Merrill Lynch (but only with respect to any Registrable Securities
which the Initial Purchasers acquired directly from the Company) following the
consummation of the Exchange Offer if any of the Initial Purchasers shall hold
Registrable Securities which such Initial Purchaser acquired directly
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<PAGE>
from the Company and if such Initial Purchaser is not permitted, in the
reasonable opinion of counsel to the Initial Purchasers, pursuant to applicable
law or applicable interpretation of the staff of the SEC to participate in the
Exchange Offer, then the Company shall, at its cost:
(A) in the event clause (i) or (ii) is applicable, as
promptly as practicable (but in no event (x) more than 30 days from
the date on which the Company determined that it is not permitted to
effect the Exchange Offer as contemplated by Section 2(a) hereof in
the case of clause (i) or (y) on the 135th day after the Closing Date
in the case of clause (ii)), file with the SEC a Shelf Registration
Statement relating to the offer and sale of the Registrable Securities
(other than Registrable Securities owned by Holders who have elected
not to include such Registrable Securities in such Shelf Registration
Statement or who have not complied with their obligations under the
penultimate paragraph of Section 3 hereof or under the penultimate
sentence of this Section 2(b)) by the Holders from time to time in
accordance with the methods of distribution elected by the Majority
Holders of such Registrable Securities and set forth in such Shelf
Registration Statement, and use its reasonable best efforts to cause
such Shelf Registration Statement to be declared effective by the SEC
by the 180th day after the Closing Date. In the event that the Company
is required to file a Purchaser Shelf Registration Statement upon the
request of Merrill Lynch pursuant to clause (iii) above, the Company
shall use its reasonable best efforts (unless clause (i) or (ii) above
is applicable) to file and have declared effective by the SEC an
Exchange Offer Registration Statement pursuant to Section 2(a) with
respect to all Registrable Securities (other than Registrable
Securities acquired directly from the Company and held by the Initial
Purchasers) and use its reasonable best efforts to file, promptly
after any such request from Merrill Lynch, and have declared
effective, a Purchaser Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration
Statement or, if clause (i) or (ii) above is applicable, a combined
Registration Statement with the Shelf Registration Statement);
(B) use its reasonable best efforts to keep the relevant
Subject Registration Statement continuously effective in order to
permit the Prospectus forming part thereof to be usable by Holders for
a period of two years from the date a Shelf Registration Statement is
declared effective by the SEC (or, in the case of a Purchaser Shelf
Registration Statement, one year from the date a Purchaser Shelf
Registration Statement is declared effective) or in each case such
shorter period which will terminate when all of the Registrable
Securities covered by the relevant Subject Registration Statement have
been sold pursuant to such Subject Registration Statement or otherwise
are no longer Registrable Securities; and
(C) notwithstanding any other provisions hereof, use its
reasonable best efforts to ensure that (x) any Subject Registration
Statement and any amendment thereto and any Prospectus forming part
thereof and any supplement thereto complies in all material respects
with the 1933 Act and the rules and regulations thereunder, (y)
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<PAGE>
any Subject Registration Statement and any amendment thereto does not,
when it becomes effective, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (z) any
Prospectus forming part of any Subject Registration Statement, and any
supplement to such Prospectus (as amended or supplemented from time to
time), does not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements, in
light of the circumstances under which they were made, not misleading.
To the extent permitted by law, the Company further agrees, if necessary,
to supplement or amend the Shelf Registration Statement (if reasonably requested
by one firm of legal counsel selected by the Majority Holders) or the Purchaser
Shelf Registration Statement (if reasonably requested by Merrill Lynch), as the
case may be, with respect to information relating to the Holders or the Initial
Purchasers, respectively, and otherwise as required by Section 3(b) below, to
use its reasonable best efforts to cause any such amendment to become effective
and such Subject Registration Statement to become usable as soon as thereafter
practicable and to furnish to the Holders of Registrable Securities registered
thereby or the relevant Initial Purchasers, as the case may be, copies of any
such supplement or amendment promptly after its being used or filed with the
SEC. The Company may require, as a condition to including the Registrable
Securities of any Holder in any Subject Registration Statement, that such Holder
shall have furnished to the Company a written agreement to the effect that such
Holder agrees to comply with and be bound by the provisions of this Agreement.
For further clarity, the Company shall have no obligation to keep the Shelf
Registration Statement effective after consummation of the Exchange Offer, and
the Company's obligations to use its reasonable best efforts to file a Shelf
Registration Statement and to keep such Shelf Registration Statement effective
shall immediately terminate upon effectiveness of the Exchange Offer
Registration Statement (regardless of when such effectiveness shall occur).
(c) Expenses. The Company (i) shall pay all Registration Expenses in
--------
connection with the registration pursuant to Section 2(a) or 2(b) and (ii) in
connection with the Exchange Offer Registration Statement and the Shelf
Registration Statement, shall reimburse the Holders of Registrable Securities
being tendered in the Exchange Offer and/or resold pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable (or to
the extent such fees and disbursements are paid to such counsel by the Initial
Purchasers, the Initial Purchasers), for the reasonable fees and disbursements
of not more than one counsel, to be chosen by the Holders of a majority in
principal amount of the Registrable Securities for whose benefit such
Registration Statement is being prepared. Each Holder (including each Initial
Purchaser) shall pay all expenses of its counsel other than as set forth in the
preceding sentence, underwriting discounts and commissions and transfer taxes,
if any, relating to the sale or disposition of such Holder's Registrable
Securities pursuant to any Subject Registration Statement or the exchange of its
Registrable Securities pursuant to any Exchange Offer Registration Statement.
Notwithstanding anything in this Agreement to the contrary, the Company shall
not be required to pay the fees and disbursements of legal counsel for any
Holders (including Initial Purchasers) except (A) as provided in clause (ii) of
the first sentence of this paragraph, (B) to the extent such fees and
disbursements constitute Registration Expenses which the Company is
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<PAGE>
required to pay pursuant to the other provisions of this Agreement and (C) to
the extent required by Section 5 hereof.
(d) Effective Registration Statement. (i) The Company will be deemed
--------------------------------
not to have used its reasonable best efforts to cause the Exchange Offer
Registration Statement or any Subject Registration Statement, as the case may
be, to become, or to remain, effective during the requisite period if the
Company voluntarily takes any action that would result in any such Registration
Statement not being declared effective or in the Holders of Registrable
Securities covered thereby not being able to exchange or offer and sell such
Registrable Securities during that period unless such action is, in the
reasonable judgment of the Company, required by applicable law (including,
without limitation, any interpretation of the SEC).
(ii) An Exchange Offer Registration Statement pursuant to Section
2(a) hereof or a Subject Registration Statement pursuant to Section 2(b)
hereof will not be deemed to have become effective unless it has been
declared effective by the SEC; provided, however, that if, after it has
been declared effective, the offering of Registrable Securities pursuant to
such Subject Registration Statement is interfered with by any stop order,
injunction or other order or requirement of the SEC or any other
governmental agency or court, such Subject Registration Statement will be
deemed not to have been effective during the period of such interference,
until the offering of Registrable Securities pursuant to such Subject
Registration Statement may legally resume.
(e) Increase in Interest Rate. In the event that (i) the Exchange
-------------------------
Offer Registration Statement is not filed with the SEC on or prior to the 45th
calendar day after the Closing Date, (ii) the Exchange Offer Registration
Statement is not declared effective by the SEC on or prior to the 105th calendar
day after the Closing Date or (iii) the Exchange Offer is not consummated or a
Shelf Registration Statement is not declared effective by the SEC on or prior to
the 180th calendar day after the Closing Date, the interest rate borne by the
Debt Securities shall be increased by 0.50% per annum, as liquidated damages,
following such 45th day in the case of clause (i) above, such 105th day in the
case of clause (ii) above, or such 180th day in the case of clause (iii) above;
provided, however, that the aggregate amount of any such increase in such
interest rate will in no event exceed 0.50% per annum; and provided, further
that if the Exchange Offer Registration Statement is not declared effective by
the SEC on or prior to the 105th day following the Closing Date, then Debt
Securities owned by Persons who do not comply in all material respects with
their obligations under the penultimate paragraph of Section 3 will not be
entitled to any such increase in the interest rate for any day after the 180th
day following the Closing Date. Upon (A) the filing of the Exchange Offer
Registration Statement after the 45th day described in clause (i) above, (B) the
effectiveness of the Exchange Offer Registration Statement after the 105th day
described in clause (ii) above or (C) the consummation of the Exchange Offer or
the effectiveness of a Shelf Registration Statement, as the case may be, after
the 180th day described in clause (iii) above, the interest rate borne by the
Debt Securities from the date of such filing, effectiveness or consummation
(effective immediately preceding such consummation), as the case may be, will be
reduced to the original interest rate; provided, however, that the interest rate
borne by the Debt Securities will be reduced to the original
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<PAGE>
interest rate only if there is not then continuing a default with respect to any
of the events set forth in the immediately preceding sentence causing the
interest rate borne by the Debt Securities to increase.
(f) Specific Enforcement. Without limiting the remedies available to
--------------------
the Initial Purchasers and the Holders, the Company acknowledges that any
failure by the Company to comply with its obligations under Section 2(a) and
Section 2(b) hereof may result in material irreparable injury to the Initial
Purchasers or the Holders for which there is no adequate remedy at law, that it
will not be possible to measure damages for such injuries precisely and that, in
the event of any such failure, the Initial Purchasers or any Holder may, to the
extent permitted by law, obtain such relief as may be required to specifically
enforce the Company's obligations under Section 2(a) and Section 2(b) hereof.
Section 3. Registration Procedures.
In connection with the obligations of the Company with respect to the
Registration Statements pursuant to Sections 2(a) and 2(b) hereof, but only so
long as the Company shall have an obligation under this Agreement to keep a
Registration Statement effective, the Company shall:
(a) use its reasonable best efforts to prepare and file with the SEC
a Registration Statement, within the relevant time period specified in Section
2, on the appropriate form under the 1933 Act, which form (i) shall be selected
by the Company, (ii) shall, in the case of a Shelf Registration, be available
for the sale of the Registrable Securities by the selling Holders thereof and
(iii) shall comply as to form in all material respects with the requirements of
the applicable form and include or incorporate by reference all financial
statements required by the SEC to be filed therewith, and use its reasonable
best efforts to cause such Registration Statement to become effective and use
its reasonable best efforts to cause such Registration Statement to remain
effective in accordance with Section 2 hereof;
(b) to the extent permitted by law, use its reasonable best efforts
to (i) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under applicable
law to keep such Registration Statement effective for the applicable period,
(ii) cause each Prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed (if required) pursuant to Rule
424 under the 1933 Act, and (iii) comply with the provisions of the 1933 Act
with respect to the disposition of all securities covered by each Registration
Statement during the applicable period in accordance with the intended method or
methods of distribution by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Securities, at least ten business days prior to filing, that the
Shelf Registration Statement with respect to the Registrable Securities is being
filed and advising such Holders that the distribution of Registrable Securities
will be made in accordance with the method elected by the Majority Holders; and
(ii) furnish to each Holder of Registrable Securities registered under the Shelf
Registration Statement, to a single firm of legal counsel for the Holders
(including the Initial Purchasers) and to the managing underwriters of an
underwritten offering of Registrable Securities, if any, and their
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<PAGE>
counsel, without charge, as many copies of each Prospectus, including each
preliminary prospectus, and any amendment or supplement thereto and documents
incorporated by reference therein as such Holder, counsel or underwriters may
reasonably request and, if the Holder so requests, all exhibits thereto
(including those incorporated by reference) in order to facilitate the public
sale or other disposition of the Registrable Securities; and (iii) subject to
Section 3(k) hereof and the last paragraph of this Section 3, hereby consent to
the use of the Prospectus or any amendment or supplement thereto by each of the
selling Holders of Registrable Securities in connection with the offering and
sale of the Registrable Securities covered by the Prospectus or any amendment or
supplement thereto but only during the period of time that the Company is
required to keep the Shelf Registration Statement effective pursuant to this
Agreement;
(d) use its reasonable best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue sky" laws
of such jurisdictions in the United States as the Majority Holders of
Registrable Securities covered by a Registration Statement and the managing
underwriter of an underwritten offering of Registrable Securities shall
reasonably request prior to the time the applicable Registration Statement is
declared effective by the SEC, to cooperate with the Holders in connection with
any filings required to be made with the NASD, and do any and all other acts and
things which may be reasonably necessary or advisable to enable such Holder to
consummate the disposition of such Registrable Securities in the jurisdiction of
such Holder pursuant to such Registration Statement; provided, however, that the
Company shall not be required to (i) qualify as a foreign corporation or as a
dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d) or (ii) take any action that would
subject it to general service of process or taxation in any such jurisdiction if
it is not then so subject;
(e) in the case of a Subject Registration Statement, promptly notify
a single firm of legal counsel for the Holders of Registrable Securities
registered thereby (including any Initial Purchasers) and Merrill Lynch and, if
requested by such counsel or Merrill Lynch, promptly confirm such advice in
writing (by notice to such counsel or to Merrill Lynch) (i) when such
Registration Statement has become effective and when any post-effective
amendments thereto become effective, (ii) of any request by the SEC or any state
securities authority for post-effective amendments and supplements to such
Registration Statement and the related Prospectus or for additional information
after such Registration Statement has become effective, (iii) of the issuance by
the SEC or any state securities authority of any stop order suspending the
effectiveness of such Registration Statement or the initiation of any
proceedings for that purpose, (iv) if, between the effective date of such
Registration Statement and the closing of any sale of Registrable Securities
covered thereby pursuant to an underwriting agreement to which the Company is a
party, the representations and warranties of the Company contained in such
underwriting agreement cease to be true and correct in all material respects,
(v) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Securities covered by such
Registration Statement for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (vi) upon the Company
becoming aware thereof, of the happening of any event or the discovery of any
facts during the period such Registration Statement is effective which (A) makes
any statement made in such Registration Statement or the related Prospectus
untrue in any material respect or (B) causes such Registration Statement or the
related Prospectus to omit to state a material fact necessary in order to
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<PAGE>
make the statements therein, in the light of the circumstances under which they
were made, not misleading;
(f) (i) in the case of the Exchange Offer, (A) include in the
Exchange Offer Registration Statement a "Plan of Distribution" section covering
the use of the Prospectus included in the Exchange Offer Registration Statement
by Participating Broker-Dealers (as defined below) who have exchanged their
Registrable Securities for Exchange Securities for the resale of such Exchange
Securities, (B) furnish to each Participating Broker-Dealer who notifies the
Company in writing that it desires to participate in the Exchange Offer, without
charge, as many copies of each Prospectus included in the Exchange Offer
Registration Statement, including any preliminary prospectus, and any amendment
or supplement thereto, as such broker-dealer may reasonably request, (C) include
in the Exchange Offer Registration Statement a statement that any broker-dealer
who holds Registrable Securities acquired for its own account as a result of
market-making activities or other trading activities (a "Participating Broker-
Dealer"), and who receives Exchange Securities for Registrable Securities
pursuant to the Exchange Offer, may be a statutory underwriter and must deliver
a prospectus meeting the requirements of the 1933 Act in connection with any
resale of such Exchange Securities, (D) subject to Section 3(k) hereof and the
last paragraph of this Section 3, hereby consent to the use of the Prospectus
forming part of the Exchange Offer Registration Statement or any amendment or
supplement thereto by any Participating Broker-Dealer in connection with the
sale or transfer of the Exchange Securities covered by the Prospectus or any
amendment or supplement thereto for a period ending 180 days following
consummation of the Exchange Offer or, if earlier, when all Exchange Securities
received by such Participating Broker-Dealer in exchange for Registrable
Securities acquired for their own account as a result of market-making or other
trading activities have been disposed of by such Participating Broker-Dealer,
and (E) include in the letter of transmittal or similar documentation to be
executed by an exchange offeree in order to participate in the Exchange Offer a
provision substantially in the following form (or such similar provision as is
reasonably acceptable to counsel for the Initial Purchasers and as, in the
reasonable opinion of the Company, may at the time be required by applicable law
or SEC interpretation):
"the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to
engage in, a distribution of Exchange Securities. If the
undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Registrable
Securities, it represents that the Registrable Securities to
be exchanged for Exchange Securities were acquired by it as
a result of market-making activities or other trading
activities and acknowledges that it will deliver a
prospectus meeting the requirements of the 1933 Act in
connection with any resale of such Exchange Securities
pursuant to the Exchange Offer; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the
meaning of the 1933 Act"; and
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<PAGE>
(ii) to the extent any Participating Broker-Dealer participates
in the Exchange Offer, the Company shall use its reasonable best efforts to
cause to be delivered at the request of an entity representing the
Participating Broker-Dealers (which entity shall be Merrill Lynch or
another Initial Purchaser) (A) a "cold comfort" letter addressed to the
Participating Broker-Dealers from the Company's independent certified
public accountants with respect to the Prospectus in the Exchange Offer
Registration Statement in the form existing on the last date for which
exchanges are accepted pursuant to the Exchange Offer and (B) an opinion of
counsel to the Company addressed to the Participating Broker-Dealers in
customary form relating to the Exchange Securities; and
(iii) to the extent any Participating Broker-Dealer participates
in the Exchange Offer and notifies the Company or causes the Company to be
notified in writing that it is a Participating Broker-Dealer, the Company
shall use its reasonable best efforts to maintain the effectiveness of the
Exchange Offer Registration Statement for a period of 180 days following
the last date on which exchanges are accepted pursuant to the Exchange
Offer, or, if earlier, when all Exchange Securities received by
Participating Broker-Dealers in exchange for Registrable Securities
acquired for their own account as a result of market-making or other
trading activities have been disposed of by such Participating Broker-
Dealers; and
(iv) not be required, however, to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement as would
otherwise be contemplated by Section 3(b) hereof, or take any other action
as a result of this Section 3(f), at any time after 180 days after the last
date for which exchanges are accepted pursuant to the Exchange Offer (or
such earlier date referred to in Paragraph (C) above), and Participating
Broker-Dealers shall not be authorized by the Company to, and shall not,
deliver such Prospectus after such period in connection with resales
contemplated by this Section 3 or otherwise;
it being understood that, notwithstanding anything in this Agreement to the
contrary, the Company shall not be required to comply with any provision of this
Section 3(f) or any other provision of this Agreement relating to the
distribution of Exchange Securities by Participating Broker-Dealers, to the
extent that the Company reasonably concludes (with the consent of Merrill Lynch,
not to be unreasonably withheld) that compliance with such provision is no
longer required by applicable law or interpretation of the staff of the SEC;
(g) in the case of an Exchange Offer, furnish to one firm of legal
counsel for the Initial Purchasers and (ii) in the case of a Shelf Registration,
furnish to one firm of legal counsel for the Holders of Registrable Securities
covered thereby copies of any request received by or on behalf of the Company,
from the SEC or any state securities authority for amendments or supplements to
the relevant Registration Statement and Prospectus or for additional
information;
(h) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement as soon as
practicable and provide prompt notice to one firm of legal counsel for the
Holders of the withdrawal of any such order;
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(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities registered thereby, without charge, at least one
conformed copy of each Registration Statement and any post-effective amendment
thereto (without documents incorporated therein by reference or exhibits
thereto, unless requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legend (except any customary legend borne by securities
held through The Depository Trust Company or any similar depository); and cause
such Registrable Securities to be in such denominations (consistent with the
provisions of the Indenture) and registered in such names as the selling Holders
or the underwriters, if any, may reasonably request at least two business days
prior to the closing of any sale of Registrable Securities;
(k) in the case of a Shelf Registration, upon the Company becoming
aware of the occurrence of any event or the discovery of any facts, each as
contemplated by Section 3(e)(vi) hereof, use its reasonable best efforts to
prepare a supplement or post-effective amendment to the relevant Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, such Prospectus will not
contain at the time of such delivery any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. The Company
agrees to notify each Holder of Registrable Securities registered under the
relevant Subject Registration Statement to suspend use of the Prospectus as
promptly as practicable after the Company becomes aware of the occurrence of
such an event, and each Holder of Registrable Securities registered under the
relevant Subject Registration Statement hereby agrees to suspend use of the
Prospectus after receipt of such notice until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission or has
advised such Holders that use of such Prospectus may be resumed. At such time as
such public disclosure is otherwise made or the Company determines that such
disclosure is not necessary, in each case to correct any misstatement of a
material fact or to include any omitted material fact, or the Company otherwise
determines that use of such Prospectus may be resumed, the Company agrees
promptly to notify each Holder of Registrable Securities registered under the
relevant Subject Registration Statement of such determination and (if
applicable) to furnish each such Holder such numbers of copies of the
Prospectus, as amended or supplemented, as such Holder may reasonably request;
(l) obtain a CUSIP number for all Exchange Securities, or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates for
the Exchange Securities or the Registrable Securities, as the case may be, in a
form eligible for deposit with The Depository Trust Company; provided, however,
that the Company shall not be required to provide printed certificates for any
Exchange Securities or Registrable Securities to be so-called "book-entry only"
securities;
(m) unless the Indenture, as it relates to the Exchange Securities or
the Registrable Securities, as the case may be, has already been so qualified,
use its reasonable best efforts to (i) cause
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the Indenture to be qualified under the Trust Indenture Act of 1939, as amended
(the "TIA"), in connection with the registration of the Exchange Securities or
Registrable Securities, as the case may be, (ii) cooperate with the Trustee and
the Holders to effect such changes to the Indenture as may be required for the
Indenture to be so qualified in accordance with the terms of the TIA and (iii)
execute, and use its reasonable best efforts to cause the Trustee to execute,
all documents as may be required to effect such changes, and all other forms and
documents required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(n) in the case of a Shelf Registration, take all customary and
appropriate actions (including those reasonably requested by the Majority
Holders) in order to expedite or facilitate the disposition of the Registrable
Securities registered thereby. If requested as set forth below, the Company
agrees that it will in good faith negotiate the terms of an Underwriting
Agreement, which shall be in form and scope as is customary for similar
offerings of debt securities with similar credit ratings (including, without
limitation, representations and warranties to the underwriters) and shall
otherwise be reasonably satisfactory to the Company and the managing
underwriters; and:
(i) if requested by the managing underwriters, obtain opinions
of counsel to the Company (which counsel shall be reasonably satisfactory
to the managing underwriters) addressed to such underwriters, covering the
matters customarily covered in opinions requested in underwritten sales of
securities in substantially the forms specified in the Underwriting
Agreement;
(ii) if requested by the managing underwriters, obtain a "cold
comfort" letter and an update thereto not later than two weeks after the
date of the original letter (or if not available under applicable
accounting pronouncements or standards, a single "procedures" letter and a
single update thereto) from the Company's independent certified public
accountants addressed to the underwriters named in the Underwriting
Agreement and use its reasonable best efforts to have such letter addressed
to the selling Holders of Registrable Securities (provided, however, that
such letter need not be addressed to any Holders to whom, in the reasonable
opinion of the Company's independent certified public accountants,
addressing such letter is not permissible under applicable accounting
standards), such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" (or "procedures") letters to
underwriters in connection with similar underwritten offerings; and
(iii) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
underwritten offerings.
Notwithstanding anything herein to the contrary, the Company shall have no
obligation to enter into any underwriting agreement or permit an underwritten
offering of Registrable Securities unless a request therefor shall have been
received from at least 33 1/3% of the Holders of all Registrable Securities then
outstanding. In the case of such a request for an underwritten offering, the
Company shall provide written notice to the Holders of all Registrable
Securities of such underwritten offering at least 30 days prior to the filing of
a Shelf Registration Statement or a prospectus supplement
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providing for such underwritten offering. Such notice shall (A) offer each such
Holder the right to participate in such underwritten offering (but may indicate
that whether or not all Registrable Securities are included will be at the
discretion of the underwriters), (B) specify a date, which shall be no earlier
than ten business days following the date of such notice, by which such Holder
must inform the Company of its intent to participate in such underwritten
offering and (C) include the instructions such Holder must follow in order to
participate in such underwritten offering;
(o) in the case of a Shelf Registration, and to the extent customary
in connection with a "due diligence" investigation for an offering of debt
securities with a similar credit rating to that of the Registrable Securities,
make reasonably available for inspection by representatives appointed by the
Majority Holders and any underwriters participating in any disposition pursuant
to a Shelf Registration Statement and one firm of legal counsel retained for all
Holders participating in such Shelf Registration, and one firm of legal counsel
to the underwriters, if any, all financial and other records, pertinent
corporate documents and properties of the Company reasonably requested by any
such persons, and cause the respective officers, employees and any other agents
of the Company to supply all information reasonably requested by any such
representative, underwriters or counsel in connection with the Shelf
Registration Statement; provided, however, that, if any such records, documents
or other information relates to pending or proposed acquisitions or
dispositions, or otherwise relates to matters reasonably considered by the
Company to constitute sensitive or proprietary information, the Company need not
provide such records, documents or information unless the foregoing parties
enter into a confidentiality agreement in customary form and reasonably
acceptable to such parties and the Company;
(p) (i) a reasonable time prior to the filing of any Exchange Offer
Registration Statement, any Prospectus forming a part thereof, any amendment to
an Exchange Offer Registration Statement or amendment or supplement to such
Prospectus, provide copies of such document to the Initial Purchasers, and make
such changes in any such document prior to the filing thereof as Merrill Lynch
or one firm of legal counsel to the Initial Purchasers may reasonably request;
(ii) in the case of a Shelf Registration, a reasonable time prior to filing any
Shelf Registration Statement, any Prospectus forming a part thereof, any
amendment to such Shelf Registration Statement or amendment or supplement to
such Prospectus, provide copies of such document to Merrill Lynch, one firm of
legal counsel appointed by the Majority Holders to represent the Holders
participating in such Shelf Registration, the managing underwriters of an
underwritten offering of Registrable Securities, if any, and their counsel, and
make such changes in any such document prior to the filing thereof as Merrill
Lynch, such one firm of legal counsel for the Holders, such managing
underwriters or their counsel may reasonably request; and (iii) cause the
representatives of the Company to be available for discussion of such document
as shall be reasonably requested by Merrill Lynch, one firm of legal counsel to
the Holders, the managing underwriters and their counsel; and shall not at any
time make any filing of any such document of which Merrill Lynch, one firm of
legal counsel to the Holders, the managing underwriters and their counsel shall
not have previously been advised and furnished a copy or to which Merrill Lynch,
one firm of legal counsel to the Holders, the managing underwriters and their
counsel shall reasonably object; provided, however, that the provisions of this
paragraph (p) shall not apply to any document filed by the Company pursuant to
the 1934 Act which is incorporated or deemed to be incorporated by reference in
any Registration Statement or Prospectus;
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<PAGE>
(q) in the case of a Shelf Registration and if requested by the
managing underwriters, if any, or the Majority Holders, (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
such information or revisions to information therein relating to such
Underwriters or selling Holders as the managing underwriters, if any, or such
Holders or their counsel reasonably request to be included or made therein, (ii)
make all required filings of such prospectus supplement or such post-effective
amendment as soon as practicable after the Company has received notification of
the matters to be incorporated in such prospectus supplement or post-effective
amendment and (iii) if required, supplement or make amendments to such Shelf
Registration Statement;
(r) upon delivery of the Registrable Securities by Holders to the
Company (or to such other Person as directed by the Company) in exchange for the
Exchange Securities, the Company shall mark, or cause to be marked, on such
Registrable Securities that such Registrable Securities are being canceled in
exchange for the Exchange Securities; in no event shall such Registrable
Securities be marked as paid or otherwise satisfied;
(s) use its reasonable best efforts to cause the Exchange Securities,
if applicable, and, in the event of a Shelf Registration, the Debt Securities to
be rated with not more than two rating agencies selected by the Company, if so
requested by the Majority Holders or by the managing underwriters of an
underwritten offering of Registrable Securities, if any, unless the Exchange
Securities or the Registrable Securities, as the case may be, are already so
rated or unless the Company has obtained such ratings for its long-term debt
securities generally;
(t) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC and make generally available to its
security holders, as soon as reasonably practicable, an earnings statement
covering at least 12 months which shall satisfy the provisions of Section 11(a)
of the 1933 Act and Rule 158 thereunder; and
(u) reasonably cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence investigation by
any managing underwriters and their counsel.
In the case of a Subject Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) (i) require
each Holder of Registrable Securities to furnish to the Company such information
regarding such Holder and the proposed distribution by such Holder of such
Registrable Securities as the Company may from time to time reasonably request
in writing and such other information as, in the reasonable opinion of the
Company, is required for inclusion in the Subject Registration Statement, and
(ii) further require each Holder of Registrable Securities, through one firm of
legal counsel on behalf of all such Holders, to furnish to the Company any
comments on the Subject Registration Statement and the Prospectus included
therein or any amendment or supplement to any of the foregoing not later than
such times as the Company reasonably may request. Each Holder of Securities
included in a Subject Registration Statement agrees promptly to notify the
Company of any inaccuracy or change in information previously furnished to the
Company or the occurrence of any event, in either case, as a result of which the
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relevant Registration Statement or the related Prospectus contains or would
contain an untrue statement of a material fact or omits or would omit to state
any material fact regarding such Holder, its intended method of distribution of
Registrable Securities or otherwise that is required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing. As soon as practicable, the Company will, subject
to the reasonable approval of its counsel, incorporate in a supplement or post-
effective amendment to the relevant Registration Statement or related Prospectus
such information furnished in writing to the Company and requested to be
included therein, and furnish to such Holder copies of the Prospectus, as
amended or supplemented, as reasonably requested.
In the case of a Subject Registration Statement, each Holder agrees and, in
the case of the Exchange Offer Registration Statement, each Participating
Broker-Dealer agrees that, upon receipt of any notice from the Company of the
happening of any event or the discovery of any facts, each of the kind described
in Section 3(e)(ii)-(vi) or Section 3(k) hereof (it being understood and agreed
that, for purposes of this paragraph, all references in Sections 3(e)(ii)-(vi)
and Section 3(k) to a "Subject Registration Statement", a "Shelf Registration
Statement" or a "Registration Statement" shall be deemed to mean and include the
Shelf Registration Statement, the Purchaser Shelf Registration Statement or the
Exchange Offer Registration Statement or all or any combination thereof (as the
context requires), mutatis mutandis), such Holder or Participating Broker-
Dealer, as the case may be, will forthwith discontinue disposition of
Registrable Securities pursuant to such Registration Statement and discontinue
use of the Prospectus included therein until such Holder's or Participating
Broker-Dealer's receipt, as the case may be, of (A) copies of the supplemented
or amended Prospectus contemplated by Section 3(k) hereof or (B) notice from the
Company that the sale of the Registrable Securities may be resumed, and, if so
directed by the Company, such Holder or Participating Broker-Dealer, as the case
may be, will deliver to the Company (at its expense) all copies in its
possession, other than permanent file copies then in its possession, of the
Prospectus covering such Registrable Securities current at the time of receipt
of such notice. If the Company shall give any such notice to suspend the
disposition of Registrable Securities pursuant to a Registration Statement as a
result of the happening of any event or the discovery of any facts, each of the
kind described in Section 3(e) (ii)-(vi) or 3(k) hereof, the Company shall be
deemed to have used its reasonable best efforts to keep such Registration
Statement effective during such period of suspension, provided that the Company
shall use its reasonable best efforts to file and have declared effective (if an
amendment) as soon as practicable an amendment or supplement to such
Registration Statement or the related Prospectus and shall extend the period
during which such Registration Statement shall be maintained effective pursuant
to this Agreement 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 the Holders
shall have received copies of the supplemented or amended Prospectus necessary
to resume such dispositions or the date on which the Company has given notice
that the sale of Registrable Securities may be resumed, as the case may be.
Each Holder of Registrable Securities hereby agrees that it will at all times
use the then most current Prospectus, as then amended or supplemented, which has
been provided to it by the Company in connection with the resale or transfer of
any Registrable Securities pursuant to a Registration Statement or Prospectus.
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Section 4. Underwritten Registrations.
If any of the Registrable Securities covered by the Shelf Registration
Statement are to be sold in an underwritten offering, the underwriter or
underwriters and manager or managers that will manage the offering will be
selected by the Company and shall be reasonably acceptable to the Majority
Holders of such Registrable Securities included in such offering.
No Holder of Registrable Securities may participate in any underwritten
offering hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
Section 5. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Initial
Purchaser, each Holder and each Person, if any, who controls any such Person
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
as follows:
(i) against any and all losses, liabilities, claims, damages
and expenses whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which
Exchange Securities or Registrable Securities were registered under the
1933 Act, including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading
or arising out of any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all losses, liabilities, claims, damages
and expenses whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
5(e) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expenses whatsoever, as incurred
(including (subject to Section 5(c) below) the reasonable fees and
disbursements of counsel chosen by Merrill Lynch or, in the event that
Merrill Lynch is not an indemnified party, by a majority of the indemnified
parties), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body,
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commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under subparagraph (i) or (ii)
of this Section 5(a);
provided, however, that this indemnity does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of any Initial Purchaser, any Holder or any underwriter expressly for
use in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto); and provided, further, that this
indemnity agreement with respect to any Prospectus shall not inure to the
benefit of any Initial Purchaser or Holder from whom the person asserting any
such losses, claims, damages or liabilities purchased Registrable Securities or
Exchange Securities (or any person who controls such Initial Purchaser or Holder
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act)
if a copy of the Prospectus (as then amended or supplemented and furnished by
the Company to such Initial Purchaser or Holder, as the case may be) was not
sent or given by or on behalf of such Initial Purchaser or Holder, as the case
may be, to such person at or prior to the sale of such Registrable Securities or
Exchange Securities and if the Prospectus (as so amended or supplemented) would
have corrected any untrue statement or omission, or alleged untrue statement or
omission, giving rise to such loss, liability, claim, damage or expense
(provided the Company has delivered the Prospectus (as then amended or
supplemented) to the several Initial Purchasers or Holders in requisite quantity
on a timely basis to permit such delivery or sending).
(b) In the case of a Shelf Registration, each Holder agrees,
severally and not jointly, to indemnify and hold harmless the Company, each
Initial Purchaser, each underwriter who participates in an offering of
Registrable Securities and the other Holders and each of their respective
directors and officers (including each officer of the Company who signed the
Registration Statement in question) and each Person, if any, who controls the
Company, any Initial Purchaser, any underwriter or any other Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any
and all losses, liabilities, claims, damages and expenses described in the
indemnity contained in Section 5(a) hereof, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Holder
expressly for use in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amendment or supplement thereto); provided, however, that
no such Holder shall be liable for any claims hereunder in excess of the amount
of net proceeds received by such Holder from the sale of Registrable Securities
pursuant to such Registration Statement.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have other than on account of this
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indemnity agreement or the contribution agreement set forth in Section 5(d)
below. In the case of parties indemnified pursuant to Section 5(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch (or, in
the event that Merrill Lynch is not an indemnified party, by a majority in
interest of the indemnified parties), and, in the case of parties indemnified
pursuant to Section 5(b) above, counsel to the indemnified parties shall be
selected by the Company. Notwithstanding the foregoing, in case any action or
proceeding shall be instituted and the indemnified party shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein, and, after written notice from the indemnifying
party to such indemnified party, to assume the defense thereof with counsel of
its choice reasonably acceptable to the indemnified parties in such action.
Notwithstanding the election of the indemnifying party to assume defense of such
action or proceeding, the indemnified party shall have the right, at its own
expense, to employ one additional firm as separate counsel and to participate in
the defense of the action or proceeding; provided that the indemnifying party
shall pay the reasonable fees and expenses of such separate counsel reasonably
satisfactory to the indemnifying party if (i) the indemnifying party shall have
failed to employ counsel to represent the indemnified party in a reasonably
timely manner or (ii) the defendants in any such action or proceeding include
both the indemnified party and the indemnifying party and counsel to the
indemnified party shall have concluded and notified the indemnifying party that
in its reasonable judgment representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. In no event shall the indemnifying parties be liable for the fees and
expenses of more than one counsel (in addition to any local counsel) (which
counsels shall be selected by Merrill Lynch or, in the event that Merrill Lynch
is not an indemnified party, by a majority in interest of the indemnified
parties) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 5 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in
circumstances in which any of the indemnity provisions set forth in this Section
5 are for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Company, the Initial
Purchasers and the Holders shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement incurred by the Company, the Initial Purchasers and the
Holders, as incurred; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any Person that was not guilty of such fraudulent
misrepresentation. As between the Company, the Initial Purchasers and the
Holders, such parties shall contribute to such aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such
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indemnity agreement in such proportion as shall be appropriate to reflect the
relative fault of the Company on the one hand, the Initial Purchasers on another
hand, and the Holders on another hand, with respect to the statements or
omissions which resulted in such loss, liability, claim, damage or expense, or
action in respect thereof, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand, the Initial
Purchasers on another hand, and the Holders on another hand shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the Initial
Purchasers or by the Holders and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue or alleged
untrue statement or omission. The Company, the Initial Purchasers and the
Holders agree that it would not be just and equitable if contribution pursuant
to this Section 5(d) were to be determined by pro rata allocation or by any
other method of allocation that does not take into account the relevant
equitable considerations. For purposes of this Section 5(d), each Person, if
any, who controls an Initial Purchaser or a Holder within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as such Initial Purchaser or such Holder, and each director of the
Company, each officer of the Company who signed the Registration Statement in
question, and each Person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company.
(e) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 5(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
Section 6. Miscellaneous.
(a) Rule 144 and Rule 144A. Until the earliest of (i) the completion
----------------------
of the Exchange Offer, (ii) two years following the Closing Date (or such
shorter period as may be specified in Rule 144(k) as then amended) and (iii) the
date when all Registrable Securities have been sold pursuant to the Subject
Registration Statement or are no longer Registrable Securities, the Company
covenants that it will file the reports required to be filed by it under Section
13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by the SEC
thereunder for so long as the Company is subject to the reporting requirements
of Section 13 or 15 of the 1934 Act, and if the Company ceases to be so required
to file such reports, it will upon the request of any Holder of Registrable
Securities (i) make publicly available such information as is necessary to
permit sales pursuant to Rule 144 under the 1933 Act, (ii) deliver such
information to a prospective purchaser as is necessary to permit sales pursuant
to Rule 144A under the 1933 Act and (iii) take such further action that is
reasonable in the circumstances, in each case, to the extent required from time
to time to enable such Holder to sell its Registrable Securities without
registration under the 1933 Act within the limitation of the exemptions
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provided by (A) Rule 144 under the 1933 Act, as such Rule may be amended from
time to time, (B) Rule 144A under the 1933 Act, as such Rule may be amended from
time to time or (C) any similar rules or regulations hereafter adopted by the
SEC (provided that the obligations of the Company under any such similar rules
or regulations shall not be more burdensome in any substantial respect than
those referred to in clauses (A) or (B)). Upon the request of any Holder of
Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
(b) No Inconsistent Agreements. The Company has not entered into nor
--------------------------
will the Company on or after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
other issued and outstanding securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Securities affected by such amendment, modification, supplement,
waiver or departure; provided, however, that to the extent any provision of this
Agreement relates to the Purchaser Shelf Registration Statement or otherwise to
the Initial Purchasers, such provision may be amended, modified or supplemented,
and waivers or consents to departures from such provisions thereof may be given,
by Merrill Lynch; and provided, further, that no amendment, modification,
supplement or waiver or consent to any departure from the provisions of Section
5 hereof shall be effective as against any Holder of Registrable Securities
unless consented to in writing by such Holder. Notwithstanding anything in this
Agreement to the contrary, this Agreement may be amended, modified or
supplemented, and waivers and consents to departures from the provisions hereof
may be given, by written agreement signed by the Company and Merrill Lynch to
the extent that any such amendment, modification, supplement, waiver or consent
is, in their reasonable judgment, necessary or appropriate to comply with
applicable law (including any interpretation of the staff of the SEC) or any
change therein.
(d) Notices. All notices and other communications provided for or
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permitted hereunder shall be made in writing by hand-delivery, registered or
certified first-class mail, telex, telecopier or any courier providing overnight
delivery (i) if to a Holder, at its address appearing in the register of the
Debt Securities and/or Exchange Securities kept by the Registrar (as defined in
the Indenture) or at such other address as shall have been given by such Holder
to the Company by means of a notice given in accordance with the provisions of
this Section 6(d), which address initially is, with respect to the Initial
Purchasers, the address care of Merrill Lynch set forth in the Purchase
Agreement, and (ii) if to the Company initially at or in care of the Company's
address set forth in the Purchase Agreement, or in each case to such other
address notice of which is given in accordance with the provisions of this
Section 6(d).
-24-
<PAGE>
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next business day if timely delivered to an air courier providing
overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided, however, that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms hereof or of the Purchase Agreement, the
Indenture or the Offering Memorandum dated March 26, 1997; and provided,
further, that Holders of Registrable Securities may not assign their rights
under this Agreement except in connection with the permitted transfer of
Registrable Securities and then only insofar as relates to such Registrable
Securities. If any transferee of any Holder shall acquire Registrable
Securities, in any manner, whether by operation of law or otherwise, such
Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities, such Person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement, including the restrictions on resale
set forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.
(f) Third-Party Beneficiary. The Holders from time to time shall each
-----------------------
be a third-party beneficiary to the agreements made hereunder between the
Company, on the one hand, and the Initial Purchasers, on the other hand, and
Merrill Lynch shall have the right to enforce such agreements directly to the
extent it deems such enforcement necessary or advisable to protect its rights or
the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
-25-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CROSS TIMBERS OIL COMPANY
By: _________________________________________
Name:
Title:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: _________________________________________
Name:
Title:
BEAR, STEARNS & CO. INC.
By: _________________________________________
Name:
Title:
DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION
By: _________________________________________
Name:
Title:
-26-
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
(in thousands, except per share amounts) 1997 1996
---------- ----------
PRIMARY EARNINGS:
<S> <C> <C>
Net income................................................... $ 11,095 $ 4,671
Preferred stock dividends.................................... (445) -
---------- ----------
Earnings available to common stock........................... $ 10,650 $ 4,671
========== ==========
Weighted average common shares outstanding................... 26,930 27,601
Common stock equivalents - stock options..................... 494 250
---------- ----------
Weighted average common shares and
common stock equivalents outstanding....................... 27,424 27,851
========== ==========
Primary earnings:
Per common share.......................................... $ 0.40 $ 0.17
========== ==========
Per common share and equivalent (a)....................... $ 0.39 $ 0.17
========== ==========
FULLY DILUTED EARNINGS:
Earnings available to common stock........................... $ 10,650 $ 4,671
Convertible preferred stock dividends........................ 445 -
Convertible note interest and other costs, after income tax.. 46 608
---------- ----------
Earnings, as adjusted........................................ $ 11,141 $ 5,279
========== ==========
Weighted average common shares and
common stock equivalents outstanding....................... 27,424 27,851
Additional common shares upon conversion of:
Preferred stock........................................... 1,640 -
Subordinated notes........................................ 306 4,200
---------- ----------
Weighted average common shares and
common stock equivalents outstanding, as adjusted........... $ 29,370 $ 32,051
========== ==========
Fully diluted earnings per common share
and equivalent.............................................. $ 0.38 $ 0.17 (b)
========== ==========
</TABLE>
(a) Because their impact is less than 3% dilutive, common stock equivalents are
not included in the calculation of primary earnings per share as disclosed
on the statement of operations for the three months ended March 31, 1997
and 1996.
(b) Fully diluted earnings per share is less than 3% lower than primary
earnings per share for the three months ended March 31, 1997.
<PAGE>
EXHIBIT 15.1
Cross Timbers Oil Company:
We are aware that Cross Timbers Oil Company has incorporated by reference in its
Registration Statement No. 333-26603 on Form S-4 and in its Registration
Statements No. 33-64274, No. 33-65238 and No. 33-81766 on Form S-8 its Form 10-Q
for the quarter ended March 31, 1997, which includes our report dated April 23,
1997, covering the unaudited interim financial information contained therein.
Pursuant to Regulation C of the Securities Act of 1933, that report is not
considered a part of the registration statement prepared or certified by our
firm or a report prepared or certified by our firm within the meaning of
Sections 7 and 11 of the Act.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
May 15, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 303
<SECURITIES> 0
<RECEIVABLES> 33,380
<ALLOWANCES> 0
<INVENTORY> 199
<CURRENT-ASSETS> 35,746
<PP&E> 692,083
<DEPRECIATION> 218,884
<TOTAL-ASSETS> 529,323
<CURRENT-LIABILITIES> 44,239
<BONDS> 303,400
0
28,468
<COMMON> 302
<OTHER-SE> 134,941
<TOTAL-LIABILITY-AND-EQUITY> 529,323
<SALES> 53,494
<TOTAL-REVENUES> 53,494
<CGS> 0
<TOTAL-COSTS> 31,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,275
<INCOME-PRETAX> 17,023
<INCOME-TAX> 5,928
<INCOME-CONTINUING> 11,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,650
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.38
</TABLE>
