<PAGE>
================================================================================
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 SEPTEMBER 30, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-10662
-------
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
- ------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(817) 870-2800
----------------------------------------------------
(Registrant's telephone number, including area code)
NONE
----------------------------------------------------
(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 October 31, 1997
---------------------------- ----------------------------------
Common stock, $.01 par value 26,435,053
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<PAGE>
CROSS TIMBERS OIL COMPANY
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
at September 30, 1997 and December 31, 1996.................. 3
Consolidated Statements of Operations
for the Three and Nine Months Ended September 30,
1997 and 1996................................................ 4
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1997 and
1996......................................................... 5
Notes to Consolidated Financial Statements.................... 6-10
Report of Independent Public Accountants...................... 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 12-18
PART II. OTHER INFORMATION
Item 5. Other Information............................................. 19
Item 6. Exhibits and Reports on Form 8-K.............................. 19-20
Signatures.................................................... 21
2
<PAGE>
PART I. FINANCIAL INFORMATION
CROSS TIMBERS OIL COMPANY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 DECEMBER 31,
(Unaudited) 1996
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 3,537 $ 3,937
Accounts receivable, net........................................ 38,055 44,320
Deferred income tax............................................. 177 558
Other current assets............................................ 5,592 2,965
--------- ---------
Total Current Assets.......................................... 47,361 51,780
--------- ---------
Property and Equipment, at cost - successful efforts method:
Producing properties............................................ 738,417 639,990
Undeveloped properties.......................................... 16,147 2,493
Gas gathering and other......................................... 21,940 16,470
--------- ---------
Total Property and Equipment................................... 776,504 658,953
Accumulated depreciation, depletion and amortization............. (230,103) (208,392)
--------- ---------
Net Property and Equipment.................................... 546,401 450,561
--------- ---------
Investment in Equity Securities, at market value................. 3,488 16,714
--------- ---------
Other Assets..................................................... 6,862 4,015
--------- ---------
TOTAL ASSETS..................................................... $ 604,112 $ 523,070
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities........................ $ 46,030 $ 45,729
Payable to Royalty Trust........................................ 1,736 2,770
Accrued stock incentive compensation............................ 492 483
Short-term debt................................................. - 3,000
--------- ---------
Total Current Liabilities..................................... 48,258 51,982
--------- ---------
Long-term Debt (Note 2).......................................... 374,000 314,757
--------- ---------
Deferred Income Tax.............................................. 17,362 10,323
--------- ---------
Other Long-term Liabilities...................................... 3,086 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,
30,807,345 and 28,209,976 shares issued)....................... 308 282
Additional paid-in capital...................................... 203,670 164,577
Treasury stock (4,414,044 and 2,578,781 shares)................. (72,843) (40,219)
Unrealized gain on investment in equity securities.............. 84 638
Retained earnings (deficit)..................................... 1,719 (11,078)
--------- ---------
Total Stockholders' Equity.................................... 161,406 142,668
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................... $ 604,112 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -------- --------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Oil....................................... $17,887 $19,375 $ 56,470 $ 54,222
Gas....................................... 23,293 17,090 74,714 48,123
Gas gathering, processing and marketing... 2,436 2,411 7,558 8,651
Other..................................... 470 325 4,807 1,021
------- ------- -------- --------
Total Revenues............................ 44,086 39,201 143,549 112,017
------- ------- -------- --------
EXPENSES
Production................................ 10,830 9,989 31,960 29,158
Exploration (Note 1)...................... 547 - 1,122 -
Taxes on production and property.......... 3,650 3,016 11,576 8,479
Depreciation, depletion and amortization.. 12,012 9,742 34,529 27,589
General and administrative................ 2,915 2,507 10,457 12,167
Gas gathering and processing.............. 2,168 1,967 6,325 4,745
Interest expense, net..................... 6,891 4,525 18,681 12,066
Trust development costs................... 285 247 566 718
------- ------- -------- --------
Total Expenses............................ 39,298 31,993 115,216 94,922
------- ------- -------- --------
INCOME BEFORE INCOME TAX................... 4,788 7,208 28,333 17,095
------- ------- -------- --------
INCOME TAX
Current................................... 17 6 105 85
Deferred.................................. 1,548 2,482 9,730 5,812
------- ------- -------- --------
Total Income Tax Expense.................. 1,565 2,488 9,835 5,897
------- ------- -------- --------
NET INCOME................................. 3,223 4,720 18,498 11,198
Preferred Stock Dividends................. 444 73 1,334 73
------- ------- -------- --------
EARNINGS AVAILABLE TO COMMON STOCK......... $ 2,779 $ 4,647 $ 17,164 $ 11,125
======= ======= ======== ========
EARNINGS PER COMMON SHARE (Note 4)......... $ 0.11 $ 0.18 $ 0.65 $ 0.41
======= ======= ======== ========
DIVIDENDS DECLARED PER COMMON SHARE........ $ 0.055 $ 0.05 $ 0.165 $ 0.15
======= ======= ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING........................ 26,387 26,430 26,548 27,156
======= ======= ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
CROSS TIMBERS OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- --------------------------------------------------------------------------------
(in thousands)
(Note 5)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................................ $ 18,498 $ 11,198
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization............................ 34,529 27,589
Exploration expense................................................. 1,122 -
Stock appreciation right compensation............................... 9 (3,434)
Performance share compensation...................................... 1,695 712
Deferred income tax................................................. 9,730 5,812
Gain from sale of property and equity securities.................... (3,478) (346)
Other non-cash items................................................ 1,442 597
Changes in working capital (a)........................................ 2,805 3,329
--------- --------
CASH PROVIDED BY OPERATING ACTIVITIES................................. 66,352 45,457
--------- --------
INVESTING ACTIVITIES
Sale of equity securities............................................. 20,875 402
Investment in equity securities....................................... (6,479) (16,093)
Sale of property and equipment........................................ 17,097 28,527
Producing property acquisitions....................................... (74,619) (50,436)
Undeveloped property acquisitions..................................... (13,672) (113)
Exploration and development costs..................................... (52,758) (20,820)
Gas gathering and other additions..................................... (10,935) (3,602)
--------- --------
CASH USED BY INVESTING ACTIVITIES..................................... (120,491) (62,135)
--------- --------
FINANCING ACTIVITIES
Proceeds from long-term debt.......................................... 322,050 98,000
Payments on long-term debt............................................ (236,080) (57,700)
Dividends............................................................. (5,675) (4,105)
Proceeds from exercise of stock options............................... 602 286
Purchase of treasury stock............................................ (27,158) (18,290)
--------- --------
CASH PROVIDED BY FINANCING ACTIVITIES................................. 53,739 18,191
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (400) 1,513
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......................... 3,937 2,212
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................... $ 3,537 $ 3,725
========= ========
(a) CHANGES IN WORKING CAPITAL
Accounts receivable............................................. $ 6,208 $ 739
Other current assets............................................ (2,625) (828)
Accounts payable, accrued liabilities and
payable to Royalty Trust....................................... (778) 3,418
--------- --------
DECREASE IN WORKING CAPITAL........................................ $ 2,805 $ 3,329
========= ========
</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
September 30, 1997 and the results of operations for the three and nine-month
periods ended September 30, 1997 and 1996 and cash flows of the Company for the
nine-month periods ended September 30, 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.
Exploration Expense
As of September 30, 1997, the Company has incurred $1.1 million of
exploration costs, primarily composed of geological and geophysical costs
related to the 1997 exploration program. Exploration costs were not significant
prior to second quarter 1997.
2. LONG-TERM DEBT
Senior Debt
On May 28, 1997, the Company entered into a new Revolving Credit Agreement
with commercial banks ("loan agreement"). The loan agreement had an initial
borrowing base and commitment of $317 million, which was subsequently reduced to
$312 million following the sale of certain producing properties. The borrowing
base is redetermined annually based on the value of the Company's proved oil and
gas reserves. If outstanding borrowings are greater than the redetermined
borrowing base, outstanding borrowings must be reduced to the level of the
redetermined borrowing base within a specified period. Otherwise, borrowings
under the loan agreement do not mature until June 30, 2002, but may be prepaid
at any time without penalty. Other provisions of the loan agreement are
generally the same as the prior Revolving Credit Agreement.
On September 30, 1997, outstanding bank borrowings were $249 million
(including $25.2 million to fund the Amoco Acquisition deposit -- see Note 7)
with a LIBOR based rate of 7%, and unused borrowing capacity was $63 million.
Upon the sale of 8 3/4% notes (see "Subordinated Debt" below) on October 28,
1997, outstanding bank borrowings and the borrowing base were reduced to $77
million and $162 million, respectively. In connection with the Amoco
Acquisition, firm commitments were obtained from the Company's banks to increase
the borrowing base to $400 million upon closing of the acquisition, subject to
adjustment for exercise of preferential purchase rights. Upon closing of the
Amoco Acquisition, LIBOR based rates will increase from a maximum of LIBOR plus
1 1/4% to LIBOR plus 1 3/8%.
Subordinated 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.
6
<PAGE>
On April 2, 1997, the Company sold $125 million of 9 1/4% senior subordinated
notes ("9 1/4% Notes") to qualified institutional buyers pursuant to Rule 144A
of the Securities Act of 1933. Net proceeds of $121.1 million from the sale of
9 1/4% Notes were used to reduce bank borrowings under the loan agreement. The
9 1/4% Notes were effectively registered with the Securities and Exchange
Commission ("Commission") in June 1997 and are general unsecured indebtedness
that is subordinate to bank borrowings. The 9 1/4% Notes mature on April 1, 2007
and interest is payable each April 1 and October 1. The 9 1/4% 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 9 1/4% 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, the 9 1/4% Note holders have the
right to require the Company to purchase all or a portion of their 9 1/4% Notes
at 101% plus accrued interest.
On October 28, 1997, the Company sold $175 million of 8 3/4% senior
subordinated notes ("8 3/4% Notes") to qualified institutional buyers pursuant
to Rule 144A of the Securities Act of 1933. Net proceeds of $169.9 million from
the sale of the 8 3/4% Notes were used to reduce bank borrowings under the loan
agreement. The 8 3/4% Notes are general unsecured indebtedness that ranks equal
to the 9 1/4% Notes and subordinate to bank borrowings. The 8 3/4% Notes mature
on November 1, 2009 and interest is payable each May 1 and November 1, beginning
May 1, 1998. The 8 3/4% Notes are redeemable at the option of the Company on
November 1, 2002 at a price of 104.375%, and thereafter at prices declining
ratably annually to 100% on November 1, 2005, plus accrued interest through the
redemption date. In addition, on or prior to November 1, 2000, the Company may,
subject to certain requirements, redeem up to one-third of the 8 3/4% Notes with
the net proceeds from one or more public equity offerings at a price equal to
108.75% plus accrued interest. Upon a change in control (as defined) of the
Company, the 8 3/4% Note holders have the right to require the Company to
purchase all or a portion of their 8 3/4% Notes at a 101% plus accrued interest.
See also Note 3.
3. COMMITMENTS
The Company periodically enters forward sales contracts, commodity swap
agreements and similar arrangements to effectively hedge its gas prices. As of
November 11, 1997, the Company's sales commitments for Oklahoma gas deliveries
are as follows:
<TABLE>
<CAPTION>
Contracts with Fixed Contracts with
Fixed Price and Basis (a) (c) Fixed Basis Only (b) (c)
----------------------------- -------------------------
Production Mcf Weighted Average Mcf Weighted Average Total Mcf
Month per Day Price per Mcf per Day Basis per Mcf Per Day
- ---------------- ------- ---------------- ------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1997 October 70,000 $2.57 - - 70,000
November 60,000 3.15 - - 60,000
December 20,000 3.37 40,000 $0.18 60,000
1998 January 10,000 3.41 30,000 0.17 40,000
February 10,000 2.89 40,000 0.18 50,000
March 10,000 2.49 40,000 0.18 50,000
April - - 10,000 0.19 10,000
May - - 10,000 0.19 10,000
June - - 10,000 0.19 10,000
</TABLE>
(a) Prices are after deduction for delivery point differential ("basis") but
before Btu and gathering charge adjustments, and include adjustments for
net gains on contract terminations (see (c) below).
(b) The Company may lock in a sales price, based on market prices at the time
the sales price is locked and the fixed basis reflected in this table. For
sales of 20,000 Mcf per day in December 1997 and January 1998, and 30,000
Mcf per day in February, March and April 1998, prices received by the
Company will not exceed $3.59, $4.34, $3.32, $2.82 and approximately
$2.60, respectively, after deduction for basis but before Btu and
gathering charge adjustments.
(c) The Company may subsequently modify or terminate contracts prior to the
production month to improve its hedging position. Gains and losses on
contract terminations are deferred and recognized as gas revenue in the
production months underlying the terminated contract.
7
<PAGE>
Under a contract with a single purchaser, the Company also receives an
additional $0.30 per Mcf on sales of 10,000 Mcf per day through July 1998. From
August 1998 through July 2005, the Company will sell 11,650 Mcf per day at a
contract price of approximately 10% of the month's average NYMEX futures
contract for West Texas Intermediate crude oil, less basis, Btu and gathering
charge adjustments.
The Company has entered a registration rights agreement with the purchasers
of the 8 3/4% Notes (Note 2) to use its best efforts to register notes
("Exchange Notes") with the Commission that the purchasers may exchange for the
8 3/4% Notes, and to effect the offering of such exchange ("Exchange Offering").
The Exchange Notes will have substantially identical terms as the 8 3/4% 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 November 7, 1997. The Exchange Offering
must be consummated by December 22, 1997 in order to preclude additional
interest costs to the Company.
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.
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 earnings
per share (as defined by SFAS No. 128) would be the same as earnings per share
disclosed for the three and nine months ended September 30, 1997 and 1996.
Diluted earnings per share (as defined by SFAS No. 128) would be $0.10 and $0.17
for the three months ended September 30, 1997 and 1996, respectively, and $0.64
and $0.41 for the nine months ended September 30, 1997 and 1996, respectively.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The following are total interest and income tax payments during each of the
periods (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1997 1996
------- -------
<S> <C> <C>
Interest.................................. $12,570 $10,654
Income tax................................ 841 6
</TABLE>
The accompanying consolidated statements of cash flows excludes the following
non-cash equity transactions during the nine-month periods ended September 30,
1997 and 1996:
- Exchange of 1,986,167 shares of common stock for 1,138,729 shares of Series
A Convertible Preferred Stock in September 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)
- 1997 vesting of 102,750 performance shares that were granted during 1996
and vesting of 12,000 performance shares granted during 1997, and 1996
vesting of 237,375 performance shares granted during 1995 and vesting of
9,000 performance shares granted during 1996 (Note 6)
- Receipt of 282,259 shares (valued at $5,467,000) and 305,105 shares (valued
at $4,765,000) of common stock for the option price of exercised stock
options in 1997 and 1996, respectively
8
<PAGE>
6. STOCK INCENTIVE PLANS
In May 1997, the stockholders approved the 1997 Stock Incentive Plan ("1997
Plan") under which 1,500,000 shares of common stock are available for grant.
During 1997, 1,170,000 stock options were granted under the 1997 Plan which vest
and become exercisable in equal amounts over a five-year period, with provision
for accelerated vesting of half the options when the common stock price reaches
$25 and the remainder when the price reaches $30. One half of these options
vested in October when the common stock price reached $25. Also in October,
54,000 performance shares granted in May 1997 vested and an additional 54,000
performance shares were granted that vest when the common stock price reaches
$30. During the nine months ended September 30, 1997, the Company recognized
total performance share compensation of $1,695,000 related to the initial grant
of 54,000 performance shares, the vesting of 102,750 performance shares in
January and the grant and vesting of 12,000 performance shares during the first
nine months of 1997. An additional $1.4 million of performance share
compensation was recorded in October 1997 for the subsequent grant of 54,000
performance shares.
7. ACQUISITIONS
From July 1996 through September 1997, the Company purchased 1,326,300 units
of beneficial interest ("Units"), or 22% of the outstanding Units in the Royalty
Trust at a cost of $18.2 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 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.
On May 14, 1997, the Company acquired primarily gas-producing properties and
undeveloped acreage in Oklahoma, Kansas and Texas for an estimated adjusted
purchase price of $39 million from a subsidiary of Burlington Resources Inc.
The properties are primarily operated interests. 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.
These acquisitions have been recorded using the purchase method of
accounting. The following presents unaudited pro forma results of operations
for the nine months ended September 30, 1997 and 1996 and the year ended
December 31, 1996, as if these acquisitions had been consummated as of January
1, 1997 and 1996. These pro forma results are not necessarily indicative of
future results.
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
-----------------------------------------------
Nine Months Ended Year Ended
(in thousands, except per share data) September 30, December 31,
-------------------------------
1997 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues............................ $ 145,486 $ 127,116 $ 179,690
============ ============ ============
Earnings available to common stock.. $ 17,194 $ 10,705 $ 19,287
============ ============ ============
Earnings per common share........... $ 0.65 $ 0.39 $ 0.72
============ ============ ============
</TABLE>
9
<PAGE>
On September 29, 1997, the Company entered into a definitive agreement with a
subsidiary of Amoco Corporation ("Amoco") to acquire producing properties in the
San Juan Basin of northwestern New Mexico ("Amoco Acquisition") for an estimated
purchase price of $252 million, and five-year warrants to purchase 625,000
shares of the Company's common stock at a price of $22.97 per share. The
acquisition is effective November 1, 1997 and is anticipated to close December
1, 1997. It is subject to the possible effect of preferential purchase rights
held by third parties on a substantial portion of the properties and by typical
purchase price adjustments. In addition, Amoco has exercised its option to
accept, in lieu of $15.7 million in cash at closing, certain properties owned by
the Company. A $25.2 million deposit was paid to Amoco on September 29, 1997
and has been included in producing properties in the accompanying balance sheet
at September 30, 1997. As was the deposit, the remainder of the transaction
will be funded by bank debt (Note 2).
Subject to voting provisions in applicable operating agreements, the Company
expects to operate wells approximating 70% of the value of the Amoco
Acquisition. Conoco Inc., a working interest owner in approximately 30% of
these wells, claims that it is entitled to assume operations of these wells
under the terms of the operating agreement and has filed a lawsuit in the 142nd
District Court of Midland County, Texas, seeking a judgment that it is entitled
to operate such wells and an injunction against the operation of such wells by
the Company. The Company believes that it has the right to operate such wells
and, in any event, does not believe that an adverse resolution of this dispute
would materially detract from the value of the Amoco Acquisition.
10
<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 September 30, 1997 and the related
consolidated statements of operations for the three and nine-month periods ended
September 30, 1997 and 1996, and the consolidated statements of cash flows for
the nine-month periods ended September 30, 1997 and 1996. These financial
statements are the responsibility of the Company's management.
We conducted our review 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 review, 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
October 24, 1997
11
<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.
<TABLE>
<CAPTION>
OIL AND GAS PRODUCTION AND PRICES
- ---------------------------------
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- ------------------------------------
Increase Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
----------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
TOTAL PRODUCTION
Oil (Bbls)............. 984,371 898,565 10% 2,933,597 2,623,616 12%
Gas (Mcf).............. 12,511,761 9,761,334 28% 35,703,643 26,716,518 34%
BOE.................... 3,069,665 2,525,454 22% 8,884,204 7,076,369 26%
AVERAGE DAILY PRODUCTION
Oil (Bbls)............. 10,700 9,767 10% 10,746 9,575 12%
Gas (Mcf).............. 135,997 106,101 28% 130,783 97,506 34%
BOE.................... 33,366 27,451 22% 32,543 25,826 26%
AVERAGE SALES PRICE
Oil per Bbl............ $18.17 $21.56 (16)% $19.25 $20.67 (7)%
Gas per Mcf............ $1.86 $1.75 6% $2.09 $1.80 16%
</TABLE>
- --------------------
Bbl - Barrel
Mcf - Thousand cubic feet
BOE - Barrels of oil equivalent (six Mcf equal one Bbl)
Total oil and gas production increased from comparable 1996 periods primarily
because of acquisitions, new drills and workovers, partially offset by property
sales and natural decline.
Crude oil prices declined during the third quarter of 1997 as global
production capacity outpaced demand. The average posted price for West Texas
Intermediate ("WTI"), a benchmark crude, was $17.64 for third quarter 1997
compared to $20.79 for third 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.
Natural gas prices have remained relatively strong because of increased
domestic consumption. Fourth quarter prices, which have been strong to date,
will be affected by gas storage levels and weather-related demand. The Company
uses price hedging arrangements to reduce price risk on a portion of its gas
production. See Note 3 to Consolidated Financial Statements.
12
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED WITH QUARTER ENDED SEPTEMBER 30, 1996
Third quarter 1997 earnings available to common stock were $2.8 million
compared with third quarter 1996 earnings of $4.6 million.
Total revenues for the 1997 quarter were $44.1 million, a $4.9 million (12%)
increase over third quarter 1996 revenues. Oil revenue decreased slightly
because of the 16% decrease in oil prices, partially offset by the 10% increase
in oil volumes. Gas revenue increased $6.2 million (36%) as a result of the 28%
increase in gas production, and the 6% increase in gas prices.
Gas gathering, processing and marketing revenues from third quarter 1996 to
third quarter 1997 remained relatively unchanged, as increased volumes were
offset by reduced margins. Other revenues of $500,000 for third quarter 1997
include a $400,000 realized gain on sale of equity securities. Other revenues of
$300,000 in third quarter 1996 include a $200,000 gain on the sale of producing
properties.
Expenses for third quarter 1997 totaled $39.3 million as compared with $32
million for third quarter 1996. Production expense increased $800,000 (8%) and
depreciation, depletion and amortization ("DD&A") increased $2.3 million (23%)
primarily as a result of production increases related to acquisitions and
development. Taxes on production and property increased $600,000 (21%) over the
third quarter of 1996 primarily because of increased gas revenue. Third quarter
1997 results also include $500,000 of exploration expense, which is primarily
composed of geological and geophysical costs related to the 1997 exploration
program. Exploration costs were not significant prior to second quarter 1997.
General and administrative expense increased $400,000 (16%) because of stock
incentive compensation increases. Third quarter performance share compensation
of $200,000 resulted from the vesting of performance shares granted during May
1997. Stock appreciation right compensation increased $100,000 because of
increases in the Company's common stock price.
Net interest expense increased $2.4 million (52%) because of a 26% increase
in weighted average borrowings to fund property acquisitions and treasury stock
purchases, combined with an increase in the weighted average interest rate from
6.4% in the third quarter of 1996 to 7.6% in the third quarter of 1997. The
increased interest rate is primarily attributable to senior subordinated debt
that was issued in April 1997. Gas gathering expense increased $200,000 (10%)
primarily because of lease payments that began following the sale and operating
leaseback of the Major County, Oklahoma gathering system in November 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
Earnings available to common stock for the nine months ended September 30,
1997 were $17.2 million, compared with earnings of $11.1 million for the same
1996 period. Improved earnings were primarily the result of higher production
and gas prices.
Total revenues for the first nine months of 1997 were $143.5 million, or
$31.5 million (28%) higher than revenues for the first nine months of 1996. Oil
revenue increased $2.2 million (4.1%) as a result of the 12% increase in
production, partially offset by the 7% decrease in oil prices. Gas revenue
increased $26.6 million (55%) because of the 34% increase in production combined
with the 16% price increase.
Gas gathering, processing and marketing revenues decreased $1.1 million (13%)
because of lower gas marketing margins. Other revenues of $4.8 million for the
first nine months of 1997 include a $2 million gain realized on sale of equity
securities, a $1.5 million gain on sale of producing properties and facilities
and $1.3 million proceeds from a lawsuit settlement. Other revenues of $1
million in 1996 include recognition of $500,000 of interest rate swap commitment
income and a $300,000 gain on sale of producing properties.
13
<PAGE>
Expenses for the nine months ended September 30, 1997 totaled $115.2 million,
or 21% above total expenses of $94.9 million for the first nine months of 1996.
Production expense increased $2.8 million (10%) and DD&A increased $6.9 million
(25%) primarily because of increased production related to acquisitions and
development. Taxes on production and property increased $3.1 million (37%)
primarily because of increased oil and gas revenues and increased property taxes
related to acquisitions. Results for the first nine months of 1997 also include
$1.1 million of exploration expense, which is primarily composed of geological
and geophysical costs related to the 1997 exploration program. Exploration costs
were not significant in prior periods.
General and administrative expense decreased $1.7 million (14%) primarily
because of a decline in stock incentive compensation from $4.4 million for the
first nine months of 1996 compared with $2 million for the first nine months of
1997, partially offset by increased expenses related to Company growth. Stock
incentive compensation for the first nine months of 1997 includes SAR
compensation of $300,000 and performance share compensation of $1.7 million, as
compared with SAR compensation of $3.7 million and performance share
compensation of $700,000 for the first nine months of 1996. SAR compensation
decreased because virtually all stock options with SARs were exercised as of
June 30, 1996. Performance share compensation increased as a result of
performance shares granted and vested during 1997.
Net interest expense increased $6.6 million (55%) as a result of a 32%
increase in weighted average borrowings that were used to fund capital
expenditures and treasury stock purchases, combined with an increase in the
weighted average interest rate from 6.3% for the first nine months of 1996 to
7.4% for the 1997 period. The increased interest rate is primarily attributable
to senior subordinated debt that was issued in April 1997. Gas gathering
expense increased $1.6 million (33%) related to the lease payments 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) basis:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
Increase Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Production........................ $3.53 $3.96 (11)% $3.60 $4.12 (13)%
Taxes on production and property.. 1.19 1.19 - 1.30 1.20 8%
Depreciation, depletion and
amortization (DD&A) (a).......... 3.72 3.54 5% 3.67 3.58 3%
General and administrative (G&A).. 0.95 1.00 (5)% 1.18 1.72 (31)%
Interest.......................... 2.24 1.79 25% 2.10 1.71 23%
</TABLE>
--------------------
(a) Includes only DD&A directly related to oil and gas production.
The following are explanations of the more significant variances:
Production- Decreased production expense per BOE is primarily because of
the lower operating costs of gas-producing properties acquired in 1996 and 1997,
the timing of workovers, increasing production without comparable increases in
lifting costs and other operating efficiencies initiated after acquiring
operated properties.
Taxes on Production and Property- Increased taxes per BOE for the
comparative nine-month periods are primarily because of increased production
taxes resulting from an increase in higher-taxed gas production, higher gas
prices and increased property taxes related to acquisitions.
14
<PAGE>
G&A- Decreased G&A per BOE for the comparative nine-month periods is
primarily because of the decline in stock incentive compensation. Excluding
stock incentive compensation, G&A per BOE was $0.84 and $1.00 (16% decline) for
the quarters ended September 30, 1997 and 1996, respectively, and was $0.95 and
$1.10 (14% decline) for the first nine months of 1997 and 1996, respectively.
Decreased G&A per BOE, excluding stock incentive compensation, is the result of
production growth outpacing Company personnel requirements.
Interest- Increased interest per BOE is primarily the result of an increase
in the weighted average interest rate (primarily attributable to the senior
subordinated debt issued in April 1997), as well as the result of financing
expenditures for other than oil and gas producing properties (undeveloped
properties, investment in equity securities and treasury stock purchases) with
long-term borrowings.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
CASH FLOW AND WORKING CAPITAL
Cash provided by operating activities was $66.4 million for the first nine
months of 1997 compared with $45.5 million for the nine-month 1996 period.
Operating cash flow (defined as cash provided by operating activities before
changes in working capital) increased 51% from $42.1 million for the first nine
months of 1996 to $63.5 million for the same 1997 period. Stock appreciation
right payments reduced operating cash flow for the first nine months of 1996 by
approximately $7 million.
During the nine months ended September 30, 1997, proceeds from bank and
short-term borrowings and the sale of senior subordinated notes of $322.1
million, operating activities of $66.4 million, property and equity security
sales of $38 million and stock option exercises of $600,000 were used to fund
property acquisitions, development costs, other capital additions and
investments in equity securities of $158.5 million, debt payments of $236.1
million, treasury stock purchases of $27.2 million and dividends of $5.7
million. The resulting decrease in cash and cash equivalents for the period was
$400,000.
Total current assets decreased $4.4 million during the first nine months of
1997. The most significant change in current assets was a $6.3 million decrease
in accounts receivable, primarily because of lower product prices.
Total current liabilities decreased $3.7 million during the first nine months
of 1997. Short-term debt declined $3 million because of increased bank
borrowing capacity following the sale of senior subordinated notes in April
1997. See Note 2 to Consolidated Financial Statements. The payable to Royalty
Trust declined $1 million because of lower product prices and the Company's
increased ownership in the Trust.
ACQUISITIONS AND DEVELOPMENT
Exploration and development cash expenditures for the first nine months of
1997 totaled $52.8 million; exploration and development costs incurred for the
nine-month 1997 period were $52.2 million. This compares with development cash
expenditures of $20.8 million for the first nine months of 1996; exploration and
development costs incurred for the nine-month 1996 period were $24.9 million.
Although actual exploration and development expenditures may vary significantly
due to many factors, the Company anticipates its 1997 expenditures for
exploration and development activities to approximate its previously announced
$70 million budget. Annual exploration and development expenditures in 1998 and
1999 are expected to be from $80 to $90 million, depending on drilling results,
property acquisitions and commodity prices. Higher-risk expenditures, including
step-out development and exploratory drilling, are targeted at up to 20% of
these amounts. Exploration and development expenditures are expected to be
funded by cash flow from operations.
During the nine months ended September 30, 1997, the Company's purchases of
equity securities (for non-trading purposes) totaled $6.5 million. Proceeds
from sales of equity securities totaled $20.9 million with a related gain of $2
million.
15
<PAGE>
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. Through
September, 381,500 shares have been purchased at a total cost of $6.1 million
under the two million share program.
On May 14, 1997, the Company acquired primarily gas-producing properties and
undeveloped acreage in Oklahoma, Kansas and Texas for an estimated adjusted
purchase price of $39 million from a subsidiary of Burlington Resources Inc.
The properties are primarily operated interests. 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.
On September 29, 1997, the Company entered into a definitive agreement with a
subsidiary of Amoco Corporation ("Amoco") to acquire producing properties in the
San Juan Basin of northwestern New Mexico ("Amoco Acquisition") for an estimated
purchase price of $252 million, and five-year warrants to purchase 625,000
shares of the Company's common stock at a price of $22.97 per share. The
acquisition is effective November 1, 1997 and is anticipated to close December
1, 1997. It is subject to the possible effect of preferential purchase rights
held by third parties on a substantial portion of the properties and by typical
purchase price adjustments. In addition, Amoco has exercised its option to
accept, in lieu of $15.7 million in cash at closing, certain properties owned by
the Company. A $25.2 million deposit was paid to Amoco on September 29, 1997
and has been included in producing properties in the September 30, 1997 balance
sheet. As was the deposit, the remainder of the transaction will be funded by
bank debt.
Subject to voting provisions in applicable operating agreements, the Company
expects to operate wells approximating 70% of the value of the Amoco
Acquisition. Conoco Inc., a working interest owner in approximately 30% of
these wells, claims that it is entitled to assume operations of these wells
under the terms of the operating agreement and has filed a lawsuit in the 142nd
District Court of Midland County, Texas, seeking a judgment that it is entitled
to operate such wells and an injunction against the operation of such wells by
the Company. The Company believes that it has the right to operate such wells
and, in any event, does not believe that an adverse resolution of this dispute
would materially detract from the value of the Amoco Acquisition.
After closing the Amoco Acquisition, the Company will have essentially
achieved its goal to make strategic acquisitions totaling $260 to $280 million
between June 1997 and the end of 1999. By focusing on increased production
through exploitation, development and exploration activities, the Company plans
to achieve its goal of $2.40 debt per BOE of proved reserves through a
combination of reserve growth and debt reduction from operating cash flow and
non-strategic asset sales. The Company will continue to evaluate strategic
acquisition opportunities which may be funded at least partially by an equity
offering.
As of the end of September, the Company had completed drilling 44 oil wells
and 67 gas wells in 1997. A total of 48 recompletions and workovers were also
completed in the first nine months of 1997. Oil development during the first
nine months of 1997 has focused on the Prentice Northeast Unit and University
Block 9 Field of West Texas, while gas development has been concentrated on the
Fontenelle Unit in the Green River Basin of Wyoming and on the Ozona Field in
West Texas.
Twenty-eight of the 44 oil wells drilled to date have been drilled in the
Prentice Northeast Unit with initial production rates exceeding expectations,
resulting in current net production of 3,300 Bbls per day on the Unit. Three
additional wells are to be drilled on this Unit by year-end. Nine wells were
drilled in the University Block 9 Field during the first nine months of 1997,
each with an initial daily production rate of over 200 barrels of oil. Current
University Block 9 net daily production is 2,000 Bbls. Six additional wells are
to be drilled in the University Block 9 Field by year-end, including one
horizontal well.
Thirty of the 67 gas wells drilled are located in the Fontenelle Unit,
resulting in current net production on the Unit of more than 25,000 Mcf per day,
or double the production rate when acquired in July 1996. The Company expects
to drill two more wells on this Unit by year-end. Twelve wells were drilled in
the Ozona Field during the third quarter of
16
<PAGE>
1997; current net daily production in this field is 7,700 Mcf. Thirteen
additional wells are to be completed in the Ozona Field by year-end, including
two horizontal wells.
DEBT AND EQUITY
During the first nine months of 1997, long-term debt increased $59.2 million
and short-term debt decreased $3 million because of increased borrowings to
partially fund property acquisitions, treasury stock purchases and investment in
equity securities, partially offset by the $29.7 million conversion of the
Company's 5 1/4% subordinated notes into common stock. See Note 2 to
Consolidated Financial Statements.
Stockholders' equity at September 30, 1997 increased $18.7 million from year-
end because of the $29.7 million conversion of subordinated notes into common
stock (less cost of $400,000), increased capital of $9.8 million related to
stock option exercises and performance share grants, and first nine months
earnings of $17.2 million, partially offset by treasury stock additions of $32.6
million and common stock dividends of $4.4 million and decline in the unrealized
gain on investment in equity securities of $600,000.
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.
During April 1997, the Company sold $125 million of 9 1/4% senior
subordinated notes ("9 1/4% Notes") to qualified institutional buyers pursuant
to Rule 144A of the Securities Act of 1933. The 9 1/4% Notes were effectively
registered with the Securities and Exchange Commission in June 1997 and are
general unsecured indebtedness that is subordinate to bank borrowings under the
Company's Revolving Credit Agreement. The 9 1/4% Notes mature on April 1, 2007
and interest is payable each April 1 and October 1. See Note 2 to Consolidated
Financial Statements.
On May 28, 1997, the Company entered into a new Revolving Credit Agreement
with commercial banks ("loan agreement"). The loan agreement had an initial
borrowing base and commitment of $317 million, which was subsequently reduced to
$312 million following the sale of certain producing properties. The borrowing
base is redetermined annually based on the value of the Company's proved oil and
gas reserves. If outstanding borrowings are greater than the redetermined
borrowing base, outstanding borrowings must be reduced to the level of the
redetermined borrowing base within a specified period. Otherwise, borrowings
under the loan agreement do not mature until June 30, 2002, but may be prepaid
at any time without penalty. Other provisions of the loan agreement are
generally the same as the prior Revolving Credit Agreement. See Note 2 to
Consolidated Financial Statements.
On October 28, 1997, the Company sold $175 million of 8 3/4% senior
subordinated notes ("8 3/4% Notes") to qualified institutional buyers pursuant
to Rule 144A of the Securities Act of 1933. The 8 3/4% Notes are general
unsecured indebtedness that ranks equal to the 9 1/4% Notes and subordinate to
bank borrowings under the Company's Revolving Credit Agreement. The notes mature
on November 1, 2009 and interest is payable each May 1 and November 1, beginning
May 1, 1998. See Note 2 to Consolidated Financial Statements.
Upon the sale of 8 3/4% notes, outstanding bank borrowings and the borrowing
base under the loan agreement were reduced to $77 million and $162 million,
respectively. In connection with the Amoco Acquisition, firm commitments were
obtained from the Company's banks to increase the borrowing base to $400 million
upon closing of the acquisition, subject to adjustment for exercise of
preferential purchase rights. Upon closing of the Amoco Acquisition, LIBOR
based rates will increase from a maximum of LIBOR plus 1 1/4% to LIBOR plus
1 3/8%.
If further substantial strategic acquisition opportunities arise after
closing the Amoco Acquisition, the Company will consider an equity offering as a
funding source.
COMMON STOCK DIVIDENDS
In August 1997, the Board of Directors of the Company declared a third
quarter common stock dividend of $0.055 per share, or a total of $1.5 million,
paid in October 1997. Common stock dividends paid by the Company or its
predecessors from September 1992 through January 1997 were at the rate of $0.05
per share.
17
<PAGE>
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 earnings per
share (as defined by SFAS No. 128) would be the same as earnings per share
disclosed for the three and nine months ended September 30, 1997 and 1996.
Diluted earnings per share (as defined by SFAS No. 128) would be $0.10 and $0.17
for the three months ended September 30, 1997 and 1996, respectively, and $0.64
and $0.41 for the nine months ended September 30, 1997 and 1996, respectively.
18
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1. THROUGH 4.
Not applicable.
ITEM 5. OTHER INFORMATION
On September 29, 1997, the Company entered into a definitive agreement with a
subsidiary of Amoco Corporation to acquire producing properties in the San Juan
Basin of northwestern New Mexico for an estimated purchase price of $252
million, and five-year warrants to purchase 625,000 shares of the Company's
common stock at a price of $22.97 per share. The acquisition is effective
November 1, 1997 and is anticipated to close December 1, 1997. It is subject to
the possible effect of preferential purchase rights held by third parties on a
substantial portion of the properties and by typical purchase price adjustments.
In addition, Amoco has exercised its option to accept, in lieu of $15.7 million
in cash at closing, certain properties owned by the Company. The transaction
will be funded by bank debt. The Company's internal engineers estimate proved
reserves attributable to the acquisition to be 258.6 billion cubic feet of
natural gas, 16.4 million barrels of natural gas liquids and 1.5 million barrels
of oil or a total of 61 million barrels of oil equivalent. The Company
estimates current net daily production at 49 million cubic feet of gas, 3,100
barrels of natural gas liquids and 270 barrels of oil from more than 2,600 gross
(900 net) wells with a reserve-to-production index of 14.5 years.
Subject to voting provisions in applicable operating agreements, the Company
expects to operate wells approximating 70% of the value of the Amoco
Acquisition. Conoco Inc., a working interest owner in approximately 30% of
these wells, claims that it is entitled to assume operations of these wells
under the terms of the operating agreement and has filed a lawsuit in the 142nd
District Court of Midland County, Texas, seeking a judgment that it is entitled
to operate such wells and an injunction against the operation of such wells by
the Company. The Company believes that it has the right to operate such wells
and, in any event, does not believe that an adverse resolution of this dispute
would materially detract from the value of the Amoco Acquisition.
On October 28, 1997, the Company completed the sale of $175 million of 8 3/4%
Senior Subordinated Notes due 2009. The Company received net proceeds of $170.6
million (before estimated offering expenses of $725,000 to be paid by the
Company) which were used to repay outstanding indebtedness under the Company's
senior bank credit facility. The Notes were sold to qualified institutional
buyers pursuant to Rule 144A of the Securities Act of 1933. The Notes have not
been and will not be registered under the Securities Act of 1933 and may not be
offered or sold in the United States absent registration or an applicable
exemption from registration requirements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number
and Description Page
--------------- ----
4.1 Supplemental Indenture dated September 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
4.2 Indenture dated as of October 28, 1997 between Cross
Timbers Oil Company and The Bank of New York as Trustee,
relating to $175,000,000 8 3/4% Senior Subordinated Notes
due 2009 (incorporated by reference to Exhibit 4.1 to
Registration Statement on Form S-4, File No. 333-39097)
10.1 Purchase Agreement - $175,000,000 8 3/4% Senior Subordinated
Notes due 2009, among Cross Timbers Oil Company, Lehman
Brothers, Inc., Morgan Stanley & Co. Incorporated, J. P. Morgan
Securities Inc. and NationsBanc Montgomery Securities, Inc.
19
<PAGE>
10.2 Registration Rights Agreement among Cross Timbers Oil Company,
Lehman Brothers, Inc., Morgan Stanley & Co. Incorporated, J. P.
Morgan Securities Inc. and NationsBanc Montgomery Securities, Inc.
11 Computation of per share earnings
15.1 Awareness letter of Arthur Andersen LLP
(b) Reports on Form 8-K
None
20
<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: November 14, 1997 By BENNIE G. KNIFFEN
--------------------------------------
Bennie G. Kniffen
Senior Vice President and Controller
(Principal Accounting Officer and
Duly Authorized Officer)
21
<PAGE>
EXHIBIT 4.1
SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE dated as of September 1, 1997 between CROSS TIMBERS
OIL COMPANY, a Delaware corporation (hereinafter called the "Company"), and The
Bank of New York, a New York banking corporation, trustee (hereinafter called
the "Trustee").
RECITALS OF THE COMPANY
The Company and the Trustee entered into that certain Indenture dated as of
April 1, 1997 (the "Indenture") for the equal and ratable benefit of the Holders
of the Company's 9 1/4% Series A Senior Subordinated Notes due 2007 and the
Company's 9 1/4% Series B Senior Subordinated Notes due 2007.
Certain provisions of the Indenture contain typographical errors that
create an ambiguity and constitute a defect and an internal inconsistency, and
one of such errors makes the Indenture inconsistent with the Offering Memorandum
(such term and other terms not defined herein shall have the meaning ascribed
thereto in the Indenture).
Section 8.1 of the Indenture provides that the Company and the Trustee,
without the consent of any Holders, may enter into one or more indentures
supplemental to the Indenture to cure any ambiguity or to correct or supplement
any provision in the Indenture which may be defective or inconsistent with any
other provision in the Indenture, if such action shall not adversely affect the
interests of the Holders in any material respect.
The Company and the Trustee desire to amend the Indenture, in accordance
with and pursuant to Section 8.1 of the Indenture, to cure an ambiguity, to
correct a provision that is defective and to correct a provision that is
internally inconsistent.
NOW THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises, it is mutually covenanted and
agreed as follows:
1. Section 9.12(a) of the Indenture is corrected by changing the
reference to "clause (I)" in the penultimate line of said section to "clause
(a)", so that, as so corrected and changed, clause (2)(y) of the proviso to said
Section 9.12(a) shall read in its entirety as follows:
"... (y) any guarantee of any Restricted Subsidiary of
Indebtedness of the Company described in clause (a) of the definition
of Permitted Indebtedness."
2. Section 9.16(c)(iv) of the Indenture is corrected by changing the
reference to "paragraph (3)" in the sixth line of said Section to "paragraph
(iii)", so that, as so corrected and changed, clause (I) of the second sentence
of said Section 9.16(c)(iv) shall read in its entirety as follows:
<PAGE>
"... (I) that a Trigger Date with respect to one or more Asset
Sales has occurred and that such Holder has the right to require the
Company to repurchase such Holder's Securities at the Offered Price,
subject to the limitations described in the foregoing paragraph (iii),
...."
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the day and year first above written.
CROSS TIMBERS OIL COMPANY,
a Delaware corporation
By: /s/ FRANK G. McDONALD
--------------------------------------
Name: Frank G. McDonald
------------------------------------
Title: Vice President & General Counsel
-----------------------------------
TRUSTEE:
THE BANK OF NEW YORK, as Trustee
By: /s/ WALTER N. GITLIN
--------------------------------------
Name: Walter N. Gitlin
------------------------------------
Title: Vice President
------------------------------------
<PAGE>
EXHIBIT 10.1
Execution Copy
$175,000,000
CROSS TIMBERS OIL COMPANY
(a Delaware corporation)
8 3/4% Senior Subordinated Notes due 2009
PURCHASE AGREEMENT
------------------
October 21, 1997
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO. INCORPORATED
J.P. MORGAN SECURITIES INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
as Representatives of the several Initial Purchasers
c/o LEHMAN BROTHERS INC.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
Cross Timbers Oil Company, a Delaware corporation (the "Company"), confirms
its agreement with Lehman Brothers Inc., ("Lehman Brothers") 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 10 hereof), for whom Lehman Brothers Inc.,
Morgan Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and NationsBanc
Montgomery Securities, Inc. 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 $175,000,000
aggregate principal amount of the Company's 8 3/4% Senior Subordinated Notes due
2009 (the "Securities"). The Securities are to be issued pursuant to an
indenture to be dated as of October 28, 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 October 9, 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 October 21, 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, as amended (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. No stop order
preventing the use of the Preliminary Offering Memorandum or the Final
Offering Memorandum, or any amendment or supplement thereto, or any order
asserting that any of the transactions contemplated by this Agreement are
subject to the registration requirements of the 1933 Act have been issued.
(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.
3
<PAGE>
(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 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," 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
4
<PAGE>
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 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). At the
Closing Time, the Indenture will conform in all material respects to the
requirements of the Trust Indenture Act of 1939, as amended (the "1939
Act"), and the rules and regulations of the Commission applicable to an
indenture which is qualified thereunder.
5
<PAGE>
(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.
(xiii) Authorization of Amoco Acquisition Agreement. The
--------------------------------------------
agreement with Amoco Production Company to acquire the Amoco Properties (as
such term is defined in the Offering Memorandum) has been duly authorized,
executed and delivered by the Company.
(xiv) 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.
(xv) No Outstanding Registration Rights. Other than the
----------------------------------
Registration Rights Agreement and registration rights granted to
shareholders who received common stock of the Company prior to the
Company's initial public offering in exchange for limited partnership
interests in the predecessor to the Company, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the 1933 Act with respect to any securities of the Company
or any of its subsidiaries, owned or to be owned, by such person or to
require the Company to include such securities with any securities being
registered pursuant to any registration statement filed by the Company
under the 1933 Act.
(xvi) 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
6
<PAGE>
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.
(xvii) 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, customers or
contractors, which, in either case, may reasonably be expected to result in
a Material Adverse Effect. Neither the Company nor any of its subsidiaries
has violated (i) any federal, state or local law or foreign law relating to
discrimination in hiring, promotion or pay of employees applicable to the
Company or any of its subsidiaries or (ii) any applicable wage or hour laws
in any manner, which violation could reasonably be expected to have a
Material Adverse Effect.
(xviii) ERISA. The Company and each of its subsidiaries is
-----
in compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act, as amended, or
the rules and regulations promulgated thereunder ("ERISA"); no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension
plan" (as defined in ERISA) for which the Company or any of its
subsidiaries would have any material liability; neither the Company nor any
of its subsidiaries has incurred or expects to incur material liability
under (i) Title IV of ERISA with respect to the termination of, or
withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the
7
<PAGE>
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
(xix) Unlawful Contributions. Neither the Company nor any
----------------------
of its subsidiaries, nor any director, officer, agent, employee or other
person associated with or acting on behalf of the Company or any of its
subsidiaries, has used any corporate funds during the last five years for
any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; made any unlawful payment to any foreign or
domestic government official or employee from corporate funds; violated or
is in violation of any provision of the Foreign Corrupt Practices Act of
1977; or made any illegal bribe, rebate, payoff, influence payment,
kickback or other unlawful payment
(xx) 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 or the performance by the Company of its
obligations under the Indenture, the Securities, the Registration Rights
Agreement or this Agreement. 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.
(xxi) 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.
8
<PAGE>
(xxii) 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.
(xxiii) 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 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.
(xxiv) 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,
9
<PAGE>
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.
(xxv) 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 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.
(xxvi) 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
10
<PAGE>
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.
(xxvii) 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.
(xxviii) 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 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.
(xxix) 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.
(xxx) No Stabilization. Neither the 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.
(xxxi) 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
11
<PAGE>
terms are defined in the Public Utility Holding Company Act of 1935, and
the rules and regulations of the Commission promulgated thereunder (the
"PUHCA").
(xxxii) Rule 144A Eligibility. The Securities are eligible
---------------------
for resale 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. Each of the Preliminary Offering Memorandum
and the Final Offering Memorandum as of its respective date and each
amendment or supplement thereto, as of its date, contains all the
information specified, and meeting the requirements of Rule 144A(d)(4)
under the 1933 Act.
(xxxiii) 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.
(xxxiv) 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 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 1939
Act.
(xxxv) 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. To the
knowledge of the Company, the sale of the Securities pursuant to Regulation
S is not part of a plan or scheme to evade the registration provisions of
the 1933 Act.
(xxxvi) 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
12
<PAGE>
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.
(xxxvii) No Change in Ratings. No "nationally recognized
--------------------
statistical rating organization" as such term is defined for purposes of
Rule 436(g)(2) under the 1933 Act (i) has imposed (or has informed the
Company that it is considering imposing) any condition (financial or
otherwise) on the Company's retaining any rating assigned as of the date
hereof to the Company, or any securities of the Company or (ii) has
indicated to the Company that it is considering (a) the downgrading,
suspension or withdrawal of, or any review for a possible change that does
not indicate the direction of the possible change in, any rating so
assigned or (b) any change in the outlook for any rating of the Company.
(xxxviii) No Margin Violations. Neither the Company nor any
--------------------
of its subsidiaries nor any agent thereof acting on behalf of them has
taken, and none of them will take, any action that might cause this
Agreement to violate Regulation G (12 C.F.R. part 207), Regulation T (12
C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12
C.F.R. Part 224) of the Board of Governors of the Federal Reserve System.
(xxxix) No Business with Cuba. The Company and its
---------------------
subsidiaries have complied with all of the provisions of Florida H.B. 1771,
codified as Section 517.075, of the Florida statutes, and all regulations
promulgated thereunder relating to companies doing business with the
Government of Cuba or with any person or any affiliate located in Cuba.
The Company acknowledges that the Initial Purchaser and, for purposes of
the opinions to be delivered to the Initial Purchaser pursuant to Section 5
hereof, counsel to the Company and counsel to the Initial Purchaser, will rely
upon the accuracy and truth of the foregoing representations and hereby consents
to such reliance.
(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 97.50% 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 10 hereof.
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<PAGE>
(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., 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 fifth business
day after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days 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. Lehman Brothers, 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 sold to Qualified Institutional Buyers 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.
Certificates representing Securities sold to Institutional Accredited Investors
(as defined below) shall be issued in definitive form.
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.
14
<PAGE>
(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 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.
15
<PAGE>
(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 Lehman Brothers, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, or otherwise 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).
(i) No Stabilization. The Company agrees not to take, not to
permit any of its subsidiaries to take and to use its best efforts to prevent
its affiliates from taking, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company or any of its
subsidiaries to facilitate the sale or resale of the Securities. Except as
permitted by the 1933 Act, the Company and its subsidiaries will not distribute
any (i) preliminary offering memorandum, including, without limitation, the
Preliminary Offering Memorandum, (ii) offering memorandum, including, without
limitation, the Final Offering Memorandum or (iii) other offering material in
connection with the offering and sale of the Securities.
Section 4. Payment of Expenses.
(a) Expenses. Whether or not the transactions contemplated in
this Agreement are consummated, 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
16
<PAGE>
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
9(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.
(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 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
17
<PAGE>
(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 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
18
<PAGE>
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 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.
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<PAGE>
(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.
(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.
20
<PAGE>
(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) (the
"Rule 144A Information"), 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 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
21
<PAGE>
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 and Contribution.
(a) The Company shall indemnify and hold harmless the Initial
Purchasers, their directors, officers and employees and each person, if any, who
controls the Initial Purchasers within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act, from and against any and all losses, claims,
damages, liabilities, judgments and actions, joint or several, or any action in
respect thereof including, but not limited to, any loss, claim, damage,
liability, judgment or action that arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained (A) in
any Preliminary Offering Memorandum or the Final Offering Memorandum or in any
amendment or supplement thereto or (B) any Rule 144A Information provided by the
Company to any holder or prospective purchaser of Securities pursuant to Section
6(b)(iii) or (ii) the omission or alleged omission to state in any Preliminary
Offering Memorandum or the Final Offering Memorandum, or in any amendment or
supplement thereto, or in any Rule 144A Information any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and shall reimburse the Initial Purchasers and each director, officer, employee
or controlling person promptly upon demand for any legal or other expenses
reasonably incurred by such Initial Purchasers, director, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability, judgment or action as
such expenses are incurred; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability, judgment or action arises out of, or is based upon, any untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Offering Memorandum or the Final Offering Memorandum, or in any
such amendment or supplement, in reliance upon and in conformity with written
information concerning the Initial Purchasers furnished to the Company by or on
behalf of
22
<PAGE>
the Initial Purchasers specifically for inclusion therein 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). The foregoing indemnity agreement is in addition to
any liability which the Company may otherwise have to the Initial Purchasers or
to any director, officer, employee or controlling person of the Initial
Purchasers.
(b) The Initial Purchasers agree, severally and not jointly, to
indemnify and hold harmless the Company, and their respective directors,
officers and employees and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the 1934 Act,
from and against any and all losses, claims, damages, liabilities, judgments or
actions, joint or several, or any action in respect thereof, to which the
Company, or any such director, officer or controlling person may become subject,
under the 1933 Act or otherwise, insofar as such loss, claim, damage, judgment
or action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Offering
Memorandum or the Final Offering Memorandum or in any amendment or supplement
thereto, or (ii) the omission or alleged omission to state in any Preliminary
Offering Memorandum or the Final Offering Memorandum, or in any amendment or
supplement thereto, any material fact required to be stated therein or necessary
to make the statements therein not misleading, but in each case only to the
extent that the untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information concerning the Initial Purchasers furnished to the Company by or on
behalf of the Initial Purchasers specifically for inclusion therein, and shall
reimburse the Company, and any such director, officer or controlling person
promptly upon demand for any legal or other expenses reasonably incurred by the
Company, or any such director, officer or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability, judgement or action as such expenses are incurred. The
foregoing indemnity agreement is in addition to any liability which the Initial
Purchasers may otherwise have to the Company, or any such director, officer,
employee or controlling person.
(c) Promptly after receipt by any person in respect of which
indemnity may be sought pursuant to Section 7(a) or (b) (the "indemnified
party") of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against any
person against whom indemnity may be sought pursuant to Section 7(a) or (b) (the
"indemnifying party"), notify the indemnifying party in writing of the claim or
the commencement of that action; provided, however, that the failure to notify
the indemnifying party shall not relieve it from any liability which it may have
under this Section 7 except to the extent it has been materially
23
<PAGE>
prejudiced by such failure and, provided further, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party otherwise than under this Section 7. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party, and the payment of all
fees and expense of such counsel shall be the responsibility of the indemnifying
party. After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 7 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation. In
addition, any indemnified party shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of the indemnified party unless
(i) employment of such counsel shall have been specifically authorized in
writing by the indemnifying party, (ii) the indemnifying party shall have failed
to assume the defense of such action or employ counsel reasonably satisfactory
to the indemnified party or (iii) the named parties to any such action
(including any impleaded parties) include both the Initial Purchasers and the
indemnifying party, and the indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of the indemnified party). In any such case, the
indemnifying party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys (in addition to any
local counsel) for all indemnified parties, and all such fees and expenses shall
be reimbursed as they are incurred. Such firm shall be designated in writing by
Lehman Brothers, in the case of case of the parties indemnified pursuant to
Section 7(a), and by the Company, in the case of parties indemnified pursuant to
Section 7(b). No indemnifying party shall (i) without the prior written consent
of the indemnified parties (which consent shall not be unreasonably withheld),
settle or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with the consent of the indemnifying party or if there
be a final judgment of the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 7 shall
for any reason be unavailable or insufficient to hold harmless an indemnified
party under Section 7(a) or (b) (other than by reason of the exceptions stated
therein) in respect of any loss, claim, damage, liability,
24
<PAGE>
judgment or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage, liability, judgment or action in respect thereof,
(i) in such proportion as shall be appropriate to reflect the relative benefits
received by the Company, on the one hand, and the Initial Purchasers, on the
other, from the offering of the Securities or (ii) if the allocation provided by
clause (i) above 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 the
Initial Purchasers, on the other, with respect to the statements or omissions
which resulted in such loss, claim, damage, liability, judgment or action in
respect thereof, 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, with respect to such offering shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
Securities purchased under this Agreement (before deducting expenses) received
by the Company, on the one hand, and the total discounts and commissions
received by the Initial Purchasers with respect to the Securities purchased
under this Agreement, on the other hand, bear to the total gross proceeds from
the offering of the Securities under this Agreement, in each case as set forth
in the table on the cover page of the Final Offering Memorandum. The relative
fault shall be determined by reference to whether the 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 the Initial Purchasers,
the intent of the parties and their relative 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
contributions pursuant to this Section 7 were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage, liability, judgment
or action in respect thereof, referred to above in this Section 7 shall be
deemed to include, for purposes of this Section 7(d), any legal or other expense
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7(d), the Initial Purchasers shall not be required to contribute any
amount in excess of the amount by which the total price at which the Securities
purchased by it and distributed to investors in exempt resales exceeds the
amount of any damages which the Initial Purchasers have otherwise paid or become
liable to pay by reason of any untrue or alleged untrue statement or omission or
alleged omission. 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.
(e) The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
(f) The Initial Purchasers confirm and the Company acknowledges
that the statements with respect to the offering of the Securities by the
Initial Purchasers set forth on the cover page of, the stabilization legend
inside the front cover, the fourth sentence of the section
25
<PAGE>
captioned "Risk Factors--Absence of Public Market for the Notes," and (i) the
fifth paragraph, (ii) the sixth paragraph, (iii) the sixth sentence of the ninth
paragraph and (iv) the tenth paragraph under the section captioned "Plan of
Distribution" in the Offering Memorandum constitute the only information
concerning such Initial Purchasers furnished in writing to the Company by or on
behalf of the Initial Purchasers specifically for inclusion in the Offering
Memorandum.
Section 8. 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 9. 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 hereof, and provided further that Sections
1, 7 and 8 shall survive such termination and remain in full force and effect.
26
<PAGE>
Section 10. 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 10.
Section 11. 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 c/o Lehman Brothers at Three World Financial Center, New
York, New York 10285, attention of the Office of the General Counsel; notices to
the Company shall be directed to them at 810 Houston Street, Suite 2000, Fort
Worth, Texas 76102, attention of Louis G. Baldwin.
Section 12. 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
27
<PAGE>
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 13. 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 14. Effect of Headings.
The Section headings herein are for convenience only and shall not affect
the construction hereof.
28
<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: /s/ JOHN M. O'REAR
------------------------------------
Name: John M. O'Rear
Title: Vice President & Treasurer
CONFIRMED AND ACCEPTED,
as of the date first above written:
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO. INCORPORATED
J.P. MORGAN SECURITIES INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
By: LEHMAN BROTHERS INC.
By: /s/ ROSS MACINTYRE
----------------------------
Authorized Signatory
For themselves and as Representatives of the other Initial Purchasers named in
Schedule A hereto.
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Name of Initial Purchaser Principal Amount
------------------------- of Securities
----------------
<S> <C>
Lehman Brothers Inc.......................... $ 87,500,000
Morgan Stanley & Co. Incorporated............ 43,750,000
J.P. Morgan Securities Inc................... 21,875,000
NationsBanc Montgomery Securities, Inc....... 21,875,000
Total........................................ $175,000,000
============
</TABLE>
<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>
<PAGE>
Exhibit A
REGISTRATION RIGHTS AGREEMENT
A-1
<PAGE>
Exhibit B
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(B)
(i) The Company was incorporated, exists and is in good standing under
the laws of the State of Delaware, with corporate power and authority to own,
lease and operate its properties and to conduct its business as described in
the Offering Memorandum; the Company is qualified to do business in the
several states set forth on an exhibit to such counsel's opinion; and such
counsel has no knowledge that the nature of the properties of the Company or
the conduct of its business requires such qualification in other jurisdictions
or places, except in such jurisdictions or places in which the Company is
subject to no material liability or disability by reason of its failure to be
so qualified.
(ii) The authorized capital stock of the Company consists of 100 million
shares of common stock, par value $0.01 per share, and 2.5 million shares of
preferred stock, par value $.01 per share; the issued and outstanding capital
stock of the Company is as set forth under the caption "Capitalization" in the
Offering Memorandum (except for subsequent issuances or purchases pursuant to
employee benefit plans); all shares of issued and outstanding capital stock of
the Company have been authorized and validly issued and are fully paid and
nonassessable; and such counsel has no knowledge that any of the outstanding
shares of capital stock of the Company was issued in violation of the
preemptive or other similar rights of any securityholder of the Company.
(iii) Each subsidiary of the Company was incorporated, exists and is in
good standing under the laws of the State of Texas or Delaware, as applicable,
with corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Offering Memorandum; each
subsidiary of the Company is qualified as a foreign corporation to transact
business and is in good standing in the jurisdictions set forth on an exhibit
to such counsel's opinion; such counsel has no knowledge that the nature of
the properties of any subsidiary or the conduct of their respective businesses
requires such qualification in other jurisdictions or places, except in such
jurisdictions or places in which the relevant subsidiary is subject to no
material liability or disability by reason of its failure to be so qualified;
and all 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 of record by the Company, directly or through subsidiaries, free of any
adverse claim within the meaning of Article 8 of the Uniform Commercial Code.
B-1
<PAGE>
(iv) The Company has corporate power and authority to enter into the
Purchase Agreement, and the Purchase Agreement has been duly authorized,
executed and delivered by the Company.
(v) The Indenture and the Registration Rights Agreement have been duly
authorized, executed and delivered by the Company and (assuming the due
authorization, execution and delivery of the Indenture by the Trustee and the
Registration Rights Agreement by the Initial Purchasers) 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).
(vi) The Securities are in the form contemplated by the Indenture, have
been duly authorized by the Company and, when executed by the Company and
authenticated by the Trustee in the manner provided in the Indenture (assuming
the due authorization, execution and delivery of the Indenture by the Trustee)
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, reorganization, moratorium (including,
without limitation, all laws relating to fraudulent transfers), or other
similar laws relating to or affecting enforcement of creditor's 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
entitled to the benefits of the Indenture.
(vii) The Securities and the Indenture conform in all material respects
to the descriptions thereof contained in the Offering Memorandum.
(viii) The documents incorporated by reference in the Offering
Memorandum (other than the financial statements and supporting schedules
therein, as to which no opinion need be rendered), when they were filed with
the Commission complied as to form in all material respects with the
requirements of the 1934 Act and the rules and regulations of the Commission
thereunder.
(ix) Such counsel has no knowledge of any pending or threatened action,
suit, proceeding, inquiry or investigation, to which the Company or any
subsidiary is a party, or to which the property of the Company or any
subsidiary thereof is subject, before or brought by any court or governmental
agency or body, 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 thereof or the consummation of the
transactions
B-2
<PAGE>
contemplated in the Purchase Agreement or the performance by the Company of
its obligations thereunder or the transactions contemplated by the Offering
Memorandum.
(x) The information in the Offering Memorandum under "Business and
Properties--Federal and State Regulation," "Description of the Credit
Agreement," and "Description of the Notes," to the extent that it constitutes,
summaries of legal matters, the Company's charter and bylaws or legal
proceedings, or legal conclusions, has been reviewed by such counsel and is
correct in all material respects.
(xi) The descriptions or references to contracts, indentures,
mortgages, loan agreements, notes, leases or other instruments of the Company
or any of its subsidiaries described or referred to in the Offering
Memorandum, or incorporated by reference therein, to the extent that they
constitute summaries of legal matters or legal conclusions, are correct, fair
and complete in all material respects. Such counsel has no knowledge (a) that
the Company or any of its subsidiaries is in violation of its charter or
bylaws, or (b) that any default exists in the due performance or observance of
any material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other instrument
so described, referenced or incorporated by reference.
(xii) No authorization, approval, consent or order of any court or
governmental authority or agency (other than such as may be required under the
applicable securities laws of the various jurisdictions in which the
Securities will be offered or sold, and, in the case of the Registration
Rights Agreement, under the federal securities laws as to which such counsel
need express no opinion) is required in connection with the due authorization,
execution and delivery of the Purchase Agreement or the due execution,
delivery or performance of the Indenture or the Registration Rights Agreement,
by the Company or for the offering, issuance, sale or delivery of the
Securities to the Initial Purchasers or the resale by the Initial Purchasers
in accordance with the Purchase Agreement.
(xiii) It is not necessary in connection with the offer, sale and
delivery of the Securities to the Initial Purchasers and to each Subsequent
Purchaser in the manner contemplated by the Purchase Agreement and the
Offering Memorandum to register the Notes under the 1933 Act or to qualify the
Indenture under the 1939 Act.
(xiv) The execution, delivery and performance by the Company of the
Purchase Agreement, the Registration Rights Agreement, the DTC Agreement, the
Indenture and the Securities and the consummation of the transactions
contemplated in the Purchase Agreement and in the Offering Memorandum
(including 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 under the Purchase Agreement,
the Registration Rights Agreement, the Indenture and the Securities will not,
whether with or without the giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined in Section 1(a)(xvi) of the
B-3
<PAGE>
Purchase Agreement) under or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or
any subsidiary thereof pursuant to any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or any other agreement or
instrument, known to such counsel, to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or to
which any of the property or assets of the Company or any subsidiary thereof
is subject (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not have 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, or any applicable law,
statute, rule, regulation, judgment, order, writ or decree, known to such
counsel, of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or
any of their respective properties, assets or operations.
(xv) The Company is not (a) an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
1940 Act or (b) a "holding company" or "affiliate" of a "holding company" or
"public utility" as such terms are defined in the PUHCA.
Although such counsel are not passing on, and do not assume any
responsibility for, the accuracy or completeness of the statements in the
Offering Memorandum, on the basis of such counsel's participation in conferences
with officers and employees of the Company and representatives of the Initial
Purchasers, nothing has come to such counsel's attention that would lead such
counsel to believe that the Offering Memorandum or any amendment or supplement
thereto (except for financial statements and schedules and other financial data
included or incorporated by reference therein and information relating to
estimated natural resource reserves, the estimated future net revenues therefrom
and the discounted present value of such estimated future net revenues included
or incorporated by reference therein, as to which such counsel need make no
statement), at the time the Offering Memorandum was issued, at the time any such
amended or supplemented Offering Memorandum was issued, at the date of the
Purchase Agreement or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits 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.
In rendering such opinion, such counsel may rely as to matters of fact (but
not as to legal conclusions), to the extent they deem proper, on certificates of
responsible officers of the Company and public officials. Such opinion may be
limited by customary assumptions, exclusions and exceptions but shall not state
that it is to be governed or qualified by, or that it is otherwise subject to,
any treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
B-4
<PAGE>
EXHIBIT 10.2
Execution Copy
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
as of October 28, 1997, among CROSS TIMBERS OIL COMPANY, a Delaware corporation
(the "Company"), LEHMAN BROTHERS INC., MORGAN STANLEY & CO. INCORPORATED, J.P.
MORGAN SECURITIES INC. and NATIONSBANC MONTGOMERY SECURITIES, INC. (the "Initial
Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated October 21,
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 $175,000,000 principal amount of the Company's 8 3/4% Series A
Senior Subordinated Notes due 2009 (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.
"Business Day" shall mean any day except a Saturday, Sunday or other day in
the City of New York, or in the city of the corporate trust office of the
Trustee, on which banks are authorized to close.
"Closing Date" shall mean the date on which the Closing Time (as defined in
the Purchase Agreement) occurs.
<PAGE>
"Company" shall have the meaning set forth in the preamble and also
includes the Company's successors.
"Damages Payment Date" shall mean with respect to the Debt Securities, the
Interest Payment Date under the Indenture.
"Debt Securities" shall have the meaning set forth in the preamble.
"Definitive Securities" shall mean a Debt Security issued in certificated
form pursuant to the Indenture.
"Depositary" shall mean the Trustee, or any other exchange agent appointed
by the Company.
"Effectiveness Target Date" shall have the meaning set forth in Section
2(e) hereof.
"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 8 3/4% Series B Senior Subordinated Notes
due 2009 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 October 28, 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.
"Global Security Holder" shall mean the registered Holder of a Debt
Security issued in global form pursuant to the Indenture.
"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
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<PAGE>
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 October 28, 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.
"Liquidated Damages" shall have the meaning set forth in Section 2(e)
hereof.
"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 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.
"Lehman Brothers" shall mean Lehman Brothers Inc., 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.
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<PAGE>
"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 shall have been exchanged for Exchange Securities upon
consummation of the Exchange Offer.
"Registration Default" shall have the meaning set forth in Section 2(e)
hereof.
"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 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.
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<PAGE>
"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 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
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(including, without limitation, any applicable interpretation of the staff of
the SEC), the Company shall use its reasonable best efforts (i) to file within
60 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
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<PAGE>
Statement to be declared effective by the SEC at the earliest practicable time,
but in no event later than 120 days after the Closing Date, and (iii) to
consummate the Exchange Offer on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 30 Business Days thereafter. 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) commence the Exchange Offer and use its reasonable best
efforts to issue on or prior to 30 Business Days after the date on
which the Exchange Offer Registration Statement is declared effective
by the SEC, Exchange Securities in exchange for all Registrable
Securities tendered prior thereto in the Exchange Offer;
(B) 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;
(C) 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);
(D) use the services of the Depositary for the Exchange Offer;
(E) 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 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
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<PAGE>
(F) 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 October 28, 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 Lehman Brothers 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
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
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<PAGE>
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 Lehman Brothers, 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. If (i) because of any change in law or
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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,
(ii) any Holder of Registrable Securities notifies the Company prior to the 20th
day following consummation of the Exchange Offer that (A) it is prohibited by
law or Commission policy from participating in the Exchange Offer or (B) that it
may not resell the Exchange Securities acquired by it in the Exchange Offer to
the public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (C) that it is a broker-dealer and owns Debt Securities acquired
directly from the Company or an affiliate of the Company, (iii) for any other
reason the Exchange Offer Registration Statement is not declared effective
within 120 days after the
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<PAGE>
Closing Date or the Exchange Offer is not consummated within 30 Business Days
from the date after the Exchange Offer Registration Statement becomes effective,
or (iv) upon the request of Lehman Brothers (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 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), (ii) or (iii) 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 150th day after the Closing Date
in the case of clause (iii)), 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
on or prior to 90 days after the obligation to file such Shelf
Registration Statement arises hereunder. In the event that the Company
is required to file a Purchaser Shelf Registration Statement upon the
request of Lehman Brothers pursuant to clause (iv) above, the Company
shall use its reasonable best efforts (unless clause (i) or (iii)
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 Lehman Brothers, 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 (iii) 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
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<PAGE>
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) 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 Lehman Brothers), 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
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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
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<PAGE>
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 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) Liquidated Damages. If (i) any Registration Statement required by
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this Agreement is not filed with the SEC on or prior to the date specified for
such filing in this Agreement, (ii) any such Registration Statement has not been
declared effective by the SEC on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the
Exchange Offer has not been consummated within 30 Business Days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement is first declared effective by the SEC or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective immediately; provided that such Registration Statement shall not cease
to be effective or useable in connection with resales of Registrable Securities
for more than 30 days in any calendar year (each such event referred to in
clauses (i) through (iv), a "Registration Default"), then the Company shall pay
liquidated damages ("Liquidated
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<PAGE>
Damages") to each Holder of Registrable Securities with respect to the first 90-
day period immediately following the occurrence of such Registration Default, in
an amount equal to $.05 per week per $1,000 principal amount of Registrable
Securities held by such Holder for each week or portion thereof that the
Registration Default continues. The amount of the Liquidated Damages shall
increase by an additional $.05 per week per $1,000 in principal amount of
Registrable Securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $.50 per week per $1,000 principal amount of Registrable Securities;
provided that the Company shall in no event be required to pay Liquidated
Damages for more than one Registration Default at any given time; and provided
further that if the Exchange Offer Registration Statement is not declared
effective by the SEC on or prior to the 120th 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 Liquidated Damages. Notwithstanding anything to the contrary set
forth herein, (1) upon filing of the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement), in the case of (i)
above, (2) upon the effectiveness of the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement), in the case of (ii)
above, (3) upon consummation of the Exchange Offer, in the case of (iii) above,
or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
to again be declared effective or made usable in the case of (iv) above, the
Liquidated Damages payable with respect to the Registrable Securities as a
result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued Liquidated Damages shall be paid to the Global Securities
Holders by wire transfer of immediately available funds or by federal funds
check and to Holders of Definitive Securities on each Damages Payment Date by
wire transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. All obligations
of the Company set forth in the preceding paragraph that are outstanding with
respect to any Registrable Securities at the time such security ceases to be a
Registrable Security shall survive until such time as all such obligations with
respect to such security shall have been satisfied in full.
(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.
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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 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;
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(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 Lehman Brothers and,
if requested by such counsel or Lehman Brothers, promptly confirm such advice in
writing (by notice to such counsel or to Lehman Brothers) (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 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
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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
(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 Lehman Brothers 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
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<PAGE>
(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 Lehman
Brothers, 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;
(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);
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<PAGE>
(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 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
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<PAGE>
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 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
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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 Lehman Brothers
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 Lehman Brothers, 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 Lehman
Brothers, 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 Lehman Brothers, 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 Lehman Brothers, 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 Lehman
Brothers, 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
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<PAGE>
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;
(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, (ii)
require each Holder to agree in writing to be subject to the provisions of
Section 5 hereof with respect to the information provided in (i) above and the
information provided pursuant to the penultimate sentence of this paragraph or
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the failure to provide such information, as the case may be, and (iii) 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 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
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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.
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 agrees to indemnify and hold harmless (i) each Holder
and (ii) each person, if any, who controls (within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act) any Holder (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
person") and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"Indemnified Holder"), to the fullest extent lawful, from and against any and
all losses, claims, damages, liabilities, judgments, actions and expenses
(including without limitation and as incurred, reimbursement of all reasonable
expenses of investigating, preparing, pursuing or defending any claim or action,
or any investigation or proceeding by any governmental agency or body, commenced
or threatened, including the reasonable fees and expenses of counsel to any
Indemnified Holder) caused by, related to, based upon, arising out of or in
connection with any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement, preliminary prospectus or
Prospectus (or any amendment or supplement thereto), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by an untrue
statement or omission or alleged untrue statement or omission that is made in
reliance upon and in conformity with information relating to any of the Holders
furnished in writing to the Company by or on behalf of any of the Holders
expressly for use therein; provided, however, that this indemnity agreement with
respect to any Prospectus shall not inure to the benefit of any Initial
Purchaser or Holder from
-22-
<PAGE>
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).
In case any action or proceeding (including any governmental or regulatory
investigation or proceeding) shall be brought or asserted against any of the
Indemnified Holders with respect to which indemnity may be sought against the
Company, such Indemnified Holder (or the Indemnified Holder controlled by such
controlling person) shall promptly notify the Company in writing (provided, that
the failure to give such notice shall not relieve the Company of any of its
obligations pursuant to this Agreement, except to the extent that the Company is
materially prejudiced as a result thereof). Notwithstanding the foregoing, in
case any action or proceeding shall be instituted and such Indemnified Holder
shall notify the Company of the commencement thereof, the Company shall be
entitled to participate therein, and, after written notice from the Company to
such Indemnified Holder, to assume the defense thereof with counsel of its
choice reasonably acceptable to the Indemnified Holders in such action.
Notwithstanding the election of the Company to assume the defense of such action
or proceeding, the Indemnified Holder 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 Company shall pay the
reasonable fees and expenses of such separate counsel reasonably satisfactory to
the Company if (i) the Company shall have failed to employ counsel to represent
the Indemnified Holder in a reasonably timely manner or (ii) the defendants in
any such action or proceeding include both the Indemnified Holder and the
Company and counsel to such Indemnified Holder shall have concluded and notified
the Company 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. The Company shall not, in connection with any one such
action or proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) at any time
for such Indemnified Holders, which firm shall be designated by the Holders.
The Company shall be liable for any settlement of any such action or proceeding
effected with the Company's prior written consent, which consent shall not be
withheld unreasonably, and the Company agrees to indemnify and hold harmless
each Indemnified Holder from and against any loss, claim, damage, liability or
expense by reason of any settlement of any action effected with the written
consent of the Company. The Company shall not, without the prior written
consent of each Indemnified Holder, settle or compromise or consent to the entry
of judgment in or otherwise seek to terminate any pending or threatened action,
claim, litigation or
-23-
<PAGE>
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not any Indemnified Holder is a party thereto), unless
such settlement, compromise, consent or termination includes an unconditional
release of each Indemnified Holder from all liability arising out of such
action, claim, litigation or proceeding.
(b) Each Holder of Registrable Securities agrees, severally and not
jointly, to indemnify and hold harmless the Company, and its respective
directors, officers, and any person controlling (within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act) the Company, and the
respective officers, directors, partners, employees, representatives and agents
of each such person, to the same extent as the foregoing indemnity from the
Company to each of the Indemnified Holders, but only with respect to claims and
actions based on information relating to such Holder furnished in writing by or
on behalf of such Holder expressly for use in any Registration Statement. In
case any action or proceeding shall be brought against the Company or its
directors or officers or any such controlling person in respect of which
indemnity may be sought against a Holder of Registrable Securities, such Holder
shall have the rights and duties of the Company, and the respective directors,
officers, and any such controlling person in the preceding paragraph, such
directors or officers or such controlling person shall have the rights and
duties of each Indemnified Holder in the preceding paragraph. In no event shall
any Holder be liable or responsible for any amount in excess of the amount by
which the total received by such Holder with respect to its sale of Registrable
Securities pursuant to a Registration Statement exceeds the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
(c) If the indemnification provided for in this Section 5 is
unavailable to an indemnified party under Section 5(a) or Section 5(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Indemnified Holder, on the other hand, from
its sale of Registrable Securities or if such allocation is not permitted by
applicable law, the relative fault of the Company, on the one hand, and of the
Indemnified Holder, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company, on the one hand, and of the Indemnified Holder, on the
other 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 Indemnified Holder and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in the second paragraph of Section 5(a),
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
-24-
<PAGE>
The Company and each Holder of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this Section 5(c) were
determined by pro rata allocation (even if the Holders 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 in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 5, no Holder or
its related Indemnified Holders shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the total received by
such Holder with respect to the sale of its Registrable Securities pursuant to a
Registration Statement exceeds the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 5(c) are several in proportion to the respective principal amount of
Debt Securities held by each of the Holders hereunder and not joint.
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 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.
-25-
<PAGE>
(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 Lehman Brothers; 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 Lehman Brothers 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
-------
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 Lehman Brothers 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).
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.
-26-
<PAGE>
(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 October 21, 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
Lehman Brothers 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.
-27-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CROSS TIMBERS OIL COMPANY
By: /s/ LOUIS G. BALDWIN
--------------------------------------
Name: Louis G. Baldwin
Title: Senior Vice President & Chief
Financial Officer
LEHMAN BROTHERS INC.
By: /s/ GREGORY P. PIPKIN
--------------------------------------
Name: Gregory P. Pipkin
Title: Managing Director
-28-
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
(in thousands, except per share amounts) 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS:
Net income......................................... $ 3,223 $ 4,720 $18,498 $11,198
Preferred stock dividends.......................... 444 73 1,334 73
------- ------- ------- -------
Earnings available to common stock................. $ 2,779 $ 4,647 $17,164 $11,125
======= ======= ======= =======
Weighted average common shares outstanding......... 26,387 26,430 26,548 27,156
Common stock equivalents - stock options........... 336 314 216 213
------- ------- ------- -------
Weighted average common shares and
common stock equivalents outstanding............. 26,723 26,744 26,764 27,369
======= ======= ======= =======
Primary earnings:
Per common share................................. $ 0.11 $ 0.18 $ 0.65 $ 0.41
======= ======= ======= =======
Per common share and equivalent (a).............. $ 0.10 $ 0.17 $ 0.64 $ 0.41
======= ======= ======= =======
FULLY DILUTED EARNINGS:
Earnings available to common stock................. $ 2,779 $ 4,647 $17,164 $11,125
Convertible preferred stock dividends.............. 444 73 1,334 73
Convertible note interest and other costs,
after income tax................................. - 592 46 1,799
------- ------- ------- -------
Earnings, as adjusted.............................. $ 3,223 $ 5,312 $18,544 $12,997
======= ======= ======= =======
Weighted average common shares and
common stock equivalents outstanding............. 26,723 26,744 26,764 27,369
Additional common shares upon conversion of:
Preferred stock.................................. 1,640 267 1,640 90
Subordinated notes............................... - 4,133 102 4,192
------- ------- ------- -------
Weighted average common shares and
common stock equivalents outstanding,
as adjusted...................................... 28,363 31,144 28,506 31,651
======= ======= ======= =======
Fully diluted earnings per common share
and equivalent (b)............................... $ 0.11 $ 0.17 $ 0.65 $ 0.41
======= ======= ======= =======
</TABLE>
(a) Because their impact is less than 3% dilutive (before rounding adjustments),
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 September 30, 1997 and 1996.
(b) Fully diluted earnings per share is either antidilutive or less than 3%
lower than primary earnings per share and therefore is not applicable.
<PAGE>
EXHIBIT 15.1
Cross Timbers Oil Company:
We are aware that Cross Timbers Oil Company has incorporated by reference in its
Registration Statements No. 33-64274, No. 33-65238, No. 33-81766, No. 333-35229
and No. 333-36569 on Form S-8 its Form 10-Q for the quarter ended September 30,
1997, which includes our report dated October 24, 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
November 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 3,537 0
<SECURITIES> 0 0
<RECEIVABLES> 38,055 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 47,361 0
<PP&E> 776,504 0
<DEPRECIATION> 230,103 0
<TOTAL-ASSETS> 604,112 0
<CURRENT-LIABILITIES> 48,258 0
<BONDS> 374,000 0
0 0
28,468 0
<COMMON> 308 0
<OTHER-SE> 132,630 0
<TOTAL-LIABILITY-AND-EQUITY> 604,112 0
<SALES> 44,086 143,549
<TOTAL-REVENUES> 44,086 143,549
<CGS> 0 0
<TOTAL-COSTS> 32,407 96,535
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,891 18,681
<INCOME-PRETAX> 4,788 28,333
<INCOME-TAX> 1,565 9,835
<INCOME-CONTINUING> 3,223 18,498
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,779 17,164
<EPS-PRIMARY> 0.11 0.65
<EPS-DILUTED> 0.11 0.65
</TABLE>
