<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-21221
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 16, 1997)
$85,000,000
HS RESOURCES, INC.
9 1/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
THE TERMS --
- - We will pay interest on the Notes twice a year on May 15 and November 15,
beginning on May 15, 1999.
- - If we default, your right to payment under the Notes will be junior to our
secured debt and our senior debt, equal to our unsecured senior subordinated
debt, and senior to our subordinated debt, in each case whether current or
future.
- - We do not intend to list the Notes on any national securities exchange or on
Nasdaq.
- - We have the right to redeem the Notes prior to their maturity at a redemption
price that is described more fully in this Prospectus Supplement.
SEE "RISK FACTORS" BEGINNING ON PAGE S-6 FOR SEVERAL FACTORS THAT YOU SHOULD
CONSIDER CAREFULLY BEFORE YOU INVEST IN THE NOTES BEING OFFERED BY THIS
PROSPECTUS SUPPLEMENT.
<TABLE>
<CAPTION>
Per Note Total
-------- -----------
<S> <C> <C>
Public Offering Price................................ 95.00% $80,750,000
Underwriting Discount................................ 2.75% $ 2,337,500
Proceeds to HS Resources (before expenses)........... 92.25% $78,412,500
</TABLE>
---------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
Prospectus Supplement or the attached Prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
---------------------------
The Notes should be delivered on or about December 11, 1998 through the
book-entry facilities of The Depository Trust Company.
---------------------------
Joint Book-Running Managers
CHASE SECURITIES INC. LEHMAN BROTHERS
------------------------
MORGAN STANLEY DEAN WITTER
December 4, 1998
<PAGE> 2
IN MAKING YOUR INVESTMENT DECISION, YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE
RELATED PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH ANY OTHER
INFORMATION. IF YOU RECEIVE ANY UNAUTHORIZED INFORMATION, YOU MUST NOT RELY ON
IT.
WE ARE OFFERING TO SELL THE NOTES ONLY IN PLACES WHERE SALES ARE PERMITTED.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE RELATED PROSPECTUS IS ACCURATE AS
OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THESE DOCUMENTS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................... S-3
Risk Factors................................................ S-6
Ratio of Earnings to Fixed Charges.......................... S-13
Use of Proceeds............................................. S-13
Description of the Notes.................................... S-14
Material Federal Income Tax Consequences.................... S-50
Underwriting................................................ S-53
Legal Matters............................................... S-54
Experts..................................................... S-54
PROSPECTUS
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 3
Disclosure Regarding Forward-Looking Statements............. 3
The Company................................................. 5
Use of Proceeds............................................. 5
Ratio of Earnings to Fixed Charges.......................... 5
Description of Debt Securities.............................. 6
Description of Preferred Stock.............................. 17
Description of Common Stock................................. 20
Description of Warrants..................................... 21
Plan of Distribution........................................ 22
Validity of Securities...................................... 23
Experts..................................................... 23
</TABLE>
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary highlights information contained elsewhere in this
Prospectus Supplement or the related Prospectus. It may not contain all of the
information that you should consider before investing in the Notes. For a more
complete discussion of the information you should consider before investing in
the Notes, you should read this entire Prospectus Supplement, including the
section entitled "Risk Factors," which sets forth important factors that could
affect HS Resources' business, operations and financial results, the related
Prospectus and the documents incorporated by reference in the Prospectus.
THE COMPANY
HS Resources, Inc. is a leading U.S. independent energy company engaged in
the development, exploitation, exploration, acquisition, production and
marketing of oil and gas. The company has a diversified asset base with
activities in three core geographic areas: the D-J Basin, the on-shore area of
the Texas-Louisiana Gulf Coast and the Northern Rocky Mountains. The company has
an inventory of over 5,000 development, exploitation and exploration
opportunities, along with over 1.1 million gross undeveloped acres. The
opportunities include development, exploitation and infill drilling,
recompletion, wellbore deepening and refracturing projects and exploration
projects.
The D-J Basin provides the majority of the company's proved reserves,
production and cash flow. We have been an active participant in the growth of
D-J Basin reserves and production since 1982. We are the largest producer of oil
and gas in the D-J Basin, where we now operate more than 2,800 of the
approximately 4,400 wells in which we own interests. Our net daily production
from the D-J Basin is 139,000 Mcf of gas and 6,700 Bbl of oil, and we operate
more than 133,800 Mcf per day of gas production. On an annualized basis, the
company produces enough gas to supply 25% of the gas demand for the state of
Colorado.
In the Gulf Coast, we have control of approximately 364,000 gross acres and
are conducting an active exploration program. We have acquired 770 square miles
of 3-D seismic data and are in the process of acquiring an additional 115 square
miles. In the Northern Rocky Mountains, the company has 510,000 gross acres,
primarily in the Williston and Greater Green River Basins. We have an active
drilling program under way in both the Gulf Coast and the Northern Rocky
Mountains.
The company's principal executive office is located at One Maritime Plaza,
15th floor, San Francisco, California 94111 and its telephone number at that
address is (415) 433-5795.
THE OFFERING
ISSUER.................... HS Resources, Inc.
SECURITIES OFFERED........ $85,000,000 aggregate principal amount at maturity of
9 1/4% Series B Senior Subordinated Notes due 2006.
The Notes will be issued at a discount to their
principal amount at maturity and, after underwriting
discounts and estimated expenses, will be sold at a
price to investors that will yield proceeds to HS
Resources of approximately $78.4 million.
MATURITY DATE............. November 15, 2006.
ISSUE PRICE............... $950 per $1,000 principal amount at maturity.
YIELD AND INTEREST........ The yield to maturity of the Notes is 10.18%
(computed on a semi-annual bond-equivalent basis)
calculated from December 11, 1998. Cash interest will
accrue at the rate of 9 1/4% per annum and be payable
on May 15 and November 15 of each year.
ORIGINAL ISSUE DISCOUNT... We will issue the Notes with "original issue
discount" for U.S. federal income tax purposes. When
computing gross income for U.S. federal income tax
purposes, a holder of Notes will be required to
include in gross income a portion of the "original
issue discount" for each day during each taxable year
in which any Notes are held, without regard to the
holder's
S-3
<PAGE> 4
method of accounting. The "original issue discount"
will be equal to the difference between the sum of
all cash payments (whether denominated as interest or
principal) to be made on the Notes and the issue
price of the Notes. See "Material Federal Income Tax
Consequences -- Original Issue Discount."
OPTIONAL REDEMPTION....... HS Resources will have the right to redeem the Notes,
in whole or in part, at any time after November 15,
2001 at the redemption prices set forth under
"Description of the Notes -- Optional Redemption,"
together with accrued and unpaid interest, if any, to
the date of redemption. In addition, on or prior to
November 15, 1999, HS Resources may redeem up to
33 1/3% of the principal amount of the Notes
originally issued with the net cash proceeds of
certain equity offerings at a redemption price equal
to 109.25% of the principal amount of the Notes to
the date of redemption, provided that at least
66 2/3% of the aggregate principal amount at maturity
of the Notes originally issued remains outstanding
immediately after the redemption. The Notes may not
be redeemed unless the same percentage of the Series
A 9 1/4% Notes are also redeemed.
CHANGE OF CONTROL......... Upon the occurrence of a change of control, each
holder of the Notes will have the right to require HS
Resources to repurchase such holder's Notes at a
price equal to 101% of the principal amount at
maturity of the Notes, as applicable, together with
accrued and unpaid interest, if any, to the date of
repurchase. At that time we may not have adequate
financial resources or be permitted under the terms
of our other indebtedness to repurchase the Notes.
RANKING................... The Notes will be unsecured and:
- subordinated in right of payment to all existing
and future debt of HS Resources that is deemed to
be "senior indebtedness" under the Indenture
governing the Notes (including obligations under
our bank credit facility);
- equal in right of payment with all existing and
future debt of HS Resources that is deemed to be
"senior subordinated indebtedness" under the
Indenture governing the Notes (including our other
senior subordinated notes);
- senior in right of payment to all existing and
future debt of HS Resources that is deemed to be
"subordinated indebtedness" under the Indenture
governing the Notes; and
- effectively subordinated to debt of our
subsidiaries unless the subsidiaries guarantee the
Notes. Currently, none of our subsidiaries
guarantee the Notes. Under the Indenture governing
the Notes, certain subsidiaries that hold a
significant amount of our assets or that generate a
significant amount of our revenues must become
guarantors of the Notes.
As of September 30, 1998, after giving effect to the
offering of the Notes, (1) $215 million of
outstanding debt would have been deemed to be "senior
indebtedness" (excluding unused commitments under our
bank credit facility), (2) $225 million of our
outstanding debt would have ranked equally with the
Notes and (3) our subsidiaries would have had $10
million of debt and other liabilities.
RESTRICTIVE COVENANTS..... The Indenture governing the Notes will restrict,
among other things, the ability of HS Resources and
certain of its subsidiaries to (1) incur debt, (2)
layer debt, (3) pay dividends on, or redeem, capital
stock, (4) make
S-4
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investments or redeem subordinated debt, (5) make
dispositions of assets, (6) engage in transactions
with affiliates, (7) engage in certain business
activities and (8) engage in mergers, consolidations
and certain sales of assets. The Indenture governing
the Notes will also limit our ability to impose
restrictions on the ability of certain of our
subsidiaries to pay dividends or make certain other
distributions. All of these restrictions and
limitations, however, are subject to a number of
important qualifications and exceptions.
LISTING................... The Notes will not be listed on a securities exchange
or other formal trading market. The Underwriters have
advised us that they intend to make a market in the
Notes. However, they are not obligated to do so, and
they may discontinue any market making with respect
to the Notes at any time in their sole discretion.
SINKING FUND.............. None.
USE OF PROCEEDS........... We will use the net proceeds from the Notes to repay
amounts outstanding under our bank credit facility.
See "Use of Proceeds."
For additional information with respect to the Notes (including defined terms),
see "Description of the Notes."
RISK FACTORS
You should consider the "Risk Factors" beginning on page S-6 before
investing.
S-5
<PAGE> 6
RISK FACTORS
You should consider carefully the specific factors set forth below, as well
as the other information set forth elsewhere in this Prospectus Supplement and
set forth or incorporated by reference in the accompanying Prospectus, before
making an investment in the Notes.
VOLATILITY OF OIL AND GAS PRICES -- OIL AND GAS PRICES ARE CURRENTLY LOW. WE
CANNOT PREDICT WHETHER OR WHEN PRICES WILL IMPROVE.
Our revenues, profitability and future rate of growth are adversely
affected when oil and gas prices are low. These prices are affected by many
factors, including:
- weather
- demand, which is affected by, among other things, local, national and
international economic conditions
- domestic gas and global oil supplies
- international cartels.
These factors and the volatile nature of the energy markets make it
difficult to accurately estimate future prices of oil and gas. Prices for D-J
Basin gas, which represents a substantial majority of our overall production,
have at times been more volatile, and at times lower, than the prices prevailing
in the broader United States gas market. Although we have a substantial portion
of our 1998 and 1999 oil and gas hedged at favorable prices, a prolonged
continuation of low prices would have a material adverse effect on our financial
condition and results of operations.
GATHERING AND PROCESSING CAPACITY CONSTRAINTS -- CURRENT PRODUCTION IN THE D-J
BASIN HAS BROUGHT CERTAIN GATHERING SYSTEMS AND PROCESSING FACILITIES NEAR
CAPACITY. FAILURE OF THE OWNERS OF THESE FACILITIES TO EXPAND CAPACITY COULD
DELAY OR LIMIT THE EXTENT TO WHICH WE CAN INCREASE D-J BASIN PRODUCTION.
Most of our D-J Basin production is gathered by KN Gas Gathering or Duke
Energy Field Services and processed either at Amoco's Wattenberg processing
plant or at various Duke plants. Because of the drilling, refracing, deepening
and recompleting of wells by HS Resources and other companies in the D-J Basin,
the Amoco and Duke plants and the KN gathering system are near to capacity. The
capacity limitations on gathering and processing facilities in the D-J Basin
also increase the risks associated with an equipment failure or disaster because
of the limited number of available bypass options. For example, a compressor
breakdown on the KN system during August 1998 caused a reduction in our
production because KN could not reroute the affected gas. Amoco is considering
expanding the capacity of the Wattenberg plant, and KN is making improvements in
its gathering system to increase capacity. Duke has also agreed to restart its
gas processing plant at Roggen, which will reduce volumes currently being
processed at Amoco's Wattenberg plant. Additionally, if these companies do not
make adequate improvements, we could install the necessary gathering and
processing facilities to allow for growth. Depending on the size of such a
project, however, outside financing might be required. Nevertheless, unless KN,
Duke and Amoco continue to improve their facilities, our ability to grow
production volumes in the D-J Basin could be materially delayed or limited.
S-6
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SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT THE
FINANCIAL HEALTH OF THE COMPANY AND PREVENT US FROM FULFILLING OUR OBLIGATIONS
UNDER THESE NOTES.
We now have and, after this offering, will continue to have a significant
amount of indebtedness. The following table shows certain important credit
statistics and is presented assuming we had completed this offering as of
September 30, 1998, and applied the net proceeds to reduction of amounts
outstanding under our bank credit facility:
<TABLE>
<CAPTION>
PRO FORMA
AT
SEPTEMBER 30,
1998
(UNAUDITED)
($ IN MILLIONS)
---------------
<S> <C>
Total indebtedness.......................................... $525.0
Stockholders' equity........................................ $190.0
Debt to total capitalization ratio.......................... 73.4%
Debt outstanding under the bank credit facility(1).......... $215.0
</TABLE>
- ---------------
(1) Debt outstanding under the bank credit facility as of the date of this
Prospectus Supplement was $309.0 million.
After this offering, we expect to reduce the borrowing base under our bank
credit facility to $280 million. We will then have approximately $49 million of
borrowing capacity under that facility.
As of September 30, 1998, after giving effect to this offering and the
application of the estimated net proceeds from this offering (but excluding the
effect of interest rate hedging arrangements covering $80.0 million in principal
amount of indebtedness), 41% of our aggregate borrowing would have been floating
rate obligations and 59% would have been fixed rate obligations. The range of
interest rates on our indebtedness is 6 9/16% to 9 7/8% per annum.
The company's leverage has important consequences to holders of the Notes,
including the following:
- It may impair our ability to obtain additional financing in the future
for working capital, capital expenditures, acquisitions or general
corporate purposes;
- A portion of our cash flow from operations must be dedicated to the
payment of interest on our existing indebtedness, which will reduce the
availability of our cash flow to fund working capital, capital
expenditures and other general corporate purposes;
- Our debt agreements contain restrictive covenants that limit our ability
to engage in certain transactions;
- Our borrowings under our bank credit facility, are at floating rates,
which may make us vulnerable to increases in interest rates; and
- Our bank credit facility requires us to make interest and principal
payments and to maintain stated financial conditions. If the requirements
of the facility are not satisfied, the lenders under the bank credit
facility would be entitled to accelerate the payment of indebtedness
under the bank credit facility, and a default would be deemed to occur
under the terms of the Notes as well as our other indebtedness.
Moreover, in one situation, holders of our 9 7/8% Senior Subordinated Notes
due 2003 (the "9 7/8% Notes") have rights that are senior to the rights of the
holders of our previously issued 9 1/4% Senior Subordinated Notes due 2006 (the
"Series A 9 1/4% Notes") and the Notes. Specifically, in the event of an asset
sale by us that triggers an obligation to offer to purchase the company's notes,
the company is required to make an offer to purchase the 9 7/8% Notes prior to
making the offer to purchase the Series A 9 1/4% Notes and the Notes. In the
event of such an asset sale, we cannot assure you that the company will have
sufficient funds to repurchase the Series A 9 1/4% Notes and the Notes as well
as the 9 7/8% Notes.
S-7
<PAGE> 8
ADDITIONAL BORROWINGS AVAILABLE -- DESPITE CURRENT INDEBTEDNESS LEVELS, WE MAY
STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD HEIGHTEN THE RISKS
DESCRIBED ABOVE.
We may be able to incur substantial additional indebtedness in the future.
Our bank credit facility would permit additional borrowing of up to $49 million
after completion of this offering and all of those borrowings would be senior to
the Notes. If new debt is added to our debt levels, the related risks that we
now face could intensify.
ABILITY TO SERVICE DEBT -- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.
Our business is the development, exploitation, exploration, acquisition,
production and marketing of oil and gas. Each of these activities requires
substantial capital. We intend to finance these capital expenditures in the
future through cash flow from operations, the incurrence of additional
indebtedness and/or the issuance of additional equity securities. Based upon the
current and anticipated level of operations, we believe that cash flow from
operations, together with the estimated net proceeds from the sale of the Notes,
the amounts available under our bank credit facility and our other sources of
liquidity, will be adequate to meet our anticipated capital needs as well as our
interest and principal payment obligations in the foreseeable future. We cannot
be sure, however, that our business will continue to generate cash flow at or
above current levels. Our ability to generate sufficient cash is dependent on
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. If we are unable to generate sufficient
cash flow from operations to service our debt, we may have to refinance all or a
portion of our debt, including the Notes (provided the necessary consents are
obtained), or to obtain additional financing. We cannot assure you that
refinancing would be possible or that any additional financing could be
obtained.
SUBORDINATION -- YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO OUR
EXISTING AND FUTURE BANK INDEBTEDNESS.
The Notes rank behind all of our existing and future bank (senior)
indebtedness. As a result, upon any distribution to our creditors in a
bankruptcy, liquidation or reorganization or similar proceeding relating to us
or our property, the holders of senior debt of our company will be entitled to
be paid in full in cash before any payment may be made with respect to the
Notes.
In addition, all payments on the Notes will be blocked in the event of a
payment default on senior debt and may be blocked up to 179 of 360 consecutive
days in the event of certain non-payment defaults on senior debt.
In the event of bankruptcy, liquidation or reorganization or similar
proceeding relating to our company, holders of the Notes will participate with
unsecured trade creditors and all other holders of subordinated indebtedness of
the company in the assets remaining after we have paid all of the secured debt.
However, because the Indenture requires that amounts otherwise payable to
holders of the Notes in a bankruptcy or similar proceeding be paid to holders of
senior debt instead, holders of the Notes may receive less, ratably, than
holders of unsecured trade payables in any such proceeding. In any of these
cases, we may not have sufficient funds to pay all of our creditors, and holders
of Notes may receive less, ratably, than the holders of senior debt and trade
payables.
FINANCING CHANGE OF CONTROL OFFER -- WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all of our outstanding notes.
However, it is possible that we will not have sufficient funds at the time of
the change of control to make the required repurchase of Notes or that
restrictions in our credit facility will not allow such repurchases. In
addition, certain important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, would not
constitute a change of control under the Indenture.
ESTIMATION OF RESERVES -- RESERVE ESTIMATES ARE INHERENTLY UNCERTAIN.
There are many uncertainties in estimating quantities of proved reserves,
future rates of production and the timing and success of development and
exploitation expenditures, including many factors beyond our
S-8
<PAGE> 9
control. Thus, the reserve data incorporated by reference in the accompanying
Prospectus are calculated estimates only. Our reserve information represents
estimates based on reports prepared by us and reviewed by Williamson Petroleum
Consultants, Inc. ("Williamson") and Netherland, Sewell & Associates, Inc.
("Netherland, Sewell") as of December 31, 1997. Williamson reviewed our D-J
Basin, Northern Rocky Mountain and Gulf Coast reserves, and Netherland, Sewell
reviewed our Mid-Continent reserves. Our Mid-Continent reserves have since been
sold. In the aggregate, 84% of the value of our non-Mid-Continent proved
reserves at year end 1997 were reviewed by Williamson. Additionally, we booked
new reserves at June 30, 1998, which have not yet been reviewed by an
independent engineering firm.
Although we believe all of our reserve estimates are reasonable, they are
only estimates and should be expected to change as additional information
becomes available. Reserve engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be exactly measured. The
accuracy of any reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment. Accordingly,
estimates of the economically recoverable quantities of oil and gas attributable
to any particular property or group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net cash flows
expected from such reserves, which are prepared by different engineers or by the
same engineers at different times, may vary substantially. Moreover, we cannot
assure you that the reserves we report will ultimately be produced or that the
proved undeveloped reserves will be developed within the periods anticipated.
There could be material variances from the estimates we have reported. In
addition, the estimates of future net revenues from proved reserves and the
present value of such reserves are based upon certain assumptions about
production levels and costs, which may be inaccurate. Further, the oil and gas
prices used in estimating future net revenues from proved reserves and the
present value of such revenues may be based on prices as of a single date, which
are unlikely to reflect oil and gas prices over the life of such reserves. Oil
and gas prices have declined significantly over the past year, and may adversely
affect the reported volume of our proved reserves and their present value.
Actual results may differ materially from the results estimated. We caution
prospective purchasers of the Notes not to place undue reliance on the reserve
data and resulting cash flow estimates incorporated by reference in the
accompanying Prospectus.
WRITEDOWNS OF CARRYING VALUE
We review quarterly the carrying value of our oil and gas properties under
the full cost accounting rules of the Securities and Exchange Commission. Under
these rules, capitalized costs of oil and gas properties may not exceed the
present value of estimated future net revenues from proved reserves, discounted
at 10%, plus the lower of cost or fair market value of unproved properties.
Application of this "ceiling" test generally requires pricing future revenues at
the unescalated prices in effect as of the end of each fiscal quarter (or the
time of reporting results) and requires a writedown for accounting purposes (or
impairment) if the ceiling is exceeded, even if prices declined for only a short
period of time. We will be unable to reverse any such writedowns even if prices
increase in subsequent periods. The risk that we will be required to write down
the carrying value of oil and gas properties increases when oil and gas prices
are depressed or decline substantially, as has been experienced recently. At
June 30, 1998, the company recognized a non-cash impairment of oil and gas
properties in the amount of $59 million pre-tax ($36.5 million after-tax)
pursuant to the required ceiling test. The write-down was primarily a result of
the precipitous decline in oil prices experienced during the second quarter of
1998. The need for the company to write down the carrying of value of its oil
and gas properties in the future is dependent (1) upon commodity prices and the
estimated amount of our proved recoverable reserves and (2) on the carrying
value of our oil and gas properties. If current oil and gas prices were to
continue, we likely would be required to further write down the carrying value
of our oil and gas properties. Depending on prices and the amount of year-end
1998 reserve additions, the amount of such write-downs could be material.
REPLACEMENT OF RESERVES -- WE MAY NOT BE ABLE TO REPLACE RESERVES.
Our future performance depends upon our ability to find, develop and
acquire additional oil and gas reserves that are economically recoverable. If we
are not successful, our reserves will decline. We cannot assure you that we will
be able to find, develop or acquire additional reserves on an economic basis.
S-9
<PAGE> 10
Our business is capital intensive and, to maintain our asset base of proved
oil and gas reserves, we must reinvest a significant amount of cash flow from
operations in development, exploitation, exploration or property acquisition
activities. If our cash flow from operations is reduced and external sources of
capital become limited or unavailable, it would impair our ability to make the
necessary capital investments to maintain or expand our asset base. Without such
investment, our oil and gas reserves would decline.
Our strategy includes continued exploitation and exploration of our
existing properties and may include opportunistic acquisitions. These projects
may not result in increases in reserves. Our operations may be curtailed,
delayed or canceled as a result of a lack of adequate capital and other factors,
such as title problems, weather, compliance with governmental regulations or
price controls, mechanical difficulties or shortages or delays in the delivery
of equipment. Furthermore, while our revenues may increase if prevailing oil and
gas prices increase significantly, our finding costs for additional reserves
could also increase. In addition, the costs of exploration, exploitation and
development may materially exceed our initial estimates.
HEDGING AND TRADING
We enter into oil and gas futures contracts on the NYMEX, fixed price
delivery contracts and financial swaps. These transactions are intended to
reduce the effect of volatility of the price of oil and gas, but may limit
potential gains by the company if oil and gas prices were to rise substantially
over the price established by the hedge. They are also used in our trading
operations. In addition, our hedging and trading activities may expose us to the
risk of financial loss in certain circumstances, including instances in which
production is less than expected or our customers or the counterparties to
hedging and trading agreements fail to honor their commitments.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
Our operations are subject to Federal, state and local governmental laws
and regulations. These address, among other things, drilling and operating
permits and approvals, performance bonds, reports concerning operations,
discharge and other permitting requirements, the spacing of wells, unitization
and pooling of properties and taxation and are subject to change from time to
time. Additionally, various cities and counties are currently reviewing their
ordinances to determine the level of regulatory authority, if any, they should
assert over such matters. At present, we cannot determine the effect of such
attempted regulation on our operations.
Our operations are also subject to complex and constantly changing
environmental laws and regulations adopted by Federal, state and local
governmental authorities. We have not historically been materially affected by
compliance with these laws. Nevertheless, the discharge of oil, gas or other
pollutants into the air, soil or water may give rise to significant liabilities
to the government and/or third parties, and may require us to incur substantial
costs for remediation. Moreover, we have agreed to indemnify certain sellers of
producing properties from whom we have acquired properties against certain
liabilities for environmental claims associated with the properties we have
purchased. Existing or future environmental laws or regulations could have a
material adverse affect on our results of operations and financial condition.
Also, material indemnity claims could arise against us with respect to
properties we have acquired.
OPERATING HAZARDS; UNINSURED RISKS
Our operations are subject to hazards and risks inherent in drilling for
and production and transportation of oil and gas. These include fires, natural
disasters, explosions, encountering formations with abnormal pressures,
blowouts, cratering, pipeline ruptures, oil spills, gas leaks, and discharges of
toxic gases. Any of these can result in loss of production, environmental
pollution, personal injury claims and other damage or impacts to properties of
the company and others, including suspension of operations. We have obtained
insurance coverages that we believe are adequate and customary for companies of
a similar size engaged in operations similar to ours, but losses could occur for
uninsurable or uninsured risks or in amounts in excess of existing insurance
coverage.
S-10
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COMPETITION
The oil and gas industry is highly competitive. We compete in the
exploration, development, production, acquisition and marketing of oil and gas
with major oil companies, other independent oil and gas concerns and individual
producers and operators. We also compete with major and independent oil and gas
concerns in recruiting and retaining qualified employees. Many of these
competitors have substantially greater financial and other resources than we do.
LACK OF PUBLIC MARKET
The Notes are a new issue of securities for which there is currently no
active trading market. If the Notes are traded after their initial issuance,
they may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities and other factors
including general economic conditions and the financial condition of the
company. We do not intend to apply for a listing or quotation of the Notes on
any securities exchange or stock market. The underwriters have informed us that
they currently intend to make a market in the Notes. However, the underwriters
are not obligated to do so, and any such market making may be discontinued at
any time without notice. Accordingly, we cannot assure you that a market for the
Notes will develop or be liquid.
The liquidity of, and trading market for, the Notes also may be adversely
affected by general declines in the market for similar securities. Such a
decline may adversely affect such liquidity and trading markets independent of
the financial performance of, and prospects for, the company.
ORIGINAL ISSUE DISCOUNT
A holder of Notes will be required to report as taxable income a portion of
the "original issue discount" on the Notes for each day during the taxable year
in which the Notes are held. A holder must report "original issue discount," in
addition to the stated interest received or accrued on the Notes, throughout the
period that any Notes are held, even though the Company will not pay any cash
amounts corresponding to the "original issue discount" until the Notes mature or
are redeemed or repurchased. See "Material Federal Income Tax
Consequences -- Original Issue Discount."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus Supplement and the accompanying Prospectus include and
incorporate by reference statements that are not purely historical. Such
statements are "forward-looking statements" within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), including statements regarding the company's
expectations, hopes, beliefs, intentions or strategies regarding the future.
These include without limitation statements concerning the following matters:
- Planned capital expenditures, financing plans, increases in oil and gas
production, trends or expectations concerning oil and gas prices
- Availability of financing
- Number and prospective nature of anticipated wells to be drilled in 1998
and thereafter
- Development and exploitation potential, refrac potential, recompletion
potential and infill potential
- Drillsite prospects and potential
- Anticipated operating efficiencies
- Anticipated finding, development, operation and other costs
- Marketing benefits
- Extended reserve life and additional lifting pressure
- Expected cash flow and earnings accretion
- Deepening potential
- Potential to unlock stranded reserves
- Reserve and production growth potential
- Acquisition and consolidation opportunities
- Divestiture opportunities and the company's financial position
- Business strategy and other plans and objectives for future operations
- Potential liabilities or the expected absence thereof
- Potential outcome of environmental matters, litigation and other
proceedings.
S-11
<PAGE> 12
Such statements may be found in the company's following reports or filings:
- Statements made herein under "Risk Factors."
- Statements made in our Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, under "Business," "Properties," "Legal
Proceedings and Environmental Issues" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
- Statements made in our Current Report on Form 8-K dated November 10,
1998.
- Statements made in our Quarterly Reports on Form 10-Q for the periods
ended March 31, 1998, June 30, 1998 and September 30, 1998 under
"Management's Discussion and Analysis of Financial Condition and Results
of Operation" and "Legal Proceedings and Environmental Issues."
- Statements made in our Current Reports on Form 8-K dated November 25,
1997, December 9, 1997 and December 23, 1997, in each case regarding the
acquisition of the Amoco properties in the D-J Basin, reserves and their
values (including reserves acquired in the Amoco acquisition).
All forward-looking statements included in this Prospectus Supplement or in
the accompanying Prospectus or incorporated by reference in the accompanying
Prospectus are based on information available to us on the date when the
statements were made. We have no obligation to update such forward-looking
statements. Although we believe that the assumptions and expectations reflected
in such forward-looking statements were reasonable when they were made, we
cannot assure you that such expectations will prove to have been correct or that
we will take any actions that may have been planned.
Certain additional important factors that could cause actual results to
differ materially from our forward-looking statements are disclosed under "Risk
Factors" in this Prospectus Supplement and under "Business," "Properties,"
"Legal Proceedings and Environmental Issues," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in the
company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, in the company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998, and September 30, 1998, and in the company's
Current Reports on Form 8-K filed February 26, 1997, November 25, 1997, December
9, 1997, December 23, 1997, and November 10, 1998, each of which is incorporated
by reference in the accompanying Prospectus. All subsequent written or oral
forward-looking statements attributable to the company or persons acting on its
behalf are expressly qualified in their entirety by such factors.
S-12
<PAGE> 13
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1998
-------------------------------- ------------------
1993 1994 1995 1996 1997 ACTUAL PRO FORMA
---- ---- ---- ---- ---- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated ratio of earnings to fixed
charges(1) 5.0x 1.9x -- 1.4x 1.4x -- --
</TABLE>
- ---------------
(1) Earnings were insufficient to cover fixed charges by approximately
$1,551,000 and $6,030,000 (excluding loss on impairment of $59,000,000) at
December 31, 1995 and September 30, 1998, respectively. For the nine months
ended September 30, 1998, on a pro forma basis assuming the offering and
application of proceeds had occurred January 1, 1998, earnings were
insufficient to cover fixed charges by approximately $7,872,000 (excluding
loss on impairment).
For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of net earnings before loss on impairment, income taxes and
fixed charges (exclusive of capitalized interest). Fixed charges consist of
interest expense (which includes amounts capitalized and the amortization of
debt discount) and that portion of rental cost that is equivalent to interest
(estimated to be thirty percent of rental cost).
USE OF PROCEEDS
The net proceeds to the company from the Offering are estimated to be
approximately $78 million, after deducting underwriting discounts and
commissions and estimated expenses of the Offering. The proceeds from this
offering will be used to reduce indebtedness incurred under our bank credit
facility. At September 30, 1998, $293 million was outstanding under our bank
credit facility, which has a final maturity in December 2002. Borrowings under
our bank credit facility bear interest at either the Base Rate (as defined) plus
0% to 0.625% or LIBOR plus 0.75% to 1.625%, as determined by the company. The
weighted average interest rate under our bank credit facility on September 30,
1998 (including the effects of interest rate hedging arrangements covering $80.0
million in principal amount of indebtedness), was 7.7%. The Chase Manhattan
Bank, N.A., an affiliate of Chase Securities Inc., is the agent and a lender
under our bank credit facility.
S-13
<PAGE> 14
DESCRIPTION OF THE NOTES
The Notes will be issued under an indenture (the "Indenture") entered into
between the company and Harris Trust and Savings Bank, as trustee (the
"Trustee"). The terms of the Notes will include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "1939 Act"). The following summary of certain terms and
provisions of the Notes and the Indenture does not purport to be complete and is
qualified in its entirety by reference to the 1939 Act, the Notes and the
Indenture, including the definitions therein of certain terms used below. A copy
of the Indenture and the form of Notes is available upon request to the company
at the address set forth in the accompanying Prospectus under "Available
Information."
The definitions of certain capitalized terms used in the following summary
are set forth below under "-- Certain Definitions." Capitalized terms used in
this summary and not otherwise defined below have the meanings assigned to them
in the Indenture. For purposes of this section, references to the "company"
shall mean HS Resources, Inc., excluding its Subsidiaries.
GENERAL
The Notes will mature on November 15, 2006, and will be limited to an
aggregate principal amount of $85,000,000. The Notes will bear interest at a
rate of 9 1/4% per annum from December 11, 1998, or from the most recent
interest payment date to which interest has been paid, payable semiannually on
May 15 and November 15 of each year, beginning on May 15, 1999, to the person in
whose name the Note (or any predecessor Note) is registered at the close of
business on the immediately preceding May 1 or November 1, as the case may be.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable, at an office or agency of
the company, one of which will be maintained for such purpose in The City of New
York (which initially will be the Corporate Trust Office of the Trustee) or such
other office or agency permitted under the Indenture. At the option of the
company, payment of interest may be made by check mailed to the person entitled
thereto as shown on the Security Register. The Notes will be issued in
denominations of $1,000 and integral multiples thereof.
Any Restricted Subsidiary that is a Significant Subsidiary will be required
to provide an unconditional guarantee of the payment of principal, premium, if
any, and interest on the Notes on a senior subordinated and unsecured basis.
There are currently no Subsidiaries that are required to be Subsidiary
Guarantors. See "-- Subsidiary Guaranties."
SUBORDINATION
The Notes will be subordinated in right of payment to the prior payment in
full in cash of all existing and future Senior Indebtedness, pari passu in right
of payment with existing and any future Pari Passu Indebtedness (including the
Series A 9 1/4% Notes and the 9 7/8% Notes and amounts owed for goods, materials
and services purchased in the ordinary course of business), and senior in right
of payment to any future Subordinated Indebtedness of the company. The Notes
will be structurally subordinated to all existing and future liabilities of
Subsidiaries of the company other than the Subsidiary Guarantors, if any. The
Subsidiary Guaranties will be subordinated in right of payment to the prior
payment in full of all Senior Indebtedness of Subsidiary Guarantors, pari passu
in right of payment with existing and any future Pari Passu Indebtedness of
Subsidiary Guarantors (including any guaranties of the Series A 9 1/4% Notes and
the 9 7/8% Notes), and senior in right of payment to any future Subordinated
Indebtedness of the Subsidiary Guarantors. The Subsidiary Guaranties will be
structurally subordinated to all existing and future liabilities of Subsidiaries
of Subsidiary Guarantors that are not also Subsidiary Guarantors.
As of September 30, 1998, after giving effect to the offering of the Notes
and the application of the net proceeds of the offering, the company's
outstanding Senior Indebtedness would have been approximately $215 million, the
company's outstanding Pari Passu Indebtedness (not including approximately $7.7
million of accrued interest on the Series A 9 1/4% Notes and the 9 7/8% Notes)
was approximately $225 million
S-14
<PAGE> 15
(including $150.0 million aggregate principal amount outstanding of Series A
9 1/4% Notes and $75.0 million aggregate principal amount of outstanding 9 7/8%
Notes), the company had no outstanding Subordinated Indebtedness, the total
consolidated indebtedness of the company would have been approximately $525.0
million and the total liabilities and indebtedness of the company's Subsidiaries
(including trade payables, deferred taxes and accrued liabilities) would have
been approximately $10 million. The company and its Subsidiaries have other
liabilities, including contingent liabilities, which may be significant.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the company and its Restricted Subsidiaries may Incur, the
amounts of such Indebtedness could be substantial and, in any case, such
Indebtedness may be Senior Indebtedness or Pari Passu Indebtedness. See "Risk
Factors -- Subordination" and "-- Certain Covenants -- Limitation on
Indebtedness."
Upon any payment or distribution to creditors (whether in cash, property,
debt, equity or other securities, a combination thereof or otherwise) of the
company in a voluntary or involuntary liquidation or dissolution of the company,
whether total or partial, or in a bankruptcy, reorganization, insolvency,
receivership, assignment for the benefit of creditors, marshalling of assets or
similar proceeding relating to the company or its property:
(i) holders of Senior Indebtedness shall be entitled to receive
payment in full in cash of all amounts due or to become due on or in
respect of all Senior Indebtedness before holders of the Notes shall be
entitled to receive any Note Payment (as defined); and
(ii) until all Senior Indebtedness is paid in full in cash, any Note
Payment to which holders of the Notes would be entitled but for the
subordination provisions of the Indenture shall be made to holders of
Senior Indebtedness, as their interests may appear.
Upon any Senior Indebtedness becoming due and payable, whether at the
Stated Maturity thereof or by acceleration or otherwise, such Senior
Indebtedness shall be paid in full in cash, or the immediate payment thereof
duly provided for in cash, before the company or any Person acting on behalf of
the company shall directly or indirectly pay, prepay, redeem, retire, repurchase
or otherwise acquire for value, or make any deposits in respect of the discharge
or defeasance of, or make other payment or distribution (whether in cash,
property, securities or a combination thereof) on account of principal of (or
premium, if any) or interest on, any Notes (collectively, a "Note Payment").
No Note Payment shall be made if at the time of such Note Payment there
exists a default in payment of all or any portion of any Senior Indebtedness,
and such default shall not have been cured or waived in writing or the benefits
of this provision waived in writing by or on behalf of the holders of such
Senior Indebtedness. In addition, during the continuance of any event of default
(other than a default in payment of all or any portion of any Senior
Indebtedness) with respect to any Specified Senior Indebtedness, as such event
of default is defined therein or in the instrument under which it is
outstanding, permitting the holders of such Specified Senior Indebtedness to
accelerate the maturity thereof, and upon written notice thereof given by the
Principal Agent to the Trustee, with a copy to the company (the delivery of
which shall not affect the validity of the notice thereof to the Trustee), then,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist, no Note Payment shall be made; provided that if the
holders of the Specified Senior Indebtedness to which the default related have
not declared such Specified Senior Indebtedness to be immediately due and
payable within 179 days after the occurrence of such default (or have declared
such Specified Senior Indebtedness to be immediately due and payable and within
such period have rescinded such declaration of acceleration), then the company
shall resume making any and all unpaid scheduled Note Payments. In no event
shall such a payment blockage period described in the preceding sentence extend
beyond 179 days from the date on which such payment blockage period commenced.
Not more than one payment blockage period may be commenced within any
consecutive 365-day period with respect to the Notes. No event of default that
existed or was continuing on the date of the commencement of any payment
blockage period with respect to the Specified Senior Indebtedness initiating
such payment blockage period shall be, or be made, the basis for the
commencement of a second payment blockage period by the holder or holders of
such Specified Senior Indebtedness at any time after the 365-day period referred
to in the preceding sentence unless such event of default shall have been cured
or waived for a period of not
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<PAGE> 16
less than 90 consecutive days. A failure to make any payment with respect to the
Notes as a result of the rights of the holders of Senior Indebtedness described
in this paragraph will not have any effect on the right of the holders of the
Notes to accelerate the maturity thereof as a result of such payment default.
The Subsidiary Guaranties, if any, would be subordinated to Senior
Indebtedness of a Subsidiary Guarantor to the same extent and in the same manner
as the Notes are subordinated to Senior Indebtedness. In addition, the holders
of Specified Senior Indebtedness of a Subsidiary Guarantor would have rights
corresponding to those of holders of Specified Senior Indebtedness of the
company.
As a result of the subordination provisions described above, in the event
of insolvency of the company, funds that would otherwise be payable to Holders
of Notes will be paid or turned over to the holders of Senior Indebtedness or
Senior Indebtedness of a Subsidiary Guarantor, as applicable, to the extent
necessary to pay such Senior Indebtedness or Senior Indebtedness of a Subsidiary
Guarantor, as applicable, in full.
The Indenture will provide that the subordination provisions of the
Indenture applicable to the Notes and the Subsidiary Guaranties may not be
amended, waived or modified in a manner that would adversely affect the rights
of the holders of any Specified Senior Indebtedness of the company or any
Specified Senior Indebtedness of a Subsidiary Guarantor unless the holders of
such Indebtedness consent in writing (in accordance with the provisions of such
Indebtedness) to such amendment, waiver or modification.
SUBSIDIARY GUARANTIES
Under the circumstances described below, the company's payment obligations
under the Notes will be jointly and severally guaranteed by the Subsidiary
Guarantors, if any. Initially, there will be no Subsidiary Guarantors. The
Subsidiary Guaranty of each Subsidiary Guarantor would be an unsecured, senior
subordinated obligation of such Subsidiary Guarantor. See "-- Subordination."
The Indenture will require the company to cause any Restricted Subsidiary
that is or becomes a Significant Subsidiary (and any Significant Subsidiary that
was previously an Unrestricted Subsidiary which becomes a Restricted Subsidiary)
after the Issue Date to execute and deliver to the Trustee a supplemental
indenture pursuant to which such Significant Subsidiary will become a Subsidiary
Guarantor. Subject to the preceding sentence, any Subsidiary Guarantor that is
no longer a Significant Subsidiary may, by execution and delivery to the Trustee
of a supplemental indenture satisfactory to the Trustee, be released from its
Subsidiary Guaranty and cease to be a Subsidiary Guarantor. In addition, certain
mergers, consolidations and dispositions of Property may result in the addition
of additional Subsidiary Guarantors and/or the release of Subsidiary Guarantors.
See "-- Merger, Consolidation and Sale of Substantially All Assets." Any
Subsidiary Guarantor that is designated an Unrestricted Subsidiary in accordance
with the terms of the Indenture shall be released from and relieved of its
obligations under its Subsidiary Guaranty pursuant to a supplemental indenture
satisfactory to the Trustee.
The obligations of each Subsidiary Guarantor will be limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guaranty or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guaranty not constituting a fraudulent conveyance or fraudulent
transfer under Federal, state or foreign law. Each Subsidiary Guarantor that
makes a payment or distribution under a Subsidiary Guaranty shall be entitled to
a contribution from each other Subsidiary Guarantor in a pro rata amount based
on the Adjusted Net Assets of each Subsidiary Guarantor.
Each Subsidiary Guarantor may merge or consolidate with or dispose of its
assets to the company or a Wholly Owned Restricted Subsidiary that is a
Subsidiary Guarantor except to the extent any such transaction is limited by the
covenant described under "-- Merger, Consolidation and Sale of Substantially All
Assets." In addition, each Subsidiary Guarantor may merge or consolidate with or
dispose of its assets to any Person (other than the company or a Wholly Owned
Restricted Subsidiary that is a Subsidiary Guarantor), regardless of whether
such Person is an Affiliate of such Subsidiary Guarantor, if (i) immediately
after such transaction,
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<PAGE> 17
and giving effect thereto, no Default or Event of Default has occurred and is
continuing; (ii) such transaction was subject to, and consummated in compliance
with, as appropriate, either the covenant described under the caption "Certain
Covenants -- Limitation on Asset Sales" or the covenant described under the
caption "Merger, Consolidation and Sale of Substantially All Assets"; and (iii)
the company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such transaction complies with the above
provisions and that all conditions precedent relating to such transaction have
been complied with.
OPTIONAL REDEMPTION
The Notes are not redeemable prior to November 15, 2001. At any time on or
after November 15, 2001, the Notes are redeemable at the option of the company,
in whole or in part, on not less than 30 nor more than 60 days' notice, at the
following redemption prices (expressed as percentages of principal amount), plus
accrued and unpaid interest (if any) to the date of redemption.
If redeemed during the 12-month period commencing November 15 of the years
indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2001........................................................ 104.625%
2002........................................................ 103.083%
2003........................................................ 101.542%
2004 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, on and prior to November 15, 1999, the
company may redeem up to 33 1/3% of the aggregate principal amount of the Notes
originally outstanding at a redemption price of 109.25% of the principal amount
thereof, plus accrued and unpaid interest (if any) thereon to the redemption
date, with the net proceeds of one or more Equity Offerings of the company;
provided that at least 66 2/3% of the aggregate principal amount of the Notes
originally issued remains outstanding immediately after the occurrence of such
redemption; and provided, further, that such redemption shall occur not later
than 75 days after the date of the closing of any such Equity Offering. The
redemption shall be made in accordance with procedures set forth in the
Indenture. No Equity Offering has occurred within the 75-day period ending on
the date of this Prospectus Supplement.
The Indenture will contain a covenant that limits the ability of the
company to optionally redeem the Notes unless a pro rata portion of the Series A
9 1/4% Notes are simultaneously redeemed, as more particularly described below
under "-- Certain Covenants -- Limitation on Redemptions and Other Repayments of
Notes and Series A 9 1/4% Notes."
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes shall have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at a purchase price in cash
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the purchase date (the "Change of Control Payment").
Within 30 days following any Change of Control, the company shall mail a
notice to each Holder stating, among other things: (i) that a Change of Control
has occurred and a Change of Control Offer is being made pursuant to the
Indenture and that all Notes (or portions thereof) properly tendered will be
accepted for payment; (ii) the purchase price and the purchase date, which shall
be, subject to any contrary requirements of applicable law, no fewer than 30
days nor more than 60 days from the date the company notifies the Holders of the
occurrence of the Change of Control (the "Change of Control Payment Date");
(iii) that any
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<PAGE> 18
Notes (or portions thereof) accepted for payment (and duly paid on the Change of
Control Payment Date) pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Payment Date; (iv) that any Notes
(or portions thereof) not properly tendered will continue to accrue interest;
(v) a description of the transaction or transactions constituting the Change of
Control; (vi) the procedures that Holders of Notes must follow in order to
tender their Notes (or portions thereof) for payment and the procedures that
Holders of Notes must follow in order to withdraw an election to tender Notes
(or portions thereof) for payment; and (vii) all other instructions and
materials necessary to enable Holders to tender Notes pursuant to the Change of
Control Offer.
The company will comply, to the extent applicable, with the requirements of
Rules 13e-4 and 14e-1 under the Exchange Act, and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable in
connection with the purchase of Notes in connection with a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions relating to the Change of Control Offer, the company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations described above by virtue thereof.
We can give no assurance that the company will be able to fund any such
repurchase of the Notes. Certain existing credit agreements (including the Bank
Credit Facility) contain and any future credit agreements or other agreements
relating to indebtedness of the company may contain prohibitions or restrictions
on the company's ability to effect a Change of Control Payment. In the event a
Change of Control occurs at a time when such prohibitions or restrictions are in
effect, the company could seek the consent of its lenders to the purchase of
Notes or could attempt to refinance the borrowings that contain such
prohibition. If the company does not obtain such a consent or repay such
borrowings, the company will be effectively prohibited from purchasing Notes. In
addition, the indentures governing the Series A 9 1/4% Notes and the 9 7/8%
Notes each contain a provision that grants to each holder of the Series A 9 1/4%
Notes and the 9 7/8% Notes, respectively, upon the occurrence of a change of
control as defined in each such indenture, the right to require the company to
repurchase all or any part of such holder's Series A 9 1/4% Notes or 9 7/8%
Notes, respectively, at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the purchase date.
The definition of Change of Control in the Indenture is substantially the same
as the corresponding definition in the Series A 9 1/4% Note Indenture. Under the
terms of the Indenture and the indentures governing the Series A 9 1/4% Notes
and the 9 7/8% Notes, the Change of Control Offer and change of control offers
under the Series A 9 1/4% Notes and the 9 7/8% Notes might be made substantially
contemporaneously, which could negatively impact the Company's ability to fund
the Change of Control Offer. The company's failure to purchase tendered Notes
would constitute an Event of Default under the Indenture that would, in turn,
constitute a default under the Bank Credit Facility, the Series A 9 1/4% Notes
and the 9 7/8% Notes. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of the Notes. See "Risk
Factors -- Substantial Leverage" and "-- Subordination."
A "Change of Control" shall be deemed to occur if (i) any "person" or
"group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provision to either of the foregoing, including any group
acting for the purpose of acquiring, holding or disposing of securities within
the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than any one or
more of the Permitted Holders, becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of 40% or more of the total voting power of
all classes of the Voting Stock of the company and/or warrants or options to
acquire such Voting Stock, calculated on a fully diluted basis, (ii) the sale,
lease, conveyance or transfer of all or substantially all of the assets of the
company and its Restricted Subsidiaries taken as a whole (other than to any
Wholly Owned Restricted Subsidiary) shall have occurred, (iii) the stockholders
of the company shall have approved any plan of liquidation or dissolution of the
company, (iv) the company consolidates with or merges into another Person or any
Person consolidates with or merges into the company in any such event pursuant
to a transaction in which the outstanding Voting Stock of the company is
reclassified into or exchanged for cash, securities or other property, other
than any such transaction where (A) the outstanding Voting Stock of the company
is reclassified into or exchanged for Voting Stock of the surviving corporation
that is Capital Stock and (B) the holders of the Voting Stock of the company
immediately prior to such
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<PAGE> 19
transaction own, directly or indirectly, not less than a majority of the Voting
Stock of the surviving corporation immediately after such transaction or (v)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Company's Board of Directors (together with any new
directors whose election or appointment by such board or whose nomination for
election by the stockholders of the company was approved by a vote of a majority
of the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the company's Board
of Directors then in office.
The definition of Change of Control includes a phrase relating to the sale,
lease, conveyance or transfer of "all or substantially all" of the Company's
assets. The Indenture will be governed by New York law, and there is no
established quantitative definition under New York law of "substantially all" of
the assets of a corporation. Accordingly, if the company and its Restricted
Subsidiaries were to engage in a transaction in which they disposed of less than
all of the assets of the company and its Restricted Subsidiaries taken as a
whole, a question of interpretation could arise as to whether such disposition
was of "substantially all" of their assets and whether the company was required
to make a Change of Control Offer.
Except as described above with respect to a Change of Control, the
Indenture will not contain any other provisions that permit the Holders of the
Notes to require that the company repurchase or redeem the Notes in the event of
a takeover, recapitalization or similar restructuring. See "Risk
Factors -- Financing Change of Control Offer."
BOOK-ENTRY SYSTEM
The Notes will initially be issued in the form of one or more Global
Securities (as defined in the Indenture) held in book-entry form. The Depository
Trust Company (the "Depository"), New York, NY, will act as securities
depository for the Notes. Such Notes will be deposited with the Trustee as
custodian for the Depository, and the Depository or its nominee, Cede & Co.,
will initially be the sole registered holder of the Notes for all purposes under
the Indenture. Except as set forth below, a Global Security may not be
transferred except as a whole by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository.
Upon the issuance of a Global Security the Depository or its nominee will
credit, on its internal system, the accounts of persons holding through it with
the respective principal amounts of the individual beneficial interests
represented by such Global Security. Ownership of beneficial interests in a
Global Security will be limited to persons that have accounts with the
Depository ("participants") or persons that may hold interests through
participants. Ownership of beneficial interests by participants in a Global
Security will be shown on, and the transfer of that ownership interest will be
effected only through, records maintained by the Depository or its nominee for
such Global Security. Ownership of beneficial interests in such Global Security
by persons that hold through participants will be shown on, and the transfer of
that ownership interest within such participant will be effected only through,
records maintained by such participant. The laws of some jurisdictions require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
Payment of principal of, premium, if any, on and interest on Notes
represented by any such Global Security will be made to the Depository or its
nominee, as the case may be, as the sole registered owner and the sole Holder of
the Notes represented thereby for all purposes under the Indenture. None of the
company, the Trustee, any agent of the company or the underwriters will have any
responsibility or liability for any aspect of the Depository's reports relating
to or payments made on account of beneficial ownership interests in a Global
Security representing any Notes or for maintaining, supervising or reviewing any
of the Depository's records relating to such beneficial ownership interests.
The company has been advised by the Depository that upon receipt of any
payment of principal of, premium, if any, on or interest on, any Global
Security, the Depository will immediately credit, on its book-entry registration
and transfer system, the accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal or face
amount of such Global Security, as shown on the records of the Depository. The
company expects that payments by participants to owners of beneficial interests
in a Global Security held through such participants will be governed by standing
instructions and
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customary practices as is now the case with securities held for customer
accounts registered in "street name" and will be the sole responsibility of such
participants.
So long as the Depository or its nominee, is the registered owner or holder
of such Global Security, the Depository or such nominee, as the case may be,
will be considered the sole owner or holder of the Notes represented by such
Global Security for the purposes of receiving payment on the Notes, receiving
notices and for all other purposes under the Indenture and the Notes. Beneficial
interests in Notes will be evidenced only by, and transfers thereof will be
effected only through, records maintained by the Depository and its
participants. Except as provided above, owners of beneficial interests in a
Global Security will not be entitled to and will not be considered the holders
of such Global Security for any purposes under the Indenture. Accordingly, each
person owning a beneficial interest in a Global Security must rely on the
procedures of the Depository and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a holder under the Indenture. The company understands
that under existing industry practices, in the event that the company requests
any action of holders or that an owner of a beneficial interest in a Global
Security desires to give or take any action that a Holder is entitled to give or
take under the Indenture, the Depository would authorize the participants
holding the relevant beneficial interest to give or take such action, and such
participants would authorize beneficial owners owning through such participants
to give or take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
Transfers between participants in the Depository will be effected in the
ordinary manner in accordance with Depository rules and will be settled in
same-day funds. If a holder requires physical delivery of a certificated
security for any reason, including to sell Notes to persons in states which
require physical delivery of the Notes, or to pledge such securities such holder
may transfer its interest in the Global Security, in accordance with normal
procedures set forth in the Indenture.
The Depository has advised the company that it will take any action
permitted to be taken by a Holder of Notes only at the direction of one or more
participants to whose account with the Depository interests in the Global
Security are credited and only in respect of such portion of the aggregate
principal amount of the Notes as to which such participant or participants has
or have given such direction. However, if there is an Event of Default under the
Indenture, the Depository will exchange the Global Security for certificated
Notes, which it will distribute to its participants.
The Depository has advised the company that the Depository is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a "banking organization" within the meaning of New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under Section 17A of the Exchange Act. The Depository was created to
hold the securities of its participants and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (including the
underwriters), banks, trust companies, clearing corporations and certain other
organizations some of whom (and/or their representatives) own the Depository.
Access to the Depository's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interest in the Global Security among its participants,
it is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the company nor the Trustee will have any
responsibility for the performance by the Depository or its participants,
whether direct or indirect, of their respective obligations under the rules and
procedures governing their operations.
CERTIFICATED NOTES
The Notes represented by a Global Security are transferable, registrable
and exchangeable for certificated Notes only if (i) the Depository notifies the
company that it is unwilling or unable to continue as a depository
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for such Global Security or if at any time the Depository ceases to be a
clearing agency registered under the Exchange Act, and a successor depository is
not appointed by the Company within 90 days, (ii) the company executes and
delivers to the Trustee a notice that such Global Security shall be so
transferable, registrable and exchangeable, and such transfer shall be
registrable or (iii) there shall have occurred and be continuing an Event of
Default or an event which, with the giving of notice or lapse of time or both,
would constitute an Event of Default with respect to the Notes represented by
such Global Security. Any Global Security that is exchangeable for certificated
Notes pursuant to the preceding sentence will be transferred to, and registered
and exchanged for, certificated Notes in authorized denominations and registered
in such names as the Depository or its nominee holding such Global Security may
direct. Subject to the foregoing, a Global Security is not exchangeable for
certificated Notes, except for a Global Security of like denomination to be
registered in the name of the Depository or its nominee. In the event that a
Global Security becomes exchangeable for certificated Notes, (i) certificated
Notes will be issued only in fully registered form in denominations of $1,000 or
integral multiples thereof, (ii) payment of principal, any repurchase price, and
interest on the certificated Notes will be payable, and the transfer of the
certificated Notes will be registrable, at the office or agency of the Company
maintained for such purposes and (iii) no service charge will be made for any
issuance of the certificated Notes, although the Company may require payment of
a sum sufficient to cover any tax or governmental charge imposed in connection
therewith.
CERTAIN COVENANTS
Limitation on Indebtedness
The Indenture provides that the company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness) unless, after giving pro forma
effect to the application of the proceeds thereof, no Default or Event of
Default would occur as a consequence of such Incurrence or be continuing
following such Incurrence and either (i) after giving pro forma effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, the Consolidated Interest Coverage Ratio would be at least 2.5 to 1.0
or (ii) such Indebtedness is Permitted Indebtedness.
"Permitted Indebtedness" means any and all of the following:
(i) Indebtedness under the Bank Credit Facility, provided that the
aggregate principal amount of all such Indebtedness under the Bank Credit
Facility at any one time outstanding does not exceed the greater of (A)
$275 million and (B) an amount equal to the sum of (1) $170 million and (2)
15% of Adjusted Consolidated Net Tangible Assets determined as of the date
of the Incurrence of such Indebtedness; provided, however, that the maximum
amount available to be outstanding under the Bank Credit Facility shall be
permanently reduced by the amount of Net Available Cash from Asset Sales
used to permanently repay Indebtedness under the Bank Credit Facility and
not subsequently reinvested in Additional Assets or used to permanently
reduce other Indebtedness to the extent permitted pursuant to the
"Limitation on Asset Sales" covenant;
(ii) (A) Indebtedness arising under the Indenture, including without
limitation the Notes and the Subsidiary Guaranties and (B) Indebtedness
arising under the Series A 9 1/4% Note Indenture, including without
limitation the Series A 9 1/4% Notes and the subsidiary guaranties thereof;
(iii) Indebtedness owed to the company or any of its Wholly Owned
Restricted Subsidiaries by any of its Restricted Subsidiaries or
Indebtedness owed by the company to any of its Wholly Owned Restricted
Subsidiaries (but only so long as such Indebtedness is held by the company
or a Wholly Owned Restricted Subsidiary);
(iv) Indebtedness under Permitted Hedging Agreements of the company
and its Restricted Subsidiaries (including guaranties thereof by the
company or another Restricted Subsidiary, as applicable);
(v) Indebtedness in connection with one or more standby letters of
credit, Guarantees, performance bonds or other reimbursement obligations
issued in the ordinary course of business of the company and
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its Restricted Subsidiaries and not in connection with the borrowing of money or
the obtaining of advances or credit (other than advances or credit on open
account, includable in current liabilities, for goods and services in the
ordinary course of business of the company and its Restricted Subsidiaries and
on terms and conditions which are customary in the Oil and Gas Business and
other than the extension of credit represented by such letter of credit,
Guarantee or performance bond itself);
(vi) obligations relating to net oil or gas balancing positions
arising in the ordinary course of business of the company and its
Restricted Subsidiaries which are customary in the Oil and Gas Business;
(vii) Permitted Non-Recourse Indebtedness of the company or any of its
Restricted Subsidiaries;
(viii) Indebtedness outstanding on the Series A Issue Date that was
not repaid with the proceeds of the Series A 9 1/4% Notes and not otherwise
permitted in clauses (i) through (vii) above;
(ix) Indebtedness not otherwise permitted to be Incurred pursuant to
this paragraph, provided that the aggregate principal amount of all
Indebtedness incurred pursuant to this clause (ix), together with all
Indebtedness Incurred pursuant to clause (x) of this paragraph in respect
of Indebtedness previously Incurred pursuant to this clause (ix), at any
one time outstanding does not exceed $25 million;
(x) Permitted Refinancing Indebtedness Incurred in exchange for, or
the proceeds of which are used to refinance, (A) Indebtedness referred to
in clauses (ii), (viii) and (ix) of this paragraph (including Indebtedness
previously incurred pursuant to this clause (x)) or (B) Indebtedness
Incurred pursuant to clause (i) of the first paragraph of the "Limitation
on Indebtedness" covenant; and
(xi) accounts payable or other obligations of the company or any
Restricted Subsidiary to trade creditors created or assumed by the company
or such Restricted Subsidiary in the ordinary course of business in
connection with the obtaining of goods or services.
At all times the aggregate principal amount of Indebtedness outstanding under
clauses (i) and (ix) of this definition shall be deemed to be the same amounts
as are deemed outstanding under clauses (i) and (ix), respectively, of the
definition of the term "Permitted Indebtedness" in the Series A 9 1/4% Note
Indenture.
Limitation on Liens
The Indenture provides that the company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, enter into, create, incur,
assume or suffer to exist any Lien on or with respect to any Property of the
company or such Restricted Subsidiary, whether owned on the Issue Date or
acquired after the Issue Date, or any interest therein or any income or profits
therefrom, unless the Notes (and, in the case of a Restricted Subsidiary, a
Subsidiary Guaranty from such Subsidiary) are secured equally and ratably with
(or prior to) any and all other obligations secured by such Lien, except that
the company and its Restricted Subsidiaries may enter into, create, incur,
assume or suffer to exist Liens securing Senior Indebtedness, Liens securing
Senior Indebtedness of a Subsidiary Guarantor, Liens securing Indebtedness of a
Restricted Subsidiary that is not a Subsidiary Guarantor and Permitted Liens.
Limitation on Issuance and Sale of Capital Stock of Restricted Subsidiaries
The Indenture provides that the company will not (i) permit any Restricted
Subsidiary to issue any Capital Stock (including, without limitation, pursuant
to any merger, consolidation, recapitalization or similar transaction) other
than to the company or a Wholly Owned Restricted Subsidiary or (ii) permit any
Person other than the company or a Restricted Subsidiary to own any Capital
Stock of any other Restricted Subsidiary (other than directors' qualifying
shares), except for (A) a sale to a Person of the Capital Stock of a Restricted
Subsidiary, which sale was made by the Company or a Restricted Subsidiary
subject to, and in compliance with, as appropriate, either the "Limitation on
Asset Sales" covenant or the "Limitation on Restricted Payments" covenant, and
such Person's subsequent ownership of such Capital Stock of such Restricted
Subsidiary, (B) the issuance of Capital Stock by a Restricted Subsidiary to a
Person other than the company or a Wholly Owned Restricted Subsidiary, which
issuance was made subject to and in compliance with the "Limitation on Asset
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Sales" covenant, and such Person's subsequent ownership of such Capital Stock
and (C) the ownership of Capital Stock of a Restricted Subsidiary owned by a
Person at the time such Restricted Subsidiary became a Restricted Subsidiary or
acquired by such Person in connection with the formation of the Restricted
Subsidiary (and in the case of the formation of such Restricted Subsidiary, the
issuance of such Capital Stock). If a Person (other than a Material Restricted
Subsidiary) whose Capital Stock was issued or sold in a transaction described in
this paragraph is, as a result of such transaction, no longer a Restricted
Subsidiary, then any Capital Stock of such Person retained by the company or a
Restricted Subsidiary shall be treated as a Restricted Payment made at the time
of such transaction in an amount equal to that portion of the Fair Market Value
of such Person represented by such retained Capital Stock.
Limitation on Restricted Payments
(i) The Indenture provides that the company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment if, at the time of and after giving effect to the proposed
Restricted Payment (A) any Default or Event of Default would have occurred and
be continuing, (B) the Company could not incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on
Indebtedness" covenant or (C) the aggregate amount expended or declared for all
Restricted Payments from the Series A Issue Date would exceed the sum (without
duplication) of the following:
(1) 50% of the aggregate Consolidated Net Income of the company
accrued on a cumulative basis commencing on the last day of the fiscal
quarter immediately preceding the Series A Issue Date, and ending on the
last day of the fiscal quarter ending on or immediately preceding the date
of such proposed Restricted Payment (or, if such aggregate Consolidated Net
Income shall be a loss, minus 100% of such loss), plus
(2) the aggregate net cash proceeds or the Fair Market Value of
Property other than cash received by the company on or after the Series A
Issue Date, from the issuance or sale (other than to a Subsidiary of the
company) of Capital Stock of the company or any options, warrants or rights
to purchase Capital Stock of the company, plus
(3) the aggregate net cash proceeds received by the company as capital
contributions to the company (other than from a Subsidiary of the company)
on or after the Series A Issue Date, plus
(4) the aggregate net cash proceeds received by the company upon the
exercise of any options, warrants or rights to purchase shares of Capital
Stock of the company (other than from a Subsidiary of the Company) on or
after the Series A Issue Date, plus
(5) the aggregate net cash proceeds received on or after the Series A
Issue Date by the company from the issuance or sale (other than to any
Subsidiary of the company) of convertible debt or convertible Redeemable
Stock that has been converted into or exchanged for Capital Stock of the
company, together with the aggregate cash received by the company at the
time of such conversion or exchange, plus
(6) to the extent not otherwise included in the company's Consolidated
Net Income, an amount equal to the net reduction in any Investment made by
the company and its Restricted Subsidiaries subsequent to the Series A
Issue Date in any Person resulting from (a) payments of interest on debt,
dividends, repayments of loans or advances, or other transfers or
distributions of Property, in each case to the company or any Restricted
Subsidiary from any Person, and in an amount not to exceed the book value
of such Investment previously made in such Person that were treated as
Restricted Payments, or (b) the designation of any Unrestricted Subsidiary
as a Restricted Subsidiary, in each case in an amount not to exceed the
lesser of (x) the book value of such Investment previously made in such
Unrestricted Subsidiary that were treated as Restricted Payments, and (y)
the Fair Market Value of such Unrestricted Subsidiary, plus
(7) $15 million.
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(ii) The limitations set forth in paragraph (i) above do not prevent the
company or any Restricted Subsidiary from making the following Restricted
Payments so long as, at the time thereof, no Default or Event of Default shall
have occurred and be continuing (except in the case of clause (A) below under
which a Restricted Payment may be made even if a Default or Event of Default has
occurred and is continuing):
(A) the payment of any dividend on Capital Stock of the company or any
Restricted Subsidiary within 60 days after the declaration thereof, if at
such declaration date such dividend could have been paid in compliance with
paragraph (i) above;
(B) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the company or any Restricted Subsidiary, in
exchange for, or out of the aggregate net cash proceeds of, a substantially
concurrent issuance and sale (other than to a Subsidiary of the company) of
Capital Stock of the company;
(C) the making of any principal payment on or the repurchase,
redemption, defeasance or other acquisition or retirement for value, prior
to any scheduled principal payment, scheduled sinking fund payment or
maturity, of any Pari Passu Indebtedness or Subordinated Indebtedness
(other than Redeemable Stock) in exchange for, or out of the aggregate net
cash proceeds of, a substantially concurrent issuance and sale (other than
to a Subsidiary of the company) of Capital Stock of the company;
(D) the making of any principal payment on or the repurchase,
redemption, defeasance or other acquisition or retirement for value of Pari
Passu Indebtedness or Subordinated Indebtedness in exchange for, or out of
the aggregate net cash proceeds of, a substantially concurrent Incurrence
(other than a sale to a Subsidiary of the company) of Pari Passu
Indebtedness or Subordinated Indebtedness so long as such new Indebtedness
is Permitted Refinancing Indebtedness and such new Indebtedness (1) has an
Average Life to Stated Maturity that is longer than the Average Life to
Stated Maturity of the Notes and (2) has a Stated Maturity for its final
scheduled principal payment that is at least 91 days later than the Stated
Maturity of the final scheduled principal payment of the Notes; and
(E) loans made to officers, directors and employees of the company or
any Restricted Subsidiary approved by the Board of Directors (or a duly
authorized officer), the proceeds of which are used (1) to purchase common
stock of the company in connection with a restricted stock or employee
stock purchase plan, or to exercise stock options received pursuant to an
employee or director stock option plan or other incentive plan, in a
principal amount not to exceed the exercise price of such stock options and
(2) to refinance loans, together with accrued interest thereon, made
pursuant to item (1) of this clause (E), provided, however, that such loans
do not exceed $7.5 million at any one time outstanding (and at all times
the aggregate amount of all such loans outstanding shall be deemed to be
the same amount as is deemed outstanding under Section 4.04(b)(v) of the
Series A 9 1/4% Note Indenture).
The actions described in clauses (A), (B), (C) and (E) of this paragraph
(ii) shall be Restricted Payments that shall be permitted to be taken in
accordance with this paragraph (ii) but shall reduce the amount that would
otherwise be available for Restricted Payments under paragraph (i) (provided
that any dividend paid pursuant to clause (A) of this paragraph (ii) shall
reduce the amount that would otherwise be available under paragraph (i) when
declared, but not also when subsequently paid pursuant to such clause (A)), and
the actions described in clause (D) of paragraph (ii) shall be Restricted
Payments that shall be permitted to be taken in accordance with this paragraph
(ii) but shall not reduce the amount that would otherwise be available for
Restricted Payments under paragraph (i).
"Permitted Investments" means any and all of the following (including,
without limitation, any such actions taken prior to the Issue Date but from and
after the Series A Issue Date):
(i) Permitted Short-Term Investments; (ii) Investments in property, plant
and equipment used in the ordinary course of business and Permitted Business
Investments; (iii) Investments by a Restricted Subsidiary in the company; (iv)
Investments by the company or any Restricted Subsidiary in any Restricted
Subsidiary; (v) Investments by the company or any Restricted Subsidiary in a
Person, if such Person or a Subsidiary of such Person will, as a result of the
making of such Investment and all other contemporaneous related
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transactions, become a Restricted Subsidiary or be merged or consolidated with
or transfer or convey all or substantially all of its assets to the company or a
Restricted Subsidiary; (vi) Investments in Persons in the Oil and Gas Business
(other than Restricted Subsidiaries) intended to promote the company's strategic
business objectives in an amount not to exceed $20 million at any one time
outstanding (which Investments shall be deemed to be no longer outstanding only
upon the return of capital thereof); (vii) Investments in the form of securities
received from Asset Sales, provided that such Asset Sales are made in compliance
with the "Limitation on Asset Sales" covenant; (viii) Investments in negotiable
instruments held for collection, lease, utility and other similar deposits, and
stock, obligations or other securities received in settlement of debts
(including, without limitation, under any bankruptcy or other similar
proceeding) owing to the company or any of its Restricted Subsidiaries as a
result of foreclosure, perfection or enforcement of any Liens or Indebtedness,
in each of the foregoing cases in the ordinary course of business of the company
or such Restricted Subsidiary; (ix) Investments in the form of Permitted Hedging
Agreements of the company and its Restricted Subsidiaries; (x) relocation
allowances, advances and loans to officers, directors and employees of the
company or any of its Restricted Subsidiaries in the ordinary course of
business, provided such items do not exceed $2.5 million at any one time
outstanding; and (xi) Investments not otherwise permitted to be made pursuant to
this paragraph in an amount not to exceed $5 million at any one time
outstanding.
At all times the aggregate amount of Investments outstanding under clauses
(vi), (x) and (xi) of this definition shall be deemed to be the same amounts as
are deemed outstanding under clauses (vi), (x) and (xi), respectively, of the
definition of the term "Permitted Investments" in the Series A 9 1/4% Note
Indenture.
Limitation on Asset Sales
The Indenture provides that the company will not, and will not permit any
Restricted Subsidiary to, consummate any Asset Sale unless (i) the company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of the Property
subject to such Asset Sale and (ii) all of the consideration paid to the company
or such Restricted Subsidiary in connection with such Asset Sale is in the form
of cash, Permitted Short-Term Investments, Exchanged Properties, Liquid
Securities or the assumption by the purchaser of liabilities of the company
(other than liabilities of the company that are by their terms subordinated to
the Notes), liabilities of any Subsidiary Guarantor that made such Asset Sale
(other than liabilities of a Subsidiary Guarantor that are by their terms
subordinated to such Subsidiary Guarantor's Subsidiary Guaranty), or liabilities
of any Restricted Subsidiary that made such Asset Sale and which is not a
Subsidiary Guarantor, in each case as a result of which the company and its
Restricted Subsidiaries are no longer liable ("Permitted Consideration");
provided, however, that the company and its Restricted Subsidiaries shall be
permitted to receive Property other than Permitted Consideration if, after
giving pro forma effect to such Asset Sale, the aggregate Fair Market Value
(evaluated at the time of such Asset Sale) of all such Property other than
Permitted Consideration received from Asset Sales made after the Series A Issue
Date, which Property is held by the company or any Restricted Subsidiary at the
time of such Asset Sale, shall not exceed 10% of Adjusted Consolidated Net
Tangible Assets.
The Net Available Cash from Asset Sales may be applied by the company or a
Restricted Subsidiary, to the extent the company or such Restricted Subsidiary
elects (or is required by the terms of any Senior Indebtedness),
(i) to prepay, repay or purchase Senior Indebtedness of the company or
a Subsidiary Guarantor or Indebtedness of a Restricted Subsidiary (in each
case excluding Indebtedness owed to the company or an Affiliate of the
company) in a manner that results in the permanent reduction in the balance
of such Indebtedness and, if applicable, a permanent reduction in any
outstanding commitment for future Incurrences of Indebtedness thereunder;
(ii) to reinvest in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net
Available Cash received by the company or another Restricted Subsidiary);
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(iii) to purchase Notes or Series A 9 1/4% Notes or 9 7/8% Notes
pursuant to a 9 7/8% Notes Asset Sale Offer (as defined) (excluding Notes,
Series A 9 1/4% Notes or 9 7/8% Notes owned by the company or an Affiliate
of the company); or
(iv) in such other manner as the company or such Restricted Subsidiary
may elect in compliance with the other provisions of the Indenture.
Any Net Available Cash from an Asset Sale not applied in accordance with
clauses (i), (ii) and (iii) of the preceding paragraph within 360 days from the
date of such Asset Sale shall constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $10 million, the company will be required to
make an offer to purchase Notes having an aggregate principal amount equal to
the aggregate amount of Excess Proceeds (the "Prepayment Offer") at a purchase
price equal to 100% of the principal amount of such Notes plus accrued and
unpaid interest thereon (if any) to the Purchase Date (as defined) in accordance
with the procedures (including prorating in the event of oversubscription) set
forth in the Indenture, but, if the terms of any Pari Passu Indebtedness require
that a Pari Passu Offer (as defined) be made contemporaneously with the
Prepayment Offer, then the Excess Proceeds shall be prorated between the
Prepayment Offer and such Pari Passu Offer in accordance with the aggregate
outstanding principal amounts of the Notes and such Pari Passu Indebtedness, and
the aggregate principal amount of Notes for which the Prepayment Offer is made
shall be reduced accordingly. If the aggregate principal amount of Notes
tendered by Holders thereof exceeds the amount of available Excess Proceeds,
then such Excess Proceeds will be allocated pro rata according to the principal
amount of the Notes tendered and the Trustee will select the Notes to be
purchased in accordance with the Indenture. To the extent that any portion of
the amount of Excess Proceeds remains after compliance with the second sentence
of this paragraph and provided that all Holders of Notes have been given the
opportunity to tender their Notes for purchase as described in the following
paragraph in accordance with the Indenture, the company or such Restricted
Subsidiary may use such remaining amount for general corporate purposes
otherwise permitted under the Indenture and the amount of Excess Proceeds will
be reset to zero.
To the extent required by any Pari Passu Indebtedness, and provided there
is a permanent reduction in the principal amount of such Pari Passu
Indebtedness, the Company may make an offer to purchase the 9 7/8% Notes (a
"9 7/8% Notes Asset Sale Offer"), the Series A 9 1/4% Notes or any other such
Pari Passu Indebtedness (a "Pari Passu Offer") using Net Available Cash. The
indenture governing the 9 7/8% Notes requires the company to make an offer to
purchase the 9 7/8% Notes in the event of certain types of asset sales. Although
similar in concept to the Prepayment Offer, the specific terms of the 9 7/8%
Notes asset sale purchase offer differ materially from the terms of the
Prepayment Offer, including, without limitation, the requirement that
reinvestment or repayment of Indebtedness must be completed within 180 days
after the asset sale giving rise to such obligation. Accordingly, it is likely
that any 9 7/8% Notes Asset Sale Offer would be made prior to the Prepayment
Offer. In addition, the Series A 9 1/4% Note Indenture provides, and future Pari
Passu Indebtedness could provide, for Pari Passu Offers to be made
simultaneously with the Prepayment Offer. In the event of a Pari Passu Offer
made simultaneously with the Prepayment Offer, the Excess Proceeds shall be
prorated between the Pari Passu Offer and the Prepayment Offer in accordance
with the outstanding principal amount of the Notes and such Pari Passu
Indebtedness as noted above. In either case, the existence of a Pari Passu Offer
could result in a decrease in the amount of Excess Proceeds available for the
Prepayment Offer. See "Risk Factors -- Substantial Leverage."
The company will comply, to the extent applicable, with the requirements of
Rules 13e-4 and 14e-1 under the Exchange Act and any other securities laws or
regulations thereunder to the extent such laws and regulations are applicable in
connection with the purchase of Notes as described above. To the extent that the
provisions of any securities laws or regulations conflict with the provisions
relating to the Prepayment Offer, the company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations described above by virtue thereof.
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Incurrence of Layered Indebtedness
The Indenture provides that (i) the company will not Incur any Indebtedness
that is subordinated or junior in right of payment to any Senior Indebtedness
unless such Indebtedness constitutes Indebtedness that is junior to, or pari
passu with, the Notes in right of payment, and (ii) no Subsidiary Guarantor
shall Incur any Indebtedness that is subordinated or junior in right of payment
to any other Indebtedness of such Subsidiary Guarantor unless such Indebtedness
is, by its terms, pari passu with or subordinated in right of payment to such
Subsidiary Guarantor's Subsidiary Guaranty.
Limitation on Transactions with Affiliates
The Indenture provides that the company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, enter into or suffer
to exist any transaction or series of related transactions (including, without
limitation, the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate of the company unless (i) such transaction or
series of related transactions is on terms that are no less favorable to the
company or such Restricted Subsidiary, as the case may be, than would be
available in a comparable transaction in arm's-length dealings with an unrelated
third party, (ii) with respect to a transaction or series of related
transactions involving payments in excess of $1 million in the aggregate, the
company delivers an Officers' Certificate to the Trustee certifying that such
transaction complies with clause (i) above, and (iii) with respect to a
transaction or series of transactions involving payments in excess of $5 million
in the aggregate, the Company delivers an Officers' Certificate to the Trustee
certifying that (A) such transaction complies with clause (i) above and (B) such
transaction or series of related transactions has been approved by a majority of
the disinterested directors of the Board of Directors of the company.
The limitations of the preceding paragraph do not apply to:
(i) the payment of reasonable and customary regular fees to directors
of the company or any of its Restricted Subsidiaries who are not employees
of the company or any of its Restricted Subsidiaries;
(ii) indemnities of officers and directors of the company or any
Subsidiary consistent with such Person's bylaws and applicable statutory
provisions;
(iii) any employee compensation and other benefit arrangements entered
into by the company or any of its Subsidiaries in the ordinary course of
business;
(iv) relocation allowances, advances and loans made to officers,
directors and employees of the company and its Restricted Subsidiaries
provided such items do not exceed $2.5 million in the aggregate at any one
time outstanding;
(v) transactions among the company and its Restricted Subsidiaries;
(vi) loans constituting Restricted Payments made pursuant to and in
compliance with paragraph (ii), clause (E) of the "Limitation on Restricted
Payments" covenant; and
(vii) the gas gathering agreement between the company and the Existing
Unrestricted Subsidiary as in effect on the Series A Issue Date and oil and
gas operating agreements entered into in the ordinary course of business by
the company and its Restricted Subsidiaries in a manner consistent with the
current practice of the company and its Restricted Subsidiaries so long as
such operating agreements are in a form customary in the Oil and Gas
Business.
Limitation on Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the company will not, and will not permit any
Restricted Subsidiary to, create, assume or otherwise cause or suffer to exist
or to become effective any consensual encumbrance or restriction on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock or Redeemable Stock held by the company or a
Restricted Subsidiary, (ii) make payments in respect of any Indebtedness owed to
the company or any of its Restricted Subsidiaries, (iii) make loans or advances
to the company or any of its Restricted Subsidiaries or (iv) transfer any of its
assets to the company
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or any of its Restricted Subsidiaries, other than (A) consensual encumbrances or
restrictions required by the Bank Credit Facility that are not more restrictive
than those in effect under the Bank Credit Facility on the Series A Issue Date,
(B) with respect to clause (iv) above, customary provisions restricting
subletting, assignment, pledging or transfer of any Property that is a lease,
license, contract or similar type of Property, (C) consensual encumbrances or
restrictions in instruments governing Indebtedness of a Person acquired by the
Company or any Restricted Subsidiary at the time of such acquisition, provided
that such Indebtedness was not Incurred in anticipation of such acquisition, (D)
with respect to clause (iv) above, purchase money obligations for property
acquired in the ordinary course of business, (E) with respect to clause (iv)
above, customary restrictions contained in asset sale agreements limiting the
transfer of such assets pending the closing of such sale and (F) consensual
encumbrances or restrictions in instruments governing Indebtedness Incurred to
refinance, refund, extend or renew Indebtedness referred to in clauses (C) and
(D) above, provided that the payment restrictions contained therein are not more
restrictive taken as a whole than those provided for in the Indebtedness being
refinanced, refunded, extended or renewed.
Limitation on Redemptions and Other Repayments of Notes and Series A 9 1/4%
Notes
The company will not optionally make any principal payment on, or redeem,
repurchase, defease (including in-substance or legal defeasance) or otherwise
acquire or retire for value (including pursuant to mandatory repurchase
covenants), prior to any scheduled principal payment, scheduled sinking fund
payment or other stated maturity (collectively, for purposes of this covenant
only, "redeem," and such action being a "redemption") the Notes unless,
substantially concurrently with such redemption, the company redeems (or, if
such redemption of Series A 9 1/4% Notes requires the consent of the holders of
the Series A 9 1/4% Notes, offers to redeem) an aggregate principal amount of
the Series A 9 1/4% Notes (rounded to the nearest integral multiple of $1,000)
equal to the product of (i) a fraction, the numerator of which is the aggregate
principal amount of the Notes to be so redeemed (or for which such offer to
redeem will be made) and the denominator of which is the aggregate principal
amount of the Notes outstanding immediately prior to such proposed redemption
and (ii) the aggregate principal amount of the Series A 9 1/4% Notes outstanding
immediately prior to such proposed redemption.
The company will not optionally redeem the Series A 9 1/4% Notes unless,
substantially concurrently with such redemption, the company redeems (or, if
such redemption of Notes requires the consent of the holders of the Notes,
offers to redeem) an aggregate principal amount of the Notes (rounded to the
nearest integral multiple of $1,000) equal to the product of (i) a fraction, the
numerator of which is the aggregate principal amount of the Series A 9 1/4%
Notes to be so redeemed (or for which such offer to redeem will be made) and the
denominator of which is the aggregate principal amount of the Series A 9 1/4%
Notes outstanding immediately prior to such proposed redemption and (ii) the
aggregate principal amount of the Notes outstanding immediately prior to such
proposed redemption.
The preceding two paragraphs shall not apply to a purchase of the Notes or
the Series A 9 1/4% Notes that satisfies both of the following requirements: (1)
such purchase is an individually negotiated, one-on-one private transaction or
an open-market transaction; and (2) such purchase does not constitute a "tender
offer" under applicable law.
MERGER, CONSOLIDATION AND SALE OF SUBSTANTIALLY ALL ASSETS
The Indenture provides that (i) the company will not merge or consolidate
with or into any other Person (whether or not the company is the surviving
entity), and (ii) the company will not and will not permit its Restricted
Subsidiaries to, directly or indirectly, sell, transfer, assign, lease, convey
or otherwise dispose of all or substantially all of the Property of the company
and its Restricted Subsidiaries taken as a whole in any one transaction or a
series of transactions (including, without limitation, dispositions pursuant to
mergers, consolidations, Investments and Production Payments and Reserve Sales),
in each case unless:
(A) the Surviving Entity shall be a corporation organized and existing
under the laws of the United States of America or a State thereof or the
District of Columbia;
(B) if the company is not the Surviving Entity, the Surviving Entity
expressly assumes, by supplemental indenture satisfactory to the Trustee,
executed and delivered to the Trustee by the Surviving Entity, the due and
punctual payment of the principal of, premium, if any, and interest on all
the Notes,
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according to their tenor, and the due and punctual performance and
observance of all of the covenants and conditions of the Indenture to be
performed by the company (and in the case of clause (ii) above, the company
and the Surviving Entity shall both be considered as the issuer of the
Notes);
(C) in the case of the sale, transfer, assignment, lease, conveyance
or other disposition of all or substantially all of the Property of the
company and its Restricted Subsidiaries taken as a whole, such Property
shall have been transferred as an entirety or virtually as an entirety to
one Person;
(D) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis, no Default or Event of Default
shall have occurred and be continuing;
(E) except in the case of a merger of the company with a Restricted
Subsidiary, immediately after giving effect to such transaction or series
of transactions on a pro forma basis, the Surviving Entity would be able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the "Limitation on Indebtedness" covenant;
(F) except in the case of a merger of the company with a Restricted
Subsidiary, immediately after giving effect to such transaction or series
of transactions on a pro forma basis, the Surviving Entity shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth
of the company immediately prior to the transaction or series of
transactions;
(G) if the company is not the Surviving Entity, then (1) each
Subsidiary Guarantor (unless it is the Surviving Entity) shall have
executed and delivered to the Trustee a supplemental indenture satisfactory
to the Trustee confirming that such Subsidiary Guarantor's Subsidiary
Guaranty remains in full force and effect and guarantees the Surviving
Entity's obligations under the Indenture and the Notes, (2) each
Significant Subsidiary of the Surviving Entity (determined immediately
after giving effect to such transaction or series of transactions on a pro
forma basis) shall have executed and delivered to the Trustee a
supplemental indenture satisfactory to the Trustee pursuant to which such
Person becomes a Subsidiary Guarantor and guarantees the Notes pursuant to
the terms of a Subsidiary Guaranty and (3) in the case of clause (ii)
above, the company shall have executed and delivered to the Trustee a
supplemental indenture satisfactory to the Trustee pursuant to which the
company confirms its obligations for the due and punctual payment of the
principal of, premium, if any, and interest on all the Notes, according to
their tenor, and the due and punctual performance and observance of all of
the covenants and conditions of the Indenture to be performed by the
company; and
(H) the company and, if the company is not the Surviving Entity, the
Surviving Entity, each shall have delivered to the Trustee Officers'
Certificates (attaching the calculations to demonstrate compliance with
clauses (E) and (F) above) and an Opinion of Counsel, each stating that
such merger, consolidation or disposition and any such supplemental
indentures comply with the above provisions and that all conditions
precedent relating to such transaction or transactions have been complied
with.
The term "Surviving Entity" shall mean the Person referred to in clauses (i) and
(ii) above (1) formed by or surviving any such merger or consolidation involving
the company or (2) to which any such sale, transfer, assignment, lease,
conveyance or other disposition is made.
In addition to, and not in limitation of the preceding paragraph, the
Indenture further provides that (i) the company will not permit any Material
Restricted Subsidiary to merge or consolidate with or into any other Person
(whether or not such Material Restricted Subsidiary survives such merger or
consolidation) and (ii) the company will not permit any Material Restricted
Subsidiary to directly or indirectly issue Capital Stock or Redeemable Stock in
a single transaction or a series of transactions (including, without limitation,
engaging in any recapitalization or similar transaction) if, after giving effect
to such issuance (and all possible conversions, exercises and similar events
with respect to any such stock (whether or not then convertible or exercisable)
in order to reach a fully diluted, fully converted basis), such Material
Restricted Subsidiary would no longer be a Subsidiary of the company, in each
case unless:
(A) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis, no Default or Event of Default
shall have occurred and be continuing;
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(B) except in the case of a merger of a Material Restricted Subsidiary
with the company or a Wholly Owned Restricted Subsidiary, immediately after
giving effect to such transaction or series of transactions on a pro forma
basis, the Company would be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the "Limitation on
Indebtedness" covenant;
(C) except in the case of a merger of a Material Restricted Subsidiary
with the company or a Wholly Owned Restricted Subsidiary, immediately after
giving effect to such transaction or series of transactions on a pro forma
basis, the company shall have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of the company immediately prior to the
transaction or series of transactions;
(D) the Material Restricted Subsidiary Survivor shall have executed
and delivered to the Trustee, as appropriate, either (1) a supplemental
indenture satisfactory to the Trustee confirming that such Material
Restricted Subsidiary Survivor's Subsidiary Guaranty remains in full force
and effect and guarantees the company's obligations under the Indenture and
the Notes, or (2) a supplemental indenture satisfactory to the Trustee
pursuant to which such Material Restricted Subsidiary Survivor becomes a
Subsidiary Guarantor and guarantees the Notes pursuant to the terms of a
Subsidiary Guaranty; and
(E) the company and such Material Restricted Subsidiary Survivor each
shall have delivered to the Trustee Officers' Certificates (in the case of
the company, attaching the calculations to demonstrate compliance with
clauses (B) and (C) above) and an Opinion of Counsel, each stating that
such merger, consolidation or issuance and any such supplemental indentures
comply with the above provisions and that all conditions precedent relating
to such transaction or transactions have been complied with.
The term "Material Restricted Subsidiary Survivor" shall mean (1) in the case of
clause (i) above, the Person surviving any such merger or consolidation or (2)
in the case of clause (ii) above, such Material Restricted Subsidiary.
With respect to each transaction or series of transactions described above,
giving effect to such transaction or series of transactions on a pro forma basis
shall include, without limitation, (i) treating any Indebtedness not previously
the obligation of the company or any of its Restricted Subsidiaries which
becomes an obligation of the company or any of its Restricted Subsidiaries in
connection with or as a result of such transaction or series of transactions as
having been Incurred at the time of such transaction or series of transactions,
and (ii) giving effect to any Indebtedness Incurred or anticipated to be
Incurred in connection with such transaction or series of transactions.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Indebtedness" means, with respect to the company, Indebtedness of
a Person existing at the time such Person becomes a Restricted Subsidiary.
"Additional Assets" means:
(i) any Property (other than cash, Permitted Short-Term Investments or
securities) used in the Oil and Gas Business or any business ancillary
thereto,
(ii) Investments in any other Person engaged in the Oil and Gas
Business or any business ancillary thereto (including the acquisition from
third parties of Capital Stock of such Person) as a result of which such
other Person becomes a Restricted Subsidiary made in compliance with the
definition of the term "Restricted Subsidiary" and the "Limitation on
Restricted Payments" covenant,
(iii) the acquisition from third parties of Capital Stock of a
Restricted Subsidiary,
(iv) the costs of acquiring, exploiting, developing, exploring,
producing or operating in respect of oil and gas properties, or
(v) Permitted Business Investments.
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"Adjusted Consolidated Net Tangible Assets" means, without duplication, as
of the date of determination, (i) the sum of (A) discounted future net cash
flows from proved oil and gas reserves of the company and its Restricted
Subsidiaries, calculated in accordance with Commission guidelines (before any
state or Federal income tax), as estimated by the company and reviewed by
independent petroleum engineers as of a date no earlier than the date of the
company's latest annual consolidated financial statements (or, in the case that
the date of determination is after the end of the first fiscal quarter of the
fiscal year of the company, as estimated by the company's engineers as of a date
no earlier than the end of the most recent fiscal quarter, which estimates shall
be confirmed by independent petroleum engineers in accordance with Commission
guidelines in the event of a Material Change), (B) the Net Working Capital on a
date no earlier than the date of the company's latest consolidated annual or
quarterly financial statements and (C) with respect to each other tangible asset
(including undeveloped acreage) of the company or its Restricted Subsidiaries,
the greater of (1) the net book value of such other tangible asset on a date no
earlier than the date of the company's latest consolidated annual or quarterly
financial statements and (2) the appraised value, as estimated by a qualified
independent appraiser, of such other tangible asset, as of a date no earlier
than the date of the company's latest audited financial statements, minus (ii)
minority interests and, to the extent not otherwise taken into account in
determining Adjusted Consolidated Net Tangible Assets, any gas balancing
liabilities of the company and its Restricted Subsidiaries.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
amount by which the fair value of the Property of such Subsidiary Guarantor
exceeds the total amount of liabilities, including, without limitation,
contingent liabilities (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), but excluding liabilities under
the Subsidiary Guaranty, of such Subsidiary Guarantor at such date.
"Affiliate" of any specified Person means any other Person (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person or (ii)
which beneficially owns or holds directly or indirectly 10% or more of any class
of the Voting Stock of such specified Person or of any Subsidiary of such
specified Person. For the purposes of this definition, "control," when used with
respect to any specified Person, means the power to direct the management and
policies of such Person directly or indirectly, whether through the ownership of
Voting Stock, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means (including, without limitation, any such actions taken
prior to the Issue Date but from and after the Series A Issue Date): (i) any
direct or indirect sale, transfer, assignment, lease, conveyance or other
disposition (including, without limitation, dispositions pursuant to any merger,
consolidation, Investment or Production Payment and Reserve Sale) by the company
or any of its Restricted Subsidiaries in any single transaction or series of
transactions having a Fair Market Value in excess of $1 million of (A) shares of
Capital Stock or other ownership interests of another Person (including Capital
Stock of Unrestricted Subsidiaries) or (B) any other Property of the company or
any of its Restricted Subsidiaries, and (ii) the issuance of Capital Stock
(including, without limitation, pursuant to any merger, consolidation,
recapitalization or similar transaction) by a Restricted Subsidiary to a Person
other than the company or a Wholly Owned Restricted Subsidiary in any single
transaction or series of transactions having a Fair Market Value in excess of $1
million. Notwithstanding the preceding sentence, the term "Asset Sale" shall not
include:
(i) the sale or transfer of Permitted Short-Term Investments,
inventory, accounts receivable or other Property (excluding the sale or
transfer of oil and gas in place and other interests in real property) in
the ordinary course of business;
(ii) the lease, farm-out or abandonment of any oil and gas property in
the ordinary course of business of the company and its Restricted
Subsidiaries and in a manner customary in the Oil and Gas Business;
(iii) the disposition of Property received in settlement of debts
(including, without limitation, under any bankruptcy or similar proceeding)
owing to the company or any Restricted Subsidiary as a result of
foreclosure, perfection or enforcement of any Lien or debt, which debts
were owing to the company or
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any Restricted Subsidiary in the ordinary course of business of the company
or such Restricted Subsidiary;
(iv) the transfer of Property to an Unrestricted Subsidiary or other
Person to the extent that such transfer constitutes a Restricted Payment
made pursuant to and in compliance with the "Limitation on Restricted
Payments" covenant;
(v) any disposition of all or substantially all of the Property of the
company and its Restricted Subsidiaries taken as a whole made subject to
and in compliance with the "Merger, Consolidation and Sale of Substantially
All Assets" covenant;
(vi) the disposition of any Property by the company or a Restricted
Subsidiary to the company or a Restricted Subsidiary;
(vii) any issuance of Capital Stock made by a Material Restricted
Subsidiary that results in such Material Restricted Subsidiary no longer
being a Subsidiary of the company, which issuance was made subject to and
in compliance with the "Merger, Consolidation and Sale of Substantially All
Assets" covenant; and
(viii) any Production Payment and Reserve Sale created, incurred,
issued, assumed or guaranteed in connection with the financing of, and
within 60 days after, the acquisition of the Property that is subject
thereto.
"Assigned Restricted Subsidiary Indebtedness" means Indebtedness of a
Restricted Subsidiary to the company that the company has assigned to the
lenders under the Bank Credit Facility, as collateral securing Indebtedness of
the company under the Bank Credit Facility.
"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (i) the sum of the products of
(A) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund or mandatory redemption payment
requirements) of such Indebtedness multiplied by (B) the amount of each such
principal payment by (ii) the sum of all such principal payments.
"Bank Credit Facility" means collectively, one or more senior credit
facilities or commercial paper facilities with banks or other institutional
lenders (including, without limitation, the credit facility pursuant to the
Amended and Restated Credit Agreement, dated June 14, 1996, as amended, among
the company, The Chase Manhattan Bank, as Agent, and certain banks), together
with any security and related documents, as all such credit facilities and
documents may be amended, supplemented, extended, increased, refinanced or
replaced from time to time. For purposes of determining whether Indebtedness
under the Bank Credit Facility constitutes Permitted Indebtedness and only for
such purposes, Indebtedness Incurred in reliance on clause (i) of the first
paragraph of the "Limitation on Indebtedness" covenant shall not be deemed to
constitute Indebtedness Incurred in reliance on clause (i) of the definition of
the term "Permitted Indebtedness."
"Capitalized Lease Obligation" of any Person means the obligation of such
Person to pay rent or other amounts under a lease of property, real or personal,
that is required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of such obligation shall be the capitalized
amount thereof determined in accordance with GAAP. For purposes of the
"Limitation on Liens" covenant, a Capitalized Lease Obligation shall be deemed
to be secured by a Lien on the Property being leased.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than debt securities convertible into an
equity interest), warrants or options to subscribe for or to acquire an equity
interest in such Person; provided, however, that "Capital Stock" shall not
include Redeemable Stock.
"Commission" means the Securities and Exchange Commission.
"Consolidated Interest Coverage Ratio" means, as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of (i) the aggregate amount
of EBITDA of the company and its consolidated Restricted Subsidiaries for the
four full fiscal
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quarters immediately prior to the Transaction Date to (ii) the aggregate
Consolidated Interest Expense of the company and its Restricted Subsidiaries
that is anticipated to accrue during a period consisting of the fiscal quarter
in which the Transaction Date occurs and the three fiscal quarters immediately
subsequent thereto (based upon the pro forma amount and maturity of, and
interest payments in respect of, Indebtedness of the company and its Restricted
Subsidiaries expected by the company to be outstanding on the Transaction Date),
assuming for the purposes of this measurement the continuation of market
interest rates prevailing on the Transaction Date and base interest rates in
respect of floating interest rate obligations equal to the base interest rates
on such obligations in effect as of the Transaction Date, provided, that if the
company or any of its Restricted Subsidiaries is a party to any Interest Rate
Protection Agreement which would have the effect of changing the interest rate
on any Indebtedness of the company or any of its Restricted Subsidiaries for
such four quarter period (or a portion thereof), the resulting rate shall be
used for such four quarter period or portion thereof; provided, further, that
any Consolidated Interest Expense with respect to Indebtedness incurred or
retired by the company or any of its Restricted Subsidiaries during the fiscal
quarter in which the Transaction Date occurs shall be calculated as if such
Indebtedness was so incurred or retired on the first day of the fiscal quarter
in which the Transaction Date occurs. In addition, if since the beginning of the
four full fiscal quarter period preceding the Transaction Date, (i) the company
or any of its Restricted Subsidiaries shall have engaged in any Asset Sale,
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive), or increased by an amount equal to the EBITDA (if negative), directly
attributable to the assets which are the subject of such Asset Sale for such
period calculated on a pro forma basis as if such Asset Sale and any related
retirement of Indebtedness had occurred on the first day of such period or (ii)
the company or any of its Restricted Subsidiaries shall have acquired any
material assets, EBITDA shall be calculated on a pro forma basis as if such
asset acquisitions had occurred on the first day of such four fiscal quarter
period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, (i) the sum of (A) the aggregate amount of cash and
noncash interest expense (including capitalized interest) of such Person and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP in respect of Indebtedness (including, without limitation,
(1) any amortization of debt discount, (2) net costs associated with Interest
Rate Protection Agreements (including any amortization of discounts), (3) the
interest portion of any deferred payment obligation, (4) all accrued interest,
and (5) all commissions, discounts, commitment fees, origination fees and other
fees and charges owed with respect to any Bank Credit Facility and other
Indebtedness paid, accrued or scheduled to be paid or accrued during such
period); (B) Preferred Stock and Redeemable Stock dividends of such Person and
of its Restricted Subsidiaries (if such dividends are paid to a Person other
than such Person or its Wholly Owned Restricted Subsidiaries) declared and
payable other than in kind; (C) the portion of any rental obligation of such
Person or its Restricted Subsidiaries in respect of any Capitalized Lease
Obligation allocable to interest expense in accordance with GAAP; (D) the
portion of any rental obligation of such Person or its Restricted Subsidiaries
in respect of any Sale and Leaseback Transaction that is Indebtedness allocable
to interest expense (determined as if such obligation were treated as a
Capitalized Lease Obligation); and (E) to the extent any Indebtedness of any
other Person (other than Restricted Subsidiaries) is Guaranteed by such Person
or any of its Restricted Subsidiaries, the aggregate amount of interest paid,
accrued or scheduled to be paid or accrued by such other Person during such
period attributable to any such Indebtedness; less (ii) to the extent included
in (i) above, amortization or write-off of deferred financing costs of such
Person and its Restricted Subsidiaries during such period; in the case of both
(i) and (ii) above, after elimination of intercompany accounts among such Person
and its Restricted Subsidiaries and as determined in accordance with GAAP.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or net loss, as the case may be) of such Person and its
Restricted Subsidiaries for such period on a consolidated basis, determined in
accordance with GAAP; provided, that there shall be excluded therefrom, without
duplication,
(i) items classified as extraordinary (other than the tax benefit of
the utilization of net operating loss carry-forwards and alternative
minimum tax credits);
(ii) any gain or loss, net of taxes, on the sale or other disposition
of assets (including the Capital Stock of any other Person) in excess of $1
million, from any sale or disposition, or series of related
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sales or dispositions (but in no event shall this clause (ii) apply to the
sale of oil and gas inventories in the ordinary course of business);
(iii) the net income of any Subsidiary of such specified Person to the
extent the transfer to that Person of that income is restricted by contract
or otherwise, except for any cash dividends or cash distributions actually
paid by such Subsidiary to such Person during such period;
(iv) the net income (or net loss) of any other Person in which such
specified Person or any of its Restricted Subsidiaries has an ownership
interest (which ownership interest does not cause the net income of such
other Person to be consolidated with the net income of such specified
Person in accordance with GAAP or is an interest in a consolidated
Unrestricted Subsidiary), except to the extent of the amount of cash
dividends or other cash distributions actually paid to such Person or its
Restricted Subsidiaries by such other Person during such period;
(v) the net income (or net loss) of any Person acquired by such
specified Person or any of its Restricted Subsidiaries in a
pooling-of-interests transaction for any period prior to the date of such
acquisition;
(vi) any gain or loss, net of taxes, realized on the termination of
any employee pension benefit plan;
(vii) any adjustments of a deferred tax liability or asset pursuant to
Statement of Financial Accounting Standards No. 109 which result from
changes in enacted tax laws or rates; and
(viii) the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" of any Person means the stockholders' equity of
such Person and its Restricted Subsidiaries, as determined on a consolidated
basis in accordance with GAAP, less (to the extent included in stockholders'
equity) amounts attributable to Redeemable Stock of such Person or its
Restricted Subsidiaries.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"EBITDA" means with respect to any Person for any period, the Consolidated
Net Income of such Person and its consolidated Restricted Subsidiaries for such
period, plus (i) the sum of, to the extent reflected in the consolidated income
statement of such Person and its Restricted Subsidiaries for such period from
which Consolidated Net Income is determined and deducted in the determination of
such Consolidated Net Income, without duplication, (A) income tax expense (but
excluding income tax expense relating to (1) sales or other disposition of
assets (including the Capital Stock of any other Person) resulting in a net gain
in excess of $1 million and (2) the redemption or retirement of any Indebtedness
prior to its Stated Maturity), (B) Consolidated Interest Expense, (C)
depreciation and depletion expense, (D) amortization expense, (E) exploration
expense, (F) any loss, net of taxes, in connection with the redemption or
retirement of any Indebtedness prior to its Stated Maturity, and (G) any other
noncash charges, including, without limitation, unrealized foreign exchange
losses; less (ii) the sum of, to the extent reflected in the consolidated income
statement of such Person and its Restricted Subsidiaries for such period from
which Consolidated Net Income is determined and added in the determination of
such Consolidated Net Income, without duplication, (A) income tax recovery (but
excluding income tax recovery relating to (1) sales or other dispositions of
assets (including the Capital Stock of any other Person) resulting in a net loss
in excess of $1 million and (2) the redemption or retirement of any Indebtedness
prior to its Stated Maturity), (B) any gain, net of taxes, in connection with
the redemption or retirement of any Indebtedness prior to its Stated Maturity
and (C) unrealized foreign exchange gains.
"Equity Offering" means a bona fide underwritten sale to the public of
Capital Stock of the company pursuant to a registration statement (other than a
Form S-8 or any other form relating to securities issuable under any employee
benefit plan of the company) that is declared effective by the Commission
following the Series A Issue Date and resulting in aggregate gross proceeds to
the company of at least $30 million.
"Event of Default" has the meaning set forth under the caption "-- Events
of Default and Notice."
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"Exchanged Properties" means oil and gas properties received by the company
or a Restricted Subsidiary in trade or as a portion of the total consideration
for other such properties.
"Exchange Rate Contract" means, with respect to any Person, any currency
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or any combination thereof, designed and entered
into in order to provide protection against fluctuations in currency exchange
rates, and entered into in the ordinary course of business of such Person.
"Existing Unrestricted Subsidiary" means Resource Gathering Systems, Inc.,
a California corporation.
"Fair Market Value" means, with respect to any assets to be transferred
pursuant to any Asset Sale or Sale and Leaseback Transaction or any non-cash
consideration or property transferred or received by any Person, the fair market
value of such consideration or property as determined in good faith by (i) any
officer of the company if such fair market value is less than $10 million and
(ii) the Board of Directors of the company as evidenced by a certified
resolution delivered to the Trustee if such fair market value is equal to or in
excess of $10 million.
"GAAP" means United States generally accepted accounting principles as in
effect on the Series A Issue Date, unless stated otherwise.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, and including, without limitation, any Lien on the
assets of such Person securing obligations of the primary obligor and any
obligation of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase or payment of) any security for the payment of
such Indebtedness, (ii) to purchase Property, securities or services for the
purpose of assuring the holder of such Indebtedness of the payment of such
Indebtedness, or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness (and "Guaranteed,"
"Guaranteeing" and "Guarantor" shall have meanings correlative to the
foregoing); provided, however, that a Guarantee by any Person shall not include
(A) endorsements by such Person for collection or deposit, in either case, in
the ordinary course of business or (B) a contractual commitment by one Person to
invest in another Person for so long as such Investment is reasonably expected
to constitute a Permitted Investment under clause (ii) of the definition of
Permitted Investments.
"Holder" means the Person in whose name a Note is registered on the
Security Register.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), extend,
assume, Guarantee or become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
results in an obligation of such Person that exists at such time, and is not
theretofore classified as Indebtedness, becoming Indebtedness shall not be
deemed an Incurrence of such Indebtedness. For purposes of this definition,
Indebtedness of the company or a Restricted Subsidiary held by a Wholly Owned
Restricted Subsidiary shall be deemed to be Incurred by the company or such
Restricted Subsidiary in the event such Wholly Owned Restricted Subsidiary
ceases to be a Wholly Owned Restricted Subsidiary or in the event such
Indebtedness is transferred to a Person other than the company or a Wholly Owned
Restricted Subsidiary. For purposes of this definition, any non-interest bearing
or other discount Indebtedness shall be deemed to have been Incurred only on the
date of the original issuance thereof.
"Indebtedness" means at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent,
(i) any Obligation of such Person for borrowed money,
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(ii) any Obligation of such Person evidenced by bonds, debentures,
notes, Guarantees or other similar instruments, including, without
limitation, any such Obligations incurred in connection with the
acquisition of Property, assets or businesses,
(iii) any reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of such Person,
(iv) any Obligation of such Person issued or assumed as the deferred
purchase price of Property or services,
(v) any Capital Lease Obligation of such Person,
(vi) the maximum fixed redemption or repurchase price of Redeemable
Stock of such Person at the time of determination,
(vii) any payment obligation of such Person under Permitted Hedging
Agreements at the time of determination,
(viii) any obligation to pay rent or other payment amounts of such
Person with respect to any Sale and Leaseback Transaction to which such
Person is a party, and
(ix) any obligation of the type referred to in clauses (i) through
(viii) of this paragraph of another Person and all dividends of another
Person the payment of which, in either case, such Person has Guaranteed or
is responsible or liable, directly or indirectly, as obligor, Guarantor or
otherwise; provided that Indebtedness shall not include Production Payments
and Reserve Sales.
For purposes of this definition, the maximum fixed repurchase price of any
Redeemable Stock that does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Stock as if such Redeemable
Stock were repurchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture; provided, however, that if such Redeemable
Stock is not then permitted to be repurchased, the repurchase price shall be the
book value of such Redeemable Stock. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
Obligations as described above and the maximum liability at such date in respect
of any contingent Obligations described above.
Notwithstanding the foregoing, so long as any principal of, premium, if
any, on or interest on the 9 7/8% Notes remains outstanding, for purposes of the
subordination provisions of the Indenture, the Notes and any Subsidiary
Guaranties (and to the extent used therein, any applicable definitions and other
provisions, if any), and only for such purposes, "Indebtedness" means (without
duplication), with respect to any Person,
(i) any liability or obligation, contingent or otherwise, of such
Person (A) for borrowed money, (B) evidenced by bonds, notes, debentures or
similar instruments, (C) with respect to the reimbursement of any letter of
credit or banker's acceptance, (D) representing the balance deferred and
unpaid of the purchase price of any property (except any such balance that
constitutes a trade payable or accrued liability in the ordinary course of
business that is not overdue by more than 120 days or is being contested in
good faith), (E) for the payment of money relating to a Capitalized Lease
Obligation or (F) in respect of Interest Rate Protection Agreements;
(ii) direct and indirect Guarantees or similar agreements, contingent
or otherwise, in respect of any Obligation of others of the types described
in the preceding clause (i);
(iii) any Obligation or liability secured by a consensual Lien to
which the property or assets of such Person are subject, regardless of
whether the Obligations secured thereby shall have been assumed by or shall
otherwise be such Person's legal liability;
(iv) with respect to such Person, the liquidation preference and any
mandatory redemption payment obligations in respect of Redeemable Stock;
and
(v) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (i), (ii), (iii) and (iv).
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"Interest Rate Protection Agreement" means, with respect to any Person, any
interest rate swap agreement, forward rate agreement, interest rate cap or other
rate hedge arrangement to or under which such Person is a party or a
beneficiary, and, in the case of the company and its Restricted Subsidiaries,
only to the extent such agreements are related to payment obligations on
Indebtedness of the company and its Restricted Subsidiaries permitted by the
terms of the "Limitation on Indebtedness" covenant and are entered into in the
ordinary course of business of the company and its Restricted Subsidiaries.
"Investment" means, with respect to any Person (i) any amount paid by such
Person, directly or indirectly (such amount to be the Fair Market Value of such
Capital Stock, securities or Property at the time of transfer), to any other
Person for Capital Stock or other securities of, or as a capital contribution
to, any other Person or (ii) any direct or indirect loan or advance to any other
Person (other than accounts receivable of such Person arising in the ordinary
course of business); provided, however, that Investments shall not include
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices and any increase in the equity ownership in any Person
resulting from retained earnings of such Person.
"Issue Date" means the date upon which the Notes first are issued and
authenticated under the Indenture.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest, lien
(statutory or other), charge, easement, encumbrance, preference, priority or
other security or similar agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing). For purposes of
the "Limitation on Liens" covenant, a Capitalized Lease Obligation shall be
deemed to be secured by a Lien on the property being leased.
"Liquid Securities" means securities (i) of an issuer that is not an
Affiliate of the company, (ii) that are publicly traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market and (iii) as
to which the company is not subject to any restrictions on sale or transfer
(including any volume restrictions under Rule 144 under the Securities Act or
any other restrictions imposed by the Securities Act) or as to which a
registration statement under the Securities Act covering the resale thereof is
in effect for as long as the securities are held; provided that securities
meeting the requirements of clauses (i), (ii) and (iii) above shall be treated
as Liquid Securities from the date of receipt thereof until and only until the
earlier of (x) the date on which such securities are sold or exchanged for cash
or Permitted Short-Term Investments and (y) 180 days following the date of
receipt of such securities. In the event such securities are not sold or
exchanged for cash or cash equivalents within 180 days of receipt thereof, for
purposes of determining whether the transaction pursuant to which the company or
a Restricted Subsidiary received the securities was in compliance with the
"Limitation on Asset Sales" covenant, such securities shall be deemed not to
have been Liquid Securities at any time.
"Material Change" means an increase or decrease (excluding changes that
result solely from changes in prices) of more than 20% during a fiscal quarter
in the estimated discounted future net cash flows from proved oil and gas
reserves of the company and its Restricted Subsidiaries, calculated in
accordance with clause (i)(A) of the definition of Adjusted Consolidation Net
Tangible Assets; provided, however, that the following will be excluded from the
calculation of Material Change: (i) any acquisitions during the quarter of oil
and gas reserves with respect to which the company's estimate of the discounted
future net cash flows from proved oil and gas reserves has been confirmed by
independent petroleum engineers and (ii) any dispositions of Properties existing
at the beginning of such quarter that have been disposed of in compliance with
the "Limitation on Asset Sales" covenant.
"Material Restricted Subsidiary" means any Restricted Subsidiary that
directly or indirectly (including through its Subsidiaries) owns or controls
Property constituting all or substantially all of the Property of the company
and its Restricted Subsidiaries taken as a whole.
"Net Available Cash" from an Asset Sale means cash proceeds received
therefrom (including (i) any cash proceeds received by way of deferred payment
of principal pursuant to a note or installment receivable
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or otherwise, but only as and when received, and (ii) the Fair Market Value of
Liquid Securities and Permitted Short-Term Investments, and excluding (A) any
consideration received in the form of assumption of Indebtedness of the company
or any Restricted Subsidiary, and (B) except to the extent subsequently
converted to cash, Liquid Securities or Permitted Short-Term Investments,
consideration constituting Exchanged Properties or consideration other than
Permitted Consideration), in each case net of (i) all legal, title and recording
expenses, commissions and other fees and expenses incurred, and all Federal,
state, foreign and local taxes required to be paid or accrued as a liability
under GAAP as a consequence of such Asset Sale, (ii) all payments (which
payments are made in a manner that results in the permanent reduction in the
balance of such Indebtedness and, if applicable, a permanent reduction in any
outstanding commitment for future Incurrences of Indebtedness thereunder) made
by the company and its Restricted Subsidiaries on any Indebtedness (but
specifically excluding Indebtedness of the company and its Restricted
Subsidiaries assumed in connection with such Asset Sale) which is secured by any
assets subject to such Asset Sale, in accordance with the terms of any Lien upon
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Sale or by applicable law, be repaid out of the proceeds
from such Asset Sale, (iii) all distributions and other payments required to be
made to minority interest holders in Restricted Subsidiaries or joint ventures
as a result of such Asset Sale, and (iv) the deduction of appropriate amounts to
be provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset Sale and
retained by the company or any Restricted Subsidiary after such Asset Sale (to
the extent such reserves are not subsequently reversed); provided, however, that
(A) in the event that any consideration for an Asset Sale (which would otherwise
constitute Net Available Cash) is required to be held in escrow pending
determination of whether a purchase price adjustment will be made, such
consideration (or any portion thereof) shall become Net Available Cash only at
such time as it is released to the Company or its Restricted Subsidiaries from
escrow; and (B) any Exchanged Properties and any consideration other than
Permitted Consideration received in connection with an Asset Sale which are
subsequently converted to cash, Liquid Securities or Permitted Short-Term
Investments shall be deemed to be Net Available Cash at such time and shall
thereafter be applied in accordance with the "Limitation on Asset Sales"
covenant.
"Net Working Capital" means (i) all current assets of the company and its
Restricted Subsidiaries, less (ii) all current liabilities of the company and
its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the company
prepared in accordance with GAAP.
"Obligation" means any principal, interest, premium, penalty, fee and any
other liability payable under the documentation governing any Indebtedness.
"Oil and Gas Business" means the business of exploiting, exploring for,
developing, acquiring, producing, processing, gathering, marketing, storing,
transporting, selling, hedging or swapping hydrocarbons or trading positions
with respect thereto and/or with respect to transportation rates or basis
differentials and other related energy businesses.
"Oil and Gas Liens" means:
(i) Liens on a specific oil or gas property or any interest therein,
construction thereon or improvement thereto to secure all or any part of
the costs incurred for surveying, exploration, drilling, extraction,
development, operation, production, construction, alteration, repair or
improvement of, in, under or on such property and the plugging and
abandonment of wells located thereon (it being understood that, in the case
of oil and gas producing properties, or any interest therein, costs
incurred for "development" shall include costs incurred for all facilities
relating to such properties or to projects, ventures or other arrangements
of which such properties form a part or which relate to such properties or
interests);
(ii) Liens on an oil and/or gas producing property to secure
obligations incurred or guarantees of obligations incurred in connection
with or necessarily incidental to commitments for the purchase or sale of,
or the transportation or distribution of, the products derived from such
property;
(iii) Liens arising under partnership agreements, oil and gas leases,
overriding royalty agreements, net profits agreements, production payment
agreements, royalty trust agreements, partnership agreements,
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limited liability company agreements, farm-out agreements, division orders,
contracts for the sale, purchase, exchange, transportation, gathering or
processing of oil, gas or other hydrocarbons, unitizations and pooling
designations, declarations, orders and agreements, development agreements,
operating agreements, production sales contracts, area of mutual interest
agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal
agreements, seismic or geophysical permits or agreements, and other
agreements which are customary in the Oil and Gas Business, provided in all
instances that such Liens are limited to the assets that are the subject of
the relevant agreement;
(iv) Liens arising in connection with Production Payments and Reserve
Sales; and
(v) Liens on pipelines or pipeline facilities that arise by operation
of law.
"Oil and Gas Purchase, Sale and/or Swap Contract" means, with respect to
any Person, any oil and gas purchase, sale and/or swap agreements and other
agreements or arrangements, or any combination thereof, financially tied to oil
and gas prices, transportation or basis fluctuations or differentials that are
customary in the Oil and Gas Business and, in the case of the company and its
Restricted Subsidiaries, which are entered into by the Company and its
Restricted Subsidiaries in the ordinary course of their business.
"Pari Passu Indebtedness" means any Indebtedness of the company (or a
Subsidiary Guarantor) that is pari passu in right of payment with the Notes (or
a Subsidiary Guaranty, as appropriate), including, without limitation, the
9 7/8% Notes and the Series A 9 1/4% Notes.
"Permitted Business Investments" means Investments and expenditures made in
the ordinary course of, and of a nature that is or shall have become customary
in, the Oil and Gas Business as a means of actively exploiting, exploring for,
acquiring, developing, processing, gathering, storing, marketing or transporting
oil and gas through agreements, transactions, interests or arrangements which
permit one to share risks or costs, comply with regulatory requirements
regarding local ownership or satisfy other objectives customarily achieved
through the conduct of Oil and Gas Business jointly with third parties,
including, without limitation, (i) ownership interests in oil and gas properties
or gathering, transportation, processing, storage or related systems and (ii)
Investments and expenditures in the form of or pursuant to operating agreements,
process agreements, farm-in agreements, farm-out agreements, development
agreements, area of mutual interest agreements, unitization agreements, pooling
arrangements, joint bidding agreements, service contracts, joint venture
agreements, partnership agreements, limited liability company agreements,
subscription agreements, stock purchase agreements and other similar agreements
with third parties (including Unrestricted Subsidiaries).
"Permitted Consideration" has the meaning assigned to such term in the
"Limitation on Asset Sales" covenant.
"Permitted Designee" means (i) a spouse or a child of a Permitted Holder,
(ii) trusts whose sole beneficiaries are Permitted Holders or spouses or
children of Permitted Holders, (iii) in the event of the death or incompetence
of a Permitted Holder, his estate, heirs, executor, administrator, committee or
other personal representative or (iv) any Person so long as a Permitted Holder
owns at least 51% of the voting power of all classes of the Voting Stock of such
Person.
"Permitted Hedging Agreements" means Interest Rate Protection Agreements,
Exchange Rate Contracts and Oil and Gas Purchase, Sale and/or Swap Contracts.
"Permitted Holders" means Nicholas J. Sutton, P. Michael Highum and their
Permitted Designees.
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"Permitted Liens" means any and all of the following:
(i) Liens existing as of the Series A Issue Date;
(ii) Liens securing the Notes, the Subsidiary Guaranties and other
obligations arising under the Indenture;
(iii) any Lien existing on any Property of a Person at the time such
Person is merged or consolidated with or into the company or a Subsidiary
Guarantor or becomes a Restricted Subsidiary that is a Subsidiary Guarantor
(and not incurred in anticipation of such transaction), provided that such
Liens are not extended to other Property of the company or the Subsidiary
Guarantors;
(iv) any Lien existing on any Property at the time of the acquisition
thereof (and not incurred in anticipation of such transaction), provided
that such Liens are not extended to other Property of the company or the
Subsidiary Guarantors;
(v) any Lien incidental to the normal conduct of the business of the
company or the Subsidiary Guarantors, the ownership of their Property or
the conduct in the ordinary course of their business (including, without
limitation, (A) easements, rights of way and similar encumbrances, (B)
rights or title of lessors under leases (other than Capitalized Lease
Obligations), (C) rights of collecting banks having rights of setoff,
revocation, refund or chargeback with respect to money or instruments of
the company or the Subsidiary Guarantors or on deposit with or in the
possession of such banks, (D) Liens imposed by law, including without
limitation, Liens under workers' compensation or similar legislation and
mechanics', carriers', warehousemen's, materialmen's, suppliers' and
vendors' Liens, (E) Liens incurred to secure performance of obligations
with respect to statutory or regulatory requirements, performance or
return-of-money bonds, surety bonds or other obligations of a like nature
and incurred in a manner consistent with industry practice, and (F) Liens
on deposits made in the ordinary course of business), in each case which
are not incurred in connection with the borrowing of money, the obtaining
of advances or credit or the payment of the deferred purchase price of
Property and which do not in the aggregate impair in any material respect
the use of Property in the operation of the business of the company and its
Restricted Subsidiaries taken as a whole;
(vi) Liens for taxes, assessments and governmental charges not yet due
or the validity of which are being contested in good faith by appropriate
proceedings, promptly instituted and diligently conducted, and for which
adequate reserves have been established to the extent required by GAAP;
(vii) judgment and attachment Liens not giving rise to an Event of
Default or Liens created by or existing from any litigation or legal
proceeding that are currently being contested in good faith by appropriate
proceedings, promptly instituted and diligently conducted, and for which
adequate reserves have been made to the extent required by GAAP;
(viii) Liens securing Permitted Hedging Agreements of the company and
its Restricted Subsidiaries;
(ix) Oil and Gas Liens Incurred in the ordinary course of the business
of the company and its Restricted Subsidiaries;
(x) purchase money security interests (including, without limitation,
Capitalized Lease Obligations) granted in connection with the acquisition
of fixed assets in the ordinary course of business of the company and its
Restricted Subsidiaries, provided, that (A) such Liens attach only to the
Property so acquired with the purchase money Indebtedness secured thereby
and (B) such Liens secure only Indebtedness that is not in excess of the
purchase price of such Property;
(xi) Liens to secure Permitted Non-Recourse Indebtedness;
(xii) Liens resulting from the deposit of funds or evidences of
Indebtedness in trust for the purpose of decreasing Indebtedness of the
company or any of its Subsidiaries so long as such deposit of funds is
permitted under the "Limitation on Restricted Payments" covenant;
(xiii) Liens resulting from a pledge of Capital Stock of a Person that
is not a Restricted Subsidiary;
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(xiv) Liens to secure any permitted extension, renewal, refinancing,
refunding or exchange (or successive extensions, renewals, refinancings,
refundings or exchanges), in whole or in part, of or for any Indebtedness
secured by Liens referred to in clauses (i), (ii), (iii), (iv) and (x)
above; provided, however, that (A) such new Lien shall be limited to all or
part of the same Property that secured the original Lien, plus improvements
on such Property and (B) the Indebtedness secured by such Lien at such time
is not increased to any amount greater than the sum of (1) the outstanding
principal amount of the Indebtedness secured by such original Lien
immediately prior to such extension, renewal, refinancing, refunding or
exchange and (2) an amount necessary to pay any fees and expenses,
including premiums, related to such refinancing, refunding, extension,
renewal or replacement; and
(xv) Liens in favor of the company.
Notwithstanding anything in this paragraph to the contrary, the term "Permitted
Liens" does not include Liens resulting from the creation, incurrence, issuance,
assumption or Guarantee of any Production Payment and Reserve Sale other than
(1) Production Payments and Reserve Sales in connection with the acquisition of
Properties after the Series A Issue Date, provided that any such Liens created
in connection therewith are created, incurred, issued, assumed or guaranteed in
connection with the financing of, and within 60 days after, the acquisition of
the Property that is subject thereto, or (2) Production Payments and Reserve
Sales other than those described in clause (1) of this sentence to the extent
such Production Payments and Reserve Sales constitute Asset Sales made pursuant
to and in compliance with the "Limitation on Asset Sales" covenant.
"Permitted Non-Recourse Indebtedness" means Indebtedness of the company or
any Restricted Subsidiary Incurred in connection with the acquisition by the
company or such Restricted Subsidiary of any Property with respect to which (i)
the holders of such Indebtedness agree that they will look solely to the
Property so acquired and securing such Indebtedness, and neither the company nor
any Restricted Subsidiary (A) provides direct or indirect credit support,
including any undertaking, agreement or instrument that would constitute
Indebtedness (other than the grant of a Lien on such acquired Property) or (B)
is directly or indirectly liable for such Indebtedness, and (ii) no default with
respect to such Indebtedness would cause, or permit (after notice or passage of
time or otherwise), according to the terms thereof, any holder (or any
representative of any such holder) of any other Indebtedness of the company or a
Restricted Subsidiary to declare, a default on such other Indebtedness or cause
the payment, repurchase, redemption, defeasance or other acquisition or
retirement for value thereof to be accelerated or payable prior to any scheduled
principal payment, scheduled sinking fund payment or maturity.
"Permitted Refinancing Indebtedness" means Indebtedness ("new
Indebtedness") Incurred in exchange for, or the proceeds of which are used to
refinance, other Indebtedness ("old Indebtedness"), provided, however, that (i)
such new Indebtedness is in an aggregate principal amount not in excess of the
sum of (A) the aggregate principal amount then outstanding of the old
Indebtedness (or, if such old Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination), and
(B) an amount necessary to pay any fees and expenses, including premiums related
to such exchange or refinancing, (ii) such new Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the old Indebtedness, (iii) such
new Indebtedness has an Average Life to Stated Maturity at the time such new
Indebtedness is Incurred that is equal to or greater than the Average Life to
Stated Maturity of the old Indebtedness at such time and (iv) such new
Indebtedness is subordinated in right of payment to Senior Indebtedness of the
Company (or, if applicable, a Subsidiary Guarantor) and the Notes to at least
the same extent, if any, as the old Indebtedness.
"Permitted Short-Term Investments" means:
(i) Investments in U.S. Government Obligations maturing within one
year of the date of acquisition thereof,
(ii) Investments in demand accounts, time deposit accounts,
certificates of deposit, bankers acceptances and money market deposits
maturing within one year of the date of acquisition thereof issued by a
bank or trust company which is organized under the laws of the United
States of America or
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any State thereof that is a member of the Federal Reserve System having
capital, surplus and undivided profits aggregating in excess of $500
million and whose long-term indebtedness is rated "A" (or higher) according
to Moody's Investors Service Inc.,
(iii) Investments in demand accounts, time deposit accounts,
certificates of deposit, bankers acceptances and money market deposits
maturing within one year of the date of acquisition thereof issued by a
Canadian bank to which the Bank Act (Canada) applies having capital,
surplus and undivided profits aggregating in excess of U.S. $500 million,
(iv) investments in deposits available for withdrawal on demand with
any commercial bank which is organized under the laws of any country in
which the company or any Restricted Subsidiary maintains an office or is
engaged in the Oil and Gas Business, provided that (A) all such deposits
have been made in such accounts in the ordinary course of business and (B)
such deposits do not at any one time exceed $10 million in the aggregate,
(v) repurchase and reverse repurchase obligations with a term of not
more than seven days for underlying securities of the types described in
clause (i) entered into with a bank meeting the qualifications described in
either clause (ii) or (iii),
(vi) Investments in commercial paper, maturing not more than 270 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any State thereof with a rating at the time as
of which any Investment therein is made of "P-1" (or higher) according to
Moody's Investors Service Inc. or "A-1" (or higher) according to Standard &
Poor's Ratings Group, and
(vii) Investments in any money market mutual fund having assets in
excess of $250 million substantially all of which consist of obligations of
the types described in clauses (i), (ii), (v) and (vi) hereof.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company, unincorporated organization or government or
any agency or political subdivision thereof or other entity.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends and/or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
capital stock of at least one other class of such Person; provided, however,
that "Preferred Stock" shall not include Redeemable Stock.
"Principal Agent" means, on any date, (i) if the Bank Credit Facility shall
remain in effect on such date, the administrative agent(s) (or the
institution(s) performing similar functions) under the Bank Credit Facility and
(ii) if the Bank Credit Facility is no longer in effect on such date, the
administrative agent(s) (or the institution(s) performing similar functions)
with respect to the Specified Senior Indebtedness (or, if applicable, Specified
Senior Indebtedness of such Subsidiary Guarantor) having the highest principal
amount (including all revolving credit, letter of credit and other working
capital commitments) on such date.
"Production Payments and Reserve Sales" means the grant or transfer to any
Person of a royalty, overriding royalty, net profits interest, production
payment (whether volumetric or dollar denominated), partnership interest or
other interest in oil and gas properties, reserves or the right to receive all
or a portion of the production or the proceeds from the sale of production
attributable to such properties where the holder of such interest has recourse
solely to such production or proceeds of production, subject to the obligation
of the grantor or transferor to operate and maintain, or cause the subject
interests to be operated and maintained, in a reasonably prudent manner or other
customary standard or subject to the obligation of the grantor or transferor to
indemnify for environmental, title or other matters customary in the Oil and Gas
Business.
"Property" means, with respect to any person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed or tangible or
intangible, including, without limitation, Capital Stock and other securities
issued by any other Person (but excluding Capital Stock or other securities
issued by such first mentioned Person).
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"Redeemable Stock" of any Person means any equity security of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable), or otherwise (including on the happening of an
event), is or could become required to be redeemed for cash or other Property or
is or could become redeemable for cash or other Property at the option of the
holder thereof, in whole or in part, on or prior to the first anniversary of the
Stated Maturity of the Notes; or is or could become exchangeable at the option
of the holder thereof for Indebtedness at any time in whole or in part, on or
prior to the first anniversary of the Stated Maturity of the Notes; provided,
however, that Redeemable Stock shall not include any security by virtue of the
fact that it may be exchanged or converted at the option of the holder for
Capital Stock of the company having no preferences as to dividends or
liquidation over any other Capital Stock of the company.
"Restricted Payment" means any or all of the following actions (including
without limitation, any such actions taken prior to the Issue Date but from and
after the Series A Issue Date):
(i) the declaration or payment of any dividend on, or any distribution
to holders of, any shares of the company's Capital Stock or Redeemable
Stock (other than dividends or distributions payable solely in shares of
Capital Stock of the company or in options, warrants or other rights to
purchase or acquire Capital Stock of the company);
(ii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock or Redeemable Stock of the company or any
Affiliate thereof (other than a Restricted Subsidiary) or any options,
warrants or other rights to acquire such Capital Stock or Redeemable Stock;
(iii) any principal payment on or repurchase, redemption, defeasance
or other acquisition or retirement for value, prior to any scheduled
principal payment, scheduled sinking fund payment or maturity, of any Pari
Passu Indebtedness or Subordinated Indebtedness, except (A) a 9 7/8% Notes
Asset Sale Offer, (B) a Pari Passu Offer other than a 9 7/8% Notes Asset
Sale Offer, (C) to the extent of Excess Proceeds remaining after compliance
with the "Limitation on Asset Sales" covenant, and to the extent required
by the indenture or other agreement or instrument pursuant to which any
Subordinated Indebtedness was issued, an offer to purchase such
Subordinated Indebtedness upon a disposition of assets, and (D) upon a
"Change of Control" (even if such event is not a Change of Control under
the Indenture) to the extent required by the indenture or other agreement
or instrument pursuant to which any Pari Passu Indebtedness or Subordinated
Indebtedness was issued, provided the company is then in compliance with
the covenant described under "--Repurchase at the Option of Holders Upon a
Change of Control";
(iv) the making of any Investment (other than any Permitted
Investment); or
(v) the occurrence of any deemed Restricted Payment under (A) the
"Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant, or (B) the definition of the term "Unrestricted
Subsidiary."
"Restricted Subsidiary" means any Subsidiary of the company, whether
existing on or after the date of the Indenture, unless such Subsidiary of the
company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of the Indenture. The company will not, and
will not permit any of its Restricted Subsidiaries to, take any action or enter
into any transaction or series of transactions that would result in a Person
becoming a Restricted Subsidiary (whether through an acquisition or otherwise)
unless immediately after giving effect to such transaction or transactions on a
pro forma basis, (i) no Default or Event of Default shall have occurred and be
continuing and (ii) the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under the "Limitation on Indebtedness"
covenant.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement (excluding, however, any such arrangement between
such Person and a Wholly Owned Restricted Subsidiary of such Person or between
one or more Wholly Owned Restricted Subsidiaries of such Person) pursuant to
which Property is sold or transferred by such Person or a Restricted Subsidiary
of such Person and is thereafter leased back from the purchaser or transferee
thereof by such Person or one of its Restricted Subsidiaries.
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"Senior Indebtedness" means the Obligations of the company with respect to:
(i) Indebtedness of the Company under the Bank Credit Facility and any
renewal, refunding, refinancing, replacement or extension thereof and (ii)
any other Indebtedness of the company (other than the Notes), whether
outstanding on the date of the Indenture or thereafter created, incurred or
assumed, and any renewal, refunding, refinancing, replacement or extension
thereof, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior
in right of payment to the Notes.
Notwithstanding the foregoing, Senior Indebtedness shall not include:
(i) Indebtedness of the company to a Subsidiary of the company,
(ii) amounts owed for goods, materials or services purchased in the
ordinary course of business,
(iii) Indebtedness (other than Indebtedness under the Bank Credit
Facility) incurred in violation of the Indenture,
(iv) amounts payable or any other Indebtedness to employees of the
company or any Subsidiary of the company,
(v) any liability for Federal, state, local or other taxes owed or
owing by the Company,
(vi) any Indebtedness of the company that, when incurred and without
regard to any election under Section 1111(b) of the United States
Bankruptcy Code, was without recourse to the company,
(vii) Indebtedness evidenced by the 9 7/8% Notes,
(viii) Indebtedness evidenced by the Series A 9 1/4% Notes, and
(ix) Indebtedness evidenced by the Notes.
"Senior Indebtedness of a Subsidiary Guarantor" means the Obligations of a
Subsidiary Guarantor with respect to:
(i) Indebtedness under the Bank Credit Facility and any renewal,
refunding, refinancing, replacement or extension thereof,
(ii) Assigned Restricted Subsidiary Indebtedness and
(iii) any other Indebtedness of a Subsidiary Guarantor (other than the
Subsidiary Guaranties), whether outstanding on the date of the Indenture or
thereafter created, incurred or assumed, and any renewal, refunding,
refinancing, replacement or extension thereof, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Subsidiary
Guaranties.
Notwithstanding the foregoing, Senior Indebtedness of a Subsidiary
Guarantor shall not include:
(i) Indebtedness of a Subsidiary Guarantor to the company or a
Subsidiary of the company,
(ii) amounts owed for goods, materials or services purchased in the
ordinary course of business,
(iii) Indebtedness (other than Indebtedness under the Bank Credit
Facility) incurred in violation of the Indenture,
(iv) amounts payable or any other Indebtedness to employees of the
company or any Subsidiary of the company,
(v) any liability for Federal, state, local or other taxes owed or
owing by such Subsidiary Guarantor,
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(vi) any Indebtedness of a Subsidiary Guarantor that, when incurred
and without regard to any election under Section 1111(b) of the United
States Bankruptcy Code, was without recourse to such Subsidiary Guarantor,
(vii) Indebtedness evidenced by the 9 7/8% Notes and any guaranties
thereof,
(viii) Indebtedness evidenced by the Series A 9 1/4% Notes and any
guaranties thereof, and
(ix) Indebtedness evidenced by the Notes and the Subsidiary
Guaranties.
"Series A Issue Date" means November 27, 1996, which date is the date on
which the Series A 9 1/4% Notes were originally issued under the Series A 9 1/4%
Note Indenture.
"Series A 9 1/4% Note Indenture" means the Indenture dated as of November
27, 1996 among the company, the subsidiary guarantors parties thereto, and
Harris Trust and Savings Bank, as Trustee, providing for the issuance of the
Series A 9 1/4% Notes in the aggregate principal amount of $150,000,000, as such
may be amended and supplemented from time to time.
"Series A 9 1/4% Notes" means the company's 9 1/4% Senior Subordinated
Notes due November 15, 2006 issued pursuant to the Series A 9 1/4% Note
Indenture, as such may be amended or supplemented from time to time.
"Significant Subsidiary" means, at any date of determination, (i) any
Subsidiary (other than TWTTC) of a Person that, together with its Subsidiaries,
(A) for the most recent fiscal year of the company, accounted for more than 5%
of the consolidated revenues of such Person and its Subsidiaries or (B) as of
the end of such fiscal year, was the owner of more than 5% of the consolidated
assets of such Person and its Subsidiaries, and (ii) TWTTC if TWTTC, together
with its Subsidiaries, as of the end of the most recent fiscal year of the
company, was the owner of more than 10% of the consolidated assets of the
company and its Subsidiaries, in each case all as set forth on the most recently
available consolidated financial statements of such Person for such fiscal year.
"Specified Senior Indebtedness" means (i) Indebtedness of the company under
the Bank Credit Facility and (ii) so long as no Indebtedness under the Bank
Credit Facility is outstanding, on any date of determination, any Senior
Indebtedness if the sum of (A) the outstanding principal amount of all Senior
Indebtedness plus (B) the amount of unused revolving credit, letter of credit
and working capital commitments of lenders included in such Senior Indebtedness,
is not less than $20 million on such date.
"Specified Senior Indebtedness of a Subsidiary Guarantor" means (i)
Assigned Restricted Subsidiary Indebtedness of such Subsidiary Guarantor, (ii)
Indebtedness of such Subsidiary Guarantor under the Bank Credit Facility and
(iii) so long as no Assigned Restricted Subsidiary Indebtedness of such
Subsidiary Guarantor under the Bank Credit Agreement is outstanding, on any date
of determination, any Senior Indebtedness of such Subsidiary Guarantor if the
sum of (A) the outstanding principal amount of all such Senior Indebtedness of
such Subsidiary Guarantor plus (B) the amount of unused revolving credit, letter
of credit and working capital commitments of lenders included in such Senior
Indebtedness of such Subsidiary Guarantor, is not less than $20 million on such
date.
"Stated Maturity," when used with respect to any security or any
installment of principal thereof or interest thereon, means the date specified
in such security as the fixed date on which the principal of such security or
such installment of principal or interest is due and payable, including pursuant
to any mandatory redemption provision (but excluding any provision providing for
the repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Indebtedness" means Indebtedness of the company (or a
Subsidiary Guarantor) that is expressly subordinated in right of payment to the
Notes (or a Subsidiary Guaranty, as appropriate).
"Subsidiary" of a Person means (i) another Person which is a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned or
controlled by (A) the first Person, (B) the first Person and one or more of its
Subsidiaries or (C) one or more of the first Person's Subsidiaries or (ii)
another Person which is not a corporation (A) at least 50% of the ownership
interest of which and (B) the power to
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elect or direct the election of a majority of the directors or other governing
body of which are controlled by Persons referred to in clause (i)(A), (i)(B) or
(i)(C) above.
"Subsidiary Guarantor" means, unless released from such Subsidiary Guaranty
as permitted by the Indenture, any Restricted Subsidiary that becomes a
guarantor of the Notes in compliance with the provisions of the Indenture and
executes a supplemental indenture agreeing to be bound by the terms of the
Indenture.
"Subsidiary Guaranty" means an unconditional guaranty of the Notes given by
any Restricted Subsidiary pursuant to the terms of the Indenture.
"TWTTC" means HS Energy Services, Inc., an Oklahoma corporation formerly
known as Tide West Trading and Transport Company.
"Unrestricted Subsidiary" means (i) the Existing Unrestricted Subsidiary,
(ii) any Subsidiary of the company that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the manner
provided below and (iii) any Subsidiary of an Unrestricted Subsidiary. The Board
of Directors may designate any Subsidiary of the company (including any newly
acquired or newly formed Subsidiary of the company) to be an Unrestricted
Subsidiary unless such Subsidiary (i) owns any Capital Stock, Redeemable Stock
or Indebtedness of, or owns or holds any Lien on any Property of, the company or
any other Subsidiary of the company that is not a Subsidiary of the Subsidiary
to be so designated or (ii) is obligated, directly or indirectly, with respect
to any Indebtedness other than Unrestricted Subsidiary Indebtedness; provided,
however, that either (A) the Subsidiary to be so designated has total assets of
$1,000 or less or (B) if such Subsidiary has assets greater than $1,000, then
such designation would be permitted under "Limitation on Restricted Payments" as
a "Restricted Payment." The designation of a Restricted Subsidiary as an
Unrestricted Subsidiary shall be deemed to cause a Restricted Payment to be made
at the time of such designation in an amount equal to that portion of the Fair
Market Value of such Restricted Subsidiary represented by the company's direct
and indirect ownership interest in such Subsidiary. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the company or
of any Restricted Subsidiary will be classified as a Restricted Subsidiary.
Notwithstanding the foregoing sentence, the Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving pro forma effect to such designation (i) the company
could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness)
under the "Limitation on Indebtedness" covenant, and (ii) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of a
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying such resolution and certifying that such
designation complies with the foregoing provisions.
"Unrestricted Subsidiary Indebtedness" means Indebtedness of an
Unrestricted Subsidiary (i) as to which neither the company nor any Restricted
Subsidiary is directly or indirectly liable (by virtue of the company or any
such Restricted Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect for such Indebtedness) and (ii) which, upon the
occurrence of a default with respect thereto, does not result in, or permit any
holder (or any representative of any such holder) of any Indebtedness of the
company or a Restricted Subsidiary to declare (with the passage of time or the
giving of notice or otherwise), a default on any Indebtedness of the company or
any Restricted Subsidiary or cause the payment, repurchase, redemption,
defeasance or other acquisition or retirement for value thereof to be
accelerated or payable prior to any scheduled principal payment, scheduled
sinking fund payment or maturity.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Restricted Subsidiary" means, at any time, a Restricted
Subsidiary all of the Voting Stock of which (except directors' qualifying
shares) is at the time owned, directly or indirectly, by the company and its
other Wholly Owned Restricted Subsidiaries.
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DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the company and the Subsidiary Guarantors will
be discharged from all their obligations with respect to the Notes (except for
certain obligations to exchange or register the transfer of Notes, to replace
stolen, lost or mutilated Notes, to maintain paying agencies and to hold moneys
for payment in trust) upon the deposit in trust for the benefit of the Holders
of the Notes of money or U.S. Government Obligations, or a combination thereof,
which, through the payment of principal, premium, if any, and interest in
respect thereof in accordance with their terms, will provide money in an amount
sufficient to pay the principal of and any premium and interest on the Notes at
Stated Maturity or on earlier redemption in accordance with the terms of the
Indenture and the Notes. Such defeasance or discharge may occur only if, among
other things, the company has delivered to the Trustee an Opinion of Counsel to
the effect that (i) the company has received from, or there has been published
by, the United States Internal Revenue Service a ruling or (ii) since the date
of the Indenture there has been a change in the applicable Federal income tax
law, in either case to the effect that Holders of the Notes will not recognize
gain or loss for Federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to Federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit, defeasance and discharge were not to occur; and that the resulting
trust will not be an "Investment Company" within the meaning of the Investment
Company Act of 1940 unless such trust is qualified thereunder or exempt from
regulation thereunder.
The Indenture provides that the company may omit to comply with certain
covenants, including those described under "-- Certain Covenants" and in clauses
(E) and (F) under the first paragraph of "-- Merger, Consolidation and Sale of
Substantially All Assets," and that the occurrence of certain Events of Default,
which are described below in clause (iii) (with respect to such covenants) and
clauses (iv) and (v) under "-- Events of Default and Notice" will be deemed not
to be or result in an Event of Default. The company, in order to exercise such
option, will be required to deposit, in trust for the benefit of the Holders of
the Notes, money or U.S. Government Obligations, or a combination thereof,
which, through the payment of principal, premium, if any, and interest in
respect thereof in accordance with their terms, will provide money in an amount
sufficient to pay the principal of and any premium and interest on the Notes at
Stated Maturity or on earlier redemption in accordance with the terms of the
Indenture and the Notes. The company will also be required, among other things,
to deliver to the Trustee an Opinion of Counsel to the effect that Holders of
the Notes will not recognize gain or loss for Federal income tax purposes as a
result of such deposit and defeasance of certain obligations and will be subject
to Federal income tax on the same amount, in the same manner and at the same
times as would have been the case if such deposit and defeasance were not to
occur; and that the resulting trust will not be an "Investment Company" within
the meaning of the Investment Company Act of 1940 unless such trust is qualified
thereunder or exempt from regulation thereunder. In the event the company were
to exercise this option and the Notes were declared due and payable because of
the occurrence of any Event of Default, the amount of money and U.S. Government
Obligations so deposited in trust would be sufficient to pay amounts due on the
Notes at the time of their Stated Maturity but may not be sufficient to pay
amounts due on the Notes upon any acceleration resulting from such Event of
Default. In such case, the company would remain liable for such payments.
EVENTS OF DEFAULT AND NOTICE
The following are summaries of Events of Default under the Indenture with
respect to the Notes:
(i) failure to pay any interest on the Notes when due, continued for
30 days;
(ii) failure to pay principal of (or premium, if any, on) the Notes
when due;
(iii) failure to perform any other covenant of the company or any
Subsidiary Guarantor in the Indenture, continued for 60 days after written
notice as provided in the Indenture;
(iv) the occurrence and continuation beyond any applicable grace
period of any default in the payment of the principal of (or premium, if
any, on) or interest on any Indebtedness (other than Permitted Non-Recourse
Indebtedness) of the company (other than the Notes) or any Restricted
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Subsidiary for money borrowed when due (whether resulting from maturity,
acceleration, mandatory redemption or otherwise), or any other default
causing acceleration of any Indebtedness (other than Permitted Non-Recourse
Indebtedness) of the company or any Restricted Subsidiary for money
borrowed, provided that the aggregate principal amount of such Indebtedness
shall exceed $5 million; and specifically including, without limitation,
any such default under or acceleration of any Indebtedness (other than
Permitted Non-Recourse Indebtedness) directly or indirectly resulting or
derived from, or caused by, a default under or acceleration of any
Permitted Non-Recourse Indebtedness;
(v) one or more final judgments or orders by a court of competent
jurisdiction are entered against the company or any Restricted Subsidiary
in an uninsured or unindemnified aggregate amount in excess of $5 million
and such judgments or orders are not discharged, waived, stayed, satisfied
or bonded for a period of 60 consecutive days;
(vi) certain events of bankruptcy, insolvency or reorganization; or
(vii) a Subsidiary Guaranty ceases to be in full force and effect
(other than in accordance with the terms of the Indenture and such
Subsidiary Guaranty) or a Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty.
The Indenture provides that if an Event of Default (other than an Event of
Default described in clause (vi) above) with respect to the Notes at the time
outstanding shall occur and be continuing, either the Trustee or the Holders of
at least 25% in aggregate principal amount of the Notes then outstanding by
notice as provided in the Indenture may declare the principal amount of the
Notes to be due and payable immediately. If an Event of Default described in
clause (vi) above shall occur, the principal amount of all the Notes will
automatically, and without any action by the Trustee or any Holder, become
immediately due and payable. After any such acceleration, but before a judgment
or decree based on acceleration, the Holders of a majority in aggregate
principal amount of the Notes then outstanding may, under certain circumstances,
rescind and annul such acceleration if all Events of Default, other than the
nonpayment of accelerated principal (or other specified amount), have been cured
or waived as provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of the Notes, unless
such Holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the Holders of a
majority in aggregate principal amount of the Notes then outstanding will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee with respect to the Notes.
No Holder of Notes will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or a trustee, or
for any other remedy thereunder, unless (i) such Holder has previously given to
the Trustee written notice of a continuing Event of Default with respect to the
Notes, (ii) the Holders of at least 25% in aggregate principal amount of the
then outstanding Notes have made written request, and such Holder or Holders
have offered reasonable indemnity, to the Trustee to institute such proceeding
as trustee and (iii) the Trustee has failed to institute such proceeding, and
has not received from the Holders of a majority in aggregate principal amount of
the then outstanding Notes a direction inconsistent with such request, within 60
days after such notice, request and offer. However, such limitations do not
apply to a suit instituted by a Holder of Notes for the enforcement of payment
of the principal of or any premium or interest on such Notes on or after the
applicable due date specified in such Notes.
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MODIFICATION OF THE INDENTURE; WAIVER
The Indenture provides that modifications and amendments of the Indenture
may be made by the company, the Subsidiary Guarantors and the Trustee without
the consent of any Holders of Notes in certain limited circumstances, including:
(i) to cure any ambiguity, omission, defect or inconsistency,
(ii) to provide for the assumption of the obligations of the company
under the Indenture upon the merger, consolidation or sale or other
disposition of all or substantially all of the assets of the company and
its Restricted Subsidiaries taken as a whole and certain other events
specified in the "Merger, Consolidation and Sale of Substantially All
Assets" covenant,
(iii) to provide for uncertificated Notes in addition to or in place
of certificated Notes,
(iv) to comply with any requirement of the Commission in order to
effect or maintain the qualification of the Indenture under the 1939 Act,
(v) to make any change that does not adversely affect the rights of
any Holder of Notes in any material respect,
(vi) to add or remove Subsidiary Guarantors pursuant to the procedure
set forth in the Indenture, and
(vii) certain other modifications and amendments as set forth in the
Indenture.
The Indenture contains provisions permitting the company and the Trustee,
with the written consent of the Holders of not less than a majority in aggregate
principal amount of the Notes then outstanding, to execute supplemental
indentures or amendments adding any provisions to or changing or eliminating any
of the provisions of the Indenture or modifying the rights of the Holders of the
Notes, except that no such supplemental indenture, amendment or waiver may,
without the consent of all the Holders of Notes then outstanding, among other
things, (i) reduce the principal amount of Notes whose Holders must consent to
an amendment or waiver, (ii) reduce the rate of or change the time for payment
of interest on any Notes, (iii) change the currency in which any amount due in
respect of the Notes is payable, (iv) reduce the principal of or any premium on
or change the Stated Maturity of any Notes or alter the redemption or repurchase
provisions with respect thereto, (v) reduce the relative ranking of any Notes,
(vi) release any security that may have been granted in respect of the Notes or
(vii) make certain other significant amendments or modifications as specified in
the Indenture.
The Holders of a majority in principal amount of the Notes then outstanding
may waive compliance by the company with certain restrictive provisions of the
Indenture. The Holders of a majority in principal amount of the Notes then
outstanding may waive any past default under the Indenture, except a default in
the payment of principal, premium or interest and certain covenants and
provisions of the Indenture that cannot be amended without the consent of the
Holders of each Note then outstanding.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission so long as any Notes are outstanding, the company
will file with the Commission and furnish to the holders of Notes all quarterly
and annual financial information required to be contained in a filing with the
Commission on Forms 10-Q and 10-K, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual consolidated financial statements only, a report thereon by the
company's independent auditors.
NOTICES
Notices to Holders of the Notes will be given by mail to the addresses of
such Holders as they may appear in the Security Register.
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GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance
with the internal laws of the State of New York without reference to principles
of conflicts of law.
TRUSTEE
The Trustee is the Trustee under the Indenture. The Trustee maintains
normal banking relationships with the company and its Subsidiaries and may
perform certain services for and transact other business with the company and
its Subsidiaries from time to time in the ordinary course of business. The
Trustee is also trustee under the Indentures governing the Series A 9 1/4% Notes
and the 9 7/8% Notes.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material United States Federal income tax
consequences of the Notes is for general information only. It is based on the
Internal Revenue Code of 1986, as amended to the date hereof (the "Code"),
existing and proposed Treasury regulations, and judicial and administrative
determinations, all of which are subject to change at any time, possibly on a
retroactive basis. The following relates only to the Notes that are held as
"capital assets" within the meaning of Section 1221 of the Code. It does not
discuss state, local or foreign tax consequences, nor, except as otherwise
noted, does it discuss tax consequences to categories of holders that are
subject to special rules, such as foreign persons, tax-exempt organizations,
insurance companies, banks and dealers in stocks and securities. Tax
consequences may vary depending on the particular status of an investor. The
following discussion is limited to the U.S. Federal income tax relevant to a
Holder of the Notes who or which is (1) a citizen or resident of the United
States, (2) a corporation created or organized under the laws of the United
States or any State thereof (including the District of Columbia) or (3) a trust
which is a U.S. person within the meaning of Section 7701(a)(30) of the Code, or
a person otherwise subject to United States Federal income taxation on its
worldwide income (a "U.S. Holder").
This section does not purport to deal with all aspects of Federal income
taxation that may be relevant to an investor's decision to purchase the Notes.
Each investor should consult with its own tax advisor concerning the application
of the Federal income tax laws and other tax laws to its particular situation
before determining whether to purchase the Notes.
PAYMENTS OF INTEREST AND SPECIAL INTEREST
In general, interest on a Note will be taxable to a U.S. Holder as ordinary
income at the time it is received or accrued, depending on the U.S. Holder's
method of accounting for tax purposes.
OPTIONAL REDEMPTION OR REPURCHASE
The Notes are subject to redemption, in whole or in part, at the option of
the company, on or after November 15, 2001, at the redemption price plus any
accrued and unpaid interest, and to repurchase at the option of each holder
thereof upon a change of control for 101% of the principal amount plus any
accrued and unpaid interest. See "Description of the Notes." Upon the optional
redemption or repurchase of a Note, it is expected that the redemption or
purchase price received by such holder in excess of the holder's adjusted tax
basis in the portion of the Note redeemed or repurchased will be taxable as
capital gain, if the Note is held as a capital asset (subject to the market
discount rules discussed below).
ORIGINAL ISSUE DISCOUNT
The Notes will be issued with original issue discount. Therefore, each U.S.
Holder will include in his income as ordinary income each year (in addition to
the amount of cash interest) a portion of the original issue discount on the
Notes so as to provide a constant yield to maturity. The total amount of
original issue discount with respect to each Note will equal the excess of its
stated redemption price at maturity over its issue price, as defined in Section
1273 of the Code. The stated redemption price at maturity is the sum of all
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<PAGE> 51
payments to be made on the Notes other than qualified stated interest payments.
Interest payments paid on the Notes will likely be qualified stated interest
payments and, accordingly, the stated redemption price at maturity of the Notes
will equal their face amount. Each U.S. Holder should consult his or her own tax
advisor with respect to accrual of original issue discount on the Notes.
Subject to the discussion of premium below, the amount of original issue
discount required to be included in a U.S. Holder's income in any tax year is
determined by allocating to each day during such tax year in which a U.S. Holder
holds a Note a pro rata portion (the "daily portion") of the total amount of
original issue discount with respect to such Note attributable to the "accrual
period" in which such day is included. The amount of original issue discount of
a Note attributable to an accrual period is equal to the product of (i) the
"adjusted issue price" at the beginning of the accrual period (the issue price
plus previous accruals of original issue discount, reduced by all payments made
on the Note other than a payment of qualified stated interest) and (ii) the
yield to maturity of the Note, adjusted appropriately for the length of the
accrual period, less the amount of any qualified stated interest allocable to
the accrual period. The "yield to maturity" of a debt instrument is the interest
rate that will produce an amount equal to the issue price of the debt instrument
used in computing the present value of all payments to be made pursuant to the
debt instrument. The Treasury regulations require that the yield to maturity
remain constant over the term of the debt instrument.
Pursuant to Treasury regulations, the company will provide certain
information to the Internal Revenue Service ("IRS") and/or Holders that is
relevant to determining the amount of original issue discount in each accrual
period. A U.S. Holder's adjusted tax basis in a Note will be increased by the
amount of any original issue discount included in its gross income (taking into
account any Acquisition Premium (as defined below) which reduces the amount of
original issue discount includible in a U.S. Holder's gross income, as described
more fully below).
PAYMENTS OF PRINCIPAL; DISPOSITIONS
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a Note, a U.S. Holder will generally recognize taxable gain or
loss equal to the difference between the sum of cash plus the fair market value
of all other property received on such disposition (except to the extent such
cash or property is attributable to accrued but unpaid interest or market
discount, which will be taxable as ordinary income) and such U.S. Holder's
adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in a Note
generally will equal the cost of the Note to such U.S. Holder (increased for
accrued original issue discount, if any, and by the amount of any interest on
the Notes previously taken into account by the U.S. Holder but not yet received
by the U.S. Holder), less any principal payment received by such U.S. Holder.
Subject to the discussion of market discount below, gain or loss realized by a
U.S. Holder on the sale, redemption or other disposition of a Note generally
will be long-term capital gain or loss if, at the time of the disposition, the
Note has been held for more than one year.
AMORTIZABLE BOND PREMIUM
If a U.S. Holder pays an amount (exclusive of accrued and unpaid interest
through the acquisition date) in excess of the Note's stated redemption price at
maturity at the time of its acquisition ("Bond Premium"), the U.S. Holder will
not be required to include original issue discount, if any, in his income and
may elect to amortize Bond Premium. If Bond Premium is amortized, the amount of
interest that must be included in the U.S. Holder's income from each period
ending on an interest payment date or stated maturity, as the case may be, will
be reduced by the portion of the Bond Premium allocable to such period based on
the Note's yield to maturity and the U.S. Holder's adjusted basis in the Notes
will be reduced accordingly. This election applies to all Notes acquired by the
U.S. Holder during the year of election and thereafter.
ACQUISITION PREMIUM
If a U.S. Holder pays an amount (exclusive of accrued and unpaid interest
through the acquisition date) in excess of the Note's adjusted issue price at
the time of its acquisition ("Acquisition Premium"), but less
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<PAGE> 52
than its stated redemption price at maturity, the U.S. Holder may be entitled to
a reduction, in the daily portion of original issue discount includable in such
U.S. Holder's income, for such Acquisition Premium. The reduction will be an
amount equal to the daily portion of original issue discount for that day
multiplied by a fraction, the numerator of which is equal to the Acquisition
Premium, and the denominator of which is the excess of the stated redemption
price at maturity over the adjusted issue price of the Note on the date of
purchase.
MARKET DISCOUNT
A U.S. Holder, other than an initial Holder, will be treated as holding a
Note at a market discount (a "Market Discount Note") if the amount for which
such U.S. Holder purchased the Note is less than the Note's issue price plus the
aggregate amount of the original issue discount includable in the gross income
of all holders for the period before the acquisition of the Note by the U.S.
Holder (determined without regard to the rules discussed above concerning
acquisition premium), subject to a de minimis rule. An initial Holder of a Note
will be treated as holding a Market Discount Note if the initial Holder
purchases such Note for less than its issue price.
In general, any partial payment of principal on, or gain recognized on the
maturity, optional redemption or repurchase, or disposition of, a Market
Discount Note will be treated as ordinary interest income to the extent that
such gain does not exceed the accrued market discount on such Note.
Alternatively, a U.S. Holder of a Market Discount Note may elect to include
market discount in income currently over the life of the Market Discount Note.
Such an election applies to all debt instruments with market discount acquired
by the electing U.S. Holder on or after the first day of the first taxable year
to which the election applies and may not be revoked without the consent of the
IRS.
Market discount accrues on a straight-line basis, unless the U.S. Holder
elects to accrue such discount on a constant yield to maturity basis as
determined under Treasury Regulations. Such an election is applicable only to
the Note with respect to which it is made and is irrevocable. A U.S. Holder of a
Market Discount Note that does not elect to include market discount in income
currently generally will be required to defer deductions for interest on
borrowings allocable to such Note, in an amount not exceeding the accrued market
discount on such Note, until the maturity or disposition of such Note. If such
Note is disposed of in a non-taxable transaction (other than a nonrecognition
transaction described in Section 1276(c) of the Code) accrued market discount
will be includable as ordinary income to the U.S. Holder as if such U.S. Holder
had sold the Note at its then fair market value.
BACKUP WITHHOLDING
Under the Code, a Holder of a Note may be subject, under certain
circumstances, to "backup withholding" at a 31% rate with respect to payments in
respect of interest thereon or the gross proceeds from the disposition thereof.
This withholding generally applies only if the holder (i) fails to furnish his
or her social security or other taxpayer identification number ("TIN") after
request therefor, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS
that he or she has failed to report properly payments of interest and dividends
and the IRS has notified the company that he or she is subject to backup
withholding, or (iv) fails, under certain circumstances, to provide a certified
statement, signed under penalty of perjury, that the TIN provided is his or her
correct number and that he or she is not subject to backup withholding. Any
amount withheld from a payment to a holder under the backup withholding rules is
allowable as a credit against such holder's Federal income tax liability,
provided that the required information is furnished to the IRS. Corporations and
certain other persons described in the Code and Treasury regulations are
generally exempt from such withholding if their exempt status is properly
established.
S-52
<PAGE> 53
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of Chase
Securities Inc.; Lehman Brothers Inc.; and Morgan Stanley & Co. Incorporated
(the "Underwriters"), and the Underwriters have severally agreed to purchase the
principal amount of the Notes set forth opposite their names below. In the
Underwriting Agreement the Underwriters have agreed, subject to the terms and
conditions set forth therein, to purchase all the Notes offered hereby if any of
the Notes are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITERS OF NOTES
- ------------ -----------
<S> <C>
Chase Securities Inc. ...................................... $31,875,000
Lehman Brothers Inc. ....................................... 31,875,000
Morgan Stanley & Co. Incorporated........................... 21,250,000
-----------
Total............................................. $85,000,000
===========
</TABLE>
The Underwriters have advised HS Resources that they propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus Supplement. After the initial public offering, the
public offering price may be changed.
The Notes are a new issue of securities with no established trading market.
HS Resources has been advised by the Underwriters that the Underwriters intend
to make a market in the Notes, but they are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the existence or liquidity of a trading market for the Notes.
Settlement for the Notes will be made in immediately available funds and
all secondary trading in the Notes will settle in immediately available funds.
HS Resources has agreed to indemnify the Underwriters, jointly and
severally, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, and to contribute to payments that the
Underwriters might be required to make in respect of such liabilities.
In connection with the offering of the Notes, Chase Securities Inc. and
Lehman Brothers Inc., as joint book-running managers on behalf of the
Underwriters, may engage in overallotment, stabilizing transactions and
syndicate covering transactions in accordance with Regulation M under the
Securities Exchange Act of 1934, as amended. Overallotment involves sales in
excess of the offering size, which creates a short position for the
Underwriters. Stabilizing transactions involve bids to purchase the Notes in the
open market for the purpose of pegging, fixing or maintaining the price of the
Notes. Syndicate covering transactions involve purchases of the Notes in the
open market after the distribution has been completed in order to cover short
positions. Such stabilizing transactions and syndicate covering transactions may
cause the price of the Notes to be higher than it would otherwise be in the
absence of such transactions. Such activities, if commenced, may be discontinued
at any time.
The Underwriters and their affiliates have engaged from time to time and
may in the future engage in various general financing and banking transactions
with, or provide financial advisory services to, HS Resources and its
affiliates. Pursuant to Rule 2710(c)(8) of the National Association of
Securities Dealers, Inc. ("NASD"), if more than 10% of the net proceeds of a
public offering of securities, not including underwriting compensation, are
intended to be paid to members of the NASD or affiliated or associated persons
that are participating in the distribution of the offering, the yield at which a
debt issue is distributed to the public must be no lower than that recommended
by a "qualified independent underwriter," pursuant to the requirements of Rule
2720(c)(3) of the NASD. HS Resources intends to use a substantial portion of the
net proceeds of this offering to reduce indebtedness incurred under the bank
credit facility. In connection with such loans The Chase Manhattan Bank, an
affiliate of Chase Securities Inc., serves as agent and lender. Accordingly, The
Chase Manhattan Bank is expected to receive in the aggregate more than 10% of
the net proceeds of this offering. Lehman Brothers Inc. has agreed to act as the
qualified independent underwriter in connection with this offering. The yield of
the Notes as set forth on the cover of this Prospectus Supplement
S-53
<PAGE> 54
will not be lower than that recommended by Lehman Brothers Inc. Moreover, Lehman
Brothers Inc., as a qualified independent underwriter in connection with this
offering of the Notes, has performed due diligence investigation, and reviewed
and participated in the preparation of this Prospectus Supplement.
An affiliate of Chase Securities Inc. owns shares of Common Stock
representing approximately 2% of HS Resources' outstanding Common Stock.
LEGAL MATTERS
The validity of the Notes offered hereby has been passed upon by Davis,
Graham & Stubbs LLP, Denver, Colorado. Certain matters have been passed upon for
the Underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P.
EXPERTS
Estimates of historical oil and gas reserves of the company as of December
31, 1997, appearing herein are based upon engineering studies prepared by the
company and reviewed by the independent petroleum engineering firms of
Williamson and Netherland, Sewell. Williamson reviewed HSR's D-J Basin, Northern
Rocky Mountain and Gulf Coast reserves, and Netherland, Sewell reviewed the
company's Mid-Continent reserves. In the aggregate, 84% of the value of the
company's historical non Mid-Continent proved reserves, representing the most
material individual properties, were reviewed by the two engineering firms. Such
estimates are used or incorporated by reference herein in reliance upon the
authority of such firms as experts in such matters.
S-54
<PAGE> 55
PROSPECTUS
$300,000,000
HS RESOURCES, INC.
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
WARRANTS
---------------------
HS Resources, Inc. (the "Company" or "HSR") may offer from time to time
(collectively, the "Securities") (i) Debt Securities ("Debt Securities"), which
may be either senior debt securities ("Senior Securities"), senior subordinated
debt securities ("Senior Subordinated Securities") or subordinated debt
securities ("Subordinated Securities"), consisting of debentures, notes, bonds
and/or other unsecured evidences of indebtedness in one or more series, (ii)
shares of Preferred Stock ("Preferred Stock") in one or more series, (iii)
shares of Common Stock, $.001 par value ("Common Stock"), or (iv) Warrants
("Warrants") to purchase Debt Securities, Preferred Stock or Common Stock. The
Securities will be offered at an aggregate initial offering price not to exceed
U.S. $300,000,000, at prices and on terms to be determined at the time of sale.
The accompanying Prospectus Supplement sets forth with regard to the
particular Securities in respect of which this Prospectus is being delivered (i)
in the case of Debt Securities, the title, aggregate principal amount,
denominations (which may be in United States dollars, in any other currency,
currencies or currency unit, including the European Currency Unit), maturity,
interest rate, if any (which may be fixed or variable), or method of calculation
thereof, and time of payment of any interest, any terms for redemption at the
option of the Company or the holder, any terms for sinking fund payments, any
conversion or exchange rights, any listing on a securities exchange, the initial
public offering price and any other terms in connection with the offering and
sale of such Debt Securities, (ii) in the case of Preferred Stock, the
designation and stated value and liquidation preference per share, initial
public offering price per share and the number of shares to be offered, dividend
rate (or method of calculation), dates on which dividends shall be payable and
dates from which dividends shall accrue, any redemption or sinking fund
provisions, any conversion or exchange rights, any listing of the Preferred
Stock on a securities exchange, and any other terms in connection with the
offering and sale of such Preferred Stock; (iii) in the case of Common Stock,
the number of shares of Common Stock and the terms of the offering thereof; and
(iv) in the case of Warrants, the number and terms thereof, the designation and
the number of Securities issued and/or amount of cash consideration payable upon
their exercise, the exercise price, any listing of the Warrants or the
underlying Securities on a securities exchange and any other terms in connection
with the offering, sale and exercise of the Warrants. The Prospectus Supplement
will also contain information, as applicable, about certain United States
Federal income tax considerations relating to the Securities in respect of which
this Prospectus is being delivered.
The Senior Securities will rank equally with all other unsubordinated and
unsecured indebtedness of the Company. The Senior Subordinated Securities will
be subordinated to all existing and future Senior Indebtedness (as defined) of
the Company, and senior to all existing and future Subordinated Indebtedness (as
defined) of the Company. The Subordinated Securities will be subordinated to all
existing and future Senior Indebtedness (as defined) of the Company. All or a
portion of any Debt Securities may be issued in permanent global form.
The Company's Common Stock is listed on The New York Stock Exchange
(Symbol: "HSE"). Any Common Stock offered will be listed, subject to notice of
issuance, on such exchange.
The Company may sell Securities to or through one or more underwriters, and
also may sell Securities directly to other purchasers or through agents. The
accompanying Prospectus Supplement sets forth the names of any underwriters or
agents involved in the sale of the Securities in respect of which this
Prospectus is being delivered, the amounts, if any, to be purchased by
underwriters and the compensation, if any, of such underwriters or agents. See
"Plan of Distribution" herein.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
The date of this Prospectus is June 16, 1997
<PAGE> 56
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR IN THE PROSPECTUS SUPPLEMENT, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER, AGENT OR DEALER. THIS PROSPECTUS
AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH THEY RELATE OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE ACCOMPANYING
PROSPECTUS SUPPLEMENT, NOR ANY SALE MADE THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE THE IMPLICATION THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THEIR RESPECTIVE DATES.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company is currently
subject to the periodic reporting and other informational requirements of the
Exchange Act. Such reports and other information may be inspected and copied at
the public reference facilities of the Commission, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the following
Regional Offices: 7 World Trade Center, Suite 1300, New York, New York 10048,
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Commission by mail at
prescribed rates. Requests should be directed to the Commission's Public
Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549. The Commission also maintains a website at
http://www.sec.gov that contains reports, proxy statements, and other
information. HSR's common stock is listed on The New York Stock Exchange (the
"NYSE"). Reports, proxy and information statements and other information
relating to HSR can be inspected at the offices of the NYSE at 20 Broad Street,
New York, New York 10005. Any such request and requests for the agreements
summarized herein should be directed to James M. Piccone, Secretary, HS
Resources, Inc., 1999 Broadway, Suite 3600, Denver, Colorado 80202, telephone
(303) 296-3600.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933 (the
"Securities Act") with respect to the Securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement in
accordance with the rules and regulations of the Commission, and reference is
hereby made to the Registration Statement and the exhibits thereto for further
information with respect to the Company and the Securities.
The Registration Statement and the exhibits thereto can be obtained from or
inspected and copied at the public reference facilities maintained by the
Commission as described above.
2
<PAGE> 57
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K as amended by the Company's Form
10-K/A-1 for the year ended December 31, 1996, Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, and Current Report on Form 8-K filed February
26, 1997, are incorporated by reference in this Prospectus. All documents filed
by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the securities registered hereunder shall be
deemed to be incorporated by reference in this Prospectus and to be part hereof
from the date of filing such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document that also
is or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement modified or superseded shall not be deemed, except
as so modified or superseded, to constitute part of this Prospectus.
Upon request, the Company will provide without charge to each person to
whom a copy of this Prospectus has been delivered a copy of any documents
incorporated by reference herein (other than exhibits unless the exhibits are
specifically incorporated by reference into this Prospectus). Requests should be
directed to James M. Piccone, Esq., HS Resources, Inc., 1999 Broadway, Suite
3600, Denver, Colorado 80202.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes and incorporates by reference statements that are
not purely historical and are "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, including
statements regarding the Company's expectations, hopes, beliefs, intentions or
strategies regarding the future. All statements other than statements of
historical facts included or incorporated by reference in this Prospectus,
including without limitation, statements in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 under "Business," "Properties,"
"Legal Proceedings and Environmental Issues" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," regarding reserves
and their values, planned capital expenditures, increases in oil and natural gas
production, trends or expectations concerning oil and gas prices, the number and
prospective nature of anticipated wells to be drilled in 1997 and thereafter,
development potential, infill potential, drillsite potential, exploitation and
exploration prospects and leads, drilling prospects, consolidation opportunities
and the Company's financial position, business strategy and other plans and
objectives for future operations, potential liabilities or the expected absence
thereof, the potential outcome of environmental matters, litigation and other
proceedings are forward-looking statements. All forward-looking statements
included or incorporated by reference in this Prospectus are based on
information available to the Company on the date hereof, or, with respect to
documents incorporated by reference, on the date thereof, and the Company
assumes no obligation to update such forward-looking statements. Although the
Company believes that the assumptions and expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct or that the Company will take any
actions that may presently be planned. There are numerous uncertainties inherent
in estimating quantities of proved oil and natural gas reserves and projecting
future rates of production and timing of development expenditures, including
many factors beyond the control of the Company.
Many factors may affect the Company's expectations and plans. Capital
expenditure and financing plans may change in connection with the success of
drilling activities, the general availability of capital, interest rates, and
cash flow available from operations. Cash flow available from operations may
change depending on costs of materials and services, regulatory burdens and
commodity prices. Oil and natural gas prices are volatile, and there are several
potentially significant adverse effects to the Company which can result if
product prices decline materially. First, lower product prices will adversely
impact the Company's cash flow and could cause the Company to (i) curtail its
capital program, (ii) borrow additional amounts under its revolving credit
agreement, or (iii) issue additional debt or equity securities. Second, lower
product prices could cause the borrowing base under the Company's bank credit
agreement to be reduced and certain covenant tests to be
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adversely affected. Third, under rules promulgated by the Commission, companies
that follow the full cost accounting method are required to make quarterly
"ceiling test" calculations. Lower product prices adversely impact the ceiling
calculation. Should the Company realize sustained lower product prices, it could
be required to write down its oil and gas properties, resulting in a non-cash
charge against earnings.
Certain additional important factors that could cause actual results to
differ materially from the Company's forward-looking statements are disclosed
under "Business," "Properties," "Legal Proceedings and Environmental Issues,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 and in the Company's Current Report on Form
8-K filed February 26, 1997, each of which is incorporated by reference herein.
All subsequent written or oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by such factors.
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THE COMPANY
HS Resources, Inc. is a leading United States independent energy company
engaged in the development, acquisition, exploitation, exploration, production
and marketing of oil and natural gas. Through its experienced management and
technical staff, the Company has consistently increased reserves and production
and has established itself as one of the most efficient operators in the
industry. HSR has created a diversified asset base in three core geographic
areas: the Denver-Julesburg Basin (the "D-J Basin") of the Rocky Mountains, the
Anadarko and Arkoma Basins of the Mid-Continent and the on-shore Gulf Coast
area. It has done so by executing a large scale development drilling program
focused in the Wattenberg Field area of the D-J Basin and through the
acquisition of all the D-J Basin properties owned by Basin Exploration, Inc.,
(the "Acquisitions"), the merger with Tide West Oil Company, (the "Merger") and
the formation of Gulf Coast joint ventures. The Company believes that each core
geographic area presents operational and financial opportunities, positioning
the Company to maximize the benefits of its more predictable, long-lived
production in the D-J Basin, while providing meaningful exposure to potential
exploitation on exploration projects in the Mid-Continent and Gulf Coast which
exhibit higher return potential. HSR has an inventory of growth opportunities
that includes in excess of 2,000 infill, development and exploratory drilling
locations and over 1.1 million gross undeveloped acres.
The Company has achieved substantial growth in reserves, production,
revenues and operating cash flow over the past five years. HSR has increased
reserves from 20.8 MMBoe as of December 31, 1990, to 142.0 MMBoe as of December
31, 1996. HSR also increased production from 0.9 MMBoe for the year ended
December 31, 1991, to 7.6 MMBoe for the year ended December 31, 1996. Oil and
natural gas revenues and operating cash flow (defined as net income before
depreciation, depletion and amortization and deferred income taxes) also have
grown significantly over this period, increasing from $12.8 million and $5.4
million, respectively, for the year ended December 31, 1991, to $107.3 million
and $56.5 million, respectively, for the year ended December 31, 1996.
At December 31, 1996, the Company's reserves had an estimated pre-tax
present value (discounted at 10%) of $1,131 million. Natural gas constituted
approximately 76% of the Company's reserves and approximately 76% of the
Company's reserves were classified as proved developed. At December 31, 1996,
the Company operated approximately 74% of its 3,562 wells. Management believes
that its ability to control the operation of its wells and to minimize overhead
expenses has contributed to the Company achieving one of the lowest cost
structures in the industry.
The Company's principal executive office is located at One Maritime Plaza,
15th Floor, San Francisco, California 94111 and its telephone number at such
address is (415) 433-5795.
USE OF PROCEEDS
Except as otherwise described in the accompanying Prospectus Supplement or
any Pricing Supplement, the net proceeds from the sale of Securities will be
used for general corporate purposes, which may include refinancings or
repayments of indebtedness, capital expenditures, working capital, acquisitions
and repurchases and redemptions of securities.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated ratio of earnings to fixed
charges(1) 2.1x 5.0x 1.9x -- 1.4x
</TABLE>
- ---------------
(1) Earnings were insufficient to cover fixed charges by approximately
$1,551,000 at December 31, 1995.
For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of net earnings before income taxes and fixed charges
(exclusive of capitalized interest). Fixed charges consist of interest expense
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(which includes amounts capitalized and the amortization of debt discount) and
that portion of rental cost that is equivalent to interest (estimated to be
thirty percent of rental cost).
DESCRIPTION OF DEBT SECURITIES
The following is a description of certain general terms and provisions of
the Debt Securities. The particular terms of any series of Debt Securities will
be described in the applicable Prospectus Supplement. If so indicated in a
Prospectus Supplement, the terms of any such series may differ from the terms
set forth below.
The Debt Securities will constitute either indebtedness designated as
Senior Indebtedness, indebtedness designated as Senior Subordinated Indebtedness
or indebtedness designated as Subordinated Indebtedness. The particular terms of
each series of Securities offered by a particular Prospectus Supplement will be
described therein. Senior Securities, Senior Subordinated Securities and
Subordinated Securities will each be issued under a separate indenture
(individually an "Indenture" and collectively the "Indentures") to be entered
into prior to the issuance of such Debt Securities. The Indentures will be
substantially identical, except for provisions relating to subordination. See
"Subordination of Senior Subordinated Securities and Subordinated Securities".
In addition, at the time a series of Debt Securities is issued, a Supplemental
Indenture will be entered into containing the provisions applicable to that
series of Debt Securities. There will be a separate Trustee (individually a
"Trustee" and collectively the "Trustees') under each Indenture. Information
regarding the Trustee under an Indenture will be included in any Prospectus
Supplement relating to the Debt Securities issued thereunder. The following
discussion includes a summary description of all material terms of the
Indentures, other than terms that are specific to a particular series of Debt
Securities and that will be described in the Prospectus Supplement relating to
such series. The following summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Indentures, including the definitions therein of certain terms
capitalized in this Prospectus. Wherever particular Sections or Articles or
defined terms of the Indentures are referred to herein or in a Prospectus
Supplement, such Sections or defined terms are incorporated herein or therein by
reference.
The Debt Securities may be issued from time to time in one or more series.
The particular terms of each series of Debt Securities offered by any Prospectus
Supplement or Prospectus Supplements will be described in such Prospectus
Supplement or Prospectus Supplements relating to such series.
GENERAL
The Indentures do not limit the aggregate amount of Debt Securities that
may be issued thereunder, and Debt Securities may be issued thereunder from time
to time in separate series up to the aggregate amount from time to time
authorized by the Company for each series. Debt Securities of a series may be
issuable in registered form without coupons ("Registered Debt Securities"), in
bearer form with or without coupons attached ("Bearer Debt Securities") or in
the form of one or more Global Securities in registered or bearer form (each a
"Global Security"). Bearer Debt Securities, if any, will be offered only to
non-United States persons and to offices located outside the United States of
certain United States financial institutions. The Senior Securities will be
unsecured and unsubordinated obligations of the Company and will rank equally
and ratably with other unsecured and unsubordinated indebtedness of the Company.
The Senior Subordinated Securities and the Subordinated Securities will be
subordinated in right of payment to the prior payment in full of the Senior
Indebtedness of the Company, as described below under "Subordination of
Subordinated Securities" and in a Prospectus Supplement applicable to an
offering of Senior Subordinated Securities or Subordinated Securities.
The applicable Prospectus Supplement or Prospectus Supplements will also
describe the following terms of the series of Debt Securities in respect of
which this Prospectus is being delivered: (1) the title of such Debt Securities;
(2) any limit on the aggregate principal amount of such Debt Securities; (3)
whether such Debt Securities will be issued as Registered Debt Securities,
Bearer Debt Securities or any combination thereof, and any limitation on
issuance of such Bearer Debt Securities and any provisions regarding the
transfer or exchange of such Bearer Debt Securities, including exchange for
Registered Debt Securities of the
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same series; (4) whether any of such Debt Securities are to be issuable as a
Global Security, and, if so, the terms and conditions, if any, upon which
interests in such Securities in global form may be exchanged, in whole or in
part, for the individual Debt Securities represented thereby; (5) the person to
whom any interest on any Debt Security of the series shall be payable if other
than the person in whose name the Debt Security is registered on the Regular
Record Date; (6) the date or dates on which such Debt Securities will mature;
(7) the rate or rates of interest (which may be fixed or variable) or the method
of calculation thereof, that such Debt Securities will bear; (8) the date or
dates from which any such interest will accrue, the Interest Payment Dates on
which any such interest on such Debt Securities will be payable and the Regular
Record Date for any interest payable on any Interest Payment Date; (9) the place
or places where the principal of, premium (if any) and interest on such Debt
Securities will be payable; (10) the period or periods within which, the terms
and conditions upon which, and the price or prices at which, such Debt
Securities may, pursuant to any optional or mandatory provisions, be redeemed or
purchased, in whole or in part, by the Company and any terms and conditions
relevant thereto; (11) the obligation of the Company, if any, to redeem or
repurchase such Debt Securities at the option of the Holders or pursuant to any
sinking fund obligation; (12) the denominations in which any such Debt
Securities will be issuable, if other than denominations of $1,000 and any
integral multiple thereof; (13) the currency, currencies or currency unit for
payment of principal of and any premium and interest on such Debt Securities if
other than U.S. dollars and the manner of determining the U.S. dollar equivalent
of foreign currency; (14) any index or formula used to determine the amount of
payments of principal of and any premium and interest on such Debt Securities;
(15) if the principal of or any premium or interest on such Debt Securities is
to be payable, at the election of the Company or a Holder thereof, in one or
more currencies or currency units other than that or those in which such Debt
Securities are stated to be payable, the currency, currencies or currency units
in which payment of the principal of and any premium and interest on Debt
Securities of such series as to which such election is made shall be payable,
and the periods within which and the terms and conditions upon which such
election is to be made; (16) if other than the principal amount thereof, the
portion of the principal amount of such Debt Securities of the series that will
be payable upon declaration of the acceleration of the Maturity thereof; (17)
any covenants of the Company applicable to such series of Debt Securities,
including whether the Company is required to offer to repurchase all Debt
Securities of a class upon the occurrence of a Change of Control; (18) the
applicability of any provisions described under "Defeasance"; (19) the terms and
conditions, if any, pursuant to which such Debt Securities are convertible or
exchangeable into Common Stock or other securities; (20) provisions relating to
Bearer Securities, (21) if the principal amount payable at the Stated Maturity
of the Debt Securities is not determinable upon original issuance or at any time
prior to maturity, the amount that is deemed to be the principal amount
outstanding at any time; (22) the terms of any guarantee of the payment of
principal and interest on the Debt Securities; (23) the subordination, if any,
of the Debt Securities and any guarantee thereof; (24) any addition to or
changes in the Events of Default with respect to Debt Securities; and (25) any
other terms of such Debt Securities not inconsistent with the provisions of the
respective Indentures.
Debt Securities may be issued at a discount from their principal amount.
United States Federal income tax considerations and other special considerations
applicable to any such Original Issue Discount Securities will be described in
the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is denominated in a
foreign currency or currencies or a foreign currency unit or units or if the
principal of and any premium and interest on any series of Debt Securities is
payable in a foreign currency or currencies or a foreign currency unit or units,
the restrictions, elections, general tax considerations, specific terms and
other information with respect to such issue of Debt Securities and such foreign
currency or currencies or foreign currency unit or units will be set forth in
the applicable Prospectus Supplement.
SENIOR SECURITIES
The Senior Securities will rank pari passu with all other unsecured and
unsubordinated debt of the Company and senior to the Senior Subordinated
Securities and Subordinated Securities.
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SUBORDINATION OF SENIOR SUBORDINATED SECURITIES AND SUBORDINATED SECURITIES
The indebtedness evidenced by the Senior Subordinated Securities and the
Subordinated Securities will be subordinated and junior in right of payment to
the extent set forth in the respective Indenture to the prior payment in full in
cash of amounts then due on all Senior Indebtedness. Upon any Senior
Indebtedness becoming due and payable, whether at the Stated Maturity thereof or
by acceleration or otherwise, such Senior Indebtedness shall be paid in full in
cash, or the immediate payment thereof duly provided for in cash, before the
Company or any Person acting on behalf of the Company shall directly or
indirectly pay, prepay, redeem, retire, repurchase or otherwise acquire for
value, or make any deposits in respect of the discharge or defeasance of, or
make other payment or distribution (whether in cash, property, securities or a
combination thereof) on account of principal of (or premium, if any) or interest
on, any Senior Subordinated Securities or Subordinated Securities (collectively,
a "Securities Payment"). The Company may not make a Securities Payment if at the
time of such payment there exists a default in payment of all or any portion of
any Senior Indebtedness, and such default shall not have been cured or waived in
writing or the benefits of this provision waived in writing by or on behalf of
the holders of such Senior Indebtedness. In addition, during the continuance of
any event of default (other than a default in payment of all or any portion of
any Senior Indebtedness) with respect to any Specified Senior Indebtedness, as
such event of default is defined therein or in the instrument under which it is
outstanding, permitting the holders of such Specified Senior Indebtedness to
accelerate the maturity thereof, and upon written notice thereof given by the
Principal Agent to the Trustee, with a copy to the Company (the delivery of
which shall not affect the validity of the notice thereof to the Trustee), then,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist, no Securities Payment shall be made; provided that if the
holders of the Specified Senior Indebtedness to which the default relates have
not declared such Specified Senior Indebtedness to be immediately due and
payable within 179 days after the occurrence of such default (or have declared
such Specified Senior Indebtedness to be immediately due and payable and within
such period have rescinded such declaration of acceleration), then the Company
shall resume making any and all unpaid scheduled Securities Payments on such
Senior Subordinated Securities or Subordinated Securities. In no event shall
such a payment blockage period described in the preceding sentence extend beyond
179 days from the date on which such payment blockage period commenced. Not more
than one payment blockage period may be commenced within any consecutive 365-day
period with respect to the Senior Subordinated Securities or Subordinated
Securities. No event of default that existed or was continuing on the date of
the commencement of any payment blockage period with respect to the Specified
Senior Indebtedness initiating such payment blockage period shall be, or be
made, the basis for the commencement of a second payment blockage period by the
holder or holders of such Specified Senior Indebtedness at any time after the
365-day period referred to in the preceding sentence unless such event of
default shall have been cured or waived for a period of not less than 90
consecutive days. A failure to make any payment with respect to the Senior
Subordinated Securities or Subordinated Securities as a result of the rights of
the holders of Senior Indebtedness described in this paragraph will not have any
effect on the right of the holders of such Senior Subordinated Securities or
Subordinated Securities to accelerate the maturity thereof as a result of such
payment default.
Upon any payment or distribution to creditors (whether in cash, property,
debt, equity or other securities, a combination thereof or otherwise) of the
Company in a voluntary or involuntary liquidation or dissolution of the Company,
whether total or partial, or in a bankruptcy, reorganization, insolvency,
receivership, assignment for the benefit of creditors, marshalling of assets or
similar proceeding relating to the Company or its property:
(i) holders of Senior Indebtedness shall be entitled to receive
payment in full in cash of all amounts due or to become due on or in
respect of all Senior Indebtedness before holders of the Senior
Subordinated Securities or Subordinated Securities shall be entitled to
receive any Securities Payment; and
(ii) until all Senior Indebtedness is paid in full in cash, any
Securities Payment to which holders of the Senior Subordinated Securities
or Subordinated Securities would be entitled but for the subordination
provisions of the Indenture shall be made to holders of Senior
Indebtedness, as their interests may appear.
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<PAGE> 63
As a result of the subordination provisions described above, in the event
of insolvency of the Company, funds that would otherwise be payable to Holders
of Senior Subordinated Securities or Subordinated Securities will be paid or
turned over to the holders of Senior Indebtedness, to the extent necessary to
pay such Senior Indebtedness in full.
"Senior Indebtedness" means the Obligations of the Company with respect to
(i) Indebtedness of the Company under the Bank Credit Facility and any renewal,
refunding, refinancing, replacement or extension thereof and (ii) any other
Indebtedness of the Company (other than the Debt Securities), whether
outstanding on the date of the Indenture or thereafter created, incurred or
assumed, and any renewal, refunding, refinancing, replacement or extension
thereof, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Debt Securities or that such indebtedness is pari passu with or
junior to the Debt Securities; provided, however, that any series of Securities
designated as Senior Subordinated Indebtedness shall constitute Senior
Indebtedness to any series of Securities designated as Subordinated
Indebtedness. Notwithstanding the foregoing, Senior Indebtedness shall not
include (i) Indebtedness of the Company to a Subsidiary of the Company, (ii)
amounts owed for goods, materials or services purchased in the ordinary course
of business, (iii) Indebtedness incurred in violation of the Indentures, (iv)
amounts payable or any other Indebtedness to employees of the Company or any
Subsidiary of the Company, (v) any liability for Federal, state, local or other
taxes owed or owing by the Company, (vi) any Indebtedness of the Company that,
when incurred and without regard to any election under Section 1111(b) of the
United States Bankruptcy Code, was without recourse to the Company, and, with
respect to Senior Subordinated Indebtedness, (vii) Indebtedness evidenced by the
Company's $75,000,000 9 7/8% Senior Subordinated Notes due 2003 (the "9 7/8%
Notes") and $150,000,000 9 1/4% Senior Subordinated Notes due 2006 (the "9 1/4%
Notes"); and (viii) Indebtedness evidenced by the Senior Subordinated Securities
and the Subordinated Securities.
If this Prospectus is being delivered in connection with a series of Senior
Subordinated Securities or Subordinated Securities, the accompanying Prospectus
Supplement or the information incorporated herein by reference will set forth
the approximate amount of Senior Indebtedness outstanding as of the most recent
practicable date.
FORM, EXCHANGE, REGISTRATION, CONVERSION AND TRANSFER
Debt Securities are issuable in definitive form as Registered Debt
Securities, as Bearer Debt Securities or both. Unless otherwise indicated in an
applicable Prospectus Supplement, Bearer Debt Securities will have interest
coupons attached. Debt Securities are also issuable in temporary or permanent
global form.
Registered Debt Securities of any series (other than a Global Security)
will be exchangeable for other Registered Debt Securities of the same series and
of a like aggregate principal amount and tenor of different authorized
denominations. In addition, with respect to any series of Bearer Debt
Securities, at the option of the holder, subject to the terms of the Indenture,
such Bearer Debt Securities (with all unmatured coupons, except as provided
below, and all matured coupons in default) will be exchangeable into Registered
Debt Securities of the same series or for Bearer Debt Securities of any
authorized denominations and of a like aggregate principal amount and tenor.
Bearer Debt Securities surrendered in exchange for Registered Debt Securities
between a Regular Record Date or a Special Record Date and the relevant date for
payment of interest shall be surrendered without the coupon relating to such
date for payment of interest, and interest accrued as of such date will not be
payable in respect of the Registered Debt Security issued in exchange for such
Bearer Debt Security, but will be payable only to the holder of such coupon when
due in accordance with the terms of the Indenture.
In connection with its sale during the restricted period (as defined
below), no Bearer Debt Security (including a Debt Security in permanent global
form that is either a Bearer Debt Security or exchangeable for Bearer Debt
Securities) shall be mailed or otherwise delivered to any location in the United
States (as defined under "-- Limitations on Issuance of Bearer Debt Securities")
and a Bearer Debt Security may be delivered outside the United States in
definitive form in connection with its original issuance only if prior to
delivery the
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person entitled to receive such Bearer Debt Security furnishes written
certification to the effect that such Bearer Debt Security is owned by: (a) a
person (purchasing for its own account) who is not a United States person (as
defined under "-- Limitations on Issuance of Bearer Debt Securities"); (b) a
United States person who (i) is a foreign branch of a United States financial
institution purchasing for its own account or for resale or (ii) acquired such
Bearer Debt Security through the foreign branch of a United States financial
institution and who for purposes of the certification holds such Bearer Debt
Security through such financial institution on the date of certification and, in
either case, such United States financial institution certifies to the Issuer or
the distributor selling the Bearer Debt Security within a reasonable time
stating that it agrees to comply with the requirements of Section 165(j)(3)(A),
(B) or (C) of the United States Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations thereunder, or (c) a United States or foreign
financial institution for purposes of resale within the "restricted period" as
defined in United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7). A
financial institution described in clause (c) of the preceding sentence (whether
or not also described in clauses (a) and (b)) must certify that it has not
acquired the Bearer Debt Security for purpose of resale, directly or indirectly,
to a United States person or to a person within the United States or its
possessions. In the case of a Bearer Debt Security in permanent global form,
such certification must be given in connection with notation of a beneficial
owner's interest therein in connection with the original issuance of such Debt
Security or upon exchange of a portion of a temporary global Debt Security.
Debt Securities may be presented for exchange as provided above, and
Registered Debt Securities may be presented for registration of transfer (with
the form of transfer endorsed thereon duly executed), at the office or agency of
the Company maintained for such purposes and at any other office or agency
maintained for such purpose with respect to any series of Debt Securities and
referred to in the applicable Prospectus Supplement, without a service charge
and upon payment of any taxes and other governmental charges as described in the
Indenture. Such transfer or exchange will be effected upon the Company or its
agent, as the case may be, being satisfied with the documents of title and
identity of the person making the request.
The Company shall not be required to (i) issue, register the transfer of or
exchange Debt Securities of any series during a period of 15 days prior to the
mailing of a notice of redemption of Debt Securities of that series; or (ii)
register the transfer of or exchange any Debt Security, or portion thereof,
called for redemption, except that any Bearer Debt Security exchangeable for a
Registered Debt Security of that series may be so exchanged during the period
preceding the redemption date therefor which is simultaneously surrendered for
redemption.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of (and any premium) and interest on Bearer Debt Securities will be
payable, subject to any applicable laws and regulations, in the designated
currency or currency unit, at the offices of the Trustee outside the United
States as the Company may designate from time to time, at the option of the
holder, by check or by transfer to an account maintained by the payee with a
bank located outside the United States. Unless otherwise indicated in the
applicable Prospectus Supplement, payment of interest on Bearer Debt Securities
on any Interest Payment Date will be made only against surrender to the Paying
Agent of the coupon relating to such Interest Payment Date. No payment with
respect to any Bearer Debt Security will be made at any office or agency of the
Company in the United States or by check mailed to any address in the United
States or by transfer to any account maintained with a bank located in the
United States, nor shall any payments be made in respect of Bearer Debt
Securities upon presentation to the Company or its designated agent within the
United States. Notwithstanding the foregoing, payments of principal of (and
premium, if any) and interest on Bearer Debt Securities denominated and payable
in U.S. dollars will be made at the office of the Company's agent in the United
States, if (but only if) payment of the full amount thereof in U.S. dollars at
all offices or agencies outside the United States is illegal or effectively
precluded by exchange controls or other similar restrictions.
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of (and premium, if any) and interest on Registered Debt Securities
will be made in the designated currency or currency unit at the Corporate Trust
Office of the Trustee, except that at the option of the Company payment of any
interest may be made by check mailed to the address of the person entitled
thereto as such address shall
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appear in the Security Register or, if provided in the Indenture, at the option
of the Holder, by wire transfer to an account designated by the Holder. Unless
otherwise indicated in an applicable Prospectus Supplement, payment of any
installment of interest on Registered Debt Securities will be made to the person
in whose name such Registered Debt Security is registered at the close of
business on the Regular Record Date for such interest.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Corporate Trust Office of the Trustee will be designated as the paying agent for
the Trustee for payments with respect to Debt Securities that are issuable
solely as Registered Debt Securities, and the Company will maintain a paying
agent outside the United States for payments with respect to Debt Securities
(subject to limitations described above in the case of Bearer Debt Securities)
that are issued solely as Bearer Debt Securities, or as both Registered Debt
Securities and Bearer Debt Securities. Any Paying Agents outside the United
States and any other Paying Agents in the United States initially designated by
the Company for the Debt Securities will be named in an applicable Prospectus
Supplement. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent or approve a change in the office
through which any Paying Agent acts, except that, if Debt Securities of a series
are issued solely as Registered Debt Securities, the Company will be required to
maintain a Paying Agent in each Place of Payment for such series and, if Debt
Securities of a series are issued as Registered Debt Securities and Bearer Debt
Securities, the Company will be required to maintain (i) a Paying Agent in the
United States for principal payments with respect to any Registered Debt
Securities of the series (and for payments with respect to Bearer Debt
Securities of the series in the circumstances described above, but not
otherwise), and (ii) a Paying Agent in a Place of Payment located outside the
United States where Securities of such series and any coupons appertaining
thereto may be presented and surrendered for payment.
All monies paid by the Company to a Paying Agent for the payment of
principal of and any premium or interest on any Debt Security that remain
unclaimed at the end of two years after such principal, premium or interest
shall have become due and payable will (subject to applicable escheat laws) be
repaid to the Company, and the holder of such Debt Security or any coupon will
thereafter look only to the Company for payment thereof.
TEMPORARY GLOBAL SECURITIES
If so specified in the applicable Prospectus Supplement, all or any portion
of the Debt Securities of a series which are issuable as Bearer Debt Securities
will initially be represented by one or more temporary global Debt Securities,
without interest coupons, to be deposited with a common depository in London for
the Euroclear System ("Euroclear") and CEDEL S.A. ("CEDEL") for credit to the
designated accounts. On and after the date determined as provided in any such
temporary global Debt Security and described in the applicable Prospectus
Supplement, each such temporary global Debt Security will be exchangeable for
definitive Bearer Debt Securities, definitive Registered Debt Securities or all
or a portion of a permanent global security, or any combination thereof, as
specified in the applicable Prospectus Supplement. No Bearer Debt Security
delivered in exchange for a portion of a temporary global Debt Security will be
mailed or otherwise delivered to any location in the United States in connection
with such exchange.
Unless otherwise specified in the applicable Prospectus Supplement,
interest in respect of any portion of a temporary global Debt Security payable
in respect of an Interest Payment Date occurring prior to the issuance of
definitive Debt Securities or a permanent global Debt Security will be paid to
each of Euroclear and CEDEL with respect to the portion of the temporary global
Debt Security held for its account. Each of Euroclear and CEDEL will undertake
in such circumstances to credit such interest received by it in respect of a
temporary global Debt Security to the respective accounts for which it holds
such temporary global Debt Security as of the relevant Interest Payment Date
regarding the portion of such temporary global Debt Security on which interest
is to be so credited.
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PERMANENT GLOBAL SECURITIES
If any Debt Securities of a series are issuable in permanent global form,
the applicable Prospectus Supplement will describe the circumstances, if any,
under which beneficial owners of interests in any such permanent global Debt
Securities may exchange such interests for Debt Securities of such series and of
like tenor and principal amount in any authorized form and denomination. No
Bearer Debt Security delivered in exchange for a portion of a permanent global
Debt Security shall be mailed or otherwise delivered to any location in the
United States in connection with such exchange.
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a Depositary ("Depositary") or its nominee identified in the applicable
Prospectus Supplement. In such a case, one or more Global Securities will be
issued in a denomination or aggregate denominations equal to the portion of the
aggregate principal amount of Outstanding Debt Securities of the series to be
represented by such Global Security or Securities. Unless and until it is
exchanged in whole or in part for Debt Securities in registered form, a Global
Security may not be registered for transfer or exchange except as a whole by the
Depositary for such Global Security to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any nominee to a successor Depositary or a
nominee of such successor Depositary and except in the circumstances described
in the applicable Prospectus Supplement.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the applicable Prospectus Supplement. The Company expects
that the following provisions will apply to depositary arrangements.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Depositary will be represented by a Global Security registered
in the name of such Depositary or its nominee. Upon the issuance of such Global
Security, and the deposit of such Global Security with or on behalf of the
Depositary for such Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
persons that have accounts with such Depositary or its nominee ("participants").
The accounts to be credited will be designated by the underwriters or agents of
such Debt Securities or by the Company, if such Debt Securities are offered and
sold directly by the Company. Ownership of beneficial interest in such Global
Security will be limited to participants or Persons that may hold interests
through participants. Ownership of beneficial interests by participants in such
Global Security will be shown on, and the transfer of that ownership interest
will be effected only through, records maintained by the Depositary or its
nominee for such Global Security. Ownership of beneficial interests in such
Global Security by Persons that hold through participants will be shown on, and
the transfer of that ownership interest within such participant will be effected
only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The foregoing limitations and
such laws may impair the ability to transfer beneficial interests in such Global
Securities.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or Holder of the Securities
represented by such Global Security for all purposes under the applicable
Indenture. Unless otherwise specified in the applicable Prospectus Supplement,
owners of beneficial interests in such Global Security will not be entitled to
have Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Debt Securities of such series in certificated form and will not be
considered the Holders thereof for any purposes under the applicable Indenture.
Accordingly, each Person owning a beneficial interest in such Global Security
must rely on the procedures of the Depositary and, if such Person is not a
participant, on the procedures of the participant through which such Person owns
its interest, to exercise any rights of a Holder under the applicable Indenture.
The Company understands that under existing industry practices, if the Company
requests any action of
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Holders or an owner of a beneficial interest in such Global Security desires to
give any notice or take any action a Holder is entitled to give or take under an
Indenture, the Depositary would authorize the participants to give such notice
or take such action, and participants would authorize beneficial owners owning
through such participants to give such notice or take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
LIMITATIONS ON ISSUANCE OF BEARER DEBT SECURITIES
In compliance with United States Federal tax laws and regulations, Bearer
Debt Securities (including securities in permanent global form that are either
Bearer Debt Securities or exchangeable for Bearer Debt Securities) will not be
offered or sold during the restricted period (as defined in United States
Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)) (generally, the first 40
days after the closing date, and, with respect to unsold allotments, until sold)
within the United States or to United States persons (each as defined below)
other than to an office located outside the United States of a United States
financial institution (as defined in Section 1.165-12(c)(1)(v) of the United
States Treasury Regulations), purchasing for its own account or for resale or
for the account of certain customers, that provides a certificate stating that
it agrees to comply with the requirements of Section 165(j)(3)(A), (B) or (C) of
the Code and the United States Treasury Regulations thereunder, or to certain
other persons described in Section 1.163-5(c)(2)(i)(D)(1)(iii)(B) of the United
States Treasury Regulations. Moreover, such Bearer Debt Securities will not be
delivered in connection with their sale during the restricted period within the
United States. Any underwriters and dealers participating in the offering of
Bearer Debt Securities must covenant that they will not offer or sell during the
restricted period any Bearer Debt Securities within the United States or to
United States persons (other than the persons described above) or deliver in
connection with the sale of Bearer Debt Securities during the restricted period
any Bearer Debt Securities within the United States and that they have in effect
procedures reasonably designed to ensure that their employees and agents who are
directly engaged in selling the Bearer Debt Securities are aware of the
restrictions described above. No Bearer Debt Security (other than a temporary
global Bearer Debt Security) will be delivered in connection with its original
issuance nor will interest be paid on any Bearer Debt Security until receipt by
the Company of the written certification described above under "-- Form,
Exchange, Registration, Conversion and Transfer." Each Bearer Debt Security,
other than a temporary global Bearer Debt Security, will bear a legend to the
following effect: "Any United States person who holds this obligation will be
subject to limitations under the United States Federal income tax laws,
including the limitations provided in Sections 165(j) and 1287(a) of the
Internal Revenue Code."
As used herein, "United States person" means any citizen or resident of the
United States, any corporation, partnership or other entity created or organized
in or under the laws of the United States and any estate or trust the income of
which is subject to United States Federal income taxation regardless of its
source, and "United States" means the United States of America (including the
states and the District of Columbia) and its possessions.
CERTAIN COVENANTS OF THE COMPANY
The applicable Prospectus Supplement with respect to a particular series of
Debt Securities will set forth certain covenants of the Company with respect to
such Debt Securities.
EVENTS OF DEFAULT
The following are Events of Default under the Indentures with respect to
Debt Securities of any series: (a) failure to pay principal of or premium, if
any, on any Debt Security of that series whether upon maturity, acceleration,
sinking fund payment date, call for redemption or otherwise, when due; (b)
failure to pay any interest on any Debt Security of that series when due,
continued for 30 days from the date due; (c) failure to perform any other
covenant of the Company in the applicable Indenture (other than a covenant
included in
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such Indenture solely for the benefit of a series of Debt Securities other than
that series), continued for 60 days after written notice as provided in the
respective Indentures; (d) one or more final judgments or orders by a court of
competent jurisdiction are entered against the Company or any Subsidiary in an
uninsured or unindemnified aggregate amount in excess of a specified amount and
such judgments or orders are not discharged, waived, stayed, satisfied or bonded
for a period of 60 consecutive days; (e) certain events of bankruptcy,
insolvency or reorganization of the Company or a Significant Subsidiary; and (f)
any other Event of Default provided with respect to Debt Securities of that
series.
If an Event of Default with respect to Debt Securities of any series (other
than an Event of Default described in clause (e) above) shall occur and be
continuing, either the Trustee or the Holders of at least 25% in principal
amount of the Outstanding Debt Securities of that series by notice as provided
in the respective Indenture may declare the principal amount (or, if the Debt
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms of that series) of all
Debt Securities of that series to be due and payable immediately. If an Event of
Default described in clause (e) above with respect to the Debt Securities of any
series shall occur, the principal amount of all the Debt Securities will
automatically, and without any action by the Trustee or any Holder, become
immediately due and payable. At any time after a declaration of acceleration
with respect to Debt Securities of any series has been made, but before a
judgment or decree based on such acceleration has been obtained, the Holders of
a majority in principal amount of the Outstanding Debt Securities of that series
may, under certain circumstances, rescind and annul such acceleration if all
Events of Default, other than the nonpayment of accelerated principal (or other
specified amount), have been cured or waived as provided in the Indenture. For
information as to waiver or defaults, see "Modification and Waiver" below.
The Holders of a majority in principal amount of the Outstanding Debt
Securities of any series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the applicable
Trustee, with respect to the Debt Securities of that series.
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the applicable Indenture or for any remedy
thereunder, unless such Holder shall have previously given to the applicable
Trustee written notice of a continuing Event of Default (as defined) and unless
also the Holders of at least 25% in aggregate principal amount of the
Outstanding Debt Securities of the series shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the Outstanding Debt Securities of the series a
direction inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of a Debt Security for enforcement of payment of the
principal of and interest on such Debt Security on or after the respective due
dates expressed in such Debt Security.
The Company will be required to furnish to the Trustees annually a
statement as to the performance by the Company of its obligations under the
respective Indentures and as to any default in such performance.
SUPPLEMENTAL INDENTURE; WAIVER
The Indenture provides that Supplemental Indentures may be entered into by
the Company and the Trustee without the consent of any Holders of Debt
Securities in certain limited circumstances, including (i) to cure any
ambiguity, omission, defect or inconsistency, (ii) to provide for the assumption
of the obligations of the Company under the Indenture upon the merger,
consolidation or sale or other disposition of all or substantially all of the
assets of the Company and its Subsidiaries taken as a whole and certain other
events specified in the "Merger, Consolidation and Sale of Substantially All
Assets" covenant, (iii) to provide for uncertificated Debt Securities in
addition to or in place of certificated Debt Securities, (iv) to comply with any
requirement of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act of 1939, as amended, (v) to make
any change in the Debt Securities of any or all series that does not adversely
affect the rights of any Holder of Debt Securities of the affected series in any
material respect, (vi) to add Subsidiary guarantors pursuant to the procedures
set forth in the Indenture, and (vii) certain other modifications and amendments
as set forth in the Indenture.
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The Indenture contains provisions permitting the Company and the Trustee,
with the written consent of the Holders of not less than a majority in aggregate
principal amount of the Debt Securities, of any series then outstanding, or
execute supplemental indentures or amendments adding any provisions to or
changing or eliminating any of the provisions of the Indenture or modifying the
rights of the Holders of the Debt Securities of such series, except that no such
supplemental indenture, amendment or waiver may, without the consent of all the
Holders of Debt Securities of such series then outstanding, among other things,
(i) reduce the principal amount of Debt Securities of such series whose Holders
must consent to an amendment or waiver, (ii) reduce the rate of or change the
time for payment of interest on any Debt Securities, (iii) change the currency
in which any amount due in respect of the Debt Securities is payable, (iv)
reduce the principal of or any premium on or change the Stated Maturity of any
Debt Securities or alter the redemption or repurchase provisions with respect
thereto, (v) reduce the relative ranking of any Debt Securities, (vi) release
any security that may have been granted in respect of the Debt Securities, (vii)
impair the right of any Holder to institute suit for enforcement of any payment
on or with respect to such Holder's Debt Securities and (viii) make certain
other significant amendments or modifications as specified in the Indenture.
The Holders of at least a majority in aggregate principal amount of the
Outstanding Debt Securities of any series may on behalf of the Holders of all
Debt Securities of that series waive, insofar as that series is concerned,
compliance by the Company with certain covenants of the applicable Indenture.
The Holders of not less than a majority in principal amount of the Outstanding
Debt Securities of any series may, on behalf of the Holders of all Debt
Securities of that series, waive any past default under the applicable Indenture
with respect to that series, except a default in the payment of the principal
of, or premium, if any, or interest on, any Debt Security of that series or in
respect of a provision which under the applicable Indenture cannot be modified
or amended without the consent of the Holder of each Outstanding Debt Security
of that series affected.
MERGER, CONSOLIDATION AND SALE OF SUBSTANTIALLY ALL ASSETS
The Indenture provides that (i) the Company will not merge or consolidate
with or into any other Person (whether or not the Company is the surviving
entity), and (ii) the Company will not and will not permit its Subsidiaries to,
directly or indirectly, sell, transfer, assign, lease, convey or otherwise
dispose of all or substantially all of the Property of the Company and its
Subsidiaries taken as a whole in any one transaction or a series of transactions
(including, without limitation, dispositions pursuant to mergers and
consolidations) in each case unless: (A) the Surviving Entity shall be a
corporation organized and existing under the laws of the United States of
America or a State thereof or the District of Columbia; (B) if the Company is
not the Surviving Entity, the Surviving Entity (as defined) expressly assumes,
by supplemental indenture satisfactory to the Trustee, executed and delivered to
the Trustee by the Surviving Entity, the due and punctual payment of the
principal of, premium, if any, and interest on all the Debt Securities,
according to their tenor, and the due and punctual performance and observance of
all of the covenants and conditions of the Indenture to be performed by the
Company (and in the case of clause (ii) above, the Company and the Surviving
Entity shall both be considered as the issuer of the Debt Securities); (C) in
the case of the sale, transfer, assignment, lease, conveyance or other
disposition of all or substantially all of the Property of the Company and its
Subsidiaries taken as a whole, such Property shall have been transferred as an
entirety or virtually as an entirety to one Person; (D) immediately before and
after giving effect to such transaction or series of transactions on a pro forma
basis, no Default or Event of Default shall have occurred and be continuing; (E)
the Company and, if the Company is not the Surviving Entity, the Surviving
Entity, each shall have delivered to the Trustee Officers' Certificates and an
Opinion of Counsel, each stating that such merger, consolidation or disposition
and any such supplemental indentures comply with the above provisions and that
all conditions precedent relating to such transaction or transactions have been
complied with and (F) the Surviving Entity waives any right to redeem any Bearer
Debt Security under circumstances in which the Surviving Entity would be
entitled to redeem such Bearer Debt Security but the Company would not have been
so entitled to redeem if the consolidation merger, conveyance, transfer or lease
had not occurred. The term "Surviving Entity" shall mean the Person referred to
in clauses (i) and (ii) above (1) formed by or surviving any such merger or
consolidation involving the Company or (2) to which any such sale, transfer,
assignment, lease, conveyance or other disposition is made.
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DEFEASANCE AND COVENANT DEFEASANCE
If so indicated in the applicable Prospectus Supplement with respect to the
Debt Securities of a series, the Company, at its option, will be discharged from
all its obligations with respect to such Debt Securities (except for certain
obligations to exchange or register the transfer of such Debt Securities, to
replace stolen, lost or mutilated Debt Securities, to maintain paying agencies
and to hold moneys for payment in trust) upon the deposit in trust for the
benefit of the Holders of such Debt Securities of money or U.S. Government
Obligations, or a combination thereof, which, through the payment of principal,
premium, if any, and interest in respect thereof in accordance with their terms,
will provide money in an amount sufficient to pay the principal of and any
premium and interest on such Debt Securities at Stated Maturity or on earlier
redemption in accordance with the terms of the applicable Indenture and the Debt
Securities. Such defeasance or discharge may occur only if, among other things,
the Company has delivered to the Trustee an Opinion of Counsel to the effect
that (i) the Company has received from, or there has been published by, the
United States Internal Revenue Service a ruling or (ii) since the date of the
Indenture there has been a change in the applicable Federal income tax law, in
either case to the effect that Holders of such Debt Securities will not
recognize gain or loss for Federal income tax purposes as a result of such
defeasance and will be subject to Federal income tax on the same amount, in the
same manner and at the same times as would have been the case if such defeasance
had not occurred; and that the resulting trust will not be an "Investment
Company" within the meaning of the Investment Company Act of 1940, as amended
unless such trust is qualified thereunder or exempt from regulation thereunder.
If so indicated in the applicable Prospectus Supplement with respect to the
Debt Securities of a series, the Company, at its option, may omit to comply with
certain covenants, as set forth in the applicable Prospectus Supplement with
respect to the Debt Securities of such series, and that the occurrence of
certain Events of Default, as set forth in the applicable Prospectus Supplement
with respect to the Debt Securities of such series, will be deemed not to be or
result in an Event of Default. The Company, in order to exercise such option,
will be required to deposit, in trust for the benefit of the Holders of such
Debt Securities, money or U.S. Government Obligations, or a combination thereof,
which, through the payment of principal, premium, if any, and interest in
respect thereof in accordance with their terms, will provide money in an amount
sufficient to pay the principal of and any premium and interest on such Debt
Securities at Stated Maturity or on earlier redemption in accordance with the
terms of the Indenture and such Debt Securities. The Company will also be
required, among other things, to deliver to the Trustee an Opinion of Counsel to
the effect that Holders of such Debt Securities will not recognize gain or loss
for Federal income tax purposes as a result of such deposit and defeasance of
certain obligations and will be subject to Federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit and defeasance were not to occur; and that the resulting trust will
not be an "Investment Company" within the meaning of the Investment Company Act
of 1940, as amended unless such trust is qualified thereunder or exempt from
regulation thereunder. In the event the Company were to exercise this option and
such Debt Securities were declared due and payable because of the occurrence of
any Event of Default, the amount of money and U.S. Government Obligations so
deposited in trust would be sufficient to pay amounts due on such Debt
Securities at the time of their Stated Maturity but may not be sufficient to pay
amounts due on such Debt Securities upon any acceleration resulting from such
Event of Default. In such case, the Company would remain liable for such
payments.
Notwithstanding the description set forth under "Subordination of Senior
Subordinated Securities and Subordinated Securities" above, in the event that
the Company deposits money or U.S. Government Obligations in compliance with
such Indenture in order to defease all or certain of its obligations with
respect to any Senior Subordinated Securities or Subordinated Securities, the
monies or U.S. Government Obligations so deposited will not be subject to the
subordination provisions of such Indenture and the indebtedness evidenced by
such Securities will not be subordinated in right of payment to the holders of
Senior Indebtedness to the extent of the monies or U.S. Government Obligations
so deposited.
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NOTICES
Except as otherwise provided in the Indenture, notices to holders of Bearer
Debt Securities will be given by publication on two separate business days in an
Authorized Newspaper in such city or cities as may be specified in such
Securities. Notices to holders of Registered Debt Securities will be given by
mail to the addresses of such holders as they appear in the Security Register.
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the laws of the State of New York.
REGARDING THE TRUSTEE
The Indentures contain certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize for its own account on certain property received in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in certain other transactions; however, if it acquires any
conflicting interest and there is a default under the Debt Securities, it must
eliminate such conflict or resign.
DESCRIPTION OF PREFERRED STOCK
The following is a description of certain general terms and provisions of
the Preferred Stock. The particular terms of any series of Preferred Stock will
be described in the applicable Prospectus Supplement. If so indicated in a
Prospectus Supplement, the terms of any such series may differ from the terms
set forth below. Certain provisions applicable to the Company's Preferred Stock
are set forth below in "Description of Common Stock."
The summary of terms of the Company's preferred stock (including the
Preferred Stock) contained in this Prospectus does not purport to be complete
and is subject to, and qualified in its entirety by, the provisions of the
Company's Certificate of Incorporation and the certificate of designations
relating to each series of the Preferred Stock (the "Certificate of
Designations"), which will be filed as an exhibit to or incorporated by
reference in the Registration Statement of which this Prospectus is a part at or
prior to the time of issuance of such series of the Preferred Stock.
The Company's Certificate of Incorporation authorizes the issuance of
15,000,000 shares of preferred stock, par value of $.001 per share. At the date
of this Prospectus, no shares of preferred stock were issued and outstanding,
and 300,000 shares of Series A Junior Preferred Stock were reserved for issuance
in connection with the Company's shareholders' rights plan. See "Description of
Common Stock -- Preferred Stock Purchase Rights." The Company's preferred stock
may be issued from time to time in one or more series, without stockholder
approval. Subject to limitations prescribed by law, the Board of Directors of
the Company is authorized to determine and alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of preferred stock, and to increase or decrease (but not below the number
of shares of such series then outstanding) the number of shares of such series
of preferred stock. As such, the Company's Board of Directors, without
stockholder approval, could authorize the issuance of preferred stock with
voting, conversion and other rights that could adversely affect the voting power
and other rights of holders of Common Stock or other series of preferred stock
or that could have the effect of delaying, deferring or preventing a change in
control of the Company. See "Description of Common Stock" herein.
The Preferred Stock issued by the Company shall have the dividend,
liquidation, redemption and voting rights set forth below unless otherwise
provided in a Prospectus Supplement relating to a particular series of the
Preferred Stock. The applicable Prospectus Supplement will describe the
following terms of the series of Preferred Stock in respect of which this
Prospectus is being delivered: (1) the designation and stated value per share of
such Preferred Stock and the number of shares offered; (2) the amount of
liquidation preference per share; (3) the initial public offering price at which
such Preferred Stock will be issued; (4) the dividend rate (or method of
calculation), the dates on which dividends shall be payable and the dates from
which dividends
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shall commence to cumulate, if any; (5) if applicable, any index or formula used
to determine the amount of dividends payable; (6) any redemption or sinking fund
provisions; (7) any conversion or exchange rights; and (8) any additional
voting, dividend, liquidation, redemption, sinking fund and other rights,
preferences, privileges, limitations and restrictions.
GENERAL
The Preferred Stock offered hereby will be issued in one or more series.
The holders of Preferred Stock will have no preemptive rights. Preferred Stock,
upon issuance against full payment of the purchase price therefor, will be fully
paid and nonassessable. Neither the par value nor the liquidation preference is
indicative of the price at which the Preferred Stock will actually trade on or
after the date of issuance. The applicable Prospectus Supplement will contain a
description of certain United States Federal income tax consequences relating to
the purchase and ownership of the series of Preferred Stock offered by such
Prospectus Supplement.
RANK
The Preferred Stock shall, with respect to dividend rights and rights on
liquidation, winding up and dissolution of the Company, rank prior to the
Company's Common Stock and to all other classes and series of equity securities
of the Company now or hereafter authorized, issued or outstanding (the Common
Stock and such other classes and series of equity securities collectively may be
referred to herein as the "Junior Stock"), other than any classes or series of
equity securities of the Company ranking on a parity with (the "Parity Stock")
or senior to (the "Senior Stock") the Preferred Stock as to dividend rights and
rights upon liquidation, winding up or dissolution of the Company. The Preferred
Stock shall be junior to all outstanding debt of the Company. The Preferred
Stock shall be subject to creation of Senior Stock, Parity Stock and Junior
Stock to the extent not expressly prohibited by the Company's Certificate of
Incorporation.
DIVIDENDS
Holders of shares of Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds of the Company legally
available for payment, cash dividends, payable at such dates and at such rates
per share per annum as set forth in the applicable Prospectus Supplement. Such
rate may be fixed or variable or both. Each declared dividend shall be payable
to holders of record as they appear at the close of business on the stock books
of the Company on such record dates, not more than 60 calendar days preceding
the payment dates therefor, as determined by the Board of Directors (each of
such dates, a "Record Date").
Such dividends may be cumulative or noncumulative, as provided in the
Prospectus Supplement. If dividends on a series of Preferred Stock are
noncumulative and if the Board of Directors fails to declare a dividend in
respect of a dividend period with respect to such series, then holders of such
Preferred Stock will have no right to receive a dividend in respect of such
dividend period, and the Company will have no obligation to pay the dividend for
such period, whether or not dividends are declared payable on any future
Dividend Payment Dates. Dividends on the shares of each series of Preferred
Stock for which dividends are cumulative will accrue from the date on which the
Company initially issues shares of such series.
Unless otherwise specified in the applicable Prospectus Supplement, no full
dividends shall be declared or paid or set apart for payment on preferred stock
of the Company of any series ranking, as to dividends, on a parity with or
junior to the series of Preferred Stock offered by the Prospectus Supplement
attached hereto for any period unless full dividends for the immediately
preceding dividend period on such Preferred Stock (including any accumulation in
respect of unpaid dividends for prior dividend periods, if dividends on such
Preferred Stock are cumulative) have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof is set apart for
such payment. When dividends are not so paid in full (or a sum sufficient for
such full payment is not so set apart) upon such Preferred Stock and any other
preferred stock of the Company ranking on a parity as to dividends with the
Preferred Stock, dividends upon shares of such Preferred Stock and dividends on
such other preferred stock shall be declared pro rata so that the amount
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of dividends declared per share on such Preferred Stock and such other preferred
stock shall in all cases bear to each other the same ratio that accrued
dividends for the then-current dividend period per share on the shares of such
Preferred Stock (including any accumulation in respect of unpaid dividends for
prior dividend periods, if dividends on such Preferred Stock are cumulative) and
accrued dividends, including required or permitted accumulations, if any, on
shares of such other preferred stock, bear to each other. Unless full dividends
on the series of Preferred Stock offered by the Prospectus Supplement attached
hereto have been declared and paid or set apart for payment for the immediately
preceding dividend period (including any accumulation in respect of unpaid
dividends for prior dividend periods, if dividends on such Preferred Stock are
cumulative) (a) no cash dividend or distribution (other than in shares of Junior
Stock) may be declared, set aside or paid on the Junior Stock, (b) the Company
may not repurchase, redeem or otherwise acquire any shares of its Junior Stock
(except by conversion into or exchange for Junior Stock) and (c) the Company may
not, directly or indirectly, repurchase, redeem or otherwise acquire any shares
of Preferred Stock or Parity Stock otherwise than pursuant to certain pro rata
offers to purchase or a concurrent redemption of all, or a pro rata portion, of
the outstanding shares of such Preferred Stock and Parity Stock (except by
conversion into or exchange for Junior Stock).
CONVERTIBILITY
The terms, if any, on which shares of Preferred Stock of any series may be
exchanged for or converted (mandatorily or otherwise) into shares of Common
Stock of the Company or another series of Preferred Stock or other securities of
the Company will be set forth in the Prospectus Supplement relating thereto. See
"Description of Common Stock."
REDEMPTION
The terms, if any, on which shares of Preferred Stock of any series may be
redeemed will be set forth in the related Prospectus Supplement.
LIQUIDATION
Unless otherwise specified in the applicable Prospectus Supplement, in the
event of a voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, the holders of a series of Preferred Stock will be
entitled, subject to the rights of creditors, but before any distribution or
payment to the holders of Junior Stock on liquidation, dissolution or winding up
of the Company, to receive an amount per share as set forth in the related
Prospectus Supplement plus accrued and unpaid dividends for the then-current
dividend period (including any accumulation in respect of unpaid dividends for
prior dividend periods, if dividends on such series of Preferred Stock are
cumulative). If the amounts available for distribution with respect to the
Preferred Stock and all other outstanding stock of the Company ranking on a
parity with the Preferred Stock upon liquidation are not sufficient to satisfy
the full liquidation rights of all the outstanding Preferred Stock and stock
ranking on a parity therewith, then the holders of each series of such stock
will share ratably in any such distribution of assets in proportion to the full
respective preferential amount (which in the case of preferred stock may include
accumulated dividends) to which they are entitled. Unless otherwise specified in
the applicable Prospectus Supplement, after payment of the full amount of the
liquidation preference, the holders of shares of Preferred Stock will not be
entitled to any further participation in any distribution of assets by the
Company.
VOTING
The voting rights of any series of Preferred Stock will be as provided in
the applicable Prospectus Supplement and as required by applicable law.
NO OTHER RIGHTS
The shares of a series of Preferred Stock will not have any preferences,
voting powers or relative, participating, optional or other special rights
except as set forth above or in the related Prospectus
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Supplement, the Certificate of Incorporation and in the certificate of
designations or as otherwise required by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent for each series of Preferred Stock will be designated in
the related Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
The following is a description of certain general terms and provisions of
the Common Stock. The summary of terms of the Company's Common Stock contained
in this Prospectus does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Certificate of
Incorporation, Bylaws and Rights Agreement, dated as of February 28, 1996,
between the Company and Harris Trust Company of California (the "Rights
Agreement"), each of which has been incorporated by reference herein.
The Company's Certificate of Incorporation authorizes the issuance of
30,000,000 shares of Common Stock. No class of capital stock of HSR entitles the
holder thereof to any preemptive rights to purchase or subscribe for shares of
any class or any other securities.
All issued and outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. The holders of Common Stock are entitled to one vote for
each share held on all matters submitted to a vote of common stockholders. The
Common Stock does not have cumulative voting rights. Each share of Common Stock
is entitled to participate equally in dividends, as and when declared by the
Company's Board of Directors, and in the distribution of assets in the event of
liquidation, subject in all cases to any prior rights of outstanding shares of
the Company's preferred stock. The shares of Common Stock have no preemptive or
conversion rights, redemption rights or sinking fund provisions.
The outstanding shares of Common Stock are listed on The New York Stock
Exchange and trade under the symbol "HSE." Harris Savings and Trust is the
transfer agent, registrar and dividend disbursing agent for the Common Stock.
PREFERRED STOCK PURCHASE RIGHTS
On February 28, 1996, the Company's Board of Directors declared a dividend
distribution of one Preferred Stock Purchase Right (a "Right") for each
outstanding share of Common Stock. The description and terms of the Rights are
set forth in the Rights Agreement. The distribution was made as of March 14,
1996, to stockholders of record on that date. Each Right entitles the registered
holder of Common Stock to purchase from the Company one one-hundredth ( 1/100)
of a share of preferred stock, designated as Series A Junior Preferred Stock, at
a price of $60.00 per one one-hundredth ( 1/100) of a share. The Rights will
expire at the close of business on March 14, 2006, unless earlier redeemed by
the Company as described in the Rights Agreement.
Initially, the Rights will not be exercisable or represented by a separate
certificate but will trade together with the Common Stock. The Rights, unless
redeemed prior thereto, become exercisable only upon the close of business on
the day which is the earlier of (a) the tenth day after a public announcement
that a person or group of affiliated or associated persons, with certain
exceptions as noted in the Rights Agreement, has acquired beneficial ownership
of 15% or more of the Company's voting stock (an "Acquiring Person") or (b) the
tenth business day (or such later date as may be determined by the Company's
Board of Directors prior to such time as any person or group of affiliated
persons becomes an Acquiring Person) after the commencement or announcement of
an intention to commence a tender or exchange offer, the consummation of which
would result in the ownership of 30% or more of the Company's voting stock (even
if no stock is actually purchased pursuant to such offer). An Acquiring Person
does not include, among others, Natural Gas Partners, L.P. unless it is the
beneficial owner of 22.193% or more of the voting stock of the Company. All
issuances of Common Stock after the date of the Rights Agreement will include
Rights.
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For as long as the Rights are redeemable pursuant to the terms of the
Rights Agreement, the Company may, except with respect to the redemption price
or date of expiration of the Rights, amend the Rights in any manner, including
an amendment to extend the time period in which the Rights may be redeemed. At
any time when the Rights are not then redeemable, the Company may amend the
Rights in any manner that does not materially adversely affect the interests of
holders of the Rights as such. Amendments to the Rights Agreement from and after
the time that any Person (as defined in the Rights Agreement) becomes an
Acquiring Person requires the approval of a majority of the Continuing Directors
(as defined in the Rights Agreement).
DESCRIPTION OF WARRANTS
The following is a description of certain general terms and provisions of
the Warrants. The particular terms of any series of Warrants will be described
in the applicable Prospectus Supplement. If so indicated in a Prospectus
Supplement, the terms of any such series may differ from the terms set forth
below.
GENERAL
The Company may issue Warrants, including Warrants to purchase Debt
Securities ("Debt Warrants"), as well as Warrants to purchase other types of
securities, including equity securities. Warrants may be issued independently or
together with any securities and may be attached to or separate from such
securities. Each series of Warrants will be issued under a separate warrant
agreement (each a "Warrant Agreement") to be entered into between the Company
and a warrant agent ("Warrant Agent"). The Warrant Agent will act solely as an
agent of the Company in connection with the Warrants of such series and will not
assume any obligation or relationship of agency or trust for or with any holders
or beneficial owners of Warrants. The following sets forth certain general terms
and provisions of the Warrants offered hereby.
DEBT WARRANTS
The applicable Prospectus Supplement will describe the following terms of
the Debt Warrants in respect of which this Prospectus is being delivered: (1)
the title of such Debt Warrants; (2) the aggregate number of such Debt Warrants;
(3) the price or prices at which such Debt Warrants will be issued; (4) the
currency or currencies, including composite currencies, in which the price of
such Debt Warrants may be payable; (5) the designation, aggregate principal
amount and terms of the Debt Securities purchasable upon exercise of such Debt
Warrants; (6) if applicable, the designation and terms of the Debt Securities
with which such Debt Warrants are issued and the number of such Debt Warrants
issued with each such Debt Security; (7) the currency or currencies, including
composite currencies, in which the principal of or any premium or interest on
the Debt Securities purchasable upon exercise of such Debt Warrants will be
payable; (8) if applicable, the date on and after which such Debt Warrants and
the related Debt Securities will be separately transferable; (9) the price at
which and currency or currencies, including composite currencies, in which the
Debt Securities purchasable upon exercise of such Debt Warrants may be
purchased; (10) the date on which the right to exercise such Debt Warrants shall
commence and the date on which such right shall expire; (11) if applicable, the
minimum or maximum amount of such Debt Warrants which may be exercised at any
one time; (12) if applicable, any index or formula used to determine the amount
of payments of principal of and any premium and interest on Debt Securities
purchasable upon exercise of such Debt Warrants; (13) information with respect
to book-entry procedures, if any; (14) if applicable, a discussion of certain
United States Federal income tax considerations; and (15) any other terms of
such Debt Warrants, including terms, procedures and limitations relating to the
exchange and exercise of such Debt Warrants.
OTHER WARRANTS
The Company may issue other Warrants. The applicable Prospectus Supplement
will describe the following terms of any such other Warrants in respect of which
this Prospectus is being delivered: (1) the title of such Warrants; (2) the
designation and number of Securities (which may include Preferred Stock or
Common Stock) and/or amount of cash consideration for which such Warrants are
exercisable; (3) the price
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or prices at which such Warrants will be issued; (4) the currency or currencies,
including composite currencies, in which the price of such Warrants may be
payable; (5) if applicable, the designation and terms of the Preferred Stock
with which such Warrants are issued and the number of such Warrants issued with
each share of Preferred Stock or Common Stock; (6) if applicable, the date on
and after which such Warrants and the related Preferred Stock or Common Stock
will be separately transferable; (7) if applicable, any index or formula used to
determine the price or prices at which such other securities and/or cash
consideration will be issued; (8) if applicable, a discussion of certain United
States Federal income tax considerations; and (9) any other terms of such
Warrants, including terms, procedures and limitations relating to the exchange
and exercise of such Warrants.
PLAN OF DISTRIBUTION
The Company may offer Securities to or through underwriters, through agents
or dealers or directly to other purchasers.
The distribution of Securities may be effected from time to time in one or
more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such market prices
or at negotiated prices.
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers in the form of
discounts, concessions or commissions. Underwriters, agents and dealers
participating in the distribution of the Securities may be deemed to be
underwriters within the meaning of the Securities Act.
Pursuant to agreements which may be entered into between the Company and
any underwriters or agents named in the Prospectus Supplement, such underwriters
or agents may be entitled to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act.
If so indicated in the Prospectus Supplement, the Company may issue
Securities to or through underwriters, agents or dealers in connection with the
conversion or redemption of its outstanding securities.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters or other persons acting as agents for the Company to solicit offers
by certain institutional investors to purchase Debt Securities or Preferred
Stock from the Company pursuant to contracts providing for payment and delivery
on a future date. Institutions with which such contracts may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and others, but shall in all
cases be subject to the approval of the Company. The obligations of the
purchaser under any such contract will not be subject to any conditions except
(i) the investment in the Debt Securities or Preferred Stock by the institution
shall not at the time of delivery be prohibited by the laws of any jurisdiction
in the United States to which such institution is subject, and (ii) if a portion
of the Debt Securities or Preferred Stock is being sold to underwriters, the
Company shall have sold to such underwriters the Debt Securities or Preferred
Stock not sold for delayed delivery. Underwriters and such other persons will
not have any responsibility in respect of the validity or performance of such
contracts.
All Debt Securities, Preferred Stock and Warrants offered will be a new
issue of securities with no established trading market. Any underwriters to whom
such Debt Securities, Preferred Stock and Warrants are sold by the Company for
public offering and sale may make a market in such Debt Securities, Preferred
Stock and Warrants, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of or the trading markets for any Debt Securities,
Preferred Stock or Warrants.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with and perform services for the Company in the
ordinary course of business.
The specific terms and manner of sale of the Securities in respect of which
this Prospectus is being delivered are set forth or summarized in the Prospectus
Supplement.
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VALIDITY OF SECURITIES
The validity of the Securities offered will be passed upon for the Company
by Davis, Graham & Stubbs LLP Denver, Colorado.
EXPERTS
The Consolidated Financial Statements of the Company included in its Annual
Report on Form 10-K for the year ended December 31, 1996 and incorporated by
reference in this Prospectus, to the extent and for the periods indicated in
their report, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report dated February 24, 1997, with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said report.
Estimates of historical oil and natural gas reserves of the Company as of
December 31, 1994 and 1995, incorporated by reference herein are based upon
engineering studies prepared by the Company and reviewed by the independent
petroleum engineering firms of Williamson Petroleum Consultants, Inc. and
Netherland, Sewell & Associates, Inc. Estimates of historical oil and natural
gas reserves of the Company as of December 31, 1996 incorporated by reference
herein are based upon engineering studies prepared by the Company. In the
aggregate, 78.4% of the Company's total reserves as of December 31, 1996 were
reviewed by the two engineering firms. Such estimates are incorporated by
reference herein in reliance upon the authority of such firms as experts in such
matters.
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$85,000,000
HS RESOURCES, INC.
9 1/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
---------------------------
PROSPECTUS SUPPLEMENT
December 4, 1998
---------------------------
Joint Book-Running Managers
CHASE SECURITIES INC.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
