As filed with the Securities and Exchange Commission on November 10, 1997
Registration Number 33-____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PANACO, INC.
(Exact name of Registrant as specified in its charter)
Delaware 1311 43-1593374
(State or other jurisdiction of Primary Standard Industrial (I.R.S. Employer)
incorporation or organization) Classification Code Number) Identification No.)
1050 West Blue Ridge Boulevard
Kansas City, Missouri 64145-1216
(816) 942-6300
(Address, including zip code and telephone number, including area code, of
Registrant's principal executive offices)
H. James Maxwell, Chief Executive Officer
PANACO, Inc.
1050 West Blue Ridge Boulevard
Kansas City, Missouri 64145-1216
(816) 942-6300
(Name, address, including zip code and telephone number, including area
code, of agent for service)
Copies to:
Robert T. Schendel, Esq.
Shughart, Thomson & Kilroy, P.C.
Twelve Wyandotte Plaza
120 West 12th Street, Suite 1600
Kansas City, Missouri 64105
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. Q
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CALCULATION OF REGISTRATION FEE
- ------------------------------ ------------------ ---------------------- --------------------- ---------------------
Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered Per Note (1) Offering Price (1) Registration Fee
- ------------------------------ ------------------ ---------------------- --------------------- ---------------------
- ------------------------------ ------------------ ---------------------- --------------------- ---------------------
10 5/8% Series B Senior Notes
<S> <C> <C> <C> <C> <C>
due 2004.................. $100,000,000 100.00% $100,000,000 $30,303.03
- ------------------------------ ------------------ ---------------------- --------------------- ---------------------
- ------------------------------ ------------------ ---------------------- --------------------- ---------------------
Guarantees of 10 5/8% Series B Senior Notes due 2004 by subsidiaries of PANACO,
Inc.
--- --- --- (2)
- ------------------------------ ------------------ ---------------------- --------------------- ---------------------
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<PAGE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, as amended,
no registration fee is payable with respect to the Guarantees.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
The address of the principal executive offices of each of the
additional registrants listed below, and the name and address of the agent for
service therefor, is the same as is set forth for PANACO, Inc. on the facing
page of this Registration Statement.
- --------------------------------------------------------------------------------
Primary Standard
Industrial I.R.S. Employer
urisdiction of Classification Identification
Name Incorporation Number Number
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- --------------------------------------------------------------------------------
Goldking Acquisition Corp...... Delaware 1311 43-1796254
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Goldking Companies, Inc........ Delaware 1311 76-0529990
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Goldking Oil & Gas Corp........ Texas 1311 76-0353159
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Goldking Trinity Bay Corp...... Texas 1311 76-0473493
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Goldking Production Company.... Texas 1311 76-0380056
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Hill Transportation Co., Inc... Louisiana 4922 74-2011085
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Umbrella Point Gathering, L.L.C Texas 1311 76-0510985
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<PAGE>
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PANACO, INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K and Rule 404(a)
Showing Location In Prospectus Of
Information Required By Items In S-4
Registration Statement Item and Heading Prospectus Caption
1. Forepart of Registration Statement and Outside Front
<S> <C> <C> <C> <C> <C> <C>
Cover Page of Prospectus........................... Forepart of the Registration Statement; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospects.......................................... Inside Front and Outside Back Cover Pages of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information.................................. Prospectus Summary; Risk Factors; Summary Historical and
Pro Forma Combined Financial Data; Selected Historical
and Pro Forma Combined Financial Data
4. Terms of the Transaction.............................. Prospectus Summary; The Exchange Offer
5. Pro Forma Financial Information....................... Summary Historical and Pro Forma Combined Financial Data;
Selected Historical and Pro Forma Combined Financial
Statements
6. Material Contracts with Company Being Acquired........ Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters...... Not Applicable
8. Interests of Named Experts and Counsel................ Not Applicable
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................ Not Applicable
10. Information with Respect to S-3 Registrants.......... Not Applicable
11. Incorporation of Certain Information by Reference.... Not Applicable
12. Information with Respect to S-2 or S-3 Registrants... Not Applicable
13. Incorporation of Certain Information by Reference.... Not Applicable
14. Information with Respect to Registrants Other than
S-2 or S-3 Registrants............................... Prospectus Summary; Summary Historical and Pro Forma
Combined Financial Data; The Company; Selected
Historical and Pro Forma Combined Financial Data;
Managements's Discussion and Analysis of Financial
Condition and Results of Operations; Business
15. Information with Respect to S-3 Companies............ Not Applicable
16. Information with Respect to S-2 or S-3 Companies..... Not Applicable
17. Information with Respect to Companies Other than
S-2 or S-3 Companies................................. Not Applicable
18. Information if Proxies, Consents or Authorizations
are to be Solicited.................................. Not Applicable
19.Information if Proxies, Consents or Authorizations are not
to be Solicited or in an Exchange Offer................ Management; Principal Security Holders; Certain
Relationships and Related Transactions; The Exchange
Offer
</TABLE>
<PAGE>
PROSPECTUS Subject to Completion
PANACO, Inc.
Offer to Exchange its
10 5/8% Series B Senior Notes due 2004
which have been registered under the
Securities Act for any and all of its
outstanding 10 5/8% Series A Senior Notes
due 2004
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998,
UNLESS EXTENDED (THE "EXPIRATION DATE").
----------------------------
PANACO, Inc. a Delaware corporation (the "Company"), is hereby offering
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal, as the same may be supplemented from
time to time (which together constitute the "Exchange Offer"), to issue an
aggregate of up to $100,000,000 aggregate principal amount of its 10 5/8% Series
B Senior Notes due 2004 (the "New Notes") in exchange for an identical face
amount of outstanding 10 5/8% Series A Senior Notes due 2004 (the "Old Notes,"
and together with the New Notes, the "Notes"). The terms of the New Notes are
identical in all material respects to the terms of the Old Notes except that the
registration and other rights relating to the exchange of the Old Notes for New
Notes and the restrictions on transfer set forth on the face of the Old Notes
will not apply to or appear on the New Notes. See "The Exchange Offer." The New
Notes are being offered hereunder in order to satisfy certain obligations of the
Company under a Registration Rights Agreement dated as of October 9, 1997. The
New Notes will evidence the same debt as the Old Notes and will be issued
pursuant to, and entitled to the benefits of, the Indenture (as herein defined)
governing the Old Notes. The Company will not receive any proceeds from the
Exchange Offer and will pay all expenses incident to the Exchange Offer.
Interest on the Notes will accrue from their date of original issuance (the
"Issue Date") and will be payable semi-annually in arrears on April 1 and
October 1 of each year, commencing on April 1, 1998, at the rate of 10 5/8% per
annum. The Notes will be redeemable, in whole or in part, at the option of the
Company on or after October 1, 2001, at the redemption prices set forth herein,
plus accrued interest, if any, thereon to the date of redemption. In addition,
at any time on or prior to October 1, 2000, the Company may, at its option,
redeem up to 35% of the aggregate principal amount of the Notes originally
issued with the net cash proceeds of one or more Equity Offerings (as defined),
at a redemption price equal to 110.625% of the aggregate principal amount of the
Notes to be redeemed plus accrued interest, if any, thereon to the date of
redemption; provided, however, that after giving effect to any such redemption,
at least 65% of the aggregate principal amount of the Notes originally issued
remains outstanding. Upon a Change of Control (as defined), each holder of the
Notes will have the right to require the Company to repurchase such holder's
Notes at a price equal to 101% of the principal amount thereof, plus accrued
interest, if any, thereon to the date of repurchase. In addition, the Company
will be obligated to offer to repurchase the Notes at 100% of the principal
amount thereof plus accrued interest to the date of repurchase in the event of
certain Asset Sales (as defined). See "Description of Notes."
The Notes are general unsecured obligations of the Company and rank pari
passu with any unsubordinated indebtedness of the Company and rank senior in
right of payment to all subordinated obligations of the Company. The Notes are
unconditionally guaranteed (the "Guarantees") on a senior basis by the Company's
restricted subsidiaries (the "Subsidiary Guarantors"). The Guarantees are
general unsecured obligations of the Subsidiary Guarantors and rank pari passu
with any unsubordinated indebtedness of the Subsidiary Guarantors and rank
senior in right of payment to all subordinated obligations of the Subsidiary
Guarantors. The Notes are effectively subordinated to all secured indebtedness
of the Company and the Subsidiary Guarantors to the extent of the value of the
assets securing such indebtedness. As of June 30, 1997, on a pro forma basis
after giving effect to the Offering and the application of the proceeds
therefrom, the Company has no secured indebtedness outstanding other than a
production payment valued at $1.7 million. See "Description of Notes - Ranking."
<PAGE>
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties unrelated to the Company, New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold, and otherwise
transferred by a holder thereof (other than a holder which is an Aaffiliate" of
the Company within the meaning of Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act"), without compliance with the registration and the
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders's business and such
holder has no arrangement with any person to participate in and is not engaged
in and is not planning to be engaged in the distribution of such New Notes.
However, the Company does not intend to request the Commission to consider and
the Commission has not considered, the Exchange Offer in the context of a
no-action letter and there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer as in such
other circumstances.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer in exchange for Old Notes must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an Aunderwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "The Exchange Offer."
The Old Notes are designated for trading in the Private Offering, Resales
and Trading through Automated Linkages ("PORTAL") Market of the National
Association of Securities Dealers, Inc. To the extent Old Notes are tendered and
accepted in the Exchange Offer, the principal amount of outstanding Old Notes
will decrease with a resulting decrease in the liquidity in the market therefor.
Following the consummation of the Exchange Offer, holders of the Old Notes who
are eligible to participate in the Exchange Offer but who did not tender their
Old Notes will not be entitled to certain rights under the Registration Rights
Agreement (as defined) and such Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity in the market for the Old
Notes could be adversely affected. No assurance can be given as to the liquidity
of the trading market for either the Old Notes or the New Notes.
----------------------------
See "Risk Factors," beginning on page 17, for a discussion of certain
factors that should be considered in evaluating an investment in the Notes.
----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------------
The date of this Prospectus is _____________, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files periodic reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the office of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as the regional offices of the Commission at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such information can be obtained by
mail from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Additionally,
the Commission maintains a web site that contains reports, proxy statements and
other information regarding registrants that file electronically with the
Commission. The address of the Commission's web site is www.sec.gov. The
Company's common stock is traded on the NASDAQ National Market. The Company's
registration statements, reports, proxy and information statements, and other
information may also be inspected at the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington D.C. 20006.
Information about the Company, including certain reports filed with the
Commission, may also be found in the Company's website at www.panaco.com.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including for each a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereof by the Company's independent
certified public accountants and (ii) all reports that would be required to be
filed on Form 8-K if it were required to file such reports. In addition, for so
long as any of the Notes remain outstanding, the Company has agreed to make
available to any prospective purchaser of the Notes or beneficial owner of the
Notes, in connection with any sale thereof, the information required by Rule
144A(d)(4) under the Securities Act.
The Company, a corporation organized under the laws of Delaware, has its
principal executive offices located at the PANACO Building, 1050 West Blue Ridge
Boulevard, Kansas City, Missouri 64145-1216; its telephone number is (816)
942-6300.
UNTIL _______________, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS AFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information, financial statements, including the notes thereto, and
other data appearing elsewhere or incorporated by reference in this
Prospectus. Unless the context otherwise requires, all references herein to
"PANACO" or the "Company" include PANACO, Inc., a Delaware corporation, and
its consolidated subsidiaries including Goldking Companies, Inc. ("Goldking")
and Goldking's operating subsidiaries, and the Company's predecessor Pan
Petroleum MLP. Except as otherwise indicated, each reference herein to Aon a
pro forma basis" shall mean that the results for the stated period or other
information has been adjusted to reflect the consummation of the Goldking
Acquisition and/or the Amoco Acquisition (each as defined herein), as the case
may be. Certain capitalized terms relating to the oil and natural gas business
are defined in the Glossary. The Company maintains its corporate headquarters
at the PANACO Building, 1050 West Blue Ridge Boulevard, Kansas City, Missouri
64145-1216 and its telephone number is (816) 942-6300, FAX (816) 942-6305. The
Company's website may be found at www.panaco.com.
The Company
The Company is an independent exploration and production company with
operations focused primarily offshore in the Gulf of Mexico and onshore in the
Gulf Coast Region (collectively, the "GOM Region"). The Company has grown
through the acquisition of producing properties and the subsequent application
of advanced technology such as 3-D Seismic to exploit potential producing
zones which have been overlooked or bypassed by previous operators.
Since 1990, the Company has made five acquisitions of producing
properties for a total of $100.1 million, which properties had Proved Reserves
of approximately 116 Bcfe as of their respective acquisition dates. As of
September 1, 1997, the Company had Proved Reserves of 94.3 Bcfe with an SEC
PV-10 of $121.3 million. Approximately 58% of the Company's total Proved
Reserves are classified as Proved Developed Producing Reserves and
approximately 70% of the Company's total Proved Reserves are natural gas.
The Company owns interests in 20 federal blocks in the Gulf of Mexico
and nine state water blocks and operates approximately 47% of the wells
contained within these blocks. The Company's non-operated offshore properties
are managed primarily by large independents and major oil companies, including
Unocal, Phillips, Texaco, Coastal, Anadarko and LL&E. The Company's primary
property holdings include the East Breaks 160 Field, Umbrella Point Area, High
Island 309 Field, West Delta Fields, East Breaks 109 Field and Cheniere Perdue
Field. The Company owns interests in a total of 308 oil wells and 361 natural
gas wells. Of these, 508 are onshore wells which are primarily non-operated
and in the aggregate account for 12.4% of the Company's total SEC PV-10 value
as of September 1, 1997. The Company also owns interests in 22 offshore
production platforms and 69 miles of offshore oil and natural gas pipelines
with diameters of 10" or larger.
On July 31, 1997, the Company closed its acquisition of Goldking for
a purchase price of $27.5 million, consisting of cash, notes payable to
Goldking shareholders, PANACO Common Shares, plus the assumption of long term
debt of $14.3 million (the "Goldking Acquisition"). The Company acquired
approximately 37.7 Bcfe of Proved Reserves, 42% of which were classified as
Proved Developed Reserves and 63% of which were natural gas reserves, with an
SEC PV-10 at September 1, 1997 of $40.0 million. Goldking had interests in 234
wells and builds and operates pipelines through a subsidiary, Hill
Transportation Co., Inc.
<PAGE>
The Goldking Acquisition is complementary to the Company because of the
addition of technical staff, the geographic proximity and similarity of the
properties acquired and the existence of a large number of development and
exploration opportunities on its properties. The Goldking Acquisition adds
significant development opportunities which will extend the reserve life of the
Company's asset base and provide numerous exploration locations.
In October 1996, the Company acquired interests in six offshore
fields from Amoco Production Company ("Amoco") for $40.4 million (the "Amoco
Acquisition"). In consideration for such interests, the Company issued Amoco
2,000,000 Common Shares and paid the sum of $32.0 million in cash. The
interests acquired include (i) a 33a% working interest in the East Breaks 160
Field (two Blocks) and a 33a% interest in the High Island 302 Field, both
operated by Unocal Corporation; (ii) a 50% interest in the High Island 309
Field (two Blocks), a 12% interest in the High Island 330 Field (three Blocks)
both operated by Coastal Oil and Gas Corp.; (iii) a 12% interest in the High
Island 474 Field (four Blocks), operated by Phillips Petroleum Company; and
(iv) a 12.5% interest in the West Cameron 180 Field (one Block) operated by
Texaco (together, the "Amoco Properties").
On a pro forma basis, the Company had production for the six months
ended June 30, 1997 of 6.8 Bcfe, resulting in revenue and EBITDA of $17.9
million and $9.9 million, respectively. Average daily production for the six
months ended June 30, 1997 was 37,762 Mcfe.
Business Strategy
The Company's strategy is to systematically grow its reserves,
production, cash flow and earnings through a program focused on the GOM
Region, including (i) strategic acquisitions and mergers, (ii) exploitation
and development of acquired properties, (iii) marketing of existing
infrastructure and (iv) a selective exploration program. As a result of the
Goldking Acquisition, the Company has a substantial inventory of development
and exploration projects that provide significant additional reserve
potential. The key elements of the Company's objectives are outlined as
follows:
Strategic Acquisitions and Mergers
The Company has a defined acquisition strategy which focuses its
efforts on GOM Region properties that have a backlog of development and
exploitation projects, significant operating control, infrastructure value and
opportunities for cost reduction. The properties the Company seeks to acquire
generally are geologically complex with multiple reservoirs, have an
established production history and are candidates for exploitation.
Geologically complex fields with multiple reservoirs are fields in which there
are multiple reservoirs at different depths and wells which penetrate more
than one reservoir and have the potential for recompletion in more than one
reservoir. In pursuing this strategy, the Company identifies properties that
may be acquired, preferably through negotiated transactions or, where
appropriate, sealed bid transactions. Once properties are acquired, the
Company focuses on reducing operating costs and implementing production
enhancements through the application of technologically advanced production
and recompletion techniques.
<PAGE>
Over the past seven years, the Company has taken advantage of
opportunities to acquire interests in a number of producing properties which
fit its acquisition strategy. The historical success of the Company's
acquisition strategy is illustrated below:
<TABLE>
<CAPTION>
Cumulative Cumulative
Purchase Purchase Capital Cash SEC
Acquisition Seller Date Price Expenditures(a) Flow(b)PV- 10(c)
--------------- ----------- -------- ------- -------------- ----------------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
West Delta(d) CATO(e) May 1991 $ 19.6 $ 18.3 $ 48.6 $ 16.4
Zapata Properties Zapata Jul 1995 2.7(f) 0.7 11.6 10.6
Bayou Sorrel(g) Shell Western Dec 1995 9.9 3.4 1.3 N/A
Amoco Properties Amoco Oct 1996 40.4 5.7 7.7 50.4
Goldking Shareholders Jul 1997 27.5(h) -- -- 40.0
---------------
(a) Excludes exploration expenses for each acquisition subsequent to the date of acquisition.
(b) Defined as net revenues less direct operating expense.
(c) As of September 1, 1997.
(d) Excludes $4.0 million for repair of Tank Battery #3 in the West Delta Fields.
(e) Conoco, ARCO, Texaco and Oxy.
(f) Excludes a production payment and fee sharing agreement with the seller.
(g) The Company sold the Bayou Sorrel Field September 1, 1996 for $11.0 million.
(h) Excludes debt of Goldking of $14.3 million.
</TABLE>
While the Company tends to focus on acquisitions of properties from
large integrated oil companies, it evaluates a broad range of acquisition and
merger opportunities. The Company has assembled a staff, complemented by the
Goldking Acquisition, with significant technical experience in evaluating,
identifying and exploiting GOM Region properties. In addition, the Company is
regarded in the industry as a competent buyer with the proven ability to close
transactions in a timely manner. Based on these factors, the Company is
usually asked to bid on significant producing property sales in the GOM
Region.
Exploitation and Development of Acquired Properties
The Company has a substantial, diversified inventory of exploitation
projects including development drilling, workovers, sidetrack drilling,
recompletions and artificial lift enhancements. As of September 1, 1997, on a
pro forma basis, 28% of the Company's total Proved Reserves were classified as
Proved Undeveloped Reserves. The Company uses advanced technologies where
appropriate in its development activities to convert Proved Undeveloped
Reserves to Proved Developed Producing Reserves. These technologies include
horizontal drilling and through tubing completion techniques, new lower cost
coiled tubing workover procedures and reprocessed 2-D and 3-D Seismic
interpretation. All of the identified capital projects can be completed with
the Company's existing platform and pipeline infrastructure, thereby
substantially improving project economics.
<PAGE>
Marketing of Existing Infrastructure
Along with its purchase of producing properties, the Company has acquired
significant platform, pipeline and processing equipment infrastructure. The
Company has interests in 22 offshore platforms and 69 miles of offshore oil and
natural gas pipelines with diameters of 10" or larger. To enhance the value of
these assets, the Company has aggressively marketed this infrastructure to
operators and leasehold owners in adjacent fields. The Company currently has
pipeline and processing agreements relative to its West Delta Fields, East
Breaks 109 Field and the East Breaks 160 facilities. The annual revenue received
from these contracts for use of the Company's infrastructure currently totals
$2.5 million, which is accounted for as a reduction of lease operating expense.
The location of the East Breaks facilities is strategic to any deepwater
development in the area, and the replacement costs of the platforms, processing
facilities and pipelines exceed $100 million. As a result of the prohibitive
development costs, any operators with discoveries in the surrounding deepwater
area will have the incentive to use the Company's East Breaks facilities, thus
increasing the revenue potential of these platforms and pipelines and extending
their economic life significantly.
Selective Exploration Program
The Company participates in selective exploration projects for exposure
to additional reserve potential. The Company has farmed out the deep rights in
West Delta Blocks 52 through 56 to Ocean Energy, Inc. (formerly Flores &
Rucks, Inc.) in exchange for a new 3-D Seismic survey over these five Blocks
and the option to retain a 12.5% overriding royalty interest or a 50% working
interest in any proposed deep exploration wells. In addition, through the
Goldking Acquisition, the Company acquired an inventory of 15 diversified
exploratory drilling prospects with varying risk profiles. The Company plans
to devote a portion of its capital expenditure budget to drill exploratory
wells.
Company Strengths
The Company believes it has strengths, as outlined below, that provide
a solid base for continued growth and value creation.
Geographic Focus
The Company's reserve base is focused primarily in the GOM Region which
has historically been the most prolific basin in North America. The GOM Region
accounts for approximately 25% of the natural gas production in the United
States and continues to be the most active region in terms of capital
expenditures and new reserve additions. Because of upside potential, high
production rates, technological advances and acquisition opportunities, the
Company has focused its efforts in this region. The Company believes it has
the technical expertise and infrastructure in place to take advantage of the
inherent benefits of the GOM Region. In addition, as the integrated oil
companies move to deeper water, the Company believes it will continue to be
well positioned to use its expertise to acquire and exploit GOM Region
properties.
High Quality Reserve Base
Two of the Company's largest properties, the West Delta Fields and
Umbrella Point Field, are prolific fields with total cumulative production of
one Tcf of natural gas and 50 MMbbls of oil. These fields typify the Company's
focused GOM Region asset base with multiple pay horizons and significant
recompletion and workover potential. Both fields were developed without the
benefit of 3-D Seismic and the Company is currently in the process of
acquiring and applying 3-D Seismic technology to identify additional
potential. The majority of the Company's properties have multiple reservoirs
providing a diverse set of opportunities for production rate acceleration and
value enhancement. The number of potential reservoirs also reduces the risk
associated with determining remaining reserves and forecasting future
production from the properties.
<PAGE>
Substantial Inventory of Exploitation and Development Projects
The Company has identified over 17 development drilling locations and over
72 recompletion and workover opportunities. The Company believes that the
majority of these opportunities have a moderate risk profile and could add
incremental reserves and production. In addition to these identified
opportunities, the Company believes that with the use of 3-D Seismic technology,
additional potential may be exploited in the known reservoirs as well as deeper
undrilled horizons.
Application of Advanced Technologies
The Company has been successful historically due to its extensive use
of 3-D Seismic, horizontal drilling and coiled tubing technologies. As a
result of its acquisitions, the Company has an extensive seismic database with
a total of 2,424 linear miles of 2-D Seismic data and 186 square miles of 3-D
Seismic data. The Company was also among the first offshore operators to drill
and complete successful horizontal wells offshore. The Company has drilled a
total of four horizontal wells in the West Delta Field and has identified
several opportunities to apply this technology and expertise to the Goldking
Properties. The Company applies coiled tubing technology where applicable to
decrease workover costs and avoid using drilling rigs for recompletions. The
Company uses existing inactive wellbores whenever possible to sidetrack drill
to decrease costs and receive production tax benefits where applicable. Also,
the Company has performed the less costly through tubing recompletions in
several of its existing fields.
Significant Operating Control
The Company operates 55% of its properties as measured by SEC PV-10
value. This level of operating control benefits the Company in numerous ways
by enabling the Company to (i) control the timing and nature of capital
expenditures, (ii) identify and implement cost control programs, (iii) respond
quickly to operating problems and (iv) receive overhead reimbursements from
other working interest owners. In addition to significant operating control,
the geographic focus of the Company allows it to operate a large value asset
base with relatively few employees, thereby decreasing lease operating expense
on a unit of production basis. The Company believes that as the Goldking
Properties are integrated into the Company's operating structure the operating
costs, on a unit of production basis, will be further reduced.
Experienced Management
The Company's eleven officers have an average of over 20 years of oil
industry experience. The management team has diverse experience including
backgrounds in geology and engineering, environmental and regulatory
compliance, securities law and accounting and tax matters. In addition, the
technical staff have spent the majority of their careers focusing on the GOM
Region and are highly familiar with the basin and current operations.
Recent Financing Activities
Public Offering
On March 7, 1997, the Company received net proceeds of $22.0 million
from a public offering of its common stock (the "Public Offering"). The
proceeds were used to repay certain subordinated indebtedness and to develop
the Company's properties.
New Credit Facility
The Company entered into a New Credit Facility (which replaced the
existing Bank Facility), on October 9, 1997. While it is not contemplated that
the New Credit Facility will be utilized following the application of proceeds
from the Offering, it will be available on a stand-by basis for the future
needs of the Company. See ADescription of New Credit Facility."
<PAGE>
The Exchange Offer
The Exchange Offer applies to the $100,000,000 aggregate principal
amount at maturity of the Old Notes. The form and terms of the New Notes are
the same as the form and terms of the Old Notes except that the offer and sale
of the New Notes has been registered under the Securities Act and, therefore,
the New Notes will not bear legends restricting their transfer. The New Notes
will evidence the same debt as the Old Notes and will be entitled to the
benefits of the indenture pursuant to which the Old Notes were issued (the
"Indenture"). See "Description of New Notes."
The Exchange Offer $1,000 principal amount at maturity of New Notes in
exchange for each $1,000 principal amount at maturity of Old Notes. As
of the date hereof, Old Notes representing $100,000,000 aggregate
principal amount at maturity were outstanding. The terms of the New
Notes and the Old Notes are substantially identical.
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to
third parties unrelated to the Company, the Company believes that,
with the exceptions discussed herein, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any person receiving the New
Notes, whether or not that person is the holder (other than any such
holder or such other person that is an Aaffiliate" of the Company
within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that (i) the New Notes are acquired in
the ordinary course of business of that holder or such other person,
(ii) neither the holder nor such other person is engaging in or
intends to engage in a distribution of the New Notes, and (iii)
neither the holder nor such other person has an arrangement or
understanding with any person to participate in the distribution of
the New Notes. However, the Company has not sought, and does not
intend to seek, its own no-action letter, and there can be no
assurance that the Commission's staff would make a similar
determination with respect to the Exchange Offer. See "The Exchange
Offer." Each broker-dealer that receives New Notes for its own account
in exchange for Old Notes, where those Old Notes were acquired by the
broker-dealer as a result of its market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of those New Notes. See Plan of
Distribution.
<PAGE>
Registration Rights Agreement The Old Notes were sold by the Company
on October 9, 1997 in a private placement. In connection with the
sale, the Company entered into a Registration Rights Agreement (the
"Registration Rights Agreement") with BT Alex. Brown, First Union
Capital Markets Corp., A.G. Edwards & Sons, Inc. and Gaines, Berland
Inc., the initial purchaser of the Old Notes (the "Initial
Purchaser"), providing for the Exchange Offer. See The Exchange Offer
- Purpose and Effect.
Expiration Date The Exchange Offer will expire at 5:00 P.M., New York
City time, , 1998, or such later date and time to which it is
extended.
Withdrawal Rights Tenders may be withdrawn at any time prior to the
Expiration Date. See The Exchange Offer - Withdrawal Rights.
Conditions to the Exchange Offer The Exchange Offer is subject to
certain customary conditions, certain of which may be waived by the
Company. See The Exchange Offer - Conditions.
Procedures for Tendering Old Notes Each holder of Old Notes wishing to
accept the Exchange Offer must complete, sign and date the Letter of
Transmittal, or a copy thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise deliver the Letter
of Transmittal, or the copy, together with the Old Notes and any other
required documentation, to the Exchange Agent at the address set forth
herein. Persons holding Old Notes through the Depository Trust Company
(the "DTC") and wishing to accept the Exchange Offer must do so
pursuant to the DTC's Automated Tender Offer Program, by which each
tendering Participant (as defined) will agree to be bound by the
Letter of Transmittal. By executing or agreeing to be bound by the
Letter of Transmittal, each holder will represent to the Company that,
among other things, (i) any New Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no
arrangement with any person to participate in the distribution of the
New Notes and (iii) it is not an Aaffiliate," as defined in Rule 405
of the Securities Act, of the Company, or if it is an affiliate, it
will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable. If the holder is not a
broker-dealer, it will be required to represent that it is not engaged
in, and does not intend to engage in, the distribution of the New
Notes. If the holder is a broker-dealer that will receive New Notes
for its own account in exchange for Notes that were acquired as a
result of market-making activities or other trading activities, it
will be required to acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
<PAGE>
Pursuant to the Registration Rights Agreement, the Company is required
to file a registration statement for a continuous offering pursuant to
Rule 415 under the Securities Act in respect of the Old Notes if
existing Commission interpretations are changed such that the New
Notes received by holders in the Exchange Offer are not or would not
be, upon receipt, transferable by each such holder (other than an
affiliate of the Company) without restriction under the Securities
Act. See The Exchange Offer - Purpose and Effect.
Acceptance of Old Notes and Delivery of New Notes The Company will
accept for exchange any and all Old Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to the Exchange Offer
will be delivered promptly following the Expiration Date. See The
Exchange Offer - Terms of the Exchange Offer.
Exchange Agent UMB Bank, N.A. is serving as Exchange Agent in
connection with the Exchange Offer.
Federal Income Tax Considerations The exchange pursuant to the
Exchange Offer will not be a taxable event for federal income tax
purposes. See Certain United States Federal Income Tax Considerations.
Effect of Not Tendering Old Notes that are not tendered will,
following the completion of the Exchange Offer, continue to be subject
to the existing restrictions upon transfer thereof. The Company will
have no further obligation to provide for the registration under the
Securities Act of such Old Notes.
<PAGE>
Terms of the New Notes
Securities Offered $100,000,000 aggregate principal amount of 10 5/8%
Series B Senior Notes due 2004.
Issuer PANACO, Inc. (a Delaware corporation).
Maturity Date October 1, 2004.
Interest Payment Dates Interest on the Notes will accrue from the date
of original issuance (the "Issue Date") and will be payable
semi-annually in arrears on each April 1 and October 1, commencing
April 1, 1998.
Ranking The New Notes will be general unsecured obligations of the
Company and will rank pari passu with any unsubordinated indebtedness
of the Company and will rank senior in right of payment to all
subordinated obligations of the Company. The New Notes will be
effectively subordinated to all secured indebtedness of the Company
and of the Subsidiary Guarantors to the extent of the value of the
assets securing such indebtedness. As of June 30, 1997, on a pro forma
basis after giving effect to the Offering and the application of the
proceeds therefrom, the Company would have had no secured indebtedness
outstanding other than a production payment classified as debt and
currently valued at $1.7 million.
Guarantees The New Notes will be unconditionally guaranteed on a
senior basis by the Company's Subsidiary Guarantors. The Guarantees
will be general unsecured obligations of the Subsidiary Guarantors and
will rank pari passu with any unsubordinated indebtedness of the
Subsidiary Guarantors and will rank senior in right of payment to all
subordinated obligations of the Subsidiary Guarantors. The Guarantees
will be effectively subordinated to all secured indebtedness of the
Subsidiary Guarantors to the extent of the value of the assets
securing such indebtedness.
Optional Redemption The New Notes will be redeemable, in whole or in
part, at the option of the Company on or after October 1, 2001, at the
redemption prices set forth herein, plus accrued interest, if any,
thereon to the date of redemption. In addition, at any time on or
prior to October 1, 2000, the Company may, at its option, redeem up to
35% of the aggregate principal amount of the New Notes originally
issued with the net cash proceeds of one or more Equity Offerings, at
a redemption price equal to 110.625% of the aggregate principal amount
of the Notes to be redeemed plus accrued interest, if any, thereon to
the date of redemption; provided, however, that, after giving effect
to any such redemption, at least 65% of the aggregate principal amount
of the Notes originally issued remains outstanding.
Change of Control Upon a Change of Control, each holder of the Notes
will have the right to require the Company to repurchase such holder's
Notes at a price equal to 101% of the principal amount thereof plus
accrued interest, if any, thereon to the date of repurchase.
Certain Covenants The Indenture contains certain restrictive covenants
that limit the ability of the Company and its Restricted Subsidiaries
(as defined) to, among other things, incur additional indebtedness,
pay dividends or make certain other restricted payments, consummate
certain asset sales, enter into certain transactions with affiliates,
incur liens, impose restrictions on the ability of a Restricted
Subsidiary to pay dividends or make certain payments to the Company
and its Restricted Subsidiaries, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of the assets of the Company. In addition,
under certain circumstances, the Company will be required to offer to
purchase the Notes, in whole or in part, at a purchase price equal to
100% of the principal amount thereof plus accrued interest to the date
of repurchase, with the proceeds of certain Asset Sales.
Sinking Fund None.
For additional information regarding the Notes, see Description of
Notes.
Risk Factors
See Risk Factors for a discussion of certain factors that should be
considered in evaluating an investment in the Notes.
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical consolidated
financial data of the Company as of and for the three years ended December 31,
1996, for the six months ended June 30, 1996 and 1997 and as of June 30, 1997,
which have been derived from the Company's consolidated financial statements,
and unaudited summary pro forma data for the year ended December 31, 1996 and
as of and for the six months ended June 30, 1997. The historical financial
data of the Company for the six months ended June 30, 1996 and 1997 and as of
June 30, 1997 have been derived from the Company's unaudited interim
consolidated financial statements. The pro forma data give effect to the
consummation of the Goldking Acquisition. The pro forma balance sheet data
reflect such adjustments as if the Goldking Acquisition, the sale of the
Company's investment in common stock, and this Offering had occurred on June
30, 1997, and the pro forma income statement data and other data for the year
ended December 31, 1996 and the six months ended June 30, 1996 reflect such
adjustments as if the Goldking Acquisition, the Offering and the application
of the net proceeds therefrom, the Amoco Acquisition and the Bayou Sorrel
Field sale had taken place on January 1, 1996. The pro forma financial data do
not purport to represent what the Company's financial position or results of
operations would actually have been had these events in fact occurred on the
assumed dates and are not necessarily indicative of future operating results
or financial position. The information contained in this table should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the historical and pro forma financial
statements of the Company and Goldking, and the notes thereto included
elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31 Six Months Ended June 30,
(unaudited)
Pro Pro
Actual Forma Actual Forma
______________________________ 1996(a) 1997
1994 1995 1996(a) 1996(a) 1997
(dollars in thousands, except ratios)
Consolidated Statement of
Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Oil and natural gas sales.... $ 17,338 $ 18,447 $ 20,063 $ 37,164 $ 10,808 $ 14,287 $ 17,882
Lease operating 5,231 8,055 8,477 11,674 4,184 5,122 6,084
expense (b) ...............
Production and ad valorem
taxes...................... 1,006 1,078 559 989 327 174 456
Depreciation, depletion and
amortization expense....... 6,038 8,064 9,022 18,783 3,812 6,184 7,878
General and administrative
expense.................... 587 690 772 2,174 382 389 1,404
Operating income (loss) (c).. 3,274 (8,303) 733 3,474 1,603 2,351 1,993
Interest expense (net)....... 1,623 987 2,514 8,587 902 1,265 4,293
Net income (loss)(d)......... $ 1,115 $ (9,290) $ (2,039) $ (5,113) $ 701 $ 1,146 $ (2,240)
''''''''' ''''''''' ''''''''' ''''''''' ''''''''' '''''''' '''''''''
Other Data:
EBITDA(e).................... $ 10,514 $ 8,624 $ 10,255 $ 22,327 $ 5,915 $ 8,602 $ 9,938
Capital expenditures(f)...... 12,128 22,841 43,050 81,035 3,440 8,160 43,883
Ratio of EBITDA to fixed
charges(g)................. 6.48x 8.74x 4.08x 2.60x 6.56x 6.80x 2.31x
Ratio of earnings to fixed
charges(h)................. 1.69x -- -- -- 1.78x 1.91x --
</TABLE>
June 30, 1997
-------------------------
(unaudited)
Actual Pro Forma
-------- -----------
Balance Sheet Data: (dollars in thousands)
Working capital.............................. $ 3,603 $ 42,664
Total assets................................. 74,841 169,634
Total debt................................... 28,000 101,700
Stockholders' equity......................... 40,808 55,221
ACNTA(i)..................................... -- 192,690
Ratio of ACNTA to total debt................. -- 1.89x
<PAGE>
(a) Results for 1996 were substantially affected by the explosion and fire at
West Delta Tank Battery #3. See "Business and Properties - 1996 Explosion
and Fire." Actual results for the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1997 include the results of
operations through August 31, 1996 for the Bayou Sorrel Field, which was
sold effective September 1, 1996, and the results of operations of the
Amoco Properties, which were acquired October 8, 1996. Pro forma results
for 1996 and 1997 include the results of operations from the Amoco
Properties and Goldking Properties and exclude the results of operations
from the Bayou Sorrel Field.
(b) Lease operating expense is net of fees earned from third parties for the
use of the Company's platform, pipeline and processing equipment
infrastructure.
(c) Also includes exploration expenses and asset write-downs.
(d) Also includes gains and losses on investment in common stock.
(e) EBITDA is defined as net income (loss) before income taxes, plus the sum of
depletion and depreciation, write downs of assets, exploration expenses,
interest expense and the non-recurring charge pertaining to the 1996 West
Delta fire loss. EBITDA is not a measure of cash flow as determined by
generally accepted accounting principles. The Company has included
information concerning EBITDA because EBITDA is a measure used by certain
investors in determining the Company's historical ability to service its
indebtedness. EBITDA should not be considered as an alternative to, or more
meaningful than, net income or cash flows as determined in accordance with
generally accepted accounting principles or as an indicator of the
Company's operating performance or liquidity.
(f) Capital expenditures include cash expended for acquisitions plus normal
additions to oil and natural gas properties and other fixed assets, without
taking into consideration sales of capital assets.
(g) For purposes of calculating the ratio of EBITDA to fixed charges, earnings
consist of income (loss) applicable to common shares plus provision for
income taxes, plus fixed charges. Fixed charges consist of interest expense
and amortization of deferred debt issuance costs.
(h) For purposes of calculating the ratio of earnings to fixed charges, fixed
charges consist of interest expense and amortization of deferred debt
issuance costs. The Company's earnings were inadequate to cover fixed
charges for the year ended December 31, 1995 and 1996 by $9,290,000 and
$2,039,000, respectively, pro forma for the year ended December 31, 1996 by
$5,113,000 and pro forma for the six months ended June 30, 1997 by
$2,240,000.
(i) Adjusted Consolidated Net Tangible Assets ("ACNTA"). Pro Forma ACNTA
includes: $121,318,000 of SEC PV-10, $42,664,000 of working capital,
$12,350,000 of book value for unproved properties, $14,366,000 of book
value for other properties and equipment and other tangible assets, before
income taxes, and $1,992,000 of restricted deposits for future plugging and
abandonment expenses. ACNTA is a measure not determined in accordance with
generally accepted accounting principles.
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA OPERATING, RESERVE AND WELL DATA
The following table sets forth certain summary information with respect to
the Company's operations for the periods indicated and summary information
with respect to the Company's estimated proved oil and natural gas
reserves. The pro forma operating data for the year ended December 31, 1996
and the six months ended June 30, 1997 give effect to the Goldking
Acquisition as if it had occurred on January 1, 1996, and the pro forma
reserve at December 31, 1996 give effect to the Goldking Acquisition as if
it had occurred on December 31, 1996. The information contained in this
table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the
Consolidated Financial Statements and the notes thereto, the "Unaudited Pro
Forma Combined Financial Data" and the notes thereto and "Business and
Properties" included elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
Year Ended December 31, Pro Forma
_____________________________________ September 1, 1997
----------------
1994 1995 1996(a)
------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Estimated Proved Reserves:
Oil (MBbl).......................... 943 1,900 2,239 4,640
Natural gas (MMcf).................. 41,582 46,711 41,446 66,468
Natural Gas Equivalents (MMcfe)..... 47,240 58,111 54,880 94,305
Percent Proved Developed
Reserves......................... 88% 88% 92% 72%
Percent natural gas reserves........ 88% 80% 76% 70%
Estimated future net cash flows
before tax (thousands)........... $ 56,696 $ 89,524 $ 149,053 $ 161,402
SEC PV-10 (thousands)............... $ 41,915 $ 62,921 $ 99,841 $ 121,318
Year Ended December 31, Six Months Ended June 30,
__________________________ Pro ___________________________
Forma
1996(a)
-------
Actual Actual Pro
__________________________ _________________ Forma
1997
1994 1995 1996(a) 1996(a) 1996(a) 1997
Average Net Daily Production:
Oil (Bbls)........................ 375 466 756 1,192 839 1,044 1,400
Natural gas (Mcf)................. 22,300 27,000 18,600 23,400 20,400 24,600 29,400
Average Sales Price:
Oil (per Bbl)..................... $ 15.35 $ 16.78 $ 19.42 $ 20.90 $ 17.92 $ 17.96 $ 18.85
Natural gas (per Mcf)............. 1.87 1.58 2.17 2.24 2.21 2.47 2.48
Reserve Life (years) (b): 5.3 5.4 6.5 n/a n/a n/a 6.8
Reserve Replacement Rate (c): 90% 200% 62% n/a n/a n/a 286%
Other Data:
Gross offshore wells ............. 40 83 123 161 83 142 161
Net offshore wells ............... 40 58 64 88 58 68 88
Miles of pipeline (d)............. 8 39 69 69 39 69 69
Offshore platforms................ 5 11 21 22 11 21 22
</TABLE>
(a) Amounts for 1996 were substantially affected by the explosion and fire at
West Delta Tank Battery #3. See "Business and Properties - 1996 Explosion
and Fire." Actual amounts for the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1997 include the results of
operations through August 31 for the Bayou Sorrel Field, which was sold
effective September 1, 1996, and the results of operations of the Amoco
Properties, which were acquired October 8, 1996. Pro forma amounts for
1996 and 1997 include the results of operations from the Amoco Properties
and Goldking Properties and exclude the results of operations from the
Bayou Sorrel Field.
(b) The Company has historically had a reserve report prepared by its
independent petroleum engineers at each December 31, and not for any
interim periods. Goldking reserve information at December 31, 1996 is not
available. Reserve Life is calculated by dividing total Proved Reserves
by the Company's trailing twelve months production. Reserve Life for pro
forma six months ended June 30, 1997 is calculated by dividing pro forma
September 1, 1997 Proved Reserves by the Company's annualized pro forma
production for the six months ended June 30, 1997.
(c) Reserve Replacement Rate is calculated by dividing net reserve additions
by production during the preceding twelve months.
(d) 10" diameter pipe or larger.
<PAGE>
RISK FACTORS
Information contained or incorporated by reference in this Prospectus
may contain Aforward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as Amay," Aexpect," Aintend," Aanticipate,"
Aestimate" or Acontinue" or the negative thereof or other variations thereon or
comparable terminology. The following matters and certain other factors noted
throughout this Prospectus constitute cautionary statements identifying
important factors with respect to any such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.
Prior to making an investment decision, prospective investors should
carefully consider, together with the other information contained in this
Prospectus, the following risk factors:
Finding and Acquiring Additional Reserves; Depletion
The Company's future success depends upon its ability to find or
acquire additional oil and natural gas reserves that are economically
recoverable. Except to the extent the Company conducts successful exploration or
development activities or acquires properties containing Proved Reserves, the
Proved Reserves of the Company will generally decline as they are produced. The
decline rate varies depending upon reservoir characteristics and other factors.
The Company's future oil and natural gas reserves and production, and,
therefore, cash flow and income, are highly dependent upon the Company's level
of success in exploiting its current reserves and acquiring or finding
additional reserves. The business of exploring for, developing or acquiring
reserves is capital intensive. To the extent cash flow from operations is
reduced and external sources of capital become limited or unavailable, the
Company's ability to make the necessary capital investments to maintain or
expand its asset base of oil and natural gas reserves could be impaired. There
can be no assurance that the Company's planned development projects and
acquisition activities will result in significant additional reserves or that
the Company will have success drilling productive wells at economic returns to
replace its current and future production.
Substantial Leverage; Ability to Service Debt
On a pro forma basis, the Company is significantly leveraged, with
outstanding long-term indebtedness of approximately $101.7 million and
stockholders' equity of $55.2 million as of June 30, 1997. The Company's level
of indebtedness has several important effects on its future operations,
including (i) a substantial portion of the Company's cash flow from operations
is dedicated to the payment of interest on its indebtedness and is not available
for other purposes, (ii) the covenants contained in the New Credit Facility and
the Indenture require the Company to meet certain financial tests and limit the
Company's ability to borrow additional funds or to acquire or dispose of assets,
and (iii) the Company's ability to obtain additional financing in the future may
be impaired. Additionally, the senior status of the Notes, the Company's high
debt to equity ratio, and the use of substantially all of the Company's assets
as collateral for the New Credit Facility will for the present time make it
difficult for the Company to obtain financing on an unsecured basis or to obtain
secured financing other than certain Apurchase money" indebtedness
collateralized by the acquired assets.
<PAGE>
The Company's ability to meet its financial covenants and to make
scheduled payments of principal and interest to repay its indebtedness,
including the Notes, is dependent upon its operating results and its ability to
obtain financing. However, there can be no assurance that the Company's business
will generate sufficient cash flow from operations or that future bank credit
will be available in an amount sufficient to enable the Company to service its
indebtedness, including the Notes, or make necessary capital expenditures. In
such event, the Company would be required to obtain such financing from the sale
of equity securities or other debt financing. There can be no assurance that any
such financing will be available on terms acceptable to the Company if at all.
Should sufficient capital not be available, the Company may not be able to
continue to implement its strategy.
The New Credit Facility limits the Company's borrowings to amounts
determined by the lenders, in their sole discretion, based upon a variety of
factors including the amount of indebtedness which can be adequately supported
by the value of oil and natural gas reserves and assets owned by the Company
(the "Borrowing Base"). The Company has approximately $40.0 million in borrowing
availability under the Borrowing Base of the New Credit Facility. If oil or
natural gas prices decline below their current levels, the availability of funds
under the New Credit Facility could be materially adversely affected.
The New Credit Facility requires the Company to satisfy certain
financial ratios in the future. The failure to satisfy these covenants or any of
the other covenants in the New Credit Facility would constitute an event of
default thereunder and, subject to certain grace periods, may permit the lenders
to accelerate the indebtedness then outstanding under the New Credit Facility
and demand immediate repayment thereof. See "Description of New Credit
Facility."
Effective Subordination of Notes
The Notes are general unsecured obligations of the Company and rank
pari passu in right of payment to all unsubordinated indebtedness of the Company
and rank senior in right of payment to all subordinated indebtedness of the
Company. The Notes are unconditionally guaranteed, jointly and severally, by
each of the Subsidiary Guarantors. The Guarantees are general unsecured
obligations of the Subsidiary Guarantors and rank pari passu in right of payment
to all unsubordinated indebtedness of the Subsidiary Guarantors and rank senior
in right of payment to all subordinated indebtedness of the Subsidiary
Guarantors. However, the Notes are effectively subordinated to secured
indebtedness of the Company and the Subsidiary Guarantors to the extent of the
value of the assets securing such indebtedness. In the event of a default on
such secured indebtedness, or a bankruptcy, liquidation or reorganization of the
Company and its subsidiaries, such assets will be available to satisfy
obligations with respect to the secured indebtedness before any payment
therefrom will be made on the Notes. The Company's subsidiaries are also
guarantors of the New Credit Facility. The Notes are not secured by any of the
assets of the Company or its subsidiaries. Any future indebtedness incurred
under the New Credit Facility will be secured by liens against substantially all
of the Company's and its subsidiaries' assets.
Volatility of Oil and Natural Gas Prices
The Company's revenues, profitability and the carrying value of its oil
and natural gas properties are substantially dependent upon prevailing prices
of, and demand for, oil and natural gas and the costs of acquiring, finding,
developing and producing reserves. The Company's ability to maintain or increase
its borrowing capacity, to repay the Notes and outstanding indebtedness under
any current or future credit facility, and to obtain additional capital on
attractive terms is also substantially dependent upon oil and natural gas
prices. Historically, the markets for oil and natural gas have been volatile and
are likely to continue to be volatile in the future. Prices for oil and natural
gas are subject to wide fluctuations in response to: (i) relatively minor
changes in the supply of, and demand for, oil and natural gas; (ii) market
uncertainty; and (iii) a variety of additional factors, all of which are beyond
the Company's control. These factors include domestic and foreign political
conditions, the price and availability of domestic and imported oil and natural
gas, the level of consumer and industrial demand, weather, domestic and foreign
government relations, the price and availability of alternative fuels and
overall economic conditions. The Company's production is weighted toward natural
gas, making earnings and cash flow more sensitive to natural gas price
fluctuations. Historically, the Company has attempted to mitigate these risks by
oil and natural gas hedging transactions. See "Business and Properties Marketing
of Production."
<PAGE>
Uncertainty of Estimates of Reserves and Future Net Cash Flows
This Prospectus contains estimates of the Company's oil and natural gas
reserves and the future net cash flows from those reserves, which have been
prepared or audited by certain independent petroleum consultants. There are
numerous uncertainties inherent in estimating quantities of Proved Reserves of
oil and natural gas and in projecting future rates of production and the timing
of development expenditures, including many factors beyond the Company's
control. The estimates in this Prospectus are based on various assumptions,
including, for example, constant oil and natural gas prices, operating expenses,
capital expenditures and the availability of funds, and, therefore, are
inherently imprecise indications of future net cash flows. Actual future
production, cash flows, taxes, operating expenses, development expenditures and
quantities of recoverable oil and natural gas reserves may vary substantially
from those assumed in the estimates. Any significant variance in these
assumptions could materially affect the estimated quantity and value of reserves
set forth in this Prospectus. Additionally, the Company's reserves may be
subject to downward or upward revision based upon actual production performance,
results of future development and exploration, prevailing oil and natural gas
prices and other factors, many of which are beyond the Company's control. See
"Business and Properties - Oil and Gas Information."
The SEC PV-10 of Proved Reserves referred to in this Prospectus should
not be construed as the current market value of the estimated Proved Reserves of
oil and natural gas attributable to the Company's properties. In accordance with
applicable requirements of the Commission, the estimated discounted future net
cash flows from Proved Reserves are generally based on prices and costs as of
the date of the estimate, whereas actual future prices and costs may be
materially higher or lower. The calculation of the SEC PV-10 of the Company's
oil and natural gas reserves at September 1, 1997 is based on prices of $2.41
per Mcf of natural gas and $19.50 per Bbl of oil. These amounts compare to the
Company's pro forma actual average product prices of $2.48 per Mcf of natural
gas and $18.85 per Bbl of oil for the first six months of 1997 and $2.24 per Mcf
of natural gas and $20.90 per Bbl of oil for the year ended December 31, 1996.
Actual future net cash flows also will be affected by (i) the timing of both
production and related expenses; (ii) changes in consumption levels and (iii)
governmental regulations or taxation. In addition, the calculation of the
present value of the future net cash flows using a 10% discount as required by
the Commission is not necessarily the most appropriate discount factor based on
interest rates in effect from time to time and risks associated with the
Company's reserves or the oil and natural gas industry in general. Furthermore,
the Company's reserves may be subject to downward or upward revision based upon
actual production, results of future development, supply and demand for oil and
natural gas, prevailing oil and natural gas prices and other factors. See
"Business and Properties - Oil and Gas Information."
Acquisition Risks
The Company has grown primarily through acquisitions and intends to
continue acquiring oil and natural gas properties. Although the Company performs
an extensive review of the properties proposed to be acquired, such reviews are
subject to uncertainties. Consistent with industry practice, it is not feasible
to review less significant properties involved in such acquisitions. However,
even a detailed review may not reveal existing or potential problems; nor will
it permit the Company to become sufficiently familiar with the properties to
assess fully their deficiencies and capabilities.
The Company has recently begun to focus its acquisition efforts on
larger packages of oil and natural gas properties, such as the properties
involved in the Amoco Acquisition. The acquisition of larger oil and natural gas
properties may involve substantially higher costs and may pose additional issues
regarding operations and management. There can be no assurance that oil and
natural gas properties acquired by the Company will be successfully integrated
into the Company's operations or will achieve desired profitability objectives.
See "Business and Properties - Acquisition, Development, and Other Activities."
<PAGE>
Exploration and Development Risks
The Company may increase its development and exploration activities.
Exploration drilling and, to a lesser extent, development drilling of oil and
natural gas reserves involve a high degree of risk that no commercial production
will be obtained and/or that production will be insufficient to recover drilling
and completion costs. The cost of drilling, completing and operating wells is
often uncertain. The Company's drilling operations may be curtailed, delayed or
canceled as a result of numerous factors, including title problems, weather
conditions, compliance with governmental requirements and shortages or delays in
the delivery of equipment. The drilling of exploratory and development wells
involves risks such as encountering unusual or unexpected formations, pressures,
and other conditions that could result in the Company's incurring substantial
losses. Furthermore, completion of a well does not assure a profit on the
investment or a recovery of drilling, completion and operating costs.
Operating Hazards and Uninsured Risks
The Company's oil and natural gas business involves a variety of
operating risks, including, but not limited to, unexpected formations or
pressures, uncontrollable flows of oil, natural gas, brine or well fluids into
the environment (including groundwater contamination), blowouts, fires,
explosions, pollution and other risks, any of which could result in personal
injuries, loss of life, damage to properties and substantial losses. Although
the Company carries insurance at levels which it believes are reasonable, it is
not fully insured against all risks. The Company does not carry business
interruption insurance. Losses and liabilities arising from uninsured or
under-insured events could have a material adverse effect on the financial
condition and operations of the Company.
Marketing Risks
Substantially all of the Company's natural gas production is currently
sold to gas marketing firms or end users either on the spot market on a
month-to-month basis at prevailing spot market prices. For the year ended
December 31, 1996, one purchaser accounted for approximately 49% of the
Company's revenues. The Company does not believe that discontinuation of its
sales arrangement with such firm would be in any way disruptive to the Company's
natural gas marketing operations. See "Business and Properties - Competition,
Markets, Seasonality and Environmental and Other Regulation."
Hedging Risks
Historically, the Company has reduced its exposure to the volatility of
crude oil and natural gas prices by hedging a portion of its production. In a
typical hedge transaction, the Company will have the right to receive from the
counterparty to the hedge the excess of the fixed price specified in the hedge
over a floating price. If the floating price exceeds the fixed price, the
Company is required to pay the counter party all or a portion of this difference
multiplied by the quantity hedged, regardless of whether the Company has
sufficient production to cover the quantities specified in the hedge.
Significant reductions in production at times when the floating price exceeds
the fixed price could require the Company to make payments under the hedge
agreements even though such payments are not offset by sales of production. In
the past, the Company has hedged up to, but not more than, 50% of its
anticipated oil and natural gas production. Hedging also prevents the Company
from receiving the full advantage of increases in crude oil or natural gas
prices above the fixed amount specified in the hedge.
<PAGE>
Abandonment Costs
Due to the Company's number of offshore properties and production
facilities, government regulations and lease terms will require the Company to
incur substantial abandonment costs. As of September 1, 1997, total abandonment
costs for the Company's offshore properties estimated to be incurred through
2012 were approximately $12.3 million. Estimated abandonment costs have been
included in determining actual and pro-forma estimates of the Company's future
net revenues from Proved Reserves included herein, and the Company accounts for
such costs through its provision for depreciation, depletion and amortization.
Under the terms of various agreements, the Company is required to fund
restricted cash accounts as a reserve for abandonment costs on most of its
offshore properties. See Business and Properties - Plugging and Abandonment
Escrows.
Environmental and Other Regulations
The Company's operations are affected by extensive regulation pursuant
to various federal, state and local laws and regulations relating to the
exploration for and development, production, gathering and marketing of oil and
natural gas. Matters subject to regulation include discharge permits for
drilling operations, drilling and abandonment bonds or other financial
responsibility requirements, reports concerning operations, the spacing of
wells, unitization and pooling of properties, and taxation. From time to time,
regulatory agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and natural gas wells below actual
production capacity in order to conserve supplies of oil and natural gas.
Operations of the Company are also subject to numerous environmental
laws, including but not limited to, those governing management of waste,
protection of water, air quality, the discharge of materials into the
environment, and preservation of natural resources. Non-compliance with
environmental laws and the discharge of oil, natural gas, or other materials
into the air, soil or water may give rise to liabilities to the government and
third parties, including civil and criminal penalties, and may require the
Company to incur costs to remedy the discharge. Oil and gas may be discharged in
many ways, including from a well or drilling equipment at a drill site, leakage
from pipelines or other gathering and transportation facilities, leakage from
storage tanks, and sudden discharges from oil and gas wells or explosion at
processing plants. Hydrocarbons tend to degrade slowly in soil and water, which
makes remediation costly, and discharged hydrocarbons may migrate through soil
and water supplies or adjoining property, giving rise to additional liabilities.
Laws and regulations protecting the environment have become more stringent in
recent years, and may in certain circumstances impose retroactive, strict, and
joint and several liability rendering entities liable for environmental damage
without regard to negligence or fault. From time to time, the Company has agreed
to indemnify sellers of producing properties from whom the Company has acquired
reserves against certain liabilities for environmental claims associated with
such properties. There can be no assurance that new laws or regulations, or
modifications of or new interpretations of existing laws and regulations, will
not increase substantially the cost of compliance or otherwise adversely affect
the Company's oil and natural gas operations and financial condition or that
material indemnity claims will not arise against the Company with respect to
properties acquired by the Company. While the Company does not anticipate
incurring material costs in connection with environmental compliance and
remediation, it cannot guarantee that material costs will not be incurred. See
Business and Properties - Competition, Markets, Seasonality and Environmental
and Other Regulation.
Competition
There are many companies and individuals engaged in the exploration for
and development of oil and natural gas properties. Competition is particularly
intense with respect to the acquisition of oil and natural gas producing
properties and securing experienced personnel. The Company encounters
competition from various independent oil companies in raising capital and in
acquiring producing properties. Many of the Company's competitors have financial
resources and staffs considerably larger than the Company. See Business and
Properties - Competition, Markets, Seasonality and Environmental and Other
Regulation.
<PAGE>
Dependence Upon Key Personnel
The success of the Company will depend almost entirely upon the ability
of a small group of key executives to manage the business of the Company. Should
one or more of these executives leave the Company or become unable to perform
his duties, no assurance can be given that the Company will be able to attract
competent new management. The key executives do not have employment contracts.
See Management.
Change of Control
Upon the occurrence of a Change of Control, the Company will be
required to offer to repurchase all or a portion of the outstanding Notes at
101% of the principal amount thereof, plus accrued and unpaid interest to the
date of repurchase. The source of funds for any such payment at maturity or
earlier repurchase will be the Company's available cash or cash generated from
operating or other sources, including, without limitation, borrowings or sales
of assets or equity securities of the Company. There can be no assurance that
sufficient funds will be available at the time of any such event to pay such
principal or to make any required repurchase. If an offer to repurchase is
required to be made and the Company does not have available funds sufficient to
pay for Notes tendered for repurchase, an event of default would occur under the
Indenture. The occurrence of an event of default could result in acceleration of
maturity of the Notes and all amounts due under the New Credit Facility. See
Description of Notes.
Lack of Public Market
The Old Notes were issued to, and the Company believes are currently
owned by, a relatively small number of beneficial owners. The Old Notes have not
been registered under the Securities Act and will continue to be subject to
restrictions on transferability to the extent that they are not exchanged for
New Notes. See "The Exchange Offer - Consequences of a Failure to Exchange
Outstanding Notes." Although the New Notes will generally be permitted to be
resold or otherwise transferred by the holders (who are not affiliates of the
Company or broker-dealers) without compliance with the registration and
prospectus delivery requirements under the Securities Act, they will constitute
a new issue of securities with no established trading market. The Company has
been advised by the Initial Purchasers that the Initial Purchasers presently
intend to make a market in the New Notes. However, the Initial Purchasers are
not obligated to do so and any market making activity with respect to the New
Notes may be discontinued at any time without notice. In addition, such market
making activity will be subject to the limits imposed by the Securities Act and
the Exchange Act and may be limited during the Exchange Offer. If the New 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. While the Old Notes are designated for
trading in the PORTAL Market, there can be no assurance as to the development or
liquidity of any market for the New Notes. 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.
<PAGE>
Notwithstanding the registration of the New Notes in the Exchange
Offer, holders who are Aaffiliates" (as defined in Rule 405 under the Securities
Act) of the Company may publicly offer for sale or resell the New Notes only in
compliance with the provisions of Rule 144 under the Securities Act. Each
broker-dealer that receives New Notes for its own account in exchange for
Outstanding Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Notes. Subject to certain provisions
set forth in the Registration Agreement, the Company has agreed that, for a
period of up to 180 days after the Registration Statement is declared effective,
it will make this Prospectus available to any Participating Broker-Dealer for
use in connection with any such resale. However, under certain circumstances,
the Company has the right to require that Participating Broker-Dealers suspend
the resale of New Notes pursuant to this Prospectus. See The Exchange Offer -
Consequences of Failure to Exchange.
- --------------------------------------------------------------------------------
Fraudulent Conveyance
Various fraudulent conveyance laws enacted for the protection of
creditors may apply to the Subsidiary Guarantors' issuance of the Guarantees. To
the extent that a court were to find that (x) a Guarantee was incurred by a
Subsidiary Guarantor with intent to hinder, delay or defraud any present or
future creditor or the Subsidiary Guarantor contemplated insolvency with a
design to prefer one or more creditors to the exclusion in whole or in part of
others or (y) a Subsidiary Guarantor did not receive fair consideration or
reasonably equivalent value for issuing its Guarantee and such Subsidiary
Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of the
issuance of such Guarantee, (iii) was engaged or about to engage in a business
or transaction for which the remaining assets of such Subsidiary Guarantor
constituted unreasonably small capital to carry on its business or (iv) intended
to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, the court could avoid or subordinate such Guarantee in
favor of the Subsidiary Guarantor's creditors. Among other things, a legal
challenge of a Guarantee on fraudulent conveyance grounds may focus on the
benefits, if any, realized by the Subsidiary Guarantor as a result of the
issuance by the Company of the Notes. The Indenture contains a savings clause,
which generally will limit the obligations of each Subsidiary Guarantor under
its Guarantee to the maximum amount as will, after giving effect to all of the
liabilities of such Subsidiary Guarantor, result in such obligations not
constituting a fraudulent conveyance. To the extent a Guarantee of any
Subsidiary Guarantor was voided as a fraudulent conveyance or held unenforceable
for any other reason, holders of the Notes would cease to have any claim against
such Subsidiary Guarantor and would be creditors solely of the Company and any
Subsidiary Guarantor whose Guarantee was not voided or held unenforceable. In
such event, the claims of the holders of the Notes against the issuer of an
invalid Guarantee would be subject to the prior payment of all liabilities of
such Subsidiary Guarantor. There can be no assurance that, after providing for
all prior claims, there would be sufficient assets to satisfy the claims of the
holders of the Notes relating to any avoided portions of any of the Guarantees.
The measure of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any such proceeding. Generally,
however, a Subsidiary Guarantor may be considered insolvent if the sum of its
debts, including contingent liabilities, was greater than the fair marketable
value of all of its assets at a fair valuation or if the present fair marketable
value of its assets was less than the amount that would be required to pay its
probable liability on its existing debts, including contingent liabilities, as
they become absolute and mature.
Based upon financial and other information, the Company and the
Subsidiary Guarantors believe that the Guarantees were incurred for proper
purposes and in good faith and that the Company and each Subsidiary Guarantor is
solvent and will continue to be solvent after issuing its Guarantee, have
sufficient capital for carrying on its business and are able to pay its debts as
they mature. There can be no assurance, however, that a court passing on such
standards would agree with the Company.
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange Offer.
The net proceeds from the sale of Old Notes, after deducting expenses,
were $96.25 million. The Company used the net proceeds from the sale of Notes,
together with other working capital of the Company, primarily to (i) repay all
indebtedness outstanding under the Bank Facility, (ii) prepay the 1996 Tranche A
Convertible Subordinated Notes, (iii) pay the promissory notes given to the
former shareholders of Goldking (the "Shareholder Notes"), (iv) prepay the
Comerica Credit Facility of Goldking, (v) prepay the Heller Financial Term Notes
of Goldking, and (vi) provide additional working capital for general corporate
purposes including, but not limited to, future acquisitions and the further
development of the Company's properties. See ACapitalization," below.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
June 30, 1997 (i) on an actual basis, (ii) giving pro forma effect to the
Goldking Acquisition (including the incurrence of indebtedness under the Notes
issued to the former shareholders of Goldking, the Company's Bank Facility, and
Goldking's existing debt) and (iii) on a pro forma basis as adjusted for the
Offering and the application of the proceeds therefrom. This table should be
read in conjunction with the "Unaudited Pro Forma Combined Financial Data" and
the Consolidated Financial Statements and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Pro Forma
As Adjusted
Actual Pro for
________ Forma Offering
------------ ------------
(dollars in thousands)
<S> <C> <C> <C>
Cash and cash equivalents.......................................... $ 1,353 $ 3,062 $ 45,260
Total debt, including current maturities:
Bank Facility................................................... 19,500 27,000 --
1996 Tranche A Convertible Subordinated Notes................... 8,500 8,500 --
Goldking Shareholder Notes..................................... -- 6,000 --
Comerica Credit Facility....................................... -- 4,250 --
Heller Financial Term Notes ................................... -- 8,302 --
New Credit Facility............................................ -- -- --
Production Payment............................................. -- 1,700 1,700
10 5/8% Senior Notes due 2004...................................... -- -- 100,000
----------- --------------- -----------
Total debt 28,000 55,752 101,700
Stockholders' equity:
Preferred shares, $.01 par value, 5,000,000 shares authorized
(None issued or outstanding)............................... -- -- --
Common shares, $.01 par value, 40,000,000 shares authorized
(20,382,087 and 23,621,017 shares issued and outstanding).... 204 236 236
Additional paid-in capital...................................... 53,593 67,974 67,974
Retained earnings (deficit)..................................... (12,989) (12,989)
---------- ------------- -----------
(12,989)
Total stockholders' equity............................... 40,808 55,221
--------- ------------ -----------
55,221
Total capitalization....................................... $ 68,808 $ 110,973 $ 156,921
'''''''' ''''''''''' '''''''''''
</TABLE>
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial data are derived
from the Consolidated Financial Statements of the Company set forth elsewhere in
this Prospectus and certain historical financial data with respect to various
assets and companies acquired by the Company. The Unaudited Pro Forma Balance
Sheet at June 30, 1997 has been prepared assuming the Goldking Acquisition, the
sale of the Company's investment in common stock, and the Offering and the
application of the net proceeds therefrom had occurred on June 30, 1997. The
Unaudited Pro Forma Statement of Income (Operations) for the six months ended
June 30, 1997 has been prepared assuming the Goldking Acquisition and the
Offering and the application of the net proceeds therefrom had been consummated
January 1, 1997. The Unaudited Pro Forma Combined Statement of Income
(Operations) for the year ended December 31, 1996 has been prepared assuming the
Goldking Acquisition, the Offering and the application of the net proceeds
therefrom, the Amoco Acquisition and the Bayou Sorrel Field sale had all been
consummated on January 1, 1996. The Amoco Acquisition occurred on October 8,
1996 and the Bayou Sorrel Field sale was effective September 1, 1996.
The unaudited pro forma combined financial data reflects the
preliminary allocation of the Goldking purchase price based on June 30, 1997
Goldking financial statement amounts. The final allocation of the purchase
price, including the amounts of the increases in consolidated assets and
liabilities on the closing date of July 31, 1997 may differ with a resulting
effect on depletion, depreciation and amortization expense. Management does not
expect these differences to be material.
The unaudited pro forma combined financial data should be read in
conjunction with the notes thereto and with the Consolidated Financial
Statements of the Company and the notes thereto. This data is not indicative of
the financial position or results of operations of the Company which would
actually have occurred if the transactions described above had occurred at the
dates presented or which may be obtained in the future. In addition, future
results may vary significantly from the results reflected in such statements due
to various factors.
<PAGE>
<TABLE>
<CAPTION>
PANACO, Inc.
Unaudited Condensed Pro Forma Combined Balance Sheet
At June 30, 1997
(Amounts in thousands except number of shares )
Goldking PANACO, Inc.
Acquisition and Offering
PANACO, Pro Forma Goldking Pro PANACO,
Inc. Forma Inc.
ASSETS At Adjustments Pro Forma Pro Forma
Adjustments
6/30/97 (a) Combined (h) Combined
CURRENT ASSETS
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 1,353 1,709 (b)(i) $ 3,062 $ 42,198 $ 45,260
Accounts receivable 6,030 2,688 (b) 8,718 8,718
Investment in common stock 1,701 (1,701) (i) - -
Prepaid and other 552 847 (b) 1,399 1,399
Total Current Assets 9,636 13,179 55,377
OIL AND GAS PROPERTIES, AS DETERMINED BY THE
SUCCESSFUL EFFORTS METHOD OF ACCOUNTING
Oil and gas properties 137,734 43,145 (c) 180,879 180,879
Less: accumulated depreciation, depletion
and amortization (87,374) - (87,374) (87,374)
Net Oil and Gas Properties 50,360 93,505 93,505
PROPERTY, PLANT AND EQUIPMENT (net) 12,474 1,892 (d) 14,366 14,366
OTHER ASSETS
Restricted deposits 1,992 1,992 1,992
Other 379 265 (e) 644 3,750 4,394
Total Other Assets 2,371 2,636 6,386
TOTAL ASSETS $ 74,841 $ 123,686 $ 169,634
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,033 $ 6,680 (f) 12,713 $ 12,713
Current portion of long-term debt - 1,181 (f) 1,181 (1,181) -
Total Current Liabilities 6,033 13,894 12,713
LONG-TERM DEBT 28,000 26,571 (g) 54,571 47,129 101,700
STOCKHOLDERS' EQUITY
Preferred shares, ($.01 par value, 5,000,000 shares
authorized and no shares issued or
outstanding) - - -
Common shares, ($.01 par value, 40,000,000 shares
authorized and 20,382,087 issued and outstanding
and 23,621,017 pro forma issued and
outstanding) 204 32 (a) 236 236
Additional paid-in capital 53,593 14,381 (a) 67,974 67,974
Retained earnings (deficit) (12,989) (12,989) (12,989)
Total Stockholders' equity 40,808 55,221 55,221
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 74,841 $ 123,686 $ 169,634
</TABLE>
<PAGE>
NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
At June 30, 1997
The Unaudited Condensed Pro Forma Combined Balance Sheet presents the
combined effects of the Goldking Acquisition, the application of the proceeds of
the Offering and the sale of the Company's investment in common stock as if
these transactions had been consummated on June 30, 1997. It reflects a
preliminary allocation of the purchase price for the Goldking Acquisition. The
final allocation of the purchase price may differ based on the actual assets and
liabilities acquired by the Company on July 31, 1997, however, management does
not expect these differences to be material.
Goldking Acquisition
(a) The Goldking Acquisition occurred on July 31, 1997. The purchase price
included $7,500,000 in cash, $6,000,000 in Shareholder Notes, 3,154,930
Common Shares valued at $4.45, and the assumption of debt described in
notes (f) and (g) below. The Company also paid a finder's fee in the
amount of 84,000 Common Shares.
(b) The Company acquired $8,000 in cash, $2,688,000 in accounts receivable
and $847,000 in other current assets, primarily restricted cash and
short-term funds.
(c) Based upon the nature of the assets acquired, the Company has allocated
$37,119,000 to proved oil and natural gas properties and $6,026,000 to
unproved oil and natural gas properties.
(d) The Company acquired furniture and fixtures with a net book value of
$892,000, which approximates market value. The Company also allocated
$1,000,000 of the net purchase to pipelines and equipment, based upon
the nature of the assets acquired.
(e) The Company acquired other long-term assets, including capitalized
software costs with a net book value of $265,000, which approximates
market value.
(f) The Company's consolidated current liabilities and current maturities
of long-term debt increased by $6,680,000 and $1,181,000, respectively.
(g) The Company's consolidated long-term debt increased with the Goldking
Acquisition, including Goldking's outstanding debt before the merger in
the amount of $13,071,000. The adjustment also includes $6,000,000 in
notes to the former shareholders of Goldking and borrowing of
$7,500,000 under the Company's Bank Facility to fund the cash portion
of the purchase price.
Offering of Notes
(h) Represents the adjustments necessary to record the application of the
proceeds, the incurrence of indebtedness from, and the costs associated
with, the Offering as described in the Use of Proceeds.
Offering Amount $100,000,000
Debt Issuance Costs (3,750,000)
---------------
Net Proceeds 96,250,000
Payoff debt (54,052,000)
--------------
Increase in cash $ 42,198,000
'''''''''''''
Sale of Investment
(i) To adjust for the sale of the investment as if it had occurred on June
30, 1997. The Company sold this investment in late July and early
August for a total of $1,717,000.
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1997
(Amounts in thousands except per share data)
Goldking
Goldking Acquisition PANACO, Inc. Offering PANACO,
Inc.
Acquisition Pro Forma Pro Forma Pro Forma Pro Forma
PANACO, (a) Adjustments Combined Adjustments Combined
Inc.
---------------------- ------------------------- ------------ ------------
REVENUES
<S> <C>
Oil and natural gas sales $ 14,287 $ 3,595 $ - $ 17,882 $ - $ 17,882
COSTS AND EXPENSES
Lease operating expense 5,122 962 - 6,084 - 6,084
Depreciation, depletion and amortization
expense 6,184 974 720 (b) 7,878 - 7,878
Exploration expense 67 - - 67 - 67
Provision for losses and (gains) on
disposition and write-down of assets
- - - - - -
General and administrative expense 389 1,015 - 1,404 - 1,404
Production and ad valorem taxes 174 282 - 456 - 456
---------- ---------- ----------- ----------- ------------ ------------
Total 11,936 3,233 720 15,889 - 15,889
---------- ---------- ----------- ----------- ------------ ------------
NET OPERATING INCOME (LOSS) 2,351 362 (720) 1,993 - 1,993
---------- ---------- ----------- ----------- ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (net) (1,265) (754) (490) (c) (2,509) (1,784) (e) (4,293)
Unrealized gain on investment in common stock 60 - - 60 - 60
---------- ---------- ----------- ----------- ------------ ------------
Total (1,205) (754) (490) (2,449) (1,784) (4,233)
NET INCOME (LOSS) BEFORE INCOME TAXES 1,146 (392) (1,210) (456) (1,784) (2,240)
INCOME TAXES (BENEFIT) - - - - - -
---------- ---------- ----------- ----------- ------------ ------------
NET INCOME (LOSS) 1,146 (392) (1,210) (456) (1,784) (2,240)
'''''''''' '''''''''' ''''''''''' ''''''''''' '''''''''''' ''''''''''''
EARNINGS (LOSS) PER WEIGHTED AVERAGE SHARE 0.07 (0.02) (.10)
'''''''''' ''''''''''' ''''''''''''
Weighted average shares outstanding 18,248 3,239 (d) 21,487 - 21,487
'''''''''' ''''''''''' ''''''''''''
EBITDA (f) 8,602 9,938
'''''''''' ''''''''''''
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
STATEMENT OF INCOME (OPERATIONS)
For the six months ended June 30,1997
The Unaudited Pro Forma Combined Statement of Income (Operations) for
the six months ended June 30, 1997 presents the combined effect of the Goldking
Acquisition and the application of the proceeds and incurrence of indebtedness
for the Offering as if both of these transactions had been consummated on
January 1, 1997. It reflects a preliminary allocation of the purchase price for
the Goldking Acquisition. The final allocation of the purchase price may differ
based on the actual assets and liabilities acquired by the Company on July 31,
1997, however, management does not expect these differences to be material.
Goldking Acquisition
(a) These amounts represent the actual results of Goldking for the six months
ended June 30, 1997. Certain reclassifications have been made for
consistency.
(b) Goldking accounted for its oil and natural gas properties using the full
cost method of accounting. Pro forma entries are required to present the
information for Goldking as if it had accounted for its oil and natural gas
properties using the successful efforts method and using the new basis for
its oil and natural gas properties on July 31, 1997.
(c) To adjust interest expense for debt incurred in financing the Goldking
Acquisition, which included the $6,000,000 in notes and the borrowing of
the $7,500,000 cash portion of the purchase price under the Company's Bank
Facility.
(d) To adjust the weighted average shares outstanding for the issuance of
Common Shares in connection with the Goldking Acquisition.
Offering of Notes
(e) To adjust interest expense to reflect the repayment of debt at January 1,
1997 with the proceeds from the Offering and the amortization of loan
costs. The proceeds in excess of that used to repay indebtedness are
assumed to have been placed in short term investments yielding 6%.
(f) EBITDA is defined as net income (loss) before income taxes plus the sum of
depletion and depreciation, provisions for losses and gains on disposition
and write-down of assets, exploration expenses and interest expense. EBITDA
is not a measure of cash flow as determined by generally accepted
accounting principles. The Company has included information concerning
EBITDA because EBITDA is a measure used by certain investors in determining
the Company's historical ability to service its indebtedness. EBITDA should
not be considered as an alternative to, or more meaningful than, net income
or cash flows as determined in accordance with generally accepted
accounting principles or as an indicator of the Company's operating
performance or liquidity.
<PAGE>
<TABLE>
<CAPTION>
PANACO, INC.
Unaudited Pro Forma Combined Statement of Income (Operations)
For the Year Ended December 31, 1996
(Amounts in thousands except per share data)
Goldking
Goldking Acquisition PANACO,Inc. 1996 PANACO, Inc Offering PANACO,
Inc.
Acquisition Pro Forma Pro Forma Transactions Pro Forma Pro Forma Pro Forma
PANACO, (a) Adjustments Combined (e) Combined Adjustments Combined
Inc.
------------------------------------------------------------------------------------------
REVENUES
<S> <C>
Oil and natural gas sales $ 20,063 $ 8,186 $ - $ 28,249 $ 8,915 $ 37,164 - $ 37,164
COSTS AND EXPENSES
Lease operating expense 8,477 1,282 - 9,759 1,915 11,674 - 11,674
Depreciation, depletion and
amortization
expense 9,022 2,243 1,432 (b) 12,697 6,086 18,783 - 18,783
Exploration expense - - - - - - - -
Provision for losses and (gains) on
disposition and write-down of
assets - (430) - (430) - (430) - (430)
General and administrative expense 772 1,402 - 2,174 - 2,174 - 2,174
Production and ad valorem taxes 559 669 - 1,228 (239) 989 - 989
West Delta fire loss 500 - - 500 - 500 - 500
--------- -------------------- ---------------------------------------------------------
Total 19,330 5,166 1,432 25,928 7,762 33,690 - 33,690
--------- -------------------- ---------------------------------------------------------
NET OPERATING INCOME (LOSS) 733 3,020 (1,432) 2,321 1,153 3,474 - 3,474
--------- -------------------- ---------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (net) (2,514) (1,414) (979) (c) (4,907) (1,042) (5,949) (2,638) (8,587)
Unrealized loss on investment in
common stock (258) - - (258) 258 - - -
--------- -------------------- ---------------------------------------------------------
Total (2,772) (1,414) (979) (5,165) (784) (5,949) (2,638) (8,587)
NET INCOME (LOSS) BEFORE INCOME TAXES (2,039) 1,606 (2,411) (2,844) 369 (2,475) (2,638) (5,113)
INCOME TAXES (BENEFIT) - - - - - - - -
--------- -------------------- ---------------------------------------------------------
NET INCOME (LOSS) (2,039) 1,606 (2,411) (2,844) 369 (2,475) (2,638) (5,113)
''''''''' '''''''''''''''''''' '''''''''''''''''''''''''''''''''''''''''''''''''''''''''
EARNINGS (LOSS) PER WEIGHTED AVERAGE SHARE$ (0.16) (0.18) (0.14) (0.29)
''''''''' ''''''''''' ''''''''''' ''''''''''
Weighted average shares outstanding 12,742 3,239 (d) 15,981 1,540 17,521 17,521
''''''''' ''''''''''' ''''''''''' ''''''''''
EBITDA (g) $ 10,255 22,327
''''''''' ''''''''''
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
STATEMENT OF INCOME (OPERATIONS)
For the year ended December 31, 1996
The Unaudited Pro Forma Combined Statement of Income (Operations) for
the year ended December 31, 1996 presents the combined effects of the Goldking
Acquisition, the Amoco Acquisition on October 8, 1996, the sale of Bayou Sorrel
Field effective September 1, 1996 and the application of the proceeds and
incurrence of indebtedness for the Offering as if all had been consummated on
January 1, 1996. It reflects a preliminary allocation of the purchase price for
the Goldking Acquisition. The final allocation may differ based on the actual
assets and liabilities acquired on July 31, 1997, however, management does not
expect these differences to be material. The Amoco Acquisition and Bayou Sorrel
Field sale have been summarized as A1996 Transactions" in the pro forma data.
Goldking Acquisition
(a) These amounts represent the actual results of Goldking for the year ended
December 31, 1996. Certain reclassifications have been made for
consistency.
(b) Goldking accounted for its oil and natural gas properties using the full
cost method of accounting. Pro forma entries are required to present the
pro forma information for Goldking as if it had accounted for its oil and
natural gas properties using the successful efforts methods and using the
new basis for its oil and natural gas properties based upon the purchase on
July 31, 1997.
(c) To adjust interest expense for debt incurred in financing the Goldking
Acquisition, which included the $6,000,000 in notes and the borrowing of
the $7,500,000 cash portion of the purchase price under the Company's Bank
Facility.
(d) To adjust the weighted average shares outstanding for the issuance of
Common Shares in connection with the Goldking Acquisition.
1996 Transactions
(e) Represents the total adjustments necessary to present the Amoco Acquisition
on October 8, 1996 and the sale of Bayou Sorrel Field effective September
1, 1996 as if both had occurred on January 1, 1996. They include the
addition of revenues and expenses from a January 1 to October 7 for the
Amoco Acquisition and the reductions of such amounts for January 1 to
August 31 for the sale of Bayou Sorrel Field.
Offering of Notes
(f) To adjust interest expense to reflect the repayment of debt at January 1,
1997 with the proceeds from the Offering and the amortization of loan
costs. The proceeds in excess of that used to repay indebtedness are
assumed to have been placed in short term investments yielding 6%.
(g) EBITDA is defined as net income (loss) before income taxes plus the sum of
depletion and depreciation, provisions for losses and gains on disposition
and write-down of assets, exploration expenses, interest expense and the
non-recurring charge pertaining to the 1996 West Delta fire loss. EBITDA is
not a measure of cash flow as determined by generally accepted accounting
principles. The Company has included information concerning EBITDA because
EBITDA is a measure used by certain investors in determining the Company's
historical ability to service its indebtedness. EBITDA should not be
considered as an alternative to, or more meaningful than, net income or
cash flows as determined in accordance with generally accepted accounting
principles or as an indicator of the Company's operating performance or
liquidity.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following historical selected consolidated financial data of the
Company are derived from, and qualified by reference to, the Company's
Consolidated Financial Statements and the notes thereto. The income statement
data for the six months ended June 30, 1997 are not necessarily indicative of
results for a full year. The historical selected financial data for the five
years ended December 31, 1996 were derived from the Company's audited
consolidated financial statements. The selected financial data for the six
months ended June 30, 1996 and 1997 have been derived from the Company's
unaudited interim consolidated financial statements and include, in the opinion
of the Company's management, all adjustments necessary to present fairly the
data for such periods. The information contained in this table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Consolidated Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December Six Months
31, Ended June 30,
------------------------------------------
-----------------
1992 1993 1994 1997
_______ _______ _______ 1995 1996 1996 _______
------- ------ -------
Summary of Operating Data: (dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Oil and natural gas sales $ 13,335 $ 12,605 $ 17,338 $ 18,447 $ 20,063 $ 10,808 $ 14,287
Depreciation, depletion & amortization
expense 4,245 4,288 6,038 8,064 9,022 3,812 6,184
Lease operating expense 5,762 5,297 5,231 8,055 8,477 4,184 5,122
Production and ad valorem taxes 867 754 1,006 1,078 559 327 174
Exploration expense -- -- -- 8,112 -- -- 67
General and administrative expense 539 542 587 690 772 382 389
Provision for losses (gains) on disposition
and write-downs of assets -- 3,824 1,202 751 -- -- --
West Delta fire loss
-- -- -- -- 500 500 --
---- ---- ---- ---- --- --- --
Net operating income (loss) 1,922 (2,100) 3,274 (8,303) 733 1,603 2,351
Interest expense (net) 2,323 1,886 1,623 987 2,514 902 1,265
Unrealized gain (loss) on investment in
common stock
-- -- -- -- (258) -- 60
---- ---- ---- ---- ----- ---- --
Net income (loss) $ (401) $ (3,986) $ 1,115 $ (9,290) $ $ 701 $ 1,146
''''''''' '''''''''' ''''''''' ''''''''' '' ''''''''' ''''''''''
(2,039)
Net income (loss) per Common Share $ (0.05) $ (0.53) $ $ (0.81) $ $ 0.06 $ 0.07
0.11 (0.16)
<PAGE>
Summary Balance Sheet Data:
Oil and gas properties and equipment (net) $ 26,448 $ 19,183 $ 23,945 $ 29,485 $ $ 29,326 $ 62,834
60,747
Total assets 31,085 24,432 29,095 36,169 73,768 37,150 74,841
Long-term debt 15,380 12,465 12,500 22,390 49,500 18,390 28,000
Stockholders' equity 11,700 8,744 14,882 9,174 17,498 11,818 40,808
Dividends per Common Share -- -- -- -- -- -- --
Other Data:
EBITDA(a) $ 6,167 $ 6,012 $ 10,514 $ 8,624 $ $ 5,915 $ 8,602
10,255
Capital expenditures(b) 1,293 842 12,128 21,841 43,050 3,440 8,160
</TABLE>
(a) EBITDA is defined as net income (loss) before income taxes plus the sum of
depletion and depreciation, provisions for losses and gains on disposition
and write-down of assets, exploration expenses, interest expense and the
non-recurring charge pertaining to the 1996 West Delta fire loss. EBITDA is
not a measure of cash flow as determined by generally accepted accounting
principles. The Company has included information concerning EBITDA because
EBITDA is a measure used by certain investors in determining the Company's
historical ability to service its indebtedness. EBITDA should not be
considered as an alternative to, or more meaningful than, net income or
cash flows as determined in accordance with generally accepted accounting
principles or as an indicator of the Company's operating performance or
liquidity.
(b) Capital expenditures include cash expended for acquisitions plus normal
additions to oil and natural gas properties and other fixed assets, without
taking into consideration sales of capital assets.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements, "Selected Consolidated Financial
Data" and respective notes thereto, included elsewhere herein. The information
below should not be construed to imply that the results discussed herein will
necessarily continue into the future or that any conclusion reached herein will
necessarily be indicative of actual operating results in the future. Such
discussion represents only the best present assessment of management of the
Company. Because of the size and scope of the Company's recent acquisitions, the
results of operations from period to period are not necessarily comparative.
General
The oil and natural gas industry has experienced significant volatility
in recent years because of the fluctuatory relationship of the supply of most
fossil fuels relative to the demand for such products and other uncertainties in
the world energy markets. These industry conditions should be considered when
this analysis of the Company's operations is read.
The Company experienced an explosion and fire on April 24, 1996 at Tank
Battery #3 in the West Delta Fields resulting in these fields being shut-in from
April 24th until being returned to production on October 7, 1996. The loss of 67
days of production in the second quarter and the entire third quarter resulted
in lost revenues estimated by management to be approximately $6,000,000. During
the second quarter the Company expensed $500,000 for its loss as a result of
this explosion. No further losses have been recognized or are anticipated. This
$500,000 amount included $225,000 in deductibles under the Company's insurance.
The Company has spent $8,500,000 on Tank Battery #3 inclusive of the
$500,000 expensed during second quarter and has received reimbursement from its
insurance company of $3,900,000, after satisfaction of the $225,000 in
deductibles. The excess of expenditures over insurance reimbursement has been
capitalized. No additional expenditures have been made or are anticipated. The
Company has filed suits against the employers of the persons who caused the
incidents for recovery of these costs and its lost profits. No assurance can be
given that the Company will successfully recover any amounts sought in any such
suits.
For the six months ended June 30, 1997 and 1996:
Liquidity and Capital Resources
On March 5, 1997, the Company completed an offering of 8,403,305 common
shares at $4.00 per share, $3.728 net of the underwriter's commission. The
offering consisted of 6,000,000 shares sold by the Company and 2,403,305 shares
sold by shareholders, primarily Amoco Production Company (2,000,000 shares) and
lenders advised by Kayne, Anderson Investment Management, Inc. (373,305 shares).
The Company's net proceeds of $22,000,000 from the offering were used to prepay
$13,500,000 of its 12% subordinated debt and the remaining was used to reduce
borrowings under the Company's Bank Facility.
<PAGE>
On October 8, 1996, the Company amended its Bank Facility with First Union
National Bank of North Carolina (the "Agent") (60%)and Banque Paribas (40%). The
loan is a reducing revolver designed to provide up to $40,000,000 depending on
the borrowing base, as determined by the lenders. At June 30, 1997 the Company
had $19,500,000 outstanding under the loan. The borrowing base on July 31, 1997
was $30,000,000. The principal amount of the loan is due July 1, 1999. However,
at no time may the Company have outstanding borrowings under the Bank Facility
in excess of its borrowing base. Interest on the loan is computed at the Agent's
prime rate or at 1 to 1 3/4% (depending upon the percentage of the facility
being used) over the applicable London Interbank Offered Rate ("LIBOR") on
Eurodollar loans. Eurodollar loans can be for terms of one, two, three or six
months and interest on such loans is due at the expiration of the terms of such
loans, but no less frequently than every three months. Management feels that
this Bank Facility greatly facilitates its ability to make necessary capital
expenditures to maintain and improve production from its properties and makes
available to the Company additional funds for future acquisitions.
From time to time, the Company has borrowed funds from institutional
lenders who are represented by Kayne, Anderson Investment Management, Inc. In
each case these loans are due at a stated maturity, require payments of interest
only at 12% per annum 45 days after the end of each calendar quarter and are
secured by a second mortgage on the Company's offshore oil and natural gas
properties. The loans were as follows:
(a) 1993 Subordinated Notes. In 1993, $5,000,000 was borrowed, due
December 31, 1999, but prepayable at any time. These Notes were prepaid on March
6, 1997 with a portion of the proceeds from the common share offering.
(b) 1996 Tranche A Convertible Subordinated Notes. On October 8, 1996,
$8,500,000 was borrowed, due October 8, 2003, but prepayable any time after May
8, 1998. The Notes are convertible into 2,060,606 common shares on the basis of
$4.125 per share. The Notes are prepayable, in which event the Company must
deliver equivalent warrants to purchase Common Shares which expire December 31,
1998. The Company may deliver up to $2,000,000 in payment-in-kind notes in
satisfaction of interest payment obligations.
(c) 1996 Tranche B Bridge Loan Subordinated Notes. On October 8, 1996,
$8,500,000 was borrowed, due October 8, 2003, but prepayable any time. These
Notes were prepaid on March 6, 1997 with a portion of the proceeds of the common
share offering.
At June 30, 1997, 84% of the Company's total assets were represented by
oil and natural gas properties and pipelines and equipment, net of depreciation,
depletion and amortization.
In 1991, certain lenders received a net profits interest (NPI) in the
West Delta properties. During the six months ended June 30, 1997, payments with
respect to this NPI totaled $190,000.
Pursuant to existing agreements, the Company is required to deposit
funds in bank trust and escrow accounts to provide a reserve against
satisfaction of its eventual responsibility to plug and abandon wells and remove
structures when certain fields no longer produce oil and natural gas. Each
month, until November 1997, $25,000 is deposited in a bank escrow account to
satisfy such obligations with respect to a portion of its West Delta properties.
The Company has entered into an escrow agreement with Amoco Production Company
under which the Company will deposit, for the life of the fields, in a bank
escrow account ten percent (10%) of the net cash flow, as defined in the
agreement, for the Amoco Properties. The Company has established the "PANACO
East Breaks 110 Platform Trust" in favor of the Minerals Management Service of
the U.S. Department of the Interior. This trust required an initial funding of
$846,720 in December 1996, and remaining deposits of $244,320 due at the end of
each quarter in 1999 and $144,000 due at the end of each quarter in 2000 for a
total of $2,400,000. In addition, the Company has $9,250,000 in surety bonds to
secure its plugging and abandonment operations.
<PAGE>
Through the six months ended June 30, 1997 the Company had spent $8,093,000
in capital expenditures, approximately $2 million of which was for the
completion of oil and natural gas pipelines in the West Delta Fields and the
remainder was primarily for development of its oil and natural gas properties.
On March 5, 1997 the Company completed an offering of 8,403,305 common shares at
$4.00 per share, $3.728 net of the underwriter's commission. The offering
consisted of 6,000,000 shares sold by the Company, from which it received
$22,000,000. The Company's proceeds were used to prepay $13,500,000 of its 12%
subordinated debt and the remaining was used to reduce borrowings under the
Company's Bank Facility. Through June 30, 1996 the Company had raised $1,837,000
in equity as a result of the exercise of warrants.
Results of Operations
Production. Natural gas production increased 21% to 4,421,000 Mcf in
1997 from 3,666,000 Mcf in 1996. Oil production increased 25% in 1997 to 188,000
Bbls, from 151,000 Bbls in 1996. Results for 1997 include production from the
former Amoco Properties, purchased in October 1996. Results for 1997 also
include increased production from the West Delta Fields, which were shut-in from
April 24, 1996 until October 1996. They do not include production from the Bayou
Sorrel Field which was sold September 1, 1996. Bayou Sorrel Field was primarily
an oil field and produced only a small amount of natural gas in 1996.
In March, 1997 the federal production from the West Delta Block 58 was
brought back on-line for the first time since April 1996 with the completion of
a dual six inch, eight mile pipeline to the West Delta central processing
facility, Tank Battery #3. This pipeline also allowed Tana Oil and Gas
Corporation and Samedan Corporation to resume production from their wells,
drilled on farm-outs from the Company, on which the Company receives overriding
royalty revenue and fees for processing the oil and natural gas.
Prices. Natural gas prices, net of the impacts of hedging transactions,
increased from $2.21 per Mcf in 1996 to $2.47 in 1997. The 1997 natural gas
hedge program had the effect of reducing natural gas prices by only ($.03) per
Mcf in 1997, compared to ($.52) per Mcf in 1996. The 1997 hedge program allows
the Company more participation in increases in market prices for natural gas,
while providing the price stability of no less than $1.80 per MMbtu in 1997 on
14,000 MMbtu per day in 1997. Oil prices remained relatively flat in 1997 at
$17.96 per Bbl, compared to $17.92 per Bbl in 1996.
The product prices received by the Company, net of the impact of hedge
transactions discussed below, averaged $2.47 per Mcf for natural gas and $17.96
per Bbl for oil for the six months ended June 30, 1997. Cash flow is currently
being used for capital expenditures, reduce liabilities and to pay general and
administrative overhead. Starting in 1997, the Company's natural gas hedge
transactions are based upon published gas pipeline index prices instead of the
NYMEX. This change has mitigated the risk of price differences due to
transportation. In 1997, 14,000 MMbtu per day has been hedged, at a swap price
of $1.80 per MMbtu for 1997 with varying levels of participation (93% in January
to 40% in September ) in settlement prices above the $1.80 per MMbtu swap price
level. The Company has hedged 10,000 MMbtu per day in 1998 and 7,000 MMbtu per
day in 1999, all at an average pipeline index swap price of $1.89 per MMbtu. In
1997 the Company has also hedged its oil prices by selling the equivalent of 720
Bbls of oil per day at $20.00, with a 40% participation in prices above the
$20.00 swap price level. Management has generally used hedge transactions to
protect its cash flows when the Company's levels of long-term debt have been
higher and refrained from hedge transactions when long-term debt has been lower.
For accounting purposes, gains or losses on swap transactions are recognized in
the production month to which a swap contract relates.
"Oil and natural gas sales" increased 32% for the first six months of
1997. Significant increases in both natural gas and oil production were the
primary factor in the increase in revenues. The former Amoco Properties,
acquired in October 1996 coupled with the resumption of production from the West
Delta fields have combined to outweigh the sale of the Bayou Sorrel Field in
September 1996. The Company's development program on the former Amoco Properties
has increased production from those fields steadily since the acquisition in
October.
<PAGE>
"Lease operating expense" increased $938,000, or 22% in 1997 with the
addition of interests in thirteen offshore blocks acquired in October 1996. As a
percent of revenues, lease operating expenses decreased to 36% in 1997 from 39%
in 1996.
"Depletion, depreciation and amortization expense" increased
$2,372,000, or 62% also in part due to the purchase of the former Amoco
Properties in October 1996. The amount per Mcf equivalent also increased from
$.86 in 1996 to $1.11 in 1997, due to several factors. Downward engineering
revisions by the Company's independent petroleum engineers, Ryder Scott Company,
in the West Delta and East Breaks 110 Fields at year-end 1996 were a significant
part of the increase. Also, $4,000,000 in capital expenditures made during 1996
(over and above insurance reimbursement) to rebuild Tank Battery #3, the central
processing facility for the West Delta Fields, increased the depletion cost per
Mcf.
"Production and ad valorem taxes" decreased 47% in 1997 to 1% of oil
and natural gas sales from 3% of oil and natural gas sales in 1996. The decrease
is due to the Company's shift to federal offshore waters where there are no
state severance taxes.
"Exploration expense" incurred in 1997 resulted from an option paid to
participate in an exploratory well in the High Island Area, offshore Texas which
was condemned before the well was drilled because of a dry hole drilled by
another company on an adjacent block. There will be no further exploration
expenses associated with this prospect.
"Interest expense (net)" increased 40% in 1997 primarily due to the
increased average borrowing levels in 1997 and partially due to an increased
weighted average interest rate incurred in 1997, partially offset by an increase
in interest capitalized. The average borrowing level increased to $34,000,000 in
1997 from $20,000,000 in 1996 as a result of the Amoco Acquisition in October
1996. On March 6, 1997 the proceeds from a common stock offering reduced
subordinated debt by $13,500,000 and temporarily reduced bank facility debt by
$8,500,000. The weighted average borrowing rate in 1997 increased from 8.6% in
1996 to 9.2% in 1997. The increase is due to an increased percentage of
borrowing under subordinated debt agreements, bearing interest at 12%, also a
result of the Amoco Acquisition in October 1996. In connection with this
acquisition, $17,000,000 was borrowed as subordinated debt, $8,500,000 of which
was prepaid in March 1997. In the 1996 period, only $5,000,000 of the
outstanding debt was borrowed under these subordinated facilities.
"Unrealized gain (loss) on investment in common stock" is the change in
the estimated market value of the Company's 477,612 shares of National Energy
Group, Inc. common stock since year-end 1996.
For the years ended December 31, 1996 and 1995:
Liquidity and Capital Resources
At December 31, 1996, 82% of the Company's total assets were
represented by oil and natural gas properties, pipelines and equipment, net of
accumulated depreciation, depletion and amortization.
<PAGE>
On October 8, 1996, the Company amended its bank facility with First
Union National Bank of North Carolina (the "Agent") (60% participation), and
Banque Paribas (40% participation), herein "Bank Facility". The loan is a
reducing revolver designed to provide the Company up to $40,000,000 depending on
the Company's borrowing base, as determined by the lenders. The Company's
borrowing base at December 31, 1996 was $31,000,000, with an availability under
the revolver of $2,500,000. The principal amount of the loan is due July 1,
1999. However, at no time may the Company have outstanding borrowings under the
Bank Facility in excess of its borrowing base. Interest on the loan is computed
at the Agent's prime rate or at 1 to 1 3/4% (depending upon the percentage of
the facility being used) over the applicable London Interbank Offered Rate
("LIBOR") on Eurodollar loans. Eurodollar loans can be for terms of one, two,
three or six months and interest on such loans is due at the expiration of the
terms of such loans, but no less frequently than every three months. Management
feels that this bank facility greatly enhances its ability to make necessary
capital expenditures to maintain and improve production from its properties and
makes available to the Company additional funds for future acquisitions. The
bank facility is collateralized by a first mortgage on the Company's offshore
properties. The loan agreement contains certain covenants including a
requirement to maintain a positive indebtedness to cash flow ratio, a positive
working capital ratio, a certain tangible net worth, as well as limitations on
future debt, guarantees, liens, dividends, mergers, material change in ownership
by management, and sale of assets. With the proceeds from the recently completed
Common Share offering, on March 6, 1997, the Company temporarily repaid
$8,500,000 on its Bank Facility, which funds were to ultimately be used for
general corporate purposes including, but not limited to, the development of its
properties and future acquisitions, such as the Goldking Acquisition.
From time to time the Company has borrowed funds from institutional
lenders who are advised by Kayne, Anderson Investment Management, Inc. In each
case, these loans are due at a stated maturity, require payments of interest
only at 12% per annum 45 days after the end of each calendar quarter and are
secured by a second mortgage on the Company's offshore oil and natural gas
properties. The respective loan documents contain certain covenants including a
requirement to maintain a net worth ratio, as well as limitations on future
debt, guarantees, liens, dividends, mergers, material change in ownership by
management, and sale of assets.
The loans are as follows:
(a) 1993 Subordinated Notes. In 1993, $5,000,000 was borrowed, due
December 31, 1999. These Notes were prepaid on March 6, 1997, with a portion of
the proceeds of the Company's recent Common Share offering. The lenders were
issued, and during 1996 exercised, warrants to acquire 816,526 Common Shares at
$2.25 per share.
(b) 1996 Tranche A Convertible Subordinated Notes. On October 8, 1996,
$8,500,000 was borrowed, due October 8, 2003. The Notes are convertible into
2,060,606 Common Shares on the basis of $4.125 per share. The Company may
deliver up to $2,000,000 in PIK notes in satisfaction of interest payment
obligations.
(c) 1996 Tranche B Bridge Loan Subordinated Notes. On October 8, 1996,
$8,500,000 was borrowed, due October 8, 2003. These Notes were prepaid on March
6, 1997, with a portion of the proceeds of the Company's recent Common Share
offering.
In 1991, in connection with a debt financing which has subsequently
been repaid, certain former lenders received a net profits interest (NPI) in the
West Delta Properties, which is a continuing obligation with respect to these
properties. During the three months ended March 31, 1996, payments with respect
to this NPI averaged $53,000 per month. Due to the explosion and fire at Tank
Battery #3, no NPI payments were made in the remaining months of 1996.
<PAGE>
Pursuant to existing agreements, the Company is required to deposit funds
in bank trust and escrow accounts to provide a reserve against satisfaction of
its eventual responsibility to plug and abandon wells and remove structures when
certain fields no longer produce oil and natural gas. Each month, until November
1997, $25,000 is deposited in a bank escrow account, to satisfy such obligations
with respect to a portion of its West Delta Properties. The Company has entered
into an escrow agreement with Amoco Production Company under which the Company
will deposit, for the life of the fields, in a bank escrow account ten percent
(10%) of the net cash flow, as defined in the agreement, from the Amoco
Properties. The Company has established the "PANACO East Breaks 110 Platform
Trust" in favor of the Minerals Management Service of the U.S. Department of the
Interior. This trust required an initial funding of $846,720 in December 1996,
and remaining deposits of $244,320 due at the end of each quarter in 1999 and
$144,000 due at the end of each quarter in 2000 for a total of $2,400,000. In
addition, the Company has $9,250,000 in surety bonds to secure its plugging and
abandonment obligations; including a $4,100,000 bond which was provided to the
original sellers of the West Delta Properties; a $2,400,000 supplemental bond
provided to the Minerals Management Service of the U.S. Department of the
Interior in connection with the plugging and structure removal obligations for
the Company's East Breaks Block 110 Platform and a $300,000 Pipeline
Right-of-Way Bond.
Despite a 22% decrease in production and a net loss of $2,000,000 in
1996, strong product prices contributed significantly to cash flows provided by
operations of $8,000,000. While 1995 prices were lower, record production offset
this decrease, providing cash flows of $8,400,000 in 1995.
In 1996, the Company sold its Bayou Sorrel Field for $9,000,000 in cash
and 477,612 shares of National Energy Group, Inc. common stock. The Company made
$51,000,000 in capital expenditures (including issuing 2,000,000 Common Shares
to Amoco Production Company) in 1996, primarily for the Amoco Acquisition in
October and $4,000,000 to repair and rebuild Tank Battery #3 in the West Delta
Fields. The 1995 capital expenditures of $22,000,000 included the Zapata and
Bayou Sorrel Field acquisitions and $8,000,000 in exploratory drilling costs.
Along with increasing capital expenditures, the Company's borrowings
have also increased each year since 1994. Borrowings increased in 1996 to fund
capital expenditures, which included the repair and rebuilding of Tank Battery
#3 in West Delta. The explosion and fire, which necessitated the repair and
rebuilding, decreased discretionary cash flows, limiting the Company's ability
to repay long-term debt. The repayments in 1996 include $4,000,000 repaid
through April with cash provided by operations and $6,000,000 from the cash
proceeds from the sale of the Bayou Sorrel Field. The Company received cash and
increased stockholders' equity by $1,800,000 in 1996, $3,200,000 in 1995 and by
$5,000,000 in 1994 by virtue of the exercise of stock options and warrants.
Capital Spending
In 1996, the Company made $51,000,000 in total capital expenditures,
including (1) $40,400,000 on the purchase of oil and natural gas assets from
Amoco Production Company, which included $8,400,000 of the Company's common
stock, (2) $4,000,000 for repair and rebuilding of the West Delta Tank Battery
#3, net of insurance reimbursements, and (3) $4,700,000 for development of its
oil and natural gas properties. The majority of the development costs were
incurred to drill two unsuccessful development wells in the Bayou Sorrel Field
and for the Company's share of successfully recompleting two wells on Eugene
Island Block 372, which is operated by Unocal Corporation.
Results of Operations
<PAGE>
Production. Natural gas production decreased 31% to 6,788,000 Mcf in
1996 from 9,850,000 Mcf in 1995. Natural gas production from West Delta
decreased from 7,825,000 Mcf in 1995 to 2,058,000 Mcf for the same period in
1996, primarily a result of the explosion and fire on April 24, 1996. A
secondary factor in the decrease in West Delta production was a decline in 1996
production from four horizontal wells drilled in 1994. These four wells produced
more natural gas in January to April, 1995 than they did for the same period in
1996 (in the period prior to the explosion and fire). Natural gas production,
primarily from the Zapata and the Amoco Properties, and the Bayou Sorrel Field
(primarily an oil field), somewhat offset the decrease in West Delta production.
The increase in Zapata production realized by the Company is due to the fact
that they were acquired on July 26, 1995. The production from these properties
included in the year ended December 31, 1995 is only from July 27 to December
31, while the production for the full year is included in 1996. The Zapata
acquisition was the primary factor in natural gas production increasing 21% to
9,850,000 Mcf in 1995 over 1994.
Oil production from the West Delta Fields also decreased for the year
ended December 31, 1996 when compared to the same period in 1995, from 132,000
Bbls to 57,000 Bbls. However, as with natural gas, acquisitions offset the
decrease from West Delta. The Bayou Sorrel Field, which produces primarily oil,
produced 93,000 Bbls in 1996 which, along with the Amoco Properties, had no oil
production realized by the Company in 1995, more than offsetting the decrease
from West Delta. Also, oil production from the Zapata Properties is included for
the full year in 1996, with only the period of July 27 to December 31 included
in the same period of 1995, due to the July 26 acquisition date, also offsetting
the decrease from West Delta. These factors resulted in a 62% increase in oil
production, from 170,000 Bbls in 1995 to 276,000 Bbls in 1996. Oil production in
1995 increased 24% over 1994, also primarily as a result of the Zapata
acquisition in July 1995.
On an Mcf equivalent basis, total oil and natural gas production decreased
22% in 1996 when compared to 1995, and increased 21% in 1995 over 1994.
Prices. Natural gas prices increased in 1996 to $2.75 per Mcf compared
to $1.58 in 1995. The Company entered into a natural gas swap agreement
beginning January 1, 1996 for the sale of 15,000 MMbtu of natural gas each day
in 1996, with contract prices ranging from $1.75 per MMbtu to $2.25 per MMbtu. A
swap loss for the year ended December 31, 1996 of $3,900,000, decreased the net
price received by the Company to $2.17 per Mcf for the year. Natural gas prices
dropped to $1.58 in 1995 from $1.88 in 1994, offsetting most of the benefit from
increased production in 1995.
Oil prices also increased, from $15.35 per Bbl in 1994 to $16.78 per Bbl in
1995 and to $19.42 per Bbl in 1996.
During 1996, the Company hedged the price of natural gas by selling the
equivalent of 15,000 MMbtu per day for 1996 at fixed prices which ranged from a
high of $2.25 in January to a low of $1.75 in July. When the closing price
(settlement price) on NYMEX for natural gas futures was greater than the swap
price for a given month, the Company paid that difference to the bank which
effected the swap. If the settlement price was less than the swap price the bank
paid that difference to the Company. By entering into the swap in December 1995,
the Company locked in the fixed prices on 15,000 MMbtu per day for each month in
1996. Since the Company sells its natural gas on the spot market, in 1996 it
realized prices which approximated the settlement prices on NYMEX, less
differences for transportation due to pipeline locations that are varying
distances from Henry Hub, Louisiana which is the delivery point used for natural
gas futures on NYMEX. Starting in 1997 the Company's hedge transactions on
natural gas are based upon published gas pipeline index prices and not the
NYMEX. This change has eliminated the possibility of price differences due to
transportation. For 1997, 14,000 MMbtu's per day have been hedged, at a swap
price of $1.80 per MMbtu for 1997, with varying levels of participation (93% in
January of 1997 to 40% in September) in settlement prices above to $1.80 per
MMbtu swap price level. The Company has hedged 10,000 MMbtu per day in 1998 and
7,000 MMbtu per day in 1999, all at an average pipeline index swap price of
$1.89 per MMbtu. Management has generally used hedge transactions to protect its
cash flows when the Company's borrowings under long-term debt have been higher
and refrained from hedge transactions when long-term debt has been lower. For
accounting purposes, gains or losses on swap transactions are recognized in the
production month to which a swap contract relates.
<PAGE>
"Oil and natural gas sales" increased 8% for the year ended December
31, 1996 when compared to the year ended December 31, 1995, in spite of the
explosion and fire at West Delta. The fire and explosion substantially reduced
oil and natural gas production for 1996, as production from the West Delta
Fields was shut-in from the day of the explosion and fire (April 24, 1996) until
October 7, 1996. However, the decrease in production from West Delta was offset
by production from properties acquired. The Amoco Properties, acquired on
October 8, 1996, and the Bayou Sorrel Field, acquired on December 28, 1995 had
no production realized by the Company in 1995. The offshore properties of Zapata
Exploration Company were acquired on July 26, 1995 with the production from
these properties being included in the Company's results of operations from July
27 through December 31, 1995. Although production increased in 1995 over 1994,
primarily due to the acquisition of the Zapata Properties in July 1995, a drop
in natural gas prices offset most of the benefit of the increased production.
"Depletion, depreciation and amortization expense" increased 12% in
1996 despite the reduced production from the West Delta Fields (See the
discussion of production volumes in "Oil and Gas Revenue"). While the production
from properties acquired accounted for a part of the 12% increase, depletion,
depreciation and amortization per Mcf equivalent also increased, from $0.74 in
1995 to $1.07 in 1996, due to year-end 1996 engineering revisions from Ryder
Scott on the West Delta and East Breaks 109 Fields, and production from the
Amoco Properties in the fourth quarter of 1996, which had higher depletion rates
per Mcf equivalent than previously owned properties. The 34% increase in 1995
was also a result of the Zapata acquisition for $2,700,000 and an increase in
production, bringing about an increased rate of depletion.
"Lease operating expense" increased $422,000 in 1996 primarily due to
the Amoco, Zapata and Bayou Sorrel Field acquisitions. With the Zapata
Properties, the Company acquired interests in five offshore producing
properties. Since the acquisition of the Zapata Properties closed on July 26,
1995, only the lease operating expenses from July 27, to December 31, 1995 are
included in the 1995 results of operations, while the 1996 period includes these
expenses for the full year. 1996 also includes eight months of lease operating
expenses for the Bayou Sorrel Field (sold September 1) and almost three months
(October 8 - December 31) of the Amoco Properties, with none of these expenses
included in 1995. West Delta lease operating expenses did decrease in 1996
($805,000 from expected levels) with the fields being shut-in from April 25
through October 7, however, a part of these lease operating expenses are fixed
in nature and continued. These expenses increased significantly in 1995 over
1994 by (1) $1,008,000 related to the acquisition of the Zapata Properties in
July which added interests in six offshore platforms and 44 wells, (2)
$1,105,000 of additional operating expenses on the West Delta Properties
required to maintain production from some of the more rapidly declining wells,
and (3) $711,000 of expensed items which might have otherwise have been
capitalized.
"Production and ad valorem taxes" decreased to 2.8% of oil and natural
gas sales in 1996 from 5.8% of oil and natural gas sales in 1995.The decrease is
primarily due to the shift in the Company's production volumes from properties
subject to severance taxes to properties in federal offshore waters (the Amoco
and Zapata Properties) that are not subject to such taxes. A part of the
decrease ($178,000 from expected levels) is also due to the lost production from
the West Delta Properties for 67 days in the second quarter and the entire third
quarter due to the explosion and fire. A large percentage of this production is
in Louisiana State waters which are subject to severance taxes.
"Exploration expense" in 1995 consisted of dry hole exploratory costs
of $796,000 on Eugene Island Block 50, $1,378,000 on South Timbalier Block 33,
(both drilled during the second quarter of 1995), and $5,938,000 on West Delta
Block 54 (drilled during the fourth quarter of 1995).
<PAGE>
"Provision for losses (gains) on disposition and write-downs of assets" in
1995 was related to the group of onshore properties, acquired in the early
1980's which were becoming a less significant part of its operations.
"West Delta fire loss" is the expense of the explosion and fire at Tank
Battery # 3, the central processing facility for the West Delta Fields. Included
in this expense are the insurance deductibles and the cost of non-reimbursed
expenditures which were not capitalized.
"Unrealized gain (loss) on investment in common stock" in 1996 was a
result of a decrease in the market value at December 31, 1996 of 477,612 shares
of National Energy Group, Inc. common stock received in connection with the sale
of the Bayou Sorrel Field.
"Net operating income (loss)" increased significantly in 1996 as a
result of the $8,100,000 exploration expenses and the $751,000 onshore property
write-down incurred in 1995. Of the $8,100,000 in exploration expenses in 1995,
$5,900,000 was incurred in the fourth quarter in the drilling of a dry
exploratory well in West Delta Block 54. The $5,900,000 exploration expense,
along with the $751,000 property write down, also incurred in the fourth
quarter, were the primary contributors to the net operating loss of $8,300,000
in 1995.
"Interest expense (net)" increased $1,500,000, or 155% in 1996 when
compared to 1995. Average Long-Term Debt levels increased from $11,000,000 in
1995 to $28,000,000 for 1996, resulting in the primary cause of the increase in
interest expense. On December 27, 1995 the Company borrowed $10,000,000 in
connection with the Bayou Sorrel Field acquisition. Through April, 1996, the
Company had begun to aggressively reduce Long-Term Debt, and it had reduced it
by $4,000,000. The April 24th explosion and fire at West Delta reduced the
Company's discretionary cash flows and restricted the Company's ability to
continue to lower its Long-Term Debt. On October 8, 1996, the Company completed
its acquisition of oil and natural gas assets from Amoco Production Company. The
cash portion of the $40,400,000 purchase price ($32,000,000) was funded by
Long-Term Debt. The Company borrowed $17,000,000 from lenders advised by Kayne,
Anderson Investment Management, Inc., bearing interest at 12%. The remaining
$15,000,000 in cash paid to Amoco was funded under the Company's bank facility,
bearing interest at approximately 7.25%. These were the primary factors in the
Company's average borrowing levels being higher in 1996 versus 1995. The
weighted average interest rate incurred in 1996 was 8.9%, relatively flat with
the 8.6% in 1995. The decrease in interest expense in 1995 from 1994 was a
result of the lower average Long-Term Debt levels that prevailed throughout most
of the year.
Sale of Bayou Sorrel Field
<PAGE>
Effective September 1, 1996, the Company sold its Bayou Sorrel Field to
National Energy Group, Inc. for $9,000,000 in cash and 477,612 shares of
National Energy Group, Inc. common stock. The Company also retained an
overriding royalty interest in the deep rights of the field for depths below
11,000'. The field was acquired by the Company from Shell Western E.P., Inc. for
$10,500,000 on December 28,1995, which included a broker's fee and a related
receivable. During the eight months the Company owned the field two wells were
drilled which did not result in production in commercial quantities. The Company
received an offer to purchase the field. After having made the Amoco
Acquisition, Management believed that the Company's resources could be better
utilized elsewhere. The effective date of the sale was September 1, 1996, the
date at which National Energy Group, Inc. assumed all benefits and liabilities
of owning the property. The Company did not record a gain or loss on the sale.
For the year ended December 31, 1996, the Bayou Sorrel Field accounted for
$2,000,000, or 10% of the Company's total oil and natural gas revenue. The Field
had also accounted for $733,000, or 9% of lease operating expenses, $888,000, or
10% of depreciation, and amortization and $239,000 or 43% of production and ad
valorem taxes. The net results of the field contributed $150,000 to operating
income, or 20%. The purchase price was paid in cash, borrowed on the Company's
Bank Facility. The estimated interest expense incurred in 1996 by owning the
field totaled $588,000. The operating income of the field and interest expense
incurred resulted in a decrease in net income of $438,000.
For the years ended December 31, 1994 - December 31, 1992
Liquidity and Capital Resources
Cash flow from operations was used to reduce Long-Term Debt, drill
wells, recomplete wells and acquire properties.
On July 1, 1994, the Company entered into a Credit Agreement with the
First Union National Bank of North Carolina. The loan was a reducing revolver
designed to provide the Company up to $30,000,000 depending upon the Company's
borrowing base. The principal amount of the loan was due July 1, 1998.
During the last part of 1993, the Company increased Stockholders'
Equity $1,163,000, primarily by virtue of options and warrants being exercised.
During 1994, the Company increased Stockholders' Equity $5,023,000, primarily as
the result of such exercises of options and warrants. At year-end 1993, the
Company issued the 1993 Subordinated Notes. The Company utilized this
$5,000,000, along with equity proceeds and cash flow from operations described
above, to drill the wells and perform the recompletions in 1994 and 1995.
Capital Spending
During 1994, the Company spent over $11,749,000 on eight offshore
recompletions and the drilling of four horizontal wells. The 1994 capital
expenditures were primarily for developmental work in the West Delta Fields. All
four horizontal wells and all eight recompletions in 1994 were successful and
offshore natural gas production increased significantly.
Results of Operations
Production. The West Delta Fields were purchased in 1991. For 1992 and
1993, production for the Company remained relatively flat. Mcf equivalent
production was 6,855,000 in 1992 and 6,666,000 in 1993. In 1994, the Company
drilled four successful horizontal wells in the West Delta Fields, substantially
increasing production to 8,961,000 Mcf equivalent in that year.
In 1994, the Company sold 137,000 Bbls of oil for an average of $15.35 per
Bbl accounting for 12% of oil and natural gas revenue.
Prices. The average natural gas price received by the Company has
fluctuated but generally followed the trend of national gas prices. Gas revenue
increased as a percentage of the Company's revenue from 75% in 1992 to 88% in
1994. While production reached a record high in 1994, natural gas prices dropped
to a low for the three-year period of $1.88 per Mcf from $2.24 in 1993 and $1.92
in 1992.
In 1993, oil was 24% of such revenue with 180,000 Bbls at an average price
of $16.68. In 1992, oil was 25% of such revenue with 174,000 Bbls at an average
price of $19.41.
From time to time, the Company has entered into natural gas hedging
agreements which have the effect of raising or lowering the price it receives
for natural gas. In 1992, a contract loss of $1,100,000 lowered the average
price received per Mcf by $.19 to $1.73. In 1993, a contract loss of $3,000,000
lowered the average price received per Mcf by $.52 to $1.72.
<PAGE>
A large part of the changes affecting most operating accounts in 1992
was due to West Delta being operated for twelve months compared with only seven
months in 1991.
"Oil and natural gas sales" during the years ended December 31, 1992
through 1994 has varied due to several factors. The prices of oil and natural
gas have fluctuated widely during the years shown. Oil prices are influenced by
world political events as well as decisions made by OPEC regarding the
production quotas of its members. Prices are further influenced by world
economic conditions which affect industrial output and the need for oil.
"Depreciation, depletion and amortization expense" increased in 1994
due to the 1994 drilling and rework program increasing capitalized cost and the
34% increase in production. The expense for 1993 remained relatively constant
over 1992 with only a slight decrease due to lower production.
"Lease operating expense" remained relatively flat throughout the three
year period overall. On a Mcf equivalent basis, was lower in 1994 at $.58 per
1994 due to the increased production in that year from $.84 per Mcf equivalent
in 1992 and $.79 per Mcf in 1993.
"Production and ad valorem taxes" increased 33% in 1994 due to
increased production from four horizontal wells drilled in state waters on the
West Delta Properties in 1994.
"Provision for losses (gains) on disposition and write-downs of assets"
in 1993 and 1994 were for the Company's group of onshore properties, acquired in
the early 1980's which were becoming a less significant part of its operations.
"Net operating income (loss)" increase in 1994 was due to the increased
production in that year, along with $2,600,000 lower asset write-downs brought
about the large increase in 1994. The operating income for 1993 decreased due to
lower production, and an asset write-down of $3,800,000.
"Interest expense (net)" decreases of 19% in 1993 and 13% in 1994 were
due to the significant decrease in Long-Term Debt from 1992 levels and the
refinancing of such debt on July 1, 1994 at lower interest rates. The average
debt outstanding in 1994 was $14,000,000 with a weighted average interest rate
of 11.5% versus average debt outstanding of $14,000,000 and a weighted average
interest rate of 14% in 1993. Interest expense in 1992 had increased
significantly because of the debt incurred to acquire the West Delta Properties,
purchased in 1991. The average debt outstanding in 1992 was $17,000,000 with a
weighted average interest rate of 14%.
"Net income (loss) per common share" is based upon the weighted average
number of shares outstanding of 10,039,042 for 1994, 7,583,761 for 1993 and
7,314,041 for 1992.
<PAGE>
BUSINESS AND PROPERTIES
The Company
PANACO, Inc. is in the business of acquiring, drilling and operating
offshore oil and natural gas properties in the Gulf of Mexico and onshore in the
Gulf Coast Region (collectively, the "GOM Region"). The Company is a Delaware
corporation that was organized in October 1991. Effective September 1, 1992, Pan
Petroleum MLP, the Company's predecessor, was merged into the Company. Between
1984 and 1988, this predecessor acquired a total of 114 limited partnerships
engaged in the onshore oil and natural gas business. With the acquisition of the
West Delta Properties in 1991, the Company shifted its emphasis offshore.
Additional offshore properties were acquired in 1994, 1995 and 1996. The Company
has experienced substantial growth as a result of the acquisition of offshore
properties from Amoco (the "Amoco Acquisition") and Gulf Coast properties, both
onshore and in Texas and Louisiana State waters, acquired as part of the
Goldking Companies, Inc. (the "Goldking Acquisition").
The Company's headquarters are located at 1050 West Blue Ridge
Boulevard, PANACO Building, Kansas City, Missouri 64145-1216, and its telephone
number at such offices is (816) 942-6300, FAX (816) 942-6305. The Houston office
is located at 1100 Louisiana, Suite 5110, Houston, Texas 77002-5220, and the
telephone number is (713) 652-5110, FAX (713) 209-0698.
Business Strategy
The Company's strategy is to systematically grow its reserves,
production, cash flow and earnings through a program focused on the GOM Region,
including (i) strategic acquisitions and mergers, (ii) exploitation and
development of acquired properties, (iii) marketing of existing infrastructure
and (iv) a selective exploration program. As a result of the Goldking
Acquisition, the Company has a substantial inventory of development and
exploration projects that provide significant additional reserve potential. The
key elements of the Company's objectives are outlined as follows:
Strategic Acquisitions and Mergers
The Company has a defined acquisition strategy which focuses its
efforts on GOM Region properties that have a backlog of development and
exploitation projects, significant operating control, infrastructure value and
opportunities for cost reduction. The properties the Company seeks to acquire
generally are geologically complex with multiple reservoirs, have an established
production history and are candidates for exploitation. Geologically complex
fields with multiple reservoirs are fields in which there are multiple
reservoirs at different depths and wells which penetrate more than one reservoir
and have the potential for recompletion in more than one reservoir. In pursuing
this strategy, the Company identifies properties that may be acquired,
preferably through negotiated transactions or, where appropriate, sealed bid
transactions. Once properties are acquired, the Company focuses on reducing
operating costs and implementing production enhancements through the application
of technologically advanced production and recompletion techniques.
<PAGE>
Over the past seven years, the Company has taken advantage of opportunities
to acquire interests in a number of producing properties which fit its
acquisition strategy. The historical success of the Company's acquisition
strategy is illustrated below:
<TABLE>
<CAPTION>
Cumulative Cumulative
Purchase Purchase Capital Cash SEC
Acquisition Seller Date Price Expenditures(a) Flow(b) PV- 10(c)
- --------------- ----------- -------- ------- -------------- ---------- -------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
West Delta(d) CATO(e) May 1991 $ 19.6 $ 18.3 $ 48.6 $ 16.4
Zapata Properties Zapata Jul 1995 2.7(f) 0.7 11.6 10.6
Bayou Sorrel(g) Shell Western Dec 1995 9.9 3.4 1.3 N/A
Amoco Properties Amoco Oct 1996 40.4 5.7 7.7 50.4
Goldking Shareholders Jul 1997 27.5(h) -- -- 40.0
- ---------------
(a) Excludes exploration expenses for each acquisition subsequent to the date of acquisition.
(b) Defined as net revenues less direct operating expense.
(c) As of September 1, 1997.
(d) Excludes $4.0 million for repair of Tank Battery #3 in the West Delta Fields.
(e) Conoco, ARCO, Texaco and Oxy.
(f) Excludes a production payment and fee sharing agreement with the seller.
(g) The Company sold the Bayou Sorrel Field September 1, 1996 for $11.0 million.
(h) Excludes debt of Goldking of $14.3 million.
</TABLE>
While the Company tends to focus on acquisitions of properties from
large integrated oil companies, it evaluates a broad range of acquisition and
merger opportunities. The Company has assembled a staff, complemented by the
Goldking Acquisition, with significant technical experience in evaluating,
identifying and exploiting GOM Region properties. In addition, the Company is
regarded in the industry as a competent buyer with the proven ability to close
transactions in a timely manner. Based on these factors, the Company is usually
asked to bid on significant producing property sales in the GOM Region.
Exploitation and Development of Acquired Properties
The Company has a substantial, diversified inventory of exploitation
projects including development drilling, workovers, sidetrack drilling,
recompletions and artificial lift enhancements. As of September 1, 1997, on a
pro forma basis, 28% of the Company's total Proved Reserves were classified as
Proved Undeveloped Reserves. The Company uses advanced technologies where
appropriate in its development activities to convert Proved Undeveloped Reserves
to Proved Developed Producing Reserves. These technologies include horizontal
drilling and through tubing completion techniques, new lower cost coiled tubing
workover procedures and reprocessed 2-D and 3-D Seismic interpretation. All of
the identified capital projects can be completed with the Company's existing
platform and pipeline infrastructure, thereby substantially improving project
economics.
Marketing of Existing Infrastructure
<PAGE>
Along with its purchase of producing properties, the Company has acquired
significant platform, pipeline and processing equipment infrastructure. The
Company has interests in 22 offshore platforms and 69 miles of offshore oil and
natural gas pipelines with diameters of 10" or larger. To enhance the value of
these assets, the Company has aggressively marketed this infrastructure to
operators and leasehold owners in adjacent fields. The Company currently has
pipeline and processing agreements relative to its West Delta Fields, East
Breaks 109 Field and the East Breaks 160 facilities. The annual revenue received
from these contracts for use of the Company's infrastructure currently totals
$2.5 million, which is accounted for as a reduction of lease operating expense.
The location of the East Breaks facilities is strategic to any deepwater
development in the area, and the replacement costs of the platforms, processing
facilities and pipelines exceed $100 million. As a result of the prohibitive
development costs, any operators with discoveries in the surrounding deepwater
area will have the incentive to use the Company's East Breaks facilities, thus
increasing the revenue potential of these platforms and pipelines and extending
their economic life significantly.
Selective Exploration Program
The Company participates in selective exploration projects for exposure
to additional reserve potential. The Company has farmed out the deep rights in
West Delta Blocks 52 through 56 to Ocean Energy, Inc. (formerly Flores & Rucks,
Inc.) in exchange for a new 3-D Seismic survey over these five Blocks and the
option to retain a 12.5% overriding royalty interest or a 50% working interest
in any proposed deep exploration wells. In addition, through the Goldking
Acquisition, the Company acquired an inventory of 15 diversified exploratory
drilling prospects with varying risk profiles. The Company plans to devote a
portion of its capital expenditure budget to drill exploratory wells.
Company Strengths
The Company believes it has strengths, as outlined below, that provide a
solid base for continued growth and value creation.
Geographic Focus
The Company's reserve base is focused primarily in the GOM Region which
has historically been the most prolific basin in North America. The GOM Region
accounts for approximately 25% of the natural gas production in the United
States and continues to be the most active region in terms of capital
expenditures and new reserve additions. Because of upside potential, high
production rates, technological advances and acquisition opportunities, the
Company has focused its efforts in this region. The Company believes it has the
technical expertise and infrastructure in place to take advantage of the
inherent benefits of the GOM Region. In addition, as the integrated oil
companies move to deeper water, the Company believes it will continue to be well
positioned to use its expertise to acquire and exploit GOM Region properties.
High Quality Reserve Base
Two of the Company's largest properties, the West Delta Fields and
Umbrella Point Field, are prolific fields with total cumulative production of
one Tcf of natural gas and 50 MMbbls of oil. These fields typify the Company's
focused GOM Region asset base with multiple pay horizons and significant
recompletion and workover potential. Both fields were developed without the
benefit of 3-D Seismic and the Company is currently in the process of acquiring
and applying 3-D Seismic technology to identify additional potential. The
majority of the Company's properties have multiple reservoirs providing a
diverse set of opportunities for production rate acceleration and value
enhancement. The number of potential reservoirs also reduces the risk associated
with determining remaining reserves and forecasting future production from the
properties.
Substantial Inventory of Exploitation and Development Projects
The Company has identified over 17 development drilling locations and
over 72 recompletion and workover opportunities. The Company believes that the
majority of these opportunities have a moderate risk profile and could add
incremental reserves and production. In addition to these identified
opportunities, the Company believes that with the use of 3-D Seismic technology,
additional potential may be exploited in the known reservoirs as well as deeper
undrilled horizons.
<PAGE>
Application of Advanced Technologies
The Company has been successful historically due to its extensive use of
3-D Seismic, horizontal drilling and coiled tubing technologies. As a result of
its acquisitions, the Company has an extensive seismic database with a total of
2,424 linear miles of 2-D Seismic data and 186 square miles of 3-D Seismic data.
The Company was also among the first offshore operators to drill and complete
successful horizontal wells offshore. The Company has drilled a total of four
horizontal wells in the West Delta Field and has identified several
opportunities to apply this technology and expertise to the Goldking Properties.
The Company applies coiled tubing technology where applicable to decrease
workover costs and avoid using drilling rigs for recompletions. The Company uses
existing inactive wellbores whenever possible to sidetrack drill to decrease
costs and receive production tax benefits where applicable. Also, the Company
has performed the less costly through tubing recompletions in several of its
existing fields.
Significant Operating Control
The Company operates 55% of its properties as measured by SEC PV-10
value. This level of operating control benefits the Company in numerous ways by
enabling the Company to (i) control the timing and nature of capital
expenditures, (ii) identify and implement cost control programs, (iii) respond
quickly to operating problems and (iv) receive overhead reimbursements from
other working interest owners. In addition to significant operating control, the
geographic focus of the Company allows it to operate a large value asset base
with relatively few employees, thereby decreasing lease operating expense on a
unit of production basis. The Company believes that as the Goldking Properties
are integrated into the Company's operating structure the operating costs, on a
unit of production basis, will be further reduced.
Experienced Management
The Company's eleven officers have an average of over 20 years of oil
industry experience. The management team has diverse experience including
backgrounds in geology and engineering, environmental and regulatory compliance,
securities law and accounting and tax matters. In addition, the technical staff
have spent the majority of their careers focusing on the GOM Region and are
highly familiar with the basin and current operations.
Goldking Acquisition
Effective July 31, 1997, the Company acquired Goldking, a
privately-owned, Houston-based oil and natural gas company. Through this
acquisition, the Company obtained estimated additional Proved Reserves of 37.7
Bcfe from 234 wells located primarily in Texas and Louisiana, both onshore and
in State waters. Goldking also has a sizeable portfolio of exploration prospects
developed using 3-D Seismic data, an extensive development program and a staff
of seventeen people experienced in Gulf Coast oil and natural gas operations. As
part of the transaction, the Company also acquired three pipelines totaling 19
miles in length. The acquisition provides the Company with attractive
development opportunities in the currently active Lower Frio/Vicksburg play in
Trinity Bay, Chambers County, Texas.
The Company acquired Goldking by merging its corporate parent, The Union
Companies, Inc. ("Union") into Goldking Acquisition Corp., a newly-formed,
wholly-owned subsidiary of the Company. The individual shareholders of Union
received merger consideration consisting of $7.5 million in cash, $6.0 million
in notes and 3,154,930 Company Common Shares, valued for purposes of the
transaction at $14.0 million. Goldking's debt at the time of the merger was
approximately $14.3 million. Goldking is a holding company which owns directly
or indirectly all of the capital stock of its operating subsidiaries Goldking
Oil & Gas Corp., Goldking Trinity Bay Corp., Goldking Production Company, Hill
Transportation Co., Inc. and Umbrella Point Gathering, L.L.C. (together with
Goldking and Goldking Acquisition Corp., the "Subsidiary Guarantors").
<PAGE>
Properties
The Company's primary producing properties are located along the Gulf Coast
in Texas and Louisiana and offshore in the federal and state waters of the Gulf
of Mexico. In addition to these primary properties, the Company owns interests
in 508 onshore wells, which in the aggregate account for 12.4% of the Company's
total SEC PV-10 value. The following table sets forth certain information with
respect to the Company's significant properties as of September 1, 1997. These
properties represent 85% of the aggregate SEC PV-10 value of the Company.
<TABLE>
<CAPTION>
Field Working Total Proved % of
_____________ Interest Wells Operator Reserves SEC PV-10 Total SEC
_______ ______ __________ ___________ Value (000s) PV-10
MBbls Bcf ____________ ________
------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
East Breaks 160 33.3% 15 Unocal 1,136 9.7 $ 25,457 21%
Umbrella Point 100% 18 PANACO 1,788 16.1 24,493 20%
High Island 309 50% 17 Coastal 271 12.8 23,532 19%
West Delta 100% 36 PANACO 328 10.5 16,391 14%
East Breaks 109 100% 10 PANACO 7 4.9 8,870 7%
Cheniere Perdue 17-51% 8 PANACO 237 1.5 4,317 4%
--- - ------ ----- ------- ------- --
Total 104 3,767 55.5 $ 103,060 85%
</TABLE>
East Breaks 160 Field
The Company acquired a 33.3% interest in this field as part of the Amoco
Acquisition in October 1996. The field consists of two federal offshore blocks,
East Breaks 160 and 161, with a production platform set in 925' of water placing
this production facility on the edge of deep water. The field is operated by
Unocal and production is from 12 separate reservoirs. Unocal acquired
proprietary 3-D Seismic over the field in 1990 and has identified the
undeveloped locations. The Proved Developed Producing Reserve value is
proportionately dispersed among eleven producing wells decreasing the risk to
some degree. The undeveloped locations included are based on seismic
interpretation of attic reserves. A rig is currently being mobilized to the
field and a recompletion should commence in the fourth quarter of 1997. The
facility also receives processing fees from Mobil Oil Corp. related to a subsea
well drilled in Block 117. Because of the strategic location of the platform on
the edge of deepwater, the facility has potential for additional processing and
handling fees as more nearby discoveries are made and tied into the platform. In
addition to the property interests acquired, the Company purchased a 33.3%
interest in a 12.67 mile 12" natural gas pipeline connecting the East Breaks
Block 160 platform to the High Island Offshore System ("HIOS") a natural gas
pipeline system in the Gulf of Mexico and a 33.3% interest in a 17.47 mile 10"
oil pipeline connecting the platform to the High Island Pipeline System
("HIPS"), a crude oil pipeline system in the Gulf of Mexico. Currently such
firms as Exxon, Reading and Bates and Santa Fe Energy are actively exploring in
the East Breaks Area and the Company believes that, due to the ongoing deepwater
exploration in the Area, the Company's platform and pipelines will become long
term strategic revenue generating assets after the field reserves are depleted.
Umbrella Point Field
Since its discovery in 1957 by Sun Oil, the Umbrella Point Field has
produced over 17 MMbbls of oil and 100 Bcf of natural gas from 35 wells. The
Company owns 100% of the working interest in Texas State Leases 73,74,87 and 88
in Trinity Bay, Chambers County, Texas, that encompass the field. Field
production is gathered on a small platform complex in approximately 10' of water
and transported via a Company owned 5 mile oil pipeline to the Company's onshore
production facility at Cedar Point. Gas production is transported through a
Vintage Petroleum owned gathering system.
<PAGE>
The Umbrella Point Field consists of multiple stacked reservoirs.
Production is from 13 main reservoirs from 7,700' to 9,000'. Prior to Goldking's
control of the field, it was developed and produced by two different operators
each controlling two state leases which created a competitive drainage
situation. This situation resulted in several reservoirs that were abandoned
prematurely as the former operator tried to accelerate production in uphole
reservoirs. Consequently, significant development work remains to sufficiently
drain the abandoned reservoirs. Proved Developed Producing Reserves make up 21%
of the reserve value and are based on significant production history. The Proved
Developed Non-Producing Reserves make up another 10% of the field value and are
primarily related to reactivation of shut-in wells and increasing the total
fluid rates in the larger producing reservoirs. The Proved Developed Reserves
behind pipe reserves comprise 6% of the field value and are attributed to
classic recompletion scenarios. The remaining 63% of the field value is
attributable to three Proved Undeveloped locations which were identified using a
recently acquired 3-D Seismic survey. Due to the complex nature of the field,
the Company believes that continued analysis of the 3-D Seismic, with
correlation to well production and well log data, will reveal numerous drilling,
workover and recompletion opportunities.
High Island 309 Field
The Company purchased its interest in the High Island Block A-309 Field
from Amoco in October of 1996 and has a 50% working interest. The field consists
of the High Island blocks A-309 and A-310 in approximately 200' of water.
Production is from three faulted anticlines with 18 productive reservoirs.
Coastal Oil and Gas Corp. operates this property and has conducted an evaluation
of reprocessed proprietary 3-D Seismic surveys resulting in significant drilling
activity in 1997. The Company has announced the following 1997 results: four new
wells have been drilled, three of which have been successful; four existing
wells have been sidetracked into new formations, all successfully; and three
existing wells have been the subject of workovers, all of which have been
successful. The field is currently producing 56 MMcf per day of natural gas and
1,100 Bbl per day of condensate compared to 15 MMcf per day and 6 Bbl per day of
condensate at the beginning of 1997. The Company believes that continued review
of the 3-D Seismic will result in additional drilling through 1998.
West Delta Fields
These properties consist of 13,565 acres in Blocks 52 through 56 and Block
58 in the West Delta Area, offshore Louisiana. The West Delta Properties were
acquired from Conoco, Inc., Atlantic Richfield Company (now Vastar Resources,
Inc.), OXY USA, Inc. and Texaco Exploration and Production, Inc. in May 1991.
The Company has an 87.5% net revenue interest in the field, subject to a
5% net profits interest on the shallower reservoirs in favor of the Company's
former lenders and a 4.166% overriding royalty interest on the deeper reservoirs
in favor of Conoco and OXY. The Company is the operator and generally owns 100%
of the working interest in these wells. Presently, the properties have 36 wells,
five of which were recently drilled, which produce from depths ranging from
1,200' to 12,500'. Because of the existing surface structures and production
equipment, additional wells can be added on the properties with lower completion
costs.
<PAGE>
The main production facility on the West Delta properties is a four
platform complex designated as Tank Battery #3. There are three ancillary
platforms and one three well production platform in the eastern portion of the
properties connected to Tank Battery #3. In the western portion there is one
production platform designated as Platform "D" in Block 58, with three wells.
The remaining 30 wells are located on satellite structures connected to Tank
Battery #3 or one of its ancillary platforms. Eight wells produce oil and
natural gas, with the remaining wells producing only natural gas. In 1997 the
Company replaced the pipeline connecting "D" Platform in Block 58 with Tank
Battery #3 in Block 54 with two new 6" pipelines, and installed a new 4"
pipeline connected "C" Platform with "D" Platform.
The field is characterized by multiple reservoirs with significant
workover and recompletion potential. Proved producing reserves are based on an
established consistent production history. The behind pipe reserves are
generally uphole recompletions with reserves based on volumetric estimates.
Currently there are no Proved Undeveloped Reserves assigned to the field. The
Company has been historically successful increasing rates and reserves through
the use of horizontal wells and coiled tubing operations. In 1994 the company
drilled 4 horizontal wells in the field increasing production 34% and
accelerating reserves. The Company is also using coiled tubing technology with
increasing frequency to avoid costly rig workovers.
The Company has farmed out the deep rights in West Delta Blocks 53
through 56 to Ocean Energy, Inc. (formerly Flores & Rucks, Inc.) which has
committed to fund a new 3-D Seismic survey. The Company retains all presently
producing reservoirs and shallow horizons. The Company will have the option of
retaining a 12 1/2% overriding royalty interest or participating up to 50% as a
working interest owner in any wells drilled by Ocean Energy. Due to the
complexity of the geology and the long history of production, the Company
believes that the evaluation of the 3-D Seismic over the produced reservoirs
will create significant additional development and exploitation opportunities.
In addition the Company believes that evaluation of the deeper potential by
Ocean Energy will create exploration opportunities with the Company having the
option to limit capital exposure.
During 1994 the Company farmed out the deep rights (below 11,300') to an
1,875 acre parcel in Block 58 and sold "C" Platform to Energy Development
Corporation which drilled a successful well to 16,500'. Production commenced in
April, 1995. The Company has a 15% overriding royalty interest in that acreage.
The well is currently producing 10,000 Mcf per day and 700 Bbls of condensate
per day. Energy Development Corporation was subsequently acquired by Samedan Oil
Corporation.
The Company generated a prospect in the northern portion of West Delta
Block 58 using 3-D Seismic, which it farmed out to Tana Oil & Gas Corporation in
1996. Tana drilled a successful well to 12,800' which encountered 85' of net pay
and is producing 14,750 Mcf per day. The Company retained a 5.833% overriding
royalty interest in the farmout which is convertible to a 25% working interest
at payout, expected in the fourth quarter of 1997.
In connection with the acquisition of the West Delta offshore properties
the Company provides the sellers with a $4,100,000 plugging and abandonment bond
collateralized in part with a bank escrow account. See "The Company - Plugging
and Abandonment Escrows".
East Breaks 109 Field
The Company acquired a 100% interest in the East Breaks 109 Field from
Zapata in July of 1995. The field consists of East Breaks Blocks 109 and 110.
The Company operates this field which produces from six wellbores. There are no
proved behind pipe or undeveloped reserves associated with the field. Over 93%
of the field value is in the A-2 well completed in the TW-3 sand. This well is
the last remaining producer in a large reservoir that has produced over 50 BCF.
Due to the significance of the well, the Company has spent significant time
evaluating the reserves using several methodologies. The A-2 well is currently
making approximately 4,500 Mcf per day with no reported water production.
<PAGE>
In addition to the mineral interests acquired, the Company purchased
the 100% interest in a 31 mile 10" natural gas pipeline connecting the East
Breaks 110 platform to the High Island Offshore System and a 22 mile 4" oil
pipeline which connects the East Breaks 110 platform with the High Island
Pipeline System. The HIOS and HIPS systems are the primary oil and natural gas
pipelines in this region of the Gulf of Mexico.
The Company's East Breaks 110 platform has significant excess capacity
for both crude oil and natural gas. Prior to the Company acquiring the property,
Zapata had entered into a Facilities Sharing Agreement with AGIP Petroleum
Company, Inc. ("AGIP") to operate and process for AGIP's subsea wells in Blocks
112 and 157. Under the agreement AGIP pays certain fees to the Company and split
the cost of operating the East Breaks 110 platform with the Company, based on
each company's proportion of the production. A portion, not to exceed $6
million, of the monies earned pursuant to this agreement are being paid to
Zapata as part of the acquisition of the properties.
The purchase price for the Zapata properties included a production
payment to Zapata based upon future production from the East Breaks 109 Field
after production of 12 Bcfe gross (10 Bcfe net) measured from October 1, 1994.
The Company will pay to Zapata $.4167 per Mcfe on the next 27 Bcfe of gross
production, if that much is produced. The Company's oil and natural gas reserves
are calculated net of this production payment.
Cheniere Perdue Fields
The Company acquired the Cheniere Perdue Fields as part of the Goldking
Acquisition. The Company operates the property, which geologically consists of a
low relief anticline with stacked reservoirs from 8,000' to 10,000'. The field
has a very active water drive. There is not any significant concentration of
value in the producing wells and the reserves are spread over nine active
completions. Behind pipe reserves were assigned to ten sands primarily based on
volumetric calculations considering analogous performance. Proved Undeveloped
Reserves have been identified in the field representing attic gas accumulations.
Due to the complexity of the field, the Company is currently conducting a field
study to determine the most efficient development scenario. The Company believes
that significant development activity will result from the field study findings.
Other Properties
High Island A-302 Field. High Island Block A-302 acquired from Amoco in
1996 is in approximately 200' of water. The Company owns a 33.3% working
interest and Unocal Corporation is the operator. Production is from four
producing horizons on a faulted anticlinal structure. A speculative 3-D survey
was shot in 1991 and processed in 1992. Management believes additional reserves
should be recoverable from two sands which seismic data shows to be undrained by
the existing wells.
High Island A-330 Field. The field consists of three blocks, High
Island A-330, High Island A-349 and West Cameron 613, located in 280' of water.
The Company owns a 12% working interest which it acquired from Amoco in 1996.
Coastal Oil and Gas Corporation is the operator. Three wells were recompleted in
1996. This field produces from a faulted anticline with 24 productive horizons.
Significant upside potential was delineated by a recently shot 3-D Seismic
survey. A well in West Cameron Block 613 has been proposed by the operator for
1998 to offset a field operated by Shell Offshore in Block A-350.
High Island A-474 Field. This field consists of three full blocks in
the High Island Area, A-474, A-489, A-499, and part of Block A- 475. The water
depth is 250' to 285' and Phillips Petroleum Company is the operator. In 1996
the Company acquired from Amoco a 12% working interest in Blocks A-474 and
A-489, a 13.1% working interest in Block A-499, and a 12% working interest in
Block A-475. There are 23 productive horizons in this faulted anticline. A
proprietary 3-D Seismic survey was shot in 1991 and processed in 1993.
<PAGE>
West Cameron 180 Field. This field consists of a single block, West Cameron
144, in 40' of water. Texaco is the operator. The Company acquired its 12.5%
working interest from Amoco in 1996. The producing feature is a north-plunging
faulted anticline that underlies West Cameron Blocks 173 and 180. There are
three productive horizons.
East Cameron Block 359. The Company acquired its 30.7% working interest in
this field from Zapata in 1995. Anadarko Petroleum Corp. is the operator. The
property has eight wells and is in 330' of water.
Eugene Island Block 372. This field was acquired in 1995 from Zapata.
Unocal Corp. is the operator and the Company owns a 25% working interest. The
property has seven wells and is in 414' of water.
South Timbalier 185. The Company acquired this field in 1995 from
Zapata. The Company owns a 7.7% working interest and Louisiana Land &
Exploration Co. is the operator. The property has eleven wells and is in 180' of
water. One of the partners, Hall-Houston Oil Co., has proposed a 14,500'
exploratory well on the block, to be spudded in 1997.
West Cameron Block 538. This field is operated by the Company and it owns a
35.3% working interest. The property was acquired from Zapata in 1995. It has
six wells and is located in 194' of water.
Oil and Gas Information
The following tables set forth selected oil and natural gas information
for the Company, and certain forward looking information about its properties.
Future results may vary significantly from the amounts reflected in the
information set forth herein because of normal production declines and future
acquisitions. See ARisk Factors - Uncertainty of Estimates of Reserves and
Future Net Cash Flows" and "Finding and Acquiring Additional Reserves;
Depletion." The following information on Proved Reserves, future net cash flows
from Proved Reserves and the SEC PV-10 value of such estimated future net cash
flows for the Company's properties as of September 1, 1997 were prepared or
audited by Ryder Scott Co., independent petroleum engineers, and is provided
upon the authority of such firm as an expert with respect to such matters. See
"Experts."
Proved Reserves (a) (b)
The following table sets forth information as of September 1, 1997 as
to the estimated Proved Reserves attributable to the Company's properties.
Oil and liquids (Bbl):
Proved Developed Reserves ...........3,227,185
Proved Undeveloped Reserves..........1,412,323
Total Proved Reserves...........4,639,508
Natural gas (Mcf):
Proved Developed Reserves ..........48,440,663
Proved Undeveloped Reserves.........18,027,300
Total Proved Reserves..........66,467,963
- -------------
(a) Calculated by the Company in accordance with the rules and regulations of
the SEC, based upon September 1, 1997 prices of $19.50 per Bbl of oil and
$2.41 per Mcf of natural gas, adjusted for basis differentials, Btu
content of natural gas and specific gravity of oil. The Company's
independent reservoir engineers prepare a reserve report as of the end of
each calendar year.
(b) Includes the Goldking Acquisition.
<PAGE>
Estimated Future Net Revenues
from Proved Reserves (a) (b)
The following table sets forth information as of September 1, 1997 as
to the estimated future net revenues (before deduction of income taxes) from the
production and sale of the Proved Reserves attributable to the Company's
properties.
Proved Total
Developed Proved
Reserves Reserves
------------ ------------
Estimated Future net revenues (c):
1997 (4 mos.)......................$ 14,910,180 $ 13,601,397
1998 .............................. 37,565,360 38,216,563
1999 .............................. 24,450,994 33,647,374
2000 .............................. 14,365,477 20,576,977
Thereafter......................... 26,418,050 55,359,744
--------------- --------------
Total..............................$ 117,710,061 $ 161,402,055
Present value (10%) of estimated future net
revenues (SEC PV-10)...............$ 95,863,443 $ 121,318,462
''''''''''''''' ''''''''''''''''
- ---------------
(a) Calculated by the Company in accordance with the rules and regulations
of the SEC, based upon September 1, 1997 prices of $19.50 per Bbl of
oil and $2.41 per Mcf of offshore natural gas, adjusted for basis
differentials, Btu content of natural gas and specific gravity of oil.
The Company's independent reservoir engineers prepare a reserve report
as of the end of each calendar year.
(b) Includes the Goldking Acquisition.
(c) Estimated future net revenues represent estimated future gross revenues
from the production and sale of Proved Reserves, net of estimated
operating costs, future development costs estimated to be required to
achieve estimated future production and estimated future costs of
plugging offshore wells and removing offshore structures.
Production, Price, and Cost Data
The following table sets forth certain production, price, and cost
data with respect to the Company's properties for the three years ended December
31, 1996, 1995 and 1994 and the six months ended June 30, 1997 and 1996, and
pro-forma for the Goldking Acquisition for the year ended December 31, 1996 and
the six months ended June 30, 1997.
<TABLE>
<CAPTION>
Year Ended December Six Months Ended June 30,
31, __________________________
---------------------------------------
Pro Pro
Actual Forma Actual Forma
_____________________________ 1996(a) _________________ 1997
-------- -------
1994 1996(a) 1997
________ 1995 ________ 1996(a) _______
-------- --------
Oil and Condensate:
<S> <C> <C> <C> <C> <C> <C> <C>
Net Production (MBbls)(b) 137 170 276 435 151 188 252
Revenue (000s) $ 2,103 $ 2,853 $ 5,356 $ 9,099 $ 2,710 $ 3,382 $ 4,744
Average net Bbl per day 375 466 756 1,192 839 1,044 1,400
Average price per Bbl $ 15.35 $ 16.78 $ 19.42 $ 20.90 $ 17.93 $ 17.96 $ 18.85
Natural Gas:
Net Production (MMcf)(b) 8,139 9,850 6,788 8,544 3,666 4,421 5,287
Revenue (000s) $ 15,235 $ 15,594 $ 14,707 $ 19,149 $ 8,098 $ 10,905 $ 13,104
Average net Mcf per day 22,300 27,000 18,600 23,400 20,400 24,600 29,400
Average price per Mcf $ 1.87 $ 1.58 $ 2.17 $ 2.24 $ 2.21 $ 2.47 $ 2.48
Total Revenues (000s) $ 17,338 $ 18,477 $ 20,063 $ 28,249 $ 10,808 $ 14,287 $ 17,848
Production Costs:
Production cost (000s) $ 5,231 $ 8,055 $ 8,477 $ 9,759 $ 4,184 $ 5,122 $ 6,084
MMcfe(c) 8,962 10,870 8,444 11,156 4,573 5,550 6,797
Production costs per Mcfe(c) $ .58 $ .74 $ 1.00 $ .87 $ .91 $ .92 $ .90
</TABLE>
<PAGE>
(a) The information shown for 1996 was impacted by the explosion and fire on
April 24th at West Delta Tank Battery #3, which resulted in those fields
being off production until October 7, 1996, when production resumed. For
that reason management would not consider this data to be indicative of
the future. Also this information includes Bayou Sorrel Field through
September 1, the date of its sale, and includes information with respect
to the Amoco Properties from October 8 through December 31, 1996.
(b) Production information is net of all royalty interests, overriding royalty
interest and the net profits interest in the West Delta Properties owned
by the Company's former lenders.
(c) Oil production is converted to Mcfe at the rate of 6 Mcf per Bbl,
representing the estimated relative energy content of natural gas to oil.
Productive Wells (a)
The following table sets forth the number of productive oil and natural
gas wells, as of the date hereof, attributable to the Company's properties.
Productive Wells Company Operated
------------------------------
Gross productive offshore wells (b):
Oil ......................... 53 25
Natural Gas .................. 108 45
--- --
Total .................... 161 70
Net productive offshore wells (c):
Oil ......................... 32 25
Natural Gas .................. 56 41
-- --
Total .................... 88 66
Gross productive onshore wells (b):
Oil ......................... 255 66
Natural Gas .................. 253 15
--- --
Total .................... 508 81
Net productive onshore wells (c):
Oil ......................... 77 59
Natural Gas .................. 21 8
-- ---
Total .................... 98 67
(a)Productive wells consist of producing wells and wells capable of production,
including shut-in wells and water disposal and injection wells. One or more
completions in the same borehole are counted as one well.
(b) A Agross well" is a well in which a working interest is owned. The number of
gross wells represents the sum of the wells in which a working interest is
owned.
(c) A Anet well" is deemed to exist when the sum of the fractional working
interests in gross wells equals one. The number of net wells is the sum of
the fractional working interests in gross wells.
<PAGE>
Leasehold Acreage
The following table sets forth the developed acreage as of the date
hereof attributable to the Company's properties.
Developed onshore acreage (a):
Gross acres (b).................. 90,651
Net acres (c).................... 9,749
Undeveloped onshore acreage (a):
Gross acres (b).................. 10,180
Net acres (c).................... 1,685
Developed offshore acreage (a):
Gross acres (b).................. 199,189
Net acres (c).................... 56,124
Undeveloped offshore acreage (a)(d):
Gross acres (b).................. 2,560
Net acres (c).................... 2,560
(a) Developed acreage is acreage assignable to productive wells.
(b) A Agross acre" is an acre in which a working interest is owned. The number
of gross acres represents the sum of the acres in which a working interest
is owned.
(c) A Anet acre" is deemed to exist when the sum of the fractional working
interests in gross acres equals one. The number of net acres is the sum of
the fractional working interests in gross acres.
(d) In addition to these acres, the Company's undeveloped offshore potential
exists at greater depths beneath existing producing reservoirs.
Drilling Activities
The following table sets forth the number of gross productive and dry wells
in which the Company had an interest, that were drilled and completed during the
three years ended December 31, 1996 and the ten months ended November 1, 1997.
Such information should not be considered indicative of future performance, nor
should it be assumed that there is necessarily any correlation between the
number of productive wells drilled and the oil and natural gas reserves
generated thereby or the costs to the Company of productive wells compared to
the costs to the Company of dry wells.
Developmental Wells Exploratory Wells
------------------------- -------------------------
Completed Dry Completed Dry
------------ ------------ ------------ ------------
Oil Gas Oil Gas Oil Gas Oil Gas
--- ---- --- ---- --- ---- --- ----
1993 3 -- -- -- -- -- -- --
1994 5 4 -- -- -- 1 -- --
1995 -- -- -- -- -- -- -- 3
1996 -- -- 2 -- -- -- -- --
1997 (10 mos) 4 7 -- -- -- -- -- --
-- -- --- --- --- --- --- ---
Total 12 11 2 -- -- 1 -- 3
<PAGE>
Title to Oil and Gas Properties
In the case of acquired properties title opinions are obtained for the
more significant properties. Prior to the commencement of drilling operations a
thorough drill site title examination is conducted and curative work performed
with respect to significant defects.
Unproved Properties
The Company retained a 3% overriding royalty interest in depths that
are below 11,000' when it sold the Bayou Sorrel Field to National Energy Group,
Inc. Two successful wells have been drilled to these depths, but no reserves
have as yet been attributed to these wells.
Well Operations
The Company operates 71 offshore wells and owns all of the working
interests in substantially all of those wells. The Company's 90 remaining
offshore wells are operated by third party operators, including Unocal
Corporation, Coastal Oil & Gas Corp., Phillips Petroleum Company, Texaco,
Anadarko Petroleum Corporation and Louisiana Land and Exploration Company. The
Company operates 82 onshore wells in which it owns a majority or all of the
working interest. In addition, it owns working interests in 426 wells operated
by others. Where properties are operated by others, operations are conducted
pursuant to joint operating agreements that were in effect at the time the
Company acquired its interest in these properties. The Company considers these
joint operating agreements to be on terms customary within the industry. The
operator of an oil and natural gas property supervises production, maintains
production records, employs field personnel, and performs other functions
required in the production and administration of such property. The compensation
paid to the operator for such services customarily varies from property to
property, depending on the nature, depth, and location of the property being
operated.
Acquisition, Development, and Other Activities
The Company utilizes its capital budget for (a) the acquisition of
interests in other producing properties, (b) recompletions of its existing
wells, and (c) the drilling of development and exploratory wells.
In recent years, major oil companies have been selling properties to
independent oil companies because they feel these properties do not have the
remaining reserve potential needed by a major oil company. Several independent
oil companies have acquired these properties and achieved significant success in
further exploitation. Even though a property does not meet the criteria for
further development by a major oil company, that does not mean it is lacking
further exploitation potential. The majors are simply moving further offshore
into deeper water and to other countries where they can find and produce the
super-fields that fit their criteria. Present day technology permits drilling
and completing wells in water in excess of 10,000'.
In October 1996, the Company acquired interests in six offshore fields
from Amoco Production Company for $40.4 million. In consideration for such
interests, the Company issued Amoco 2,000,000 Common Shares and paid the sum of
$32.0 million in cash. The interests acquired include (1) a 33a% working
interest in the East Breaks 160 Field (two Blocks) and a 33a% interest in the
High Island 302 Field, both operated by Unocal Corporation; (2) a 50% interest
in the High Island 309 Field (two Blocks), a 12% interest in the High Island 330
Field (three Blocks) both operated by Coastal Oil and Gas Corp., (3) a 12%
interest in the High Island 474 Field (four Blocks), operated by Phillips
Petroleum Company; and (4) a 12.5% interest in the West Cameron 180 Field (one
Block) operated by Texaco.
<PAGE>
Future acquisitions of properties may include acquisitions of working
interests, royalty interests, net profits interests, production payments, and
other forms of direct or indirect ownership interest or interests in oil and
natural gas production. The Company may also acquire general or limited partner
interests in general or limited partnerships and interests in joint ventures,
corporations, or other entities that own, manage, or are formed to acquire,
explore for, or develop oil and natural gas properties or conduct other
activities associated with the ownership of oil and natural gas production. The
Company may also acquire or participate in the expansion of natural gas
processing plants and natural gas transportation or gathering systems.
The success of the Company's acquisitions will depend on (a) the
Company's ability to establish accurately the volumes of reserves and rates of
future production from producing properties being considered for acquisition and
the future net revenues attributable to reserves from such properties, taking
into account future operating costs, market prices for oil and natural gas,
rates of inflation, risks attendant to production of oil and natural gas, and a
suitable return on investment, and (b) the Company's ability to purchase
properties and produce and market oil and natural gas therefrom at prices and
rates that over time will generate cash flows resulting in an attractive return
on the initial investment. The Company's cash flow and return on investment will
vary to the extent that the Company's production from an acquired property is
greater or less than that estimated at the time of acquisition because of, for
example, the results of drilling or improved recovery programs, the demand for
oil and natural gas, or changes in the prices of oil and natural gas from the
prices used to calculate the purchase price for producing properties. The
Company will evaluate any economically feasible project that would enhance the
value of its properties. Such a project may involve both the acquisition of
developed and undeveloped properties and the drilling of infield wells.
The Company expects that its primary activities will continue to be
concentrated offshore in the Gulf of Mexico and onshore in the Gulf Coast
region. The Company can, if it so chooses, invest in any geographic area. The
number and type of wells drilled by the Company will vary from period to period
depending on the amount of the capital budget available for drilling, the cost
of each well, the Company's commitment to participate in the wells drilled on
properties operated by third parties, the size of the fractional working
interest acquired by the Company in each well and the estimated recoverable
reserves attributable to each well. Drilling on and production from offshore
properties often involves higher costs than does drilling on and production from
onshore properties, but the production achieved on successful wells is generally
much greater.
1996 Explosion and Fire
The Company experienced an explosion and fire on April 24, 1996 at Tank
Battery #3 in West Delta resulting in the fields being shut-in from April 24th,
until being returned to production on October 7, 1996. The loss of 67 days of
production in the second quarter and the entire third quarter resulted in lost
revenues of approximately $6.0 million. The fire was the principal contributor
to the losses of $0.16 per share in 1996. During the second quarter the Company
expensed $500,000 for its loss as a result of this explosion. No further losses
have been recognized or are anticipated. This $500,000 amount included $225,000
in deductibles under the Company's insurance.
The Company has repaired Tank Battery #3 at a cost of $8.5 million
inclusive of the $500,000 expensed during second quarter and has received
reimbursement from its insurance company of $3.9 million, after satisfaction of
the $225,000 in deductibles. The excess of repair expenditures over insurance
reimbursement will be capitalized. No additional repair expenditures have been
made or are anticipated. The Company has filed suits against the employers of
the persons who caused the incidents for recovery of these costs and its lost
profits. No assurance can be given that the Company will successfully recover
any amounts sought in any such suits.
<PAGE>
The repair expenditures, net of insurance payments, coupled with the
decrease in net operating cash flows discussed above resulted in higher
borrowing levels and interest expense for the second and third quarters. The
resulting decrease in revenues and higher interest expense decreased current
assets by approximately $1.9 million at the end of the third quarter of 1996.
Use of 3-D Seismic Technology
The use of 3-D Seismic and computer-aided exploration ("CAEX")
technology is an integral component of the Company's acquisition, exploitation,
drilling and business strategy. In general, 3-D Seismic is the process of
obtaining seismic data along multiple lines and grids within a large geographic
area. 3-D Seismic differs from 2-D Seismic in that it provides information with
respect to multiple horizontal and vertical points within a geological formation
instead of information on a single vertical line or multiple vertical lines
within the formation. By expanding the amount of data obtained with respect to a
geological formation, the user is better able to correlate the data and obtain a
greater understanding and image of the formation. While it is impossible to
predict with certainty the specific configuration or composition of any
underground geological formation, 3-D Seismic provides a mechanism by which
clearer and more accurate projected images of complex geological formations can
be obtained prior to drilling for hydrocarbons therein. In particular, 3-D
Seismic delineates smaller reservoirs with greater precision than can be
obtained with 2-D Seismic.
3-D Seismic and CAEX technology have been in existence since the mid
1970's; however, it was not until the late 1980's, with the development of
improved data acquisition equipment and techniques capable of gathering
significant amounts of data through a large number of channels and the
availability of improved computer technology at reasonable costs, that the
method became economically available to firms such as the Company. Prior to
that, it was the exclusive province of large multinational oil companies. The
Company owns its own processing equipment, but it also utilizes the services of
outside firms to process and interpret seismic data.
A new 3-D Seismic survey will be shot in the fourth quarter of 1997 by
Ocean Energy, Inc. (formerly Flores & Rucks, Inc.) on the Company's West Delta
Fields. The Company generated a prospect in the northern portion of West Delta
Block 58 using 3-D Seismic, which it farmed out to Tana Oil & Gas Corp. in 1996.
Tana drilled a successful well to 12,800' which encountered 85' of net pay and
is producing 14,750 Mcf per day. The Company retained a 5.833% overriding
royalty interest which converts to a 25% working interest after Payout
(anticipated in the fourth quarter of 1997). Three of the fields in the Amoco
Acquisition have proprietary 3-D Seismic, while all of the Amoco Properties have
group 3-D Seismic. The Company has experienced excellent success in High Island
309 Field, acquired from Amoco, in the drilling of six sidetracks of existing
wells and new wells, based upon an extensive reevaluation of the field using 3-D
Seismic.
Marketing of Production
Production from the Company's properties is marketed in accordance
with industry practices, which include the sale of oil at the wellhead to third
parties and the sale of natural gas to third parties at prices based on factors
normally considered in the industry, such as the spot price for natural gas or
the posted price for oil, and the quality of the oil and natural gas.
<PAGE>
The Company markets all of its offshore oil production to Amoco, Citgo,
Conoco, Texaco, Unocal and Vastar. Citgo, Conoco, Texaco and Vastar each have
25% calls (exclusive rights to purchase) on the oil production from the West
Delta Fields at their average posted price for each month. Amoco has a call on
all of the oil production from the Amoco Properties at their posted prices. If
the Company has a bona fide offer from a crude oil purchaser at a higher price
than Amoco's posted price, then Amoco must match that price or release the call.
Oil from the Zapata Properties is currently being sold to Unocal and Amoco, but
can be sold to any crude oil purchaser of the Company's choice. Natural gas is
sold on the spot market. There are numerous potential purchasers for offshore
natural gas. Notwithstanding this, natural gas purchased by Tenneco Gas
Marketing Company (now El Paso Gas Marketing Co.) accounted for 49% of the
revenues in 1996. There are numerous natural gas purchasers doing business in
the areas involved as well as natural gas brokers and clearing houses.
Furthermore, the Company can contract to sell the natural gas directly to end
users. The Company does not believe that it is dependent upon any one customer
or group of customers for the purchase of natural gas.
The Company hedges the prices of its oil and natural gas production
through the use of oil and natural gas futures and swap contracts within the
normal course of its business. The Company uses futures and swap contracts to
reduce the effects of fluctuations in oil and natural gas prices. Changes in the
market value of these contracts are deferred and subsequent gains and losses are
recognized monthly as adjustments to revenues in the same production period as
the hedged item, based on the difference between the index price and the
contract price. The Company entered into a hedge agreement beginning in January,
1996, for the delivery of 15,000 MMbtu of natural gas for each day in 1996 with
contract prices ranging from $1.7511 per MMbtu to $2.253 per MMbtu.
Starting in 1997 the Company's hedge transactions on natural gas are
based upon published natural gas pipeline index prices and not the NYMEX. This
change has eliminated price differences due to transportation. For 1997, 14,000
MMbtu's per day has been hedged, at a swap price of $1.80 per MMbtu for 1997,
with varying levels of participation (93% in January to 40% in September) in
settlement prices above $1.80 per MMbtu. The Company has hedged 10,000 MMbtu per
day in 1998 and 7,000 MMbtu per day in 1999, all at a pipeline index swap price
of $1.89 per MMbtu.
Starting in 1997, the Company also hedged 720 Bbls of oil for each day in
1997 at a swap price of $20.00 per Bbl, with a 60% participation in settlement
prices above the swap price.
Plugging and Abandonment Escrows
Pursuant to existing agreements the Company is required to deposit
funds in escrow accounts to provide a reserve against satisfaction of its
eventual responsibility to plug and abandon wells and remove structures when
certain fields no longer produce oil and natural gas. Each month, until November
1997, $25,000 is deposited in a bank escrow account, to satisfy such obligations
with respect to a portion of its West Delta Properties. The Company has entered
into an escrow agreement with Amoco Production Company under which the Company
will deposit, for the life of the fields, in a bank escrow account ten percent
(10%) of the net cash flow, as defined in the agreement, from the Amoco
Properties. These funds and interest earned thereon will be available for the
expenses of plugging wells and removing structures when that time comes. As of
December 31, 1996 the Company has established the "PANACO East Breaks 110
Platform Trust" at Bank One, Texas, NA in favor of the Minerals Management
Service of the U.S. Department of the Interior. This Trust was initially funded
by deposit of $846,720 in December 1996, and remaining deposits of $244,320 due
at the end of each quarter in 1999 and $144,000 due at the end of each quarter
in 2000, for a total of $2,400,000. In addition, the Company has $9,250,000 in
surety bonds to secure its plugging and abandonment obligations; including a
$4,100,000 bond which was provided to the original sellers of the West Delta
Properties; a $2,400,000 supplemental bond provided to the Minerals Management
Service of the U.S. Department of the Interior in connection with the plugging
and structure removal obligations for the Company's East Breaks Block 110
Platform and a $300,000 Pipeline Right-of-Way Bond.
<PAGE>
Insurance
The Company maintains insurance coverage as is customary for companies
of a similar size engaged in operations similar to the Company's. The Company's
insurance coverage includes comprehensive general liability insurance in the
amount of $50 million per occurrence for personal injury and property damage and
cost of control and operators extra expense insurance of $3 million on onshore
wells, $20 million on wells in Louisiana State waters and $50 million per
occurrence in Federal offshore waters, which limits are proportionately reduced
when the Company owns less than 100% of the respective property. The Company
maintains $65 million in property insurance on its offshore properties. There is
no assurance that such insurance will be adequate to cover all such costs or
that such insurance will continue to be available in the future or that such
insurance will be available at premium levels that justify its purchase. The
occurrence of a significant event not fully insured or indemnified against could
have a material adverse effect on the Company's financial condition and
operations.
Funding of Business Activities
Through 1996 and the eight months ended August 31, 1997, the Company
made over $90,000,000 in capital expenditures for (1) the purchase of the Amoco
Properties, (2) the repair and rebuilding of the West Delta Tank Battery #3 (net
of insurance payments), (3) the development of its oil and natural gas
properties, and (4) the Goldking Acquisition. The majority of the development
costs were incurred to drill exploratory and developmental wells on the Amoco
Properties, primarily the High Island 474 Field and the High Island 309 Field.
The sources of funds for capital expenditures were cash flow from operations,
borrowings on the Company's existing Bank Facility and proceeds of the issuances
of Common Shares. The cash flow generated by the Company's activities would
decline in the absence of the acquisition and development of other oil and
natural gas properties or increases in the Company's production of oil and
natural gas resulting from the development of its properties.
The Company may issue additional Common Shares or other securities for
cash, to the extent that market and other conditions permit, and use the
proceeds to fund its activities. During 1996 shareholders' equity increased by
$1,837,000, as a result of the exercise of warrants, and $8,400,000 as a result
of 2,000,000 shares being issued to Amoco Production Company as part of the
Amoco Acquisition. During the first eight months of 1997, shareholders' equity
increased by $22,014,000 as a result of the issuance of 6,000,000 of Common
Shares in the public offering, $180,000 as a result of exercise of warrants and
$14,400,000 as a result of the issuance of 3,154,930 Common Shares to the
beneficial owners of Goldking and 84,000 Common Shares as a finders fee, both in
connection with the Goldking Acquisition.
Competition, Markets, Seasonality and Environmental and Other Regulation
Competition. There are a large number of companies and individuals
engaged in the exploration for and development of oil and natural gas
properties. Competition is particularly intense with respect to the acquisition
of oil and natural gas producing properties and securing experienced personnel.
The Company encounters competition from various independent oil companies in
raising capital and in acquiring producing properties. Many of the Company's
competitors have financial resources and staffs considerably larger than the
Company.
<PAGE>
Markets. The ability of the Company to produce and market oil and natural
gas profitably depends on numerous factors beyond the control of the Company.
The effect of these factors cannot be accurately predicted or anticipated. These
factors include the availability of other domestic and foreign production, the
marketing of competitive fuels, the proximity and capacity of pipelines,
fluctuations in supply and demand, the availability of a ready market, the
effect of federal and state regulation of production, refining, transportation,
and sales of oil and natural gas, political instability or armed conflict in
oil-producing regions, and general national and worldwide economic conditions.
In recent years, worldwide oil production capacity and natural gas production
capacity in the United States exceeded demand and resulted in a substantial
decline in the price of oil and natural gas in the United States.
Since early 1986, certain members of the Organization of Petroleum
Exporting Countries ("OPEC") have, at various times, dramatically increased
their production of oil, causing a significant decline in the price of oil in
the world market. The Company cannot predict future levels of production by the
OPEC nations, the prospects for war or peace in the Middle East, or the degree
to which oil and natural gas prices will be affected, and it is possible that
prices for any oil, natural gas liquids, or natural gas produced by the Company
will be lower than those currently available.
The demand for natural gas in the United States has fluctuated in
recent years due to economic factors, a deliverability surplus, conservation and
other factors. This lack of demand has resulted in increased competitive
pressure on producers. However, environmental legislation is requiring certain
markets to shift consumption from fuel oils to natural gas, thereby increasing
demand for this cleaner burning fuel.
In view of the many uncertainties affecting the supply and demand for
oil, natural gas, and refined petroleum products, the Company is unable to
predict future oil and natural gas prices. In order to minimize these
uncertainties the Company, from time to time, hedges prices on a portion of its
production with futures contracts.
Seasonality. Historically the nature of the demand for natural gas
caused prices and demand to vary on a seasonal basis. Prices and production
volumes were generally higher during the first and fourth quarters of each
calendar year. For example, during 1991 the price the Company receives for its
natural gas fell from a high of $1.78 per Mcf in January to a low of $1.09 in
July and then climbed to a new high of $1.95 in December, averaging $1.49 for
the year. However, the substantial amount of natural gas storage becoming
available in the U.S. is altering this seasonality. During 1993, 1994 and 1995
the Company's natural gas prices ranged from $2.78 to $1.64, $2.43 to $1.39 and
$2.37 to $1.37, averaging $2.13, $1.88 and $1.58, respectively, in each case,
per Mcf. Gas prices averaged $2.17 per Mcf during 1996 and have averaged $2.47
per Mcf during the first six months of 1997. The Company sells its natural gas
on the spot market based upon published index prices for each pipeline.
Historically the net price received by the Company for its natural gas has
averaged about $.10 per MMbtu below the NYMEX Henry Hub index price, due to
transportation differentials. Fields that are located further offshore, such as
the Amoco Properties, will generally sell their natural gas for as much as $.20
below that index price. Early 1997 pipeline index prices were at historical
highs, but moderated during the late winter and spring. During October 1997 the
Company sold its natural gas for an average of $2.90 per Mcf.
Environmental and Other Regulation. The Company's business is affected
by governmental laws and regulations, including price control, energy,
environmental, conservation, tax and other laws and regulations relating to the
petroleum industry. For example, state and federal agencies have issued rules
and regulations that require permits for the drilling of wells, regulate the
spacing of wells, prevent the waste of natural gas and crude oil reserves, and
regulate environmental and safety matters including restrictions on the types,
quantities and concentration of various substances that can be released into the
environment in connection with drilling and production activities, limits or
prohibitions on drilling activities on certain lands lying within wetlands and
other protected areas, and remedial measures to prevent pollution from current
and former operations. Changes in any of these laws, rules and regulations could
have a material adverse effect on the Company's business. In view of the many
uncertainties with respect to current law and regulations, including their
applicability to the Company, the Company cannot predict the overall effect of
such laws and regulations on future operations.
<PAGE>
The Company believes that its operations comply in all material
respects with all applicable laws and regulations and that the existence of such
laws and regulations have no more restrictive effect on the Company's method of
operations than on other similar companies in the industry. The following
discussion contains summaries of certain laws and regulations and is qualified
in its entirety by reference thereto.
Various aspects of the Company's oil and natural gas operations are
regulated by administrative agencies under statutory provisions of the states
where such operations are conducted and by certain agencies of the federal
government for operations of federal leases. The Federal Energy Regulatory
Commission (the "FERC") regulates the transportation and sale for resale of
natural gas in interstate commerce pursuant to the Natural Gas Act of 1938 (the
"NGA") and the Natural Gas Policy Act of 1978 (the "NGPA"). In the past, the
federal government has regulated the prices at which oil and natural gas could
be sold. Currently, sales by producers of natural gas, and all sales of crude
oil, condensate and natural gas liquids can be made at uncontrolled market
prices, but Congress could reenact price controls at any time. Deregulation of
wellhead sales in the natural gas industry began with the enactment of the NGPA
in 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act which
removed all NGA and NGPA price and nonprice controls affecting wellhead sales of
natural gas effective January 1, 1993.
Sales of crude oil, condensate and natural gas liquids by the Company
are not regulated and are made at market prices. The price the Company receives
from the sale of these products is affected by the cost of transporting the
products to market. Effective as of January 1, 1995, the FERC implemented
regulations establishing an indexing system for transportation rates for oil
pipelines, which would generally index such rates to inflation, subject to
certain conditions and limitations. These regulations could increase the cost of
transporting crude oil, liquids and condensates by pipeline. These regulations
are subject to pending petitions for judicial review. The Company is not able to
predict with certainty what effect, if any, these regulations will have on it,
but other factors being equal, the regulations may tend to increase
transportation costs or reduce wellhead prices for such conditions.
Additional proposals and proceedings that might affect the oil and
natural gas industry are pending before Congress, the FERC and the courts. The
Company cannot predict when or whether any such proposals may become effective.
In the past, the natural gas industry historically has been very heavily
regulated. There is no assurance that the current regulatory approach pursued by
the FERC will continue indefinitely into the future. Notwithstanding the
foregoing, it is not anticipated that compliance with existing federal, state
and local laws, rules and regulations will have a material or significantly
adverse effect upon the capital expenditures, earnings or competitive position
of the Company.
<PAGE>
Extensive federal, state and local laws and regulations govern oil and
natural gas operations regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment. Numerous
governmental departments issue rules and regulations to implement and enforce
such laws which change frequently, are often difficult and costly to comply with
and which carry substantial civil and/or criminal penalties for failure to
comply. Some laws, rules and regulations to which the Company is subject
relating to protection of the environment may, in certain circumstances, impose
Astrict liability" for environmental contamination, rendering a person liable
for environmental damages and response costs without regard to negligence or
fault on the part of such person. For example, the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, also
known as the "Superfund" law, imposes strict, joint and several liability on an
owner and operator of a facility or site where a release of hazardous substances
into the environment has occurred and on companies that disposed or arranged for
the disposal of the hazardous substances released at the facility or site.
Similarly, the Oil Pollution Act of 1990 ("OPA") imposes strict liability for
remediation and natural resource damages in the event of an oil spill. In
addition to other requirements, the OPA requires operators of oil and natural
gas leases on or near navigable waterways to provide $35 million in Afinancial
responsibility", as defined in the Act. At present the Company is satisfying the
financial responsibility requirement with insurance coverage. The regulatory
burden on the oil and natural gas industry increases its cost of doing business
and consequently affects its profitability. These laws, rules and regulations
affect the operations and costs of the Company. Furthermore, the Company cannot
guarantee that such laws as they apply to oil and natural gas operations will
not change in the future in such a manner as to impose substantial costs on the
Company. While compliance with environmental requirements generally could have a
material adverse effect upon the capital expenditures, earnings or competitive
position of the Company, the Company believes that other independent energy
companies in the oil and natural gas industry likely would be similarly
affected. The Company believes that it is in substantial compliance with current
applicable environmental laws and regulations and that continued compliance with
existing requirements will not have a material adverse impact on the Company.
Offshore operations of the Company are conducted on both federal and
state lease blocks of the Gulf of Mexico. In all offshore areas the more
stringent regulation of the federal system, as implemented by the Mineral
Management Service of the Department of the Interior, will ultimately be
applicable to state as well as federal leases, which could impose additional
compliance costs on the Company. While there can be no guarantee, the Company
does not expect these costs to be material. See "Risk Factors - Environmental
and Other Regulations."
Employees
The Company has 30 full time employees, 11 of whom are officers. The
Company utilizes an additional 44 contract personnel in the operation of the
offshore properties, and uses numerous outside geologists, production engineers,
reservoir engineers, geophysicists and other professionals on a consulting
basis.
Office Facilities
The Company's headquarters are located at 1050 West Blue Ridge
Boulevard, PANACO Building, Kansas City, Missouri 64145-1216, and its telephone
number is (816) 942-6300, FAX (816) 942-6305. The Houston, Texas office is
located at 1100 Louisiana, Suite 5110, Houston, Texas 77002-5220, telephone
(713) 652-5110, FAX (713) 209-0698. Goldking currently has separate offices at
1221 McKinney, Houston, Texas 77002, telephone (713) 759-2400, FAX (713)
759-2417. The Company anticipates moving all Goldking Houston personnel into its
1100 Louisiana offices prior to year end 1998.
Legal Proceedings
The Company is presently a party to several legal proceedings, which it
considers to be routine and in the ordinary course of its business. Management
has no knowledge of any pending or threatened claims that could give rise to any
litigation which management believes would be material to the Company.
<PAGE>
MANAGEMENT
Officers and Directors
The Company has a classified Board of Directors, consisting of four
Class I directors, three Class II directors, and four Class III directors. Due
to a recent resignation from the Board, there are currently only three Class III
directors. The directors are elected to serve for three-year terms and until
their successors are elected and qualified. The directors stand for election
each year as their terms expire by class. The Board of Directors consists of
four employees of the Company and six independent directors.
Officers are elected by and serve at the discretion of the Board of
Directors.
Set forth below are the names, ages, and positions of the persons who
are executive officers and directors of the Company, and the committees of the
Board on which they serve.
<TABLE>
<CAPTION>
Director
Name Age Since Title
----- --- ----- ----
<S> <C> <C>
H. James Maxwell........... 52 1992 Chairman of the Board, Chief Executive
Officer, and Director(a)
Larry M. Wright............ 53 1992 President, Chief Operating Officer and
Director(b)
Leonard C. Tallerine, Jr... 47 1997 Executive Vice President-Business Development
and Director(c)
Mark C. Licata............. 46 1997 Sr. Vice President-General Counsel, Director(a)
Robert G. Wonish........... 43 --- Sr. Vice President-Operations
Edward A. Bush, Jr......... 53 --- Sr. Vice President-Geology/Geophysics
William J. Doyle........... 45 --- Vice President-Exploitation
Bruce A. DeBartolo......... 50 --- Vice President-Exploration
Jim R. Wible............... 48 --- Vice President-Drilling/Production
Barbara A. Whitton......... 35 --- Vice President-Marketing/Planning
Laurie A. McNamara......... 44 --- Vice President-Land
Todd R. Bart............... 33 --- Chief Financial Officer, Secretary and Treasurer
A. Theodore Stautberg, Jr.. 50 1993 Director(c)-Compensation Committee
Donald W. Chesser.......... 57 1992 Director(a)-Audit Committee
James B. Kreamer........... 57 1993 Director(c)-Compensation Committe
Mark C. Barrett............ 46 1996 Director(b)-Audit and Compensation Committees
Michael Springs............ 47 1996 Director(c)
Harold First............... 61 1997 Director(b)-Audit and Compensation Committee
</TABLE>
<PAGE>
(a) These persons are designated as Class III directors, with their term of
office expiring at the annual meeting of shareholders in 1998.
(b) These persons are designated as Class II directors, with their term of
office expiring at the annual meeting of shareholders in 1997.
(c) These persons are designated as Class I directors, with their term of
office expiring at the annual meeting of shareholders in 1999.
Set forth below are descriptions of the principal occupations, during at
least the past five years, of the directors and executive officers of the
Company.
H. James Maxwell received a B.A. degree in Economics from the University
of Missouri-Kansas City and received his Law Degree from that same university in
1972. Mr. Maxwell practiced securities law from 1972 to 1984, and was a frequent
author and speaker on oil and natural gas tax and securities law. He served as a
General Partner of Castle Royalty Limited Partnership from 1984 to 1988,
Managing General Partner of PAN Petroleum MLP from 1987 to 1992, both of which
were predecessors of the Company, President of the Company from 1992 to 1997 and
Chief Executive Officer and Chairman of the Board of the Company from 1992 to
date.
Larry M. Wright received his B.S. Degree in Chemical Engineering from the
University of Oklahoma in 1966. From 1966 to 1976 he was with Union Oil Company
of California (UNOCAL). From 1976 to 1980, he was with Texas International
Petroleum Corporation, ultimately as division operations manager. From 1980 to
1981, he was with what is now Transamerica Natural Gas Company as Vice
President-Exploration and Production. From 1981-1982, he was Senior Vice
President of Operations for Texas International Petroleum Corporation, and, from
1983 to 1985, he was Executive Vice President of Funk Fuels Corp., a subsidiary
of Funk Exploration. From 1985 to 1993, Mr. Wright was an independent consultant
to the Company and its predecessors. From 1993 to 1997, he served as Executive
Vice President of the Company and since October 1997, has served as President
and Chief Operating Officer.
Leonard C. Tallerine, Jr., graduated from Rice University's Advanced
Management Institute and holds undergraduate and graduate degrees in accounting
from the University of Houston. Mr. Tallerine practiced as a CPA with Price
Waterhouse and KPMG from 1972 through 1980, specializing in oil and natural gas
tax issues. From 1981 through 1986, he served as co-managing and general partner
of Paso Grande Investment, Ltd., an oil and natural gas real estate holding
company and served as Chairman of the Texas Guarantee National Bank from 1983 to
1986. In 1987, he founded the Union Companies and in 1991 became Chairman and
Chief Executive Officer of Goldking. In July 1997 Mr. Tallerine was appointed an
Executive Vice President and a Director, pursuant to contractual arrangements
with the Company following the Company's acquisition of Goldking. See
AProperties - Goldking Acquisition."
Mark C. Licata received a Bachelor of Business Administration and
Accounting (1972) and a law degree (1976) from the University of Texas. He was
employed in the private practice of law from 1976 through 1985 and then served
as President and Chief Operating Officer of Vista Host, Inc. and later as
President and Chief Operating Officer of the publicly held McFaddin Ventures,
Inc. In 1988, Mr. Licata returned to the practice of law in Houston with Looper,
Reed, Mark & McGraw, where he remained until he joined Goldking as President in
1996. In July 1997 Mr. Licata was appointed Senior Vice President-General
Counsel and a Director, pursuant to contractual arrangements with the Company
following the Company's acquisition of Goldking. See "Properties - Goldking
Acquisition."
<PAGE>
Robert G. Wonish received his B.S. in Mechanical Engineering in 1975 from
the University of Missouri-Rolla. He was a production engineer with Amoco from
1975 to 1977, Napeco, Inc. from 1977 to 1979; Division Operation Engineer with
Texas International from 1979 to 1980; Production Manager with Cliffs Drilling
Company from 1980 to 1984 and District Superintendent with Ladd Petroleum
Corporation from 1985 to 1991. He then worked as a consultant, starting with the
Company in 1992, and became an employee in 1993, serving as Senior Vice
President - Operations.
Edward A. Bush, Jr., received his B.S. Degree in Geology from Baldwin
Wallace College in 1964 and his M.A. in Geology from Bowling Green State
University in 1966. He served in various geological and exploration capacities
with Exxon (1968-75), Union Texas Petroleum (1975-79), Home Petroleum Corp.
(1979-81), Traverse Oil Co. (1981-83) and Sohio Petroleum Co. (1983-85). From
1985 to 1995 he served first as Exploration Manager, then Vice President of
Exploration and later Vice President of Operations for Columbia Gas Dev. Corp.
From 1995 to 1996 he served as Vice President-Exploration and President of
Howell Petroleum Corp. He presently serves with the Company as Senior Vice
President-Geology/Geophysics.
William J. Doyle received his Masters in Geology in 1975 from Texas A&M
University and his B.S. in Earth Sciences from the University of New Orleans in
1973. From 1975 to 1978 he was a geologist with Mobil Oil focusing on offshore
Gulf of Mexico projects. From 1978 to the present he has worked as an employee
and consultant for various oil and natural gas exploration companies operating
in the Gulf Coast. He joined the Company as a consulting geologist in 1992 and
became a Vice President in 1995.
Bruce A. DeBartolo received his B.S. and M.S. degrees in geology from
Tulane University in 1968 and 1970. He has over 25 years of experience in major
and independent oil companies, including Getty Oil (1969-1973), Tesoro
(1974-1979) and Peltex Oil and Gas (1981-1985). Following eight years with
independents DeBartolo Oil & Gas and DeBartolo Associates, he joined Goldking in
1993, where he serves as Senior Vice President-Exploration. Mr. DeBartolo is a
certified petroleum geologist and is an active member of the Houston Geologic
Society and the American Association of Petroleum Geologists.
Jim R. Wible received his B.A. degree from the University of Colorado in
1970 and has post-graduate training in petroleum engineering. He began his
career in 1974 with Dresser Industries and has served in various drilling,
production and engineering positions with Dresser Industries, Conoco and others,
as well as serving as an engineer with drilling contractor Delta Drilling
Company, a large oil field service organization. Since 1995, Mr. Wible has
served as Vice President-Engineering of Goldking. Prior positions include
wellsite engineer for Schlumberger Integrated Project Management (1995) and
Operations Manager for Aran Energy Corp. (1992-1995). Mr. Wible is a member of
the Society of Petroleum Engineers and the American Association of Drilling
Engineers.
Barbara A. Whitton joined Goldking in 1993 as the Manager of Revenue
Accounting and was appointed Vice President-Marketing/Planning in 1997. Prior to
Goldking, Ms. Whitton had experience in accounting, finance and marketing with
Hall-Houston Oil Company (1991-1993), UMC Petroleum Corporation (1987-1989),
Energy Assets International (1984-1987) and Sohio Petroleum (1982-1984).
Laurie A. McNamara received her B.S. in geology and biology in 1975 from
Hope College, Michigan and an M.S. from Louisiana State University in 1977. She
joined Goldking in 1997 as Land Manager. Her experience includes nine years as
an independent landman in Lafayette, Louisiana. In Houston, she has served as a
landman for Texas Crude Energy, Inc. (1993-1996) as an independent landman on
projects for Cody Energy and Burlington Resources. She is a member of the
American Association of Petroleum Landmen and is a Certified Professional
Landman.
Todd R. Bart received his B.B.A. in Accounting from Abilene Christian
University in 1987. He worked in the energy industry with Pennzoil Company from
1987 to 1990 and the public accounting firm of Arthur Andersen and Company from
1990 until 1992. From 1992 to 1995 he worked for Yellow Freight System, Inc., a
trucking company, in financial accounting and reporting. He joined the Company
as Controller in 1995 and was elected Chief Financial Officer, Treasurer and
Secretary in 1996. He received his C.P.A. designation in Texas in 1990 and in
Kansas in 1993, and is a member of the A.I.C.P.A.
<PAGE>
A. Theodore Stautberg, Jr. has since 1981 been the President and a director
of Triumph Resources Corporation and its parent company, Triumph Oil and Gas
Corporation of New York. Triumph engages in the oil and natural gas business,
assists others in financing energy transactions, and serves as general partner
of Triumph Production L.P. Mr. Stautberg is also the president of Triumph
Securities Corporation and BT Energy Corporation. Prior to forming Triumph in
1981, Mr. Stautberg was a Vice President of Butcher & Singer, Inc., an
investment banking firm, from 1977 to 1981. From 1972 to 1977, Mr. Stautberg was
an attorney with the Securities and Exchange Commission. Mr. Stautberg is a
graduate of the University of Texas and the University of Texas School of Law.
Donald W. Chesser received his B.B.A. in Accounting from Texas Tech
University in 1963 and has served with several certified public accounting firms
since that time, including eight years with Elmer Fox and Company. From 1977 to
1981, he was with IMCO Enterprises, Inc. Since 1982 he has been a shareholder
and President of Chesser & Company, P.A., a certified public accounting firm. He
is also President of Financial Advisors, Inc., a registered investment advisor.
James B. Kreamer received his B.S. Degree in Business from the University
of Kansas in 1963 and has been active in investment banking since that time.
Since 1982 he has managed his personal investments.
Mark C. Barrett received his B.S. Degree in Business
Administration/Accounting in 1972 and is licensed to practice as a Certified
Public Accountant in both Kansas and Missouri. He was a partner in the firm
Drees Dunn Lubow and Company from 1974 until 1981. He founded Barrett &
Associates, a certified public accounting firm, in 1981 and is the president and
majority shareholder in that firm. His firm served as the Company's independent
public accountants from 1985 to 1995.
Michael Springs graduated from the Medical Field Service School, Brooke
Hospital, San Antonio, Texas in 1971 and the University of Missouri, Kansas
City, in 1969 with a degree in Business. He is the President and founder of
Ortho-Care, Inc. of Kansas City, Missouri and Ortho-Care Southeast of Charlotte,
North Carolina. Ortho-Care, Inc. is a manufacturer of orthopedic fracture
management and sports medicine products, and holds a number of patents in the
field. Mr. Springs is also controlling partner in Ortho-Implants, a distributor
of total joint replacement prosthesis.
Harold First has been self-employed as a financial consultant since 1993.
From 1990 to 1993 he was Chief Financial Officer of Icahn Holding Corp. and also
served as Senior Vice President of Trans World Airlines, Inc. from 1992 to 1993.
Mr. First is currently a director of Marvel Entertainment Group, Inc., Toy Biz,
Inc., Cadus Pharmaceutical Corp. and Tele-Save Holdings, Inc. He was nominated
for election to the Board of Directors pursuant to an agreement with shareholder
Carl C. Icahn.
None of the officers or directors serve pursuant to employment agreements.
The Board of Directors
The Board of Directors has the responsibility for establishing broad
corporate policies and for the overall performance and governance of the
Company, although it is not involved in day-to-day operating details. Directors
are kept informed of the Company's business by various reports and documents, as
well as by operating and financial reports presented at Board and committee
meetings by the Chairman and other officers.
<PAGE>
Meetings of the Board of Directors are regularly held each quarter and
following the annual meeting of the shareholders. Additional meetings, including
meetings by telephone conference call, of the Board may be called whenever
needed. The Board of Directors of the Company held seven meetings in 1996, four
of which were meetings by telephone conference call. Each director attended all
in person meetings of the Board, except Donald W. Chesser who failed to attend
two meetings. With respect to the telephone conference calls, Donald W. Chesser
was not connected two times and James B. Kreamer was not connected on one
conference call.
Compensation of Directors
In order to align the interests of the Company's shareholders and its
directors, directors do not receive cash compensation. Non-employee directors
are compensated for their services with shares of the Company's common stock,
receiving $1,000 in Common Shares for attending Board of Directors meetings,
$500 in Common Shares for attending committee meetings and $200 in Common Shares
for participating in telephone meetings. Officers of the Company who serve as
directors do not receive additional compensation for serving on the Board of
Directors or a committee thereof. Directors are reimbursed for travel expenses
incurred in attending Board of Directors or committee meetings.
Limitation of Liability and Indemnification Matters
The Company's Certificate of Incorporation provides that no director or
officer of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of his or her fiduciary duty as a
director or officer, except for liability (i) for any breach of the director or
officer's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director or
officer derived an improper personal benefit. The effect of these provisions is
to eliminate the rights of the Company and its stockholder (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director or officer for breach of fiduciary duty, except in
the situations described above.
The Company entered into indemnification agreements with its directors and
executive officers as of July 15, 1997, which the Company believes will assist
the Company in attracting and retaining qualified individuals to serve the
Company. Under the terms of the Indemnification Agreements, the Company has
agreed to hold harmless and indemnify such individuals to the fullest extent
permitted by law and to advance expenses, if the director or executive officer
becomes a party to or witness or other participant in any threatened, pending or
completed action, suit or proceeding by reason of any occurrence related to the
fact that the person is or was a director or executive officer of the Company or
a subsidiary of the Company or another entity at the Company's request, unless a
reviewing party (either majority of disinterested directors, independent legal
counsel, or by the stockholders) determines that the person would not be
entitled to indemnification under the Agreement or applicable law.
Depending upon the character of the proceeding, the Company may indemnify
against expenses, including attorneys' fees, judgments, amounts paid in
settlement, ERISA excise taxes or penalties, finds and other expenses actually
and reasonably incurred by the indemnified person in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, investigative or appellate to which director is, was
or at any time becomes a party by reason of his or her service as a director or
executive officer.
<PAGE>
Executive Compensation
Summary Compensation Table. The following table sets forth certain information
concerning the annual compensation paid to the Company's Chief Executive Officer
and each executive officer whose compensation exceeded $100,000 during 1996.
<TABLE>
<CAPTION>
Long-Term Incentive Plan
-----------------------------
Annual Compensation Awards Payouts
--------------------------------- --------------------- -------
Securities
Other Restricted Underlying LTIP All
Salary Bonus Annual Stock Options Payouts Other(a)
Position Year ($) ($) Comp.($) Award(s)($)
(#) ($) Comp.($)
- ------------------ ---- ------- ------ -------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H. James Maxwell 1996 166,900 0 0 0 0 0 22,500
President and Chief 1995 153,500 0 0 0 24,615 0 22,500
Executive Officer 1994 120,000 0 0 0 22,857 0 18,000
Larry M. Wright 1996 160,300 0 0 0 0 0 22,500
Executive Vice 1995 147,300 0 0 0 0 0 22,100
President 1994 134,000 0 0 0 0 0 20,000
Robert G. Wonish 1996 100,200 0 0 0 0 0 15,000
Vice President 1995 92,100 0 0 0 0 0 13,800
1994 78,800 0 0 0 0 0 11,800
</TABLE>
(a) The Aother compensation" represents contributions to the accounts of the
employees under the Company's Employee Stock Ownership Plan.
Options and Warrants. No options or warrants were granted in 1996, and no
executive officers exercised any options during 1996. As of December 31, 1996,
Larry M. Wright was the only executive officer holding options or warrants, with
currently exercisable warrants to purchase 250,000 Shares. The in-the-money
value of Mr. Wright's unexercised warrants at year end was $658,750. No awards
were outstanding under the Long-Term Incentive Plan at December 31, 1996.
Aggregate Option and Warrant Exercises. The following table provides information
relating to the number and value of Common Shares subject to options exercised
during 1996 or held by the named executive officers as of December 31, 1996.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
Number of
securities underlying Value of unexercised
Securities unexercised options in-the-money
acquired Value at fiscal year-end($) options at year-end($)(b)
Name on Exercise (#) Realized ($)(a) Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------- ------------------ ------------------- --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
H. James Maxwell 0 0 -0- / -0- -0- / -0-
Larry M. Wright 0 0 250,000 / -0- 658,750 / -0-
Robert G. Wonish 0 0 -0- / -0- -0- / -0-
</TABLE>
<PAGE>
(a) Value realized is calculated based upon the difference between the
options exercise price and the market price of the Common Shares on the
date of exercise multiplied by the number of shares to which the
exercise price relates.
(b) Value of unexercised in-the-money options is calculated based on the
difference between the option exercise price and the closing price of
the Common Shares at year-end, multiplied by the number of shares
underlying the options. The closing price on December 31, 1996 of the
Common Shares was $4,875.
On June 18, 1997 the following compensatory stock options were granted
to officers which are immediately exercisable for a period of three years from
the date of grant, with an exercise price of $4.45 per share: Mr. Maxwell -
600,000; Mr. Wright - 400,000; Mr. Bob F. Mallory - 50,000 (then Director); Mr.
Wonish - 40,000; Mr.
Bush - 20,000; Mr. Doyle - 10,000 and Mr. Bart - 30,000.
Objectives and Approach. The overall goals of the Company's executive
compensation program are: (i) to encourage and provide an incentive to its
executive officers to achieve the Company's strategic business and financial
goals, both short-term and long-term, and thereby enhance shareholder value,
(ii) to attract and retain well-qualified executive officers and (iii) to reward
individuals for outstanding job performance in a fair and equitable manner when
measured not only with respect to the Company's internal performance goals but
also the Company's performance in comparison to its peers. The components of the
Company's executive compensation are salary, incentive bonuses and awards under
its Long Term Incentive Plan and Employee Stock Ownership Plan, each of which
assists in achieving the program's goals.
Long Term Incentive Plan. The Company's Long-Term Incentive Plan provides for
the granting, to certain officers and key employees of the Company and its
participating subsidiaries, of incentive awards in the form of stock options,
stock appreciation rights ("SARs"), stock, and cash awards. The Long-Term
Incentive Plan is administered by a committee of independent members of the
Board of Directors (the "Plan Committee") with respect to awards to certain
executive officers of the Company but may be administered by the Board of
Directors with respect to any other awards. Except for certain automatic awards,
the Plan Committee has discretion to select the employees to be granted awards,
to determine the type, size, and terms of the awards, to determine when awards
will be granted, and to prescribe the form of the instruments evidencing awards.
Options, which include nonqualified stock options and incentive stock
options, are rights to purchase a specified number of Common Shares at a price
fixed at the time the option is granted. Payment may be made with cash or other
Common Shares owned by the optionee or a combination of both. Options are
exercisable at the time and on the terms that the Plan Committee determines. The
payment of the option price can be made either in cash or by the person
exercising the option turning in to the Company, Common Shares presently owned
by him, which would be valued at the then current market price. SARs are rights
to receive a payment, in cash or Common Shares or both, based on the value of
the Common Shares. A stock award is an award of Common Shares or denominated in
Common Shares. Cash awards are generally based on the extent to which
pre-established performance goals are achieved over a pre-established period but
may also include individual bonuses paid for previous, exemplary performance.
The Plan Committee determines performance objectives and award levels before the
beginning of each plan year.
The Long-Term Incentive Plan allows for the satisfaction of a
participant's tax withholding with respect to an award by the withholding of
Common Shares issuable pursuant to the award or the delivery by the participant
of previously owned Common Shares, in either case valued at the fair market
value, subject to limitations the Plan Committee may adopt.
<PAGE>
Awards granted pursuant to the Long-Term Incentive Plan may provide that,
upon a change of control of the Company, (a) each holder of an option will be
granted a corresponding SAR (b) all outstanding SARs and stock options become
immediately and fully vested and exercisable in full, and (c) the restriction
period on any restricted stock award shall be accelerated and the restriction
shall expire.
The Long-Term Incentive Plan provides for the issuance of a maximum
number of Common Shares equal to 20% of the total number of Common Shares
outstanding from time to time. Unexercised SARs, unexercised options, restricted
stock, and performance units under the Long-Term Incentive Plan are subject to
adjustment in the event of a stock dividend, stock split, recapitalization or
combination of the Company, merger or similar transaction and are not
transferable except by will and by the laws of descent and distribution. Except
when a participant's employment terminates as a result of death, disability, or
retirement under an approved retirement plan or following a change in control in
certain circumstances, an award generally may be exercised (or the restriction
thereon may lapse) only if the participant is an officer, employee, or director
of the Company, or subsidiary at the time of exercise or lapse or, in certain
circumstance, if the exercise or lapse occurs within 180 days after employment
is terminated.
Under the Company's Long-Term Incentive Plan all full time employees
share a bonus equal to 5% of the Company's pre-tax net income, in accordance
with GAAP, exclusive of extraordinary and non-recurring items. The bonuses will
be paid to all full time (1,000+ hours) employees at December 31. The bonus will
be paid upon delivery of the independent audit. The Bonus shall be allocated to
the full time employees based upon their salary at December 31. Former Goldking
employees will receive proportionate participation for 1997, based upon their
five months employment with the Company.
Employee Stock Ownership Plan. In 1994, the Company adopted the PANACO, Inc.
Employee Stock Ownership Plan ("ESOP"). Pursuant to the terms of the ESOP, the
Company may contribute up to fifteen percent (15%) of the participant's annual
compensation to the ESOP. ESOP assets are allocated in accordance with a formula
based on participant compensation. In order to participate in the ESOP, a
participant must complete at least one thousand hours of service to the Company
within twelve consecutive months. Former Goldking employees will receive
proportionate participation for 1997, based upon their five months employment
with the Company. A participant's interest in the ESOP becomes one hundred
percent vested after three years of service to the Company. Benefits are
distributed from the ESOP at such time as a participant retires, dies or
terminates service with the Company in accordance with the terms and conditions
of the ESOP. Benefits may be distributed in cash or in shares of the Company's
common stock. No participant contributions are allowed to be made to the ESOP.
<PAGE>
PRINCIPAL STOCKHOLDERS
AND SHARE OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to beneficial
ownership of the Company's Common Stock by (a) each officer and director of the
Company, (b) all officers and directors of the Company as a group, and (c) for
each person who beneficially owns 5% or more of the Common Stock as of November
1, 1997. Except as set forth in footnote (c) below, each shareholder has sole
voting and sole investment power over all shares.
<TABLE>
<CAPTION>
Name Shares Owned Beneficially (a)
Number Percent
--------- ------
Directors and Executive Officers
H. James Maxwell; Chief Executive Officer, Chairman
<S> <C> <C>
of the Board and Director.......................................... 897,586 3.79%
Larry M. Wright; President, Chief Operating Officer and Director..... 1,059,614 4.47
Leonard C. Tallerine, Jr.; Executive Vice President and Director..... 1,548,784 6.53
Mark C. Licata; Sr. Vice President-General Counsel and Director...... 1,606,146 6.77
Robert G. Wonish; Sr. Vice President-Operations...................... 66,410 .28
Edward A. Bush, Jr.; Sr. Vice President-Geology/Geophysics........... 20,000 .08
William J. Doyle; Vice President-Exploitation........................ 16,288 .07
Todd R. Bart; Chief Financial Officer, Secretary, Treasurer.......... 33,997 .14
A. Theodore Stautberg, Jr.; Director................................. 6,881 .03
Donald W. Chesser; Director.......................................... 1,669 .01
James B. Kreamer; Director........................................... 51,685 .22
Michael Springs; Director............................................ 3,726 .02
Mark C. Barrett; Director............................................ 3,258 .01
Harold First; Director............................................... 2,315 .01
------------ ---------
All Directors and Officers as a group (18 persons)................... 5,332,240 22.49%
Shares Owned Beneficially
---------------------------------
---------------- ----------------
Number Percent
-------- ------
Beneficial Owners of 5% or more (excluding persons named above)
Carl C. Icahn (b)................................................ 3,030,000 12.78%
% Icahn Associates Corp.
767 Fifth Avenue, 47th Floor
New York, NY 10153
Richard A. Kayne (c)............................................. 2,200,793 9.28
% Kayne Anderson Investment Management, Inc.
1800 Avenue of the Stars, #200
Los Angeles, CA 90067
Croft-Leominster, Inc............................................ 1,617,100 6.82
207 East Redwood Street, Suite 802
Baltimore, Maryland 21202
</TABLE>
(a) Includes 1,100,000 currently exercisable options to purchase shares, at
$4.45 per share, held by the following: Mr. Maxwell-600,000; Mr.
Wright-400,000; Mr. Wonish-40,000; Mr. Bush-20,000; Mr. Doyle-10,000 and
Mr. Bart-30,000. These options are exercisable any time before June 19,
2000. However, the holder may not dispose of the shares acquired upon
exercise for a period of three years and must remain an employee of PANACO
during that three year period. Otherwise, the shares may be reacquired by
PANACO at the person's cost, thereby denying them the benefit of the
option. In addition, warrants for 160,000 shares, exercisable at $2.38 any
time prior to December 31, 1997, are held by Mr. Wright.
(b) Mr. Icahn is the sole stockholder of Riverdale Investors Corp. Inc., the
general partner of High River Limited Partnership, the record holder of
these shares.
(c) The reported shares are owned by seven investment accounts (including four
investment limited partnerships, two insurance companies and an offshore
corporation), managed, with discretion to purchase or sell securities, by
KAIM Non-Traditional, L.P., a registered investment adviser. The four
investment limited partnerships beneficially own 1,849,279 shares,
including 1,466,667 shares that are issuable upon the exercise of warrants
which expire on December 31, 1998. KAIM Non-Traditional, L.P. is the sole
or managing general partner of three of the limited partnerships and a
co-general partner of the fourth. Richard A. Kayne is the controlling
shareholder of the corporate owner of Kayne, Anderson Investment
Management, Inc., the sole general partner of KAIM Non-Traditional, L.P.
Mr. Kayne is also the managing general partner of one of the limited
partnerships and a limited partner of each of the limited partnerships.
KAIM Non-Traditional, L.P. is an investment manager of the offshore
corporation. Mr. Kayne is a director of one of the insurance companies. All
shares have shared voting and investment power.
KAIM Non-Traditional, L.P. disclaims beneficial ownership of the shares
reported, except for those shares attributable to it by virtue of its
general partner interests in the limited partnerships. Mr. Kayne disclaims
beneficial ownership of the shares reported, except those shares held by
him or attributable to him by virtue of his limited and general partner
interests in the limited partnerships and by virtue of his indirect
interest in the interest of KAIM Non-Traditional, L.P. in the limited
partnerships.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A. Theodore Stautberg, Jr., is an officer, director and beneficial
shareholder of Triumph Securities Corporation ("Triumph Securities"), which
provided certain services in connection with the 1996 offering of Common Shares.
In connection with the services so provided, Triumph Securities received
$268,906, representing .8% of the 6.8% underwriters discount.
Mark C. Barrett's CPA firm, Barrett and Associates, served as the
Company's independent accountants for the years 1985 through 1996. During 1996
his CPA firm was paid $53,400 for accounting services related to the audit of
the fiscal year 1995. Mr. Barrett's firm has provided advice on tax matters in
1997.
H. James Maxwell and Bob F. Mallory are the partners of 1050 Blue Ridge
Building Partnership, which owns a 5,200 square foot office building at 1050
West Blue Ridge Boulevard, Kansas City, Missouri, which it leases to the Company
on a triple net basis for $4,000 per month for a term of ten years, expiring in
2003. Mr. Malloy recently resigned from his positions as Executive Vice
President and Director of the Company. The lease was approved by the Board of
Directors, which determined that the rate was as good or better than that which
could be obtained from a non-affiliated party.
Larry M. Wright exercised warrants to purchase 90,000 Common Shares on
July 31, 1997, at an exercise price of $2.00 per share, for an aggregate of
$180,000. The warrants were originally granted to Mr. Wright in 1991.
Michael Springs and Mark C. Barrett, were each issued restricted stock
awards of 2,447 Common Shares upon their election to the Board of Directors in
1996. Harold First was likewise issued 2,315 Common Shares upon his election to
the Board of Directors in October, 1997.
In connection with the Goldking Acquisition, Mark C. Licata and Leonard C.
Tallerine, Jr. were paid a total of $27,539,000, including 1,606,146 and
1,548,784 restricted Common Shares respectively, issued at the closing on July
31, 1997. Messrs. Licata and Tallerine have certain rights to require the
Company to register such Common Shares for resale. Messrs. Licata and Tallerine
were the sole beneficial owners of Goldking. See "Business and Properties -
Goldking Acquisition." After the Offering, $6,000,000 in promissory notes
received by Messrs. Licata and Tallerine as a portion of the acquisition
consideration were paid by the Company.
On October 8, 1996 the Company borrowed $17,000,000 from lenders
advised by Kayne, Anderson Investment Management, Inc. ("Kayne Anderson"), a
beneficial owner of greater than 5% of the Common Shares. Of this amount,
$8,500,000 was repaid on March 6, 1997 from the proceeds of the Company's recent
public offering of common stock. The Company paid certain expenses, including
legal fees, of those lenders in 1996 and 1997. During the first quarter of 1996,
lenders advised by Kayne Anderson exercised warrants issued to them in
connection with the Subordinated Notes issued to them in 1993, receiving 816,526
Common Shares. After the Offering, $8,500,000 in 1996 Tranche A Convertible
Subordinated Notes due October 8, 2003, convertible into 2,060,606 common shares
on the basis of $4.125 per share, were prepaid by the Company. Warrants to
purchase 2,060,606 common shares at a price of $4.125 per share, which may be
exercised until December 31,1998, were issued as part of the terms of the
prepayment.
H. James Maxwell and former officer and Director Bob F. Mallory are
personal guarantors of the Company's obligation to plug the wells and remove the
platforms on the West Delta Properties acquired from Conoco, Arco (now Vastar),
Texaco and Oxy in 1991.
<PAGE>
THE EXCHANGE OFFER
Purpose and Effect
The Old Notes were sold by the Company on October 7, 1997 in a private
placement. In connection with that placement, the Company entered into the
Registration Rights Agreement which requires that the Company file a
registration statement under the Securities Act with respect to the New Notes on
or prior to 45 days after the date of issuance of the Old Notes (the "Issue
Date") and, upon the effectiveness of that registration statement, offer to the
holders of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount of New Notes, which will be issued without a restrictive legend
and may be reoffered and resold by the holder without registration under the
Securities Act. The Registration Rights Agreement further provides that the
Company must use its reasonable best efforts to cause the registration statement
with respect to the Exchange Offer to be declared effective within 150 days
following the Issue Date. A copy of the Registration Rights Agreement has been
filed as an exhibit to the registration statement of which this Prospectus is a
part.
In order to participate in the Exchange Offer, a holder must represent
to the Company, among other things, that (i) any New Notes to be received by it
will be acquired in the ordinary course of its business, (ii) it has no
arrangement with any person to participate in the distribution of the New Notes
and (iii) it is not an Aaffiliate," as defined in Rule 405 of the Securities
Act, of the Company, or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer should acknowledge that it acquired the
Old Notes for its own account as the result of market making activities or other
trading activities. Any holder who is unable to make the appropriate
representations to the Company will not be permitted to tender the Old Notes in
the Exchange Offer and will be required to comply with the registration and
prospectus delivery requirements of the Securities Act (or an appropriate
exemption therefrom) in connection with any sale or transfer of the Old Notes.
If the holder is not a broker-dealer, it will be required to represent
that it is not engaged in, and does not intend to engage in, the distribution of
the New Notes. If the holder is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
The Old Notes are designated for trading in the PORTAL market. To the
extent Old Notes are tendered and accepted in the Exchange Offer, the principal
amount of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer, holders of Old Notes who were eligible to participate in the Exchange
Offer but who did not tender their Old Notes will not be entitled to certain
rights under the Registration Rights Agreement and such Old Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for the Old Notes could be adversely affected. No assurance can be
given as to the liquidity of the trading market for either the Old Notes or the
New Notes.
<PAGE>
Based on an interpretation by the Commission's staff set forth in
no-action letters issued to third parties unrelated to the Company, the Company
believes that, with the exceptions discussed herein, New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any person receiving the New Notes, whether
or not that person is the holder (other than any such holder or such other
person that is an Aaffiliate" of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that (i) the New
Notes are acquired in the ordinary course of business of that holder or such
other person, (ii) neither the holder nor such other person is engaging in or
intends to engage in a distribution of the New Notes, and (iii) neither the
holder nor such other person has an arrangement or understanding with any person
to participate in the distribution of the New Notes. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where those
Old Notes were acquired by the broker-dealer as a result of its market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of those New Notes. See "Plan of
Distribution."
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the offer or sale of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act and
applicable state securities laws, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not intend to register the Old Notes under the Securities
Act and, after consummation of the Exchange Offer, will not be obligated to do
so. Based on an interpretation by the staff of the Commission set forth in a
series of no-action letters issued to third parties, the Company believes that,
except as set forth in the next sentence, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold or
otherwise transferred by holders thereof (other than any such holder that is an
Aaffiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Old Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with any
person to participate in the distribution of such New Notes. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OUTSTANDING NOTES AS TO WHETHER TO TENDER OR
REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OUTSTANDING NOTES PURSUANT TO
THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF OUTSTANDING NOTES MUST MAKE THEIR OWN DECISION
WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE
AMOUNT OF OUTSTANDING NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE
LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR
OWN FINANCIAL POSITION AND REQUIREMENTS.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and all
Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount at
maturity of New Notes in exchange for each $ 1,000 principal amount at maturity
of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some
or all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may
be tendered only in integral multiples of $1,000 in principal amount.
<PAGE>
The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes except that the New Notes have been registered under
the Securities Act and will not bear legends restricting their transfer. The New
Notes will evidence the same debt as the Old Notes and will be issued pursuant
to, and entitled to the benefits of, the indenture pursuant to which the Old
Notes were, and the New Notes will be, issued.
As of the date of this Prospectus, $100,000,000, in aggregate principal
amount at maturity of the Old Notes were outstanding. The Company has fixed the
close of business on ________________________, 1997 as the record date for the
Exchange Offer for purposes of determining the persons to whom this Prospectus,
together with the Letter of Transmittal, will initially be sent. Holders of Old
Notes do not have any appraisal or dissenters' rights under the General
Corporation Law of the State of Delaware or the Indenture in connection with the
Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with
the applicable requirements of the Exchange Act and the rules and regulations of
the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as, and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company. If any tendered Old
Notes are not accepted for exchange because of an invalid tender, the occurrence
of certain other events set forth herein or otherwise, certificates for any such
unaccepted Old Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"The Exchange Offer - Solicitation of Tenders; Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, ____________,1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. In order to extend the
Exchange Offer, the Company will notify the Exchange Agent of any extension by
oral or written notice prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. The Company
reserves the right, in its sole discretion, (i) to delay accepting any Old
Notes, to extend the Exchange Offer or, if any of the conditions set forth under
"The Exchange Offer - Conditions" shall not have been satisfied, to terminate
the Exchange Offer, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner.
Procedures for Tendering
<PAGE>
Only a holder of Old Notes may tender the Old Notes in the Exchange Offer.
Except as set forth under "The Exchange Offer - Book Entry Transfer," to tender
in the Exchange Offer a holder must complete, sign and date the Letter of
Transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the Letter
of Transmittal or copy to the Exchange Agent prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation
of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if
that procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "DTC" or the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below. To be tendered
effectively, the Old Notes, Letter of Transmittal and other required documents
must be received by the Exchange Agent at the address set forth under "The
Exchange Offer - Exchange Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE AND
PROPER INSURANCE SHOULD BE OBTAINED. NO LETTER OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in the beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined herein)
unless Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box tided "Special Registration Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
Program, or an Aeligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations, or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal unless waived by the Company.
<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that the Company
determines are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "The Exchange Offer - Conditions," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
By tendering, each holder will represent to the Company that, among
other things, (i) the New Notes acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the holder, (ii) if it is not a
broker-dealer, neither the holder nor any such other person is engaging in or
intends to engage in a distribution of such New Notes, (iii) neither the holder
nor any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, and (iv) neither the holder
nor any such other person is an Aaffiliate" (as defined in Rule 405 of the
Securities Act) of the Company. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Company), may
participate in the Exchange Offer but may be deemed an Aunderwriter" under the
Securities Act and, therefore, must acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an Aunderwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
<PAGE>
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the Letter of Transmittal), and all other required
documents. If any tendered Old Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged Old
Notes will be resumed without expense to the tendering holder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
Book-Entry Transfer
The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility system may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with
any required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "The Exchange
Offer - Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
The DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through the DTC. To accept the Exchange Offer through
ATOP, participants in the DTC must send electronic instructions to the DTC
through the DTC's communication system in place of sending a signed, hard copy
Letter of Transmittal. The DTC is obligated to communicate those electronic
instructions to the Exchange Agent. To tender Old Notes through ATOP, the
electronic instructions sent to the DTC and transmitted by the DTC to the
Exchange Agent must contain the character by which the participant acknowledges
its receipt of and agrees to be bound by the Letter of Transmittal.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY IN ACCORDANCE WITH THE DEPOSITORY'S
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. THE LETTER OF
TRANSMITTAL MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO
___________________, 1997.
Guaranteed Delivery Procedures
If a registered holder of the Old Notes desires to tender such Old
Notes and the Old Notes are not immediately available, or time will not permit
such holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
<PAGE>
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or
(for DTC participants) electronic ATOP transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth herein prior to 5:00
p.m., New York City time, on the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Old Notes to be
withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn
(including the certificate number or numbers and principal amount at maturity of
such Old Notes), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender, and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions as
to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, in its sole discretion, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "The Exchange Offer - Procedures for Tendering" at any time on
or prior to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, the Company shall
not be required to accept for exchange, or exchange New Notes for, any Old
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) the Exchange Offer shall violate applicable law or any applicable
interpretation of the staff of the Commission; or
(b) any action or proceeding is instituted or threatened in any court or by any
governmental agency that might materially impair the ability of the Company
to proceed with the Exchange Offer or any material adverse development has
occurred in any existing action or proceeding with respect to the Company;
or
(c) any governmental approval has not been obtained, which approval the Company
shall deem necessary for the consummation of the Exchange Offer.
<PAGE>
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering holders (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility), (ii) extend the Exchange Offer and retain
all Old Notes tendered prior to the expiration of the Exchange Offer, subject,
however, to the rights of holders to withdraw such Old Notes (see A - Withdrawal
Rights") or (iii) waive such unsatisfied conditions with respect to the Exchange
Offer and accept all properly tendered Old Notes which have not been withdrawn.
If such waiver constitutes a material change to the Exchange Offer, the Company
will promptly disclose such waiver by means of a prospectus supplement that will
be distributed to the registered holders, and the Company will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such
five-to-ten-business-day period.
Exchange Agent
All executed Letters of Transmittal should be directed to the Exchange
Agent. UMB Bank, N.A., has been appointed as Exchange Agent for the Exchange
Offer. Questions, requests for assistance and requests for additional copies of
this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
By Registered, Certified Mail or Overnight Courier:
UMB Bank, N.A. UMB Bank, N.A.
Attn: Corporate Trust Attn: Corporate Trust
1 Battery Park Plaza, 8th Floor or 13th Floor, 928 Grand Boulevard
New York, NY 10004-1405 Kansas City, MO 64106
Via Facsimile: Via Facsimile:
(212) 514-5730 (816) 221-0438
For Information Call: For Information Call:
(212) 968-1990 (816) 860-7428
Solicitations of Tenders; Fees and Expenses
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
Transfer Taxes
Holders who tender their Old Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register New Notes in the name of, or request that Old
Notes not tendered or not accepted in the Exchange Offer be returned to, a
person other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
<PAGE>
DESCRIPTION OF NEW CREDIT FACILITY
The Company has entered into a new $75 million revolving credit
facility (the "New Credit Facility") from First Union National Bank of North
Carolina, as Administrative Agent and Banque Paribas (collectively, the
"Lenders"). The purpose of the New Credit Facility is to provide funds for
working capital support and general corporate purposes and to have available
letters of credit. Upon Closing of the Offering and the application of the
proceeds thereof, the Company's prior Bank Facility was completely paid down and
the New Credit Facility is fully available, subject to the terms and conditions
thereof, for the future needs of the Company.
The New Credit Facility is a revolving credit subject to a borrowing
base determination made April 1 and October 1 of each year by the Lenders. The
initial borrowing base is $40 million, all of which is presently available. The
initial borrowing base will be subject to a reduction of $4 million on April 1,
1998 unless redetermined on an evaluation of the Company's oil and natural gas
assets. If at any time the borrowing base is determined to be less than the
current loan balance, the Company will be required to pay down the excess in two
equal payments due three and six months after notification from the
Administrative Agent.
Under the terms of the New Credit Facility, the Company must maintain a
ratio of EBITDA to consolidated interest expense of not less than 2.0 to 1 until
December 31, 1998 and 2.5 to 1 thereafter. The Company must also maintain
current assets of not less than current liabilities.
The Company may elect to pay interest on the New Credit Facility at
either the Bank's prime rate or at LIBOR plus 1 to 1.75%, depending upon the
percentage of utilization of borrowing base. LIBOR is the London Interbank
Offered Rate on Eurodollar loans. Eurodollar loans can be for terms of one, two,
three or six months and interest on such loans is due at the expiration of the
terms of such loans, but no less frequently than every three months.
The New Credit Facility has a maturity of five years with no required
principal payments until maturity, provided that the outstanding principal
balance does not exceed the Borrowing Base determinations established from time
to time by the Lenders. Indebtedness under the New Credit Facility will
constitute Senior Indebtedness. Outstanding indebtedness will be secured by
first priority mortgages and security interests taken by the Lenders in
substantially all properties and assets owned by the Company (including its
subsidiaries). All of the capital stock of the Subsidiary Guarantors will be
pledged pursuant to the New Credit Facility. The Subsidiary Guarantors have also
guaranteed the New Credit Facility.
The representations and warranties, conditions to extensions of credit,
events of default and indemnifications will be substantially the same as under
the prior Bank Facility. The New Credit Facility also contains certain other
covenants, including a minimum tangible net worth test, and negative covenants
imposing limitations on mergers, additional indebtedness, and pledges and sales
of assets.
<PAGE>
DESCRIPTION OF NOTES
The Old Notes were issued under an indenture (the "Indenture") dated as
of October 9, 1997 by and among the Company, the Subsidiary Guarantors and UMB
Bank, N.A., as Trustee (the "Trustee"). Upon the issuance of the New Notes, if
any, or the effectiveness of a Shelf Registration Statement (as defined), the
Indenture will be subject to and governed by the provisions of the Trust
Indenture Act of 1939, as amended (the "TIA").
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the TIA and all of the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA as in effect on the date of the Indenture. A
copy of the form of Indenture may be obtained from the Company. The definitions
of certain capitalized terms used in the following summary are set forth below
under "Certain Definitions." For purposes of this "Description of Notes"
section, references to the "Company" include only Panaco, Inc. and not its
Subsidiaries.
The Notes are general unsecured obligations of the Company ranking pari
passu in right of payment to all unsubordinated indebtedness of the Company and
rank senior in right of payment to all subordinated indebtedness of the Company.
The Guarantees are general unsecured obligations of the Subsidiary Guarantors
and rank pari passu in right of payment to all unsubordinated indebtedness of
the Subsidiary Guarantors and rank senior in right of payment to all
subordinated indebtedness of the Subsidiary Guarantors. However, the Notes are
effectively subordinated to all secured indebtedness of the Company and the
Subsidiary Guarantors to the extent of the value of the assets securing such
indebtedness. As of June 30, 1997, on a pro forma basis after giving effect to
the Offering and the application of the proceeds therefrom, the Company has no
secured indebtedness outstanding other than a production payment classified as
debt owed to Domain Energy (formerly Tenneco) currently valued at $1.7 million.
The Notes have been issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as paying agent and registrar for the Notes. The Notes may
be presented for registration of transfer and exchange at the offices of the
registrar, which initially will be the Trustee's corporate trust office. The
Company may change any paying agent and registrar without notice to Holders. The
Company will pay principal (and premium, if any) on the Notes at the Trustee's
corporate office in New York, New York. At the Company's option, interest may be
paid at the Trustee's corporate trust office or by check mailed to the
registered addresses of the Holders. Any Old Notes that remain outstanding after
the completion of the Exchange Offer, together with the New Notes issued in
connection with the Exchange Offer, will be treated as a single class of
securities under the Indenture. See "The Exchange Offer."
Principal, Maturity and Interest
The Notes are limited in aggregate principal amount to $200,000,000
aggregate principal amount, of which $100,000,000 aggregate principal amount
were issued in the offering of the Notes. Additional amounts may be issued in
one or more series from time to time subject to the limitations set forth under
"Certain Covenants Limitation on Incurrence of Additional Indebtedness." The
Notes will mature on October 1, 2004. Interest on the Notes will accrue at the
rate of 10 5/8% per annum and will be payable semi-annually in cash on each
April 1 and October 1, commencing on April 1, 1998, to the Persons who are
registered Holders at the close of business on the March 15 and September 15,
respectively, immediately preceding the applicable interest payment date.
Interest on the Notes will accrue from and including the most recent date to
which interest has been paid or, if no interest has been paid, from and
including the date of issuance.
The Notes are not entitled to the benefit of any mandatory sinking
fund.
<PAGE>
Redemption
Optional Redemption. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after October
1, 2001, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the 12-month period commencing on June 1 of the years set forth
below, plus, in each case, accrued interest, if any, thereon to the date of
redemption:
Year Percentage
---- ---------
2001............................. 105.313%
2002............................. 102.656%
2003 and thereafter.............. 100.000%
Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to October 1, 2000, the Company may, at its option, use all or
a portion of the net cash proceeds of one or more Equity Offerings (as defined)
to redeem up to 35% of the aggregate principal amount of the Notes originally
issued at a redemption price equal to 110.625% of the aggregate principal amount
of the Notes to be redeemed, plus accrued interest, if any, thereon to the date
of redemption; provided, however, that at least 65% of the aggregate principal
amount of Notes originally issued remains outstanding immediately after giving
effect to any such redemption. In order to effect the foregoing redemption with
the proceeds of any Equity Offering, the Company shall make such redemption not
more than 60 days after the consummation of any such Equity Offering.
Selection and Notice of Redemption
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes, or portions thereof, for redemption will be made
by the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes are
not then listed on a national securities exchange, on a pro rata basis, by lot
or by such other method as the Trustee shall deem fair and appropriate;
provided, however, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part; and provided, further, that if a partial redemption is made
with the proceeds of an Equity Offering, selection of the Notes or portions
thereof for redemption shall be made by the Trustee only on a pro rata basis or
on as nearly a pro rata basis as is practicable (subject to the procedures of
DTC), unless such method is otherwise prohibited. Notice of redemption shall be
mailed by first-class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the applicable redemption date,
interest will cease to accrue on Notes or portions thereof called for redemption
as long as the Company has deposited with the paying agent for the Notes funds
in satisfaction of the applicable redemption price pursuant to the Indenture.
Guarantees
Each Subsidiary Guarantor has unconditionally guaranteed, on a senior
basis, jointly and severally, to each Holder and the Trustee, the full and
prompt performance of the Company's obligations under the Indenture and the
Notes, including the payment of principal of and interest on the Notes. The
Guarantees are effectively subordinated in right of payment to all existing and
future secured Indebtedness of the related Subsidiary Guarantor to the extent of
the value of the assets securing such Indebtedness.
<PAGE>
The obligations of each Subsidiary Guarantor are limited to the maximum
amount which, 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 Guarantee or
pursuant to its contribution obligations under the Indenture, will result in the
obligations of such Subsidiary Guarantor under its Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Subsidiary Guarantor that makes a payment or distribution under its Guarantee
shall be entitled to a contribution from each other Subsidiary Guarantor in an
amount pro rata, based on the net assets of each Subsidiary Guarantor,
determined in accordance with GAAP.
Each Subsidiary Guarantor may consolidate with or merge into or sell
its assets to the Company or another Subsidiary Guarantor that is a Wholly Owned
Restricted Subsidiary without limitation, or with or to other Persons upon the
terms and conditions set forth in the Indenture. See "Certain Covenants Merger,
Consolidation and Sale of Assets." In the event all of the Capital Stock of a
Subsidiary Guarantor is sold by the Company and/or one or more of its Restricted
Subsidiaries and the sale complies with the provisions set forth in "Certain
Covenants - Limitation on Asset Sales," such Subsidiary Guarantor's Guarantee
will be released.
Separate financial statements of the Subsidiary Guarantors are not
included herein because such Subsidiary Guarantors are jointly and severally
liable with respect to the Company's obligations under the Indenture and the
Notes, and the aggregate net assets, earnings and equity of the Subsidiary
Guarantors and the Company are substantially equivalent to the net assets,
earnings and equity of the Company on a consolidated basis.
Change of Control
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof, plus accrued interest, if any, thereon to the date of purchase.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). A Change of Control Offer shall remain open for a period of 20
Business Days or such longer period as may be required by law. Holders electing
to have a Note purchased pursuant to a Change of Control Offer will be required
to surrender the Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note completed, to the paying agent for the
Notes at the address specified in the notice prior to the close of business on
the third Business Day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that
the Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing. Additionally,
the occurrence of a Change of Control would constitute an event of default under
the Senior Credit Facility which would permit the lenders thereunder to
accelerate all indebtedness under the Senior Credit Facility.
<PAGE>
Neither the Board of Directors of the Company nor the Trustee may waive
the covenant relating to the Company's obligation to make a Change of Control
Offer. Restrictions in the Indenture described herein on the ability of the
Company and its Restricted Subsidiaries to incur additional Indebtedness, to
grant liens on their property, to make Restricted Payments and to make Asset
Sales may also make more difficult or discourage a takeover of the Company,
whether favored or opposed by the management of the Company. Consummation of any
such transaction in certain circumstances may require repurchase of the Notes,
and there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such repurchase. Such restrictions and
the restrictions on transactions with Affiliates may, in certain circumstances,
make more difficult or discourage any leveraged buy-out of the Company by the
management of the Company. While such restrictions cover a wide variety of
arrangements which have traditionally been used to effect highly leveraged
transactions, the Indenture may not afford the Holders of Notes protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 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
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
Certain Covenants
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. Other than
Permitted Indebtedness, the Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume, guarantee, acquire, become liable, contingently or otherwise, with
respect to, or otherwise become responsible for payment of (collectively,
Aincur") any Indebtedness (including, without limitation, Acquired
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company may incur Indebtedness, or any
of its Restricted Subsidiaries may incur Acquired Indebtedness, if on the date
of the incurrence of such Indebtedness, after giving pro forma effect to the
incurrence thereof and the receipt and application of the proceeds therefrom,
the Consolidated EBITDA Coverage Ratio would have been greater than 2.25 to 1.0
on or prior to September 30, 1998, and greater than 2.5 to 1.0 thereafter.
Restricted Subsidiaries that are Subsidiary Guarantors may guarantee
any Indebtedness incurred by the Company pursuant to the preceding paragraph,
and, for purposes of determining any particular amount of Indebtedness incurred
under this covenant, such guarantees shall not be deemed to be the incurrence of
any Indebtedness.
Indebtedness of a Person existing at the time such Person becomes a
Restricted Subsidiary (whether by merger, consolidation, acquisition of Capital
Stock or otherwise) or is merged with or into the Company or any Restricted
Subsidiary or which is secured by a Lien on an asset acquired by the Company or
a Restricted Subsidiary (whether or not such Indebtedness is assumed by the
acquiring Person) shall be deemed incurred at the time the Person becomes a
Restricted Subsidiary or at the time of the asset acquisition, as the case may
be.
<PAGE>
The Company will not, and will not permit any Subsidiary Guarantor to,
incur any Indebtedness which by its terms (or by the terms of any agreement
governing such Indebtedness) is subordinated in right of payment to any
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be,
other than the Notes and the Guarantees unless such Indebtedness is also by its
terms (or by the terms of any agreement governing such Indebtedness) made
expressly subordinate in right of payment to the Notes or the Guarantee of such
Subsidiary Guarantor, as the case may be, pursuant to subordination provisions
that are substantially identical to the subordination provisions of such
Indebtedness (or agreement) that are most favorable to the holders of such other
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be.
Maintenance of Adjusted Consolidated Net Tangible Assets. If Adjusted
Consolidated Net Tangible Assets are less than 125% of the Indebtedness of the
Company and its Restricted Subsidiaries on a consolidated basis at the end of
any fiscal quarter, which event shall not have been remedied and shall be
continuing at the end of the next succeeding fiscal quarter (the last day of
such succeeding fiscal quarter being hereinafter referred to as a "Deficiency
Date"), then the Company shall be obligated to make an offer (a "Deficiency
Offer") to all of the Holders to repurchase Notes, on a date not more than 60
nor less than 30 days after the Deficiency Date (the "Deficiency Payment Date"),
in an aggregate principal amount (the "Deficiency Offer Amount") that would be
sufficient to cause Adjusted Consolidated Net Tangible Assets to thereafter
equal or exceed 125% of the Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis , at a purchase price (the "Deficiency
Purchase Price") equal to 100% of the principal amount of the Notes, together
with accrued and unpaid interest, if any, to the Deficiency Payment Date. The
Deficiency Offer is required to remain open for at least 20 Business Days and
until the close of business on the Deficiency Payment Date.
As of June 30, 1997, after giving effect to the consummation of the
offering of the Notes, Adjusted Consolidated Net Tangible Assets would have been
approximately $193 million, or 189% of the Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis.
In order to effect such Deficiency Offer, the Company shall, not later
than the 45th day after the Deficiency Date, mail to each Holder a notice of the
Deficiency Offer, which notice shall govern the terms of the Deficiency Offer
and shall state, among other things, the procedures that Holders must follow to
accept the Deficiency Offer. If the aggregate principal amount of Notes validly
tendered and not withdrawn by Holders thereof exceeds the Deficiency Offer
Amount, Notes to be purchased will be selected on a pro rata basis.
If a Deficiency Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Deficiency Purchase
Price for all of the Notes that might be delivered by Holders seeking to accept
the Deficiency Offer. In the event a Deficiency Payment Date occurs at a time
when the Company does not have available funds sufficient to pay the Deficiency
Purchase price, an Event of Default would occur under the Indenture.
The Company will comply with the requirements of Rule 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
repurchase of Notes pursuant to a Deficiency Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
<PAGE>
Limitation on Restricted Payments. The Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
(a) declare or pay any dividend or make any distribution (other than (x)
dividends or distributions made to the Company or any Restricted Subsidiary of
the Company or (y) dividends or distributions payable solely in Qualified
Capital Stock of the Company or warrants, rights or options to purchase or
acquire shares of Qualified Capital Stock of the Company) on or in respect of
shares of the Capital Stock of the Company or any Restricted Subsidiary to
holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or
retire for value any Capital Stock of the Company or any Restricted Subsidiary
or any warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock (other than through the exchange therefor solely of Qualified
Capital Stock of the Company or warrants, rights or options to purchase or
acquire shares of Qualified Capital Stock of the Company), (c) make any
principal payment on, purchase, defease, redeem, prepay, decrease or otherwise
acquire or retire for value, prior to any scheduled final maturity, scheduled
repayment or scheduled sinking fund payment, any Indebtedness of the Company or
a Restricted Subsidiary that is subordinate or junior in right of payment to the
Notes or such Restricted Subsidiary's Guarantee, as the case may be, or (d) make
any Investment (other than a Permitted Investment) (each of the foregoing
actions set forth in clauses (a), (b), (c) and (d) being referred to as a
"Restricted Payment"), if at the time of such Restricted Payment or immediately
after giving effect thereto, (i) a Default or an Event of Default shall have
occurred and be continuing or (ii) the Company is not able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with "C Limitation on Incurrence of Additional Indebtedness" above or
(iii) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment) made subsequent to the Issue Date (the amount expended for
such purposes, if other than in cash, being the fair market value of such
property as determined reasonably and in good faith by the Board of Directors of
the Company) shall exceed the sum of: (A) 50% of the cumulative Consolidated Net
Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company earned subsequent to the Issue Date and on or prior to
the last date of the Company's fiscal quarter immediately preceding such
Restricted Payment (the "Reference Date") (treating such period as a single
accounting period); plus (B) 100% of the aggregate net cash proceeds received by
the Company from any Person (other than a Restricted Subsidiary of the Company)
from the issuance and sale subsequent to the Issue Date and on or prior to the
Reference Date of Qualified Capital Stock of the Company; plus (C) without
duplication of any amounts included in clause (iii)(B) above, 100% of the
aggregate net cash proceeds of any equity contribution received by the Company
from a holder of the Company's Capital Stock (excluding, in the case of clauses
(iii)(B) and (C), any net cash proceeds from an Equity Offering to the extent
used to redeem the Notes); plus (D) an amount equal to the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends, interest
payments, repayments of loans or advances, or other transfers of cash, in each
case to the Company or to any Restricted Subsidiary of the Company from
Unrestricted Subsidiaries (but without duplication of any such amount included
in calculating cumulative Consolidated Net Income of the Company), or from
resignations of Unrestricted Subsidiaries as Restricted Subsidiaries (in each
case valued as provided in "Limitation on Designation of Unrestricted
Subsidiaries" below), not to exceed, in the case of any Unrestricted Subsidiary,
the amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary and which was treated as a Restricted
Payment under the Indenture; plus (E) without duplication of the immediately
preceding subclause (D), an amount equal to the lesser of the cost or net cash
proceeds received upon the sale or other disposition of any Investment made
after the Issue Date which had been treated as a Restricted Payment (but without
duplication of any such amount included in calculating cumulative Consolidated
Net Income of the Company); plus (F) $1.0 million.
<PAGE>
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph shall not prohibit: (1) the payment of any dividend or
redemption payment within 60 days after the date of declaration of such dividend
or the applicable redemption if the dividend or redemption payment, as the case
may be, would have been permitted on the date of declaration; (2) if no Default
or Event of Default shall have occurred and be continuing, the acquisition of
any shares of Capital Stock of the Company, through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Restricted
Subsidiary of the Company) of shares of Qualified Capital Stock of the Company;
(3) if no Default or Event of Default shall have occurred and be continuing, the
acquisition of any Indebtedness of the Company or a Restricted Subsidiary that
is subordinate or junior in right of payment to the Notes or such Restricted
Subsidiary's Guarantee, as the case may be, either (a) solely in exchange for
shares of Qualified Capital Stock of the Company or warrants, rights or options
to purchase or acquire shares of Qualified Capital Stock of the Company, or (b)
through the application of net proceeds of a substantially concurrent sale for
cash (other than to a Restricted Subsidiary of the Company) of (I) shares of
Qualified Capital Stock of the Company or (II) Refinancing Indebtedness, (4) if
no Default or Event of Default shall have occurred and be continuing, the
acquisition, in odd-lot purchase transactions, of shares of the Company's Common
Stock, which purchases will not exceed $100,000 in the aggregate in any calendar
year; and (5) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of shares of the Company's Common Stock pursuant to
Company repurchase options in stock option agreements between the Company and
employees of the Company and its subsidiaries, which purchases will not exceed
$1,000,000 in the aggregate in any calendar year. In determining the aggregate
amount of Restricted Payments made subsequent to the Issue Date in accordance
with clause (iii) of the immediately preceding paragraph, amounts expended
pursuant to clauses (1), (2), (4) and (5) shall be included in such calculation.
Limitation on Asset Sales. The Company will not, and will not cause or
permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless
(a) the Company or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the fair
market value of the assets sold or otherwise disposed of (as determined in good
faith by the Company's Board of Directors or senior management of the Company);
(b) (i) at least 85% of the consideration received by the Company or such
Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the
form of cash or Cash Equivalents and is received at the time of such
disposition; and (c) upon the consummation of an Asset Sale, the Company shall
apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 270 days of receipt thereof either (i) to
repay or prepay Indebtedness outstanding under the Senior Credit Facility,
including, without limitation, a permanent reduction in the related commitment,
(ii) to repay or prepay any Indebtedness of the Company that is secured by a
Lien permitted to be incurred pursuant to "Limitation on Liens" below, (iii) to
make an investment in properties or assets that replace the properties or assets
that were the subject of such Asset Sale or in properties or assets that will be
used in the business of the Company and its Restricted Subsidiaries as existing
on the Issue Date or in businesses reasonably related thereto ("Replacement
Assets"), (iv) to an investment in Crude Oil and Natural Gas Related Assets or
(v) a combination of prepayment and investment permitted by the foregoing
clauses (c)(i) through (c)(iv). On the 271st day after an Asset Sale or such
earlier date, if any, as the Board of Directors of the Company determines not to
apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses
(c)(i) through (c)(iv) of the next preceding sentence (each a "Net Proceeds
Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have been
received by the Company or such Restricted Subsidiary but which have not been
applied on or before such Net Proceeds Offer Trigger Date as permitted in
clauses (c)(i) through (c)(iv) of the next preceding sentence (each a "Net
Proceeds Offer Amount") shall be applied by the Company or such Restricted
Subsidiary, as the case may be, to make an offer to purchase (a "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor
more than 45 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a pro rata basis, that principal amount of Notes purchasable with
the Net Proceeds Offer Amount at a price equal to 100% of the principal amount
of the Notes to be purchased, plus accrued and unpaid interest, if any, thereon
to the date of purchase; provided, however, that if at any time any non-cash
consideration received by the Company or any Restricted Subsidiary, as the case
may be, in connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash (other than interest received with respect to any such
non-cash consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant. The Company may defer the Net Proceeds
Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to
or in excess of $5.0 million resulting from one or more Asset Sales (at which
time, the entire unutilized Net Proceeds Offer Amount, and not just the amount
in excess of $5.0 million shall be applied as required pursuant to this
paragraph).
<PAGE>
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "Merger, Consolidation and
Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company
and its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (a) the consideration for
such Asset Sale constitutes Replacement Assets and/or Crude Oil and Natural Gas
Related Assets and (b) such Asset Sale is for fair market value; provided,
however, that any consideration not constituting Replacement Assets and Crude
Oil and Natural Gas Related Assets received by the Company or any of its
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Cash Proceeds subject to
the provisions of the two immediately preceding paragraphs.
Notice of each Net Proceeds Offer will be mailed to the record Holders
as shown on the register of Holders within 30 days following the Net Proceeds
Offer Trigger Date, with a copy to the Trustee, and shall comply with the
procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds
Offer, Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Notes with an aggregate principal amount exceeding the Net Proceeds Offer
Amount, Notes of tendering Holders will be purchased on a pro rata basis (based
on principal amounts tendered). A Net Proceeds Offer shall remain open for a
period of 20 Business Days or such longer period as may be required by law.
The Company's ability to repurchase Notes in a Net Proceeds Offer is
restricted by the terms of the Senior Credit Facility and may be prohibited or
otherwise limited by the terms of any then existing borrowing arrangements and
the Company's financial resources.
The Company will comply with the requirements of Rule 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
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
<PAGE>
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances,
or to pay any Indebtedness or other obligation owed, to the Company or any other
Restricted Subsidiary; (c) guarantee any Indebtedness or any other obligation of
the Company or any Restricted Subsidiary; or (d) transfer any of its property or
assets to the Company or any other Restricted Subsidiary (each such encumbrance
or restriction, a "Payment Restriction"), except for such encumbrances or
restrictions existing under or by reason of: (i) applicable law; (ii) the
Indenture; (iii) the Senior Credit Facility; (iv) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary; (v) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to such Restricted Subsidiary, or
the properties or assets of such Restricted Subsidiary, other than the Person or
the properties or assets of the Person so acquired; (vi) agreements existing on
the Issue Date to the extent and in the manner such agreements are in effect on
the Issue Date; (vii) customary restrictions with respect to a Restricted
Subsidiary of the Company pursuant to an agreement that has been entered into
for the sale or disposition of Capital Stock or assets of such Restricted
Subsidiary to be consummated in accordance with the terms of the Indenture
solely in respect of the assets or Capital Stock to be sold or disposed of;
(viii) any instrument governing a Permitted Lien, to the extent and only to the
extent such instrument restricts the transfer or other disposition of assets
subject to such Permitted Lien; or (ix) an agreement governing Refinancing
Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clause (ii), (iii), (v) or (vi) above;
provided, however, that the provisions relating to such encumbrance or
restriction contained in any such Refinancing Indebtedness are no less favorable
to the Holders in any material respect as determined by the Board of Directors
of the Company in their reasonable and good faith judgment than the provisions
relating to such encumbrance or restriction contained in the applicable
agreement referred to in such clause (ii), (iii), (v) or (vi).
Limitation on Preferred Stock of Restricted Subsidiaries. The Company
will not cause or permit any of its Restricted Subsidiaries to issue any
Preferred Stock (other than to the Company or to a Wholly Owned Restricted
Subsidiary) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary.
Limitation on Liens. Other than Permitted Liens, the Company will not,
and will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or permit or suffer to exist any Liens of any
kind against or upon any property or assets of the Company or any of its
Restricted Subsidiaries (whether owned on the Issue Date or acquired after the
Issue Date) or any proceeds therefrom, or assign or otherwise convey any right
to receive income or profits therefrom unless (a) in the case of Liens securing
Indebtedness that is expressly subordinate or junior in right of payment to the
Notes or any Guarantee, the Notes or such Guarantee, as the case may be, are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens at least to the same extent as the Notes are senior in
priority to such Indebtedness and (b) in all other cases, the Notes and the
Guarantees are equally and ratably secured.
<PAGE>
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or in a series of related transactions, consolidate or merge with or
into any Person, or sell, assign, transfer, lease, convey or otherwise dispose
of (or cause or permit any Restricted Subsidiary to sell, assign, transfer,
lease, convey or otherwise dispose of) all or substantially all of the Company's
assets (determined on a consolidated basis for the Company and its Restricted
Subsidiaries), whether as an entirety or substantially as an entirety to any
Person unless: (a) either (i) the Company shall be the surviving or continuing
corporation or (ii) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and its Restricted Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a corporation
organized and validly existing under the laws of the United States or any state
thereof or the District of Columbia and (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed; (b)
immediately after giving effect to such transaction and the assumption
contemplated by clause (a)(ii)(y) above (including giving effect to any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction), the Company or such Surviving Entity, as the case
may be, (i) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction and
(ii) shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to "Limitation on Incurrence of Additional
Indebtedness" above; (c) immediately before and immediately after giving effect
to such transaction and the assumption contemplated by clause (a)(ii)(y) above
(including, without limitation, giving effect to any Indebtedness incurred or
anticipated to be incurred and any Lien granted in connection with or in respect
of the transaction), no Default or Event of Default shall have occurred or be
continuing; (d) each Subsidiary Guarantor, unless it is the other party to the
transactions described above, shall have by supplemental indenture to the
Indenture confirmed that its Guarantee of the Notes shall apply to such Person's
obligations under the Indenture and the Notes; (e) if any of the properties or
assets of the Company or any of its Restricted Subsidiaries would upon such
transaction or series of related transactions become subject to any Lien (other
than a Permitted Lien), the creation and imposition of such Lien shall have been
in compliance with "Limitation on Liens" above; and (f) the Company or the
Surviving Entity, as the case may be, shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition, and, if a supplemental indenture is required in connection with
such transaction, such supplemental indenture, comply with the applicable
provisions of the Indenture and that all conditions precedent in the Indenture
relating to such transaction have been satisfied; provided, however, that such
counsel may rely, as to matters of fact, on a certificate or certificates of
officers of the Company.
For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
Upon any consolidation, combination or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the foregoing,
in which the Company is not the continuing corporation, the successor Person
formed by such consolidation or into which the Company is merged or to which
such conveyance, lease or transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under the Indenture
and the Notes with the same effect as if such surviving entity had been named as
such.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of the Guarantee and
the Indenture in connection with any transaction complying with the provisions
of the Indenture described under "Limitation on Asset Sales") will not, and the
Company will not cause or permit any Subsidiary Guarantor to, consolidate with
or merge with or into any Person other than the Company or another Subsidiary
Guarantor that is a Wholly Owned Restricted Subsidiary unless: (a) the entity
formed by or surviving any such consolidation or merger (if other than the
Subsidiary Guarantor) or to which such sale, lease, conveyance or other
disposition shall have been made is a corporation organized and existing under
the laws of the United States or any state thereof or the District of Columbia;
(b) such entity assumes by execution of a supplemental indenture all of the
obligations of the Subsidiary Guarantor under its Guarantee; (c) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; and (d) immediately after giving effect to such
transaction and the use of any net proceeds therefrom on a pro forma basis, the
Company could satisfy the provisions of clause (b) of the first paragraph of
this covenant. Any merger or consolidation of a Subsidiary Guarantor with and
into the Company (with the Company being the surviving entity) or another
Subsidiary Guarantor that is a Wholly Owned Restricted Subsidiary need only
comply with clause (d) of the first paragraph of this covenant.
<PAGE>
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into, amend or permit or suffer to exist any transaction or
series of related transactions (including, without limitation, the purchase,
sale, lease or exchange of any property, the guaranteeing of any Indebtedness or
the rendering of any service) with, or for the benefit of, any of their
respective Affiliates (each an "Affiliate Transaction"), other than (i)
Affiliate Transactions permitted under paragraph (b) of this covenant and (ii)
Affiliate Transactions that are on terms that are fair and reasonable to the
Company or the applicable Restricted Subsidiary and are no less favorable to the
Company or the applicable Restricted Subsidiary than those that might reasonably
have been obtained in a comparable transaction at such time on an arm's-length
basis from a Person that is not an Affiliate of the Company or such Restricted
Subsidiary. All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $1.0 million
shall be approved by the Board of Directors of the Company, such approval to be
evidenced by a Board Resolution stating that such Board of Directors has
determined that such transaction complies with the foregoing provisions. If the
Company or any Restricted Subsidiary enters into an Affiliate Transaction (or a
series of related Affiliate Transactions related to a common plan) that involves
an aggregate fair market value of more than $10.0 million, the Company shall,
prior to the consummation thereof, obtain a favorable opinion as to the fairness
of such transaction or series of related transactions to the Company or the
relevant Restricted Subsidiary, as the case may be, from a financial point of
view, from an Independent Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary as determined in good faith by the Board of Directors or senior
management of the Company or such Restricted Subsidiary, as the case may be;
(ii) transactions exclusively between or among the Company and any of its
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries; provided, however, that such transactions are not otherwise
prohibited by the Indenture; and (iii) Restricted Payments permitted by the
Indenture.
Limitation on Restricted and Unrestricted Subsidiaries. The Board of
Directors of the Company may, if no Default or Event of Default shall have
occurred and be continuing or would arise therefrom, designate an Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that (i) any such
redesignation shall be deemed to be an incurrence as of the date of such
redesignation by the Company and its Restricted Subsidiaries of the Indebtedness
(if any) of such redesignated Subsidiary for purposes of "Limitation on
Incurrence of Additional Indebtedness" above, (ii) unless such redesignated
Subsidiary shall not have any Indebtedness outstanding, other than Indebtedness
which would be Permitted Indebtedness, no such designation shall be permitted if
immediately after giving effect to such redesignation and the incurrence of any
such additional Indebtedness the Company could not incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to "Limitation on
Incurrence of Additional Indebtedness" above and (iii) such Subsidiary assumes
by execution of a supplemental indenture all of the obligations of a Subsidiary
Guarantor under a Guarantee.
The Board of Directors of the Company also may, if no Default or Event
of Default shall have occurred and be continuing or would arise therefrom,
designate any Restricted Subsidiary to be an Unrestricted Subsidiary if (i) such
designation is at that time permitted under "Limitation on Restricted Payments"
above and (ii) immediately after giving effect to such designation, the Company
could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to "Limitation on Incurrence of Additional Indebtedness" above. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
the filing with the Trustee of a certified copy of the resolution of the Board
of Directors giving effect to such designation or redesignation and an officers'
certificate certifying that such designation or redesignation complied with the
foregoing conditions and setting forth in reasonable detail the underlying
calculations. In the event that any Restricted Subsidiary is designated an
Unrestricted Subsidiary in accordance with this covenant, such Restricted
Subsidiary's Guarantee will be released.
<PAGE>
For purposes of the covenant described under "Limitation on Restricted
Payments" above, (i) an "Investment" shall be deemed to have been made at the
time any Restricted Subsidiary is designated as an Unrestricted Subsidiary in an
amount (proportionate to the Company's equity interest in such Subsidiary) equal
to the net worth of such Restricted Subsidiary at the time that such Restricted
Subsidiary is designated as an Unrestricted Subsidiary; (ii) at any date the
aggregate amount of all Restricted Payments made as Investments since the Issue
Date shall exclude and be reduced by an amount (proportionate to the Company's
equity interest in such Subsidiary) equal to the net worth of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary, not to exceed, in the case of any such redesignation of
an Unrestricted Subsidiary as a Restricted Subsidiary, the amount of Investments
previously made by the Company and its Restricted Subsidiaries in such
Unrestricted Subsidiary (in each case (i) and (ii) Anet worth" to be calculated
based upon the fair market value of the assets of such Subsidiary as of any such
date of designation); and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
Notwithstanding the foregoing, the Board of Directors may not designate
any Subsidiary of the Company to be an Unrestricted Subsidiary if, after such
designation, (a) the Company or any Restricted Subsidiary (i) provides credit
support for, or a guarantee of, any Indebtedness of such Subsidiary (including
any undertaking, agreement or instrument evidencing such Indebtedness) or (ii)
is directly or indirectly liable for any Indebtedness of such Subsidiary or (b)
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, any Restricted Subsidiary which is not a Subsidiary of the
Subsidiary to be so designated.
Subsidiaries of the Company that are not designated by the Board of
Directors as Restricted or Unrestricted Subsidiaries will be deemed to be
Restricted Subsidiaries. Notwithstanding any provisions of this covenant, all
Subsidiaries of an Unrestricted Subsidiary will be Unrestricted Subsidiaries.
Additional Subsidiary Guarantees. If the Company or any of its
Restricted Subsidiaries transfers or causes to be transferred, in one
transaction or a series of related transactions, any property to any Restricted
Subsidiary that is not a Subsidiary Guarantor, or if the Company or any of its
Restricted Subsidiaries shall organize, acquire or otherwise invest in or hold
an Investment in another Restricted Subsidiary having total consolidated assets
with a book value in excess of $500,000 that is not a Subsidiary Guarantor, then
such transferee or acquired or other Restricted Subsidiary shall (a) execute and
deliver to the Trustee a supplemental indenture in form reasonably satisfactory
to the Trustee pursuant to which such Restricted Subsidiary shall
unconditionally guarantee all of the Company's obligations under the Notes and
the Indenture on the terms set forth in the Indenture and (b) deliver to the
Trustee an opinion of counsel that such supplemental indenture has been duly
authorized, executed and delivered by such Restricted Subsidiary and constitutes
a legal, valid, binding and enforceable obligation of such Restricted
Subsidiary. Thereafter, such Restricted Subsidiary shall be a Subsidiary
Guarantor for all purposes of the Indenture.
Limitation on Conduct of Business. The Company will not, and will not
permit any of its Restricted Subsidiaries to, engage in the conduct of any
business other than the Crude Oil and Natural Gas Business.
Reports to Holders. The Company will deliver to the Trustee within 15
days after the filing of the same with the Commission, copies of the quarterly
and annual reports and of the information, documents and other reports, if any,
which the Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and Holders or prospective Holders (upon request) with such
annual reports and such information, documents and other reports specified in
Sections 13 and 15(d) of the Exchange Act. The Company will also comply with the
other provisions of Section 314(a) of the TIA.
Events of Default
The following events will be defined in the Indenture as "Events of
Default":
(a) the failure to pay interest (including any Additional
Interest) on any Notes when the same becomes due and payable and the
default continues for a period of 30 days;
<PAGE>
(b) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds
Offer);
(c) a default in the observance or performance of any other
covenant or agreement contained in the Indenture which default
continues for a period of 45 days after the Company receives written
notice specifying the default (and demanding that such default be
remedied) from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the Notes (except in the case of a
default with respect to observance or performance of any of the terms
or provisions of "Change of Control" or "Certain Covenants - Merger,
Consolidation and Sale of Assets" or "Limitation on Asset Sales," which
will constitute an Event of Default with such notice requirement but
without such passage of time requirement);
(d) a default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness of the Company or of any Restricted Subsidiary (or the
payment of which is guaranteed by the Company or any Restricted
Subsidiary), whether such Indebtedness now exists or is created after
the Issue Date, which default (i) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness after
any applicable grace period provided in such Indebtedness on the date
of such default (a Apayment default") or (ii) results in the
acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there
has been a payment default or the maturity of which has been so
accelerated, aggregates at least $5 million;
(e) one or more judgments in an aggregate amount in excess of $5
million (unless covered by insurance by a reputable insurer as to which
the insurer has not disclaimed coverage) shall have been rendered
against the Company or any of its Restricted Subsidiaries and such
judgments remain undischarged, unpaid or unstayed for a period of 60
days after such judgment or judgments become final and non-appealable;
(f) certain events of bankruptcy affecting the Company or any of
its Significant Subsidiaries; or
(g) any of the Guarantees cease to be in full force and effect or
any of the Guarantees are declared to be null and void or invalid and
unenforceable or any of the Subsidiary Guarantors denies or disaffirms
its liability under its Guarantees (other than by reason of release of
a Subsidiary Guarantor in accordance with the terms of the Indenture).
The Indenture provides that, if an Event of Default (other than an
Event of Default specified in clause (f) above relating to the Company) shall
occur and be continuing, the Trustee or the Holders of at least 25% in principal
amount of outstanding Notes may declare the principal of, premium, if any, and
accrued and unpaid interest on all the Notes to be due and payable by notice in
writing to the Company and the Trustee specifying the Event of Default and that
it is a Anotice of acceleration," and the same shall become immediately due and
payable. If an Event of Default specified in clause (f) above relating to the
Company occurs and is continuing, then all unpaid principal of, and premium, if
any, and accrued and unpaid interest on all of the outstanding Notes shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder.
<PAGE>
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (a) if the rescission would not
conflict with any judgment or decree, (b) if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of such acceleration, (c) to the extent the payment of such
interest is lawful, interest on overdue installments of interest and overdue
principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (d) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (e) in the event of the cure or waiver of an
Event of Default of the type described in clause (f) of the description of
Events of Default above, the Trustee shall have received an officers'
certificate and an opinion of counsel that such Event of Default has been cured
or waived; provided, however, that such counsel may rely, as to matters of fact,
on a certificate or certificates of officers of the Company. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
The Indenture provides that, at any time prior to the declaration of
acceleration of the Notes, the Holders of a majority in principal amount of the
Notes may waive any existing Default or Event of Default under the Indenture,
and its consequences, except a default in the payment of the principal of or
interest on any Notes.
The Indenture provides that Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture and under the TIA.
During the existence of an Event of Default, the Trustee is required to exercise
such rights and powers vested in it under the Indenture and use the same degree
of care and skill in its exercise thereof as a prudent person would exercise or
use under the circumstances in the conduct of his or her own affairs. Subject to
the provisions of the Indenture relating to the duties of the Trustee, whether
or not an Event of Default shall occur and be continuing, the Trustee is under
no obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer's knowledge of any
Default or Event of Default (provided that such officers shall provide
certification as to the existence of any Default or Event of Default at least
annually whether or not they know of any Default or Event of Default) that has
occurred and, if applicable, describe such Default or Event of Default and the
status thereof.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have its
obligations and the corresponding obligations of the Subsidiary Guarantors
discharged with respect to the outstanding Notes ("Legal Defeasance"). Such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Notes, and
satisfied all of its obligations with respect to the Notes, except for (a) the
rights of Holders to receive payments in respect of the principal of, premium,
if any, and interest on the Notes when such payments are due, (b) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (c) the rights, powers, trust,
duties and immunities of the Trustee and the Company's obligations in connection
therewith and (d) the Legal Defeasance provisions of the Indenture. In addition,
the Company may, at its option and at any time, elect to have the obligations of
the Company released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Notes. In the event Covenant Defeasance occurs, certain events (other
than non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under A- Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
<PAGE>
In order to exercise either Legal Defeasance or Covenant Defeasance, (a)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in United States dollars, non-callable United States
government obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the Notes
on the stated date for payment thereof or on the applicable redemption date, as
the case may be; (b) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (i) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (ii) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred, provided, however, such opinion of counsel shall
not be required if all the Notes will become due and payable on the maturity
date within one year or are to be called for redemption within one year under
arrangements satisfactory to the Trustee, (c) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred; (d) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under the Indenture
or any other agreement or instrument to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound; (f) the Company shall have delivered to the
Trustee an officers' certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other creditors of
the Company or with the intent of defeating, hindering, delaying or defrauding
any other creditors of the Company or others; (g) the Company shall have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been complied
with; provided, however, that such counsel may rely, as to matters of fact, on a
certificate or certificates of officers of the Company; (h) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; provided, however, that such counsel may
rely, as to matters of fact, on a certificate or certificates of officers of the
Company; and (i) certain other customary conditions precedent are satisfied.
<PAGE>
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (a) either (i) all the Notes, theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (b)
the Company has paid all other sums payable under the Indenture by the Company;
and (c) the Company has delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with; provided, however, that such counsel may rely, as to matters of fact, on a
certificate or certificates of officers of the Company.
Modification of the Indenture
From time to time, the Company, the Subsidiary Guarantors and the
Trustee, without the consent of the Holders, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies, to
comply with any requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the TIA or to make any change that
would provide any additional benefit or rights to the Holders or that does not
adversely affect the rights of any Holder. In formulating its opinion on such
matters, the Trustee will be entitled to rely on such evidence as it deems
appropriate, including, without limitation, solely on an opinion of counsel;
provided, however, that in delivering such opinion of counsel, such counsel may
rely, as to matters of fact, on a certificate or certificates of officers of the
Company. Other modifications and amendments of the Indenture may be made with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes issued under the Indenture, except that, without the consent
of each Holder affected thereby, no amendment may: (a) reduce the amount of
Notes whose Holders must consent to an amendment; (b) reduce the rate of or
change or have the effect of changing the time for payment of interest,
including defaulted interest, on any Notes; (c) reduce the principal of or
change or have the effect of changing the fixed maturity of any Notes, or change
the date on which any Notes may be subject to redemption or repurchase, or
reduce the redemption or repurchase price therefor; (d) make any Notes payable
in money other than that stated in the Notes; (e) make any change in provisions
of the Indenture protecting the right of each Holder to receive payment of
principal of and interest on such Note on or after the due date thereof or to
bring suit to enforce such payment, or permitting Holders of a majority in
principal amount of Notes to waive Defaults or Events of Default; (f) amend,
change or modify in any material respect the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of Control or
make and consummate a Net Proceeds Offer with respect to any Asset Sale that has
been consummated or modify any of the provisions or definitions with respect
thereto; (g) modify or change any provision of the Indenture or the related
definitions affecting the ranking of the Notes or any Guarantee in a manner
which adversely affects the Holders; or (h) release any Subsidiary Guarantor
from any of its obligations under its Guarantee or the Indenture otherwise than
in accordance with the terms of the Indenture.
Governing Law
The Indenture provides that the Indenture, the Notes and the Guarantees
are governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
The Trustee
The Indenture provides that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it by the Indenture, and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
<PAGE>
The Indenture and the provisions of the TIA contain certain limitations
on the rights of the Trustee, should it become a creditor of the Company or a
Subsidiary Guarantor, to obtain payments of claims in certain cases or to
realize on certain property received in respect of any such claim as security or
otherwise. Subject to the TIA, the Trustee will be permitted to engage in other
transactions; provided, however, that if the Trustee acquires any conflicting
interest as described in the TIA, it must eliminate such conflict or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in
the Indenture. Reference is made to the form of Indenture for the full
definition of all such terms, as well as any other terms used herein for which
no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries (i) existing at the time such Person becomes a Restricted
Subsidiary or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or (ii) which becomes Indebtedness of the Company or
a Restricted Subsidiary in connection with the acquisition of assets from such
Person, in each case not incurred in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition, merger or consolidation.
"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination,
<PAGE>
(a) the sum of (i) discounted future net revenues from proved oil
and gas reserves of the Company and its consolidated Subsidiaries,
calculated in accordance with Commission guidelines (before any state
or federal income tax), as estimated by one or more reputable firms of
independent petroleum engineers as of a date no earlier than the date
of the Company's latest annual consolidated financial statements, as
increased by, as of the date of determination, the estimated discounted
future net revenues from (A) estimated proved oil and natural gas
reserves acquired since the date of such year-end reserve report, and
(B) estimated oil and natural gas reserves attributable to upward
revisions of estimates of proved oil and gas reserves since the date of
such year-end reserve report due to exploration, development or
exploitation activities, in each case calculated in accordance with
Commission guidelines (utilizing the prices utilized in such year-end
reserve report), and decreased by, as of the date of determination, the
estimated discounted future net revenues from (C) estimated proved oil
and natural gas reserves produced or disposed of since the date of such
year-end reserve report and (D) estimated oil and natural gas reserves
attributable to downward revisions of estimates of proved oil and
natural gas reserves since the date of such year-end reserve report due
to changes in geological conditions or other factors which would, in
accordance with standard industry practice, cause such revisions, in
each case calculated in accordance with Commission guidelines
(utilizing the prices utilized in such year-end reserve report);
provided, however, that, in the case of each of the determinations made
pursuant to clauses (A) through (D), such increases and decreases shall
be as estimated by the Company's petroleum engineers, unless in the
event that there is a Material Change as a result of such acquisitions,
dispositions or revisions, then the discounted future net revenues
utilized for purposes of this clause (a) (i) shall be confirmed in
writing, by one or more reputable firms of independent petroleum
engineers (which may be the Company's independent petroleum engineers
who prepare the Company's annual reserve report), plus (ii) the
capitalized costs that are attributable to oil and natural gas
properties of the Company and its Subsidiaries to which no proved oil
and natural gas reserves are attributable, based on the Company's books
and records as of a date no earlier than the date of the Company's
latest annual or quarterly financial statements, plus (iii) the Net
Working Capital on a date no earlier than the date of the Company's
latest consolidated annual or quarterly financial statements, plus (iv)
with respect to each other tangible asset of the Company or its
consolidated Restricted Subsidiaries specifically including, but not to
the exclusion of any other qualifying tangible assets, the Company's or
its consolidated Restricted Subsidiaries' Crude Oil and Natural Gas
Related Assets (to the extent not included in (i), (ii) and (iii) above
or otherwise in this clause (iv)) (less any remaining deferred income
taxes which have been allocated to such Crude Oil and Natural Gas
Related Assets), land, equipment, leasehold improvements, investments
carried on the equity method, restricted cash and the carrying value of
marketable securities, the greater of (A) 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
or (B) the appraised value, as estimated by a qualified Independent
Advisor, of such other tangible assets of the Company and its
Restricted Subsidiaries, as of a date no earlier than the date of the
Company's latest audited financial statements, plus (v) to the extent
deducted in the calculation of clause (i) above, reserves against
plugging and abandonment expenses; provided, that such reserves shall
be included under this clause (v) only to the extent of any cash
deposited by the Company against such liabilities, minus
(b) minority interests and, to the extent not otherwise taken into
account in determining Adjusted Consolidated Net Tangible Assets, any
natural gas balancing liabilities of the Company and its consolidated
Restricted Subsidiaries reflected in the Company's latest audited
financial statements.
In addition to, but without duplication of, the foregoing, for purposes of this
definition, "Adjusted Consolidated Net Tangible Assets" shall be calculated
after giving effect, on a pro forma basis, to (1) any Investment not prohibited
by the Indenture, to and including the date of the transaction giving rise to
the need to calculate Adjusted Consolidated Net Tangible Assets (the "Assets
Transaction Date"), in any other Person that, as a result of such Investment,
becomes a Restricted Subsidiary of the Company, (2) the acquisition, to and
including the Assets Transaction Date (by merger, consolidation or purchase of
stock or assets), of any business or assets, including, without limitation,
Permitted Industry Investments, and (3) any sales or other dispositions of
assets permitted by the Indenture (other than sales of Hydrocarbons or other
mineral products in the ordinary course of business) occurring on or prior to
the Assets Transaction Date.
"Affiliate" means, with respect to any specified Person, (a) any other
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or under common control with, such specified Person and (b)
any Related Person of such Person. The term Acontrol" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise; and the terms Acontrolling" and
Acontrolled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth under "Certain
Covenants - Limitations on Transactions with Affiliates."
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary, or shall be merged with or into the Company or
any Restricted Subsidiary, or (b) the acquisition by the Company or any
Restricted Subsidiary of the assets of any Person (other than a Restricted
Subsidiary) which constitute all or substantially all of the assets of such
Person or comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
<PAGE>
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, exchange, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Restricted Subsidiary of
(a) any Capital Stock of any Restricted Subsidiary; or (b) any other property or
assets (including any interests therein) of the Company or any Restricted
Subsidiary, including any disposition by means of a merger, consolidation or
similar transaction; provided, however, that Asset Sales shall not include (i)
the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company in a transaction which is made in
compliance with the provisions of "Certain Covenants - Merger, Consolidation and
Sale of Assets," (ii) any Investment in an Unrestricted Subsidiary which is made
in compliance with the provisions of "Certain Covenants - Limitation on
Restricted Payments," (iii) disposals or replacements of obsolete equipment in
the ordinary course of business, (iv) the sale, lease, conveyance, disposition
or other transfer (each, a "Transfer") by the Company or any Restricted
Subsidiary of assets or property to the Company or one or more Restricted
Subsidiaries, (v) any disposition of Hydrocarbons or other mineral products for
value in the ordinary course of business and (vi) the Transfer by the Company or
any Restricted Subsidiary of assets or property in the ordinary course of
business; provided, however, that the aggregate amount (valued at the fair
market value of such assets or property at the time of such Transfer) of all
such assets and property Transferred since the Issue Date pursuant to this
clause (vi) shall not exceed $1,000,000 in any one year.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any other
day on which banking institutions in the City of New York are required or
authorized by law or other governmental action to be closed.
"Capital Stock" means (a) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and including any
warrants, options or rights to acquire any of the foregoing and instruments
convertible into any of the foregoing and (b) with respect to any Person that is
not a corporation, any and all partnership or other equity interests of such
Person.
"Capitalized Lease Obligation" means, as to any Person, the discounted
present value of the rental obligations of such Person under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation at such date, determined in accordance with GAAP.
<PAGE>
"Cash Equivalents" means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (b)
marketable direct obligations issued by any state of the United States or any
political subdivision of any such state or any public instrumentality thereof
maturing within one year from the date of acquisition thereof and, at the time
of acquisition, having one of the two highest ratings obtainable from either
Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"); (c) commercial paper maturing no more than one year from the date
of creation thereof and, at the time of acquisition, having a rating of at least
A-1 from S&P or at least P-1 from Moody's; (d) certificates of deposit or
bankers' acceptances maturing within one year from the date of acquisition
thereof issued by any bank organized under the laws of the United States or any
state thereof or the District of Columbia or any United States branch of a
foreign bank having at the date of acquisition thereof combined capital and
surplus of not less than $250 million; (e) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (a) above entered into with any bank meeting the qualifications specified
in clause (d) above and (f) money market mutual or similar funds having assets
in excess of $100 million.
"Change of Control" means the occurrence of one or more of the
following events: (a) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in
compliance with the provisions of the Indenture); (b) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (c) any Person or Group shall
become the owner, directly or indirectly, beneficially or of record, of shares
representing more than 20% of the aggregate ordinary voting power represented by
the issued and outstanding Capital Stock of the Company; provided, that, if any
Person or Group shall become the owner, directly or indirectly, beneficially or
of record, of shares representing up to 50% of the aggregate ordinary voting
power of the Company's Capital Stock as a result of the acquisition by the
Company or any of its subsidiaries from such Person or Group of Crude Oil and
Natural Gas Related Assets, such ownership shall not constitute a Change of
Control; or (d) the replacement of a majority of the Board of Directors of the
Company over a two-year period from the directors who constituted the Board of
Directors of the Company at the beginning of such period with directors whose
replacement shall not have been approved (by recommendation, appointment,
nomination or election, as the case may be) by a vote of at least a majority of
the Board of Directors of the Company then still in office who either were
members of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so approved.
"Change of Control Offer" has the meaning set forth under "Change of
Control."
"Change of Control Payment Date" has the meaning set forth under
"Change of Control."
"Commission" means the Securities and Exchange Commission.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company Properties" means all Properties, and equity, partnership or
other ownership interests therein, that are related or incidental to, or used or
useful in connection with, the conduct or operation of any business activities
of the Company or the Subsidiaries, which business activities are not prohibited
by the terms of the Indenture.
"Consolidated EBITDA" means, for any period, the sum (without
duplication) of (a) Consolidated Net Income and (b) to the extent Consolidated
Net Income has been reduced thereby, (i) all income taxes of the Company and its
Restricted Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary, unusual or non-recurring
gains or losses or taxes attributable to sales or dispositions outside the
ordinary course of business), (ii) Consolidated Interest Expense, (iii) the
amount of any Preferred Stock dividends paid by the Company and its Restricted
Subsidiaries and (iv) Consolidated Non-cash Charges, less any non-cash items
increasing Consolidated Net Income for such period, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in accordance
with GAAP.
<PAGE>
"Consolidated EBITDA Coverage Ratio" means, with respect to the Company,
the ratio of (a) Consolidated EBITDA of the Company during the four full fiscal
quarters for which financial information in respect thereof is available (the
"Four Quarter Period") ending on or prior to the date of the transaction giving
rise to the need to calculate the Consolidated EBITDA Coverage Ratio (the
"Transaction Date") to (b) Consolidated Fixed Charges of the Company for the
Four Quarter Period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect (without duplication) on a pro
forma basis for the period of such calculation to (a) the incurrence or
repayment of any Indebtedness of the Company or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (b) any Asset
Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of its Restricted Subsidiaries (including any Person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness, and also
including, without limitation, any Consolidated EBITDA attributable to the
assets which are the subject of the Asset Acquisition or Asset Sale during the
Four Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness) occurred
on the first day of the Four Quarter Period. If the Company or any of its
Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the incurrence of such
guaranteed Indebtedness as if the Company or the Restricted Subsidiary, as the
case may be, had directly incurred or otherwise assumed such guaranteed
Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated EBITDA Coverage Ratio," (i) interest on outstanding Indebtedness
determined on a fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter shall be deemed to have accrued at a
fixed rate per annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; (ii) if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four Quarter
Period; (iii) notwithstanding clauses (i) and (ii) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of (a) Consolidated Interest Expense
(including any premium or penalty paid in connection with redeeming or retiring
Indebtedness of the Company and its Restricted Subsidiaries prior to the stated
maturity thereof pursuant to the agreements governing such Indebtedness), plus
(b) the product of (i) the amount of all dividend payments on any series of
Preferred Stock of the Company (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(ii) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local
income tax rate of such Person, expressed as a decimal.
<PAGE>
"Consolidated Interest Expense" means, with respect to the Company for
any period, the sum of, without duplication: (a) the aggregate of the interest
expense of the Company and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (i) any amortization of original issue discount, (ii) the net costs
under Interest Swap Obligations, (iii) all capitalized interest and (iv) the
interest portion of any deferred payment obligation; and (b) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by the Company and its Restricted Subsidiaries during such
period, as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company for any
period, the aggregate net income (or loss) of the Company and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, however, that there shall be excluded therefrom (a)
after-tax gains from Asset Sales or abandonments or reserves relating thereto,
(b) after-tax items classified as extraordinary or nonrecurring gains, (c) the
net income of any Person acquired in a Apooling of interests" transaction
accrued prior to the date it becomes a Restricted Subsidiary or is merged or
consolidated with the Company or any Restricted Subsidiary, (d) the net income
(but not loss) of any Restricted Subsidiary to the extent that the declaration
of dividends or similar distributions by that Restricted Subsidiary of that
income is restricted by charter, contract, operation of law or otherwise, (e)
the net income of any Person in which the Company has an interest, other than a
Restricted Subsidiary, except to the extent of cash dividends or distributions
actually paid to the Company or to a Restricted Subsidiary by such Person, (f)
income or loss attributable to discontinued operations (including, without
limitation, operations disposed of during such period whether or not such
operations were classified as discontinued) and (g) in the case of a successor
to the Company by consolidation or merger or as a transferee of the Company's
assets, any net income (or loss) of the successor corporation prior to such
consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person as of any date means the
consolidated stockholders' equity of such Person, determined on a consolidated
basis in accordance with GAAP, less (without duplication) amounts attributable
to Disqualified Capital Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to the Company, for
any period, the aggregate depreciation, depletion, amortization and other
non-cash expenses of the Company and its Restricted Subsidiaries reducing
Consolidated Net Income of the Company for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation of
the accounts of the Restricted Subsidiaries of such Person with those of such
Person, all in accordance with GAAP; provided, however, that Aconsolidation"
will not include consolidation of the accounts of any Unrestricted Subsidiary of
such Person with the accounts of such Person. The term Aconsolidated" has a
correlative meaning to the foregoing.
"Covenant Defeasance" has the meaning set forth under "Legal Defeasance
and Covenant Defeasance."
"Crude Oil and Natural Gas Business" means (i) the acquisition,
exploration, development, operation and disposition of interests in oil, natural
gas and other Hydrocarbon properties located in the Western Hemisphere, (ii) the
gathering, marketing, treating, processing, storage, selling and transporting of
any production from such interests or properties of the Company or of others and
(iii) activities incidental to the foregoing.
"Crude Oil and Natural Gas Hedge Agreements" means, with respect to any
Person, any oil and gas agreements and other agreements or arrangements or any
combination thereof entered into by such Person in the ordinary course of
business and that are designed to provide protection against oil and natural gas
price fluctuations.
<PAGE>
"Crude Oil and Natural Gas Properties" means all Properties, including
equity or other ownership interests therein, owned by any Person which have been
assigned Aproved oil and gas reserves" as defined in Rule 4-10 of Regulation S-X
of the Securities Act as in effect on the Issue Date.
"Crude Oil and Natural Gas Related Assets" means any Investment or
capital expenditure (but not including additions to working capital or
repayments of any revolving credit or working capital borrowings) by the Company
or any Subsidiary of the Company which is related to the Crude Oil and Natural
Gas Business.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Deficiency Date" has the meaning set forth under "Maintenance of
Adjusted Consolidated Net Tangible Assets."
"Deficiency Offer" has the meaning set forth under "Maintenance of
Adjusted Consolidated Net Tangible Assets."
"Deficiency Offer Amount" has the meaning set forth under "Maintenance
of Adjusted Consolidated Net Tangible Assets."
"Deficiency Payment Date" has the meaning set forth under "Maintenance
of Adjusted Consolidated Net Tangible Assets."
"Deficiency Purchase Price" has the meaning set forth under
"Maintenance of Adjusted Consolidated Net Tangible Assets."
"Disqualified Capital Stock" means that portion of any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is mandatorily redeemable at the sole option of the
holder thereof, in whole or in part, in either case, on or prior to the final
maturity of the Notes.
"Equity Offering" means an offering of Qualified Capital Stock of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute or statutes thereto.
"Fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between an informed and willing seller and an informed and willing buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors of
the Company acting reasonably and in good faith and shall be evidenced by a
Board Resolution of the Company delivered to the Trustee; provided, however,
that (a) if the aggregate non-cash consideration to be received by the Company
or any Restricted Subsidiary from any Asset Sale shall reasonably be expected to
exceed $5.0 million or (B) if the net worth of any Restricted Subsidiary to be
designated as an Unrestricted Subsidiary shall reasonably be expected to exceed
$5.0 million, then fair market value shall be determined by an Independent
Advisor.
<PAGE>
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board as of any date of determination.
"Holder" means any Person holding a Note.
"Hydrocarbons" means oil, natural gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all constituents, elements or compounds thereof and products
processed therefrom.
"Incur" has the meaning set forth under "Certain Covenants -
Limitation on Incurrence of Additional Indebtedness."
"Indebtedness" means with respect to any Person, without duplication,
(a) all Obligations of such Person for borrowed money, (b) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(c) all Capitalized Lease Obligations of such Person, (d) all Obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable), (e) all Obligations for the
reimbursement of any obligor on a letter of credit, banker's acceptance or
similar credit transaction, (f) guarantees and other contingent obligations in
respect of Indebtedness referred to in clauses (a) through (e) above and clause
(h) below, (g) all Obligations of any other Person of the type referred to in
clauses (a) through (f) above which are secured by any Lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
Obligation so secured, (h) all Obligations under Crude Oil and Natural Gas Hedge
Agreements, Currency Agreements and Interest Swap Obligations and (i) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed redemption
price or repurchase price. For purposes hereof, the Amaximum fixed repurchase
price" of any Disqualified Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Disqualified
Capital Stock as if such Disqualified Capital Stock were purchased on any date
on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the
Company. The Aamount" or Aprincipal amount" of Indebtedness at any time of
determination as used herein represented by (a) any Indebtedness issued at a
price that is less than the principal amount at maturity thereof shall be the
face amount of the liability in respect thereof, (b) any Capitalized Lease
Obligation shall be the amount determined in accordance with the definition
thereof, (c) any Interest Swap Obligations included in the definition of
Permitted Indebtedness shall be zero, (d) all other unconditional obligations
shall be the amount of the liability thereof determined in accordance with GAAP
and (e) all other contingent obligations shall be the maximum liability at such
date of such Person.
"Independent Advisor" means a nationally recognized investment banking
or accounting firm, or a reputable engineering firm, (a) which does not, and
whose directors, officers and employees or Affiliates do not, have a direct or
indirect material financial interest in the Company and (b) which, in the
judgment of the Board of Directors of the Company, is otherwise disinterested,
independent and qualified to perform the task for which it is to be engaged.
<PAGE>
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect
(i) loan, advance or other extension of credit (including, without limitation, a
guarantee) or capital contribution to by means of any transfer of cash or other
property (valued at the fair market value thereof as of the date of transfer)
others or any payment for property or services for the account or use of others,
(ii) purchase or acquisition by such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by, any
Person (whether by merger, consolidation, amalgamation or otherwise and whether
or not purchased directly from the issuer of such securities or evidences of
Indebtedness), (iii) guarantee or assumption of the Indebtedness of any other
Person (other than the guarantee or assumption of Indebtedness of such Person or
a Restricted Subsidiary of such Person which guarantee or assumption is made in
compliance with the provisions of "Certain Covenants - Limitation on Incurrence
of Additional Indebtedness" above), and (iv) other items that would be
classified as investments on a balance sheet of such Person prepared in
accordance with GAAP. Notwithstanding the foregoing, "Investment" shall exclude
extensions of trade credit by the Company and its Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of the
Company or such Restricted Subsidiary, as the case may be. The amount of any
Investment shall not be adjusted for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment. If the
Company or any Restricted Subsidiary sells or otherwise disposes of any Capital
Stock of any Restricted Subsidiary such that, after giving effect to any such
sale or disposition, it ceases to be a Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Capital Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Legal Defeasance" has the meaning set forth under "Legal Defeasance
and Covenant Defeasance."
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Material Change" means an increase or decrease of more than 10% during
a fiscal quarter in the discounted future net cash flows (excluding changes that
result solely from changes in prices) from proved oil and natural gas reserves
of the Company and consolidated Subsidiaries (before any state or federal income
tax); provided, however, that the following will be excluded from the Material
Change calculation: (i) any acquisitions during the quarter of oil and natural
gas reserves that have been estimated by independent petroleum engineers and on
which a report or reports exist, (ii) any disposition of properties existing at
the beginning of such quarter that have been disposed of as provided in "Certain
Covenants - Limitation on Asset Sales", and (iii) any reserves added during the
quarter attributable to the drilling or recompletion of wells not included in
previous reserve estimates, but which will be included in future quarters.
<PAGE>
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (b) taxes paid or payable after taking into
account any reduction in consolidated tax liability due to available tax credits
or deductions and any tax sharing arrangements, (c) repayment of Indebtedness
that is required to be repaid in connection with such Asset Sale, and (d)
appropriate amounts (determined by the Chief Financial Officer of the Company)
to be provided by the Company or any Restricted Subsidiary, as the case may be,
as a reserve, in accordance with GAAP, against any post-closing adjustments or
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale (but excluding any
payments which, by the terms of the indemnities will not, be made during the
term of the Notes).
"Net Proceeds Offer" has the meaning set forth under "Certain Covenants
- - Limitation on Asset Sales."
"Net Proceeds Offer Amount" has the meaning set forth under "Certain
Covenants - Limitation on Asset Sales."
"Net Proceeds Offer Payment Date" has the meaning set forth under
"Certain Covenants - Limitation on Asset Sales."
"Net Proceeds Offer Trigger Date" has the meaning set forth under
"Certain Covenants - Limitation on Asset Sales."
"Net Working Capital" means (i) all current assets of the Company and
its consolidated Subsidiaries, minus (ii) all current liabilities of the Company
and its consolidated Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with GAAP.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Payment Restriction" has the meaning set forth under "Certain
Covenants - Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries."
"Permitted Indebtedness" means, without duplication, each of the
following:
(a) the Exchange Notes, the Private Exchange Notes, if any, the Guarantees and
refinancings thereof with Indebtedness constituting Permitted Refinancing
Indebtedness;
(b) Indebtedness incurred pursuant to the Senior Credit Facility in an
aggregate principal amount at any time outstanding not to exceed the
greater of (1) $40.0 million or (2) the sum of (A) $10.0 million and (B)
20% of Adjusted Consolidated Net Tangible Assets, reduced by any required
permanent repayments (which are accompanied by a corresponding permanent
commitment reduction) thereunder (it being recognized that a reduction in
the borrowing base in and of itself shall not be deemed a required
permanent repayment);
(c) Interest Swap Obligations of the Company or a Restricted Subsidiary
covering Indebtedness of the Company or a Restricted Subsidiary; provided,
however, that such Interest Swap Obligations are entered into to protect
the Company and Restricted Subsidiaries from fluctuations in interest rates
on Indebtedness incurred in accordance with the Indenture to the extent the
notional principal amount of such Interest Swap Obligations does not exceed
the principal amount of the Indebtedness to which such Interest Swap
Obligation relates;
<PAGE>
(d) Indebtedness of a Restricted Subsidiary to the Company or to a Wholly Owned
Restricted Subsidiary for so long as such Indebtedness is held by the
Company or a Wholly Owned Restricted Subsidiary, in each case subject to no
Lien held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary; provided, however, that if as of any date any Person other than
the Company or a Wholly Owned Restricted Subsidiary owns or holds any such
Indebtedness or holds a Lien in respect of such Indebtedness, such date
shall be deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the issuer of such Indebtedness;
(e) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary for so
long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary,
in each case subject to no Lien; provided, however, that (i) any
Indebtedness of the Company to any Wholly Owned Restricted Subsidiary that
is not a Subsidiary Guarantor is unsecured and subordinated, pursuant to a
written agreement, to the Company's obligations under the Indenture and the
Notes and (ii) if as of any date any Person other than a Wholly Owned
Restricted Subsidiary owns or holds any such Indebtedness or holds a Lien
in respect of such Indebtedness, such date shall be deemed the incurrence
of Indebtedness not constituting Permitted Indebtedness by the Company;
(f) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within two Business Days of incurrence;
(g) Indebtedness of the Company or a Restricted Subsidiary represented by
letters of credit for the account of the Company or such Restricted
Subsidiary, as the case may be, in order to provide security for workers'
compensation claims, payment obligations in connection with self-insurance,
bid, plugging and abandonment bonds, performance or surety bonds or
completion guarantees or similar requirements in the ordinary course of
business;
(h) Indebtedness of the Company or a Restricted Subsidiary outstanding on the
Issue Date and refinancings thereof with Indebtedness constituting
Permitted Refinancing Indebtedness;
(i) Capitalized Lease Obligations and Purchase Money Indebtedness of the
Company or any of its Restricted Subsidiaries not to exceed $5.0 million at
any one time outstanding;
(j) Obligations arising in connection with Crude Oil and Natural Gas Hedge
Agreements of the Company or a Restricted Subsidiary;
(k) Indebtedness under Currency Agreements; provided, however, that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(l) additional Indebtedness of the Company or any of its Restricted
Subsidiaries in an aggregate principal amount at any time outstanding not
to exceed the greater of (i) $10.0 million or (ii) 5.0% of Adjusted
Consolidated Net Tangible Assets of the Company; and
(m) Indebtedness of a Restricted Subsidiary constituting Permitted Refinancing
Indebtedness and which refinances Acquired Indebtedness.
<PAGE>
"Permitted Industry Investments" means (i) capital expenditures, including,
without limitation, acquisitions of Company Properties and interests therein;
(ii) (a) entry into operating agreements, joint ventures, working interests,
royalty interests, mineral leases, unitization agreements, pooling arrangements
or other similar or customary agreements, transactions, properties, interests or
arrangements, and Investments and expenditures in connection therewith or
pursuant thereto, in each case made or entered into in the ordinary course of
the oil and natural gas business, and (b) exchanges of Company Properties for
other Company Properties of at least equivalent value as determined in good
faith by the Board of Directors of the Company; and (iii) Investments of
operating funds on behalf of co-owners of Crude Oil and Natural Gas Properties
of the Company or the Subsidiaries pursuant to joint operating agreements.
"Permitted Investments" means (a) Investments by the Company or any
Restricted Subsidiary in any Person that is or will become immediately after
such Investment a Restricted Subsidiary or that will merge or consolidate into
the Company or a Restricted Subsidiary that is not subject to any Payment
Restriction; (b) Investments in the Company by any Restricted Subsidiary;
provided, however, that any Indebtedness evidencing any such Investment held by
a Restricted Subsidiary that is not a Subsidiary Guarantor is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Notes and the Indenture; (c) Investments in cash and Cash Equivalents;
(d) Investments made by the Company or its Restricted Subsidiaries as a result
of consideration received in connection with an Asset Sale made in compliance
with "Certain Covenants - Limitation on Asset Sales" above; and (e) Permitted
Industry Investments.
"Permitted Liens" means each of the following types of Liens:
(a) Liens existing as of the Issue Date to the extent and in the manner such
Liens are in effect on the Issue Date (and any extensions, replacements or
renewals thereof covering property or assets secured by such Liens on the
Issue Date);
(b) Liens securing Indebtedness outstanding under the Senior Credit Facility;
(c) Liens securing the Notes and the Guarantees;
(d) Liens of the Company or a Restricted Subsidiary on assets of any Restricted
Subsidiary;
(e) Liens securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under the Indenture
and which has been incurred in accordance with the provisions of the
Indenture; provided, however, that such Liens (x) are no less favorable to
the Holders and are not more favorable to the lienholders with respect to
such Liens than the Liens in respect of the Indebtedness being Refinanced
and (y) do not extend to or cover any property or assets of the Company or
any of its Restricted Subsidiaries not securing the Indebtedness so
Refinanced;
(f) Liens for taxes, assessments or governmental charges or claims either (x)
not delinquent or (y) contested in good faith by appropriate proceedings,
and as to which the Company or a Restricted Subsidiary, as the case may be,
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
<PAGE>
(g) statutory and contractual Liens of landlords to secure rent arising in the
ordinary course of business to the extent such Liens relate only to the
tangible property of the lessee which is located on such property and Liens
of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and
other Liens imposed by law incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof;
(h) Liens incurred or deposits made in the ordinary course of business (x) in
connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or (y) to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(i) judgment and attachment Liens not giving rise to an Event of Default;
(j) easements, rights-of-way, zoning restrictions, restrictive covenants, minor
imperfections in title and other similar charges or encumbrances in respect
of real property not interfering in any material respect with the ordinary
conduct of the business of the Company or any of its Restricted
Subsidiaries;
(k) any interest or title of a lessor under any Capitalized Lease Obligation;
provided that such Liens do not extend to any property or assets which are
not leased property subject to such Capitalized Lease Obligation;
(l) Liens securing Purchase Money Indebtedness of the Company or any Restricted
Subsidiary; provided, however, that (x) the Purchase Money Indebtedness
shall not be secured by any property or assets of the Company or any
Restricted Subsidiary other than the property and assets so acquired or
constructed (except for proceeds, improvements, rents and similar items
relating to the property or assets so acquired), and (y) the Lien securing
such Indebtedness shall be created within 90 days of such acquisition or
construction;
(m) Liens securing reimbursement obligations with respect to commercial letters
of credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof;
(n) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(o) Liens securing Interest Swap Obligations which Interest Swap Obligations
relate to Indebtedness that is otherwise permitted under the Indenture and
Liens securing Crude Oil and Natural Gas Hedge Agreements;
<PAGE>
(p) Liens securing Acquired Indebtedness incurred in accordance with "Certain
Covenants Limitation on Incurrence of Additional Indebtedness" above;
provided, however, that (x) such Liens secured such Acquired Indebtedness
at the time of and prior to the incurrence of such Acquired Indebtedness by
the Company or a Restricted Subsidiary and were not granted in connection
with, or in anticipation of, the incurrence of such Acquired Indebtedness
by the Company or a Restricted Subsidiary, and (y) such Liens do not extend
to or cover any property or assets of the Company or of any of its
Restricted Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Restricted Subsidiary (except for
proceeds, improvements, rents and similar items relating to the property or
assets so secured) and are no more favorable to the lienholders than those
securing the Acquired Indebtedness prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary;
(q) Liens on, or related to, properties and assets of the Company and its
Subsidiaries to secure all or a part of the costs incurred in the ordinary
course of business of exploration, drilling, development, production,
processing, gas gathering, transportation, marketing or storage, or
operation thereof;
(r) Liens on pipeline or pipeline facilities, Hydrocarbons or properties and
assets of the Company and its Subsidiaries which arise out of operation of
law;
(s) royalties, overriding royalties, revenue interests, net revenue interests,
net profit interests, reversionary interests, production payments,
production sales contracts, preferential rights of purchase, operating
agreements, working interests and other similar interests, properties,
arrangements and agreements, all as ordinarily exist with respect to
Properties and assets of the Company and its Subsidiaries or otherwise as
are customary in the oil and gas business;
(t) with respect to any Properties and assets of the Company and its
Subsidiaries, Liens arising under, or in connection with, or related to,
farm-out, farm-in, joint operation, area of mutual interest agreements
and/or other similar or customary arrangements, agreements or interests
that the Company or any Subsidiary determines in good faith to be necessary
for the economic development of such Property;
(u) any (x) interest or title of a lessor or sublessor under any lease, (y)
restriction or encumbrance that the interest or title of such lessor or
sublessor may be subject to (including, without limitation, ground leases
or other prior leases of the demised premises, mortgages, mechanics' liens,
tax liens, and easements), or (z) subordination of the interest of the
lessee or sublessee under such lease to any restrictions or encumbrance
referred to in the preceding clause (y); and
(v) Liens in favor of collecting or payor banks having a right of set-off,
revocation, refund or charge-back with respect to money or instruments of
the Company or any Restricted Subsidiary on deposit with or in possession
of such bank.
"Permitted Refinancing Indebtedness" means, with respect to any
Indebtedness, Indebtedness to the extent representing a Refinancing of such
Indebtedness, in each case that does not (i) result in an increase in the
aggregate principal amount of Indebtedness of such Person as of the date of such
proposed Refinancing (plus the amount of any premium required to be paid under
the terms of the instrument governing such Indebtedness and plus the amount of
reasonable expenses incurred by the Company and its Restricted Subsidiaries in
connection with such Refinancing) or (ii) create Indebtedness with (x) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or (y) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; provided, however,
that (1) such Refinancing Indebtedness shall be incurred solely by the obligor
of the Indebtedness being Refinanced and (2) if such Indebtedness being
Refinanced is subordinate or junior to the Notes or a Guarantee, then such
Refinancing Indebtedness shall be subordinate to the Notes or such Guarantee, as
the case may be, at least to the same extent and in the same manner as the
Indebtedness being Refinanced.
"Person" means an individual, partnership, corporation, unincorporated
organization, limited liability company, trust, estate, or joint venture, or a
governmental agency or political subdivision thereof.
<PAGE>
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Property" means, with respect to any Person, any interests of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock,
partnership interests and other equity or ownership interests in any other
Person.
"Private Exchange Notes" means senior subordinated notes of the
Company, guaranteed by the Subsidiary Guarantors, issued in exchange for the
Notes and identical in all material respects to the Exchange Notes, except for
the placement of a restrictive legend on such Private Exchange Notes.
"Purchase Money Indebtedness" means Indebtedness the net proceeds of
which are used to finance the cost (including the cost of construction) of
property or assets acquired in the normal course of business by the Person
incurring such Indebtedness.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Reference Date" has the meaning set forth under "Certain Covenants -
Limitation on Restricted Payments."
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the Issue Date among the Company, the Subsidiary Guarantors and the
Initial Purchasers.
"Related Person" of any Person means any other Person directly or
indirectly owning 10% or more of the outstanding voting Common Stock of such
Person (or, in the case of a Person that is not a corporation, 10% or more of
the equity interest in such Person).
"Replacement Assets" has the meaning set forth under "Certain Covenants
- Limitation on Asset Sales."
"Restricted Payment" has the meaning set forth under "Certain
Covenants - Limitation on Restricted Payments."
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated by the Board of Directors of the Company, by a Board
Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to
and in compliance with "Certain Covenants - Limitation on Restricted and
Unrestricted Subsidiaries" above. Any such designation may be revoked by a Board
Resolution of the Company delivered to the Trustee, subject to the provisions of
such covenant.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any Property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
<PAGE>
"Senior Credit Facility" means the Amended and Restated Credit
Agreement by and among the Company, First Union National Bank, individually and
as agent, and each of the Lenders named therein, or any successor or replacement
agreement and whether by the same or any other agent, lender or group of
lenders, together with the related documents thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreements extending the maturity of, refinancing, replacing, increasing or
otherwise restructuring all or any portion of the Indebtedness under such
agreements.
"Significant Subsidiary" shall have the meaning set forth in Rule
1.02(w) of Regulation S-X under the Securities Act.
"Subsidiary," with respect to any Person, means (a) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (b) any
other Person of which at least a majority of the voting interests under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantor" means (a) each of the Company's Restricted
Subsidiaries as of the Issue Date and (b) each of the Company's Restricted
Subsidiaries that in the future executes a supplemental indenture in which such
Restricted Subsidiary agrees to be bound by the terms of the Indenture as a
Subsidiary Guarantor; provided, however, that any Person constituting a
Subsidiary Guarantor as described above shall cease to constitute a Subsidiary
Guarantor when its Guarantee is released in accordance with the terms of the
Indenture.
"Surviving Entity" has the meaning set forth under "Certain Covenants -
Merger, Consolidation and Sale of Assets."
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with "Certain Covenants
Limitation on Restricted and Unrestricted Subsidiaries" above. Any such
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which all the outstanding voting securities normally entitled to vote in the
election of directors are owned by the Company or another Wholly Owned
Restricted Subsidiary.
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Notes for New Notes, but does not
purport to be a complete analysis of all potential tax effects. The discussion
is based upon the Internal Revenue Code of 1986, as amended, Treasury
regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the New Notes.
The description does not consider the effect of any applicable foreign, state,
local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
The exchange of Old Notes for New Notes should not be an exchange or
otherwise a taxable event to a holder for federal income tax purposes.
Accordingly, a holder should have the same adjusted issue price, adjusted basis
and holding period in the New Notes as it had in the Old Notes immediately
before the exchange.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Notes (and the related
guarantees) initially will be represented by one or more permanent global
certificates in definitive, fully registered form (the "Global Notes"). The
Global Notes will be deposited on the Issue Date with, or on behalf of, The
Depository Trust Company, New York, New York ("DTC") and registered in the name
of a nominee of DTC. The Global Notes will be subject to certain restrictions on
transfer set forth therein and will bear the legend regarding such restrictions
set forth under the heading "Transfer Restrictions" herein.
Notes (i) originally purchased by or transferred to Aforeign
purchasers" (as defined in "Transfer Restrictions") or (ii) held by QIBs or
institutional Accredited Investors who are not QIBs who elect to take physical
delivery of their certificates instead of holding their interests through a
Global Note (and which are thus ineligible to trade through DTC) (collectively
referred to herein as the "Non-Global Purchasers") will be issued in registered
form (the "Certificated Security"). Upon the transfer to a QIB of any
Certificated Security initially issued to a Non-Global Purchaser, such
Certificated Security will, unless the transferee requests otherwise or the
Global Notes have previously been exchanged in whole for Certificated
Securities, be exchanged for an interest in a Global Note. For a description of
the restrictions on the transfer of Certificated Securities and any interest in
the Global Notes, see "Transfer Restrictions."
The Global Notes. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Notes to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Notes will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
Such accounts initially will be designated by or on behalf of the Initial
Purchasers and ownership of beneficial interests in the Global Notes will be
limited to persons who have accounts with DTC (Aparticipants") or persons who
hold interests through participants. QIBs and institutional Accredited Investors
who are not QIBs may hold their interests in the Global Notes directly through
DTC if they are participants in such system, or indirectly through organizations
which are participants in such system.
<PAGE>
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any), interest (including
Additional Interest) on, the Global Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any
payment of principal, premium, if any, interest (including Additional Interest)
on the Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
the Global Notes held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary
way through DTC's same-day funds system in accordance with DTC 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 must transfer its interest in a Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company that it will take any action permitted to
be taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of 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, DTC will exchange the Global Notes
for Certificated Securities, which it will distribute to its participants and
which will be legended as set forth under the heading "Transfer Restrictions."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a Aclearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is 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 (Aindirect participants").
<PAGE>
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, 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 DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Notes, which certificates will bear the legends
referred to under the heading "Transfer Restrictions."
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 90 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until ________________, 1998, all dealers effecting transactions in
the New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who my receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an Aunderwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a Prospectus, a
broker-dealer will not be deemed to admit that it is an Aunderwriter" within the
meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus or any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company agreed to pay all expenses incident to
the Exchange Offer (including the expenses of counsel for the Holders of the Old
Notes) other than commissions or concessions of any broker-dealers and will
indemnify the holders of the Old Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
See "The Exchange Offer" for additional information concerning the
Exchange Offer and interpretations of the Commission's staff with respect to
prospectus delivery obligations of broker-dealers.
<PAGE>
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for
the Company by Shughart Thomson & Kilroy, P.C., Kansas City, Missouri.
INDEPENDENT ACCOUNTANTS
The audited balance sheet of the Company as of December 31, 1996 and
the related audited statements of operations, stockholders' equity and cash
flows for the year then ended, included and incorporated by reference in this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report which is included and incorporated by
reference herein.
The audited financial statements of the Company as of December 31, 1995
and 1994 and for the years then ended have been audited by Barrett & Associates,
independent certified public accountants ("Barrett"), as stated in their report
which is included and incorporated by reference herein. The change in
accountants from Barrett to Arthur Andersen LLP was effective for 1996 and was
not due to any disagreements between the Company and Barrett. Barrett's reports
for 1995 and 1994 did not contain any adverse opinions or disclaimers of
opinions and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
The consolidated financial statements of Goldking Companies, Inc. as of
December 31, 1996 and 1995, and for each of the two years then ended, included
and incorporated by reference in this Prospectus, have been audited by Ernst &
Young LLP, independent public accountants, as stated in their report which is
included and incorporated by reference herein.
EXPERTS
The reference to the report of Ryder Scott Co. ("Ryder Scott"),
independent petroleum engineers, contained herein estimating the Proved
Reserves, future net cash flows from such Proved Reserves and the SEC PV-10 of
such estimated future net cash flows for the Company's properties as of
September 1, 1997 is made in reliance upon the authority of such firm as an
expert with respect to such matters. References to the report of Ryder Scott Co.
shall include the audit by Ryder Scott of (a) the report of W.D. Von Gonten &
Co., Petroleum Engineers estimating the Proved Reserves, future net cash flows
from such Proved Reserves and the SEC PV-10 of such estimated future net cash
flows for the Goldking Properties and (b) the report of McCune Engineering, P.E.
estimating the Proved Reserves, future net cash flows from such Proved Reserves
and the SEC PV-10 of such estimated future net cash flows for the Company's
onshore properties, both as of September 1, 1997.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents and information heretofore filed with the
Securities and Exchange Commission (the "Commission") by the Company are hereby
incorporated by reference into this Prospectus:
1. The Company's amended Annual Report on Form 10-K/A for the year ended
December 31, 1996, filed on April 11, 1997;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997, filed on May 15, 1997;
3. The Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, as filed on August 15, 1997; and
4. The Company's Current Report on Form 8-K dated August 15, 1997, as amended
by Form 8K/A filed on October 7 and October 10, 1997.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), prior to the termination of the Offering shall be deemed
to be incorporated by reference into this Prospectus and to be a part hereof
from the date of filing of 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 which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any and all of the documents incorporated
by reference herein (other than exhibits to such documents which are not
specifically incorporated by reference in such documents). Written requests for
such copies should be directed to the Company, The PANACO Building, 1050 West
Blue Ridge Boulevard, Kansas City, Missouri 64145, Attention: Todd R. Bart,
Chief Financial Officer. Telephone requests may be directed to Mr. Bart at (816)
942-6300.
<PAGE>
GLOSSARY
The terms defined in this glossary are used throughout this Prospectus.
2-D Seismic. Seismic data and the related technology used to acquire
and process such data to yield a two-dimensional view of a
Aslice" of the subsurface.
3-D Seismic. Seismic data and the related technology used to acquire
and process such data to yield a three-dimensional picture of the
subsurface. 3-D Seismic is created by the propagation of sound
waves through sedimentary rock layers, which are then detected
and recorded as they are reflected and refracted back to the
surface. By measuring the time taken for the sound to return and
applying computer technology to process the resulting data in
volume, imagery of significantly greater accuracy and usefulness
than older-style 2-D Seismic can be created.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used
herein in reference to oil or other liquid hydrocarbons.
Bcf. One billion cubic feet of natural gas.
Bcfe.One billion cubic feet of natural gas equivalents converting one
Bbl of oil to six Mcf of natural gas.
Btu. British Thermal Unit, the quantity of heat required to raise one
pound of water by one degree Fahrenheit.
Condensate. A hydrocarbon mixture that becomes liquid and separates
from natural gas when the gas is produced and is similar to crude
oil.
Developed Acreage. The number of acres which are allocated or
assignable to producing wells or wells capable of production.
Dry Hole. A well found to be incapable of producing either oil or
natural gas in sufficient quantities to justify completion as an
oil or natural gas well.
Estimated Future Net Revenues. Revenues from production of oil and
natural gas, net of all production-related taxes, lease operating
expenses and capital costs.
Exploratory Well. A well drilled to find and produce oil or natural
gas in an unproved area, to find a new reservoir in a field
previously found to be productive of oil or natural gas in
another reservoir.
Farmout. An agreement whereby the lease owner agrees to allow another
to drill a well or wells and thereby earn the right to an
assignment of a portion or all of the lease, with the original
lease owner typically retaining an overriding royalty interest
and other rights to participate in the lease.
Grossacres or gross wells. The total acres or wells, as the case may
be, in which a working interest is owned.
Group3-D Seismic. Seismic procured by a group of parties or shot
on a speculative basis by a seismic company.
<PAGE>
MBbl. One thousand Bbls of oil or other liquid hydrocarbons.
Mcf. One thousand cubic feet of natural gas.
Mcfe.One thousand cubic feet of natural gas equivalents
converting one Bbl of oil to six Mcf of natural gas.
Mcfe/d. Mcfe per day.
MMbbl. One million Bbls of oil or other liquid hydrocarbons.
MMbtu. One million Btu.
MMcf. One million cubic feet of natural gas.
MMcfe. One million cubic feet of natural gas equivalents
converting one Bbl of oil to six Mcf of natural gas.
Natural Gas Equivalent. The amount of natural gas having the same
Btu content as a given quantity of oil, with one Bbl of oil
being converted to six Mcf of natural gas.
Net Acres or Net Wells. The sum of the fractional working
interests owned in gross acres or gross wells.
Net Oil and Gas Sales. Oil and natural gas sales less oil and
natural gas production expenses.
Net Pay. The thickness of a productive reservoir capable of
containing hydrocarbons.
Net Production. Production that is owned by the Company less
royalties and production due others.
Net Revenue Interest. A share of the Working Interest that does
not bear any portion of the expense of drilling and
completing a well and that represents the holder's share of
production after satisfaction of all royalty, overriding
royalty, oil payments and other nonoperating interests.
Overriding Royalty Interest. An interest in an oil and natural
gas property entitling the owner to a share of oil and
natural gas production free of costs of exploration and
production.
Payout. That point in time when a party has recovered monies out
of the production from a well equal to the cost of drilling
and completing the well and the cost of operating the well
through that date.
Productive Well. A well that is producing oil or natural gas or
that is capable of production in paying quantities.
Proprietary 3-D Seismic. Seismic privately procured and owned by
the procurer.
Proved Developed Non-Producing Reserves. Reserves that consist of
(i) Proved Reserves from wells which have been completed and
tested but are not producing due to lack of market or minor
completion problems which are expected to be corrected and
(ii) Proved Reserves currently behind the pipe in existing
wells and which are expected to be productive due to both
the well log characteristics and analogous production in the
immediate vicinity of the wells.
Proved Developed Producing Reserves. Reserves that can be
expected to be recovered from currently producing zones
under the continuation of present operating methods.
<PAGE>
Proved Developed Reserves. Reserves that can be expected to be
recovered through existing wells with existing equipment and
operating methods.
Proved Reserves. The estimated quantities of oil, natural gas and
natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic
and operating conditions.
Proved Undeveloped Reserves. Proved reserves that are expected to
be recovered from new wells on undrilled acreage, or from
existing wells where a relatively major expenditure is
required for recompletion.
Recompletion. The completion for production of an existing well
bore in a different formation or producing horizon from that
in which the well was previously completed.
Reserve Life. The estimated productive life of a proved reservoir
based upon the economic limit of such reservoir producing
hydrocarbons in paying quantities assuming certain price and
cost parameters. For purposes of this Prospectus, reserve
life is calculated by dividing the Proved Reserves (on an
Mcfe basis) at the end of the period by projected production
volumes for the next 12 months.
Royalty Interest. An interest in an oil and natural gas property
entitling the owner to a share of oil and natural gas
production free of costs of production.
SEC PV-10. The present value of proved reserves is an estimate
of the discounted future net cash flows from each of the
properties at September 1, 1997, or as otherwise indicated.
Net cash flow is defined as net revenues less, after
deducting production and ad valorem taxes, future capital
costs and operating expenses, but before deducting federal
income taxes. As required by rules of the Commission, the
future net cash flows have been discounted at an annual rate
of 10% to determine their Apresent value." The present value
is shown to indicate the effect of time on the value of the
revenue stream and should not be construed as being the fair
market value of the properties. In accordance with
Commission rules, estimates have been made using constant
oil and natural gas prices and operating costs, at September
1, 1997, or as otherwise indicated.
Shut-In. To close down a producing well or field temporarily for
repair, cleaning out, building up reservoir pressure, lack
of a market or similar conditions.
Sidetrack. A drilling operation involving the use of a portion of
an existing well to drill a second hole, in which a milling
tool is used to grind out a Awindow" through the side of a
drill casing at some selected depth. The drilling bit is
then directed out of the window at a desired angle into
previously undrilled strata. From this directional start a
new hole is drilled to the desired formation depth and
casing is set in the new hole and tied back into the older
casing, generally at a lower cost because of the utilization
of a portion of the original casing.
Tcf. One trillion cubic feet of natural gas.
Undeveloped Acreage. Lease acreage on which wells have not been
drilled or completed to a point that would permit the
production of commercial quantities of oil and natural gas
regardless of whether such acreage contains proved reserves.
Working Interest. The operating interest that gives the owner the
right to drill, produce and conduct operating activities on
the property and a share of production, subject to all
royalties, overriding royalties and other burdens and to all
costs of exploration, development and operations and all
risks in connection therewith.
<PAGE>
PANACO, INC.
INDEX TO FINANCIAL STATEMENTS
Page
PANACO, INC. - AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report F-2
Independent Auditors' Report F-3
Balance Sheets, December 31, 1996 and 1995 F-4
Statements of Income (Operations) for the Years Ended
December 31, 1996, 1995 and 1994 F-6
Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1996, 1995 and 1994 F-7
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 F-8
Notes to Financial Statements for the Years Ended
December 31, 1996, 1995 and 1994 F-10
PANACO, INC. - UNAUDITED CONDENSED FINANCIAL STATEMENTS
Balance Sheets, June 30, 1997 and December 31, 1996 F-22
Statements of Income (Operations) for the Six Months Ended
June 30, 1997 and 1996 F-24
Statements of Changes in Stockholders' Equity
for the Six Months Ended June 30, 1997 F-25
Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1996 F-26
Condensed Notes to FinancialStatements F-27
GOLDKING COMPANIES, INC. AND SUBSIDIARIES - AUDITED
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report F-30
Consolidated Balance Sheets, December 31, 1996 and 1995 F-31
Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995 F-33
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1996 and 1995 F-34
Consolidated Statements of Cash Flow for the Years Ended
December 31, 1996 and 1995 F-35
Notes to Consolidated Financial Statements F-36
GOLDKING COMPANIES, INC. AND SUBSIDIARIES - UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Balance Sheets, June 30, 1997 and December 31, 1996 F-50
Statements of Income (Operations) for the Six Months Ended
June 30, 1997 and 1996 F-52
Statements of Changes in Stockholders' Equity
For the Six Months Ended June 30, 1997 and 1996 F-53
Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1996 F-54
Condensed Notes to Financial Statements F-55
<PAGE>
Report of Independent Public Accountants
To the Board of Directors
PANACO, Inc.
We have audited the accompanying balance sheet of PANACO, Inc. (a
Delaware Corporation) as of December 31, 1996, and the related statements of
income (operations), changes in stockholders' equity and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of PANACO, Inc. for the
years ended December 31, 1995 and 1994 were audited by other auditors whose
report dated February 26, 1996 (except with respect to the change in accounting
for oil and gas properties, as to which the date is June 7, 1996), expressed an
unqualified opinion on those statements and included an explanatory paragraph
that described the retroactive change in accounting for oil and gas properties.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present
fairly, in all material respects, the financial position of PANACO, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Kansas City, Missouri
March 7, 1997
F-2
<PAGE>
Independent Auditors' Report
To the Board of Directors
PANACO, Inc.
We have audited the accompanying balance sheets of PANACO, Inc. (a Delaware
corporation) as of December 31, 1995 and the related statements of income
(operations), changes in Stockholders' equity and cash flows for each of the two
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the Financial Statements, the Company has given
retroactive effect to the change in accounting for its oil and gas operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PANACO, Inc. as of December 31,
1995 and the results of its operations, changes in stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
BARRETT & ASSOCIATES
Overland Park, Kansas
February 26, 1996, except for Note 1, which the date is June 7, 1996.
F-3
<PAGE>
<TABLE>
<CAPTION>
PANACO, INC.
BALANCE SHEETS
ASSETS
December 31,
1996 1995
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,736,000 $ 1,198,000
Accounts receivable 6,197,000 4,386,000
Investment in common stock 1,642,000 ---
Prepaid and other 424,000 465,000
Total current assets 9,999,000 6,049,000
OIL AND GAS PROPERTIES, AS DETERMINED
BY THE SUCCESSFUL EFFORTS METHOD
OF ACCOUNTING
Oil and gas properties, proved 125,283,000 103,105,000
Oil and gas properties, unproved 7,128,000 ---
Less accumulated depreciation, depletion, amortization,
and valuation allowances (81,871,000) (73,620,000)
Net oil and gas properties 50,540,000 29,485,000
PROPERTY, PLANT, AND EQUIPMENT
Pipelines and equipment 10,534,000 196,000
Less accumulated depreciation (327,000) (92,000)
Net property, plant, and equipment 10,207,000 104,000
OTHER ASSET
Restricted deposits 2,115,000 ---
Loan costs, net 611,000 471,000
Other 296,000 60,000
Total other assets 3,022,000 531,000
TOTAL ASSETS $ 73,768,000 $36,169,000
The accompanying notes are an integral part of
this statement.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1996 1995
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 6,246,000 $ 4,444,000
Interest payable 524,000 161,000
Current portion of long-term debt --- ---
Total current liabilities 6,770,000 4,605,000
LONG-TERM DEBT 49,500,000 22,390,000
STOCKHOLDERS' EQUITY
Preferred Shares, $.01 par value,
1,000,000 shares authorized; no
shares issued and outstanding --- ---
Common Shares, $.01 par value,
40,000,000 shares authorized;
14,350,255 and 11,504,615 shares
issued and outstanding, respectively 143,000 115,000
Additional paid in capital 31,490,000 21,155,000
Retained earnings (deficit) (14,135,000) (12,096,000)
Total Stockholders' Equity 17,498,000 9,174,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 73,768,000 $ 36,169,000
The accompanying notes are an integral part of
this statement.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PANACO, INC.
STATEMENTS OF INCOME (OPERATIONS)
Year Ended December 31,
1996 1995 1994
REVENUES
<S> <C> <C> <C>
Oil and gas sales $20,063,000 $18,447,000 $ 17,338,000
COSTS AND EXPENSES
Lease operating 8,477,000 8,055,000 5,231,000
Depreciation, depletion and amortization 9,022,000 8,064,000 6,038,000
General and administrative 772,000 690,000 587,000
Production and ad valorem taxes 559,000 1,078,000 1,006,000
Exploration expenses --- 8,112,000 ---
Provision for losses and (gains) on disposition
and write-down of assets --- 751,000 1,202,000
West Delta fire loss 500,000 --- ---
Total 19,330,000 26,750,000 14,064,000
NET OPERATING INCOME (LOSS) 733,000 (8,303,000) 3,274,000
OTHER INCOME (EXPENSE)
Unrealized loss on investment in common stock (258,000) --- ---
Interest expense, net (2,514,000) (987,000) (1,623,000)
Total (2,772,000) (987,000) (1,623,000)
NET INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY ITEM (2,039,000) (9,290,000) 1,651,000
INCOME TAXES --- --- ---
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (2,039,000) (9,290,000) 1,651,000
EXTRAORDINARY ITEM - LOSS ON EARLY
RETIREMENT OF DEBT --- --- (536,000)
NET INCOME (LOSS) $ (2,039,000) $ ( 9,290,000) $ 1,115,000
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) before extraordinary item (.16) (.81) .16
Extraordinary loss --- --- (.05)
Net earnings (loss) $ (.16) $ (.81) $ .11
Weighted average shares outstanding: 12,742,213 11,504,615 9,952,870
The accompanying notes are an integral part of
this statement.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PANACO, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Common Additional Retained
Share Paid-In Earnings
Shares Par Value Capital (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 8,155,255 $ 82,000 $12,583,000 $(3,921,000)
Net Income --- --- --- 1,115,000
Exercises of stock options and warrants and
shares issued under Employee Stock
Ownership Plan 2,064,883 20,000 5,003,000 ---
Balances, December 31, 1994 10,220,138 102,000 17,586,000 (2,806,000)
Net Loss --- --- --- (9,290,000)
Exercise of stock options and warrants 1,181,602 12,000 3,137,000 ---
Issuance of new shares 102,875 1,000 432,000 ---
Balances, December 31, 1995 11,504,615 115,000 21,155,000 (12,096,000)
Net Loss --- --- --- (2,039,000)
Exercise of warrants, shares issued under
Employee Stock Ownership Plan and
Director stock bonuses 845,640 8,000 1,955,000 ---
Acquisition of properties 2,000,000 20,000 8,380,000 ---
Balances, December 31, 1996 14,350,255 $ 143,000 $31,490,000 $(14,135,000)
</TABLE>
The accompanying notes are an integral part of
this statement.
F-7
<PAGE>
<TABLE>
<CAPTION>
PANACO, INC.
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) before extraordinary item $(2,039,000) $(9,290,000) $ 1,651,000
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, depletion, and amortization 9,022,000 8,065,000 6,378,000
Exploration expenses --- 8,112,000 ---
Provision for losses and (gains) on disposition
and write-down of assets --- 751,000 1,202,000
Unrealized loss on investment in common stock 258,000 --- ---
ESOP stock contribution 122,000 132,000 123,000
Changes in operating assets and liabilities:
Accounts receivable (1,811,000) (2,155,000) (1,202,000)
Prepaid and other 274,000 (125,000) (501,000)
Accounts payable 1,803,000 2,916,000 (202,000)
Interest payable 363,000 (24,000) 26,000
Extraordinary loss --- --- (536,000)
Net cash provided by operating activities 7,992,000 8,382,000 6,939,000
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of oil and gas properties 9,017,000 11,000 300,000
Capital expenditures and acquisitions (42,958,000) (21,803,000) (12,101,000)
Purchase of other property and equipment, net (92,000) (38,000) (27,000)
Increase in restricted deposits (2,115,000) --- ---
Other 96,000 --- ---
Net cash used by investing activities (36,052,000) (21,830,000) (11,828,000)
CASH FLOW FROM FINANCING ACTIVITIES
Long-term debt proceeds 38,863,000 16,890,000 5,564,000
Repayment of long-term debt (11,753,000) (7,000,000) (7,326,000)
Issuance of common shares - exercise of
warrants and options 1,837,000 3,173,000 5,023,000
Additional loan costs ( 349,000) --- ---
Net cash provided by financing activities 28,598,000 13,063,000 3,261,000
NET INCREASE (DECREASE) IN CASH 538,000 (385,000) (1,628,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 1,198,000 1,583,000 3,211,000
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,736,000 $ 1,198,000 $ 1,583,000
The accompanying notes are an integral part of
this statement.
F-8
</TABLE>
<PAGE>
Supplemental schedule of non-cash investing and financing activities:
FOR THE YEAR ENDED DECEMBER 31, 1996:
The Company issued 2,000,000 shares of common stock totaling $8,400,000 to
Amoco Production Company in connection with an acquisition of oil and gas
assets.
The Company issued 2,447 shares of common stock each to two new directors.
The Company also issued 24,220 shares to the ESOP.
The Company received 477,612 shares of National Energy Group, Inc. common
stock in connection with the sale of the Bayou Sorrel Field.
FOR THE YEAR ENDED DECEMBER 31, 1995:
The Company issued 97,680 shares of common stock totaling $409,000 in exchange
for oil and gas properties.
FOR THE YEAR ENDED DECEMBER 31, 1994:
The Company farmed out an oil and gas property and retained a 12.5% overriding
royalty interest.
The Company contributed 30,850 shares to the ESOP.
Supplemental disclosures of cash flow information:
Cash paid during the year ended December 31:
1996 1995 1994
Interest $2,218,000 $1,016,000 $1,409,000
Income taxes $ --- $ --- $ ---
F-9
<PAGE>
PANACO, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of PANACO, Inc. (the Company) is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
who are responsible for the integrity and objectivity of the financial
statements. These accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the
financial statements.
Significant Risks and Uncertainties
The Company's future success is dependent upon many factors. One of these
factors involves finding and acquiring additional reserves, which could be
accomplished through successful drilling of productive wells at economic
returns, and through successful acquisitions of properties, which are subject to
uncertainties. Additional factors include competition from companies with larger
financial resources, the production of existing proved reserves (which reserve
estimates are inherently imprecise and are expected to change as future
information becomes available), the uncertainty of prices received for oil and
natural gas production (which have been volatile and are likely to be volatile
in the future) including hedged production, and the impact of changes in laws
and regulations imposed on the Company and related industries. The factors could
have a material adverse effect on the Company's business and the ability to
realize its assets.
Revenue Recognition
The Company recognizes its ownership interest in oil and gas sales as revenue.
It records revenues on an accrual basis, estimating volumes and prices for any
months for which actual information is not available. If actual production sold
differs from its allocable share of production in a given period, such
differences would be recognized as deferred income or accounts receivable.
Hedging Transactions
The Company hedges the prices of its oil and gas production through the use of
oil and natural gas futures and swap contracts within the normal course of its
business. The Company uses futures and swap contracts to reduce the effects of
fluctuations in oil and natural gas prices. Changes in the market value of these
contracts are deferred and subsequent gains and losses are recognized monthly as
adjustments to revenues in the same production period as the hedged item, based
on the difference between the index price and the contract price. The Company
entered into a hedge agreement beginning in January, 1996, for the delivery of
15,000 MMBTU of gas for each day in 1996 with contract prices ranging from
$1.7511/MMBTU to $2.253/MMBTU.
Starting in 1997 the Company's hedge transactions on natural gas are based upon
published gas pipeline index prices and not the NYMEX. This change has
eliminated price differences due to transportation. For 1997, 14,000 MMBTU's per
day has been hedged, reduced to 10,000 MMBTU's per day in 1998 and 7,000 MMBTU's
per day in 1999. The Company is hedging at a swap price of $1.80/MMBTU for 1997,
with varying levels of participation (93% in January to 66% in December) in
settlement prices above $1.80/MMBTU.
F-10
<PAGE>
Starting in 1997, the Company has also hedged 720 barrels of oil for each day in
1997 at a swap price of $20.00 per barrel. The Company then has a 40%
participation in settlement prices above the swap price.
Income Taxes
The Company records income taxes in accordance with the requirements of
Statement of Financial Accounting Standards (FAS) No. 109 - "Accounting for
Income Taxes", which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Oil and Gas Producing Activities and Depreciation, Depletion and Amortization
The Company utilizes the successful efforts method of accounting for its oil and
gas properties. Under the successful efforts method, lease acquisition costs are
capitalized. Exploratory drilling costs are also capitalized pending
determination of proved reserves. If proved reserves are not discovered, the
exploratory costs are expensed. All development costs are capitalized. Provision
for depreciation and depletion is determined on a field-by-field basis using the
unit-of-production method. The carrying amounts of unproved properties are not
depleted until a determination of any reserves has been made. The carrying
amounts of proven and unproven properties are reviewed periodically on a
property-by-property basis, based on future net cash flows determined by an
independent engineering firm, and an impairment reserve is provided as
conditions warrant. The provision for write down of assets were $751,000 for
1995, and $1,202,000 for 1994.
Property, Plant & Equipment
Property and equipment are carried at cost. Oil and natural gas pipelines and
equipment are depreciated on the straight-line method over estimated remaining
useful lives, primarily fifteen years. Other property is also depreciated on the
straight-line method over estimated remaining useful lives, ranging from five to
seven years.
Amortization of Note Discount
Note discounts are amortized utilizing the interest method, which applies a
constant rate of interest to the book value of the note. Additional interest
expense of $234,000 was recorded in 1994 from the amortization of the discount.
Effective July 1, 1994 the debt related to the note discount was extinguished,
and the balance of the note discount totaling $106,000 was recorded as an
extraordinary item.
Earnings (Loss) per share
The computation of earnings or loss per share in each year is based on the
weighted average number of common shares outstanding. When dilutive, stock
options and warrants are included as share equivalents using the treasury share
method. Stock options and warrants were not included in the calculation for 1995
and 1996, as the effects were not dilutive. Shares to be contributed to the ESOP
plan are treated as common share equivalents.
Statement of Cash Flows
For purposes of reporting cash flows, the Company considers all cash investments
with original maturities of three months or less to be cash equivalents.
F-11
<PAGE>
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and
disclosure of contingent assets and liabilities in the financial statements,
including the use of estimates for oil and gas reserve information and the
valuation allowance for deferred income taxes. Actual results could differ from
those estimates. Estimates related to oil and gas reserve information and the
standardized measure are based on estimates provided by third parties. Changes
in prices could significantly affect these estimates from year to year.
Reclassification
Certain financial statement items have been reclassified to conform to the
current year's presentation.
Note 2 - ACQUISITIONS & DISPOSITIONS
On October 8,1996, the Company closed its acquisition of interests in thirteen
offshore blocks comprising six fields in the Gulf of Mexico from Amoco
Production Company ("Amoco Properties"). The purchase price for the assets
acquired in this transaction was $40.4 million, paid by the issuance of
2,000,000 Common Shares, valued at $4.20 per share, and by payment to Amoco of
$32 million in cash. Based on the assets acquired, the Company allocated
$25,737,000 of the purchase price to proved oil and gas properties, $9,273,000
to pipelines and structures and $5,390,000 to unproved oil and gas properties.
Concurrently with this transaction the Company entered into a new Bank Facility
with First Union National Bank of North Carolina and Banque Paribas under which
its reducing revolving loan was increased to $40 million, with an initial
borrowing base (credit limit) of $35 million. In addition to that facility, the
Company borrowed $17 million pursuant to the Tranche A Convertible and the
Tranche B Bridge Loan Subordinated Notes (see Note 6).
On July 12, 1995, the Company entered into a Purchase and Sale Agreement with
Zapata Exploration Company to acquire all of Zapata's offshore oil and gas
properties in the Gulf of Mexico ("Zapata Properties"). The transaction closed
July 26, 1995. The purchase price for the assets acquired in this transaction
was $2,748,000 in cash and the obligation to pay a production payment to Zapata
based upon future production. The production payment is based upon production
from the East Breaks 109 field after production of 12 Bcfe gross (10 Bcfe net)
measured from October 1, 1994. The Company will pay to Zapata $.4167 per Mcfe on
the next 27 Bcfe produced. Payments to Zapata on this production payment are to
be made by the Company when it is paid for the oil or gas. Oil and gas reserves
attributable to this production payment are not included in the reserves for the
properties set forth herein.
Both of these acquisitions were accounted for using the purchase method. The
results for the Amoco Properties are included in the Company's results of
operations from October 8 to December 31, 1996. The results for the Zapata
Properties are included in the Company's results of operations from July 26 to
December 31, 1995 and all of 1996.
Effective September 1, 1996, the Company sold its Bayou Sorrel Field to National
Energy Group, Inc. for $11,000,000, consisting of $9,000,000 in cash and 477,612
shares of National Energy Group, Inc. common stock. This field was purchased by
the Company on December 27, 1995 from Shell Western E & P, Inc. for $10,500,000,
which included a $204,000 broker's fee and a related receivable of $600,000. The
Company retained a 3% overriding royalty interest in the deep rights of the
field, below 11,000 feet. There was no gain or loss on the sale of the field and
the $1,738,000 remaining net book valve was assigned to this overriding royalty
interest.
F-12
<PAGE>
The following unaudited pro forma financial information assumes the Amoco and
Zapata acquisitions had been consummated January 1, 1995, and the Bayou Sorrel
sale was completed January 1, 1996. It is presented in order to comply with the
disclosure requirements of Accounting Principles Board Opinion No. 16. The pro
forma financial information does not purport to be indicative of the results of
the Company had these acquisitions occurred on the date assumed, nor is it
necessarily indicative of the future results of the Company. It should be read
together with the financial statements of the Company, including the notes
thereto.
<TABLE>
<CAPTION>
PANACO, Inc.
Unaudited Pro Forma Financial Information
For the Years Ended December 31, 1996 and 1995
1996 1995
Unaudited Unaudited
PANACO, Inc. PANACO, Inc.
Pro Forma Pro Forma
Combined Combined
<S> <C> <C>
Revenues $ 28,978,000 $ 34,598,000
Income/(loss) before extraordinary items (1,928,000) (13,213,000)
Net Income/(loss) (1,928,000) (13,213,000)
Earnings/(loss) per share $ (0.13) $ (0.98)
</TABLE>
Note 3 - WEST DELTA FIRE LOSS
The Company experienced an explosion and fire on April 24, 1996 at Tank Battery
#3 in West Delta resulting in the fields being shut-in from April 24th, until
being returned to production on October 7, 1996. The loss of 67 days of
production in the second quarter and the entire third quarter resulted in lost
revenues of approximately $6,000,000. The fire was the principal contributor to
the losses of $.08 per share for the second quarter of 1996 and $.11 per share
for the third quarter. During the second quarter the Company expensed $500,000
for its loss as a result of this explosion. No further losses have been
recognized or are anticipated. This $500,000 amount included $225,000 in
deductibles under the Company's insurance.
The Company has spent $8,500,000 on Tank Battery #3 inclusive of the $500,000
expensed during second quarter and has received reimbursement from its insurance
company of $3,900,000, after satisfaction of the $225,000 in deductibles. The
excess of expenditures over insurance reimbursement will be capitalized as
property improvements. No additional expenditures have been made or are
anticipated.
Note 4 - INVESTMENT IN COMMON STOCK
In connection with a sale of the Bayou Sorrel to National Energy Group, Inc.,
the Company received 477,612 shares of National Energy Group, Inc. common stock.
The market value was $1,900,000 based upon the trading price of the stock on the
NASDAQ National Market.
F-13
<PAGE>
The Company has classified this investment as a trading security. At December
31, 1996 the market value of the Company's investment in National Energy Group,
Inc. was $1,642,000, with a $258,000 valuation allowance being recognized to
reflect the decrease in market value of the common stock.
Note 5 - RESTRICTED DEPOSITS
Pursuant to existing agreements the Company is required to deposit funds in bank
escrow and trust accounts to provide a reserve against satisfaction of its
eventual responsibility to plug and abandon wells and remove structures when
certain fields no longer produce oil and gas. Each month, until November 1997,
$25,000 is deposited in a bank escrow account, to satisfy such obligations with
respect to a portion of its West Delta Properties. The Company has entered into
an escrow agreement with Amoco Production Company under which the Company will
deposit, for the life of the fields, ten percent (10%) of the net cash flow, as
defined in the agreement, from the Amoco properties. As of December 31, 1996 the
Company has established the "PANACO East Breaks 110 Platform Trust" in favor of
the Minerals Management Service of the U.S. Department of the Interior. This
trust requires an initial funding of $846,720 in December 1996, and remaining
deposits of $244,320 due at the end of each quarter in 1999 and $144,000 due at
the end of each quarter in 2000, for a total of $2,400,000. In addition, the
Company has $9,250,000 in surety bonds to secure its plugging and abandonment
obligations; including a $4,100,000 bond which was provided to the original
sellers of the West Delta Properties; a $2,400,000 supplemental bond provided to
the Minerals Management Service of the U.S. Department of the Interior in
connection with the plugging and structure removal obligations for the Company's
East Breaks Block 110 Platform and a $300,000 Pipeline Right-of-Way Bond.
Note 6- LONG-TERM DEBT
1996 1995
Note payable (a) $ 27,500,000 $ 17,390,000
Note payable (b) 22,000,000 5,000,000
49,500,000 22,390,000
Less current portion --- ---
Long-term debt $ 49,500,000 $ 22,390,000
(a) On October 8, 1996, the Company amended its bank facility with First
Union National Bank of North Carolina (60% participation), and Banque Paribas
(40% participation), herein "Bank Facility". The loan is a reducing revolver
designed to provide the Company up to $40 million depending on the Company's
borrowing base, as determined by the lenders. The Company's borrowing base at
December 31, 1996 was $31 million, with an availability under the revolver of
$2.5 million. The principal amount of the loan is due July 1, 1999. However, at
no time may the Company have outstanding borrowings under the Bank Facility in
excess of its borrowing base. Interest on the loan is computed at the bank's
prime rate or at 1 to 1 3/4% (depending upon the percentage of the facility
being used) over the applicable London Interbank Offered Rate ("LIBOR") on
Eurodollar loans. Eurodollar loans can be for terms of one, two, three or six
months and interest on such loans is due at the expiration of the terms of such
loans, but no less frequently than every three months. The Company's weighted
average interest rate at December 31, 1996 was 7.29%. The bank facility is
collateralized by a first mortgage on the Company's offshore properties. The
loan agreement contains certain covenants including a requirement to maintain a
positive indebtedness to cash flow ratio, a positive working capital ratio, a
certain tangible net worth, as well as limitations on future debt,
guarantees,liens, dividends, mergers, material change in ownership by
management, and sale of assets.
F-14
<PAGE>
(b) From time to time the Company has borrowed funds from institutional lenders
who are advised by Kayne, Anderson Investment Management, Inc. In each case
these loans are due at a stated maturity, require payments of interest only
at 12% per annum 45 days after the end of each calendar quarter and are
secured by a second mortgage on the Company's offshore oil and gas
properties. The respective loan documents contain certain covenants
including a requirement to maintain a net worth ratio, as well as
limitations on future debt, guarantees, liens, dividends, mergers, material
change in ownership by management, and sale of assets. The loans are as
follows:
(i) 1993 Subordinated Notes. In 1993, $5,000,000 was borrowed, due
December 31, 1999, but prepayable at any time. The Company could have delivered
up to $1,000,000 in PIK (payment in kind) notes in satisfaction of interest
payment obligations. The lenders were issued, and during 1996 exercised,
warrants to acquire 816,526 Common Shares at $2.25 per share. In March, 1997 the
Company repaid these notes.
(ii) 1996 Tranche A Convertible Subordinated Notes. On October 8,
1996, $8,500,000 was borrowed, due October 8, 2003, but prepayable any time
after May 8, 1998. The Notes are, after August 28, 1997, convertible, into
2,060,606 common shares on the basis of $4.125 per share. The Company may
deliver up to $2,000,000 in PIK notes in satisfaction of interest payment
obligations.
(iii) 1996 Tranche B Bridge Loan Subordinated Notes. On October 8,
1996, $8,500,000 was borrowed, due October 8, 2003, but prepayable at any
time. In March, 1997 the Company repaid these notes.
Maturities of long-term debt are as follows:
July 1, 1999 $27,500,000
December 31, 1999 5,000,000
October 8, 2003 17,000,000
$49,500,000
Note 7 - STOCKHOLDERS' EQUITY
During 1996, 816,526 shares were issued by virtue of the exercise of warrants at
an exercise price of $2.25 per share, 24,220 shares were contributed to the
Company's ESOP and 4,894 were issued for board of director fees. On October 8,
1996, 2,000,000 shares were issued to Amoco Production Company in connection
with an acquisition of oil and gas assets. During 1995, 1,181,602 shares were
issued by virtue of the exercise of warrants and options, 97,680 shares were
issued in connection with property acquisition costs and 5,195 shares were
issued for board of directors fees. During 1994, 2,034,033 shares were issued by
virtue of the exercise of warrants and options, and 30,850 shares were
contributed to the Company's ESOP.
In August, 1994, the Company established an Employee Stock Ownership Plan (ESOP)
and Trust that covers substantially all employees. The Board of Directors can
approve contributions, up to a maximum of 15% of eligible employees' gross
wages. The Company incurred $ 122,000, $132,000 and $123,000 in costs for the
years ended December 31, 1996, 1995 and 1994, respectively.
F-15
<PAGE>
Warrants outstanding at December 31, 1996 to acquire common shares are as
follows:
Number of Price per
Shares Share Expiration Date
90,000 $2.000 July 31, 1997
160,000 $2.375 December 31, 1997
39,365 $2.000 December 31, 1997
289,365
The 1996 Tranche A Convertible Subordinated Notes are, after August 28, 1997,
convertible into 2,060,606 common shares on the basis of $4.125 share.
On August 26, 1992, the shareholders approved a long-term incentive plan
allowing the Company to grant incentive and nonstatutory stock options,
performance units, restricted stock awards and stock appreciation rights to key
employees, directors, and certain consultants and advisors of the Company up to
a maximum of 20% of the total number of shares outstanding. At December 31, 1996
or 1995, there were no stock options outstanding.
During 1995, under the terms of the Long-Term Incentive Plan, three directors
surrendered 73,845 shares to exercise 124,400 options. New options were issued
equal to the number of shares surrendered at a price of $2.0313 per share, which
would have expired December 31, 1995, but were exercised by that date.
Note 8 - RELATED PARTY TRANSACTIONS
During 1995, 25,000 warrants at a price of $2.50 per share were issued to and
exercised by a director. During 1994, 650,000 warrants at a price of $2.75 per
share were issued to the directors. All such warrants were exercised during
1994.
The Company entered into a triple net lease agreement with a partnership owned
by two directors for the lease of an office building. The lease, which expires
November, 2003, has monthly rental payments of $4,000. During 1996, 1995 and
1994, $48,000 per year in rent was paid under the lease agreement.
The following is a schedule of future rental payments required under this
office building lease:
-----------------------------------
Year ending December 31,
-----------------------------------
1997 $ 48,000
1998 48,000
1999 48,000
2000 48,000
2001 48,000
2002-2003 92,000
$ 332,000
In 1994, 275,000 options were issued to directors at prices ranging from $2.32
to $3.94 per share. These options were exercised in 1995. Under the terms of the
Long-Term Incentive Plan, three directors were issued 73,845 options at $2.03
per share and 68,567 options at $2.19 per share in 1995 and 1994, respectively.
These options were exercised in 1995.
F-16
<PAGE>
Note 9 - INCOME TAXES
At December 31, 1996, the Company had net operating loss carry forwards for
federal income tax purposes of $16,000,000 which are available to offset future
federal taxable income through 2011. The Company's timing of its utilization of
net operating loss carry forwards may be limited in the future due to its
issuance of common stock and the related I.R.S. regulations.
Significant components of the Company's deferred tax assets as of December 31
are as follows:
1996 1995
Deferred tax assets
Fixed asset basis differences $2,312,000 $ 1,408,000
Net operating loss carry forwards 6,342,000 6,306,000
Total deferred tax assets 8,654,000 7,714,000
Valuation allowance for deferred
tax assets (8,654,000) (7,714,000)
Total deferred tax assets $ --- $ ---
A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The valuation allowance for
deferred tax assets as of December 31, 1994 was $4,061,000. The net change in
the total valuation allowance for the years ended December 31, 1996 and 1995 was
an increase of $940,000 and $3,653,000, respectively.
Note 10 - COMMITMENTS AND CONTINGENCIES
The Company is subject to various legal proceedings and claims which arise in
the ordinary course of business operations. In the opinion of management, the
amount of liability, if any, with the respect to these actions would not
materially affect the financial position of the Company or its results of
operation.
Note 11 - FINANCIAL INSTRUMENTS
The carrying amount and fair values of the Company's financial instruments at
December 31, 1996, are as follows:
------------------------------------
Assets (Liabilities)
-----------------------------------
Carrying Amount Fair Value
Long-term fixed rate debt $ (22,000,000) $ (21,063,000)
Off balance sheet financial instruments
Letter of credit --- ---
Hedge contracts --- (897,000)
Cash and cash equivalents, receivables, payables, and long-term variable rate
debt The carrying amount reported on the consolidated balance sheet approximates
its fair value because of the short maturities of these instruments.
Long-term, fixed rate debt
The Company estimates the fair value of its long-term, fixed rate debt generally
using discounted cash flow analysis based on the Corporation's current borrowing
rates for debt with similar maturities.
F-17
<PAGE>
Letter of credit
A $1,000,000 letter of credit collateralizes a plugging bond. Fair value
estimated on the basis of fees paid to obtain the obligation is not material at
December 31, 1996.
Hedge contracts
The fair values of the Company's swap contracts are estimated based on
settlement values at December 31, 1996 for volumes hedged at future dates.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of bank account balances in excess of federally
insured limits and trade receivables. The Company's receivables consist of oil
and gas sales to third parties primarily from offshore production in the Gulf of
Mexico and onshore oil production in the central part of the United States. This
concentration may impact the Company's overall credit risk, either positively or
negatively, in that these entities may be similarly affected by changes in
economic or other conditions. Receivables are generally not collateralized.
Historical credit losses incurred by the Company on receivables have not been
significant. One purchaser accounted for 49%, 69% and 83% of revenues in 1996,
1995 and 1994, respectively.
NOTE 12 - SUBSEQUENT EVENTS
On March 5, 1997, the Company completed an offering of 8,403,305 shares of
common stock at $4.00 per share, $3.728 net of the underwriter's commission,
consisting of 6,000,000 shares sold by the Company and 2,403,305 shares sold by
shareholders, primarily 2,000,000 by Amoco Production Company which were
received in connection with a property acquisition and 373,305 by lenders
advised by Kayne, Anderson Investment Management, Inc which were received in
connection with the exercise of warrants. The Company's proceeds of $22,000,000
(net of $350,000 in offering expenses) from the offering were used to repay
$13,500,000 of its Subordinated Notes, specifically the 1993 Subordinated Notes
and the 1996 Tranche B Bridge Loan Subordinated Notes. The remaining proceeds
were temporarily paid on the Company's reducing revolving loan and will
ultimately be used for the development of its properties and future
acquisitions. These payments, along with payments made from the Company's cash
flows reduced its Long-Term debt balance at $24,000,000 on March 6, 1997.
Note 13 - SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED)
<TABLE>
<CAPTION>
The following table reflects the costs incurred in oil and gas property
activities for each of the three years ended December 31:
- ------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property acquisition costs, proved $ 26,859,000 $ 12,603,000 $ 352,000
Property acquisition costs, unproved 5,390,000 --- ---
Exploration costs --- 8,112,000 ---
Development costs 8,863,000 1,497,000 11,749,000
</TABLE>
F-18
<PAGE>
Quantities of Oil and Gas Reserves
The estimates of proved developed and proved undeveloped reserve quantities at
December 31, 1996 are based upon reports of third party petroleum engineers
(Ryder Scott Company and McCune Engineering, P.E.) and do not purport to reflect
realizable values or fair market values of PANACO's reserves. It should be
emphasized that reserve estimates are inherently imprecise and accordingly,
these estimates are expected to change as future information becomes available.
These are estimates only and should not be construed as exact amounts. All
reserves are located in the United States.
Proved reserves are estimated reserves of natural gas and crude oil and
condensate that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed reserves are those expected
to be recovered through existing wells, equipment, and operating methods.
<TABLE>
<CAPTION>
Proved developed and undeveloped reserves:
Oil Gas
(BBLS) (MCF)
<S> <C> <C> <C> <C>
Estimated reserves as of December 31, 1993 745,000 43,696,000
Production (137,000) (8,139,000)
Extensions and discoveries 183,000 16,930,000
Sale of minerals in-place (24,000) (45,000)
Revisions of previous estimates 176,000 (10,860,000)
Estimated reserves as of December 31, 1994 943,000 41,582,000
Production (170,000) (9,850,000)
Sale of minerals in-place (1,000) (22,000)
Purchase of minerals in-place 1,140,000 20,094,000
Revisions of previous estimates (12,000) (5,093,000)
Estimated reserves as of December 31, 1995 1,900,000 46,711,000
Production (276,000) (6,788,000)
Extensions and discoveries --- 972,000
Sale of minerals in-place (805,000) (3,102,000)
Purchase of minerals in-place 1,379,000 16,633,000
Revisions of previous estimates 41,000 (12,980,000)
Estimated reserves as of December 31, 1996 2,239,000 41,446,000
Proved developed reserves:
- -------------------------------------------------------------- ---------- ------------
Oil Gas
(BBLS) (MCF)
- -------------------------------------------------------------- ---------- ------------
December 31, 1993 745,000 24,665,000
December 31, 1994 907,000 36,282,000
December 31, 1995 1,794,000 40,323,000
December 31, 1996 1,867,000 39,288,000
</TABLE>
F-19
<PAGE>
Standardized Measure of Discounted Future Net Cash Flows
Future cash inflows are computed by applying year-end prices of oil and gas
(with consideration of price changes only to the extent provided by contractual
arrangements) to the year-end estimated future production of proved oil and gas
reserves. Estimates of future development and production costs are based on
year-end costs and assume continuation of existing economic conditions. The
estimated future net cash flows are then discounted using a rate of 10 per cent
per year to reflect the estimated timing of the future cash flows. The
standardized measure of discounted cash flows is the future net cash flows less
the computed discount.
The accompanying table reflects the standardized measure of discounted
future cash flows relating to proved oil and gas reserves as of the three years
ended December 31:
<TABLE>
<CAPTION>
1996 1995
1994
<S> <C> <C> <C>
Future cash inflows $ 210,875,000 $140,247,000 $ 88,893,000
Future development and production costs 61,822,000 50,723,000 32,197,000
Future net cash flows 149,053,000 89,524,000 56,696,000
Future income taxes 17,899,000 11,755,000 6,304,000
Future net cash flows after income taxes 131,154,000 77,769,000 50,392,000
10% annual discount (31,313,000) (14,848,000) (8,477,000)
Standardized measure after income taxes $ 99,841,000 $ 62,921,000 $ 41,915,000
</TABLE>
Changes Relating to the Standardized Measure of Discounted Future Net Cash Flows
The accompanying table reflects the principal changes in the standardized
measure of discounted future net cash flows attributable to proved oil and gas
reserves for each of the three years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Beginning balance $ 62,921,000 $41,915,000 $47,379,000
Sales of oil and gas, net of production costs (11,027,000) (9,314,000) (11,047,000)
Net change in income taxes (4,116,000) (4,267,000) 5,562,000
Changes in price and production costs 44,088,000 11,498,000 (10,781,000)
Purchases of minerals in-place 45,521,000 34,415,000 ---
Sale of minerals in-place (10,518,000) --- ---
Revision of previous estimates, extensions &
discoveries, net (27,028,000) (11,326,000) 10,802,000
Ending balance $ 99,841,000 $62,921,000 $41,915,000
</TABLE>
F-20
<PAGE>
PANACO, Inc.
Condensed Financial Statements
June 30, 1997
(Unaudited)
F-21
<PAGE>
<TABLE>
<CAPTION>
PANACO, INC.
Condensed Balance Sheets
(Unaudited)
ASSETS As of As of
June 30, 1997 December 31, 1996
------------------------ ------------------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,353,000 $ 1,736,000
Accounts receivable 6,030,000 6,197,000
Investment in common stock 1,701,000 1,642,000
Prepaid and other 552,000 424,000
------------------------ ------------------------
Total current assets 9,636,000 9,999,000
------------------------ ------------------------
OIL AND GAS PROPERTIES, AS DETERMINED BY THE
SUCCESSFUL EFFORTS METHOD OF ACCOUNTING
Oil and gas properties, proved 130,410,000 125,283,000
Oil and gas properties, unproved 7,324,000 7,128,000
Less: accumulated depreciation, depletion,
amortization and valuation allowances (87,374,000) (81,871,000)
------------------------ ------------------------
Net oil and gas properties 50,360,000 50,540,000
------------------------ ------------------------
PROPERTY, PLANT AND EQUIPMENT
Pipelines and equipment 13,280,000 10,534,000
Less: accumulated depreciation (806,000) (327,000)
------------------------ ------------------------
Net property, plant and equipment 12,474,000 10,207,000
------------------------ ------------------------
OTHER ASSETS
Restricted deposits 1,992,000 2,115,000
Loan costs, net 127,000 611,000
Other 252,000 296,000
------------------------ ------------------------
Total other assets 2,371,000 3,022,000
------------------------ ------------------------
TOTAL ASSETS $ 74,841,000 $ 73,768,000
'''''''''''''''''''''''' ''''''''''''''''''''''''
</TABLE>
The accompanying notes are an integral part of this statement.
F-22
<PAGE>
<TABLE>
<CAPTION>
PANACO, INC.
Condensed Balance Sheets
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY As of As of
June 30, 1997 December 31, 1996
------------------------ -------------------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 5,770,000 $ 6,246,000
Interest payable 263,000 524,000
Current portion of long-term debt - -
------------------------ -------------------------
Total current liabilities 6,033,000 6,770,000
------------------------ -------------------------
LONG-TERM DEBT 28,000,000 49,500,000
------------------------ -------------------------
STOCKHOLDERS' EQUITY
Preferred Shares, $.01 par value,
5,000,000 shares authorized; no
shares issued and outstanding
- -
Common Shares, $.01 par value,
40,000,000 shares authorized;
20,382,087 and 14,350,255 shares
issued and outstanding, respectively 204,000 143,000
Additional paid-in capital 53,593,000 31,490,000
Retained earnings (deficit) (12,989,000) (14,135,000)
------------------------ -------------------------
Total stockholders' equity 40,808,000 17,498,000
------------------------ -------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 74,841,000 $ 73,768,000
'''''''''''''''''''''''' '''''''''''''''''''''''''
</TABLE>
The accompanying notes are an integral part of this statement.
F-23
<PAGE>
<TABLE>
<CAPTION>
PANACO, INC.
Statements of Income (Operations)
For the Six Months Ended June 30,
(Unaudited)
1997 1996
------------------- -------------------
REVENUES
<S> <C> <C>
Oil and natural gas sales $ 14,287,000 $ 10,808,000
COSTS AND EXPENSES
Lease operating 5,122,000 4,184,000
Depletion, depreciation & amortization 6,184,000 3,812,000
General and administrative 389,000 382,000
Production and ad valorem taxes 174,000 327,000
Exploration expenses 67,000 -
West Delta fire loss - 500,000
------------------- -------------------
Total 11,936,000 9,205,000
------------------- -------------------
NET OPERATING INCOME 2,351,000 1,603,000
------------------- -------------------
OTHER INCOME (EXPENSE)
Unrealized gain on investment in common stock 60,000 -
Interest expense, net (1,265,000) (902,000)
------------------- -------------------
Total (1,205,000) (902,000)
------------------- -------------------
NET INCOME BEFORE INCOME TAXES 1,146,000 701,000
INCOME TAXES - -
------------------- -------------------
NET INCOME $ 1,146,000 $ 701,000
''''''''''''''''''' '''''''''''''''''''
Net income per share $ 0.07 $ 0.06
''''''''''''''''''' '''''''''''''''''''
</TABLE>
The accompanying notes are an integral part of this statement.
F-24
<PAGE>
<TABLE>
<CAPTION>
PANACO, INC.
Statement of Changes in Stockholders' Equity
(Unaudited)
Amount ($)
Number of Additional Retained
Common Common Paid-in Earnings
Shares Stock Capital (Deficit)
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996 14,350,255 $ 143,000 $ 31,490,000 $(14,135,000)
Net Income 1,146,000
- - -
Common shares issued - Offering 6,000,000 60,000 21,954,000 -
Common shares issued - ESOP
contribution and stock bonuses 31,832 1,000 149,000 -
----------------- ----------------- ----------------- ------------------
Balance, June 30, 1997 20,382,087 $ 204,000 $ 53,593,000 $(12,989,000)
''''''''''''''''' ''''''''''''''''' ''''''''''''''''' ''''''''''''''''''
</TABLE>
The accompanying notes are an integral part of this statement.
F-25
<PAGE>
<TABLE>
<CAPTION>
PANACO, INC.
Statement of Cash Flows
Six Months Ended June 30,
(Unaudited)
1997 1996
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,146,000 $ 701,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depletion, depreciation and amortization 6,184,000 3,812,000
Unrealized gain on investment in common stock (60,000) -
Other, net 16,000 -
Changes in operating assets and liabilities:
Accounts receivable 167,000 473,000
Prepaid and other 400,000 (41,000)
Accounts payable (476,000) 2,365,000
Interest payable (261,000) 78,000
----------------- -----------------
Net cash provided by operating activities 7,116,000 7,388,000
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of oil and gas properties 24,000 -
Capital expenditures and acquisitions (8,160,000) (3,440,000)
Decrease/(increase) in restricted deposits 123,000 (1,735,000)
----------------- -----------------
Net cash used by investing activities (8,013,000) (5,175,000)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock offering proceeds, net 22,014,000 -
Long-term debt proceeds 4,500,000 -
Repayment of long-term debt (26,000,000) (4,000,000)
Issuance of common stock-exercise of warrants - 1,837,000
----------------- -----------------
Net cash used by financing activities 514,000 (2,163,000)
----------------- -----------------
NET INCREASE (DECREASE) IN CASH (383,000) 50,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,736,000 1,198,000
----------------- -----------------
CASH AND CASH EQUIVALENTS AT JUNE 30 $ 1,353,000 $ 1,248,000
''''''''''''''''' '''''''''''''''''
The accompanying notes are an integral part of this statement.
F-26
</TABLE>
<PAGE>
PANACO, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
Note 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position as of June 30, 1997 and December 31, 1996 and the results of operations
and changes in stockholder's equity and cash flows for the periods ended June
30, 1997 and 1996. Most adjustments made to the financial statements are of a
normal, recurring nature. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, certain information
and footnote disclosures, including significant accounting policies, normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). It is
suggested that these financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1996.
Note 2 - OIL AND GAS PROPERTIES AND PIPELINES AND EQUIPMENT
The Company utilizes the successful efforts method of accounting for its
oil and gas properties. Under the successful efforts method, lease acquisition
costs are capitalized. Exploratory drilling costs are also capitalized pending
determination of proved reserves. If proved reserves are not discovered, the
exploratory costs are expensed. All development costs are capitalized. Interest
on unproved properties is capitalized based on the carrying amount of the
properties. Provision for depreciation and depletion is determined on a
field-by-field basis using the unit-of-production method. The carrying amounts
of proven and unproved properties are reviewed periodically on a
property-by-property basis, based on future net cash flows determined by an
independent engineering firm, with an impairment reserve provided if conditions
warrant.
Pipelines and equipment are carried at cost. Oil and natural gas
pipelines are depreciated on the straight-line method over the useful lives of
fifteen years. Other property is also depreciated on the straight-line method
over the useful lives, which range from five to seven years.
Note 3 - CASH FLOW INFORMATION
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with original maturities of six months
or less to be cash equivalents. Cash payments for interest, net of capitalized
interest, totaled $1,526,000 and $744,000 for the first six months of 1997 and
1996, respectively.
Note 4 - RESTRICTED DEPOSITS
The Company is party to various escrow and trust agreements which
provide for monthly deposits into escrow and trust accounts to satisfy future
plugging and abandonment obligations. The terms of the agreements vary as to
deposit amounts, based upon fixed monthly amounts or percentages of the
properties' net income. With respect to plugging and abandonment operations,
funds are partially or completely released upon the presentation by the Company
to the escrow agent or trustee of evidence that the operation was or is being
conducted in compliance with applicable laws and regulations. These amounts are
included on the financial statements as Restricted Deposits.
F-27
<PAGE>
Note 5 - INVESTMENT IN COMMON STOCK
In connection with the sale of the Bayou Sorrel Field to National
Energy Group, Inc. in 1996, the Company received 477,612 shares of National
Energy Group, Inc. common stock. The Company has classified this asset as a
trading security. At June 30, 1997 the estimated market value of the stock was
$1,701,000, with an unrealized gain of $60,000 recognized in the first three
months of 1997 to reflect the increase in market value from December 31, 1996.
Subsequent to June 30, the shares of National Energy Group, Inc. common stock
have been sold with no significant gain or loss being realized.
Note 6 - NET INCOME PER SHARE
The net income per share for the six months ended June 30, 1997 and
1996 has been calculated based on 18,247,926 and 12,206,886 weighted average
shares outstanding, respectively and 20,382,087 and 12,345,361 for the three
months ended June 30, 1997 and 1996, respectively. Weighted average shares
outstanding are the only shares included in this calculation. The Company does
not present a fully diluted earnings per share amount as options and warrants
outstanding at June 30, 1997 do not dilute per share amounts by 3% or more and
the shares issuable upon conversion of the 1996 Convertible Subordinated Notes
are not considered common stock equivalents and are also anti-dilutive.
The Financial Accounting Standards Board issued FASB Statement 128,
"Earnings Per Share", in February 1997. FASB 128 modifies the way companies
report earnings per share information. The Company will be required to adopt
FASB 128 for the year ending December 31, 1997. All prior periods will be
restated to conform with the statement. The Company does not believe that
adoption of FASB 128 will materially affect earnings per share data previously
reported.
Note 7 - SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING ACTIVITIES
The reserves presented in the following table are prepared by the
Company based upon reports of independent petroleum engineers and are estimates
only and should not be construed as being exact amounts. All reserves presented
are proved reserves that are defined as estimated quantities which geological
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions.
Proved developed and undeveloped reserves Oil Gas
(Bbls) (Mcf)
December 31, 1996 2,239,000 41,446,000
Purchase of minerals-in-place -0- -0-
Production (188,000) (4,421,000)
Revisions of previous estimates -0- -0-
Estimated reserves at June 30, 1997 2,051,000 37,025,000
No major discovery or other favorable or adverse event has caused a significant
change in the estimated proved reserves since June 30, 1997 other than the
acquisition of the Goldking Companies, Inc., see Note 9-Subsequent Events. The
Company does not have proved reserves applicable to long-term supply agreements
with governments or authorities. All proved reserves are located in the United
States.
F-28
<PAGE>
Note 8 - INCOME TAXES
The Company has not recorded an income tax provision due to net
operating loss carryforwards for federal income tax purposes of $16,000,000 at
December 31, 1996 which are available to offset future federal taxable income
through 2011.
Note 9 - SUBSEQUENT EVENTS
On July 31, the Company completed its acquisition of Goldking
Companies, Inc. for combination of cash, notes, 3,238,930 PANACO Common Shares
and the assumption of liabilities. The acquisition will be accounted for as a
purchase. With the acquisition PANACO obtains over 50 Bcf equivalent of oil and
natural gas reserves, a sizable portfolio of exploration, development projects
and 3-D seismic data and a seasoned staff of oil and gas professionals
experienced in Gulf Coast operations.
F-29
<PAGE>
Report of Independent Auditors
Board of Directors
Goldking Companies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Goldking
Companies, Inc. and Subsidiaries as of December 31, 1996, and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Goldking Companies, Inc. and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
September 2, 1997
F-30
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Consolidated Balance Sheets
December 31,
1996 1995
-----------------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 896,000 $ 193,000
Restricted cash 1,358,000 802,000
Short-term investments 72,000 72,000
Accounts receivable, net 4,193,000 3,142,000
Advances to affiliates, officers, and shareholders 1,486,000 924,000
Prepaid expenses and other 27,000 -
-----------------------------------------------------
Total current assets 8,032,000 5,133,000
Property and equipment:
Oil and gas properties, full-cost method 23,683,000 17,718,000
Pipeline and ROW 1,682,000 1,681,000
Other property 1,104,000 1,097,000
-----------------------------------------------------
26,469,000 20,496,000
Accumulated depreciation, depletion, and amortization
(Note 9) (12,097,000) (9,852,000)
-----------------------------------------------------
14,372,000 10,644,000
Other assets:
Organization, deferred and other costs (Note 7), net of accumulated
amortization of $144,000 and $39,000 at December 31, 1996 and 1995,
respectively
1,106,000 953,000
-----------------------------------------------------
Total other assets 1,106,000 953,000
-----------------------------------------------------
Total assets $ 23,510,000 $ 16,730,000
-----------------------------------------------------
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
December 31,
1996 1995
------------------------------------------------------
Liabilities and stockholders' equity Current liabilities:
<S> <C> <C>
Accounts payable $ 3,491,000 $ 2,876,000
Oil and gas distributions payable 2,810,000 2,484,000
Current maturities of long-term debt (Note 3) 1,243,000 1,342,000
Accrued interest 228,000 226,000
Advances from joint-interest participants 502,000 44,000
Accrued and other liabilities 119,000 403,000
------------------------------------------------------
Total current liabilities 8,393,000 7,375,000
Contingent liabilities (Note 6) 713,000 235,000
Long-term debt, net of discount of $786,000 and $929,000 at
December 31, 1996 and 1995, respectively (Note 3)
11,639,000 7,961,000
Stockholders' equity:
Common stock, $.001 par value:
Authorized shares - 100,000
Issued and outstanding shares - 10,000 - -
Additional paid-in capital 1,753,000 1,753,000
Retained earnings (deficit) 1,012,000 (594,000)
------------------------------------------------------
Total stockholders' equity 2,765,000 1,159,000
''''''''''''''''''''''''''''''''''''''''''''''''''''''
Total liabilities and stockholders' equity $ 23,510,000 $ 16,730,000
''''''''''''''''''''''''''''''''''''''''''''''''''''''
See accompanying notes.
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Consolidated Statement of Operations
Year Ended December 31,
1996 1995
---------------------------------------------
Revenues:
<S> <C> <C>
Oil and gas revenues $ 7,637,000 $ 4,268,000
Interest income 42,000 41,000
Gain on asset sales 430,000 10,000
Miscellaneous 549,000 49,000
---------------------------------------------
Total revenues 8,658,000 4,368,000
Costs and expenses:
Lease operating expense 1,869,000 2,097,000
Taxes 669,000 491,000
Depreciation, depletion, and amortization 2,245,000 2,453,000
General and administrative expense 813,000 741,000
Interest and amortization of debt discount 1,456,000 818,000
---------------------------------------------
Total costs and expenses 7,052,000 6,600,000
'''''''''''''''''''''''''''''''''''''''''''''
Net income (loss) $ 1,606,000 $ (2,232,000)
'''''''''''''''''''''''''''''''''''''''''''''
See accompanying notes.
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Consoidated Statements of Stockholders' Equity
Additional Paid-In
Common Stock Retained Earnings Capital
Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ - $ 1,638,000 $ 1,753,000 $ 3,391,000
Net loss - 1995 - (2,232,000) - (2,232,000)
-------------------------------------------------------------------------
Balance at December 31, 1995 - (594,000) 1,753,000 1,159,000
Net income - 1996 - 1,606,000 - 1,606,000
-------------------------------------------------------------------------
'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
Balance December 31, 1996 $ - $ 1,012,000 $ 1,753,000 $ 2,765,000
'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
See accompanying notes.
</TABLE>
F-34
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31
1996 1995
---------------------------------------------
Operating activities
<S> <C> <C>
Net income (loss) $ 1,606,000 $ (2,232,000)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Amortization of debt discount and deferred costs
247,000 110,000
Depreciation, depletion, and amortization 2,245,000 2,453,000
Interest expense included as debt principal 283,000 259,000
Gain on asset sales (430,000) (10,000)
Changes in operating assets and liabilities:
Restricted cash (556,000) (802,000)
Accounts receivable (1,051,000) (1,430,000)
Due from affiliates, net (562,000) (235,000)
Prepaid costs (27,000) 236,000
Other assets (258,000) (314,000)
Accounts payable 615,000 (642,000)
Oil and gas distributions payable 326,000 1,776,000
Accrued and other liabilities (282,000) 452,000
Advances from joint-interest participants 458,000 (179,000)
Contingent liabilities 478,000 235,000
---------------------------------------------
Net cash provided by (used in) operating activities 3,092,000 (323,000)
Investing activities
Proceeds from sale of property and equipment 550,000 2,865,000
Investments in property, plant, and equipment, net (6,093,000) (10,249,000)
---------------------------------------------
Net cash used in investing activities (5,543,000) (7,384,000)
Financing activities
Proceeds from long-term borrowings 4,629,000 8,903,000
Payments on long-term borrowings (1,475,000) (876,000)
Financing costs - (172,000)
---------------------------------------------
Net cash provided by financing activities 3,154,000 7,855,000
---------------------------------------------
Net increase in cash and cash equivalents 703,000 148,000
Cash and cash equivalents at beginning of year 193,000 45,000
'''''''''''''''''''''''''''''''''''''''''''''
Cash and cash equivalents at end of year $ 896,000 $ 193,000
'''''''''''''''''''''''''''''''''''''''''''''
See accompanying notes.
</TABLE>
F-35
<PAGE>
Goldking Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. Organization and Summary of Significant Accounting Policies
Organization
Goldking Companies, Inc. and Subsidiaries, a Delaware corporation, was formed on
October 31, 1996 as a wholly owned subsidiary of The Union Companies, Inc.
("TUCI"), and as the direct parent of Goldking Oil & Gas Corp. ("GKOG"), a Texas
corporation; Goldking Production Company ("GKPC"), a Texas corporation; and Hill
Transportation Co., Inc. ("HTC"), a Louisiana corporation. Goldking Trinity Bay
Corp. ("GKTB"), a Texas corporation, is a wholly owned subsidiary of GKOG and
Umbrella Point Gathering Co., LLC ("UPGC"), a Texas limited liability
corporation, is a wholly owned subsidiary of HTC.
GKOG was formed on June 18, 1990 initially under the name of Union Associates,
Inc. The company became a wholly owned subsidiary of TUCI on May 15, 1992. GKTB
was formed on May 25, 1995 to acquire certain oil and gas properties in Trinity
Bay, Galveston County, Texas. GKPC was formed on January 31, 1992 as a contract
operator of oil and gas wells on the Gulf Coast and adjoining states. HTC was
formed on February 24, 1978 and owns and operates a 13-mile-long gas pipeline in
Louisiana. UPGC was formed on January 25, 1996 as a subsidiary of HTC to assist
in the buying and selling of pipelines, and has a duration of 30 years from the
date of formation.
Goldking Companies, Inc. and Subsidiaries (the "Companies") are independent
energy companies primarily engaged in the acquisition, exploration, development,
and production of crude oil and natural gas.
The formation of the Companies has been treated as a pooling of interest as of
January 1, 1995. On the formation date, Goldking Companies, Inc., exchanged with
TUCI 10,000 shares, $0.001 par value, of common stock for 100% of the
outstanding common stock of GKPC, GKOG, and HTC.
The consolidated financial statements include the accounts of the Companies, and
all significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Companies consider all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
F-36
<PAGE>
1. Organization and Summary of Significant Accounting Policies (continued)
Short-Term Investments
As of December 31, 1996, short-term investments consisted of various equity
securities at cost, which approximates fair market values.
Oil and Gas Properties
The Companies utilize the full-cost method to account for investments in oil and
gas properties. Under this method, all direct costs associated with the
acquisition, development, and exploration for oil and gas properties are
capitalized. Included in capitalized costs for the years ended December 31, 1996
and 1995, are internal costs that are directly identified with acquisition,
exploration, and development activities. Oil and gas properties, and estimated
future development and abandonment costs are depleted using the
units-of-production method based on the ratio of current production to estimated
proved oil and gas reserves, as prepared by independent petroleum consultants.
Costs directly associated with the acquisition and evaluation of unproved
properties are excluded from the amortization computation, until it is
determined whether or not impairment has occurred. As of December 31, 1996 and
1995, there were no such exclusions from the amortization computations.
Nominal dispositions of oil and gas properties are recorded as adjustments to
capitalized costs, with no gain or loss recognized unless such adjustments would
alter significantly the relationship between capitalized costs and proved
reserves of oil and gas.
To the extent that capitalized costs of oil and gas properties, net of
accumulated depreciation, depletion, and amortization, exceed the after-tax
discounted future net revenues of proved oil and gas reserves, such excess
capitalized costs would be charged to operations. No such write-down in book
value was required at December 31, 1996 and 1995.
Administrative Overhead Reimbursement
The Companies, as operator of drilling and/or producing properties, was
reimbursed by the nonoperators for administration, supervision, office services,
and warehousing costs on an annually adjusted fixed rate basis per well, per
month. These charges are applied as a reduction of general and administrative
expenses for purposes of the statements of operations.
F-37
<PAGE>
1. Organization and Summary of Significant Accounting Policies (continued)
Other Property
Other property and equipment are recorded at cost and are depreciated over an
estimated useful life of five years, using the straight-line method.
Production Imbalances
The Companies follow the sales method of accounting for natural gas revenues.
Under this method, revenues are recognized based on actual volumes of gas sold
to purchasers. The volumes of gas sold, however, may differ from the volumes to
which the Companies are entitled because joint interest owners may take more or
less than their ownership interest of natural gas volumes. Imbalances are
monitored to minimize significant imbalances, and such imbalances were not
significant at December 31, 1996 and 1995.
Revenues
The Companies recognize crude oil and natural gas revenues from their interests
in producing wells, as crude oil and natural gas is sold from those wells.
Revenue from the processing and gathering of natural gas is recognized in the
period the service is performed.
Income Taxes
The Companies file federal income tax returns on a consolidated basis with their
parent and other members of their affiliated group. For financial statement
purposes, income taxes are provided as though the Companies file separate income
tax returns; however, those companies incurring losses or credits are allocated
the tax benefit based on TUCI's ability to utilize such losses or credits.
The Companies account for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income, in the period that includes the
enactment date.
F-38
<PAGE>
1. Organization and Summary of Significant Accounting Policies (continued)
Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities, and to the disclosure of contingent assets
and liabilities, to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
2. Income Taxes
No income tax provision was recorded for the year ended December 31, 1996
primarily due to recognizing the benefits of operating loss carryforwards of
approximately $587,000.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1996 and 1995 are as follows:
December 31
Gross deferred tax assets: 1996 1995
------------------------------------
Depreciation, depletion, and amortization $ 1,998,000 $ 1,799,000
Net operating loss carryforwards 1,638,000 1,229,000
Other 20,000 1,000
------------------------------------
Gross deferred tax assets 3,656,000 3,029,000
Valuation allowance (1,341,000) (1,499,000)
------------------------------------
Net deferred tax assets 2,315,000 1,530,000
Gross deferred tax liabilities:
Intangible drilling costs (2,315,000) (1,530,000)
''''''''''''''''''''''''''''''''''''
Net deferred tax liabilities $ - $ -
''''''''''''''''''''''''''''''''''''
At December 31, 1996, the Company had $4,550,000 of net operating losses which
will be carried forward and will expire between 2007 and 2010.
The Companies have a valuation allowance because the Companies believe that some
of the deferred tax assets may not be realizable.
F-39
<PAGE>
3. Debt
On January 9, 1996, GKOG entered into a reserve-based $10 million revolving line
of credit agreement with a bank (the "Line of Credit"), which is secured by
GKOG's oil and gas properties. This agreement replaces an existing revolving
line of credit. The amount available to be drawn under the Line of Credit is
determined by a borrowing-base calculation which is redetermined periodically by
the bank. The Line of Credit matures January 9, 1999 and bears interest at prime
plus 0.75% (9% at December 31, 1996). At December 31, 1996, the outstanding
amount advanced on the Line of Credit was $2,656,000.
GKTB entered into a loan agreement (the "Loan") in 1995 with a lending
institution in the amount of $8,772,000 secured by GKTB's properties in Trinity
Bay. Collateralized net book value at December 31, 1996 and 1995 was $8,044,000
and $6,353,000, respectively. The Loan requires quarterly principal and interest
payments beginning January 1, 1996 for a period of nine years with a subsequent
balloon payment. In addition to the scheduled principal payments, commencing
January 1, 1996, the Loan also requires a contingent principal payment equal to
a percentage of the net cash flow (as defined) for the immediately preceding
quarter. At December 31, 1996, the outstanding Loan balance was $7,288,000 and
$5,980,000, respectively. The Loan also provides for an additional payment to
the lender in the amount of $1,000,000, which serves as a discount and is being
amortized into interest expense over the term of the Loan agreement. The
additional amount is to be repaid quarterly beginning January 1, 1996 based on
percentages of the net cash flow for the immediately preceding quarter. All
payments for the additional amount will be applied first to the interest on the
additional amount and then to the principal balance. Interest not paid when due
will be added to the principal balance of the additional amount. GKTB's portion
of oil and gas sales proceeds from the Trinity Bay properties is held in a
restricted cash account by the lending institution for payment of principal and
interest. Interest rates at December 31, 1996 and 1995 were 10.73% and 10.82%,
respectively. The Loan agreement contains, among other things, provisions for
the maintenance of certain financial ratios and covenants. GKTB incurred
financing costs in connection with the Loan of $172,000, which are being
amortized over the term of the Loan. These financing costs (net of amortization)
are included in deferred costs.
During 1995, GKOG entered into an agreement with Tenneco Ventures, Inc.
("Tenneco"), pursuant to which Tenneco purchased from GKOG a Term Overriding
Royalty Interest in certain properties (the "Term Override"). The proceeds of
the Tenneco funding were used by GKOG to finance the drilling and completion of
certain unproved properties, the construction of a pipeline, and for drilling
other specified unproved prospects. The Term Override terminates when Tenneco
has received proceeds from the Term Override equal to the amount advanced by
Tenneco for the purchase of the Term Override plus an annualized internal rate
of return. During 1995, the internal rate of return per the agreement was 25%.
During 1996, the agreement was renegotiated to state an internal rate of return
of 18% retroactively to day one of the agreement. Current year balances have
been adjusted to reflect the change in rates. At December 31, 1996 and 1995,
$2,633,000 and $2,035,000, respectively, were outstanding and reflected as
long-term debt.
F-40
<PAGE>
3. Debt (continued)
Based on third-party reserve estimates at December 31, 1996, the future revenue
attributable to the Term Override will not be sufficient to pay the 18% rate of
return necessary to terminate the Term Override as described above. There is no
recourse to the Companies if the proceeds from the Term Override are
insufficient to pay the 18% rate of return. The difference between the 18% rate
of return and the amounts paid to Tenneco from the Term Override since September
1996 was $100,000 and is not reflected in the balance sheets of the Companies.
If future revenues are insufficient to allow payment of the principal balance,
reductions to the liability will be applied against the full cost pool. Accrued
interest prior to September 1996 was added to the outstanding principal balance.
Interest paid on outstanding debt during 1996 and 1995 was $1,244,000 and
$301,000, respectively.
Scheduled debt maturities for the next five years and thereafter are as follows:
1997 $ 1,243,000
1998 1,146,000
1999 1,003,000
2000 955,000
2001 955,000
Thereafter 8,366,000
------------------
Total 13,668,000
Less discount 786,000
''''''''''''''''''
Net $ 12,882,000
''''''''''''''''''
4. Related Party Transactions
Advances to affiliates are incurred by the Companies in the ordinary course of
business, and include $693,000 and $295,000 advanced to officers of the Company
as of December 31, 1996 and 1995, respectively. Such balances have no terms
related to settlement and do not bear interest. The respective parties' intent
for settlement has been used as a basis for classifying such balances in the
financial statements.
During 1996 and 1995, $21,000 and $2,000, respectively, of legal fees were
incurred by the Companies for services performed by Looper, Reed, Mark & McGraw,
Incorporated, a law firm in which the president of the Companies was associated.
5. Noncash Transactions
During 1995, a debt agreement was entered into which requires a $1,000,000
payment in addition to the actual borrowed amount. The amount, reflected as a
discount to debt, is being amortized over the anticipated life of the agreement.
During 1996 and 1995, interest expense of $283,000 and $259,000, respectively,
was included as principal on outstanding debt balances.
F-41
<PAGE>
6. Commitments and Contingencies
Litigation
From time to time, the Companies are involved in litigation relating to claims
arising out of their operations in the normal course of business. At December
31, 1996 and 1995, the Companies were not engaged in any legal proceedings that
are expected, individually or in the aggregate, to have a material adverse
effect on the Companies' financial statements.
Contingent Liabilities
The Companies are involved in disputes with several oil companies, acting in
their capacities as the operators of wells in which GKOG owns an interest.
Management believes the operators have made a number of excessive charges in
connection with operating the wells, and the Companies are on record as opposing
those charges and being unwilling to pay them. Pending further negotiations,
these amounts, totaling $713,000 and $235,000 as of December 31, 1996 and 1995,
respectively, have been reclassified from current accounts payable to contingent
liabilities.
Concentration of Credit Risk
Financial instruments which potentially expose the Companies to credit risk
consist principally of trade receivables and crude oil and natural gas price
swap agreements. Accounts receivable are generally from companies with
significant oil and gas marketing activities which would be impacted by
conditions or occurrences affecting that industry (see Note 7).
Leases
For the years ended December 31, 1996 and 1995, the Companies incurred rent
expense of approximately $132,000 and $126,000, respectively. Future minimum
rental payments are as follows at December 31, 1996:
1997 $ 128,000
1998 $ 39,000
1999 $ 10,000
2000 $ 10,000
2001 $ 4,000
Thereafter $ -
F-42
<PAGE>
7. Financial Derivatives
The Companies have only limited involvement with derivative financial
instruments and do not use them for trading purposes. They are used to manage
well-defined price risks.
During 1996 and 1995, GKTB entered into a crude oil price swap and oil and gas
put options with third parties. These instruments hedge against potential
fluctuations in future prices for GKTB's anticipated production volumes based on
current engineering estimates. The instruments qualify as hedges; therefore, any
gain and losses will be recorded when related oil or gas production has been
delivered. The cost of entering into the instruments has been recorded as a
deferred cost on the balance sheets and is being amortized over the life of the
instruments. At December 31, 1996 and 1995, the unamortized deferred cost is
$459,000 and $263,000, respectively, which is being amortized to revenues on a
straight-line basis over the terms of the related contracts.
At December 31, 1996, the crude oil swap agreement was for 110,194 barrels at
$17.12 from January 1, 1997 through December 31, 2000. Gas put options were for
an aggregate 529,425 MMBtu at $1.87 from January 1, 1997 through December 31,
2000. Oil put options were for an aggregate 55,112 barrels at $17.62 from
January 1, 1997 through December 31, 2000.
At December 31, 1995, the crude oil swap agreement was for 148,000 barrels at
$17.12 from August 1995 through December 2000. Gas put options were for an
aggregate 730,000 MMBtu at $1.87 from August 1995 through December 2000. Oil put
options were for an aggregate 74,000 barrels at $17.62 from August 1995 through
December 2000.
If a mark-to-market adjustment were recorded at December 31, 1996, these
derivative contracts would result in a net loss of $600,000. However, GKTB
intends to maintain these options through their maturity as long-term hedges of
crude oil and natural gas price risk from producing activities. Therefore, the
losses implied by the mark-to-market calculation have not been recognized.
Oil and gas revenues were decreased by $266,000 in 1996 and increased by $12,000
in 1995 as a result of such hedging activity.
8. Determination of Fair Values of Financial Instruments
Fair value for cash, accounts receivables, investments, payables, and long-term
debt approximates carrying value. The fair market values of advances to
affiliates, officers, and stockholders, and notes receivable, affiliates are not
practicable to determine.
F-43
<PAGE>
9. Accumulated Depreciation, Depletion, and Amortization
The balances relating to accumulated depreciation, depletion, and amortization
("DD&A") as of December 31, 1996 and 1995 have changed subsequent to our audit
report issued April 9, 1997. Upon auditing the 1995 amount, which was unaudited
in the April 9, 1997 report. DD&A expense for 1995 was increased $1,121,000 and
accumulated DD&A was increased from $8,731,000 to $9,852,000 as of December 31,
1996. Accumulated DD&A increased from $10,976,000 to $12,097,000 as of December
31, 1996, as a result of this change.
10. Major Customers
The Companies sell their production under contracts with various purchasers,
with certain domestic purchasers accounting for sales of 10% or more per year as
follows:
1996 25%, 18%, 16%
1995 38%
11. Subsequent Event
On July 31, 1997, Goldking was acquired by Panaco, Inc.
F-44
<PAGE>
Supplemental Information - Disclosures About Oil and Gas
Producing Activities - Unaudited
The following supplemental information regarding the oil and gas activities of
the Company is presented pursuant to the disclosure requirements promulgated by
the Securities and Exchange Commission and Statement of Financial Accounting
Standards ("SFAS") No. 69, Disclosure About Oil and Gas Activities.
The following estimates of reserve quantities and related standardized measure
of discounted future net cash flow are estimates only, and do not purport to
reflect realizable values or fair market values of the Companies' reserves. The
Companies emphasize that reserve estimates are inherently imprecise and that
estimates of new discoveries are more imprecise than those of producing oil and
gas properties. Additionally, the prices of oil and gas have been very volatile
and downward changes in prices can significantly affect quantities that are
economically recoverable. Accordingly, these estimates are expected to change as
future information becomes available and the changes may be significant. All of
the Companies' proved reserves are located in the United States.
Proved reserves are estimated reserves of crude oil and natural gas that
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are those expected to be
recovered through existing wells, equipment, and operating methods.
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, less estimated future income tax expenses. The estimated future net
cash flows are then discounted using a rate of 10% a year to reflect the
estimated timing of the future cash flows.
The Company has not filed any reserve estimates with any federal authorities or
agencies.
F-45
<PAGE>
<TABLE>
<CAPTION>
Proved Oil and Gas Reserve Quantities
Oil Gas
reserves reserves
(bbls.) (Mcf)
----------------- ----------------
<S> <C> <C> <C> <C>
Balance December 31, 1994 1,103,817 8,554,300
Revisions of previous estimates 312,639 1,464,600
Purchases of reserves in place 195,209 1,372,000
Sales of reserves in place (232,300) (655,500)
Extensions, discoveries, and other additions 139,704 1,834,900
Production (207,778) (1,342,300)
----------------- ----------------
Balance December 31, 1995 1,311,291 11,228,000
Revisions of previous estimates 111,277 514,300
Purchases of reserves in place 787,600 2,178,700
Sales of reserves in place - -
Extensions, discoveries, and other additions 143,900 6,349,000
Production (144,938) (1,619,100)
''''''''''''''''' ''''''''''''''''
Balance December 31, 1996 2,209,130 18,650,900
''''''''''''''''' ''''''''''''''''
Proved developed reserves:
December 31, 1994 1,066,822 7,444,200
December 31, 1995 1,010,644 9,668,100
December 31, 1996 1,396,569 11,741,700
</TABLE>
F-46
<PAGE>
<TABLE>
<CAPTION>
Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves
Year ended
December 31, 1996 December 31, 1995
--------------------- ---------------------
<S> <C> <C>
Future cash inflows $ 105,553,000 $ 53,072,000
Future production and development costs (44,132,000) (20,812,000)
Future income tax expenses (16,303,000) (7,545,000)
--------------------- ---------------------
Future net cash flows 45,118,000 24,715,000
10% annual discount for estimated timing of
cash flows (15,021,000) (7,237,000)
--------------------- ---------------------
Standardized measure of discounted future net
cash flows $ 30,097,000 $ 17,478,000
''''''''''''''''''''' '''''''''''''''''''''
The following are the principal sources of changes in the standardized measure
of discounted future net cash flows:
Year ended
December 31, 1996 December 31, 1995
--------------------- ---------------------
Beginning balance $ 17,478,000 $ 10,248,000
Changes in future development costs (5,631,000) 531,000
Purchases of reserves in place 8,292,000 2,751,000
Sales of reserves in place - (1,973,000)
Sales of oil and gas produced (4,516,000) (3,509,000)
Net changes in price and production costs (7,014,000) 830,000
Extensions, discoveries, and other additions 12,543,000 4,528,000
Revisions of previous quantity estimates 12,626,000 5,837,000
Accretion of discount 1,874,000 957,000
Net changes in income taxes (5,555,000) (2,722,000)
--------------------- ---------------------
Ending balance $ 30,097,000 $ 17,478,000
--------------------- ---------------------
</TABLE>
F-47
<PAGE>
<TABLE>
<CAPTION>
Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves (continued)
Year ended
December 31, 1996December 31, 1995
------------------------------------
Costs incurred
<S> <C> <C>
Property acquisition costs - unproved leases $1,807,000 $1,215,000
Property acquisition costs - proved properties 1,598,000 7,220,000
Exploration costs 135,000 -
Development costs 2,995,000 1,814,000
Year ended December 31,
1996 1995 1994
------------------------------------------------------
Other information
Amortization per dollar of gross sales revenue
0.27 0.53 .38
Average sales price per barrel (oil) 19.35 16.61 15.28
Average sales price per Mcf (gas) 2.19 1.56 1.89
Average sales price per net equivalent barrel*
15.24 12.95 13.68
Average production cost per net equivalent barrel
5.12 7.85 12.10
*Natural gas converted to equivalent barrels using conversion ratio of 6:1.
</TABLE>
F-48
<PAGE>
Goldking Companies, Inc. & Subsidiaries
Condensed Financial Statements
June 30, 1997
(Unaudited)
F-49
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Condensed Balance Sheets
(Unaudited)
As of As of
June 30, 1997 December 31, 1996
-----------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 341,000 $ 896,000
Restricted cash 401,000 1,358,000
Short-term investments 72,000 72,000
Accounts receivable, net 2,714,000 4,193,000
Advances to affiliates, officers, and shareholders 1,714,000 1,486,000
Prepaid expenses and other 40,000 27,000
-----------------------------------------------
Total current assets 5,282,000 8,032,000
Property and equipment:
Oil and gas properties, full-cost method 27,262,000 23,683,000
Pipeline and ROW 1,682,000 1,682,000
Other property 1,157,000 1,104,000
-----------------------------------------------
30,101,000 26,469,000
Accumulated depreciation, depletion, and amortization
(13,070,000) (12,097,000)
-----------------------------------------------
17,031,000 14,372,000
Other assets:
Organization, deferred and other costs, net of accumulated amortization of
$141,000 and $141,000 at June 30, 1997 and December 31,1996, respectively
1,026,000 1,106,000
-----------------------------------------------
Total other assets 1,026,000 1,106,000
-----------------------------------------------
Total assets $ 23,339,000 $ 23,510,000
-----------------------------------------------
</TABLE>
F-50
<PAGE>
<TABLE>
<CAPTION>
As of As of
June 30, 1997 December 31, 1996
-----------------------------------------------
Liabilities and stockholders' equity Current liabilities:
<S> <C> <C>
Accounts payable $ 3,960,000 $ 3,491,000
Oil and gas distributions payable 1,633,000 2,810,000
Current maturities of long-term debt 1,181,000 1,243,000
Accrued Interest 247,000 228,000
Advances from joint-interest participants 112,000 502,000
Accrued and other liabilities 73,000 119,000
-----------------------------------------------
Total current liabilities 7,206,000 8,393,000
Contingent liabilities 654,000 713,000
Long-term debt, net of discount of $714,000 and $786,000 at June 30, 1997 and
December 31, 1996, respectively
13,102,000 11,639,000
Stockholders' equity:
Common stock, $.001 par value:
Authorized shares - 100,000
Issued and outstanding shares - 10,000 - -
Additional paid-in capital 1,753,000 1,753,000
Retained earnings 624,000 1,012,000
-----------------------------------------------
Total stockholders' equity 2,377,000 2,765,000
'''''''''''''''''''''''''''''''''''''''''''''''
Total liabilities and stockholders' equity $ 23,339,000 $ 23,510,000
'''''''''''''''''''''''''''''''''''''''''''''''
See accompanying notes.
</TABLE>
F-51
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Statements of Income (Operations)
For the Six Months Ended June 30,
(Unaudited)
1997 1996
---------------------------------------------
Revenues:
<S> <C> <C>
Oil and gas revenues $ 3,531,000 $ 3,176,000
Interest income 53,000 17,000
Miscellaneous 64,000 276,000
---------------------------------------------
Total revenues 3,648,000 3,469,000
Costs and expenses:
Lease operating expense 1,573,000 818,000
General and administrative expense 401,000 457,000
Production and ad valorem taxes 281,000 223,000
Interest 807,000 848,000
Depreciation, depletion, and amortization 974,000 624,000
---------------------------------------------
Total costs and expenses 4,036,000 2,970,000
'''''''''''''''''''''''''''''''''''''''''''''
Net income (loss) $ (388,000) $ 499,000
'''''''''''''''''''''''''''''''''''''''''''''
See accompanying notes.
</TABLE>
F-52
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Statements of Stockholders' Equity
(Unaudited)
Additional Paid-In
Common Stock Retained Earnings Capital
Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances December 31, 1995 $ - $ (594,000) $ 1,753,000 $ 1,159,000
Net Income - 1,606,000 - 1,606,000
---------------------------------------------------------------------
Balance December 31, 1996 - 1,012,000 $ 1,753,000 2,765,000
Net income - (388,000) - (388,000)
'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
Balance June 30, 1997 $ - $ 624,000 $ 1,753,000 $ 2,377,000
'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
See accompanying notes.
</TABLE>
F-53
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Statements of Cash Flows
Six Months Ended June 30,
(Unaudited)
1997 1996
---------------------------------------------
Operating activities
<S> <C> <C>
Net income (loss) $ (388,000) $ 499,000
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation, depletion, and amortization 974,000 624,000
Changes in operating assets and liabilities:
Restricted cash 957,000 (169,000)
Accounts receivable 1,251,000 (289,000)
Prepaid costs (13,000) (87,000)
Accounts payable 469,000 1,234,000
Oil and gas distributions payable (1,177,000) -
Accrued and other liabilities (417,000) 117,000
Contingent liabilities (59,000) -
Other 80,000 -
---------------------------------------------
Net cash provided by (used in) operating activities 1,677,000 1,929,000
Investing activities
Investments in property, plant, and equipment, net (3,633,000) (3,250,000)
---------------------------------------------
Net cash used in investing activities (3,633,000) (3,250,000)
Financing activities
Net proceeds from long-term borrowings 1,401,000 1,754,000
Net decrease in cash and cash equivalents (555,000) 433,000
Cash and cash equivalents at beginning of period 896,000 193,000
'''''''''''''''''''''''''''''''''''''''''''''
Cash and cash equivalents at end of period $ 341,000 $ 626,000
'''''''''''''''''''''''''''''''''''''''''''''
See accompanying notes.
</TABLE>
F-54
<PAGE>
Goldking Companies, Inc. & Subsidiaries
Condensed Notes to Financial Statements
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial position as of
June 30, 1997 and December 31, 1996 and the results of operations and changes in
stockholder's equity and cash flows for the periods ended June 30, 1997 and
1996. Most adjustments made to the financial statements are of a normal,
recurring nature. Although the Companies believe that the disclosures are
adequate to make the information presented not misleading, certain information
and footnote disclosures, including significant accounting policies, normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). These
financial statements should be read in conjunction with the Companies' annual
audited financial statements.
On July 30, 1997, PANACO, Inc. acquired the Goldking Companies for a combination
of cash, shareholder notes, PANACO Common Shares and the assumption of debt. The
acquisition by PANACO did not include the Goldking Companies advances receivable
from affiliates or a real estate investment, both owned by the Goldking
Companies. Certain reclassification entries have been made to the Companies'
historical financial statement amounts to provide for accounting and reporting
consistency with PANACO, Inc. For that reason, unaudited pro forma financial
information may not be presented in the same format or amounts may be classified
differently than those contained in these financial statements.
F-55
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of any offer to buy any securities other than the securities to
which it relates or any offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
----------------------
TABLE OF CONTENTS -------------------------
Page
PROSPECTUS
Available Information............................3 -------------------------
Prospectus Summary...............................4
Risk Factors....................................17
Use of Proceeds.................................24
Capitalization..................................24
Unaudited Pro Forma Combined Financial Data.....25
Selected Consolidated Financial Data............32
Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 33
Business and Properties.........................44 [LOGO]
Management......................................64
Principal Stockholders and Share Ownership
of Management.................................72
Certain Relationships and Related Transactions..74
The Exchange Offer..............................75
Description of New Credit Facility..............83
Description of Notes............................84
Certain United States Federal Income Tax $100,000,000
Considerations...............................116
Book-Entry; Delivery and Form..................116
Plan of Distribution...........................118 10 5/8% Series B Senior Notes
Legal Matters..................................119 due 2004
Independent Accountants........................119
Experts........................................119
Incorporation of Certain Documents
by Reference.................................120 ______________, 1997
Glossary.......................................121
Index to Consolidated Financial Statements.....F-1
----------------------
Until , 1998 (90 days after the date of this Prospectus), all dealers effecting
transactions in the Notes, whether or not participating in the original
distribution, may be required to deliver a prospectus. This is in a ddition to
the obligation of dealers to deliver a prospectus when acting as un derwriters
and with respect to their unsold allotments or subscriptions.
II-13
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Company's Certificate of Incorporation provides that no director or
officer of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of his or her fiduciary duty as a
director or officer, except for liability (i) for any breach of the director or
officer's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director or
officer derived an improper personal benefit. The effect of these provisions is
to eliminate the rights of the Company and its stockholder (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director or officer for breach of fiduciary duty, except in
the situations described above.
The Company entered into indemnification agreements with its directors
and executive officers as of July 15, 1997. Pursuant to the Indemnification
Agreements, the Company has agreed to hold harmless and indemnify such
individuals to the fullest extent permitted by law and to advance expenses, if
the director or executive officer becomes a party to or witness or other
participant in any threatened, pending or completed action, suit or proceeding
by reason of any occurrence related to the fact that the person is or was a
director or executive officer of the Company or a subsidiary of the Company or
another entity at the Company's request, unless a reviewing party (either
majority of disinterested directors, independent legal counsel, or by the
stockholders) determines that the person would not be entitled to
indemnification under the Agreement or applicable law. The Company has also
agreed to purchase and maintain insurance for its directors and officers and has
purchased a policy providing such insurance.
Depending upon the character of the proceeding, the Company may
indemnify against expenses, including attorneys' fees, judgments, amounts paid
in settlement, ERISA excise taxes or penalties, finds and other expenses
actually and reasonably incurred by the indemnified person in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, investigative or appellate to which director is, was
or at any time becomes a party by reason of his or her service as a director or
executive officer.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
NumberDescription
3.1 Certificate of Incorporation of the Company, filed with the
Commission as an exhibit to the Registration Statement on
Form S-4 on December 13, 1991, and incorporated herein by
this reference.
3.2 Amendment to Certificate of Incorporation of the Company
dated November 19, 1991, filed with the Commission as an
exhibit to the Registration Statement on Form S-4 on
December 13, 1991, and incorporated herein by this
reference.
3.3 By-laws of the Company, filed with the Commission as an
exhibit to the Registration Statement on Form S-4 on
December 13, 1991, and incorporated herein by this
reference.
<PAGE>
3.4 Amendment to Certificate of Incorporation of the Company
dated September 24, 1996, filed with the Commission as an
exhibit to the Amended Current Report on Form 8-K/A on
November 18, 1996, and incorporated herein by this
reference.
4.1 Article Fifth of the Certificate of Incorporation of the
Company in Exhibit 3.1.
4.2 Indenture dated October 9, 1997, among the Company and UMB
Bank, N.A., as Trustee.
4.3 Registration Rights Agreement, dated as of October 9, 1997,
among PANACO, Inc., and BT Alex. Brown, First Union Capital
Markets Corp, A.G. Edwards & Sons Inc. and Gaines, Berland
Inc.
4.4 Form of 10e % Series B Senior Note due 2004.
*5.1 Opinion of Shughart Thomson & Kilroy, P.C.
10.1 PANACO, Inc. Long-Term Incentive Plan, filed with the
Commission as an exhibit on the Registration Statement on
Form S-4 on December 13, 1991, and incorporated by
reference.
10.9 Purchase and Sale Agreement, dated July 12, 1995, between
Zapata Exploration Company, Zapata Offshore Gathering Co.,
Inc., and PANACO, Inc., filed with the Commission as an
exhibit to the Current Report on Form 8-K on August 1, 1995,
and incorporated herein by this reference.
10.11Assignment/East Breaks 110, effective October 1, 1994, from
Zapata Exploration Company to PANACO, Inc. The
Assignment/East Breaks 109 document is identical, filed as
an exhibit to the Current Report on Form 8-K filed with the
Commission on August 1, 1995, and incorporated herein by
this reference.
10.12Purchase and Sale Agreement dated November 30, 1995,
between Shell Western E&P, Inc. and PANACO, Inc., filed with
the Commission as an exhibit to the Current Report on Form
8-K on January 31, 1996, and incorporated herein by this
reference.
10.13PANACO, Inc. Employee Stock Ownership Plan & Trust, filed
with the Commission as an exhibit on Form S-1 on December
19, 1996, and incorporated herein by this reference.
10.14Purchase and Sale Agreement, dated August 26, 1996, between
Amoco Production Company and PANACO, Inc., filed with the
Commission as an exhibit to the Current Report on Form 8-K,
on October 28, 1996, and incorporated herein by this
reference.
10.17Purchase and Sale Agreement, dated November 11, 1996
between National Energy Group, Inc. and PANACO, Inc., filed
with the Commission as Exhibit 10.14 to the Current Report
on Form 8-K on January 29, 1997, and incorporated herein by
this reference.
10.18Restated Merger Agreement dated July 30, 1997 between
PANACO, Inc., The Union Companies, inc., Leonard C.
Tallerine, Jr. and Mark C. Licata, filed with the Commission
as an exhibit to the Current Report on Form 8-K on August
15, 1997, and incorporated herein by this reference.
<PAGE>
10.19Form of Executive Officer and Director Indemnification
Agreement, filed with the Commission as an exhibit to the
Company's Form 10-Q on August 15, 1997, and incorporated
herein by this reference.
10.20Form of Warrant to Purchase Shares of Common Stock of
PANACO, Inc. issued by the Company on October 9, 1997 to
Offense Group Associates, L.P., Kayne, Anderson
Non-Traditional Investments, L.P., ARBCO Associates, L.P.,
Opportunity Associates, L.P., Kayne, Anderson Offshore
Limited, Foremost Insurance Company, TOPA Insurance Company,
and EOS Partners, L.P., with respect to an aggregate of
2,060,606 shares.
10.21Amended and Restated Credit Agreement, dated October 9,
1997, among First Union National Bank of North Carolina, as
agent, and the lenders signatory thereto, and PANACO, Inc.
21.1 List of subsidiaries of PANACO Inc.
*23.1Consent of Shughart Thomson & Kilroy, P.C. (included in its
opinion filed as Exhibit 5.1 hereto).
23.2 Consent of Ryder Scott Company.
23.3 Consent of W.D. Von Gonten & Co., Petroleum Engineers
23.4 Consent of McCune Engineering, P.E.
23.5 Consent of Arthur Andersen, LLP
23.6 Consent of Ernst & Young LLP
24.1 Powers of Attorney (included in the signature pages to the
Registration Statement).
25.1 Statement of Eligibility of UMB Bank, N.A., as Trustee, on
Form T-1.
99.1 Form of Letter of Transmittal
- -------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act, each
filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Exchange Act that is incorporated
by reference in this Registration Statement shall be deemed to be
a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid
by a directors, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into
the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration
Statement through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means
of a post-effective amended all information concerning a
transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration
Statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Kansas City, State
of Missouri, on the ___ day of November, 1997.
PANACO, INC.
By:
H. James Maxwell
Chief Executive Officer
Chairman of the Board
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned directors and officers of PANACO, Inc., a Delaware
corporation, hereby constitute and appoint H. James Maxwell and Todd R. Bart,
and each of them, the true and lawful agents and attorneys-in-fact of the
undersigned, with full power and authority in said agents and attorneys-in-fact,
and in any one or more of them, to sign for the undersigned and in their
respective names as directors and officers of the corporation, to sign any or
all amendments or supplements to this Registration Statement of form S-4, and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
agents and attorneys-in-fact full power and authority to do and perform each and
every act and thing necessary or appropriate to be done with respect to this
Registration Statement or any amendments or supplements hereto, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said agents and attorneys-in-fact, may lawfully do or cause
to be done by virtue hereof.
Signatures Title Date
__________________________ Chief Executive Officer, November ___, 1997
H. James Maxwell Chairman of the Board
Director
__________________________ Chief Financial Officer, November ___, 1997
Todd Bart Treasurer
___________________________ Director November ___, 1997
Larry M. Wright
<PAGE>
Signatures Title Date
___________________________ Director November ___, 1997
Leonard C. Tallerine, Jr
___________________________ Director November ___, 1997
Mark C. Licata
___________________________ Director November ___, 1997
A. Theodore Stautberg, Jr.
___________________________ Director November ___, 1997
Donald W. Chesser
___________________________ Director November ___, 1997
James B. Kreamer
___________________________ Director November ___, 1997
Mark C. Barrett
___________________________ Director November ___, 1997
Michael Springs
___________________________ Director November ___, 1997
Harold First
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Goldking Acquisition Corp. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Kansas City, State of Missouri, on the ___ day of November, 1997.
GOLDKING ACQUISITION CORP.
By:
H. James Maxwell
President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned directors and officers of Goldking Acquisition
Corp., a Delaware corporation, hereby constitute and appoint H. James Maxwell
and Todd R. Bart, and each of them, the true and lawful agents and
attorneys-in-fact of the undersigned, with full power and authority in said
agents and attorneys-in-fact, and in any one or more of them, to sign for the
undersigned and in their respective names as directors and officers of the
corporation, to sign any or all amendments or supplements to this Registration
Statement of form S-4, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said agents and attorneys-in-fact full power and authority to do
and perform each and every act and thing necessary or appropriate to be done
with respect to this Registration Statement or any amendments or supplements
hereto, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said agents and attorneys-in-fact, may
lawfully do or cause to be done by virtue hereof.
Signatures Title Date
_____________________ Chairman of the Board November ___, 1997
Leonard C. Tallerine, Jr. Chief Executive Officer
Director
_____________________ Director November ___, 1997
H. James Maxwell
_____________________ Director November ___, 1997
Larry M. Wright
_____________________ Chief Financial Officer November ___, 1997
Todd R. Bart
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Goldking Companies, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Kansas City, State of Missouri, on the ___ day of November, 1997.
GOLDKING COMPANIES, INC.
By:
H. James Maxwell
President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned directors and officers of Goldking Companies, Inc.,
a Delaware corporation, hereby constitute and appoint H. James Maxwell and Todd
R. Bart, and each of them, the true and lawful agents and attorneys-in-fact of
the undersigned, with full power and authority in said agents and
attorneys-in-fact, and in any one or more of them, to sign for the undersigned
and in their respective names as directors and officers of the corporation, to
sign any or all amendments or supplements to this Registration Statement of form
S-4, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said agents and attorneys-in-fact full power and authority to do and perform
each and every act and thing necessary or appropriate to be done with respect to
this Registration Statement or any amendments or supplements hereto, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said agents and attorneys-in-fact, may lawfully do or cause
to be done by virtue hereof.
Signatures Title Date
_____________________ Chairman of the Board November ___, 1997
Leonard C. Tallerine, Jr. Chief Executive Officer
Director
_____________________ Director November ___, 1997
H. James Maxwell
_____________________ Director November ___, 1997
Larry M. Wright
_____________________ Chief Financial Officer November ___, 1997
Todd R. Bart
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Goldking Oil & Gas Corp. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Kansas City, State of Missouri, on the ___ day of November, 1997.
GOLDKING OIL & GAS CORP.
By:
H. James Maxwell
President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned directors and officers of Goldking Oil & Gas Corp.,
a Texas corporation, hereby constitute and appoint H. James Maxwell and Todd R.
Bart, and each of them, the true and lawful agents and attorneys-in-fact of the
undersigned, with full power and authority in said agents and attorneys-in-fact,
and in any one or more of them, to sign for the undersigned and in their
respective names as directors and officers of the corporation, to sign any or
all amendments or supplements to this Registration Statement of form S-4, and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
agents and attorneys-in-fact full power and authority to do and perform each and
every act and thing necessary or appropriate to be done with respect to this
Registration Statement or any amendments or supplements hereto, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said agents and attorneys-in-fact, may lawfully do or cause
to be done by virtue hereof.
Signatures Title Date
_____________________ Chairman of the Board November ___, 1997
Leonard C. Tallerine, Jr. Chief Executive Officer
Director
_____________________ Director November ___, 1997
H. James Maxwell
_____________________ Director November ___, 1997
Larry M. Wright
_____________________ Chief Financial Officer November ___, 1997
Todd R. Bart
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Goldking Trinity Bay Corp. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Kansas City, State of Missouri, on the ___ day of November, 1997.
GOLDKING TRINITY BAY CORP.
By:
H. James Maxwell
President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned directors and officers of Goldking Trinity Bay
Corp., a Texas corporation, hereby constitute and appoint H. James Maxwell and
Todd R. Bart, and each of them, the true and lawful agents and attorneys-in-fact
of the undersigned, with full power and authority in said agents and
attorneys-in-fact, and in any one or more of them, to sign for the undersigned
and in their respective names as directors and officers of the corporation, to
sign any or all amendments or supplements to this Registration Statement of form
S-4, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said agents and attorneys-in-fact full power and authority to do and perform
each and every act and thing necessary or appropriate to be done with respect to
this Registration Statement or any amendments or supplements hereto, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said agents and attorneys-in-fact, may lawfully do or cause
to be done by virtue hereof.
Signatures Title Date
_____________________ Chairman of the Board November ___, 1997
Leonard C. Tallerine, Jr. Chief Executive Officer
Director
_____________________ Director November ___, 1997
H. James Maxwell
_____________________ Director November ___, 1997
Larry M. Wright
_____________________ Chief Financial Officer November ___, 1997
Todd R. Bart
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Goldking Production Company has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Kansas City, State of Missouri, on the ___ day of November, 1997.
GOLDKING PRODUCTION COMPANY
By:
H. James Maxwell
President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned directors and officers of Goldking Production
Company, a Texas corporation, hereby constitute and appoint H. James Maxwell and
Todd R. Bart, and each of them, the true and lawful agents and attorneys-in-fact
of the undersigned, with full power and authority in said agents and
attorneys-in-fact, and in any one or more of them, to sign for the undersigned
and in their respective names as directors and officers of the corporation, to
sign any or all amendments or supplements to this Registration Statement of form
S-4, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said agents and attorneys-in-fact full power and authority to do and perform
each and every act and thing necessary or appropriate to be done with respect to
this Registration Statement or any amendments or supplements hereto, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said agents and attorneys-in-fact, may lawfully do or cause
to be done by virtue hereof.
Signatures Title Date
_____________________ Chairman of the Board November ___, 1997
Leonard C. Tallerine, Jr. Chief Executive Officer
Director
_____________________ Director November ___, 1997
H. James Maxwell
_____________________ Director November ___, 1997
Larry M. Wright
_____________________ Chief Financial Officer November ___, 1997
Todd R. Bart
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Hill Transportation Company, Inc. has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Kansas City, State of Missouri, on the ___ day of November, 1997.
HILL TRANSPORTATION COMPANY, INC.
By:
H. James Maxwell
President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned directors and officers of Hill Transportation
Company, Inc., a Louisiana corporation, hereby constitute and appoint H. James
Maxwell and Todd R. Bart, and each of them, the true and lawful agents and
attorneys-in-fact of the undersigned, with full power and authority in said
agents and attorneys-in-fact, and in any one or more of them, to sign for the
undersigned and in their respective names as directors and officers of the
corporation, to sign any or all amendments or supplements to this Registration
Statement of form S-4, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said agents and attorneys-in-fact full power and authority to do
and perform each and every act and thing necessary or appropriate to be done
with respect to this Registration Statement or any amendments or supplements
hereto, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said agents and attorneys-in-fact, may
lawfully do or cause to be done by virtue hereof.
Signatures Title Date
_____________________ Chairman of the Board November ___, 1997
Leonard C. Tallerine, Jr. Chief Executive Officer
Director
_____________________ Director November ___, 1997
H. James Maxwell
_____________________ Director November ___, 1997
Larry M. Wright
_____________________ Chief Financial Officer November ___, 1997
Todd R. Bart
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Umbrella Point Gathering Co., L.L.C. has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Kansas City, State of Missouri, on the ___ day of November, 1997.
UMBRELLA POINT GATHERING CO., L.L.C.
By:
H. James Maxwell
President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned managers and officers of Umbrella Point Gathering
Co., L.L.C., a Texas limited liability company, hereby constitute and appoint H.
James Maxwell and Todd R. Bart, and each of them, the true and lawful agents and
attorneys-in-fact of the undersigned, with full power and authority in said
agents and attorneys-in-fact, and in any one or more of them, to sign for the
undersigned and in their respective names as managers and officers of the
company, to sign any or all amendments or supplements to this Registration
Statement of form S-4, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said agents and attorneys-in-fact full power and authority to do
and perform each and every act and thing necessary or appropriate to be done
with respect to this Registration Statement or any amendments or supplements
hereto, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said agents and attorneys-in-fact, may
lawfully do or cause to be done by virtue hereof.
Signatures Title Date
_____________________ Chairman of the Board November ___, 1997
Leonard C. Tallerine, Jr. Chief Executive Officer
Manager
_____________________ Manager November ___, 1997
H. James Maxwell
_____________________ Manager November ___, 1997
Larry M. Wright
_____________________ Chief Financial Officer November ___, 1997
Todd R. Bart
<PAGE>
PANACO, INC.
Form S-4
November 10, 1997
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
4.2 Indenture dated October 9, 1997, among the Company and
UMB Bank, N.A., as Trustee.
4.3 Registration Rights Agreement, dated as of October 9,
1997, among PANACO, Inc., and BT Alex. Brown, First
Union Capital Markets Corp, A.G. Edwards & Sons Inc.
and Gaines, Berland Inc.
4.4 Form of 10e % Series B Senior Note due 2004.
10.20Form of Warrant to Purchase Shares of Common Stock of
PANACO, Inc. issued by the Company on October 9, 1997
to Offense Group Associates, L.P., Kayne, Anderson
Non-Traditional Investments, L.P., ARBCO Associates,
L.P., Opportunity Associates, L.P., Kayne, Anderson
Offshore Limited, Foremost Insurance Company, TOPA
Insurance Company, and EOS Partners, L.P., with respect
to an aggregate of 2,060,606 shares.
10.21Amended and Restated Credit Agreement, dated October
9, 1997, among First Union National Bank of North
Carolina, as agent, and the lenders signatory thereto,
and PANACO, Inc.
21.1 List of subsidiaries of PANACO Inc.
23.2 Consent of Ryder Scott Company.
23.3 Consent of W.D. Von Gonten & Co., Petroleum Engineers
23.4 Consent of McCune Engineering, P.E.
23.5 Consent of Arthur Andersen, LLP
23.6 Consent of Ernst & Young LLP
25.1 Statement of Eligibility of UMB Bank, N.A., as Trustee,
on Form T-1.
99.1 Form of Letter of Transmittal
<PAGE>
EXHIBIT 4.2
PANACO, INC.,
as Issuer
and
THE SUBSIDIARY GUARANTORS party hereto
and
UMB BANK, N.A.,
as Trustee
-------------------------
INDENTURE
Dated as of October 9, 1997
----------------------
$100,000,000
10 5/8% Senior Notes due 2004, Series A
10 5/8% Senior Notes due 2004, Series B
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
310(a)(1)............................................. 7.10
(a)(2).......................................... 7.10
(a)(3).......................................... N.A.
(a)(4).......................................... N.A.
(a)(5).......................................... 7.08; 7.10
(b)............................................. 7.08; 7.10; 11.02
(c)............................................. N.A.
311(a)................................................ 7.11
(b)............................................. 7.11
(c)............................................. N.A.
312(a)................................................ 2.05
(b)............................................. 11.03
(c)............................................. 11.03
313(a)................................................ 7.06
(b)(1).......................................... N.A.
(b)(2).......................................... 7.06
(c)............................................. 7.06; 11.02
(d)............................................. 7.06
314(a)................................................ 4.07; 4.08
(b)............................................. N.A.
(c)(1).......................................... 11.04
(c)(2).......................................... 11.04
(c)(3).......................................... N.A.
(d)............................................. N.A.
(e)............................................. 11.05
(f)............................................. N.A.
315(a)................................................ 7.01(b)
(b)............................................. 7.05
(c)............................................. 7.01(a)
(d)............................................. 7.01(c)
(e)............................................. 6.11
316(a)(last sentence)................................. 2.09
(a)(1)(A)....................................... 6.05
(a)(1)(B)....................................... 6.04
(a)(2).......................................... N.A.
(b)............................................. 6.07
(c)............................................. 9.04
317(a)(1)............................................. 6.08
(a)(2).......................................... 6.09
(b)............................................. 2.04
318(a)................................................ N.A.
(c)............................................. 11.01
- ----------------------
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE...................1
SECTION 1.01. Definitions................................................1
SECTION 1.02. Incorporation by Reference of TIA.........................32
SECTION 1.03. Rules of Construction.....................................33
ARTICLE TWO THE NOTES...................................................33
SECTION 2.01. Form and Dating...........................................33
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount..34
SECTION 2.03. Registrar and Paying Agent................................35
SECTION 2.04. Paying Agent To Hold Assets in Trust......................36
SECTION 2.05. Holder Lists..............................................37
SECTION 2.06. Transfer and Exchange.....................................37
SECTION 2.07. Replacement Notes.........................................38
SECTION 2.08. Outstanding Notes.........................................38
SECTION 2.09. Treasury Notes............................................39
SECTION 2.10. Temporary Notes...........................................39
SECTION 2.11. Cancellation..............................................39
SECTION 2.12. Defaulted Interest........................................40
SECTION 2.13. CUSIP Number..............................................41
SECTION 2.14. Deposit of Monies.........................................41
SECTION 2.15. Restrictive Legends.......................................41
SECTION 2.16. Book-Entry Provisions for Global Security.................43
SECTION 2.17. Special Transfer Provisions...............................45
SECTION 2.18. Liquidated Damages Under Registration Rights Agreement....48
ARTICLE THREE REDEMPTION................................................49
SECTION 3.01. Notices to Trustee........................................49
SECTION 3.02. Selection of Notes To Be Redeemed.........................49
SECTION 3.03. Redemption. 50
SECTION 3.04. Notice of Redemption......................................50
SECTION 3.05. Effect of Notice of Redemption............................52
SECTION 3.06. Deposit of Redemption Price...............................52
SECTION 3.07. Notes Redeemed in Part....................................52
ARTICLE FOUR COVENANTS..................................................53
SECTION 4.01. Payment of Notes..........................................53
SECTION 4.02. Maintenance of Office or Agency...........................53
SECTION 4.03. Corporate Existence.......................................53
SECTION 4.04. Payment of Taxes and Other Claims.........................54
SECTION 4.05. Maintenance of Properties and Insurance...................54
SECTION 4.06. Compliance Certificate; Notice of Default.................55
SECTION 4.07. Compliance with Laws......................................56
SECTION 4.08. Reports to Holders........................................56
SECTION 4.09. Waiver of Stay, Extension or Usury Laws...................57
SECTION 4.10. Limitation on Restricted Payments.........................57
SECTION 4.11. Limitation on Transactions with Affiliates................60
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness.......61
SECTION 4.13. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.............62
SECTION 4.14. Limitation on Restricted and Unrestricted Subsidiaries....63
SECTION 4.15. Change of Control.........................................65
SECTION 4.16. Limitation on Asset Sales.................................67
SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries..71
SECTION 4.18. Limitation on Liens.......................................72
SECTION 4.19. Limitation on Conduct of Business.........................72
SECTION 4.20. Additional Subsidiary Guarantees..........................72
SECTION 4.21. Maintenance of Adjusted Consolidated Net Tangible Assets..73
ARTICLE FIVE SUCCESSOR CORPORATION......................................74
SECTION 5.01. Merger, Consolidation and Sale of Assets..................74
SECTION 5.02. Successor Corporation Substituted.........................76
ARTICLE SIX REMEDIES....................................................77
SECTION 6.01. Events of Default.........................................77
SECTION 6.02. Acceleration..............................................79
SECTION 6.03. Other Remedies............................................80
SECTION 6.04. Waiver of Past Defaults...................................80
SECTION 6.05. Control by Majority.......................................80
SECTION 6.06. Limitation on Suits.......................................81
SECTION 6.07. Right of Holders To Receive Payment.......................81
SECTION 6.08. Collection Suit by Trustee................................82
SECTION 6.09. Trustee May File Proofs of Claim..........................82
SECTION 6.10. Priorities. 82
SECTION 6.11. Undertaking for Costs.....................................83
SECTION 6.12. Restoration of Rights and Remedies........................83
ARTICLE SEVEN TRUSTEE...................................................84
SECTION 7.01. Duties of Trustee.........................................84
SECTION 7.02. Rights of Trustee.........................................85
SECTION 7.03. Individual Rights of Trustee..............................87
SECTION 7.04. Trustee's Disclaimer......................................87
SECTION 7.05. Notice of Default.........................................87
SECTION 7.06. Reports by Trustee to Holders.............................87
SECTION 7.07. Compensation and Indemnity................................88
SECTION 7.08. Replacement of Trustee....................................89
SECTION 7.09. Successor Trustee by Merger, Etc..........................90
SECTION 7.10. Eligibility; Disqualification.............................90
SECTION 7.11. Preferential Collection of Claims Against the Company.....91
ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE........................91
SECTION 8.01. Termination of Company's Obligations......................91
SECTION 8.02. Application of Trust Money................................94
SECTION 8.03. Repayment to the Company..................................94
SECTION 8.04. Reinstatement.............................................95
SECTION 8.05. Acknowledgment of Discharge by Trustee....................95
ARTICLE NINE MODIFICATION OF THE INDENTURE..............................96
SECTION 9.01. Without Consent of Holders................................96
SECTION 9.02. With Consent of Holders...................................96
SECTION 9.03. Compliance with TIA.......................................97
SECTION 9.04. Revocation and Effect of Consents.........................97
SECTION 9.05. Notation on or Exchange of Notes..........................98
SECTION 9.06. Trustee To Sign Amendments, Etc...........................98
ARTICLE TEN [INTENTIONALLY OMITTED].....................................99
ARTICLE ELEVEN MISCELLANEOUS............................................99
SECTION 11.01. TIA Controls.............................................99
SECTION 11.02. Notices. 99
SECTION 11.03. Communications by Holders with Other Holders............100
SECTION 11.04. Certificate and Opinion as to Conditions Precedent......101
SECTION 11.05. Statements Required in Certificate or Opinion...........101
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar...............102
SECTION 11.07. Legal Holidays..........................................102
SECTION 11.08. Governing Law...........................................102
SECTION 11.09. No Adverse Interpretation of Other Agreements..........102
SECTION 11.10. No Personal Liability...................................102
SECTION 11.11. Successors..............................................103
SECTION 11.12. Duplicate Originals.....................................103
SECTION 11.13. Severability............................................103
SECTION 11.14. Independence of Covenants...............................103
ARTICLE TWELVE GUARANTEE OF NOTES......................................103
SECTION 12.01. Unconditional Guarantee.................................103
SECTION 12.02. Limitations on Guarantees...............................105
SECTION 12.03. Execution and Delivery of Guarantee.....................106
SECTION 12.04. Release of a Subsidiary Guarantor.......................106
SECTION 12.05. Waiver of Subrogation...................................107
SECTION 12.06. Immediate Payment.......................................108
SECTION 12.07. No Set-Off..............................................108
SECTION 12.08. Obligations Absolute....................................108
SECTION 12.09. Obligations Continuing..................................109
SECTION 12.10. Obligations Not Reduced.................................109
SECTION 12.11. Obligations Reinstated..................................109
SECTION 12.12. Obligations Not Affected................................110
SECTION 12.13. Waiver. 111
SECTION 12.14. No Obligation To Take Action Against the Company.......111
SECTION 12.15. Dealing with the Company and Others.....................112
SECTION 12.16. Default and Enforcement.................................112
SECTION 12.17. Amendment, Etc..........................................113
SECTION 12.18. Acknowledgment..........................................113
SECTION 12.19. Costs and Expenses......................................113
SECTION 12.20. No Merger or Waiver; Cumulative Remedies...............113
SECTION 12.21. Survival of Obligations.................................113
SECTION 12.22. Guarantee in Addition to Other Obligations..............114
SECTION 12.23. Severability............................................114
SECTION 12.24. Successors and Assigns..................................114
<PAGE>
-114-
INDENTURE, dated as of October 9, 1997, among PANACO, Inc., a
Delaware corporation (the "Company"), the subsidiary guarantors named herein,
and UMB Bank, N.A., as Trustee (the "Trustee").
The Company has duly authorized the creation of an issue of 10
5/8% Senior Notes due 2004, Series A (the "Initial Notes") and 10 5/8% Senior
Notes due 2004, Series B to be issued in exchange for the Initial Notes pursuant
to the Registration Rights Agreement (as defined herein) (the "Exchange Notes"
and, together with the Initial Notes, the "Notes") and, to provide therefor, the
Company has duly authorized the execution and delivery of this Indenture. The
Notes will be unconditionally guaranteed on a senior basis by each of the
Company's Restricted Subsidiaries (as defined herein) (collectively, the
"Subsidiary Guarantors").
Each party hereto agrees as follows for the benefit of the
other parties and for the equal and ratable benefit of the Holders of the Notes.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries (i) existing at the time such Person becomes a Restricted
Subsidiary or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or (ii) which becomes Indebtedness of the Company or
a Restricted Subsidiary in connection with the acquisition of assets from such
Person, in each case not incurred in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition, merger or consolidation.
"Additional Interest" shall have the meaning set forth in the Registration
Rights Agreement.
"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination,
(a) the sum of (i) discounted future net revenues from proved
oil and natural gas reserves of the Company and its consolidated Subsidiaries,
calculated in accordance with Commission guidelines (before any state or federal
income tax), as estimated by one or more reputable firms of independent
petroleum engineers as of a date no earlier than the date of the Company's
latest annual consolidated financial statements, as increased by, as of the date
of determination, the estimated discounted future net revenues from (A)
estimated proved oil and natural gas reserves acquired since the date of such
year-end reserve report, and (B) estimated oil and natural gas reserves
attributable to upward revisions of estimates of proved oil and natural gas
reserves since the date of such year-end reserve report due to exploration,
development or exploitation activities, in each case calculated in accordance
with Commission guidelines (utilizing the prices utilized in such year-end
reserve report), and decreased by, as of the date of determination, the
estimated discounted future net revenues from (C) estimated proved oil and
natural gas reserves produced or disposed of since the date of such year-end
reserve report, and (D) estimated oil and natural gas reserves attributable to
downward revisions of estimates of proved oil and natural gas reserves since the
date of such year-end reserve report due to changes in geological conditions or
other factors which would, in accordance with standard industry practice, cause
such revisions, in each case calculated in accordance with Commission guidelines
(utilizing the prices utilized in such year-end reserve report); provided,
however, that, in the case of each of the determinations made pursuant to
clauses (A) through (D), such increases and decreases shall be as estimated by
the Company's petroleum engineers, unless in the event that there is a Material
Change as a result of such acquisitions, dispositions or revisions, then the
discounted future net revenues utilized for purposes of this clause (a)(i) shall
be confirmed in writing, by one or more reputable firms of independent petroleum
engineers (which may be the Company's independent petroleum engineers who
prepare the Company's annual reserve report), plus (ii) the capitalized costs
that are attributable to oil and natural gas properties of the Company and its
Subsidiaries to which no proved oil and natural gas reserves are attributable,
based on the Company's books and records as of a date no earlier than the date
of the Company's latest annual or quarterly financial statements, plus (iii) the
Net Working Capital on a date no earlier than the date of the Company's latest
consolidated annual or quarterly financial statements, plus (iv) with respect to
each other tangible asset of the Company or its consolidated Restricted
Subsidiaries specifically including, but not to the exclusion of any other
qualifying tangible assets, the Company's or its consolidated Restricted
Subsidiaries' Crude Oil and Natural Gas Related Assets (to the extent not
included in (i), (ii) and (iii) above or otherwise in this clause (iv)) (less
any remaining deferred income taxes which have been allocated to such Crude Oil
and Natural Gas Related Assets), land, equipment, leasehold improvements,
investments carried on the equity method, restricted cash and the carrying value
of marketable securities, the greater of (A) 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 or (B) the appraised
value, as estimated by a qualified Independent Advisor, of such other tangible
assets of the Company and its Restricted Subsidiaries, as of a date no earlier
than the date of the Company's latest audited financial statements, plus (v) to
the extent deducted in the calculation of (i) above, reserves against plugging
and abandonment expenses; provided, that such reserves shall be included under
this clause (v) only to the extent of any cash deposited by the Company against
such liabilities, minus
(b) minority interests and, to the extent not otherwise taken
into account in determining Adjusted Consolidated Net Tangible Assets, any
natural gas balancing liabilities of the Company and its consolidated Restricted
Subsidiaries reflected in the Company's latest audited financial statements.
In addition to, but without duplication of, the foregoing, for
purposes of this definition, "Adjusted Consolidated Net Tangible Assets" shall
be calculated after giving effect, on a pro forma basis, to (1) any Investment
not prohibited by this Indenture, to and including the date of the transaction
giving rise to the need to calculate Adjusted Consolidated Net Tangible Assets
(the "Assets Transaction Date"), in any other Person that, as a result of such
Investment, becomes a Restricted Subsidiary of the Company, (2) the acquisition,
to and including the Assets Transaction Date (by merger, consolidation or
purchase of stock or assets), of any business or assets, including, without
limitation, Permitted Industry Investments, and (3) any sales or other
dispositions of assets permitted by this Indenture (other than sales of
Hydrocarbons or other mineral products in the ordinary course of business)
occurring on or prior to the Assets Transaction Date.
"Affiliate" means, with respect to any specified Person, (a) any other
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or under common control with, such specified Person and (b)
any Related Person of such Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning provided in Section 4.11.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Agent Members" has the meaning provided in Section 2.16.
"Asset Acquisition" means
(a) an Investment by the Company or any Restricted Subsidiary
in any other Person pursuant to which such Person shall become a Restricted
Subsidiary, or shall be merged with or into the Company or any Restricted
Subsidiary, or
(b) the acquisition by the Company or any Restricted
Subsidiary of the assets of any Person (other than a Restricted Subsidiary)
which constitute all or substantially all of the assets of such Person or
comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, exchange, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Restricted Subsidiary of
(a) any Capital Stock of any Restricted Subsidiary, or
(b) any other property or assets (including any interests therein) of the
Company or any Restricted Subsidiary, including any disposition by
means of a merger, consolidation or similar transaction; provided,
however, that Asset Sales shall not include
(i) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company in a transaction which is
made in compliance with the provisions of Section 5.01,
(ii) any Investment in an Unrestricted Subsidiary which is made in compliance
with the provisions of Section 4.10,
(iii)disposals or replacements of obsolete equipment in the ordinary course of
business,
(iv) the sale, lease, conveyance, disposition or other transfer (each, a
"Transfer") by the Company or any Restricted Subsidiary of assets or
property to the Company or one or more Restricted Subsidiaries,
(v) any disposition of Hydrocarbons or other mineral products for value in the
ordinary course of business and
(vi) the Transfer by the Company or any Restricted Subsidiary of assets or
property in the ordinary course of business; provided, however, that the
aggregate amount (valued at the fair market value of such assets or
property at the time of such Transfer) of all such assets and property
Transferred since the Issue Date pursuant to this clause (vi) shall not
exceed $1,000,000 in any one year.
"Authenticating Agent" has the meaning provided in Section 2.02.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any other day
on which banking institutions in the City of New York are required or authorized
by law or other governmental action to be closed.
"Capital Stock" means (a) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and including any warrants,
options or rights to acquire any of the forgoing and instruments convertible
into any of the foregoing, and (b) with respect to any Person that is not a
corporation, any and all partnership or other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the discounted
present value of the rental obligations of such Person under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation at such date, determined in accordance with GAAP.
"Cash Equivalents" means
(a) marketable direct obligations issued by, or unconditionally guaranteed
by, the United States Government or issued by any agency thereof and backed by
the full faith and credit of the United States, in each case maturing within one
year from the date of acquisition thereof;
(b) marketable direct obligations issued by any state of the United States
or any political subdivision of any such state or any public instrumentality
thereof maturing within one year from the date of acquisition thereof and, at
the time of acquisition, having one of the two highest ratings obtainable from
either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's");
(c) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at least
A-1 from S&P or at least P-1 from Moody's;
(d) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized under the
laws of the United States or any state thereof or the District of Columbia or
any United States branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $250 million;
(e) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (a) above entered into
with any bank meeting the qualifications specified in clause (d) above; and
(f) money market mutual or similar funds having assets in excess of $100
million.
"Change of Control" means the occurrence of one or more of the following
events:
(a) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in
compliance with the provisions of this Indenture);
(b) the approval by the holders of Capital Stock of the
Company of any plan or proposal for the liquidation or dissolution of the
Company (whether or not otherwise in compliance with the provisions of this
Indenture);
(c) any Person or Group shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 20% of
the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; provided, that, if any Person or Group shall
become the owner, directly or indirectly, beneficially or of record, of shares
representing up to 50% of the aggregate ordinary voting power of the Company's
Capital Stock as a result of the acquisition by the Company or any of its
subsidiaries from such Person or Group of Crude Oil and Natural Gas Related
Assets, such ownership shall not constitute a Change of Control; or
(d) the replacement of a majority of the Board of Directors of
the Company over a two-year period from the directors who constituted the Board
of Directors of the Company at the beginning of such period with directors whose
replacement shall not have been approved (by recommendation, appointment,
nomination or election, as the case may be) by a vote of at least a majority of
the Board of Directors of the Company then still in office who either were
members of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so approved.
"Change of Control Offer" has the meaning provided in Section 4.15.
"Change of Control Payment Date" has the meaning provided in Section 4.15.
"Commission" means the Securities and Exchange Commission.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company Properties" means all Properties, and equity, partnership or other
ownership interests therein, that are related or incidental to, or used or
useful in connection with, the conduct or operation of any business activities
of the Company or the Subsidiaries, which business activities are not prohibited
by the terms of this Indenture.
"Consolidated EBITDA" means, for any period, the sum (without duplication)
of (a) Consolidated Net Income and (b) to the extent Consolidated Net Income has
been reduced thereby, (i) all income taxes of the Company and its Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or non-recurring gains or
losses or taxes attributable to sales or dispositions outside the ordinary
course of business), (ii) Consolidated Interest Expense, (iii) the amount of any
Preferred Stock dividends paid by the Company and its Restricted Subsidiaries
and (iv) Consolidated Non-cash Charges, less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for the Company and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated EBITDA Coverage Ratio" means, with respect to the Company,
the ratio of
(a) Consolidated EBITDA of the Company during the four full fiscal quarters
for which financial information in respect thereof is available (the "Four
Quarter Period") ending on or prior to the date of the transaction giving rise
to the need to calculate the Consolidated EBITDA Coverage Ratio (the
"Transaction Date") to
(b) Consolidated Fixed Charges of the Company for the Four Quarter Period.
In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect (without duplication) on a pro
forma basis for the period of such calculation to
(a) the incurrence or repayment of any Indebtedness of the
Company or any of its Restricted Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and
(b) any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of the Company or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness, and also including, without limitation, any Consolidated EBITDA
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the Four Quarter Period) occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period and
on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Four Quarter Period.
If the Company or any of its Restricted Subsidiaries directly
or indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if the
Company or the Restricted Subsidiary, as the case may be, had directly incurred
or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated EBITDA Coverage Ratio," (i) interest on
outstanding Indebtedness determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (ii) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; (iii) notwithstanding clauses (i) and (ii) above, interest
on Indebtedness determined on a fluctuating basis, to the extent such interest
is covered by agreements relating to Interest Swap Obligations, shall be deemed
to accrue at the rate per annum resulting after giving effect to the operation
of such agreements.
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum of, without duplication:
(a) Consolidated Interest Expense (including any premium or
penalty paid in connection with redeeming or retiring Indebtedness of the
Company and its Restricted Subsidiaries prior to the stated maturity thereof
pursuant to the agreements governing such Indebtedness); and
(b) the product of (i) the amount of all dividend payments on
any series of Preferred Stock of the Company (other than dividends paid in
Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during
such period times (ii) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective consolidated
federal, state and local income tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for any
period, the sum of, without duplication:
(a) the aggregate of the interest expense of the Company and
its Restricted Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP, including without limitation, (i) any amortization of
original issue discount, (ii) the net costs under Interest Swap Obligations,
(iii) all capitalized interest and (iv) the interest portion of any deferred
payment obligation; and
(b) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by the Company and its
Restricted Subsidiaries during such period, as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company for any
period, the aggregate net income (or loss) of the Company and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, however, that there shall be excluded therefrom
(a) after-tax gains from Asset Sales or abandonments or reserves relating
thereto,
(b) after-tax items classified as extraordinary or nonrecurring gains,
(c) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary or is
merged or consolidated with the Company or any Restricted Subsidiary,
(d) the net income (but not loss) of any Restricted Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by charter, contract,
operation of law or otherwise,
(e) the net income of any Person in which the Company has an interest,
other than a Restricted Subsidiary, except to the extent of cash dividends or
distributions actually paid to the Company or to a Restricted Subsidiary by such
Person,
(f) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued) and
(g) in the case of a successor to the Company by consolidation or merger or
as a transferee of the Company's assets, any net income (or loss) of the
successor corporation prior to such consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person as of any date means the
consolidated stockholders' equity of such Person, determined on a consolidated
basis in accordance with GAAP, less (without duplication) amounts attributable
to Disqualified Capital Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to the Company, for any
period, the aggregate depreciation, depletion, amortization and other non-cash
expenses of the Company and its Restricted Subsidiaries reducing Consolidated
Net Income of the Company for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which requires an accrual of or a reserve for
cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation of the
accounts of the Restricted Subsidiaries of such Person with those of such
Person, all in accordance with GAAP; provided, however, that "consolidation"
will not include consolidation of the accounts of any Unrestricted Subsidiary of
such Person with the accounts of such Person. The term "consolidated" has a
correlative meaning to the foregoing.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of execution of this Indenture is located at 928 Grand
Boulevard, 13th Floor, Kansas City, Missouri 64106.
"Covenant Defeasance" has the meaning set forth in Section 8.01.
"Crude Oil and Natural Gas Business" means (i) the acquisition,
exploration, development, operation and disposition of interests in oil, gas and
other Hydrocarbon properties located in the Western Hemisphere, (ii) the
gathering, marketing, treating, processing, storage, selling and transporting of
any production from such interests or properties of the Company or of others,
and (iii) activities incidental to the foregoing.
"Crude Oil and Natural Gas Hedge Agreements" means, with respect to any
Person, any oil and gas agreements and other agreements or arrangements or any
combination thereof entered into by such Person in the ordinary course of
business and that are designed to provide protection against oil and natural gas
price fluctuations.
"Crude Oil and Natural Gas Properties" means all Properties, including
equity or other ownership interests therein, owned by any Person which have been
assigned "proved oil and gas reserves" as defined in Rule 4-10 of Regulation S-X
of the Securities Act as in effect on the Issue Date.
"Crude Oil and Natural Gas Related Assets" means any Investment or capital
expenditure (but not including additions to working capital or repayments of any
revolving credit or working capital borrowings) by the Company or any Subsidiary
of the Company which is related to the Crude Oil and Natural Gas Business.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Default Interest Payment Date" has the meaning set forth under Section
2.12.
"Defeasance Payment" means any distribution from any defeasance trust
described under Section 8.01.
"Deficiency Date" has the meaning set forth under Section 4.21.
"Deficiency Offer" has the meaning set forth under Section 4.21.
"Deficiency Offer Amount" has the meaning set forth under Section 4.21.
"Deficiency Payment Date" has the meaning set forth under Section 4.21.
"Deficiency Purchase Price" has the meaning set forth under Section 4.21.
"Depository" means The Depository Trust Company, its nominees and
successors.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is mandatorily redeemable at the sole option of the holder thereof, in whole or
in part, in either case, on or prior to the final maturity of the Notes.
"Equity Offering" means an offering of Qualified Capital Stock of the
Company.
"Event of Default" has the meaning provided in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"Exchange Notes" has the meaning provided in the preamble to this
Indenture.
"Fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between an informed and willing seller and an informed and willing buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors of
the Company acting reasonably and in good faith and shall be evidenced by a
Board Resolution of the Company delivered to the Trustee; provided, however,
that (A) if the aggregate non-cash consideration to be received by the Company
or any Restricted Subsidiary from any Asset Sale shall reasonably be expected to
exceed $5.0 million or (B) if the net worth of any Restricted Subsidiary to be
designated as an Unrestricted Subsidiary shall reasonably be expected to exceed
$5.0 million, then fair market value shall be determined by an Independent
Advisor.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board as of any date of determination.
"Global Notes" means one or more IAI Global Notes, Regulation S Global
Notes and 144A Global ------------ Notes.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part) (but if in part, only to the extent thereof); provided,
however, that the term "guarantee" shall not include (A) endorsements for
collection or deposit in the ordinary course of business and (B) guarantees
(other than guarantees of Indebtedness) by the Company in respect of assisting
one or more Subsidiaries in the ordinary course of their respective businesses,
including without limitation guarantees of trade obligations and operating
leases, on ordinary business terms. The term "guarantee" used as a verb has a
corresponding meaning.
"Guarantee" means the guarantee of the obligations under this Indenture and
the Notes by each of the Subsidiary Guarantors as set forth in Article Twelve
hereof.
"Holder" means any Person holding a Note.
"Hydrocarbons" means oil, natural gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all constituents, elements or compounds thereof and products
processed therefrom.
"IAI Global Note" means a permanent global note in registered form
representing the aggregate principal amount of Notes sold to Institutional
Accredited Investors.
"Incur" has the meaning set forth in Section 4.12.
"Indebtedness" means with respect to any Person, without duplication, (a)
all Obligations of such Person for borrowed money, (b) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all Capitalized Lease Obligations of such Person, (d) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable), (e) all Obligations for the
reimbursement of any obligor on a letter of credit, banker's acceptance or
similar credit transaction, (f) guarantees and other contingent obligations in
respect of Indebtedness referred to in clauses (a) through (e) above and clause
(h) below, (g) all Obligations of any other Person of the type referred to in
clauses (a) through (f) above which are secured by any Lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
Obligation so secured, (h) all Obligations under Crude Oil and Natural Gas Hedge
Agreements, Currency Agreements and Interest Swap Obligations and (i) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed redemption
price or repurchase price.
For purposes hereof, the "maximum fixed repurchase price" of
any Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock as if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to this Indenture, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the Board of Directors of the Company. The
"amount" or "principal amount" of Indebtedness at any time of determination as
used herein represented by (a) any Indebtedness issued at a price that is less
than the principal amount at maturity thereof shall be the face amount of the
liability in respect thereof, (b) any Capitalized Lease Obligation shall be the
amount determined in accordance with the definition thereof, (c) any Interest
Swap Obligations included in the definition of Permitted Indebtedness shall be
zero, (d) all other unconditional obligations shall be the amount of the
liability thereof determined in accordance with GAAP and (e) all other
contingent obligations shall be the maximum liability at such date of such
Person.
"Indenture" means this Indenture, as amended or supplemented from time to
time in accordance with the terms hereof.
"Independent Advisor" means a nationally recognized investment banking or
accounting firm, or a reputable engineering firm, (a) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect material financial interest in the Company and (b) which, in the
judgment of the Board of Directors of the Company, is otherwise disinterested,
independent and qualified to perform the task for which it is to be engaged.
"Initial Notes" has the meaning provided in the preamble to this Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"interest," when used with respect to any Note means the amount of all
interest accruing on such Note, including any applicable defaulted interest
pursuant to Section 2.12 and any Additional Interest pursuant to the
Registration Rights Agreement.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Notes.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
to the date hereof and from time to time hereafter.
"Investment" means, with respect to any Person, any direct or indirect (i)
loan, advance or other extension of credit (including, without limitation, a
guarantee) or capital contribution to by means of any transfer of cash or other
property (valued at the fair market value thereof as of the date of transfer)
others or any payment for property or services for the account or use of others,
(ii) purchase or acquisition by such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by, any
Person (whether by merger, consolidation, amalgamation or otherwise and whether
or not purchased directly from the issuer of such securities or evidences of
Indebtedness), (iii) guarantee or assumption of the Indebtedness of any other
Person (other than the guarantee or assumption of Indebtedness of such Person or
a Restricted Subsidiary of such Person which guarantee or assumption is made in
compliance with the provisions of Section 4.12), and (iv) other items that would
be classified as investments on a balance sheet of such Person prepared in
accordance with GAAP. Notwithstanding the foregoing, "Investment" shall exclude
extensions of trade credit by the Company and its Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of the
Company or such Restricted Subsidiary, as the case may be. The amount of any
Investment shall not be adjusted for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment. If the
Company or any Restricted Subsidiary sells or otherwise disposes of any Capital
Stock of any Restricted Subsidiary such that, after giving effect to any such
sale or disposition, it ceases to be a Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Capital Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Legal Defeasance" has the meaning set forth in Section 8.01.
"Legal Holiday" has the meaning provided in Section 11.07.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Material Change" means an increase or decrease of more than 10% during a
fiscal quarter in the discounted future net cash flows (excluding changes that
result solely from changes in prices) from proved oil and natural gas reserves
of the Company and consolidated Subsidiaries (before any state or federal income
tax); provided, however, that the following will be excluded from the Material
Change calculation: (i) any acquisitions during the quarter of oil and natural
gas reserves that have been estimated by independent petroleum engineers and on
which a report or reports exist, (ii) any disposition of properties existing at
the beginning of such quarter that have been disposed of as provided in Section
4.16 and (iii) any reserves added during the quarter attributable to the
drilling or recompletion of wells not included in previous reserve estimates,
but which will be included in future quarters.
"Maturity Date" means October 1, 2004.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (b) taxes paid or payable after taking into
account any reduction in consolidated tax liability due to available tax credits
or deductions and any tax sharing arrangements, (c) repayment of Indebtedness
that is required to be repaid in connection with such Asset Sale and (d)
appropriate amounts (determined by the Chief Financial Officer of the Company)
to be provided by the Company or any Restricted Subsidiary, as the case may be,
as a reserve, in accordance with GAAP, against any post-closing adjustments or
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale (but excluding any
payments which, by the terms of the indemnities, will not be made during the
term of the Notes).
"Net Proceeds Offer" has the meaning set forth in Section 4.16.
"Net Proceeds Offer Amount" has the meaning set forth in Section 4.16.
"Net Proceeds Offer Payment Date" has the meaning set forth in Section
4.16.
"Net Proceeds Offer Trigger Date" has the meaning set forth in Section
4.16.
"Net Working Capital" means (i) all current assets of the Company and its
consolidated Subsidiaries, minus (ii) all current liabilities of the Company and
its consolidated Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with GAAP.
"Non-U.S. Person" means a person who is not a U.S. person, as defined in
Regulation S.
"Notes" means the Initial Notes and the Exchange Notes treated as a single
class of securities, as amended or supplemented from time to time in accordance
with the terms hereof, that are issued pursuant to this Indenture.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the Board of
Directors, the Chief Executive Officer, the President, any Vice President, the
Chief Financial Officer, the Treasurer, the Controller, or the Secretary of such
Person, or any other officer designated by the Board of Directors serving in a
similar capacity and with respect to the Trustee or any agent of the Trustee, a
"Trust Officer."
"Officers' Certificate" means a certificate signed by two Officers of the
Company.
"144A Global Note" means a permanent global note in registered form
representing the aggregate principal amount of Notes sold in reliance on Rule
144A under the Securities Act.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee complying with the requirements of Sections
11.04 and 11.05, as they relate to the giving of an Opinion of Counsel.
"Paying Agent" has the meaning provided in Section 2.03.
"Payment Restriction" shall have the meaning set forth in Section 4.13.
"Permitted Indebtedness" means, without duplication, each of the following:
(a) the Exchange Notes, the Private Exchange Notes, if any, the
Guarantees and refinancings thereof with Indebtedness constituting
Permitted Refinancing Indebtedness;
(b) Indebtedness incurred pursuant to the Senior Credit Facility in an
aggregate principal amount at any time outstanding not to exceed the
greater of (1) $40.0 million or (2) the sum of (A) $10.0 million and (B)
20% of Adjusted Consolidated Net Tangible Assets, reduced by any required
permanent repayments (which are accompanied by a corresponding permanent
commitment reduction) thereunder (it being recognized that a reduction in
the borrowing base in and of itself shall not be deemed a required
permanent repayment);
(c) Interest Swap Obligations of the Company or a Restricted
Subsidiary covering Indebtedness of the Company or a Restricted Subsidiary;
provided, however, that such Interest Swap Obligations are entered into to
protect the Company and its Restricted Subsidiaries from fluctuations in
interest rates on Indebtedness incurred in accordance with this Indenture
to the extent the notional principal amount of such Interest Swap
Obligations does not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(d) Indebtedness of a Restricted Subsidiary to the Company or to a
Wholly Owned Restricted Subsidiary for so long as such Indebtedness is held
by the Company or a Wholly Owned Restricted Subsidiary, in each case
subject to no Lien held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary; provided, however, that if as of any date any
Person other than the Company or a Wholly Owned Restricted Subsidiary owns
or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness;
(e) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary for so long as such Indebtedness is held by a Wholly Owned
Restricted Subsidiary, in each case subject to no Lien; provided, however,
that (i) any Indebtedness of the Company to any Wholly Owned Restricted
Subsidiary that is not a Subsidiary Guarantor is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under this Indenture and the Notes and (ii) if as of any date any Person
other than a Wholly Owned Restricted Subsidiary owns or holds any such
Indebtedness or holds a Lien in respect of such Indebtedness, such date
shall be deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the Company;
(f) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two Business Days of incurrence;
(g) Indebtedness of the Company or Restricted Subsidiary represented
by letters of credit for the account of the Company or such Restricted
Subsidiary, as the case may be, in order to provide security for workers'
compensation claims, payment obligations in connection with self-insurance,
bid, plugging and abandonment bonds, performance or surety bonds or
completion guarantees or similar requirements in the ordinary course of
business;
(h) Indebtedness of the Company or a Restricted Subsidiary outstanding
on the Issue Date and refinancings thereof with Indebtedness constituting
Permitted Refinancing Indebtedness;
(i) Capitalized Lease Obligations and Purchase Money Indebtedness of
the Company or any of its Restricted Subsidiaries not to exceed $5.0
million at any one time outstanding;
(j) Obligations arising in connection with Crude Oil and Natural Gas
Hedge Agreements of the Company or a Restricted Subsidiary;
(k) Indebtedness under Currency Agreements; provided, however, that in
the case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(l) additional Indebtedness of the Company or any of its Restricted
Subsidiaries in an aggregate principal amount at any time outstanding not
to exceed the greater of (i) $10.0 million or (ii) 5.0% of Adjusted
Consolidated Net Tangible Assets of the Company; and
(m) Indebtedness of a Restricted Subsidiary constituting Permitted
Refinancing Indebtedness and which refinances Acquired Indebtedness.
"Permitted Industry Investments" means (i) capital expenditures, including,
without limitation, acquisitions of Company Properties and interests therein;
(ii) (a) entry into operating agreements, joint ventures, working interests,
royalty interests, mineral leases, unitization agreements, pooling arrangements
or other similar or customary agreements, transactions, properties, interests or
arrangements, and Investments and expenditures in connection therewith or
pursuant thereto, in each case made or entered into in the ordinary course of
the oil and natural gas business, and (b) exchanges of Company Properties for
other Company Properties of at least equivalent value as determined in good
faith by the Board of Directors of the Company; and (iii) Investments of
operating funds on behalf of co-owners of Crude Oil and Natural Gas Properties
of the Company or the Subsidiaries pursuant to joint operating agreements.
"Permitted Investments" means (a) Investments by the Company or any
Restricted Subsidiary in any Person that is or will become immediately after
such Investment a Restricted Subsidiary or that will merge or consolidate into
the Company or a Restricted Subsidiary that is not subject to any Payment
Restriction; (b) Investments in the Company by any Restricted Subsidiary;
provided, however, that any Indebtedness evidencing any such Investment held by
a Restricted Subsidiary that is not a Subsidiary Guarantor is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Notes and this Indenture; (c) Investments in cash and Cash
Equivalents; (d) Investments made by the Company or its Restricted Subsidiaries
as a result of consideration received in connection with an Asset Sale made in
compliance with Section 4.16; and (e) Permitted Industry Investments.
"Permitted Liens" means each of the following types of Liens:
(a) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date (and any extensions,
replacements or renewals thereof covering property or assets secured by
such Liens on the Issue Date);
(b) Liens securing Indebtedness outstanding under the Senior Credit
Facility;
(c) Liens securing the Notes and the Guarantees;
(d) Liens of the Company or a Restricted Subsidiary on assets of any
Restricted Subsidiary;
(e) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness which has been secured by a Lien permitted under
this Indenture and which has been incurred in accordance with the
provisions of this Indenture; provided, however, that such Liens (x) are no
less favorable to the Holders and are not more favorable to the lienholders
with respect to such Liens than the Liens in respect of the Indebtedness
being Refinanced and (y) do not extend to or cover any property or assets
of the Company or any of its Restricted Subsidiaries not securing the
Indebtedness so Refinanced;
(f) Liens for taxes, assessments or governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings, and as to which the Company or a Restricted Subsidiary, as the
case may be, shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(g) statutory and contractual Liens of landlords to secure rent
arising in the ordinary course of business to the extent such Liens relate
only to the tangible property of the lessee which is located on such
property and Liens of carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen and other Liens imposed by law incurred in the
ordinary course of business for sums not yet delinquent or being contested
in good faith, if such reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made in respect thereof;
(h) Liens incurred or deposits made in the ordinary course of business
(x) in connection with workers' compensation, unemployment insurance and
other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or (y) to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
(i) judgment and attachment Liens not giving rise to an Event of
Default;
(j) easements, rights-of-way, zoning restrictions, restrictive
covenants, minor imperfections in title and other similar charges or
encumbrances in respect of real property not interfering in any material
respect with the ordinary conduct of the business of the Company or any of
its Restricted Subsidiaries;
(k) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(l) Liens securing Purchase Money Indebtedness of the Company or any
Restricted Subsidiary; provided, however, that (x) the Purchase Money
Indebtedness shall not be secured by any property or assets of the Company
or any Restricted Subsidiary other than the property and assets so acquired
or constructed (except for proceeds, improvements, rents and similar items
relating to the property or assets so acquired) and (y) the Lien securing
such Indebtedness shall be created within 90 days of such acquisition or
construction;
(m) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(n) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(o) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under this
Indenture and Liens securing Crude Oil and Natural Gas Hedge Agreements;
(p) Liens securing Acquired Indebtedness incurred in accordance with
Section 4.12; provided, however, that (x) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and were not granted
in connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and (y) such Liens
do not extend to or cover any property or assets of the Company or of any
of its Restricted Subsidiaries other than the property or assets that
secured the Acquired Indebtedness prior to the time such Indebtedness
became Acquired Indebtedness of the Company or a Restricted Subsidiary
(except for proceeds, improvements, rents and similar items relating to the
property or assets so secured) and are no more favorable to the lienholders
than those securing the Acquired Indebtedness prior to the incurrence of
such Acquired Indebtedness by the Company or a Restricted Subsidiary;
(q) Liens on, or related to, properties and assets of the Company and
its Subsidiaries to secure all or a part of the costs incurred in the
ordinary course of business of exploration, drilling, development,
production, processing, gas gatherings, transportation, marketing or
storage, or operation thereof;
(r) Liens on pipeline or pipeline facilities, Hydrocarbons or
properties and assets of the Company and its Subsidiaries which arise out
of operation of law;
(s) royalties, overriding royalties, revenue interests, net revenue
interests, net profit interests, revisionary interests, production
payments, production sales contracts, preferential rights of purchase,
operating agreements, working interests and other similar interests,
properties, arrangements and agreements, all as ordinarily exist with
respect to Properties and assets of the Company and its Subsidiaries or
otherwise as are customary in the oil and gas business;
(t) with respect to any Properties and assets of the Company and its
Subsidiaries, Liens arising under, or in connection with, or related to,
farm-out, farm-in, joint operation, area of mutual interest agreements
and/or other similar or customary arrangements, agreements or interests
that the Company or any Subsidiary determines in good faith to be necessary
for the economic development of such Property;
(u) any (x) interest or title of a lessor or sublessor under any
lease, (y) restriction or encumbrance that the interest or title of such
lessor or sublessor may be subject to (including, without limitation,
ground leases or other prior leases of the demised premises, mortgages,
mechanics' liens, tax liens, and easements), or (z) subordination of the
interest of the lessee or sublessee under such lease to any restrictions or
encumbrance referred to in the preceding clause (y); and
(v) Liens in favor of collecting or payor banks having a right of
setoff, revocation, refund or chargeback with respect to money or
instruments of the Company or any Restricted Subsidiary on deposit with or
in possession of such bank.
"Permitted Refinancing Indebtedness" means, with respect to any
Indebtedness, Indebtedness to the extent representing a Refinancing of such
Indebtedness, in each case that does not (i) result in an increase in the
aggregate principal amount of Indebtedness of such Person as of the date of such
proposed Refinancing (plus the amount of any premium required to be paid under
the terms of the instrument governing such Indebtedness and plus the amount of
reasonable expenses incurred by the Company and its Restricted Subsidiaries in
connection with such Refinancing) or (ii) create Indebtedness with (x) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or (y) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; provided, however,
that (1) such Refinancing Indebtedness shall be incurred solely by the obligor
of the Indebtedness being Refinanced and (2) if such Indebtedness being
Refinanced is subordinate or junior to the Notes or a Guarantee, then such
Refinancing Indebtedness shall be subordinate to the Notes or such Guarantee, as
the case may be, at least to the same extent and in the same manner as the
Indebtedness being Refinanced.
"Person" means an individual, partnership, corporation, unincorporated
organization, limited liability company, trust, estate or joint venture, or a
governmental agency or political subdivision thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"principal" of any Indebtedness (including the Notes) means the principal
amount of such Indebtedness plus the premium, if any, on such Indebtedness.
"Private Exchange Notes" means senior subordinated notes of the Company,
guaranteed by the Subsidiary Guarantors, issued in exchange for the Notes and
identical in all material respects to the Exchange Notes, except for the
placement of a restrictive legend on such Private Exchange Notes.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.15.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of this Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act, as determined by the
Board of Directors of the Company in consultation with its independent public
accountants.
"Property" means, with respect to any Person, any interests of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, Capital Stock, partnership
interests and other equity or ownership interests in any other Person.
"Purchase Money Indebtedness" means Indebtedness the net proceeds of which
are used to finance the cost (including the cost of construction) of property or
assets acquired in the normal course of business by the Person incurring such
Indebtedness.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the meaning specified
in Rule 144A under the Securities Act.
"Record Date" means the Record Dates specified in the Notes.
"Redemption Date," when used with respect to any Note to be redeemed, means
the date fixed for such redemption pursuant to this Indenture and the Notes.
"Redemption Price," when used with respect to any Note to be redeemed,
means the price fixed for such redemption, including principal and premium, if
any, pursuant to this Indenture and the Notes.
"Reference Date" has the meaning set forth in Section 4.10.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Registrar" has the meaning provided in Section 2.03.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the Issue Date among the Company, the Subsidiary Guarantors and the
Initial Purchasers.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Note" means a permanent global note in registered form
representing the aggregate principal amount of Notes sold in reliance on
Regulation S under the Securities Act.
"Related Person" of any Person means any other Person directly or
indirectly owning 10% or more of the outstanding voting Common Stock of such
Person (or, in the case of a Person that is not a corporation, 10% or more of
the equity interest in such Person).
"Replacement Assets" shall have the meaning set forth in Section 4.16.
"Restricted Payment" shall have the meaning set forth in Section 4.10.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided, however, that the Trustee shall be
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether any Note constitutes a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Board Resolution
delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with Section 4.14. Any such designation may be revoked by a Board
Resolution of the Company delivered to the Trustee, subject to the provisions of
such covenant.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Rating Services, a division of The McGraw
Hill Companies, Inc., and its successors.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any Property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Senior Credit Facility" means the Amended and Restated Credit Agreement by
and among the Company, First Union National Bank, individually and as agent, and
each of the Lenders named therein, or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders, together
with the related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreements extending the
maturity of, refinancing, replacing, increasing or otherwise restructuring all
or any portion of the Indebtedness under such agreements.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w)
of Regulation S-X under the Securities Act.
"Subsidiary," with respect to any Person, means (a) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (b) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantor" means (a) each of the Company's Restricted
Subsidiaries as of the Issue Date and (b) each of the Company's Restricted
Subsidiaries that in the future executes a supplemental indenture in which such
Restricted Subsidiary agrees to be bound by the terms of this Indenture as a
Subsidiary Guarantor; provided, however, that any Person constituting a
Subsidiary Guarantor as described above shall cease to constitute a Subsidiary
Guarantor when its Guarantee is released in accordance with the terms of this
Indenture.
"Surviving Entity" shall have the meaning set forth in Section 5.01.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as
otherwise provided in Section 9.03.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer this Indenture, or in the case of a
successor trustee, an officer assigned to the department, division or group
performing the corporation trust work of such successor and assigned to
administer this Indenture.
"Trustee" means the party named as such in this Indenture until a successor
replaces it in accordance with the provisions of this Indenture and thereafter
means such successor.
"U.S. Government Obligations" mean direct obligations of, and obligations
guaranteed by, the United States of America for the payment of which the full
faith and credit of the United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with Section 4.14; provided, however, the
Unrestricted Subsidiaries shall initially include Atlantic Offshore Insurance.
Any such designation may be revoked by a Board Resolution of the Company
delivered to the Trustee, subject to the provisions of Section 4.14.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which all the outstanding voting securities normally entitled to vote in the
election of directors are owned by the Company or another Wholly Owned
Restricted Subsidiary.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such provision is
incorporated by reference in, and made a part of, this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other
obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule and
not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP of any date of determination;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
(5) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article,
Section or other subdivision; and
(6) any reference to a statute, law or regulation means that statute,
law or regulation as amended and in effect from time to time and
includes any successor statute, law or regulation; provided,
however, that any reference to the Bankruptcy Law shall mean the
Bankruptcy Law as applicable to the relevant case.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.
The Initial Notes and the Trustee's certificate of
authentication relating thereto shall be substantially in the form of Exhibit A
hereto. The Exchange Notes and the Trustee's certificate of authentication
relating thereto shall be substantially in the form of Exhibit B hereto. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or depository rule or usage. The Company and the Trustee shall
approve the form of the Notes and any notation, legend or endorsement on them.
Each Note shall be dated the date of its issuance and shall show the date of its
authentication. Each Note shall have an executed Guarantee endorsed thereon
substantially in the form of Exhibit E hereto.
The terms and provisions contained in the Notes, annexed
hereto as Exhibits A and B, shall constitute, and are hereby expressly made, a
part of this Indenture and, to the extent applicable, the Company, the
Subsidiary Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A, Notes offered
and sold to institutional "accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) and Notes offered and sold in reliance
on Regulation S shall be issued initially in the form of one or more permanent
global Notes in registered form, substantially in the form set forth in Exhibit
A, deposited with the Trustee, as custodian for the Depository, duly executed by
the Company (and having an executed Guarantee endorsed thereon) and
authenticated by the Trustee as hereinafter provided and shall bear the legend
set forth in Section 2.15. The aggregate principal amount of the Global Note may
from time to time be increased or decreased by adjustments made on the records
of the Trustee, as custodian for the Depository, as hereinafter provided.
Notes issued in exchange for interests in a Global Note
pursuant to Section 2.16 may be issued in the form of permanent certificated
Notes in registered form in substantially the form set forth in Exhibit A (the
"Physical Notes").
SECTION 2.02. Execution and Authentication;
Aggregate Principal Amount.
Two Officers, or an Officer and an Assistant Secretary of the
Company and each Subsidiary Guarantor, shall sign, or one Officer shall sign and
one Officer or an Assistant Secretary (each of whom shall, in each case, have
been duly authorized by all requisite corporate actions) shall attest to, the
Notes for the Company and the Guarantees for the Subsidiary Guarantors by manual
or facsimile signature.
If an Officer or Assistant Secretary whose signature is on a
Note or a Guarantee was an Officer or Assistant Secretary at the time of such
execution but no longer holds that office or position at the time the Trustee
authenticates the Note, the Note shall nevertheless be valid.
A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Initial Notes for original
issue in the aggregate principal amount not to exceed $100,000,000 and (ii)
Exchange Notes from time to time for issue only in exchange for a like principal
amount of Initial Notes, in each case upon a written order of the Company in the
form of an Officers' Certificate of the Company. Each such written order shall
specify the amount of Notes to be authenticated and the date on which the Notes
are to be authenticated, whether the Notes are to be Initial Notes or Exchange
Notes and whether the Notes are to be issued as Physical Notes or Global Notes
or such other information as the Trustee may reasonably request. In addition,
with respect to authentication pursuant to clause (ii) of the first sentence of
this paragraph, the first such written order from the Company shall be
accompanied by an Opinion of Counsel of the Company in a form reasonably
satisfactory to the Trustee stating that the issuance of the Exchange Notes does
not give rise to an event of default, complies with this Indenture and has been
duly authorized by the Company. The aggregate principal amount of Notes
outstanding at any time may not exceed $100,000,000, except as provided in
Sections 2.07 and 2.08.
The Trustee may appoint an authenticating agent (the
"Authenticating Agent") reasonably acceptable to the Company to authenticate
Notes. Unless otherwise provided in the appointment, an Authenticating Agent may
authenticate Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
Authenticating Agent. An Authenticating Agent has the same rights as an Agent to
deal with the Company or with any Affiliate of the Company.
The Notes shall be issuable in fully registered form only,
without coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in the City of New York, State of New York)
where (a) Notes may be presented or surrendered for registration of transfer or
for exchange ("Registrar"), (b) Notes may be presented or surrendered for
payment ("Paying Agent") and (c) notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Registrar shall keep
a register of the Notes and of their transfer and exchange. The Company, upon
prior written notice to the Trustee, may have one or more co-Registrars and one
or more additional paying agents reasonably acceptable to the Trustee. The term
"Paying Agent" includes any additional Paying Agent. Neither the Company nor any
Affiliate of the Company may act as Paying Agent.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which agreement shall incorporate
the provisions of the TIA and implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee, in advance, of the
name and address of any such Agent. If the Company fails to maintain a Registrar
or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such.
The Company initially appoints the Trustee as Registrar,
Paying Agent and agent for service of demands and notices in connection with the
Notes, until such time as the Trustee has resigned or a successor has been
appointed. Any of the Registrar, the Paying Agent or any other agent may resign
upon 30 days' notice to the Company.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that such Paying Agent shall hold in trust for the
benefit of the Holders or the Trustee all assets held by the Paying Agent for
the payment of principal of, premium, if any, or interest on, the Notes (whether
such assets have been distributed to it by the Company or any other obligor on
the Notes), and the Company and the Paying Agent shall notify the Trustee of any
Default by the Company (or any other obligor on the Notes) in making any such
payment. The Company at any time may require a Paying Agent to distribute all
assets held by it to the Trustee and account for any assets disbursed and the
Trustee may at any time during the continuance of any payment Default, upon
written request to a Paying Agent, require such Paying Agent to distribute all
assets held by it to the Trustee and to account for any assets distributed. Upon
distribution to the Trustee of all assets that shall have been delivered by the
Company to the Paying Agent, the Paying Agent shall have no further liability
for such assets.
SECTION 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of the Holders. If the Trustee is not the Registrar, the Company shall
furnish or cause the Registrar to furnish to the Trustee before each Record Date
and at such other times as the Trustee may request in writing a list as of such
date and in such form as the Trustee may reasonably require of the names and
addresses of the Holders, which list may be conclusively relied upon by the
Trustee.
SECTION 2.06. Transfer and Exchange.
When Notes are presented to the Registrar or a co-Registrar
with a request to register the transfer of such Notes or to exchange such Notes
for an equal principal amount of Notes or other authorized denominations, the
Registrar or co-Registrar shall register the transfer or make the exchange as
requested if its requirements for such transaction are met; provided, however,
that the Notes presented or surrendered for registration of transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company, the Trustee and the Registrar or co-Registrar,
duly executed by the Holder thereof or his attorney duly authorized in writing.
To permit registration of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Notes and the Subsidiary Guarantors shall execute
Guarantees thereon at the Registrar's or co-Registrar's request. No service
charge shall be made for any registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any transfer tax, fee
or similar governmental charge payable in connection therewith (other than any
such transfer taxes or similar governmental charge payable upon exchanges or
transfers pursuant to Sections 2.10, 3.03, 4.15 or 4.16, in which event the
Company shall be responsible for the payment of such taxes).
The Registrar or co-Registrar shall not be required to
register the transfer of or exchange of any Note (i) during a period beginning
at the opening of business 15 days before the mailing of a notice of redemption
of Notes and ending at the close of business on the day of such mailing and (ii)
selected for redemption in whole or in part pursuant to Article Three, except
the unredeemed portion of any Note being redeemed in part.
Any Holder of a beneficial interest in a Global Note shall, by
acceptance of such Global Note, agree that transfers of beneficial interests in
such Global Notes may be effected only through a book entry system maintained by
the Holder of such Global Note (or its agent), and that ownership of a
beneficial interest in the Note shall be required to be reflected in a book
entry system.
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the
Holder of a Note claims that the Note has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Note and the Subsidiary Guarantors shall execute a Guarantee thereon if the
Trustee's requirements are met. If required by the Trustee or the Company, such
Holder must provide an indemnity bond or other indemnity of reasonable tenor,
sufficient in the reasonable judgment of the Company, the Subsidiary Guarantors
and the Trustee, to protect the Company, the Subsidiary Guarantors, the Trustee
or any Agent from any loss which any of them may suffer if a Note is replaced.
Every replacement Note shall constitute an additional obligation of the Company
and the Subsidiary Guarantors.
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those canceled by it, those delivered to it
for cancellation and those described in this Section as not outstanding. Subject
to the provisions of Section 2.09, a Note does not cease to be outstanding
because the Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date or the Maturity Date the Paying Agent
holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of
the principal, premium, if any, and interest due on the Notes payable on that
date and is not prohibited from paying such money to the Holders thereof
pursuant to the terms of this Indenture or the requirements of applicable law,
then on and after that date such Notes shall be deemed not to be outstanding and
interest on them shall cease to accrue.
SECTION 2.09. Treasury Notes.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver, consent or notice,
Notes owned by the Company or an Affiliate of the Company shall be considered as
though they are not outstanding, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Notes which a Trust Officer of the Trustee actually knows are
so owned shall be so considered. The Company shall notify the Trustee, in
writing, when it or, to its knowledge, any of its Affiliates repurchases or
otherwise acquires Notes or sells or otherwise transfers the Notes, of the
aggregate principal amount of such Notes so repurchased or otherwise acquired
and such other information as the Trustee may reasonably request, and the
Trustee shall be entitled to rely thereon.
SECTION 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon receipt of a
written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Notes to be
authenticated and the date on which the temporary Notes are to be authenticated.
Temporary Notes shall be substantially in the form of definitive Notes but may
have variations that the Company consider appropriate for temporary Notes and so
indicate in the Officers' Certificate. Without unreasonable delay, the Company
shall prepare, the Trustee shall authenticate and the Subsidiary Guarantors
shall execute Guarantees on, upon receipt of a written order of the Company
pursuant to Section 2.02, definitive Notes in exchange for temporary Notes.
SECTION 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent, and no one
else, shall cancel and, at the written direction of the Company, shall dispose,
in its customary manner, of all Notes surrendered for transfer, exchange,
payment or cancellation. Subject to Section 2.07, the Company may not issue new
Notes to replace Notes that they have paid or delivered to the Trustee for
cancellation. If the Company shall acquire any of the Notes, such acquisition
shall not operate as a redemption or satisfaction of the Indebtedness
represented by such Notes unless and until the same are surrendered to the
Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
The Company will pay interest on overdue principal from time
to time on demand at the rate of interest then borne by the Notes. The Company
shall, to the extent lawful, pay interest on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the rate of interest then borne by the Notes. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months, and, in the case of a
partial month, the actual number of days elapsed.
If the Company defaults in a payment of interest on the Notes,
they shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, which special record date shall be the fifteenth
day next preceding the date fixed by the Company for the payment of defaulted
interest or the next succeeding Business Day if such date is not a Business Day.
The Company shall notify the Trustee in writing of the amount of defaulted
interest proposed to be paid on each Note and the date of the proposed payment
(a "Default Interest Payment Date"), and at the same time the Company shall
deposit with the Trustee an amount of money in immediately available funds equal
to the aggregate amount proposed to be paid in respect of such defaulted
interest or shall make arrangements satisfactory to the Trustee for such deposit
on or prior to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such defaulted interest
as provided in this Section; provided, however, that in no event shall the
Company deposit monies proposed to be paid in respect of defaulted interest
later than 11:00 a.m. New York City time of the proposed Default Interest
Payment Date. At least 15 days before the subsequent special record date, the
Company shall mail (or cause to be mailed) to each Holder, as of a recent date
selected by the Company, with a copy to the Trustee, a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest, and interest payable on such defaulted interest, if any, to be paid.
Notwithstanding the foregoing, any interest which is paid prior to the
expiration of the 30-day period set forth in Section 6.01(a) shall be paid to
Holders as of the regular record date for the Interest Payment Date for which
interest has not been paid. Notwithstanding the foregoing, the Company may make
payment of any defaulted interest in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Notes may be
listed, and upon such notice as may be required by such exchange.
SECTION 2.13. CUSIP Number.
The Company in issuing the Notes may use a "CUSIP" number,
and, if so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided, however, that no representation
is hereby deemed to be made by the Trustee as to the correctness or accuracy of
the CUSIP number printed in the notice or on the Notes, and that reliance may be
placed only on the other identification numbers printed on the Notes. The
Company shall promptly notify the Trustee of any change in the CUSIP number.
SECTION 2.14. Deposit of Monies.
Prior to 11:00 a.m. New York City time on each Interest
Payment Date, Maturity Date, Redemption Date, Change of Control Payment Date and
Net Proceeds Offer Payment Date, the Company shall have deposited with the
Paying Agent in immediately available funds money sufficient to make cash
payments, if any, due on such Interest Payment Date, Maturity Date, Redemption
Date, Change of Control Payment Date and Net Proceeds Offer Payment Date, as the
case may be, in a timely manner which permits the Paying Agent to remit payment
to the Holders on such Interest Payment Date, Maturity Date, Redemption Date,
Change of Control Payment Date and Net Proceeds Offer Payment Date, as the case
may be.
SECTION 2.15. Restrictive Legends.
Each Global Note and Physical Note that constitutes a
Restricted Security shall bear the following legend (the "Private Placement
Legend") on the face thereof until after the third anniversary of the later of
the Issue Date and the last date on which the Company or any Affiliate of the
Company was the owner of such Note (or any predecessor security) (or such
shorter period of time as, in the opinion of counsel, is permitted by Rule
144(k) under the Securities Act or any successor provision thereunder) (or such
longer period of time as may be required under the Securities Act or applicable
state securities laws in the opinion of counsel for the Company, unless
otherwise agreed by the Company and the Holder thereof):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3), OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR"),
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL
ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS
SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY,
IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Each Global Note shall also bear the following legend on the face thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE
BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE INDENTURE.
SECTION 2.16. Book-Entry Provisions for Global Security.
(a) The Global Notes initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set forth
in Section 2.15.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depository, or the Trustee as its custodian, or
under the Global Notes, and the Depository may be treated by the Company, the
Trustee and any Agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any Agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers
in whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in a Global Note may be transferred or
exchanged for Physical Notes in accordance with the rules and procedures of the
Depository and the provisions of Section 2.17. In addition, Physical Notes shall
be transferred to all beneficial owners in exchange for their beneficial
interests in a Global Note if (i) the Depository notifies the Company that it is
unwilling or unable to continue as Depository for the Global Notes and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a written request from the Depository to issue Physical
Notes.
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in a Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of such Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute, the Subsidiary Guarantors shall execute Guarantees on, and the
Trustee shall authenticate and deliver, one or more Physical Notes of like tenor
and amount.
(d) In connection with the transfer of an entire Global Note
to beneficial owners pursuant to paragraph (b), such Global Note shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, the Subsidiary Guarantors shall execute Guarantees on and the Trustee
shall authenticate and deliver, to each beneficial owner identified by the
Depository in exchange for its beneficial interest in the Global Note, an equal
aggregate principal amount of Physical Notes of authorized denominations.
(e) Any Physical Note constituting a Restricted Security
delivered in exchange for an interest in a Global Note pursuant to paragraph (b)
or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of
Section 2.17, bear the legend regarding transfer restrictions applicable to the
Physical Notes set forth in Section 2.15.
(f) The Holder of a Global Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 2.17. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors and
Non-U.S. Persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to
any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Note
constituting a Restricted Security, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after the
second anniversary of the Issue Date (provided, however, that neither
the Company nor any Affiliate of the Company has, to the best of the
Trustee's knowledge, held any beneficial interest in such Note, or
portion thereof, at any time on or prior to the second anniversary of
the Issue Date) or (y) (1) in the case of a transfer to an
Institutional Accredited Investor which is not a QIB (excluding
Non-U.S. Persons), the proposed transferee has delivered to the
Registrar a certificate substantially in the form of Exhibit C hereto
or (2) in the case of a transfer to a Non-U.S. Person, the proposed
transferor has delivered to the Registrar a certificate substantially
in the form of Exhibit D hereto; and
(ii) if the proposed transferee is an Agent Member and the
Notes to be transferred consist of Physical Notes which after transfer
are to be evidenced by an interest in the IAI Global Note or Regulation
S Global Note, as the case may be, upon receipt by the Registrar of (x)
written instructions given in accordance with the Depository's and the
Registrar's procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, the Registrar shall
register the transfer and reflect on its books and records the date and
an increase in the principal amount of the IAI Global Note or
Regulation S Global Note, as to case may be, in an amount equal to the
principal amount of Physical Notes to be transferred, and the Trustee
shall cancel the Physical Notes so transferred; and
(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Note, upon receipt by the Registrar of
(x) written instructions given in accordance with the Depository's and
the Registrar's procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, the Registrar shall
register the transfer and reflect on its books and records the date and
(A) a decrease in the principal amount of the Global Note from which
such interests are to be transferred in an amount equal to the
principal amount of the Notes to be transferred and (B) an increase in
the principal amount of the IAI Global Note or the Regulation S Global
Note, as the case may be, in an amount equal to the principal amount of
the Notes to be transferred.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Note constituting
a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the box
provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar in writing, that the sale has been made in
compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Note stating, or
has otherwise advised the Company and the Registrar in writing, that it
is purchasing the Note for its own account or an account with respect
to which it exercises sole investment discretion and that it and any
such account is a QIB within the meaning of Rule 144A, and is aware
that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Notes to be transferred consist of Physical Notes which after transfer
are to be evidenced by an interest in a 144A Global Note, upon receipt
by the Registrar of written instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount of such 144A Global Note in an amount equal to the
principal amount of the Physical Notes to be transferred, and the
Trustee shall cancel the Physical Notes so transferred; and
(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in the IAI Global Note or the Regulation S Global
Note, upon receipt by the Registrar of written instructions given in
accordance with the Depository's and the Registrar's procedures, the
Registrar shall register the transfer and reflect on its books and
records the date and (A) a decrease in the principal amount of the IAI
Global Note or the Regulation S Global Note, as the case may be, in an
amount equal to the principal amount of the Notes to be transferred and
(B) an increase in the principal amount of the 144A Global Note in an
amount equal to the principal amount of the Notes to be transferred.
(c) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provisions of this Indenture, a Global Note may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or any such
nominee to a successor Depository or a nominee of such successor
Depository.
(d) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the
Registrar shall deliver Notes that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Notes bearing the
Private Placement Legend, the Registrar shall deliver only Notes that bear
the Private Placement Legend unless (i) the requested transfer is after the
second anniversary of the Issue Date (provided, however, that neither the
Company nor any Affiliate of the Company has, to the best of the Trustee's
knowledge, held any beneficial interest in such Note, or portion thereof,
at any time prior to or on the third anniversary of the Issue Date), or
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(e) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions
on transfer of such Note set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Note only as
provided in this Indenture.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.16 or this Section
2.17. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time during
the Registrar's normal business hours upon the giving of reasonable written
notice to the Registrar.
(f) Transfers of Notes Held by Affiliates. Any certificate (i)
evidencing a Note that has been transferred to an Affiliate of the Company
within two years after the Issue Date, as evidenced by a notation on the
Assignment Form for such transfer or in the representation letter delivered
in respect thereof or (ii) evidencing a Note that has been acquired from an
Affiliate (other than by an Affiliate) in a transaction or a chain of
transactions not involving any public offering, shall, until two years
after the last date on which the Company or any Affiliate of the Company
was an owner of such Note, in each case, bear a legend in substantially the
form set forth in Section 2.15 hereof, unless otherwise agreed by the
Company (with written notice thereof to the Trustee).
SECTION 2.18. Liquidated Damages Under Registration Rights Agreement.
Under certain circumstances, the Company shall be obligated to
pay certain liquidated damages to the Holders, all as set forth in Section 5 of
the Registration Rights Agreement. The terms thereof are hereby incorporated
herein by reference.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to Paragraph 5
of the Notes or Section 3.03 hereof, it shall notify the Trustee and the Paying
Agent in writing of the Redemption Date and the principal amount of the Notes to
be redeemed.
The Company shall give each notice provided for in this
Section 3.01 not less than 60 days before the Redemption Date (unless a shorter
notice period shall be satisfactory to the Trustee, as evidenced in a writing
signed on behalf of the Trustee), together with an Officers' Certificate stating
that such redemption shall comply with the conditions contained herein and in
the Notes.
SECTION 3.02. Selection of Notes To Be Redeemed.
In the event that less than all of the Notes are to be
redeemed at any time, selection of such Notes, or portions thereof, for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not then listed on a national securities exchange,
on a pro rata basis, by lot or by such other method as the Trustee shall deem
fair and appropriate; provided, however, that no Notes of a principal amount of
$1,000 or less shall be redeemed in part; and provided, further, that if a
partial redemption is made with the proceeds of an Equity Offering, selection of
the Notes or portions thereof for redemption shall be made by the Trustee only
on a pro rata basis or on as nearly a pro rata basis as is practicable (subject
to the procedures of DTC), unless such method is otherwise prohibited. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than 60
days before the Redemption Date to each Holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the applicable Redemption Date,
interest will cease to accrue on Notes or portions thereof called for redemption
as long as the Company has deposited with the Paying Agent for the Notes
immediately available funds in satisfaction of the applicable Redemption Price.
SECTION 3.03. Redemption.
(a) Optional Redemption: The Notes will be redeemable, at the
Company's option, in whole at any time or in part from time to time, on and
after October 1, 2001, upon not less than 30 nor more than 60 days' notice, at
the following Redemption Prices (expressed as percentages of the principal
amount thereof) if redeemed during the twelve-month period commencing on June 1
of the years set forth below, plus, in each case, accrued and unpaid interest,
if any, thereon to the date of redemption:
Year Percentage
2001............................ 105.313%
2002............................ 102.656%
2003 and thereafter............. 100.000%
(b) Optional Redemption upon Equity Offerings: At any time, or
from time to time, on or prior to October 1, 2000, the Company may, at its
option, use all or a portion of the net cash proceeds of one or more Equity
Offerings (as defined) to redeem up to 35% of the aggregate principal amount of
the Notes originally issued at a redemption price equal to 110.625% of the
aggregate principal amount of the Notes to be redeemed, plus accrued interest,
if any, thereon to the date of redemption; provided, however, that at least 65%
of the aggregate principal amount of Notes originally issued remains outstanding
immediately after giving effect to any such redemption. In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Company shall
make such redemption not more than 60 days after the consummation of any such
Equity Offering.
SECTION 3.04. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail or cause to be mailed a notice of redemption by
first class mail to each Holder of Notes to be redeemed at its registered
address, with a copy to the Trustee and any Paying Agent. At the Company's
request, the Trustee shall give the notice of redemption in the Company's name
and at the Company's expense. The Company shall provide such notices of
redemption to the Trustee at least five days before the intended mailing date.
Each notice of redemption shall identify (including the CUSIP
number) the Notes to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the date to which accrued interest, if
any, is to be paid;
(3) the name and address of the Paying Agent;
(4) the subparagraph of the Notes pursuant to which such redemption
is being made;
(5) that Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price plus accrued
interest, if any;
(6) that, unless the Company defaults in making the redemption
payment, interest on Notes or applicable portions thereof called
for redemption ceases to accrue on and after the Redemption Date,
and the only remaining right of the Holders of such Notes is to
receive payment of the Redemption Price plus accrued interest as
of the Redemption Date, if any, upon surrender to the Paying
Agent of the Notes redeemed;
(7) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
Redemption Date, and upon surrender of such Note, a new Note or
Notes in the aggregate principal amount equal to the unredeemed
portion thereof will be issued; and
(8) if fewer than all the Notes are to be redeemed, the
identification of the particular Notes (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Notes to
be redeemed and the aggregate principal amount of Notes to be
outstanding after such partial redemption.
The Company will comply with the requirements of Rule 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.
SECTION 3.05. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section
3.04, such notice of redemption shall be irrevocable and Notes called for
redemption become due and payable on the Redemption Date and at the Redemption
Price plus accrued interest as of such date, if any. Upon surrender to the
Trustee or Paying Agent, such Notes called for redemption shall be paid from
funds available for such purpose at the Redemption Price plus accrued interest
thereon to the Redemption Date, but installments of interest, the maturity of
which is on or prior to the Redemption Date, shall be payable to Holders of
record at the close of business on the relevant record dates referred to in the
Notes. Interest shall accrue on or after the Redemption Date and shall be
payable only if the Company defaults in payment of the Redemption Price.
SECTION 3.06. Deposit of Redemption Price.
On or before the Redemption Date and in accordance with
Section 2.14, the Company shall deposit with the Paying Agent U.S. Legal Tender
in immediately available funds sufficient to pay the Redemption Price plus
accrued interest, if any, of all Notes to be redeemed on that date. The Paying
Agent shall promptly return to the Company any U.S. Legal Tender so deposited
which is not required for that purpose, except with respect to monies owed as
obligations to the Trustee pursuant to Article Seven.
Unless the Company fails to comply with the preceding
paragraph and default in the payment of such Redemption Price plus accrued
interest, if any, interest on the Notes to be redeemed will cease to accrue on
and after the applicable Redemption Date, whether or not such Notes are
presented for payment.
SECTION 3.07. Notes Redeemed in Part.
Upon surrender of a Note that is to be redeemed in part, the
Trustee shall authenticate for the Holder a new Note or Notes equal in principal
amount to the unredeemed portion of the Note surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
(a) The Company shall pay the principal of, premium, if any,
and interest on the Notes on the dates and in the manner provided in the Notes
and in this Indenture.
(b) An installment of principal of or interest on the Notes
shall be considered paid on the date it is due if the Trustee or Paying Agent
(other than the Company or any of its Affiliates) holds, prior to 11:00 a.m. New
York City time on that date, U.S. Legal Tender in immediately available funds
designated for and sufficient to pay the installment in full and is not
prohibited from paying such money to the Holders pursuant to the terms of this
Indenture or the Notes.
(c) Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required to do so by law, deduct
or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain the office or agency required under
Section 2.03. The Company shall give prior written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 11.02.
SECTION 4.03. Corporate Existence.
Except as otherwise permitted by Article Five, the Company
shall do or cause to be done, at their own cost and expense, all things
necessary to preserve and keep in full force and effect their respective
corporate existence and the corporate existence of each of their Restricted
Subsidiaries in accordance with the respective organizational documents of each
such Restricted Subsidiary and the material rights (charter and statutory) and
franchises of the Company and each such Restricted Subsidiary; provided,
however, that the Company shall not be required to preserve, with respect to
itself, any material right or franchise and, with respect to any of the
Restricted Subsidiaries, any such existence, material right or franchise, if the
Board of Directors of the Company shall determine in good faith that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Subsidiaries, taken as a whole.
SECTION 4.04. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon either of
them or any of their Subsidiaries or properties of either of them or any of
their Subsidiaries and (ii) all material lawful claims for labor, materials and
supplies that, if unpaid, might by law become a Lien upon the property of the
Company or any of its Subsidiaries; provided, however, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate negotiations or proceedings
properly instituted and diligently conducted for which adequate reserves, to the
extent required under GAAP, have been taken.
SECTION 4.05. Maintenance of Properties and Insurance.
(a) The Company shall, and shall cause each of the Restricted
Subsidiaries to, maintain all properties used or useful in the conduct of its
business in good working order and condition (subject to ordinary wear and tear)
and make all necessary repairs, renewals, replacements, additions, betterments
and improvements thereto and actively conduct and carry on its business;
provided, however, that nothing in this Section 4.05 shall prevent the Company
or any of the Restricted Subsidiaries from discontinuing the operation and
maintenance of any of its properties, if such discontinuance is (i) in the
ordinary course of business pursuant to customary business terms or (ii) in the
good faith judgment of the respective Boards of Directors or other governing
body of the Company or Restricted Subsidiary, as the case may be, desirable in
the conduct of their respective businesses and is not disadvantageous in any
material respect to the Holders.
(b) The Company shall provide or cause to be provided, for
themselves and each of the Restricted Subsidiaries, insurance (including
appropriate self-insurance) against loss or damage of the kinds that, in the
good faith judgment of the Company, are adequate and appropriate for the conduct
of the business of the Company and its Restricted Subsidiaries in a prudent
manner, with reputable insurers or with the government of the United States of
America, Canada or an agency or instrumentality thereof, in such amounts, with
such deductibles, and by such methods as shall be customary, in the good faith
judgment of the Company, for companies similarly situated in the industry.
SECTION 4.06. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee, within 105 days
after the end of its respective fiscal quarters and fiscal years, an Officers'
Certificate of the Company (provided, however, that one of the signatories to
each such Officers' Certificate shall be the Company's principal executive
officer, principal financial officer or principal accounting officer), as to
such Officers' knowledge, without independent investigation, of the Company's
compliance with all conditions and covenants under this Indenture (without
regard to any period of grace or requirement of notice provided hereunder) and
in the event any Default of the Company's exists, such Officers shall specify
the nature of such Default. Each such Officers' Certificate shall also notify
the Trustee should the Company elect to change the manner in which it fixes its
fiscal year end.
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
annual financial statements delivered pursuant to Section 4.08 shall be
accompanied by a written report of the Company's independent certified public
accountants (who shall be a firm of established national reputation) stating (A)
that their audit examination has included a review of the terms of this
Indenture and the form of the Notes as they relate to accounting matters, and
(B) whether, in connection with their audit examination, any Default or Event of
Default has come to their attention and if such a Default or Event of Default
has come to their attention, specifying the nature and period of existence
thereof; provided, however, that, without any restriction as to the scope of the
audit examination, such independent certified public accountants shall not be
liable by reason of any failure to obtain knowledge of any such Default or Event
of Default that would not be disclosed in the course of an audit examination
conducted in accordance with generally accepted auditing standards.
(c) (i) If any Default or Event of Default has occurred and is
continuing or (ii) if any Holder seeks to exercise any remedy hereunder with
respect to a claimed Default under this Indenture or the Notes, the Company
shall deliver to the Trustee, at its address set forth in Section 11.02 hereof,
by registered or certified mail or by facsimile transmission followed by hard
copy by registered or certified mail an Officers' Certificate specifying such
event, notice or other action within 10 days of its becoming aware of such
occurrence.
SECTION 4.07. Compliance with Laws.
The Company shall comply, and shall cause each of their
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as could not singly or in the
aggregate reasonably be expected to have a material adverse effect on the
financial condition or results of operations of the Company and its Subsidiaries
taken as a whole.
SECTION 4.08. Reports to Holders.
The Company will deliver to the Trustee within 15 days after
filing of the same with the Commission, copies of the quarterly and annual
reports and of the information, documents and other reports, if any, which the
Company is required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will
also comply with the other provisions of Section 314(a) of the TIA.
SECTION 4.09. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that they may lawfully do
so) that they will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
or any usury law or other law that would prohibit or forgive the Company from
paying all or any portion of the principal of or interest on the Notes as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that they may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.10. Limitation on Restricted Payments.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly,
(a) declare or pay any dividend or make any distribution
(other than (x) dividends or distributions made to the Company or any
Restricted Subsidiary of the Company or (y) dividends or distributions
payable solely in Qualified Capital Stock of the Company or warrants,
rights or options to purchase or acquire shares of Qualified Capital
Stock of the Company) on or in respect of shares of the Capital Stock
of the Company or any Restricted Subsidiary to holders of such Capital
Stock;
(b) purchase, redeem or otherwise acquire or retire for value
any Capital Stock of the Company or any Restricted Subsidiary or any
warrants, rights or options to purchase or acquire shares of any class
of such Capital Stock other than through the exchange therefor solely
of Qualified Capital Stock of the Company or warrants, rights or
options to purchase or acquire shares of Qualified Capital Stock of the
Company;
(c) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund
payment, any Indebtedness of the Company or a Restricted Subsidiary
that is subordinate or junior in right of payment to the Notes or such
Restricted Subsidiary's Guarantee, as the case may be; or
(d) make any Investment (other than a Permitted Investment)
(each of the foregoing actions set forth in clauses (a), (b), (c) and (d) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto, (i) a Default or an Event of
Default shall have occurred and be continuing, or (ii) the Company is not able
to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with Section 4.12, or (iii) the aggregate amount of
Restricted Payments (including such proposed Restricted Payment) made subsequent
to the Issue Date (the amount expended for such purposes, if other than in cash,
being the fair market value of such property as determined reasonably and in
good faith by the Board of Directors of the Company) shall exceed the sum of:
(A) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss) of the Company earned subsequent to the Issue Date and on or
prior to the last date of the Company's fiscal quarter immediately
preceding such Restricted Payment (the "Reference Date") (treating such
period as a single accounting period); plus
(B) 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Restricted Subsidiary of the
Company) from the issuance and sale subsequent to the Issue Date and on
or prior to the Reference Date of Qualified Capital Stock of the
Company; plus
(C) without duplication of any amounts included in clause
(iii)(B) above, 100% of the aggregate net cash proceeds of any equity
contribution received by the Company from a holder of the Company's
Capital Stock (excluding, in the case of clauses (iii)(B) and (C), any
net cash proceeds from an Equity Offering to the extent used to redeem
the Notes); plus
(D) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, interest payments,
repayments of loans or advances, or other transfers of cash, in each
case to the Company or to any Restricted Subsidiary of the Company from
Unrestricted Subsidiaries (but without duplication of any such amount
included in calculating cumulative Consolidated Net Income of the
Company), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (in each case valued as provided in Section
4.14), not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary and which was treated as a
Restricted Payment hereunder; plus
(E) without duplication of the immediately preceding subclause
(D), an amount equal to the lesser of the cost or net cash proceeds
received upon the sale or other disposition of any Investment made
after the Issue Date which had been treated as a Restricted Payment
(but without duplication of any such amount included in calculating
cumulative Consolidated Net Income of the Company); plus
(F) $1.0 million.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph shall not prohibit:
(1) the payment of any dividend or redemption payment within
60 days after the date of declaration of such dividend or the
applicable redemption if the dividend or redemption payment, as the
case may be, would have been permitted on the date of declaration;
(2) if no Default or Event of Default shall have occurred
and be continuing, the acquisition of any shares of Capital Stock of
the Company, through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Restricted Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company;
(3) if no Default or Event of Default shall have occurred
and be continuing, the acquisition of any Indebtedness of the Company
or a Restricted Subsidiary that is subordinate or junior in right of
payment to the Notes or such Restricted Subsidiary's Guarantee, as the
case may be, either (a) solely in exchange for shares of Qualified
Capital Stock of the Company or warrants, rights or options to purchase
or acquire shares of Qualified Capital Stock of the Company, or (b)
through the application of net proceeds of a substantially concurrent
sale for cash (other than to a Restricted Subsidiary of the Company) of
(i) shares of Qualified Capital Stock of the Company or (ii)
Refinancing Indebtedness;
(4) if no Default or Event of Default shall have occurred
and be continuing, the acquisition, in odd-lot purchase transactions,
of shares of the Company's Common Stock, which purchases will not
exceed $100,000 in the aggregate in any calendar year; and
(5) if no Default or Event of Default shall have occurred
and be continuing, the acquisition of shares of the Company's Common
Stock pursuant to Company repurchase options in stock option agreements
between the Company and employees of the Company and its Subsidiaries,
which purchases will not exceed $1.0 million in the aggregate in any
calendar year.
In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (iii) of the
immediately preceding paragraph, amounts expended pursuant to clauses (1),
(2), (4) and (5) shall be included in such calculation.
SECTION 4.11. Limitation on Transactions with Affiliates.
(a) The Company will not, and will not cause or permit any of
its Restricted Subsidiaries to, directly or indirectly, enter into, amend or
permit or suffer to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property, the guaranteeing of any Indebtedness or the rendering of any service)
with or for the benefit of any of their respective Affiliates (each an
"Affiliate Transaction"), other than (i) Affiliate Transactions permitted under
paragraph (b) of this Section 4.11 and (ii) Affiliate Transactions that are on
terms that are fair and reasonable to the Company or the applicable Restricted
Subsidiary and are no less favorable to the Company or the applicable Restricted
Subsidiary than those that might reasonably have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person that is not an
Affiliate of the Company or such Restricted Subsidiary. All Affiliate
Transactions (and each series of related Affiliate Transactions which are
similar or part of a common plan) involving aggregate payments or other property
with a fair market value in excess of $1.0 million shall be approved by the
Board of Directors of the Company, such approval to be evidenced by a Board
Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary enters into an Affiliate Transaction (or a series of
related Affiliate Transactions related to a common plan) that involves an
aggregate fair market value of more than $10.0 million, the Company shall, prior
to the consummation thereof, obtain a favorable opinion as to the fairness of
such transaction or series of related transactions to the Company or the
relevant Restricted Subsidiary, as the case may be, from a financial point of
view, from an Independent Advisor and file the same with the Trustee.
(b) The restrictions set forth in paragraph (a) shall not
apply to (i) reasonable fees and compensation paid to and indemnity provided on
behalf of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary as determined in good faith by the Board of Directors or
senior management of the Company or such Restricted Subsidiary, as the case may
be; (ii) transactions exclusively between or among the Company and any of its
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries; provided, however, that such transactions are not otherwise
prohibited hereunder; and (iii) Restricted Payments permitted hereunder.
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness.
Other than Permitted Indebtedness, the Company will not, and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (including, without
limitation, Acquired Indebtedness); provided, however, that if no Default or
Event of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company may incur
Indebtedness or any of its Restricted Subsidiaries may incur Acquired
Indebtedness, if on the date of the incurrence of such Indebtedness, after
giving pro forma effect to the incurrence thereof and the receipt and
application of the proceeds therefrom, the Consolidated EBITDA Coverage Ratio
would have been greater than 2.25 to 1.0 on or prior to September 30, 1998, and
greater than 2.5 to 1.0 thereafter.
Restricted Subsidiaries that are Subsidiary Guarantors may
guarantee any Indebtedness incurred by the Company pursuant to the preceding
paragraph, and, for purposes of determining any particular amount of
Indebtedness incurred under this Section 4.12, such guarantees shall not be
deemed to be the incurrence of any Indebtedness.
Indebtedness of a Person existing at the time such Person
becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition
of Capital Stock or otherwise) or is merged with or into the Company or any
Restricted Subsidiary or which is secured by a Lien on an asset acquired by the
Company or a Restricted Subsidiary (whether or not such Indebtedness is assumed
by the acquiring Person) shall be deemed incurred at the time the Person becomes
a Restricted Subsidiary or at the time of the asset acquisition, as the case may
be.
The Company will not, and will not permit any Subsidiary
Guarantor to, incur any Indebtedness which by its terms (or by the terms of any
agreement governing such Indebtedness) is subordinated in right of payment to
any Indebtedness of the Company or such Subsidiary Guarantor, as the case may
be, other than the Notes and the Guarantees unless such Indebtedness is also by
its terms (or by the terms of any agreement governing such Indebtedness) made
expressly subordinate in right of payment to the Notes or the Guarantee of such
Subsidiary Guarantor, as the case may be, pursuant to subordination provisions
that are substantially identical to the subordination provisions of such
Indebtedness (or agreement) that are most favorable to the holders of such
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be.
SECTION 4.13. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances,
or pay any Indebtedness or other obligation owed, to the Company or any other
Restricted Subsidiary; (c) guarantee any Indebtedness or any other obligation of
the Company or any Restricted Subsidiary; or (d) transfer any of its property or
assets to the Company or any other Restricted Subsidiary (each such encumbrance
or restriction, a "Payment Restriction"), except for such encumbrances or
restrictions existing under or by reason of: (1) applicable law; (2) this
Indenture; (3) the Senior Credit Facility; (4) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary; (5) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to such Restricted Subsidiary, or
the properties or assets of such Restricted Subsidiary, other than the Person or
the property or assets of the Person so acquired; (6) agreements existing on the
Issue Date to the extent and in the manner such agreements are in effect on the
Issue Date; (7) customary restrictions with respect to a Restricted Subsidiary
of the Company pursuant to an agreement that has been entered into for the sale
or disposition of Capital Stock or assets of such Restricted Subsidiary to be
consummated in accordance with the terms of this Indenture solely in respect of
the assets or Capital Stock to be sold or disposed of; (8) any instrument
governing a Permitted Lien, to the extent and only to the extent such instrument
restricts the transfer or other disposition of assets subject to such Permitted
Lien; or (9) an agreement governing Refinancing Indebtedness incurred to
Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clause (2), (3), (5) or (6) above; provided, however, that the
provisions relating to such encumbrance or restriction contained in any such
Refinancing Indebtedness are no less favorable to the Holders in any material
respect as determined by the Board of Directors of the Company in their
reasonable and good faith judgment than the provisions relating to such
encumbrance or restriction contained in the applicable agreement referred to in
such clause (2), (3), (5), or (6).
SECTION 4.14. Limitation on Restricted and Unrestricted Subsidiaries.
The Board of Directors of the Company may, if no Default or
Event of Default shall have occurred and be continuing or would arise therefrom,
designate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that (i) any such redesignation shall be deemed to be an incurrence as
of the date of such redesignation by the Company and its Restricted Subsidiaries
of the Indebtedness (if any) of such redesignated Subsidiary for purposes of
Section 4.12, (ii) unless such redesignated Subsidiary shall not have any
Indebtedness outstanding, other than Indebtedness which would be Permitted
Indebtedness, no such designation shall be permitted if immediately after giving
effect to such redesignation and the incurrence of any such additional
Indebtedness the Company could not incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to Section 4.12 and (iii) such Subsidiary
assumes by execution of a supplemental indenture all of the obligations of a
Subsidiary Guarantor under a Guarantee.
The Board of Directors of the Company also may, if no Default
or Event of Default shall have occurred and be continuing or would arise
therefrom, designate any Restricted Subsidiary to be an Unrestricted Subsidiary
if (i) such designation is at that time permitted under Section 4.10 and (ii)
immediately after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
Section 4.12. Any such designation by the Board of Directors shall be evidenced
to the Trustee by the filing with the Trustee of a certified copy of the
resolution of the Board of Directors giving effect to such designation or
redesignation and an officers' certificate certifying that such designation or
redesignation complied with the foregoing conditions and setting forth in
reasonable detail the underlying calculations. In the event that any Restricted
Subsidiary is designated an Unrestricted Subsidiary in accordance with this
Section 4.14, such Restricted Subsidiary's Guarantee will be released.
For purposes of Section 4.10, (i) an "Investment" shall be
deemed to have been made at the time any Restricted Subsidiary is designated as
an Unrestricted Subsidiary in an amount (proportionate to the Company's equity
interest in such Subsidiary) equal to the net worth of such Restricted
Subsidiary at the time that such Restricted Subsidiary is designated as an
Unrestricted Subsidiary; (ii) at any date the aggregate amount of all Restricted
Payments made as Investments since the Issue Date shall exclude and be reduced
by an amount (proportionate to the Company's equity interest in such Subsidiary)
equal to the net worth of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary, not to exceed, in
the case of any such redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary, the amount of Investments previously made by the Company and its
Restricted Subsidiaries in such Unrestricted Subsidiary (in each case (i) and
(ii) "net worth" to be calculated based upon the fair market value of the assets
of such Subsidiary as of any such date of designation); and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer.
Notwithstanding the foregoing, the Board of Directors may not
designate any Subsidiary of the Company to be an Unrestricted Subsidiary if,
after such designation, (a) the Company or any Restricted Subsidiary (i)
provides credit support for, or a guarantee of, any Indebtedness of such
Subsidiary (including any undertaking, agreement or instrument evidencing such
Indebtedness) or (ii) is directly or indirectly liable for any Indebtedness of
such Subsidiary or (b) such Subsidiary owns any Capital Stock of, or owns or
holds any Lien on any property of, any Restricted Subsidiary which is not a
Subsidiary of the Subsidiary to be so designated.
Subsidiaries of the Company that are not designated by the
Board of Directors as Restricted or Unrestricted Subsidiaries will be deemed to
be Restricted Subsidiaries. Notwithstanding any provisions of this Section 4.14,
all Subsidiaries of an Unrestricted Subsidiary will be Unrestricted
Subsidiaries.
SECTION 4.15. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder
will have the right to require that the Company purchase all or a portion of
such Holder's Notes pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to 101% of the principal amount
thereof plus accrued interest, if any, thereon to the date of purchase.
(b) Within 30 days following the date upon which the Change of
Control occurred, the Company must send or cause to be sent, by first class
mail, a notice to each Holder at such Holder's last registered address, with a
copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. The notice to the Holders shall contain all instructions and
materials necessary to enable such Holders to tender Notes pursuant to the
Change of Control Offer. Such notice shall state:
(i) that the Change of Control Offer is being made pursuant to this
Section 4.15, that all Notes tendered and not withdrawn will be
accepted for payment and that the Change of Control Offer shall
remain open for a period of 20 Business Days or such longer
period as may be required by law;
(ii) the purchase price (including the amount of accrued interest) and
the purchase date (which shall be no earlier than 30 days nor
later than 45 days from the date such notice is mailed, other
than as may be required by law) (the "Change of Control Payment
Date");
(iii) that any Note not tendered will continue to accrue interest;
(iv) that, unless the Company defaults in making payment therefor, any
Note accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control
Payment Date;
(v) that Holders electing to have a Note purchased pursuant to a
Change of Control Offer will be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on
the third Business Day prior to the Change of Control Payment
Date;
(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the second Business Day
prior to the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Notes the Holder delivered
for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased;
(vii)that Holders whose Notes are purchased only in part will be
issued new Notes in a principal amount equal to the unpurchased
portion of the Notes surrendered; provided, however, that each
Note purchased and each new Note issued shall be in an original
principal amount of $1,000 or integral multiples thereof; and
(viii) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company
shall (i) accept for payment Notes or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent in accordance with
Section 2.14 U.S. Legal Tender sufficient to pay the purchase price plus accrued
interest, if any, of all Notes so tendered and (iii) deliver to the Trustee
Notes so accepted together with an Officers' Certificate stating the Notes or
portions thereof being purchased by the Company. Upon receipt by the Paying
Agent of the monies specified in clause (ii) above and a copy of the Officers'
Certificate specified in clause (iii) above, the Paying Agent shall promptly
mail to the Holders of Notes so accepted payment in funds available for such
purpose in an amount equal to the purchase price plus accrued interest, if any,
and the Trustee shall promptly authenticate and mail to such Holders new Notes
equal in principal amount to any unpurchased portion of the Notes surrendered.
Any Notes not so accepted shall be promptly mailed by the Company to the Holder
thereof. For purposes of this Section 4.15, the Trustee shall act as the Paying
Agent.
Neither the Board of Directors of the Company nor the Trustee
may waive the provisions of this Section 4.15 relating to the Company's
obligation to make a Change of Control Offer.
The Company will comply with the requirements of Rule 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
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of this Section 4.15, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached their
obligations under the provisions of this Section 4.15 by virtue thereof.
SECTION 4.16. Limitation on Asset Sales.
(a) The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless
(a) the Company or the applicable Restricted Subsidiary, as
the case may be, receives consideration at the time of such Asset Sale
at least equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by the Company's Board of
Directors or senior management of the Company);
(b) at least 85% of the consideration received by the Company
or such Restricted Subsidiary, as the case may be, from such Asset Sale
shall be in the form of cash or Cash Equivalents and is received at the
time of such disposition; and
(c) upon the consummation of an Asset Sale, the Company shall
apply, or cause such Restricted Subsidiary to apply, the Net Cash
Proceeds relating to such Asset Sale within 270 days of receipt thereof
either (i) to repay or prepay Indebtedness outstanding under the Senior
Credit Facility, including, without limitation, a permanent reduction
in the related commitment, (ii) to repay or prepay any Indebtedness of
the Company that is secured by a Lien permitted to be incurred pursuant
to Section 4.18, (iii) to make an investment in properties or assets
that replace the properties or assets that were the subject of such
Asset Sale or in properties or assets that will be used in the business
of the Company and its Restricted Subsidiaries as existing on the Issue
Date or in businesses reasonably related thereto ("Replacement
Assets"), (iv) to an investment in Crude Oil and Natural Gas Related
Assets or (v) a combination of prepayment and investment permitted by
the foregoing clauses (c)(i) through (c)(iv). On the 271st day after an
Asset Sale or such earlier date, if any, as the Board of Directors of
the Company determines not to apply the Net Cash Proceeds relating to
such Asset Sale as set forth in clauses (c)(i) through (c)(iv) of the
next preceding sentence (each a "Net Proceeds Offer Trigger Date"),
such aggregate amount of Net Cash Proceeds which have been received by
the Company or such Restricted Subsidiary but which have not been
applied on or before such Net Proceeds Offer Trigger Date as permitted
in clauses (c)(i) through (c)(iv) of the next preceding sentence (each
a "Net Proceeds Offer Amount") shall be applied by the Company or such
Restricted Subsidiary, as the case may be, to make an offer to purchase
(a "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment
Date") not less than 30 nor more than 45 days following the applicable
Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis,
that principal amount of Notes purchasable with the Net Proceeds Offer
Amount at a price equal to 100% of the principal amount of the Notes to
be purchased, plus accrued and unpaid interest, if any, thereon to the
date of purchase; provided, however, that if at any time any non-cash
consideration received by the Company or any Restricted Subsidiary, as
the case may be, in connection with any Asset Sale is converted into or
sold or otherwise disposed of for cash (other than interest received
with respect to any such non-cash consideration), then such conversion
or disposition shall be deemed to constitute an Asset Sale hereunder
and the Net Cash Proceeds thereof shall be applied in accordance with
this Section 4.16. The Company may defer the Net Proceeds Offer until
there is an aggregate unutilized Net Proceeds Offer Amount equal to or
in excess of $5.0 million resulting from one or more Asset Sales (at
which time, the entire unutilized Net Proceeds Offer Amount, and not
just the amount in excess of $5.0 million, shall be applied as required
pursuant to this paragraph).
In the event of the transfer of substantially all (but not
all) of the property and assets of the Company and its Restricted Subsidiaries
as an entirety to a Person in a transaction permitted under Section 5.01, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and its Restricted Subsidiaries not so transferred for purposes of
this Section 4.16, and shall comply with the provisions of this Section 4.16
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this Section 4.16.
Notwithstanding the two immediately preceding paragraphs, the
Company and its Restricted Subsidiaries will be permitted to consummate an Asset
Sale without complying with such paragraphs to the extent (a) the consideration
for such Asset Sale constitutes Replacement Assets and/or Crude Oil and Natural
Gas Related Assets and (b) such Asset Sale is for fair market value; provided,
however, that any consideration not constituting Replacement Assets and Crude
Oil and Natural Gas Related Assets received by the Company or any of its
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Cash Proceeds subject to
the provisions of the two immediately preceding paragraphs.
Notice of each Net Proceeds Offer will be mailed to the record
Holders as shown on the register of Holders within 30 days following the Net
Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with
the procedures set forth in the Indenture. Upon receiving notice of the Net
Proceeds Offer, Holders may elect to tender their Notes in whole or in part in
integral multiples of $1,000 in exchange for cash. To the extent Holders
properly tender Notes with an aggregate principal amount exceeding the Net
Proceeds Offer Amount, Notes of tendering Holders will be purchased on a pro
rata basis (based on principal amounts tendered). A Net Proceeds Offer shall
remain open for a period of 20 Business Days or such longer period as may be
required by law.
The Company's ability to repurchase Notes in a Net Proceeds
Offer is restricted by the terms of the Senior Credit Facility and may be
prohibited or otherwise limited by the terms of any then existing borrowing
arrangements and the Company's financial resources.
(b) Subject to the deferral of the Net Proceeds Offer
contained in clause (a)(iii) above, each notice of a Net Proceeds Offer pursuant
to this Section 4.16 shall be mailed or caused to be mailed, by first class
mail, by the Company not more than 30 days after the Net Proceeds Offer Trigger
Date to all Holders at their last registered addresses, with a copy to the
Trustee. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Notes pursuant to the Net Proceeds Offer and shall
state the following terms:
(i) that the Net Proceeds Offer is being made pursuant to Section
4.16, that all Notes tendered will be accepted for payment; provided,
however, that if the aggregate principal amount of Notes tendered in a
Net Proceeds Offer plus accrued interest at the expiration of such
offer exceeds the aggregate amount of the Net Proceeds Offer, the
Company shall select the Notes to be purchased on a pro rata basis
(with such adjustments as may be deemed appropriate by the Company so
that only Notes in denominations of $1,000 or multiples thereof shall
be purchased) and that the Net Proceeds Offer shall remain open for a
period of 20 Business Days or such longer period as may be required by
law;
(ii) the purchase price (including the amount of accrued
interest) and the Net Proceeds Offer Payment Date (which shall be not
less than 30 nor more than 45 days following the applicable Net
Proceeds Offer Trigger Date and which shall be at least five business
days after the Trustee receives notice thereof from the Company);
(iii) that any Note not tendered will continue to accrue
interest;
(iv) that, unless the Company defaults in making payment
therefor, any Note accepted for payment pursuant to the Net Proceeds
Offer shall cease to accrue interest after the Net Proceeds Offer
Payment Date;
(v) that Holders electing to have a Note purchased pursuant to a
Net Proceeds Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the third Business Day
prior to the Net Proceeds Offer Payment Date;
(vi) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the second Business Day
prior to the Net Proceeds Offer Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Notes the Holder delivered for purchase
and a statement that such Holder is withdrawing his election to have
such Note purchased; and
(vii) that Holders whose Notes are purchased only in part will be
issued new Notes in a principal amount equal to the unpurchased
portion of the Notes surrendered; provided, however, that each Note
purchased and each new Note issued shall be in an original principal
amount of $1,000 or integral multiples thereof;
On or before the Net Proceeds Offer Payment Date, the Company
shall (i) accept for payment Notes or portions thereof tendered pursuant to the
Net Proceeds Offer which are to be purchased in accordance with item (b)(i)
above, (ii) deposit with the Paying Agent in accordance with Section 2.14 U.S.
Legal Tender sufficient to pay the purchase price plus accrued interest, if any,
of all Notes to be purchased and (iii) deliver to the Trustee Notes so accepted
together with an Officers' Certificate stating the Notes or portions thereof
being purchased by the Company. The Paying Agent shall promptly mail to the
Holders of Notes so accepted payment in an amount equal to the purchase price
plus accrued interest, if any. For purposes of this Section 4.16, the Trustee
shall act as the Paying Agent.
The Company will comply with the requirements of Rule 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
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Section 4.16, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached their obligations under
the provisions of this Section 4.16 by virtue thereof.
SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries.
The Company will not cause or permit any of its Restricted
Subsidiaries to issue any Preferred Stock (other than to the Company or to a
Wholly Owned Restricted Subsidiary) or permit any Person (other than the Company
or a Wholly Owned Restricted Subsidiary) to own any Preferred Stock of any
Restricted Subsidiary.
SECTION 4.18. Limitation on Liens.
Other than Permitted Liens, the Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or permit or suffer to exist any Liens of any kind against
or upon any property or assets of the Company or any of its Restricted
Subsidiaries (whether owned on the Issue Date or acquired after the Issue Date)
or any proceeds therefrom, or assign or otherwise convey any right to receive
income or profits therefrom unless (a) in the case of Liens securing
Indebtedness that is expressly subordinate or junior in right of payment to the
Notes or any Guarantee, the Notes or such Guarantee, as the case may be, are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens at least to the same extent as the Notes are senior in
priority to such Indebtedness and (b) in all other cases, the Notes and the
Guarantees are equally and ratably secured.
SECTION 4.19. Limitation on Conduct of Business.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, engage in the conduct of any business other than the
Crude Oil and Natural Gas Business.
SECTION 4.20. Additional Subsidiary Guarantees.
If the Company or any of its Restricted Subsidiaries transfers
or causes to be transferred, in one transaction or a series of related
transactions, any property to any Restricted Subsidiary that is not a Subsidiary
Guarantor, or if the Company or any of its Restricted Subsidiaries shall
organize, acquire or otherwise invest in or hold an Investment in another
Restricted Subsidiary having total consolidated assets with a book value in
excess of $500,000 that is not a Subsidiary Guarantor, then such transferee or
acquired or other Restricted Subsidiary shall (a) execute and deliver to the
Trustee a supplemental indenture in form reasonably satisfactory to the Trustee
pursuant to which such Restricted Subsidiary shall unconditionally guarantee all
of the Company's obligations under the Notes and the Indenture on the terms set
forth in the Indenture and (b) deliver to the Trustee an opinion of counsel
stating that such supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Subsidiary Guarantor for all purposes of the
Indenture.
SECTION 4.21. Maintenance of Adjusted Consolidated Net Tangible Assets.
If Adjusted Consolidated Net Tangible Assets are less than
125% of the Indebtedness of the Company and its Restricted Subsidiaries on a
consolidated basis at the end of any fiscal quarter, which event shall not have
been remedied and shall be continuing at the end of the next succeeding fiscal
quarter (the last day of such succeeding fiscal quarter being hereinafter
referred to as a "Deficiency Date"), then the Company shall be obligated to make
an offer (a "Deficiency Offer") to all of the Holders to repurchase Notes, on a
date not more than 60 nor less than 30 days after the Deficiency Date (the
"Deficiency Payment Date"), in an aggregate principal amount (the "Deficiency
Offer Amount") that would be sufficient to cause Adjusted Consolidated Net
Tangible Assets to thereafter equal or exceed 125% of the Indebtedness of the
Company and its Restricted Subsidiaries on a consolidated basis, at a purchase
price (the "Deficiency Purchase Price") equal to 100% of the principal amount of
the Notes, together with accrued and unpaid interest, if any, to the Deficiency
Payment Date. The Deficiency Offer is required to remain open for at least 20
Business Days and until the close of business on the Deficiency Payment Date.
In order to effect such Deficiency Offer, the Company shall,
not later than the 45th day after the Deficiency Date, mail to each Holder a
notice of the Deficiency Offer, which notice shall govern the terms of the
Deficiency Offer and shall state, among other things, the procedures that
Holders must follow to accept the Deficiency Offer. If the aggregate principal
amount of Notes validly tendered and not withdrawn by Holders thereof exceeds
the Deficiency Offer Amount, Notes to be purchased will be selected on a pro
rata basis.
If a Deficiency Offer is made, there can be no assurance that
the Company will have available funds sufficient to pay the Deficiency Purchase
Price for all of the Notes that might be delivered by Holders seeking to accept
the Deficiency Offer. In the event a Deficiency Payment Date occurs at a time
when the Company does not have available funds sufficient to pay the Deficiency
Purchase Price, an Event of Default would occur under this Indenture.
The Company will comply with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934 and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of Notes pursuant to a Deficiency Offer. To the
extent that the provisions of any securities laws or regulations conflict with
Section 4.16, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under
Section 4.16 by virtue thereof. <PAGE>
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets.
The Company will not, in a single transaction or series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of the Company's assets (determined on a
consolidated basis for the Company and its Restricted Subsidiaries), whether as
an entirety or substantially as an entirety to any Person unless: (a) either (i)
the Company shall be the surviving or continuing corporation or (ii) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, transfer,
lease, conveyance or other disposition the properties and assets of the Company
and its Restricted Subsidiaries substantially as an entirety (the "Surviving
Entity") (x) shall be a corporation organized and validly existing under the
laws of the United States or any state thereof or the District of Columbia and
(y) shall expressly assume, by supplemental indenture (in form and substance
satisfactory to the Trustee), executed and delivered to the Trustee, the due and
punctual payment of the principal of, premium, if any, and interest on all of
the Notes and the performance of every covenant of the Notes, the Indenture and
the Registration Rights Agreement on the part of the Company to be performed or
observed; (b) immediately after giving effect to such transaction and the
assumption contemplated by clause (a)(ii)(y) above (including giving effect to
any Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction), the Company or such Surviving Entity, as the case
may be, (i) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction and
(ii) shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to Section 4.12 above; (c) immediately
before and immediately after giving effect to such transaction and the
assumption contemplated by clause (a)(ii)(y) above (including, without
limitation, giving effect to any Indebtedness incurred or anticipated to be
incurred and any Lien granted in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred or be
continuing; (d) each Subsidiary Guarantor, unless it is the other party to the
transactions described above, shall have by supplemental indenture to the
Indenture confirmed that its Guarantee of the Notes shall apply to such Person's
obligations under the Indenture and the Notes; (e) if any of the properties or
assets of the Company or any of its Restricted Subsidiaries would upon such
transaction or series of related transactions become subject to any Lien (other
than a Permitted Lien), the creation and imposition of such Lien shall have been
in compliance with Section 4.18 above; and (f) the Company or the Surviving
Entity, as the case may be, shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other disposition and,
if a supplemental indenture is required in connection with such transaction,
such supplemental indenture, comply with the applicable provisions of the
Indenture and that all conditions precedent in the Indenture relating to such
transaction have been satisfied; provided, however, that such counsel may rely,
as to matters of fact, on a certificate or certificates of officers of the
Company.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Upon any consolidation, combination or merger or any transfer
of all or substantially all of the assets of the Company in accordance with the
foregoing, in which the Company is not the continuing corporation, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture and the Notes with the same effect as if such surviving entity had
been named as such.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor
whose Guarantee is to be released in accordance with the terms of the Guarantee
and the Indenture in connection with any transaction complying with the
provisions of the Indenture described under Section 4.16) will not, and the
Company will not cause or permit any Subsidiary Guarantor to, consolidate with
or merge with or into any Person other than the Company or another Subsidiary
Guarantor that is a Wholly Owned Restricted Subsidiary unless: (a) the entity
formed by or surviving any such consolidation or merger (if other than the
Subsidiary Guarantor) or to which such sale, lease, conveyance or other
disposition shall have been made is a corporation organized and existing under
the laws of the United States or any state thereof or the District of Columbia;
(b) such entity assumes by execution of a supplemental indenture all of the
obligations of the Subsidiary Guarantor under its Guarantee; (c) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; and (d) immediately after giving effect to such
transaction and the use of any net proceeds therefrom on a pro forma basis, the
Company could satisfy the provisions of clause (b) of the first paragraph of
this covenant. Any merger or consolidation of a Subsidiary Guarantor with and
into the Company (with the Company being the surviving entity) or another
Subsidiary Guarantor that is a Wholly Owned Restricted Subsidiary need only
comply with clause (d) of the first paragraph of this covenant.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation, merger, conveyance, lease or transfer
in accordance with Section 5.01, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
lease or transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor had been named as the Company herein and
thereafter (except in the case of a lease) the predecessor corporation will be
relieved of all further obligations and covenants under this Indenture and the
Notes.
ARTICLE SIX
REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" means any of the following events:
(a) the failure to pay interest (including any Additional
Interest) on any Notes when the same becomes due and payable and such
default continues for a period of 30 days;
(b) the failure to pay the principal of any Notes when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds
Offer);
(c) a default in the observance or performance of any other
covenant or agreement contained in this Indenture which default
continues for a period of 45 days after the Company receives written
notice specifying the default (and demanding that such default be
remedied) from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the Notes (except in the case of a
default with respect to observance or performance of any of the terms
or provisions of Section 4.15, 4.16 or 5.01 which will constitute an
Event of Default with such notice requirement but without such passage
of time requirement);
(d) a default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or
evidenced any Indebtedness of the Company or any Restricted Subsidiary
(or the payment of which is guaranteed by the Company or any
Restricted Subsidiary), whether such Indebtedness now exists, or is
created after the Issue Date, which default (i) is caused by a failure
to pay principal of or premium, if any, or interest on such
Indebtedness after any applicable grace period provided in such
Indebtedness (a "Payment Default") or (ii) results in the acceleration
of such Indebtedness prior to its express maturity and, in each case,
the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so
accelerated, aggregates $5,000,000 or more;
(e) one or more judgments in an aggregate amount in excess of
$5,000,000 (unless covered by insurance by a reputable insurer as to
which the insurer has acknowledged coverage) shall have been rendered
against the Company or any of its Restricted Subsidiaries and such
judgments remain undischarged, unvacated, unpaid or unstayed for a
period of 60 days after such judgment or judgments become final and
non-appealable;
(f) the Company or any of its Significant Subsidiaries pursuant
to or under or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case or proceeding;
(ii) consents to the entry of an order for relief against it
in an involuntary case or proceeding;
(iii)consents to the appointment of a Custodian of it or
for all or substantially all of its property;
(iv) makes a general assignment for the benefit of its
creditors; or
(v) shall generally not pay its debts when such debts
become due or shall admit in writing its inability to
pay its debts generally;
(g) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any Significant
Subsidiary of the Company in an involuntary case or
proceeding,
(ii) appoints a Custodian of the Company or any Significant
Subsidiary of the Company for all or substantially all
of its Properties, or
(iii)orders the liquidation of the Company or any
Significant Subsidiary of the Company, and in each case
the order or decree remains unstayed and in effect for
60 days; or
(h) any of the Guarantees cease to be in full force and effect or
any of the Guarantees are declared by a court of competent
jurisdiction to be null and void or invalid and unenforceable or any
of the Subsidiary Guarantors denies or disaffirms its liability under
its Guarantees (other than by reason of release of a Subsidiary
Guarantor in accordance with the terms of this Indenture).
SECTION 6.02. Acceleration.
Upon the happening of an Event of Default specified in Section
6.01 (other than an Event of Default specified in clause (f) of Section 6.01)
the Trustee may, or the holders of at least 25% in principal amount of
outstanding Notes may, declare the principal of, premium, if any, and accrued
interest on all the Notes to be due and payable by notice in writing to the
Company and the Trustee specifying the respective Event of Default and that it
is a "notice of acceleration" and the same shall become immediately due and
payable. If an Event of Default of the type described in clause (f) or (g) above
occurs and is continuing, then such amount will ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
At any time after a declaration of acceleration with respect
to the Notes as described in the preceding paragraph, the Holders of a majority
in aggregate principal amount of the Notes then outstanding by written notice to
the Company and the Trustee may rescind and cancel such declaration and its
consequences (a) if the rescission would not conflict with any judgment or
decree, (b) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of such
acceleration, (c) to the extent the payment of such interest is lawful, interest
on overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid, (d) if the
Company has paid the Trustee its reasonable compensation and reimbursed the
Trustee for its expenses, disbursements and advances and (e) in the event of the
cure or waiver of an Event of Default of the type described in clause (f) of the
description of Events of Default above, the Trustee shall have received an
Officers' Certificate and an Opinion of Counsel that such Event of Default has
been cured or waived; provided, however, that such counsel may rely, as to
matters of fact, on a certificate or certificates of officers of the Company. No
such rescission shall affect any subsequent Default or impair any right
consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of the principal of, premium, if any, or interest on the Notes or to
enforce the performance of any provision of the Notes or this Indenture.
All rights of action and claims under this Indenture or the
Notes may be enforced by the Trustee even if it does not possess any of the
Notes or does not produce any of them in the proceeding. A delay or omission by
the Trustee or any Holder in exercising any right or remedy accruing upon an
Event of Default shall not impair the right or remedy or constitute a waiver of
or acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Prior to the declaration of acceleration of the Notes, the
Holders of not less than a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may, on behalf of the Holders of all
the Notes, waive any existing Default or Event of Default and its consequences
under this Indenture, except a Default or Event of Default specified in Section
6.01(a) or (b) or in respect of any provision hereof which cannot be modified or
amended without the consent of the Holder so affected pursuant to Section 9.02.
When a Default or Event of Default is so waived, it shall be deemed cured and
shall cease to exist. This Section 6.04 shall be in lieu of ss. 316(a)(1)(B) of
the TIA and such ss. 316(a)(1)(B) of the TIA is hereby expressly excluded from
this Indenture and the Notes, as permitted by the TIA.
SECTION 6.05. Control by Majority.
Holders of the Notes may not enforce this Indenture or the
Notes except as provided in this Article Six and under the TIA. The Holders of
not less than a majority in aggregate principal amount of the outstanding Notes
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee, provided, however, that the Trustee may refuse
to follow any direction (a) that conflicts with any rule of law or this
Indenture, (b) that the Trustee determines may be unduly prejudicial to the
rights of another Holder, or (c) that may expose the Trustee to personal
liability for which reasonable indemnity provided to the Trustee against such
liability shall be in the judgment of the Trustee inadequate; provided, further,
however, that the Trustee may take any other action deemed proper by the Trustee
that is not inconsistent with such direction or this Indenture. This Section
6.05 shall be in lieu of ss. 316(a)(1)(A) of the TIA, and such ss. 316(a)(1)(A)
of the TIA is hereby expressly excluded from this Indenture and the Notes, as
permitted by the TIA.
SECTION 6.06. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding with respect to this Indenture or the Notes or any remedy hereunder,
unless the Holders of at least 25% in aggregate principal amount of the
outstanding Notes have made written request, and offered reasonable indemnity,
to the Trustee to institute such proceeding as Trustee under the Notes and this
Indenture, the Trustee has failed to institute such proceeding within 30 days
after receipt of such notice, request and offer of indemnity and the Trustee,
within such 30-day period, has not received directions inconsistent with such
written request by Holders of not less than a majority in aggregate principal
amount of the outstanding Notes.
The foregoing limitations shall not apply to a suit instituted
by a Holder of a Note for the enforcement of the payment of the principal of,
premium, if any, or interest on, such Note on or after the respective due dates
expressed or provided for in such Note.
A Holder may not use this Indenture to prejudice the rights of
any other Holders or to obtain priority or preference over such other Holders.
SECTION 6.07. Right of Holders To Receive Payment.
Notwithstanding any other provision in this Indenture, the
right of any Holder of a Note to receive payment of the principal of, premium,
if any, and interest on such Note, on or after the respective due dates
expressed or provided for in such Note, or to bring suit for the enforcement of
any such payment on or after the respective due dates, is absolute and
unconditional and shall not be impaired or affected without the consent of the
Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default specified in clause (a) or (b) of
Section 6.01 occurs and is continuing, the Trustee may institute suit and
recover judgment in its own name and as trustee of an express trust against the
Company, or any other obligor on the Notes for the whole amount of the principal
of, premium, if any, and accrued interest remaining unpaid, together with
interest on overdue principal and, to the extent that payment of such interest
is lawful, interest on overdue installments of interest, in each case at the
rate per annum provided for by the Notes and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents, counsel, accountants and
experts) and the Holders allowed in any judicial proceedings relative to the
Company or Restricted Subsidiaries (or any other obligor upon the Notes), their
creditors or their property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Holder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.07. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six
it shall pay out such money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for interest accrued on the Notes, ratably,
without preference or priority of any kind, according to the amounts
due and payable on the Notes for interest;
Third: to Holders for the principal amounts (including any
premium) owing under the Notes, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Notes for the principal (including any premium); and
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to Holders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court may in its discretion require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant except the Trustee in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section 6.11 does not apply to any suit by the
Trustee, any suit by a Holder pursuant to Section 6.06, or a suit by a Holder or
Holders of more than 10% in aggregate principal amount of the outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Note and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such case the
Company, the Trustee and the Holders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee may exercise such of the rights and powers vested in it by this
Indenture and shall use the same degree of care and skill in its exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are adverse to the
Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or
opinions that by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained,
the Trustee may not be relieved from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph
(b) of this Section 7.01.
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.02, 6.04 or 6.05 or as
otherwise provided in this Indenture.
(d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section
7.01 and Section 7.02.
(f) The Trustee shall not be liable for interest on any money
or assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in
acting or refraining from acting upon any opinion, certificate or other
document believed by it (i) to be genuine and (ii) to have been signed
or presented by the proper Person. The Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel of its selection and may require an Officers'
Certificate or an Opinion of Counsel, which shall conform to Sections
11.04 and 11.05. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action that it
takes or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers.
(e) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, notice, request, direction, consent,
order, bond, debenture, or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled, upon reasonable notice to the Company, to examine the books,
records, and premises of the Company, personally or by agent or
attorney and to consult with the officers and representatives of the
Company, including the Company's accountants and attorneys.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Holders pursuant to the provisions of
this Indenture, unless such Holders shall have offered to the Trustee
security or indemnity reasonably satisfactory to the Trustee against
the costs, expenses and liabilities which may be incurred by it in
compliance with such request, order or direction.
(g) The Trustee shall not be required to give any bond or
surety in respect of the performance of its powers and duties
hereunder.
(h) Delivery of reports, information and documents to the
Trustee under Section 4.08 is for informational purposes only and the
Trustee's receipt of the foregoing shall not constitute constructive
notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with
any of their covenants hereunder (as to which the Trustee is entitled
to rely exclusively on Officers' Certificates).
(i) The Trustee shall not be required to take notice or be
deemed to have notice of any Event of Default hereunder except failure
by the Company to make the payments required by Section 4.01 hereof
unless the Trustee shall be specifically notified in writing by the
Company or by the Holder of not less than 25% of the aggregate
principal amount of Notes then outstanding.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company, any of
their Subsidiaries, or their respective Affiliates with the same rights it would
have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Notes, and it shall not be accountable for the
Company's use of the proceeds from the Notes, and it shall not be responsible
for any statement of the Company in this Indenture or the Notes other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default of which the Trustee has
knowledge and of which it is required to take notice occurs and is continuing,
the Trustee shall mail to each Holder notice of the uncured Default or Event of
Default within 90 days after obtaining knowledge thereof. Except in the case of
a Default or an Event of Default in payment of principal of, or interest on, any
Note, including an accelerated payment, a Default in payment on the Change of
Control Payment Date pursuant to a Change of Control Offer or on the Net
Proceeds Offer Payment Date pursuant to a Net Proceeds Offer and a Default in
compliance with Article Five hereof, the Trustee may withhold the notice if and
so long as its Board of Directors, the executive committee of its Board of
Directors or a committee of its directors and/or Trust Officers in good faith
determines that withholding the notice is in the interest of the Holders. The
foregoing sentence of this Section 7.05 shall be in lieu of the proviso to ss.
315(b) of the TIA and such proviso to ss. 315(b) of the TIA is hereby expressly
excluded from this Indenture and the Notes, as permitted by the TIA.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after November 1 of each year beginning with
1997, the Trustee shall, to the extent that any of the events described in TIA
ss. 313(a) occurred within the previous twelve months, but not otherwise, mail
to each Holder a brief report dated as of such date that complies with TIA ss.
313(a). The Trustee also shall comply with TIA ss.ss. 313(b), (c) and (d).
A copy of each report at the time of its mailing to Holders
shall be mailed to the Company and filed with the Commission and each stock
exchange, if any, on which the Notes are listed.
The Company shall promptly notify the Trustee if the Notes
become listed on any stock exchange and the Trustee shall comply with TIA ss.
313(d).
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation for its services as has been agreed to in writing signed by the
Company and the Trustee. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred or made by it in connection with the performance of its duties under
this Indenture. Such expenses shall include the reasonable fees and expenses of
the Trustee's agents, counsel, accountants and experts.
The Company shall indemnify each of the Trustee (or any
predecessor Trustee) and its agents, employees, stockholders, Affiliates and
directors and officers for, and hold them each harmless against, any and all
loss, liability, damage, claim or expense (including reasonable fees and
expenses of counsel), including taxes (other than taxes based on the income of
the Trustee) incurred by them except for such actions to the extent caused by
any negligence, bad faith or willful misconduct on their part, arising out of or
in connection with the acceptance or administration of this trust including the
reasonable costs and expenses of defending themselves against any claim or
liability in connection with the exercise or performance of any of their rights,
powers or duties hereunder. The Trustee shall notify the Company promptly of any
claim asserted against the Trustee for which it may seek indemnity. At the
Trustee's sole discretion, the Company shall defend the claim and the Trustee
shall cooperate and may participate in the defense; provided, however, that any
settlement of a claim shall be approved in writing by the Trustee if such
settlement would result in an admission of liability by the Trustee or if such
settlement would not be accompanied by a full release of the Trustee for all
liability arising out of the events giving rise to such claim. Alternatively,
the Trustee may at its option have separate counsel of its own choosing and the
Company shall pay the reasonable fees and expenses of such counsel.
To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a lien prior to the Notes on all assets or money
held or collected by the Trustee, in its capacity as Trustee, except assets or
money held in trust to pay principal of or premium, if any, or interest on
particular Notes.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(f) or (g) occurs, such expenses and
the compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
The provisions of this Section 7.07 shall survive the
termination of this Indenture.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the
Company. The Holders of a majority in principal amount of the outstanding Notes
may remove the Trustee and appoint a successor Trustee with the Company's
consent, by so notifying the Company and the Trustee. The Company may remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall notify each Holder of
such event and shall promptly appoint a successor Trustee. Within one year after
the successor Trustee takes office, the Holders of a majority in aggregate
principal amount of the outstanding Notes may appoint a successor Trustee to
replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it hereunder as Trustee
to the successor Trustee, subject to the lien provided in Section 7.07, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The Company shall mail notice of such successor Trustee's
appointment to each Holder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in aggregate principal amount of the
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding any resignation or replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
shall continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; provided, however, that
such corporation shall be otherwise qualified and eligible under this Article
Seven.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA ss.ss. 310(a)(1), (2) and (5). The Trustee (or, in the case
of a Trustee that is a corporation included in a bank holding company system,
the related bank holding company) shall have a combined capital and surplus of
at least $150 million as set forth in its most recent published annual report of
condition, and have an office in the City of New York. In addition, if the
Trustee is a corporation included in a bank holding company system, the Trustee,
independently of such bank holding company, shall meet the capital requirements
of TIA ss. 310(a)(2). The Trustee shall comply with TIA ss. 310(b); provided,
however, that there shall be excluded from the operation of TIA ss. 310(b)(1)
any indenture or indentures under which other securities, or certificates of
interest or participation in other securities, of the Company are outstanding,
if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met.
The provisions of TIA ss. 310 shall apply to the Company, as obligors of the
Notes.
SECTION 7.11. Preferential Collection of Claims Against the Company.
The Trustee shall comply with TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
The provisions of TIA ss. 311 shall apply to the Company, as obligor on the
Notes.
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of Company's Obligations.
This Indenture will be discharged and will cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of the Notes, as expressly provided for in this Indenture) as to all
outstanding Notes when (a) either (i) all Notes, theretofore authenticated and
delivered (except lost, stolen or destroyed Notes which have been replaced or
paid and Notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (b)
the Company has paid all other sums payable under this Indenture by the Company;
and (c) the Company has delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under this Indenture
relating to the satisfaction and discharge of this Indenture have been complied
with; provided, however, that such counsel may rely, as to matters of fact, on a
certificate or certificates of officers of the Company.
The Company may, at its option and at any time, elect to have
its obligations and the corresponding obligations of the Subsidiary Guarantors
discharged with respect to the outstanding Notes ("Legal Defeasance"). Such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Notes, and
satisfied all of its obligations with respect to the Notes, except for (a) the
rights of Holders to receive payments in respect of the principal of, premium,
if any, and interest on the Notes when such payments are due, (b) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (c) the rights, powers, trust,
duties and immunities of the Trustee and the Company's obligations in connection
therewith and (d) the Legal Defeasance provisions of this Section 8.01. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and the Subsidiary Guarantors, if any, released with
respect to covenants contained in Sections 4.04, 4.08 and 4.10 through 4.20 and
Article Five ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Notes. In the event of Covenant Defeasance, those events described under
Section 6.01 (except those events described in Section 6.01(a),(b),(f) and (g))
will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders cash in United States dollars,
non-callable U.S. Government Obligations, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal
of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable Redemption Date, as the case may
be;
(b) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling or (ii) since the date of this Indenture, there has
been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; provided, however, such opinion of counsel
shall not be required if all the Notes will become due and payable on
the maturity date within one year or are to be called for redemption
within one year under arrangements satisfactory to the Trustee;
(c) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will
not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default
under Section 6.01(f) or (g) from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under this
Indenture or any other agreement or instrument to which the Company or
any of its Restricted Subsidiaries is a party or by which the Company
or any of its Restricted Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance, as the case may be, have been complied
with; provided, however, that such counsel may rely, as to matters of
fact, on a certificate or certificates of officers of the Company; and
(h) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; provided, however, that such counsel may
rely, as to matters of fact, on a certificate or certificates of
officers of the Company.
SECTION 8.02. Application of Trust Money.
The Trustee or Paying Agent shall hold in trust U.S. Legal
Tender or U.S. Government Obligations deposited with it pursuant to Section
8.01, and shall apply the deposited U.S. Legal Tender and the money from U.S.
Government Obligations in accordance with this Indenture to the payment of the
principal of and interest on the Notes. The Trustee shall be under no obligation
to invest said U.S. Legal Tender or U.S. Government Obligations except as it may
agree in writing with the Company.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the Legal Tender or U.S.
Government Obligations deposited pursuant to Section 8.01 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of outstanding Notes.
SECTION 8.03. Repayment to the Company.
Subject to Section 8.01, the Trustee and the Paying Agent
shall promptly pay to the Company upon request any excess U.S. Legal Tender or
U.S. Government Obligations held by them at any time and thereupon shall be
relieved from all liability with respect to such money. The Trustee and the
Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for one
year; provided, however, that the Trustee or such Paying Agent, before being
required to make any payment, may at the expense of the Company cause to be
published once in a newspaper of general circulation in the City of New York or
mail to each Holder entitled to such money notice that such money remains
unclaimed and that after a date specified therein which shall be at least 30
days from the date of such publication or mailing any unclaimed balance of such
money then remaining will be repaid to the Company. After payment to the
Company, Holders entitled to such money must look to the Company for payment as
general creditors unless an applicable law designates another Person.
SECTION 8.04. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S.
Legal Tender or U.S. Government Obligations in accordance with Section 8.01 by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.01 until such time as the Trustee or Paying Agent is permitted to
apply all such U.S. Legal Tender or U.S. Government Obligations in accordance
with Section 8.01; provided, however, that if the Company has made any payment
of interest on or principal of any Notes because of the reinstatement of their
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the U.S. Legal Tender or U.S. Government
Obligations held by the Trustee or Paying Agent.
SECTION 8.05. Acknowledgment of Discharge by Trustee.
After (i) the conditions of Section 8.01 have been satisfied,
(ii) the Company has paid or caused to be paid all other sums payable hereunder
by the Company and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (i) above relating to the satisfaction and
discharge of this Indenture have been complied with, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified in Section 8.01,
provided the legal counsel delivering such Opinion of Counsel may rely as to
matters of fact on one or more Officers' Certificates of the Company.
ARTICLE NINE
MODIFICATION OF THE INDENTURE
SECTION 9.01. Without Consent of Holders.
Subject to the provisions of Section 9.02, the Company, the
Subsidiary Guarantors and the Trustee may amend, waive or supplement this
Indenture without notice to or consent of any Holder: (a) to cure any ambiguity,
defect or inconsistency; (b) to comply with Section 5.01 of this Indenture; (c)
to provide for uncertificated Notes in addition to certificated Notes; (d) to
comply with any requirements of the Commission in order to effect or maintain
the qualification of this Indenture under the TIA; or (e) to make any change
that would provide any additional benefit or rights to the Holders or that does
not adversely affect the rights of any Holder. Notwithstanding the foregoing,
the Trustee and the Company may not make any change that adversely affects the
rights of any Holder under this Indenture without the consent of such Holder. In
formulating its opinion on such matters, the Trustee will be entitled to rely on
such evidence as it deems appropriate, including, without limitation, solely on
an Opinion of Counsel; provided, however, that in delivering such Opinion of
Counsel, such counsel may rely as to matters of fact, on a certificate or
certificates of officers of the Company.
SECTION 9.02. With Consent of Holders.
All other modifications and amendments of this Indenture may
be made with the consent of the Holders of a majority in the then outstanding
principal amount of the then outstanding Notes, except that, without the consent
of each Holder of the Notes affected thereby, no amendment may, directly or
indirectly: (i) reduce the amount of Notes whose Holders must consent to any
amendment; (ii) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes; (iii)
reduce the principal of or change or have the effect of changing the fixed
maturity of any Notes, or change the date on which any Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price therefor;
(iv) make any Notes payable in money other than that stated in the Notes; (v)
make any change in provisions of this Indenture protecting the right of each
Holder of a Note to receive payment of principal of and interest on such Note on
or after the due date thereof or to bring suit to enforce such payment or
permitting Holders of a majority in principal amount of Notes to waive Defaults
or Events of Default; (vi) amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control Offer in
the event of a Change of Control or make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto; (vii) modify or change any
provision of this Indenture or Section 1.01 affecting the ranking of the Notes
or any Guarantee in a manner which adversely affects the Holders; or (viii)
release any Subsidiary Guarantor from any of its obligations under its Guarantee
or this Indenture otherwise than in accordance with the terms of this Indenture.
SECTION 9.03. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the
Notes shall comply with the TIA as then in effect; provided, however, that this
Section 9.03 shall not of itself require that this Indenture or the Trustee be
qualified under the TIA or constitute any admission or acknowledgment by any
party hereto that any such qualification is required prior to the time this
Indenture and the Trustee are required by the TIA to be so qualified.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. Subject to the following paragraph, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of such Note by
notice to the Trustee or the Company received before the date on which the
Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Notes have consented (and not theretofore revoked
such consent) to the amendment, supplement or waiver. An amendment, supplement
or waiver becomes effective upon receipt by the Trustee of such Officers'
Certificate and evidence of consent by the Holders of the requisite percentage
in principal amount of outstanding Notes.
The Company may, but shall not be obligated to, fix a Record
Date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver, which Record Date shall be at least 30 days
prior to the first solicitation of such consent. If a Record Date is fixed, then
notwithstanding the second sentence of the immediately preceding paragraph,
those Persons who were Holders at such Record Date (or their duly designated
proxies), and only those Persons, shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
Record Date. No such consent shall be valid or effective for more than 90 days
after such Record Date unless consents from Holders of the requisite percentage
in principal amount of outstanding Notes required hereunder for the
effectiveness of such consents shall have also been given and not revoked within
such 90 day period.
SECTION 9.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a
Note, the Trustee may require the Holder of such Note to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Note about the
changed terms and return it to the Holder. Alternatively, if the Company or the
Trustee so determine, the Company in exchange for the Note shall issue and the
Trustee shall authenticate a new Note that reflects the changed terms.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided, however, that the Trustee
may, but shall not be obligated to, execute any such amendment, supplement or
waiver which affects the Trustee's own rights, duties or immunities under this
Indenture. In executing such supplement or waiver the Trustee shall be entitled
to receive indemnity reasonably satisfactory to it, and shall be fully protected
in relying upon an Opinion of Counsel and an Officers' Certificate of the
Company, stating that no event of default shall occur as a result of such
amendment, supplement or waiver and that the execution of any amendment,
supplement or waiver authorized pursuant to this Article Nine is authorized or
permitted by this Indenture, provided the legal counsel delivering such Opinion
of Counsel may rely as to matters of fact on one or more Officers' Certificates
of the Company. Such Opinion of Counsel shall be provided at the expense of the
Company.
ARTICLE TEN
[INTENTIONALLY OMITTED]
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or
conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control; provided, however,
that this Section 11.01 shall not of itself require that this Indenture or the
Trustee be qualified under the TIA or constitute any admission or acknowledgment
by any party hereto that any such qualification is required prior to the time
this Indenture and the Trustee are required by the TIA to be so qualified.
SECTION 11.02. Notices.
Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by telex, by telecopier or registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
if to the Company:
PANACO, Inc.
PANACO Building
1050 West Blue Ridge Boulevard
Kansas City, Missouri 64145-1216
Telecopier Number: (816) 942-6305
Attn: H. James Maxwell
if to the Trustee:
UMB Bank, N.A.
928 Grand, 13th Floor
Kansas City, Missouri 64106
Telecopier Number: (816) 221-0438
Attention: Corporate Trust Dept.
Each of the Company and the Trustee by written notice to the
other may designate additional or different addresses for notices to such
Person. Any notice or communication to the Company or the Trustee shall be
deemed to have been given or made as of the date so delivered if hand delivered;
when answered back, if telexed; when receipt is acknowledged, if faxed; and five
(5) calendar days after mailing if sent by registered or certified mail, postage
prepaid (except that a notice of change of address shall not be deemed to have
been given until actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar not more than ten (10) days
prior to such mailing and shall be sufficiently given to him if so mailed within
the time prescribed.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 11.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and any other Person shall have the
protection of TIA ss. 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate, in form and substance
satisfactory to the Trustee, stating that, in the opinion of the
signers, all conditions precedent to be performed by the Company, if
any, provided for in this Indenture relating to the proposed action
have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent to be performed by the
Company, if any, provided for in this Indenture relating to the
proposed action have been complied with (which counsel, as to factual
matters, may rely on an Officers' Certificate).
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.06, shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is reasonably necessary
to enable him to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each
such Person, such condition or covenant has been complied with.
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules in accordance with the
Trustee's customary practices for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 11.07. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of
payment is a Saturday, a Sunday or a day on which banking institutions in New
York, New York or at such place of payment are not required to be open. If a
payment date is a Legal Holiday at such place, payment may be made at such place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
SECTION 11.08. Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Indenture.
SECTION 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.10. No Personal Liability.
No director, officer, employee or stockholder, as such, of the
Company or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the Notes, this
Indenture, the Guarantees or the Registration Rights Agreement or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for the issuance of the
Notes.
SECTION 11.11. Successors.
All agreements of the Company in this Indenture and the Notes
shall bind their successors. All agreements of the Trustee in this Indenture
shall bind its successors.
SECTION 11.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together shall represent
the same agreement.
SECTION 11.13. Severability.
In case any one or more of the provisions in this Indenture or
in the Notes shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 11.14. Independence of Covenants.
All covenants and agreements in this Indenture and the Notes
shall be given independent effect so that if any particular action or condition
is not permitted by any of such covenants, the fact that it would be permitted
by an exception to, or otherwise be within the limitations of, another covenant
shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or condition exists.
ARTICLE TWELVE
GUARANTEE OF NOTES
SECTION 12.01. Unconditional Guarantee.
Subject to the provisions of this Article Twelve, each
Subsidiary Guarantor, if any, hereby, jointly and severally, unconditionally and
irrevocably guarantees, on a senior basis (such guarantee to be referred to
herein as a "Guarantee") to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective of
the validity and enforceability of this Indenture, the Notes or the obligations
of the Company or any other Subsidiary Guarantors to the Holders or the Trustee
hereunder or thereunder, that: (a) the principal of, premium, if any, and
interest on the Notes (and any Additional Interest payable thereon) shall be
duly and punctually paid in full when due, whether at maturity, upon redemption
at the option of Holders pursuant to the provisions of the Notes relating
thereto, by acceleration or otherwise, and interest on the overdue principal and
(to the extent permitted by law) interest, if any, on the Notes and all other
obligations of the Company or the Subsidiary Guarantors to the Holders or the
Trustee hereunder or thereunder (including amounts due the Trustee under Section
7.07 hereof) and all other obligations shall be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; and (b) in case
of any extension of time of payment or renewal of any Notes or any of such other
obligations, the same shall be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at maturity, by
acceleration or otherwise. Failing payment when due of any amount so guaranteed,
or failing performance of any other obligation of the Company to the Holders
under this Indenture or under the Notes, for whatever reason, each Subsidiary
Guarantor shall be obligated to pay, or to perform or cause the performance of,
the same immediately. An Event of Default under this Indenture or the Notes
shall constitute an event of default under this Guarantee, and shall entitle the
Holders of Notes to accelerate the obligations of the Guarantors hereunder in
the same manner and to the same extent as the obligations of the Company.
Each of the Subsidiary Guarantors hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Notes or this Indenture, the absence of any
action to enforce the same, any waiver or consent by any Holder of the Notes
with respect to any provisions hereof or thereof, any release of any other
Subsidiary Guarantor, the recovery of any judgment against the Company, any
action to enforce the same, whether or not a Guarantee is affixed to any
particular Note, or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. Each of the Subsidiary
Guarantors hereby waives the benefit of diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest, notice and all demands whatsoever and covenants that its Guarantee
shall not be discharged except by complete performance of the obligations
contained in the Notes, this Indenture and this Guarantee. This Guarantee is a
guarantee of payment and not of collection. If any Holder or the Trustee is
required by any court or otherwise to return to the Company or to any Subsidiary
Guarantor, or any custodian, trustee, liquidator or other similar official
acting in relation to the Company or such Subsidiary Guarantor, any amount paid
by the Company or such Subsidiary Guarantor to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Subsidiary Guarantor further agrees that, as between it,
on the one hand, and the Holders of Notes and the Trustee, on the other hand,
(a) subject to this Article Eleven, the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article Six hereof for the purposes of
this Guarantee, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the obligations guaranteed hereby,
and (b) in the event of any acceleration of such obligations as provided in
Article Six hereof, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Subsidiary Guarantors for the purpose of
this Guarantee.
No stockholder, officer, director, employee or incorporator,
past, present or future, or any Subsidiary Guarantor, as such, shall have any
personal liability under this Guarantee by reason of his, her or its status as
such stockholder, officer, director, employee or incorporator.
Each Subsidiary Guarantor that makes a payment or distribution
under its Guarantee shall be entitled to a contribution from each other
Subsidiary Guarantor, determined in accordance with GAAP.
SECTION 12.02. Limitations on Guarantees.
The obligations of each Subsidiary Guarantor under its
Guarantee will be limited to the maximum amount which, 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 Guarantee or pursuant to its contribution
obligations under the Indenture, will result in the obligations of such
Subsidiary Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law.
SECTION 12.03. Execution and Delivery of Guarantee.
To further evidence the Guarantee set forth in Section 12.01,
each Subsidiary Guarantor hereby agrees that a notation of such Guarantee,
substantially in the form of Exhibit E herein, shall be endorsed on each Note
authenticated and delivered by the Trustee. Such Guarantee shall be executed on
behalf of each Subsidiary Guarantor by either manual or facsimile signature of
two Officers of each Subsidiary Guarantor, each of whom, in each case, shall
have been duly authorized to so execute by all requisite corporate action. The
validity and enforceability of any Guarantee shall not be affected by the fact
that it is not affixed to any particular Note.
Each of the Subsidiary Guarantors hereby agrees that its
Guarantee set forth in Section 12.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such
Guarantee.
If an Officer of a Subsidiary Guarantor whose signature is on
this Indenture or a Guarantee no longer holds that office at the time the
Trustee authenticates the Note on which such Guarantee is endorsed or at any
time thereafter, such Subsidiary Guarantor's Guarantee of such Note shall be
valid nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any Guarantee
set forth in this Indenture on behalf of each Subsidiary Guarantor.
SECTION 12.04. Release of a Subsidiary Guarantor.
(a) If no Default exists or would exist under this Indenture,
upon the sale or disposition of all of the Capital Stock of a Subsidiary
Guarantor by the Company or a Restricted Subsidiary of the Company in a
transaction constituting an Asset Sale the Net Cash Proceeds of which are
applied in accordance with Section 4.16, or upon the consolidation or merger of
a Subsidiary Guarantor with or into any Person in compliance with Article Five
(in each case, other than to the Company or an Affiliate of the Company or a
Restricted Subsidiary), such Subsidiary Guarantor and each Subsidiary of such
Subsidiary Guarantor that is also a Subsidiary Guarantor shall be deemed
released from all obligations under this Article Twelve without any further
action required on the part of the Trustee or any Holder; provided, however,
that each such Subsidiary Guarantor is sold or disposed of in accordance with
this Indenture. Any Subsidiary Guarantor not so released or the entity surviving
such Subsidiary Guarantor, as applicable, shall remain or be liable under its
Guarantee as provided in this Article Twelve.
(b) The Trustee shall deliver an appropriate instrument
evidencing the release of a Subsidiary Guarantor upon receipt of a request by
the Company or such Subsidiary Guarantor accompanied by an Officers' Certificate
and an Opinion of Counsel certifying as to the compliance with this Section
12.04, provided the legal counsel delivering such Opinion of Counsel may rely as
to matters of fact on one or more Officers Certificates of the Company.
The Trustee shall execute any documents reasonably requested
by the Company or a Subsidiary Guarantor in order to evidence the release of
such Subsidiary Guarantor from its obligations under its Guarantee endorsed on
the Notes and under this Article Twelve.
Except as set forth in Articles Four and Five and this Section
12.04, nothing contained in this Indenture or in any of the Notes shall prevent
any consolidation or merger of a Subsidiary Guarantor with or into the Company
or another Subsidiary Guarantor or shall prevent any sale or conveyance of the
property of a Subsidiary Guarantor as an entirety or substantially as an
entirety to the Company or another Subsidiary Guarantor.
SECTION 12.05. Waiver of Subrogation.
Until this Indenture is discharged and all of the Notes are
discharged and paid in full, each Subsidiary Guarantor hereby irrevocably waives
and agrees not to exercise any claim or other rights which it may now or
hereafter acquire against the Company that arise from the existence, payment,
performance or enforcement of the Company's obligations under the Notes or this
Indenture and such Subsidiary Guarantor's obligations under this Guarantee and
this Indenture, in any such instance including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, indemnification, and any
right to participate in any claim or remedy of the Holders against the Company,
whether or not such claim, remedy or right arises in equity, or under contract,
statute or common law, including, without limitation, the right to take or
receive from the Company, directly or indirectly, in cash or other property or
by set-off or in any other manner, payment or security on account of such claim
or other rights. If any amount shall be paid to any Subsidiary Guarantor in
violation of the preceding sentence and any amounts owing to the Trustee or the
Holders of Notes under the Notes, this Indenture, or any other document or
instrument delivered under or in connection with such agreements or instruments,
shall not have been paid in full, such amount shall have been deemed to have
been paid to such Subsidiary Guarantor for the benefit of, and held in trust for
the benefit of, the Trustee or the Holders and shall forthwith be paid to the
Trustee for the benefit of itself or such Holders to be credited and applied to
the obligations in favor of the Trustee or the Holders, as the case may be,
whether matured or unmatured, in accordance with the terms of this Indenture.
Each Subsidiary Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by this Indenture and that
the waiver set forth in this Section 12.05 is knowingly made in contemplation of
such benefits.
SECTION 12.06. Immediate Payment.
Each Subsidiary Guarantor agrees to make immediate payment to
the Trustee on behalf of the Holders of all Obligations owing or payable to the
respective Holders upon receipt of a demand for payment therefor by the Trustee
to such Subsidiary Guarantor in writing.
SECTION 12.07. No Set-Off.
Each payment to be made by a Subsidiary Guarantor hereunder in
respect of the Obligations shall be payable in the currency or currencies in
which such Obligations are denominated, and shall be made without set-off,
counterclaim, reduction or diminution of any kind or nature.
SECTION 12.08. Obligations Absolute.
The obligations of each Subsidiary Guarantor hereunder are and
shall be absolute and unconditional and any monies or amounts expressed to be
owing or payable by each Subsidiary Guarantor hereunder which may not be
recoverable from such Subsidiary Guarantor on the basis of a Guarantee shall be
recoverable from such Subsidiary Guarantor as a primary obligor and principal
debtor in respect thereof.
SECTION 12.09. Obligations Continuing.
The obligations of each Subsidiary Guarantor hereunder shall
be continuing and shall remain in full force and effect until all the
obligations have been paid and satisfied in full. Each Subsidiary Guarantor
agrees with the Trustee that it will from time to time deliver to the Trustee
suitable acknowledgments of this continued liability hereunder and under any
other instrument or instruments in such form as counsel to the Trustee may
advise and as will prevent any action brought against it in respect of any
default hereunder being barred by any statute of limitations now or hereafter in
force and, in the event of the failure of a Subsidiary Guarantor so to do, it
hereby irrevocably appoints the Trustee the attorney and agent of such
Subsidiary Guarantor to make, execute and deliver such written acknowledgment or
acknowledgments or other instruments as may from time to time become necessary
or advisable, in the judgment of the Trustee on the advice of counsel, to fully
maintain and keep in force the liability of such Subsidiary Guarantor hereunder.
SECTION 12.10. Obligations Not Reduced.
The obligations of each Subsidiary Guarantor hereunder shall
not be satisfied, reduced or discharged solely by the payment of such principal,
premium, if any, interest, fees and other monies or amounts as may at any time
prior to discharge of this Indenture pursuant to Article 8 be or become owing or
payable under or by virtue of or otherwise in connection with the Notes or this
Indenture.
SECTION 12.11. Obligations Reinstated.
The obligations of each Subsidiary Guarantor hereunder shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any payment which would otherwise have reduced the obligations of any
Subsidiary Guarantor hereunder (whether such payment shall have been made by or
on behalf of the Company or by or on behalf of a Subsidiary Guarantor) is
rescinded or reclaimed from any of the Holders upon the insolvency, bankruptcy,
liquidation or reorganization of the Company or any Subsidiary Guarantor or
otherwise, all as though such payment had not been made. If demand for, or
acceleration of the time for, payment by the Company is stayed upon the
insolvency, bankruptcy, liquidation or reorganization of the Company, all such
Indebtedness otherwise subject to demand for payment or acceleration shall
nonetheless be payable by each Subsidiary Guarantor as provided herein.
SECTION 12.12. Obligations Not Affected.
The obligations of each Subsidiary Guarantor hereunder shall
not be affected, impaired or diminished in any way by any act, omission, matter
or thing whatsoever, occurring before, upon or after any demand for payment
hereunder (and whether or not known or consented to by any Subsidiary Guarantor
or any of the Holders) which, but for this provision, might constitute a whole
or partial defense to a claim against any Subsidiary Guarantor hereunder or
might operate to release or otherwise exonerate any Subsidiary Guarantor from
any of its obligations hereunder or otherwise affect such obligations, whether
occasioned by default of any of the Holders or otherwise, including, without
limitation:
(a) any limitation of status or power, disability, incapacity or other
circumstance relating to the Company or any other person, including any
insolvency, bankruptcy, liquidation, reorganization, readjustment,
composition, dissolution, winding up or other proceeding involving or
affecting the Company or any other person;
(b) any irregularity, defect, unenforceability or invalidity in
respect of any indebtedness or other obligation of the Company or any other
person under this Indenture, the Notes or any other document or instrument;
(c) any failure of the Company, whether or not without fault on their
part, to perform or comply with any of the provisions of this Indenture or
the Notes, or to give notice thereof to a Subsidiary Guarantor;
(d) the taking or enforcing or exercising or the refusal or neglect to
take or enforce or exercise any right or remedy from or against the Company
or any other person or their respective assets or the release or discharge
of any such right or remedy;
(e) the granting of time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the
Company or any other Person;
(f) any change in the time, manner or place of payment of, or in any
other term of, any of the Notes, or any other amendment, variation,
supplement, replacement or waiver of, or any consent to departure from, any
of the Notes or this Indenture, including, without limitation, any increase
or decrease in the principal amount of or premium, if any, or interest on
any of the Notes;
(g) any change in the ownership, control, name, objects, businesses,
assets, capital structure or constitution of the Company or a Subsidiary
Guarantor;
(h) any merger or amalgamation of the Company or a Subsidiary
Guarantor with any Person or Persons;
(i) the occurrence of any change in the laws, rules, regulations or
ordinances of any jurisdiction by any present or future action of any
governmental authority or court amending, varying, reducing or otherwise
affecting, or purporting to amend, vary, reduce or otherwise affect, any of
the Obligations or the obligations of a Subsidiary Guarantor under its
Guarantee; and
(j) any other circumstance, including release of the Subsidiary
Guarantor pursuant to Section 12.04 (other than by complete, irrevocable
payment) that might otherwise constitute a legal or equitable discharge or
defense of the Company under this Indenture or the Notes or of a Subsidiary
Guarantor in respect of its Guarantee hereunder.
SECTION 12.13. Waiver.
Without in any way limiting the provisions of Section 11.01
hereof, each Subsidiary Guarantor hereby waives notice of acceptance hereof,
notice of any liability of any Subsidiary Guarantor hereunder, notice or proof
of reliance by the Holders upon the obligations of any Subsidiary Guarantor
hereunder, and diligence, presentment, demand for payment on the Company,
protest, notice of dishonor or non-payment of any of the Obligations, or other
notice or formalities to the Company or any Subsidiary Guarantor of any kind
whatsoever.
SECTION 12.14. No Obligation To Take Action Against the Company.
Neither the Trustee nor any other Person shall have any
obligation to enforce or exhaust any rights or remedies or to take any other
steps under any security for the Obligations or against the Company or any other
Person or any Property of the Company or any other Person before the Trustee is
entitled to demand payment and performance by any or all Subsidiary Guarantors
of their liabilities and obligations under their Guarantees or under this
Indenture.
SECTION 12.15. Dealing with the Company and Others.
The Holders, without releasing, discharging, limiting or
otherwise affecting in whole or in part the obligations and liabilities of any
Subsidiary Guarantor hereunder and without the consent of or notice to any
Subsidiary Guarantor, may
(a) grant time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences
to the Company or any other Person;
(b) take or abstain from taking security or collateral from
the Company or from perfecting security or collateral of the
Company;
(c) release, discharge, compromise, realize, enforce or
otherwise deal with or do any act or thing in respect of (with or
without consideration) any and all collateral, mortgages or other
security given by the Company or any third party with respect to
the obligations or matters contemplated by this Indenture or the
Notes;
(d) accept compromises or arrangements from the Company;
(e) apply all monies at any time received from the Company
or from any security upon such part of the Obligations as the
Holders may see fit or change any such application in whole or in
part from time to time as the Holders may see fit; and
(f) otherwise deal with, or waive or modify their right to
deal with, the Company and all other Persons and any security as
the Holders or the Trustee may see fit.
SECTION 12.16. Default and Enforcement.
If any Subsidiary Guarantor fails to pay in accordance with
Section 12.06 hereof, the Trustee may proceed in its name as trustee hereunder
in the enforcement of the Guarantee of any such Subsidiary Guarantor and such
Subsidiary Guarantor's obligations thereunder and hereunder by any remedy
provided by law, whether by legal proceedings or otherwise, and to recover from
such Subsidiary Guarantor the obligations.
SECTION 12.17. Amendment, Etc.
No amendment, modification or waiver of any provision of this
Indenture relating to any Subsidiary Guarantor or consent to any departure by
any Subsidiary Guarantor or any other Person from any such provision will in any
event be effective unless it is signed by such Subsidiary Guarantor and the
Trustee.
SECTION 12.18. Acknowledgment.
Each Subsidiary Guarantor hereby acknowledges communication of
the terms of this Indenture and the Notes and consents to and approves of the
same.
SECTION 12.19. Costs and Expenses.
Each Subsidiary Guarantor shall pay on demand by the Trustee
any and all costs, fees and expenses (including, without limitation, legal fees
on a solicitor and client basis) incurred by the Trustee, its agents, advisors
and counsel or any of the Holders in enforcing any of their rights under any
Guarantee.
SECTION 12.20. No Merger or Waiver; Cumulative Remedies.
No Guarantee shall operate by way of merger of any of the
obligations of a Subsidiary Guarantor under any other agreement, including,
without limitation, this Indenture. No failure to exercise and no delay in
exercising, on the part of the Trustee or the Holders, any right, remedy, power
or privilege hereunder or under the Indenture or the Notes, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder or under this Indenture or the Notes preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges in the Guarantee
and under this Indenture, the Notes and any other document or instrument between
a Subsidiary Guarantor and/or the Company and the Trustee are cumulative and not
exclusive of any rights, remedies, powers and privilege provided by law.
SECTION 12.21. Survival of Obligations.
Without prejudice to the survival of any of the other
obligations of each Subsidiary Guarantor hereunder, the obligations of each
Subsidiary Guarantor under Section 12.01 shall survive the payment in full of
the Obligations and shall be enforceable against such Subsidiary Guarantor
without regard to and without giving effect to any defense, right of offset or
counterclaim available to or which may be asserted by the Company or any
Subsidiary Guarantor.
SECTION 12.22. Guarantee in Addition to Other Obligations.
The obligations of each Subsidiary Guarantor under its
Guarantee and this Indenture are in addition to and not in substitution for any
other obligations to the Trustee or to any of the Holders in relation to this
Indenture or the Notes and any guarantees or security at any time held by or for
the benefit of any of them.
SECTION 12.23. Severability.
Any provision of this Article Twelve which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction
unless its removal would substantially defeat the basic intent, spirit and
purpose of this Indenture and this Article Twelve.
SECTION 12.24. Successors and Assigns.
Each Guarantee shall be binding upon and inure to the benefit
of each Subsidiary Guarantor and the Trustee and the other Holders and their
respective successors and permitted assigns, except that no Subsidiary Guarantor
may assign any of its obligations hereunder or thereunder.
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the date first written above.
PANACO, INC.
By: ____________________________
Name: H. James Maxwell
Title: President
GOLDKING ACQUISITION CORP.,
as Guarantor
By: ____________________________
Name: H. James Maxwell
Title: President
GOLDKING COMPANIES, INC.,
as Guarantor
By: ____________________________
Name: H. James Maxwell
Title: President
GOLDKING OIL & GAS CORP.,
as Guarantor
By: ____________________________
Name: H. James Maxwell
Title: President
GOLDKING TRINITY BAY CORP.,
as Guarantor
By: ____________________________
Name: H. James Maxwell
Title: President
GOLDKING PRODUCTION COMPANY,
as Guarantor
By: ____________________________
Name: H. James Maxwell
Title: President
HILL TRANSPORTATION CO., INC.,
as Guarantor
By: ____________________________
Name: H. James Maxwell
Title: President
UMBRELLA POINT GATHERING, LLC,
as Guarantor
By: ____________________________
Name: H. James Maxwell
Title: President
UMB BANK, N.A.,
as Trustee
By: ____________________________
Name:
Title:
<PAGE>
PANACO, INC.
10 5/8% SENIOR NOTE DUE 2004, SERIES A
No. [ ]
PANACO, INC., a Delaware corporation (the "Company", which
term includes any successor entities), for value received
promises to pay to CEDE & CO. or registered assigns the principal
sum of [ ] Dollars on October 1, 2004.
Interest Payment Dates: April 1 and October 1, commencing
April 1, 1998
Record Dates: March 15 and September 15
Reference is made to the further provisions of this Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto or imprinted hereon.
PANACO, INC.
By:____________________________
Name: H. James Maxwell
Title: President
By:____________________________
Name:
Title:
Dated:
<PAGE>
Certificate of Authentication
This is one of the 10 5/8% Senior Notes due 2004, Series A
referred to in the within-mentioned Indenture.
UMB BANK, N.A.,
as Trustee
By:_____________________________
Authorized Signatory
Date of Authentication:
<PAGE>
(REVERSE OF SECURITY)
10 5/8% Senior Note due 2004, Series A
(1) Interest. PANACO, INC., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at the rate per
annum shown above. Interest on the Notes will accrue from the most recent date
on which interest has been paid or, if no interest has been paid, from October
9, 1997. The Company will pay interest semi-annually in arrears on each Interest
Payment Date, commencing April 1, 1998. Interest will be computed on the basis
of a 360-day year of twelve 30-day months and, in the case of a partial month,
the actual number of days elapsed.
The Company shall pay interest on overdue principal and on
overdue installments of interest from time to time on demand at the rate borne
by the Notes and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful.
(2) Method of Payment. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are cancelled on registration of transfer or registration of
exchange (including pursuant to an Exchange Offer (as defined in the
Registration Rights Agreement)) after such Record Date. Holders must surrender
Notes to a Paying Agent to collect principal payments. The Company shall pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal and interest by their check or draft
payable in such U.S. Legal Tender. The Company may deliver any such interest
payment to the Paying Agent or to a Holder at the Holder's registered address.
(3) Paying Agent and Registrar. Initially, UMB Bank, N.A. (the "Trustee")
will act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders.
(4) Indenture. The Company issued the Notes under an Indenture, dated as of
October 9, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors
and the Trustee. This Note is one of a duly authorized issue of Initial Notes of
the Company designated as its 10 5/8% Senior Notes due 2004, Series A (the
"Initial Notes"). The Notes are limited in aggregate principal amount to
$100,000,000. The Notes include the Initial Notes and the Exchange Notes, as
defined below, issued in exchange for the Initial Notes pursuant to the
Registration Rights Agreement. The Initial Notes and the Exchange Notes are
treated as a single class of securities under the Indenture. Capitalized terms
herein are used as defined in the Indenture unless otherwise defined herein. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and said Act for
a statement of them. The Notes are general unsecured obligations of the Company.
Payment on each Note is guaranteed on a senior basis by the Subsidiary
Guarantors pursuant to Article 12 of the Indenture. Each Holder, by accepting a
Note, agrees to be bound by all of the terms and provisions of the Indenture, as
the same may be amended from time to time in accordance with its terms.
(5) Redemption. The Notes will be redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after October 1, 2001,
upon not less than 30 nor more than 60 days' notice, at the following Redemption
Prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on June 1 of the years set forth
below, plus, in each case, accrued interest, if any, thereon to the date of
redemption:
Year Percentage
2001............................ 105.313
2002............................ 102.656
2003 and thereafter............. 100.000%
At any time, or from time to time, on or prior to October 1,
2000, the Company may, at its option, use all or a portion of the net cash
proceeds of one or more Equity Offerings to redeem up to 35% of the aggregate
principal amount of the Notes originally issued at a redemption price equal to
110.625% of the aggregate principal amount of the Notes to be redeemed, plus
accrued interest, if any, thereon to the date of redemption; provided, however,
that at least 65% of the aggregate principal amount of Notes originally issued
remains outstanding immediately after giving effect to any such redemption. In
order to effect the foregoing redemption with the proceeds of any Equity
Offering, the Company shall make such redemption not more than 60 days after the
consummation of any such Equity Offering.
(6) Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the
redemption of the Notes called for redemption shall have been deposited with the
Paying Agent in immediately available funds for redemption on such Redemption
Date, then, unless the Company defaults in the payment of such Redemption Price
plus accrued interest, if any, the Notes called for redemption will cease to
bear interest from and after such Redemption Date and the only right of the
Holders of such Notes will be to receive payment of the Redemption Price plus
accrued interest, if any.
(7) Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide
that, upon the occurrence of a Change of Control (as defined in the Indenture)
and after certain Asset Sales (as defined in the Indenture), and subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
(8) Registration Rights. Pursuant to the Registration Rights Agreement
among the Company, the Subsidiary Guarantors and the Initial Purchasers, the
Company and the Subsidiary Guarantors will be obligated to consummate an
exchange offer pursuant to which the Holder of this Note shall have the right to
exchange this Note for the Company's 10 5/8% Senior Notes due 2004, Series B
(the "Exchange Notes"), which have been registered under the Securities Act, in
like principal amount and having terms identical in all material respects as the
Initial Notes. The Holders of the Initial Notes shall be entitled to receive
certain additional interest payments in the event such exchange offer is not
consummated and upon certain other conditions, all pursuant to and in accordance
with the terms of the Registration Rights Agreement.
(9) Denominations; Transfer; Exchange. The Notes are in registered form,
without coupons, and (except Notes issued as payment of Interest) in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or similar
governmental charges payable in connection therewith as permitted by the
Indenture. The Registrar need not register the transfer of or exchange of any
Notes or portions thereof selected for redemption.
(10) Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
(11) Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Company. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
(12) Discharge Prior to Redemption or Maturity. If the Company at any time
deposit with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and comply with the other provisions of the Indenture relating thereto,
the Company will be discharged from certain provisions of the Indenture and the
Notes (including certain covenants, but including, under certain circumstances,
their obligation to pay the principal of and interest on the Notes but without
affecting the rights of the Holders to receive such amounts from such deposits).
(13) Amendment; Supplement; Waiver. Subject to certain exceptions set forth
in the Indenture, the Indenture or the Notes may be amended or supplemented with
the written consent of the Holders of not less than a majority in aggregate
principal amount of the Notes then outstanding, and any past Default or Event of
Default or noncompliance with any provision may be waived with the written
consent of the Holders of not less than a majority in aggregate principal amount
of the Notes then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, comply
with any requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the TIA or comply with Article Five of the
Indenture or make any other change that does not adversely affect the rights of
any Holder of a Note.
(14) Restrictive Covenants. The Indenture imposes certain limitations on
the ability of the Company and the Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of their Capital
Stock or certain Indebtedness, make certain Investments, create or incur liens,
enter into transactions with Affiliates, create dividend or other payment
restrictions affecting Restricted Subsidiaries, issue Preferred Stock of their
Restricted Subsidiaries, and on the ability of the Company and their Restricted
Subsidiaries to merge or consolidate with any other Person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
Company's and their Restricted Subsidiaries' assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the
Company must annually report to the Trustee on compliance with such limitations.
(15) Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
(16) Defaults and Remedies. Except as set forth in the Indenture, if an
Event of Default occurs and is continuing, the Trustee or the Holders of not
less than 25% in principal amount of Notes then outstanding may declare all the
Notes to be due and payable in the manner, at the time and with the effect
provided in the Indenture. Holders of Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Notes unless it has received indemnity reasonably
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Notes then outstanding to direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of Notes notice of any continuing
Default or Event of Default (except a Default in payment of principal or
interest when due, for any reason or a Default in compliance with Article Five
of the Indenture) if it determines that withholding notice is in their interest.
(17) Trustee Dealings with Company. The Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company, their Subsidiaries or their respective
Affiliates as if it were not the Trustee.
(18) No Recourse Against Others. No partner, director, officer, employee or
stockholder, as such, of the Company or any Subsidiary Guarantor, as such, shall
have any liability for any obligations of the Company or any Subsidiary
Guarantor under the Notes, the Indenture, the Guarantees or the Registration
Rights Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
(19) Guarantees. This Note will be entitled to the benefits of certain
Guarantees, if any, made for the benefit of the Holders. Reference is hereby
made to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Subsidiary Guarantors, the
Trustee and the Holders.
(20) Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
(21) Governing Law. This Note and the Indenture shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflict of laws. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Note.
(22) Abbreviations and Defined Terms. Customary abbreviations may be used
in the name of a Holder of a Note or an assignee, such as: TEN COM (' tenants in
common), TEN ENT (' tenants by the entireties), JT TEN (' joint tenants with
right of survivorship and not as tenants in common), CUST (' Custodian), and
U/G/M/A (' Uniform Gifts to Minors Act).
(23) CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note. Requests may be made to: PANACO, Inc., PANACO Building, 1050 West Blue
Ridge Boulevard, Kansas City, Missouri 64145-1216.
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint _______________________________________, agent to
transfer this Note on the books of the Company. The agent may substitute another
to act for him.
Dated: _____________________ Signed:___________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:___________________________________________
Signature must be guaranteed by an Eligible Guarantor Institution (as defined by
SEC Rule 17 Ad-15 (12 CFR 240.17 Ad-15) or any similar rule which the Trustee or
Paying Agent deems applicable).
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Note
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) October 9, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer:
<PAGE>
[Check One]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the Securities Act of
1933, as amended; or
(3) __ to an institutional "accredited investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act of 1933, as amended) that has
furnished to the Trustee a signed letter containing certain representations
and agreements (the form of which letter can be obtained from the Trustee);
or
(4) __ outside the United states to a "foreign person" in compliance with Rule
904 of Regulation S under the Securities Act of 1933, as amended; or
(5) __ pursuant to the exemption from registration provided by Rule 144 under
the Securities Act of 1933, as amended; or
(6) __ pursuant to an effective registration statement under the Securities Act
of 1933, as amended; or
(7) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
|_| The transferee is an Affiliate of the Company.
Unless one of the items (1)-(7) is checked, the Trustee will refuse to register
any of the Notes evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided, however, that if item (3), (4),
(5) or (7) is checked, the Company or the Trustee may require, prior to
registering any such transfer of the Notes, in their sole discretion, such
written legal opinions, certifications (including an investment letter in the
case of box (3) or (4)) and other information as the Trustee or the Company have
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.
If none of the foregoing items are checked, the Trustee or
Registrar shall not be obligated to register this Note in the name of any person
other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 2.17 of the Indenture
shall have been satisfied.
Dated: _____________________ Signed:___________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:___________________________________________
Signature must be guaranteed by an Eligible Guarantor Institution (as defined by
SEC Rule 17 Ad-15 (12 CFR 240.17 Ad-15) or any similar rule which the Trustee or
Paying Agent deems applicable).
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: __________________ _______________________________
NOTICE: To be executed by
an executive officer
<PAGE>
PANACO, INC.
10 5/8% SENIOR NOTE DUE 2004, SERIES B
No. [ ]
PANACO, INC., a Delaware corporation (the "Company", which term
includes any successor entities), for value received promises to pay to
CEDE & CO. or registered assigns the principal sum of [ ] Dollars on
October 1, 2004.
Interest Payment Dates: April 1 and October 1, commencing April 1,
1998
Record Dates: March 15 and September 15
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at
this place.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto or imprinted hereon.
PANACO, INC.
By:____________________________
Name: H. James Maxwell
Title: President
By:____________________________
Name:
Title:
Dated:
<PAGE>
Certificate of Authentication
This is one of the 10 5/8% Senior Notes due 2004, Series B
referred to in the within-mentioned Indenture.
UMB BANK, N.A.,
as Trustee
By:_____________________________
Authorized Signatory
Date of Authentication:
<PAGE>
(REVERSE OF SECURITY)
10 5/8% Senior Note due 2004, Series B
(1) Interest. PANACO, INC., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at the rate per
annum shown above. Interest on the Notes will accrue from the most recent date
on which interest has been paid or, if no interest has been paid, from October
9, 1997. The Company will pay interest semi-annually in arrears on each Interest
Payment Date, commencing April 1, 1998. Interest will be computed on the basis
of a 360-day year of twelve 30-day months and, in the case of a partial month,
the actual number of days elapsed.
The Company shall pay interest on overdue principal and on
overdue installments of interest from time to time on demand at the rate borne
by the Notes and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful.
(2) Method of Payment. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are cancelled on registration of transfer or registration of
exchange (including pursuant to an Exchange Offer (as defined in the
Registration Rights Agreement)) after such Record Date. Holders must surrender
Notes to a Paying Agent to collect principal payments. The Company shall pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal and interest by their check or draft
payable in such U.S. Legal Tender. The Company may deliver any such interest
payment to the Paying Agent or to a Holder at the Holder's registered address.
(3) Paying Agent and Registrar. Initially, UMB Bank, N.A. (the "Trustee")
will act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders.
(4) Indenture. The Company issued the Notes under an Indenture, dated as of
October 9, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors
and the Trustee. This Note is one of a duly authorized issue of Initial Notes of
the Company designated as its 10 5/8% Senior Notes due 2004, Series A (the
"Initial Notes"). The Notes are limited in aggregate principal amount to
$100,000,000. The Notes include the Initial Notes and the Exchange Notes, as
defined below, issued in exchange for the Initial Notes pursuant to the
Registration Rights Agreement. The Initial Notes and the Exchange Notes are
treated as a single class of securities under the Indenture. Capitalized terms
herein are used as defined in the Indenture unless otherwise defined herein. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and said Act for
a statement of them. The Notes are general unsecured obligations of the Company.
Payment on each Note is guaranteed on a senior basis by the Subsidiary
Guarantors pursuant to Article 12 of the Indenture. Each Holder, by accepting a
Note, agrees to be bound by all of the terms and provisions of the Indenture, as
the same may be amended from time to time in accordance with its terms.
(5) Redemption. The Notes will be redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after October 1, 2001,
upon not less than 30 nor more than 60 days' notice, at the following Redemption
Prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on June 1 of the years set forth
below, plus, in each case, accrued interest, if any, thereon to the date of
redemption:
Year Percentage
2001............................ 105.313
2002............................ 102.656
2003 and thereafter............. 100.000%
At any time, or from time to time, on or prior to October 1,
2000, the Company may, at its option, use all or a portion of the net cash
proceeds of one or more Equity Offerings to redeem up to 35% of the aggregate
principal amount of the Notes originally issued at a redemption price equal to
110.625% of the aggregate principal amount of the Notes to be redeemed, plus
accrued interest, if any, thereon to the date of redemption; provided, however,
that at least 65% of the aggregate principal amount of Notes originally issued
remains outstanding immediately after giving effect to any such redemption. In
order to effect the foregoing redemption with the proceeds of any Equity
Offering, the Company shall make such redemption not more than 60 days after the
consummation of any such Equity Offering.
(6) Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the
redemption of the Notes called for redemption shall have been deposited with the
Paying Agent in immediately available funds for redemption on such Redemption
Date, then, unless the Company defaults in the payment of such Redemption Price
plus accrued interest, if any, the Notes called for redemption will cease to
bear interest from and after such Redemption Date and the only right of the
Holders of such Notes will be to receive payment of the Redemption Price plus
accrued interest, if any.
(7) Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide
that, upon the occurrence of a Change of Control (as defined in the Indenture)
and after certain Asset Sales (as defined in the Indenture), and subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
(8) Denominations; Transfer; Exchange. The Notes are in registered form,
without coupons, and (except Notes issued as payment of Interest) in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or similar
governmental charges payable in connection therewith as permitted by the
Indenture. The Registrar need not register the transfer of or exchange of any
Notes or portions thereof selected for redemption.
(9) Persons Deemed Owners. The registered Holder of a Note shall be treated
as the owner of it for all purposes.
(10) Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Company. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
(11) Discharge Prior to Redemption or Maturity. If the Company at any time
deposit with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and comply with the other provisions of the Indenture relating thereto,
the Company will be discharged from certain provisions of the Indenture and the
Notes (including certain covenants, but including, under certain circumstances,
their obligation to pay the principal of and interest on the Notes but without
affecting the rights of the Holders to receive such amounts from such deposits).
(12) Amendment; Supplement; Waiver. Subject to certain exceptions set forth
in the Indenture, the Indenture or the Notes may be amended or supplemented with
the written consent of the Holders of not less than a majority in aggregate
principal amount of the Notes then outstanding, and any past Default or Event of
Default or noncompliance with any provision may be waived with the written
consent of the Holders of not less than a majority in aggregate principal amount
of the Notes then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, comply
with any requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the TIA or comply with Article Five of the
Indenture or make any other change that does not adversely affect the rights of
any Holder of a Note.
(13) Restrictive Covenants. The Indenture imposes certain limitations on
the ability of the Company and the Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of their Capital
Stock or certain Indebtedness, make certain Investments, create or incur liens,
enter into transactions with Affiliates, create dividend or other payment
restrictions affecting Restricted Subsidiaries, issue Preferred Stock of their
Restricted Subsidiaries, and on the ability of the Company and their Restricted
Subsidiaries to merge or consolidate with any other Person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
Company's and their Restricted Subsidiaries' assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the
Company must annually report to the Trustee on compliance with such limitations.
(14) Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
(15) Defaults and Remedies. Except as set forth in the Indenture, if an
Event of Default occurs and is continuing, the Trustee or the Holders of not
less than 25% in principal amount of Notes then outstanding may declare all the
Notes to be due and payable in the manner, at the time and with the effect
provided in the Indenture. Holders of Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Notes unless it has received indemnity reasonably
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Notes then outstanding to direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of Notes notice of any continuing
Default or Event of Default (except a Default in payment of principal or
interest when due, for any reason or a Default in compliance with Article Five
of the Indenture) if it determines that withholding notice is in their interest.
(16) Trustee Dealings with Company. The Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company, their Subsidiaries or their respective
Affiliates as if it were not the Trustee.
(17) No Recourse Against Others. No partner, director, officer, employee or
stockholder, as such, of the Company or any Subsidiary Guarantor, as such, shall
have any liability for any obligations of the Company or any Subsidiary
Guarantor under the Notes, the Indenture, the Guarantees or the Registration
Rights Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
(18) Guarantees. This Note will be entitled to the benefits of certain
Guarantees, if any, made for the benefit of the Holders. Reference is hereby
made to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Subsidiary Guarantors, the
Trustee and the Holders.
(19) Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
(20) Governing Law. This Note and the Indenture shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflict of laws. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Note.
(21) Abbreviations and Defined Terms. Customary abbreviations may be used
in the name of a Holder of a Note or an assignee, such as: TEN COM (' tenants in
common), TEN ENT (' tenants by the entireties), JT TEN (' joint tenants with
right of survivorship and not as tenants in common), CUST (' Custodian), and
U/G/M/A (' Uniform Gifts to Minors Act).
(22) CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note. Requests may be made to: PANACO, Inc., PANACO Building, 1050 West Blue
Ridge Boulevard, Kansas City, Missouri 64145-1216.
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint _______________________________________, agent to
transfer this Note on the books of the Company. The agent may substitute another
to act for him.
Dated: _____________________ Signed:___________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:___________________________________________
Signature must be guaranteed by an Eligible Guarantor Institution (as defined by
SEC Rule 17 Ad-15 (12 CFR 240.17 Ad-15) or any similar rule which the Trustee or
Paying Agent deems applicable).
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Note
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) October 9, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer:
<PAGE>
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
UMB BANK, N.A.
928 Grand, 13th Floor
Kansas City, MO 64106
Attention: Corporate Trust Dept.
Re: PANACO, Inc. (the "Company")
10 5/8% Senior Notes due 2004 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed purchase of 10 5/8 % Senior Notes due
2004 (the "Notes") of PANACO, Inc. (the "Company"), we confirm that:
1. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the
indenture relating to the Notes (the "Indenture") and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer
the Notes except in compliance with, such restrictions and conditions
and the Securities Act of 1933, as amended (the "Securities Act"), and
all applicable State securities laws.
2. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes may not be
offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except as permitted in the following sentence.
We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell any Notes, we
will do so only (i) to the Company or any subsidiary thereof, (ii)
inside the United States in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined in Rule
144A promulgated under the Securities Act) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to the Trustee (as defined in the Indenture) a signed
letter containing certain representations and agreements relating to
the restrictions on transfer of the Notes (the form of which letter can
be obtained from the Trustee), (iii) outside the United States in
accordance with Rule 904 of Regulation S promulgated under the
Securities Act (provided that any such sale or transfer in Canada or to
or for the benefit of a Canadian resident must be effected pursuant to
an exemption from the prospectus and registration requirements under
applicable Canadian securities laws), (iv) pursuant to the exemption
from registration provided by Rule 144 under the Securities Act (if
available), or (v) pursuant to an effective registration statement
under the Securities Act, and we further agree to provide to any person
purchasing any of the Notes from us a notice advising such purchaser
that resales of the Notes are restricted as stated herein.
3. We understand that, on any proposed resale of any Notes, we
will be required to furnish to the Trustee, the Company such
certification, legal opinions and other information as the Trustee and
the Company may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that
the Notes purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of our
investment in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or their
investment, as the case may be.
5. We are acquiring the Notes purchased by us for our account
or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You, the Company, the Trustee and others are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
Name:
Title:
<PAGE>
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
UMB BANK, N.A.
928 Grand, 13th Floor
Kansas City, MO 64106
Attention: Corporate Trust Dept.
Re: PANACO, Inc. (the "Company")
10 5/8% Senior Notes due 2004 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $[ ] aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United States;
(2) either (a) at the time the buy offer was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States, or
(b) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither we nor any person acting
on our behalf knows that the transaction has been prearranged with a buyer
in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions applicable to
the Notes.
You, the Company and counsel for the Company are entitled to
rely upon this letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or legal proceedings
or official inquiry with respect to the matters covered hereby. Terms used in
this certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferee]
By:
Authorized Signatory
<PAGE>
GUARANTEE
For value received, each of the undersigned hereby
unconditionally guarantees, as principal obligor and not only as a surety, to
the Holder of this Note the cash payments in United States dollars of principal
of, premium, if any, and interest on this Note (and including Additional
Interest payable thereon) in the amounts and at the times when due and interest
on the overdue principal, premium, if any, and interest, if any, of this Note,
if lawful, and the payment or performance of all other obligations of the
Company under the Indenture or the Notes, to the Holder of this Note and the
Trustee, all in accordance with and subject to the terms and limitations of this
Note, Article Twelve of the Indenture and this Guarantee. This Guarantee will
become effective in accordance with Article Twelve of the Indenture and its
terms shall be evidenced therein. The validity and enforceability of any
Guarantee shall not be affected by the fact that it is not affixed to any
particular Note. Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Indenture dated as of October 9, 1997, among
PANACO, Inc., a Delaware corporation, the Subsidiary Guarantors named therein
and UMB Bank, N.A. as trustee (the "Trustee"), as amended or supplemented (the
"Indenture").
The obligations of the undersigned to the Holders of Notes and
to the Trustee pursuant to this Guarantee and the Indenture are expressly set
forth in Article Twelve of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which this Guarantee relates.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW. Each Subsidiary Guarantor hereby agrees to
submit to the jurisdiction of the courts of the State of New York in any action
or proceeding arising out of or relating to this Guarantee.
This Guarantee is subject to release upon the terms set forth
in the Indenture.
IN WITNESS WHEREOF, each Subsidiary Guarantor has caused its
Guarantee to be duly executed.
Date: ____________________
By:
Name: H. James Maxwell
Title: President
By:
Name: Mark Licata
Title: Secretary
Goldking Companies, Inc.
Goldking Oil & Gas Corp.
Goldking Trinity Bay Corp.
Goldking Production Company
Hill Transportation Co., Inc.
Umbrella Point Gathering, LLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
Dated as of October 9, 1997
Among
PANACO, INC.,
GOLDKING ACQUISITION CORP.,
GOLDKING COMPANIES, INC.,
GOLDKING OIL & GAS CORP.,
GOLDKING TRINITY BAY CORP.,
GOLDKING PRODUCTION COMPANY,
HILL TRANSPORTATION CO., INC.
and
UMBRELLA POINT GATHERING, L.L.C.
as Issuers
and
BT ALEX. BROWN INCORPORATED,
FIRST UNION CAPITAL MARKETS CORP.,
A.G. EDWARDS & SONS, INC.
and
GAINES, BERLAND INC.
as Initial Purchasers
10-5/8% Senior Notes due 2004
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions........................................... 1
2. Exchange Offer........................................ 4
3. Shelf Registration.................................... 8
4. Additional Interest................................... 9
5. Registration Procedures............................... 11
6. Registration Expenses................................. 20
7. Indemnification....................................... 21
8. Rules 144 and 144A.................................... 24
9. Underwritten Registrations............................ 24
10. Miscellaneous......................................... 25
(a) No Inconsistent Agreements....................... 25
(b) Adjustments Affecting Registrable Notes.......... 25
(c) Amendments and Waivers........................... 25
(d) Notices
......................................... 26
(e) Successors and Assigns........................... 26
(f) Counterparts..................................... 26
(g) Headings......................................... 26
(h) Governing Law.................................... 27
(i) Severability..................................... 27
(j) Securities Held by the Company or Its Affiliates. 27
(k) Third-Party Beneficiaries........................ 27
(l) Entire Agreement................................. 27
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is dated
as of October 9, 1997, among PANACO, INC., a Delaware corporation (the
"Company"), as issuer, and GOLDKING ACQUISITION CORP., GOLDKING COMPANIES, INC.,
GOLDKING OIL & GAS CORP., GOLDKING TRINITY BAY CORP., GOLDKING PRODUCTION
COMPANY, HILL TRANSPORTATION CO., INC., and UMBRELLA POINT GATHERING, L.L.C. as
guarantors (the "Guarantors," and together with the Company, the "Issuers"), and
BT ALEX. BROWN INCORPORATED , FIRST UNION CAPITAL MARKETS CORP., A.G. EDWARDS &
SONS, INC. and GAINES BERLAND, INC., as initial purchasers (the "Initial
Purchasers").
This Agreement is entered into in connection with the Purchase
Agreement, dated as of October 3, 1997, among the Issuers and the Initial
Purchasers (the "Purchase Agreement"), which provides for the sale by the
Company to the Initial Purchasers of U.S. $100,000,000 aggregate principal
amount of the Company's 10-5/8% Senior Notes due 2004 (the "Notes"), guaranteed
by the Guarantors (the "Guarantees"). In order to induce the Initial Purchasers
to enter into the Purchase Agreement, the Issuers have agreed to provide the
registration rights set forth in this Agreement for the benefit of the Initial
Purchasers and any subsequent holder or holders of the Notes. The execution and
delivery of this Agreement is a condition to the Initial Purchasers' obligation
to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement,the following terms shall have the following meanings:
Additional Interest: See Section 4 hereof.
Advice: See the last paragraph of Section 5 hereof.
Agreement: See the introductory paragraph hereto.
Applicable Period: See Section 2 hereof.
Effectiveness Date: The 150th day after the Issue Date; provided, however,
that with respect to any Shelf Registration, the Effectiveness Date shall be the
105th day after the Filing Date with respect thereto.
Effectiveness Period: See Section 3 hereof.
Event Date: See Section 4 hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2 hereof.
Exchange Offer: See Section 2 hereof.
Exchange Offer Registration Statement: See Section 2 hereof.
Filing Date: (A) If no Registration Statement has been filed by the Issuers
pursuant to this Agreement, the 45th day after the Issue Date; provided,
however, that if a Shelf Notice is given within 10 days of the Filing Date, then
the Filing Date with respect to the Initial Shelf Registration shall be the 15th
calendar day after the date of the giving of such Shelf Notice; and (B) in each
other case (which may be applicable notwithstanding the consummation of the
Exchange Offer), the 30th day after the delivery of a Shelf Notice.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Indenture: The Indenture, dated as of October 9, 1997, by and among the
Issuers and United Missouri Bank, as Trustee, pursuant to which the Notes and
the Guarantees are being issued, as the same may be amended or supplemented from
time to time in accordance with the terms thereof.
Initial Purchasers: See the introductory paragraphs hereto.
Initial Shelf Registration: See Section 3(a) hereof.
Inspectors: See Section 5(n) hereof.
Issue Date: October 9, 1997, the date of original issuance of the Notes.
Issuers: See the introductory paragraphs hereto.
NASD: See Section 5(s) hereof.
Participant: See Section 7(a) hereof.
Participating Broker-Dealer: See Section 2 hereof.
Person: An individual, trustee, corporation, partnership, joint stock
company, trust, unincorporated association, union, business association, firm or
other legal entity.
Private Exchange: See Section 2 hereof.
Private Exchange Notes: See Section 2 hereof.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act and any term sheet filed pursuant to Rule
434 under the Securities Act), as amended or supplemented by any prospectus
supplement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs hereof.
Records: See Section 5(n) hereof.
Registrable Notes: Each Note upon its original issuance and at all times
subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof is
applicable upon original issuance and at all times subsequent thereto and each
Private Exchange Note upon original issuance thereof and at all times subsequent
thereto, until (i) a Registration Statement (other than, with respect to any
Exchange Note as to which Section 2(c)(iv) hereof is applicable, the Exchange
Offer Registration Statement) covering such Note, Exchange Note or Private
Exchange Note has been declared effective by the SEC and such Note, Exchange
Note or such Private Exchange Note, as the case may be, has been disposed of in
accordance with such effective Registration Statement, (ii) such Note has been
exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange Notes
that may be resold without restriction under state and federal securities laws,
(iii) such Note, Exchange Note or Private Exchange Note, as the case may be,
ceases to be outstanding for purposes of the Indenture or (iv) such Note,
Exchange Note or Private Exchange Note, as the case may be, may be resold
without restriction pursuant to Rule 144 under the Securities Act.
Registration Statement: Any registration statement of the Company and/or
the Guarantors that covers any of the Notes, the Exchange Notes or the Private
Exchange Notes (and the related Guarantees) filed with the SEC under the
Securities Act, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of the issuer of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c) hereof.
Shelf Registration: See Section 3(b) hereof.
Subsequent Shelf Registration: See Section 3(b) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and the trustee (if any) under any
indenture governing the Exchange Notes and Private Exchange Notes.
Underwritten registration or underwritten offering: A registration in which
securities of one or more of the Issuers are sold to an underwriter for
reoffering to the public.
2. Exchange Offer
(a) The Issuers shall file with the SEC, no later than the Filing Date, a
Registration Statement (the "Exchange Offer Registration Statement") on an
appropriate registration form with respect to a registered offer (the "Exchange
Offer") to exchange any and all of the Registrable Notes for a like aggregate
principal amount of notes (the "Exchange Notes") of the Company, guaranteed by
the Guarantors, that are identical in all material respects to the Notes except
that the Exchange Notes shall contain no restrictive legend thereon. The
Exchange Offer shall comply with all applicable tender offer rules and
regulations under the Exchange Act and other applicable law. The Issuers shall
use their best efforts to (x) cause the Exchange Offer Registration Statement to
be declared effective under the Securities Act on or before the Effectiveness
Date; (y) keep the Exchange Offer open for at least 30 days (or longer if
required by applicable law) after the date that notice of the Exchange Offer is
mailed to Holders; and (z) consummate the Exchange Offer on or prior to the 45th
day following the date on which the Exchange Offer Registration Statement is
declared effective by the SEC. If, after the Exchange Offer Registration
Statement is initially declared effective by the SEC, the Exchange Offer or the
issuance of the Exchange Notes thereunder is interfered with by any stop order,
injunction or other order or requirement of the SEC or any other governmental
agency or court, the Exchange Offer Registration Statement shall be deemed not
to have become effective for purposes of this Agreement.
Each Holder that participates in the Exchange Offer will be
required, as a condition to its participation in the Exchange Offer, to
represent to the Company in writing (which may be contained in the applicable
letter of transmittal) that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, that at the time of the
consummation of the Exchange Offer such Holder will have no arrangement or
understanding with any Person to participate in the distribution of the Exchange
Notes in violation of the provisions of the Securities Act, and that such Holder
is not an affiliate of the Company within the meaning of the Securities Act.
Upon consummation of the Exchange Offer in accordance with
this Section 2, the provisions of this Agreement shall continue to apply,
mutatis mutandis, solely with respect to Registrable Notes that are Private
Exchange Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and
Exchange Notes held by Participating Broker-Dealers (as defined), and the
Issuers shall have no further obligation to register Registrable Notes (other
than Private Exchange Notes and other than in respect of any Exchange Notes as
to which clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof.
No securities other than the Exchange Notes shall be included
in the Exchange Offer Registration Statement.
(b) The Issuers shall include within the Prospectus contained in the Exchange
Offer Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Holders, which shall contain a summary statement of
the positions taken or policies made by the staff of the SEC with respect to the
potential "underwriter" status of any broker-dealer that is the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by
such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"),
whether such positions or policies have been publicly disseminated by the staff
of the SEC or such positions or policies represent the prevailing views of the
staff of the SEC. Such "Plan of Distribution" section shall also expressly
permit, to the extent permitted by applicable policies and regulations of the
SEC, the use of the Prospectus by all Persons subject to the prospectus delivery
requirements of the Securities Act, including, to the extent permitted by
applicable policies and regulations of the SEC, all Participating
Broker-Dealers, and include a statement describing the means by which
Participating Broker-Dealers may resell the Exchange Notes in compliance with
the Securities Act.
The Issuers shall use their best efforts to keep the Exchange
Offer Registration Statement effective and to amend and supplement the
Prospectus contained therein in order to permit such Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as is necessary to comply with applicable
law in connection with any resale of the Exchange Notes covered thereby;
provided, however, that such period shall not exceed 180 days after such
Exchange Offer Registration Statement is declared effective (or such longer
period if extended pursuant to the last paragraph of Section 5 hereof) (the
"Applicable Period").
If, prior to consummation of the Exchange Offer, any Holder
holds any Notes acquired by it that have, or that are reasonably likely to be
determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Exchange
Offer, the Company upon the request of any such Holder shall simultaneously with
the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to
any such Holder, in exchange (the "Private Exchange") for such Notes held by any
such Holder, a like principal amount of notes (the "Private Exchange Notes") of
the Company, guaranteed by the Guarantors, that are identical in all material
respects to the Exchange Notes except for the placement of a restrictive legend
on such Private Exchange Notes. The Private Exchange Notes shall be issued
pursuant to the same indenture as the Exchange Notes and bear the same CUSIP
number as the Exchange Notes.
In connection with the Exchange Offer, the Issuers shall:
(1) mail, or cause to be mailed, to each Holder entitled to
participate in the Exchange Offer a copy of the Prospectus forming
part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(2) keep the Exchange Offer open for not less than 30 days after
the date that notice of the Exchange Offer is mailed to Holders (or
longer if required by applicable law);
(3) utilize the services of a depositary for the Exchange Offer
with an address in the Borough of Manhattan, The City of New York;
(4) permit Holders to withdraw tendered Notes at any time prior
to the close of business, New York time, on the last business day on
which the Exchange Offer shall remain open; and
(5) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer
and the Private Exchange, if any, the Issuers shall:
(1) accept for exchange all Registrable Notes validly tendered
and not validly withdrawn pursuant to the Exchange Offer and the
Private Exchange, if any;
(2) deliver to the Trustee for cancellation all Registrable Notes
so accepted for exchange; and (3) cause the Trustee to authenticate
and deliver promptly to each Holder of Notes, Exchange Notes or
Private Exchange Notes, as the case may be, equal in principal amount
to the Notes of such Holder so accepted for exchange.
The Exchange Offer and the Private Exchange shall not be subject
to any conditions, other than that (i) the Exchange Offer or Private
Exchange, as the case may be, does not violate applicable law or any
applicable interpretation of the staff of the SEC, (ii) no action or
proceeding shall have been instituted or threatened in any court or by
any governmental agency which might materially impair the ability of
the Issuers to proceed with the Exchange Offer or the Private
Exchange, and no material adverse development shall have occurred in
any existing action or proceeding with respect to the Issuers and
(iii) all governmental approvals shall have been obtained, which
approvals the Issuers deem necessary for the consummation of the
Exchange Offer or Private Exchange.
The Exchange Notes and the Private Exchange Notes shall be issued
under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture and which, in either case, has been
qualified under the TIA or is exempt from such qualification and shall
provide that the Exchange Notes shall not be subject to the transfer
restrictions set forth in the Indenture. The Indenture or such
indenture shall provide that the Exchange Notes, the Private Exchange
Notes and the Notes shall vote and consent together on all matters as
one class and that none of the Exchange Notes, the Private Exchange
Notes or the Notes will have the right to vote or consent as a
separate class on any matter.
(c) If, (i) because of any change in law or in currently
prevailing interpretations of the staff of the SEC, the Issuers are
not permitted to effect the Exchange Offer, (ii) the Exchange Offer is
not consummated within 195 days of the Issue Date, (iii) any holder of
Private Exchange Notes so requests in writing to the Company within 60
days after the consummation of the Exchange Offer, or (iv) in the case
of any Holder that participates in the Exchange Offer, such Holder
does not receive Exchange Notes on the date of the exchange that may
be sold without restriction under state and federal securities laws
(other than due solely to the status of such Holder as an affiliate of
the Company within the meaning of the Securities Act), then in the
case of each of clauses (i) to and including (iv) of this sentence,
the Company shall promptly deliver to the Holders and the Trustee
written notice thereof (the "Shelf Notice") and shall file a Shelf
Registration pursuant to Section 3 hereof.
3. Shelf Registration
If at any time a Shelf Notice is delivered as contemplated by
Section 2(c) hereof, then:
(a) Shelf Registration. The Issuers shall file with the SEC a Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415
covering all of the Registrable Notes not exchanged in the Exchange Offer,
Private Exchange Notes and Exchange Notes as to which Section 2(c)(iv) is
applicable (the "Initial Shelf Registration"). The Issuers shall use their best
efforts to file with the SEC the Initial Shelf Registration on or before the
applicable Filing Date. The Initial Shelf Registration shall be on Form S-1 or
another appropriate form permitting registration of such Registrable Notes for
resale by Holders in the manner or manners designated by them (including,
without limitation, one or more underwritten offerings). The Issuers shall not
permit any securities other than the Registrable Notes to be included in the
Initial Shelf Registration or any Subsequent Shelf Registration (as defined
below).
The Issuers shall use their best efforts to cause the Initial
Shelf Registration to be declared effective under the Securities Act on or prior
to the Effectiveness Date and to keep the Initial Shelf Registration
continuously effective under the Securities Act until the date which is two
years from the Effectiveness Date (the "Effectiveness Period"), or such shorter
period ending when (i) all Registrable Notes covered by the Initial Shelf
Registration have been sold in the manner set forth and as contemplated in the
Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all
of the Registrable Notes covered by and not sold under the Initial Shelf
Registration or an earlier Subsequent Shelf Registration has been declared
effective under the Securities Act; provided, however, that the Effectiveness
Period in respect of the Initial Shelf Registration shall be extended to the
extent required to permit dealers to comply with the applicable prospectus
delivery requirements of Rule 174 under the Securities Act and as otherwise
provided herein.
(b) Subsequent Shelf Registrations. If the Initial Shelf Registration or any
Subsequent Shelf Registration ceases to be effective for any reason at any time
during the Effectiveness Period (other than because of the sale of all of the
securities registered thereunder), the Issuers shall use their best efforts to
obtain the prompt withdrawal of any order suspending the effectiveness thereof,
and in any event shall within 30 days of such cessation of effectiveness amend
the Initial Shelf Registration in a manner to obtain the withdrawal of the order
suspending the effectiveness thereof, or file an additional "shelf" Registration
Statement pursuant to Rule 415 covering all of the Registrable Notes covered by
and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf
Registration (each, a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, the Issuers shall use their best efforts to cause the
Subsequent Shelf Registration to be declared effective under the Securities Act
as soon as practicable after such filing and to keep such subsequent Shelf
Registration continuously effective for a period equal to the number of days in
the Effectiveness Period less the aggregate number of days during which the
Initial Shelf Registration or any Subsequent Shelf Registration was previously
continuously effective. As used herein the term "Shelf Registration" means the
Initial Shelf Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Issuers shall promptly supplement and amend
any Shelf Registration if required by the rules, regulations or instructions
applicable to the registration form used for such Shelf Registration, if
required by the Securities Act, or if reasonably requested by the Holders of a
majority in aggregate principal amount of the Registrable Notes covered by such
Registration Statement or by any underwriter of such Registrable Notes.
4. Additional Interest
(a) The Issuers and the Initial Purchasers agree that the Holders will suffer
damages if the Issuers fail to fulfill their obligations under Section 2 or
Section 3 hereof and that it would not be feasible to ascertain the extent of
such damages with precision. Accordingly, the Company agrees to pay, as
liquidated damages, additional interest on the Notes ("Additional Interest")
under the circumstances and to the extent set forth below (each of which shall
be given independent effect):
(i) if (A) neither the Exchange Offer Registration Statement nor the Initial
Shelf Registration has been filed on or prior to the applicable Filing Date or
(B) notwithstanding that the Issuers have consummated or will consummate the
Exchange Offer, the Issuers are required to file a Shelf Registration and such
Shelf Registration is not filed on or prior to the Filing Date applicable
thereto, then, commencing on the day after any such Filing Date, Additional
Interest shall accrue on the principal amount of the Notes at a rate of 0.50%
per annum for the first 90 days immediately following each such Filing Date, and
such Additional Interest rate shall increase by an additional 0.50% per annum at
the beginning of each subsequent 90-day period; or
(ii) if (A) neither the Exchange Offer Registration Statement nor the Initial
Shelf Registration is declared effective by the SEC on or prior to the relevant
Effectiveness Date or (B) notwithstanding that the Issuers have consummated or
will consummate the Exchange Offer, the Issuers are required to file a Shelf
Registration and such Shelf Registration is not declared effective by the SEC on
or prior to the Effectiveness Date in respect of such Shelf Registration, then,
commencing on the day after such Effectiveness Date, Additional Interest shall
accrue on the principal amount of the Notes at a rate of 0.50% per annum for the
first 90 days immediately following the day after such Effectiveness Date, and
such Additional Interest rate shall increase by an additional 0.50% per annum at
the beginning of each subsequent 90-day period; or (iii) if (A) the Issuers have
not exchanged Exchange Notes for all Notes validly tendered in accordance with
the terms of the Exchange Offer on or prior to the 45th day after the date on
which the Exchange Offer Registration Statement relating thereto was declared
effective or (B) if applicable, a Shelf Registration has been declared effective
and such Shelf Registration ceases to be effective at any time during the
Effectiveness Period, then Additional Interest shall accrue on the principal
amount of the Notes at a rate of 0.50% per annum for the first 90 days
commencing on the (x) 46th day after such effective date, in the case of (A)
above, or (y) the day such Shelf Registration ceases to be effective in the case
of (B) above, and such Additional Interest rate shall increase by an additional
0.50% per annum at the beginning of each such subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not exceed
at any one time in the aggregate 1.0% per annum; provided, further, however,
that (1) upon the filing of the applicable Exchange Offer Registration Statement
or the applicable Shelf Registration as required hereunder (in the case of
clause (i) above of this Section 4), (2) upon the effectiveness of the Exchange
Offer Registration Statement or the applicable Shelf Registration Statement as
required hereunder (in the case of clause (ii) of this Section 4), or (3) upon
the exchange of the applicable Exchange Notes for all Notes tendered (in the
case of clause (iii)(A) of this Section 4), or upon the effectiveness of the
applicable Shelf Registration Statement which had ceased to remain effective (in
the case of (iii)(B) of this Section 4), Additional Interest on the Notes in
respect of which such events relate as a result of such clause (or the relevant
subclause thereof), as the case may be, shall cease to accrue.
(b) The Company shall notify the Trustee within three business days after each
and every date on which an event occurs in respect of which Additional Interest
is required to be paid (an "Event Date"). Any amounts of Additional Interest due
pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in
cash semiannually on each April 1 and October 1 (to the holders of record on the
March 15 and September 15 immediately preceding such dates), commencing with the
first such date occurring after any such Additional Interest commences to
accrue. The amount of Additional Interest will be determined by multiplying the
applicable Additional Interest rate by the principal amount of the Registrable
Notes, multiplied by a fraction, the numerator of which is the number of days
such Additional Interest rate was applicable during such period (determined on
the basis of a 360-day year comprised of twelve 30-day months and, in the case
of a partial month, the actual number of days elapsed), and the denominator of
which is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Sections 2 or 3 hereof, the Issuers shall effect such registrations
to permit the sale of the securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto and in
connection with any Registration Statement filed by the Issuers hereunder each
of the Issuers shall:
(a) Prepare and file with the SEC prior to the applicable Filing Date, a
Registration Statement or Registration Statements as prescribed by Sections 2 or
3 hereof, and use its best efforts to cause each such Registration Statement to
become effective and remain effective as provided herein; provided, however,
that, if (1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus
contained in the Exchange Offer Registration Statement filed pursuant to Section
2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period relating thereto, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Issuers shall furnish
to and afford the Holders of the Registrable Notes covered by such Registration
Statement or each such Participating Broker-Dealer, as the case may be, their
counsel and the managing underwriters, if any, a reasonable opportunity to
review copies of all such documents (including copies of any documents to be
incorporated by reference therein and all exhibits thereto) proposed to be filed
(in each case at least five days prior to such filing, or such later date as is
reasonable under the circumstances). The Issuers shall not file any Registration
Statement or Prospectus or any amendments or supplements thereto if the Holders
of a majority in aggregate principal amount of the Registrable Notes covered by
such Registration Statement, or any such Participating Broker-Dealer, as the
case may be, their counsel, or the managing underwriters, if any, shall
reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective amendments
to each Shelf Registration Statement or Exchange Offer Registration Statement,
as the case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period, as
the case may be; cause the related Prospectus to be supplemented by any
Prospectus supplement required by applicable law, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) promulgated
under the Securities Act; and comply with the provisions of the Securities Act
and the Exchange Act applicable to each of them with respect to the disposition
of all securities covered by such Registration Statement as so amended or in
such Prospectus as so supplemented and with respect to the subsequent resale of
any securities being sold by a Participating Broker-Dealer covered by any such
Prospectus. The Issuers shall be deemed not to have used their best efforts to
keep a Registration Statement effective during the Effective Period or the
Applicable Period, as the case may be, relating thereto if any Issuer
voluntarily takes any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers seeking to
sell Exchange Notes not being able to sell such Registrable Notes or such
Exchange Notes during that period unless such action is required by applicable
law or permitted by this Agreement.
(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a
Prospectus contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period relating thereto from whom the Company has received written
notice that it will be a Participating Broker-Dealer in the Exchange Offer,
notify the selling Holders of Registrable Notes, or each such Participating
Broker-Dealer, as the case may be, their counsel and the managing underwriters,
if any, promptly (but in any event within one day), and confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective under the
Securities Act (including in such notice a written statement that any Holder
may, upon request, obtain, at the sole expense of the Issuers, one conformed
copy of such Registration Statement or post-effective amendment including
financial statements and schedules, documents incorporated or deemed to be
incorporated by reference and exhibits), (ii) of the issuance by the SEC of any
stop order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time when a
prospectus is required by the Securities Act to be delivered in connection with
sales of the Registrable Notes or resales of Exchange Notes by Participating
Broker-Dealers the representations and warranties of the Issuers contained in
any agreement (including any underwriting agreement) contemplated by Section
5(m) hereof cease to be true and correct in all material respects, (iv) of the
receipt by any Issuer of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement or any
of the Registrable Notes or the Exchange Notes to be sold by any Participating
Broker-Dealer for offer or sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, (v) of the happening of any
event, the existence of any condition or any information becoming known that
makes any statement made in such Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes in or
amendments or supplements to such Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (vi) of the
Issuers' determination that a post-effective amendment to a Registration
Statement would be appropriate.
(d)If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a
Prospectus contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Notes or the
Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any
jurisdiction, and, if any such order is issued, to use its best efforts to
obtain the withdrawal of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if requested by
the managing underwriter or underwriters (if any), the Holders of a majority in
aggregate principal amount of the Registrable Notes being sold in connection
with an underwritten offering or any Participating Broker-Dealer, (i) as
promptly as practicable incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriter or underwriters (if any),
such Holders, any Participating Broker-Dealer or counsel for any of them
reasonably request to be included therein, (ii) make all required filings of
such prospectus supplement or such post-effective amendment as soon as
practicable after an Issuer has received notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment, and
(iii) supplement or make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a
Prospectus contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, furnish to each selling Holder of Registrable Notes and to
each such Participating Broker-Dealer who so requests and to their respective
counsel and each managing underwriter, if any, at the sole expense of the
Issuers, one conformed copy of the Registration Statement or Registration
Statements and each post-effective amendment thereto, including financial
statements and schedules, and, if requested, all documents incorporated or
deemed to be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a
Prospectus contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, deliver to each selling Holder of Registrable Notes, or each
such Participating Broker-Dealer, as the case may be, their respective counsel,
and the underwriters, if any, at the sole expense of the Issuers, as many copies
of the Prospectus or Prospectuses (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably request; and,
subject to the last paragraph of this Section 5, the Issuers hereby consent to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, and the underwriters or agents, if any, and
dealers (if any), in connection with the offering and sale of the Registrable
Notes covered by, or the sale by Participating Broker-Dealers of the Exchange
Notes pursuant to, such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any delivery of a
Prospectus contained in the Exchange Offer Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its best efforts to register or qualify, and to cooperate
with the selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, the managing underwriter or underwriters, if
any, and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Notes for offer and sale under the securities or Blue Sky laws of
such jurisdictions within the United States as any selling Holder, Participating
Broker-Dealer, or the managing underwriter or underwriters reasonably request in
writing; provided, however, that where Exchange Notes held by Participating
Broker-Dealers or Registrable Notes are offered other than through an
underwritten offering, the Issuers agree to cause their counsel to perform Blue
Sky investigations and file registrations and qualifications required to be
filed pursuant to this Section 5(h), keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all other
acts or things reasonably necessary or advisable to enable the disposition in
such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or
the Registrable Notes covered by the applicable Registration Statement;
provided, however, that no Issuer shall be required to (A) qualify generally to
do business in any jurisdiction where it is not then so qualified, (B) take any
action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or (C) subject itself to taxation
in excess of a nominal dollar amount in any such jurisdiction where it is not
then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate
with the selling Holders of Registrable Notes and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Notes to be sold, which certificates shall
not bear any restrictive legends and shall be in a form eligible for deposit
with The Depository Trust Company; and enable such Registrable Notes to be in
such denominations and registered in such names as the managing underwriter or
underwriters, if any, or Holders may request.
(j) Use its best efforts to cause the Registrable Notes covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be reasonably necessary to enable
the seller or sellers thereof or the underwriter or underwriters, if any, to
consummate the disposition of such Registrable Notes, except as may be required
solely as a consequence of the nature of such selling Holder's business, in
which case the Issuers will cooperate in all reasonable respects with the filing
of such Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a
Prospectus contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, upon the occurrence of any event contemplated by paragraph
5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to
Section 5(a) hereof) file with the SEC, at the sole expense of the Issuers, a
supplement or post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes being
sold thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Notwithstanding the foregoing, the Issuers shall not be required
to amend or supplement a Registration Statement, any related Prospectus or any
document incorporated therein by reference, in the event that, and for a period
not to exceed an aggregate of 60 days in any calendar year if, (i) an event
occurs and is continuing as a result of which the Shelf Registration would, in
the Company's good faith judgment, contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and (ii) (a) the Company determines in its good faith judgment that
the disclosure of such event at such time would have a material adverse effect
on the business, operations or prospects of the Company or (b) the disclosure
otherwise relates to a pending material business transaction that has not yet
been publicly disclosed.
(l) Prior to the effective date of the first Registration Statement relating to
the Registrable Notes, (i) provide the Trustee with certificates for the
Registrable Notes in a form eligible for deposit with The Depository Trust
Company and (ii) provide a CUSIP number for the Registrable Notes.
(m) In connection with any underwritten offering of Registrable Notes pursuant
to a Shelf Registration, enter into an underwriting agreement as is customary in
underwritten offerings of debt securities similar to the Notes in form and
substance reasonably satisfactory to the Company and take all such other actions
as are reasonably requested by the managing underwriter or underwriters in order
to expedite or facilitate the registration or the disposition of such
Registrable Notes and, in such connection, (i) make such representations and
warranties to, and covenants with, the underwriters with respect to the business
of the Company any of the subsidiaries of the Company (including any acquired
business, properties or entity, if applicable) and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings of debt securities similar to the Notes,
and confirm the same in writing if and when requested in form and substance
reasonably satisfactory to the Company; (ii) obtain the written opinions of
counsel to the Company and written updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters, addressed
to the underwriters covering the matters customarily covered in opinions
reasonably requested in underwritten offerings and such other matters as may be
reasonably requested by the managing underwriter or underwriters; (iii) use its
best efforts to obtain "cold comfort" letters and updates thereof in form, scope
and substance reasonably satisfactory to the managing underwriter or
underwriters from the independent chartered accountants of the Company (and, if
necessary, any other independent chartered accountants of the Company any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be, included or
incorporated by reference in the Registration Statement), addressed to each of
the underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings of debt securities similar to the Notes and such other
matters as reasonably requested by the managing underwriter or underwriters as
permitted by the Statement on Auditing Standards No. 72; and (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable to the sellers and underwriters, if
any, than those set forth in Section 7 hereof (or such other provisions and
procedures acceptable to Holders of a majority in aggregate principal amount of
Registrable Notes covered by such Registration Statement and the managing
underwriter or underwriters or agents, if any). The above shall be done at each
closing under such underwriting agreement, or as and to the extent required
thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a
Prospectus contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, make available for inspection by any selling Holder of such
Registrable Notes being sold, or each such Participating Broker-Dealer, as the
case may be, any underwriter participating in any such disposition of
Registrable Notes, if any, and any attorney, accountant or other agent retained
by any such selling Holder or each such Participating Broker-Dealer, as the case
may be, or underwriter (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and instruments of the Company and
subsidiaries of the Company (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of the Company
and any of its subsidiaries to supply all information reasonably requested by
any such Inspector in connection with such Registration Statement and
Prospectus. Each Inspector shall agree in writing that it will keep the Records
confidential and that it will not disclose any of the Records that the Company
determines, in good faith, to be confidential and notifies the Inspectors in
writing are confidential unless (i) the disclosure of such Records is necessary
to avoid or correct a material misstatement or material omission in such
Registration Statement or Prospectus, (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction, (iii) disclosure of such information is necessary or advisable, in
the opinion of counsel for any Inspector, in connection with any action, claim,
suit or proceeding, directly or indirectly, involving or potentially involving
such Inspector and arising out of, based upon, relating to, or involving this
Agreement or the Purchase Agreement, or any transactions contemplated hereby or
thereby or arising hereunder or thereunder, or (iv) the information in such
Records has been made generally available to the public; provided, however, that
prior notice shall be provided as soon as practicable to the Company of the
potential disclosure of any information by such Inspector pursuant to clauses
(i), (ii) or (iii) of this sentence to permit the Company to obtain a protective
order (or waive the provisions of this paragraph (n)) and that such Inspector
shall take such actions as are reasonably necessary to protect the
confidentiality of such information (if practicable) to the extent such action
is otherwise not inconsistent with, an impairment of or in derogation of the
rights and interests of the Holder or any Inspector.
(o) Provide an indenture trustee for the Registrable Notes or the Exchange
Notes, as the case may be, and cause the Indenture or the trust indenture
provided for in Section 2(a) hereof, as the case may be, to be qualified under
the TIA not later than the effective date of the first Registration Statement
relating to the Registrable Notes; and in connection therewith, cooperate with
the trustee under any such indenture and the Holders of the Registrable Notes,
to effect such changes to such indenture as may be required for such indenture
to be so qualified in accordance with the terms of the TIA; and execute, and use
its best efforts to cause such trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents required to
be filed with the SEC to enable such indenture to be so qualified in a timely
manner.
(p) Comply with all applicable rules and regulations of the SEC and make
generally available to its securityholders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 60 days
after the end of any fiscal quarter (or 120 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Notes are sold to underwriters in a firm commitment
or best efforts underwritten offering and (ii) if not sold to underwriters in
such an offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(q) Upon consummation of the Exchange Offer or a Private Exchange, obtain an
opinion of counsel to the Company, in a form customary for underwritten
transactions, addressed to the Trustee for the benefit of all Holders of
Registrable Notes participating in the Exchange Offer or the Private Exchange,
as the case may be, that the Exchange Notes or Private Exchange Notes, as the
case may be, the related Guarantees and the related indenture constitute legal,
valid and binding obligations of the Issuers, enforceable against them in
accordance with their respective terms, subject to customary exceptions and
qualifications.
(r) If the Exchange Offer or a Private Exchange is to be consummated, upon
delivery of the Registrable Notes by Holders to the Company (or to such other
Person as directed by the Issuer) in exchange for the Exchange Notes or the
Private Exchange Notes, as the case may be, the Company shall mark, or cause to
be marked, on such Registrable Notes that such Registrable Notes are being
cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as
the case may be; in no event shall such Registrable Notes be marked as paid or
otherwise satisfied.
(s) Cooperate with each seller of Registrable Notes covered by any Registration
Statement and each underwriter, if any, participating in the disposition of such
Registrable Notes and their respective counsel in connection with any filings
required to be made with the National Association of Securities Dealers, Inc.
(the "NASD").
(t) Use its best efforts to take all other steps reasonably necessary to effect
the registration of the Exchange Notes and/or Registrable Notes covered by a
Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes as to
which any registration is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable Notes
as the Company may, from time to time, reasonably request. The Company may
exclude from such registration the Registrable Notes of any seller so long as
such seller fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such seller not materially misleading.
If any such Registration Statement refers to any Holder by
name or otherwise as the holder of any securities of the Company, then such
Holder shall have the right to require (i) the insertion therein of language, in
form and substance reasonably satisfactory to such Holder, to the effect that
the holding by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the securities
covered thereby and that such holding does not imply that such Holder will
assist in meeting any future financial requirements of the Company, or (ii) in
the event that such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force, the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by its acquisition of such Registrable Notes or Exchange
Notes to be sold by such Participating Broker-Dealer, as the case may be, that,
upon actual receipt of any notice from the Company of the happening of any event
of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi)
hereof, such Holder will forthwith discontinue disposition of such Registrable
Notes covered by such Registration Statement or Prospectus or Exchange Notes to
be sold by such Holder or Participating Broker-Dealer, as the case may be, until
such Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto. In the event that the Company shall give any such
notice, the Applicable Period shall be extended by the number of days during
such periods from and including the date of the giving of such notice to and
including the date when each seller of Registrable Notes covered by such
Registration Statement or Exchange Notes to be sold by such Participating
Broker-Dealer, as the case may be, shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y)
the Advice.
6. Registration Expenses
All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuers shall be borne by the Company
whether or not the Exchange Offer Registration Statement or any Shelf
Registration is filed or becomes effective or the Exchange Offer is consummated,
including, without limitation, (i) all registration and filing fees (including,
without limitation, (A) fees with respect to filings required to be made with
the NASD in connection with an underwritten offering and (B) fees and expenses
of compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel in connection with Blue Sky
qualifications of the Registrable Notes or Exchange Notes and determination of
the eligibility of the Registrable Notes or Exchange Notes for investment under
the laws of such jurisdictions (x) where the holders of Registrable Notes are
located, in the case of the Exchange Notes, or (y) as provided in Section 5(h)
hereof, in the case of Registrable Notes or Exchange Notes to be sold by a
Participating Broker-Dealer during the Applicable Period)), (ii) printing
expenses, including, without limitation, expenses of printing certificates for
Registrable Notes or Exchange Notes in a form eligible for deposit with The
Depository Trust Company and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriter or underwriters, if any,
by the Holders of a majority in aggregate principal amount of the Registrable
Notes included in any Registration Statement or in respect of Registrable Notes
or Exchange Notes to be sold by any Participating Broker-Dealer during the
Applicable Period, as the case may be, (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Company and reasonable
fees and disbursements of one special counsel for all of the sellers of
Registrable Notes (exclusive of any counsel retained pursuant to Section 7
hereof), (v) fees and disbursements of all independent certified public
accountants referred to in Section 5(m)(iii) hereof (including, without
limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) Securities Act liability
insurance, if the Company desires such insurance, (vii) fees and expenses of all
other Persons retained by the Issuer, (viii) internal expenses of the Company
(including, without limitation, all salaries and expenses of officers and
employees of the Company performing legal or accounting duties), (ix) the
expense of any annual audit, (x) any fees and expenses incurred in connection
with the listing of the securities to be registered on any securities exchange,
and the obtaining of a rating of the securities, in each case, if applicable,
and (xi) the expenses relating to printing, word processing and distributing all
Registration Statements, underwriting agreements, indentures and any other
documents necessary in order to comply with this Agreement.
7. Indemnification
(a) Each of the Issuers, jointly and severally, agrees to indemnify and hold
harmless each Holder of Registrable Notes and each Participating Broker-Dealer
selling Exchange Notes during the Applicable Period, the officers, directors,
employees and agents of each such Person, and each Person, if any, who controls
any such Person within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act (each, a "Participant"), from and against any and
all losses, claims, damages, judgments, liabilities and expenses (including,
without limitation, the reasonable legal fees and other expenses actually
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) or Prospectus (as amended or supplemented
if the Company shall have furnished any amendments or supplements thereto) or
any preliminary prospectus, or caused by, arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the case of the
Prospectus in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
any Participant furnished to the Company in writing by such Participant
expressly for use therein.
(b) Each Participant agrees, severally and not jointly, to indemnify and hold
harmless the Issuers, their respective directors, their respective officers who
sign the Registration Statement and each Person who controls each Issuer within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act to the same extent (but on a several, and not joint, basis) as the foregoing
indemnity from the Issuers to each Participant, but only with reference to
information relating to such Participant furnished to the Company in writing by
such Participant expressly for use in any Registration Statement or Prospectus,
any amendment or supplement thereto, or any preliminary prospectus. The
liability of any Participant under this paragraph shall in no event exceed the
proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes giving rise to such obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Persons against whom such indemnity may be sought (the "Indemnifying
Persons") in writing, and the Indemnifying Persons, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Persons may reasonably designate in such proceeding and shall pay
the fees and expenses actually incurred by such counsel related to such
proceeding; provided, however, that the failure to so notify the Indemnifying
Persons shall not relieve any of them of any obligation or liability which any
of them may have hereunder or otherwise. In any such proceeding, any Indemnified
Person shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Person unless (i)
the Indemnifying Persons and the Indemnified Person shall have mutually agreed
to the contrary, (ii) the Indemnifying Persons shall have failed within a
reasonable period of time to retain counsel reasonably satisfactory to the
Indemnified Person or (iii) the named parties in any such proceeding (including
any impleaded parties) include both any Indemnifying Person and the Indemnified
Person or any affiliate thereof and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that, unless there exists a conflict among
Indemnified Persons, the Indemnifying Persons shall not, in connection with such
proceeding or separate but substantially similar related proceeding in the same
jurisdiction arising out of the same general allegations, be liable for the fees
and expenses of more than one separate firm (in addition to any local counsel)
for all Indemnified Persons, and that all such fees and expenses shall be
reimbursed promptly as they are incurred. Any such separate firm for the
Participants and such control Persons of Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable Notes and
Exchange Notes sold by all such Participants and shall be reasonably acceptable
to the Company, and any such separate firm for the Issuers, their directors,
their officers and such control Persons of such Issuer shall be designated in
writing by such Issuer and shall be reasonably acceptable to the Holders.
The Indemnifying Persons shall not be liable for any
settlement of any proceeding effected without its prior written consent (which
consent shall not be unreasonably withheld or delayed), but if settled with such
consent or if there be a final non-appealable judgment for the plaintiff for
which the Indemnified Person is entitled to indemnification pursuant to this
Agreement, each of the Indemnifying Persons agrees to indemnify and hold
harmless each Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. No Indemnifying Person shall, without the
prior written consent of the Indemnified Persons (which consent shall not be
unreasonably withheld or delayed), effect any settlement or compromise of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party, or indemnity could have been sought hereunder by
such Indemnified Person, unless such settlement (A) includes an unconditional
written release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of such
Indemnified Person.
(d) If the indemnification provided for in the first and second paragraphs of
this Section 7 is for any reason unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the offering of
the Notes or (ii) if the allocation provided by the foregoing clause (i) is not
permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative benefits received by the
Issuers on the one hand and the Participants on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (net of discounts
and commissions but before deducting expenses) of the Notes received by the
Company bears to the total proceeds received by such Participant from the sale
of Registrable Notes or Exchange Notes, as the case may be, in each case as set
forth in the table on the cover page of the Offering Memorandum in respect of
the sale of the Notes. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Issuers on the one hand or such
Participant or such other Indemnified Person, as the case may be, on the other,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if contribution
pursuant to this Section 7 were determined by pro rata allocation (even if the
Participants were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an Indemnified Person as a result of the losses, claims, damages, judgments,
liabilities and expenses referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth above, any
reasonable legal or other expenses actually incurred by such Indemnified Person
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, exceeds the amount of any damages that such
Participant has otherwise been required to pay or has paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the Indemnifying Party to the Indemnified Party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Issuers set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Holder or any person who controls a
Holder, the Issuer, its directors, officers, employees or agents or any person
controlling the Issuer, and (ii) any termination of this Agreement.
(g) The indemnity and contribution agreements contained in this Section 7 will
be in addition to any liability which the Indemnifying Persons may otherwise
have to the Indemnified Persons referred to above. 8. Rules 144 and 144A
Each of the Issuers covenants and agrees that it will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder in a timely manner
in accordance with the requirements of the Securities Act and the Exchange Act
and, if at any time such Issuer is not required to file such reports, such
Issuer will, upon the request of any Holder or beneficial owner of Registrable
Notes, make available such information necessary to permit sales pursuant to
Rule 144A under the Securities Act. Each of the Issuers further covenants and
agrees, for so long as any Registrable Notes remain outstanding that it will
take such further action as any Holder of Registrable Notes may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Notes without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the
Securities Act, as such Rules may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will manage the offering will
be selected by the Holders of a majority in aggregate principal amount of such
Registrable Notes included in such offering and shall be reasonably acceptable
to the Issuer.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
10. Miscellaneous
(a) No Inconsistent Agreements. The Issuers have not, as of the date hereof, and
the Issuers shall not, after the date of this Agreement, enter into any
agreement with respect to any of its securities that is inconsistent with the
rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Issuers' other issued and outstanding
securities under any such agreements. The Issuers will not enter into any
agreement with respect to any of its securities which will grant to any Person
piggy-back registration rights with respect to any Registration Statement.
(b) Adjustments Affecting Registrable Notes. The Issuers shall not, directly or
indirectly, take any action with respect to the Registrable Notes as a class
that would adversely affect the ability of the Holders of Registrable Notes to
include such Registrable Notes in a registration undertaken pursuant to this
Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, otherwise than with the prior written
consent of (I) the Company and (II)(A) the Holders of not less than a majority
in aggregate principal amount of the then outstanding Registrable Notes and (B)
in circumstances that would adversely affect the Participating Broker-Dealers,
the Participating Broker-Dealers holding not less than a majority in aggregate
principal amount of the Exchange Notes held by all Participating Broker-Dealers;
provided, however, that Section 7 and this Section 10(c) may not be amended,
modified or supplemented without the prior written consent of each Holder and
each Participating Broker-Dealer (including any person who was a Holder or
Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case
may be, disposed of pursuant to any Registration Statement) affected by any such
amendment, modification or supplement. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Notes may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Notes being sold pursuant to such
Registration Statement.
(d) Notices. All notices and other communications (including, without
limitation, any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
(i) if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or
Participating Broker-Dealer, as the case may be, set forth on the
records of the registrar under the Indenture.
(ii) if to the Issuers, at the address as follows:
c/o PANACO, Inc.
1050 West Blue Ridge Boulevard
Panaco Building
Kansas City, MO 64145-1216
Facsimile No.: (816) 942-6305
Attention: Chief Executive Officer
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one business
day after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties hereto, the
Holders and the Participating Broker-Dealers.
(f) Counterparts. This Agreement may be executed in any number of counterparts
and by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have epecuted the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(j) Securities Held by the Company or Its Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Registrable Notes is required
hereunder, Registrable Notes held by the Company or its affiliates (as such term
is defined in Rule 405 under the Securities Act) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
(k) Third-Party Beneficiaries. Holders of Registrable Notes and Participating
Broker-Dealers are intended third- party beneficiaries of this Agreement, and
this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the Purchase Agreement and
the Indenture, is intended by the parties as a final and exclusive statement of
the agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein and any and all prior oral or written
agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda between the Holders on the one hand
and the Issuers on the other, or between or among any agents, representatives,
parents, subsidiaries, affiliates, predecessors in interest or successors in
interest with respect to the subject matter hereof and thereof are merged herein
and replaced hereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
PANACO, INC.
By: _______________________
Name: H. James Maxwell
Title: President
GOLDKING ACQUISITION CORP., as Guarantor
By:
Name: H. James Maxwell
Title: President
GOLDKING COMPANIES, INC., as Guarantor
By:
Name: H. James Maxwell
Title: President
GOLDKING OIL & GAS CORP., as Guarantor
By:
Name: H. James Maxwell
Title: President
GOLDKING TRINITY BAY CORP., as Guarantor
By:
Name: H. James Maxwell
Title: President
GOLDKING PRODUCTION COMPANY, as Guarantor
By:
Name: H. James Maxwell
Title: President
HILL TRANSPORTATION CO., INC., as Guarantor
By:
Name: H. James Maxwell
Title: President
UMBRELLA POINT GATHERING, L.L.C., as Guarantor
By:
Name: H. James Maxwell
Title: President
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
BT ALEX. BROWN INCORPORATED,
FIRST UNION CAPITAL MARKETS CORP.,
A.G. EDWARDS & SONS, INC.,
GAINES, BERLAND INC.,
as Initial Purchasers
By: BT Alex. Brown Incorporated
By:
Name:
Title:
<PAGE>
Exhibit 4.4
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3), OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR"),
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL
ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS
SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY,
IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE
BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE INDENTURE.
<PAGE>
PANACO, INC.
10 5/8% SENIOR NOTE DUE 2004, SERIES A
No. 001
PANACO, INC., a Delaware corporation (the "Company", which term
includes any successor entities), for value received promises to pay to
CEDE & CO. or registered assigns the principal sum of One Hundred Million
Dollars on October 1, 2004.
Interest Payment Dates: April 1 and October 1, commencing April 1,
1998
Record Dates: March 15 and September 15
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at
this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers and a facsimile of its corporate
seal to be affixed hereto or imprinted hereon.
PANACO, INC.
By: ____________________________
Name: H. James Maxwell
Title: President and Chief
Executive Officer
By: ____________________________
Name: Todd R. Bart
Title: Secretary and Chief
Financial Officer
Dated:
<PAGE>
Certificate of Authentication
This is one of the 10 5/8% Senior Notes due 2004, Series A
referred to in the within-mentioned Indenture.
UMB BANK, N.A.,
as Trustee
By:_____________________________
Authorized Signatory
Date of Authentication:
<PAGE>
(REVERSE OF SECURITY)
10 5/8% Senior Note due 2004, Series A
(1) Interest. PANACO, INC., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at the rate per
annum shown above. Interest on the Notes will accrue from the most recent date
on which interest has been paid or, if no interest has been paid, from October
9, 1997. The Company will pay interest semi-annually in arrears on each Interest
Payment Date, commencing April 1, 1998. Interest will be computed on the basis
of a 360-day year of twelve 30-day months and, in the case of a partial month,
the actual number of days elapsed.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes and on overdue installments of interest (without regard to any applicable
grace periods) to the extent lawful.
(2) Method of Payment. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are cancelled on registration of transfer or registration of
exchange (including pursuant to an Exchange Offer (as defined in the
Registration Rights Agreement)) after such Record Date. Holders must surrender
Notes to a Paying Agent to collect principal payments. The Company shall pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal and interest by their check or draft
payable in such U.S. Legal Tender. The Company may deliver any such interest
payment to the Paying Agent or to a Holder at the Holder's registered address.
(3) Paying Agent and Registrar. Initially, UMB Bank, N.A. (the "Trustee")
will act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders.
(4) Indenture. The Company issued the Notes under an Indenture, dated as of
October 9, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors
and the Trustee. This Note is one of a duly authorized issue of Initial Notes of
the Company designated as its 10 5/8% Senior Notes due 2004, Series A (the
"Initial Notes"). The Notes are limited in aggregate principal amount to
$100,000,000. The Notes include the Initial Notes and the Exchange Notes, as
defined below, issued in exchange for the Initial Notes pursuant to the
Registration Rights Agreement. The Initial Notes and the Exchange Notes are
treated as a single class of securities under the Indenture. Capitalized terms
herein are used as defined in the Indenture unless otherwise defined herein. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and said Act for
a statement of them. The Notes are general unsecured obligations of the Company.
Payment on each Note is guaranteed on a senior basis by the Subsidiary
Guarantors pursuant to Article 12 of the Indenture. Each Holder, by accepting a
Note, agrees to be bound by all of the terms and provisions of the Indenture, as
the same may be amended from time to time in accordance with its terms.
(5) Redemption. The Notes will be redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after October 1, 2001,
upon not less than 30 nor more than 60 days' notice, at the following Redemption
Prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on June 1 of the years set forth
below, plus, in each case, accrued interest, if any, thereon to the date of
redemption:
Year Percentage
2001............................ 105.313
2002............................ 102.656
2003 and thereafter............. 100.000%
At any time, or from time to time, on or prior to October 1, 2000, the
Company may, at its option, use all or a portion of the net cash proceeds of one
or more Equity Offerings to redeem up to 35% of the aggregate principal amount
of the Notes originally issued at a redemption price equal to 110.625% of the
aggregate principal amount of the Notes to be redeemed, plus accrued interest,
if any, thereon to the date of redemption; provided, however, that at least 65%
of the aggregate principal amount of Notes originally issued remains outstanding
immediately after giving effect to any such redemption. In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Company shall
make such redemption not more than 60 days after the consummation of any such
Equity Offering.
(6) Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of the
Notes called for redemption shall have been deposited with the Paying Agent in
immediately available funds for redemption on such Redemption Date, then, unless
the Company defaults in the payment of such Redemption Price plus accrued
interest, if any, the Notes called for redemption will cease to bear interest
from and after such Redemption Date and the only right of the Holders of such
Notes will be to receive payment of the Redemption Price plus accrued interest,
if any.
(7) Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide
that, upon the occurrence of a Change of Control (as defined in the Indenture)
and after certain Asset Sales (as defined in the Indenture), and subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
(8) Registration Rights. Pursuant to the Registration Rights Agreement
among the Company, the Subsidiary Guarantors and the Initial Purchasers, the
Company and the Subsidiary Guarantors will be obligated to consummate an
exchange offer pursuant to which the Holder of this Note shall have the right to
exchange this Note for the Company's 10 5/8% Senior Notes due 2004, Series B
(the "Exchange Notes"), which have been registered under the Securities Act, in
like principal amount and having terms identical in all material respects as the
Initial Notes. The Holders of the Initial Notes shall be entitled to receive
certain additional interest payments in the event such exchange offer is not
consummated and upon certain other conditions, all pursuant to and in accordance
with the terms of the Registration Rights Agreement.
(9) Denominations; Transfer; Exchange. The Notes are in registered form,
without coupons, and (except Notes issued as payment of Interest) in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or similar
governmental charges payable in connection therewith as permitted by the
Indenture. The Registrar need not register the transfer of or exchange of any
Notes or portions thereof selected for redemption.
(10) Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
(11) Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Company. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
(12) Discharge Prior to Redemption or Maturity. If the Company at any time
deposit with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and comply with the other provisions of the Indenture relating thereto,
the Company will be discharged from certain provisions of the Indenture and the
Notes (including certain covenants, but including, under certain circumstances,
their obligation to pay the principal of and interest on the Notes but without
affecting the rights of the Holders to receive such amounts from such deposits).
(13) Amendment; Supplement; Waiver. Subject to certain exceptions set forth
in the Indenture, the Indenture or the Notes may be amended or supplemented with
the written consent of the Holders of not less than a majority in aggregate
principal amount of the Notes then outstanding, and any past Default or Event of
Default or noncompliance with any provision may be waived with the written
consent of the Holders of not less than a majority in aggregate principal amount
of the Notes then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, comply
with any requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the TIA or comply with Article Five of the
Indenture or make any other change that does not adversely affect the rights of
any Holder of a Note.
(14) Restrictive Covenants. The Indenture imposes certain limitations on
the ability of the Company and the Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of their Capital
Stock or certain Indebtedness, make certain Investments, create or incur liens,
enter into transactions with Affiliates, create dividend or other payment
restrictions affecting Restricted Subsidiaries, issue Preferred Stock of their
Restricted Subsidiaries, and on the ability of the Company and their Restricted
Subsidiaries to merge or consolidate with any other Person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
Company's and their Restricted Subsidiaries' assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the
Company must annually report to the Trustee on compliance with such limitations.
(15) Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
(16) Defaults and Remedies. Except as set forth in the Indenture, if an
Event of Default occurs and is continuing, the Trustee or the Holders of not
less than 25% in principal amount of Notes then outstanding may declare all the
Notes to be due and payable in the manner, at the time and with the effect
provided in the Indenture. Holders of Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Notes unless it has received indemnity reasonably
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Notes then outstanding to direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of Notes notice of any continuing
Default or Event of Default (except a Default in payment of principal or
interest when due, for any reason or a Default in compliance with Article Five
of the Indenture) if it determines that withholding notice is in their interest.
(17) Trustee Dealings with Company. The Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company, their Subsidiaries or their respective
Affiliates as if it were not the Trustee.
(18) No Recourse Against Others. No partner, director, officer, employee or
stockholder, as such, of the Company or any Subsidiary Guarantor, as such, shall
have any liability for any obligations of the Company or any Subsidiary
Guarantor under the Notes, the Indenture, the Guarantees or the Registration
Rights Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
(19) Guarantees. This Note will be entitled to the benefits of certain
Guarantees, if any, made for the benefit of the Holders. Reference is hereby
made to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Subsidiary Guarantors, the
Trustee and the Holders.
(20) Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
(21) Governing Law. This Note and the Indenture shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflict of laws. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Note.
(22) Abbreviations and Defined Terms. Customary abbreviations may be used
in the name of a Holder of a Note or an assignee, such as: TEN COM (' tenants in
common), TEN ENT (' tenants by the entireties), JT TEN (' joint tenants with
right of survivorship and not as tenants in common), CUST (' Custodian), and
U/G/M/A (' Uniform Gifts to Minors Act).
(23) CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note. Requests may be made to: PANACO, Inc., PANACO Building, 1050 West Blue
Ridge Boulevard, Kansas City, Missouri 64145-1216.
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint _______________________________________, agent to
transfer this Note on the books of the Company. The agent may substitute another
to act for him.
Dated: _____________________ Signed:___________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:___________________________________________
Signature must be guaranteed by an Eligible Guarantor Institution (as defined by
SEC Rule 17 Ad-15 (12 CFR 240.17 Ad-15) or any similar rule which the Trustee or
Paying Agent deems applicable).
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Note
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) October 9, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer:
<PAGE>
[Check One]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the Securities Act of
1933, as amended; or
(3) __ to an institutional "accredited investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act of 1933, as amended) that has
furnished to the Trustee a signed letter containing certain representations
and agreements (the form of which letter can be obtained from the Trustee);
or
(4) __ outside the United states to a "foreign person" in compliance with Rule
904 of Regulation S under the Securities Act of 1933, as amended; or
(5) __ pursuant to the exemption from registration provided by Rule 144 under
the Securities Act of 1933, as amended; or
(6) __ pursuant to an effective registration statement under the Securities Act
of 1933, as amended; or
(7) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
|_| The transferee is an Affiliate of the Company.
Unless one of the items (1)-(7) is checked, the Trustee will refuse to register
any of the Notes evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided, however, that if item (3), (4),
(5) or (7) is checked, the Company or the Trustee may require, prior to
registering any such transfer of the Notes, in their sole discretion, such
written legal opinions, certifications (including an investment letter in the
case of box (3) or (4)) and other information as the Trustee or the Company have
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.
If none of the foregoing items are checked, the Trustee or
Registrar shall not be obligated to register this Note in the name of any person
other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 2.17 of the Indenture
shall have been satisfied.
Dated: _____________________ Signed:___________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:___________________________________________
Signature must be guaranteed by an Eligible Guarantor Institution (as defined by
SEC Rule 17 Ad-15 (12 CFR 240.17 Ad-15) or any similar rule which the Trustee or
Paying Agent deems applicable).
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: __________________ _______________________________
NOTICE: To be executed by
an executive officer
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3), OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR"),
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL
ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS
SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY,
IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE
BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE INDENTURE.
<PAGE>
PANACO, INC.
10 5/8% SENIOR NOTE DUE 2004, SERIES A
No. 002
PANACO, INC., a Delaware corporation (the "Company", which term
includes any successor entities), for value received promises to pay to
CEDE & CO. or registered assigns the principal sum of Zero Dollars on
October 1, 2004.
Interest Payment Dates: April 1 and October 1, commencing April 1,
1998
Record Dates: March 15 and September 15
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at
this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of
its corporate seal to be affixed hereto or imprinted hereon.
PANACO, INC.
By: ____________________________
Name: H. James Maxwell
Title: President and Chief
Executive Officer
By: ____________________________
Name: Todd R. Bart
Title: Secretary and Chief
Financial Officer
Dated:
<PAGE>
Certificate of Authentication
This is one of the 10 5/8% Senior Notes due 2004, Series A
referred to in the within-mentioned Indenture.
UMB BANK, N.A.,
as Trustee
By:_____________________________
Authorized Signatory
Date of Authentication:
<PAGE>
(REVERSE OF SECURITY)
10 5/8% Senior Note due 2004, Series A
(1) Interest. PANACO, INC., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at the rate
per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been
paid, from October 9, 1997. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing April 1, 1998. Interest
will be computed on the basis of a 360-day year of twelve 30-day months
and, in the case of a partial month, the actual number of days elapsed.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by
the Notes and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful.
(2) Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are the registered Holders
at the close of business on the Record Date immediately preceding the
Interest Payment Date even if the Notes are cancelled on registration of
transfer or registration of exchange (including pursuant to an Exchange
Offer (as defined in the Registration Rights Agreement)) after such Record
Date. Holders must surrender Notes to a Paying Agent to collect principal
payments. The Company shall pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of
public and private debts ("U.S. Legal Tender"). However, the Company may
pay principal and interest by their check or draft payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the
Paying Agent or to a Holder at the Holder's registered address.
(3) Paying Agent and Registrar. Initially, UMB Bank, N.A. (the
"Trustee") will act as Paying Agent and Registrar. The Company may change
any Paying Agent, Registrar or co-Registrar without notice to the Holders.
(4) Indenture. The Company issued the Notes under an Indenture, dated
as of October 9, 1997 (the "Indenture"), among the Company, the Subsidiary
Guarantors and the Trustee. This Note is one of a duly authorized issue of
Initial Notes of the Company designated as its 10 5/8% Senior Notes due
2004, Series A (the "Initial Notes"). The Notes are limited in aggregate
principal amount to $100,000,000. The Notes include the Initial Notes and
the Exchange Notes, as defined below, issued in exchange for the Initial
Notes pursuant to the Registration Rights Agreement. The Initial Notes and
the Exchange Notes are treated as a single class of securities under the
Indenture. Capitalized terms herein are used as defined in the Indenture
unless otherwise defined herein. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) (the
"TIA"), as in effect on the date of the Indenture. Notwithstanding anything
to the contrary herein, the Notes are subject to all such terms, and
Holders of Notes are referred to the Indenture and said Act for a statement
of them. The Notes are general unsecured obligations of the Company.
Payment on each Note is guaranteed on a senior basis by the Subsidiary
Guarantors pursuant to Article 12 of the Indenture. Each Holder, by
accepting a Note, agrees to be bound by all of the terms and provisions of
the Indenture, as the same may be amended from time to time in accordance
with its terms.
(5) Redemption. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after October 1,
2001, upon not less than 30 nor more than 60 days' notice, at the following
Redemption Prices (expressed as percentages of the principal amount
thereof) if redeemed during the twelve-month period commencing on June 1 of
the years set forth below, plus, in each case, accrued interest, if any,
thereon to the date of redemption:
Year Percentage
2001............................ 105.313
2002............................ 102.656
2003 and thereafter............. 100.000%
At any time, or from time to time, on or prior to October 1,
2000, the Company may, at its option, use all or a portion of the net cash
proceeds of one or more Equity Offerings to redeem up to 35% of the aggregate
principal amount of the Notes originally issued at a redemption price equal to
110.625% of the aggregate principal amount of the Notes to be redeemed, plus
accrued interest, if any, thereon to the date of redemption; provided, however,
that at least 65% of the aggregate principal amount of Notes originally issued
remains outstanding immediately after giving effect to any such redemption. In
order to effect the foregoing redemption with the proceeds of any Equity
Offering, the Company shall make such redemption not more than 60 days after the
consummation of any such Equity Offering.
(6) Notice of Redemption. Notice of redemption will be mailed at least
30 days but not more than 60 days before the Redemption Date to each Holder
of Notes to be redeemed at such Holder's registered address. Notes in
denominations larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the
redemption of the Notes called for redemption shall have been deposited with the
Paying Agent in immediately available funds for redemption on such Redemption
Date, then, unless the Company defaults in the payment of such Redemption Price
plus accrued interest, if any, the Notes called for redemption will cease to
bear interest from and after such Redemption Date and the only right of the
Holders of such Notes will be to receive payment of the Redemption Price plus
accrued interest, if any.
(7) Offers to Purchase. Sections 4.15 and 4.16 of the Indenture
provide that, upon the occurrence of a Change of Control (as defined in the
Indenture) and after certain Asset Sales (as defined in the Indenture), and
subject to further limitations contained therein, the Company will make an
offer to purchase certain amounts of the Notes in accordance with the
procedures set forth in the Indenture.
(8) Registration Rights. Pursuant to the Registration Rights Agreement
among the Company, the Subsidiary Guarantors and the Initial Purchasers,
the Company and the Subsidiary Guarantors will be obligated to consummate
an exchange offer pursuant to which the Holder of this Note shall have the
right to exchange this Note for the Company's 10 5/8% Senior Notes due
2004, Series B (the "Exchange Notes"), which have been registered under the
Securities Act, in like principal amount and having terms identical in all
material respects as the Initial Notes. The Holders of the Initial Notes
shall be entitled to receive certain additional interest payments in the
event such exchange offer is not consummated and upon certain other
conditions, all pursuant to and in accordance with the terms of the
Registration Rights Agreement.
(9) Denominations; Transfer; Exchange. The Notes are in registered
form, without coupons, and (except Notes issued as payment of Interest) in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay certain
transfer taxes or similar governmental charges payable in connection
therewith as permitted by the Indenture. The Registrar need not register
the transfer of or exchange of any Notes or portions thereof selected for
redemption.
(10) Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
(11) Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for one year, the Trustee and the Paying Agent
will pay the money back to the Company. After that, all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
(12) Discharge Prior to Redemption or Maturity. If the Company at any
time deposit with the Trustee U.S. Legal Tender or U.S. Government
Obligations sufficient to pay the principal of and interest on the Notes to
redemption or maturity and comply with the other provisions of the
Indenture relating thereto, the Company will be discharged from certain
provisions of the Indenture and the Notes (including certain covenants, but
including, under certain circumstances, their obligation to pay the
principal of and interest on the Notes but without affecting the rights of
the Holders to receive such amounts from such deposits).
(13) Amendment; Supplement; Waiver. Subject to certain exceptions set
forth in the Indenture, the Indenture or the Notes may be amended or
supplemented with the written consent of the Holders of not less than a
majority in aggregate principal amount of the Notes then outstanding, and
any past Default or Event of Default or noncompliance with any provision
may be waived with the written consent of the Holders of not less than a
majority in aggregate principal amount of the Notes then outstanding.
Without notice to or consent of any Holder, the parties thereto may amend
or supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Notes in
addition to or in place of certificated Notes, comply with any requirements
of the Commission in order to effect or maintain the qualification of the
Indenture under the TIA or comply with Article Five of the Indenture or
make any other change that does not adversely affect the rights of any
Holder of a Note.
(14) Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company and the Restricted Subsidiaries to, among
other things, incur additional Indebtedness, make payments in respect of
their Capital Stock or certain Indebtedness, make certain Investments,
create or incur liens, enter into transactions with Affiliates, create
dividend or other payment restrictions affecting Restricted Subsidiaries,
issue Preferred Stock of their Restricted Subsidiaries, and on the ability
of the Company and their Restricted Subsidiaries to merge or consolidate
with any other Person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the Company's and their Restricted
Subsidiaries' assets or adopt a plan of liquidation. Such limitations are
subject to a number of important qualifications and exceptions. Pursuant to
Section 4.06 of the Indenture, the Company must annually report to the
Trustee on compliance with such limitations.
(15) Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released
from those obligations.
(16) Defaults and Remedies. Except as set forth in the Indenture, if
an Event of Default occurs and is continuing, the Trustee or the Holders of
not less than 25% in principal amount of Notes then outstanding may declare
all the Notes to be due and payable in the manner, at the time and with the
effect provided in the Indenture. Holders of Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. The Trustee is
not obligated to enforce the Indenture or the Notes unless it has received
indemnity reasonably satisfactory to it. The Indenture permits, subject to
certain limitations therein provided, Holders of a majority in aggregate
principal amount of the Notes then outstanding to direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of
Notes notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest when due, for any reason or a
Default in compliance with Article Five of the Indenture) if it determines
that withholding notice is in their interest.
(17) Trustee Dealings with Company. The Trustee under the Indenture,
in its individual or any other capacity, may become the owner or pledgee of
Notes and may otherwise deal with the Company, their Subsidiaries or their
respective Affiliates as if it were not the Trustee.
(18) No Recourse Against Others. No partner, director, officer,
employee or stockholder, as such, of the Company or any Subsidiary
Guarantor, as such, shall have any liability for any obligations of the
Company or any Subsidiary Guarantor under the Notes, the Indenture, the
Guarantees or the Registration Rights Agreement or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each
Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for the issuance of
the Notes.
(19) Guarantees. This Note will be entitled to the benefits of certain
Guarantees, if any, made for the benefit of the Holders. Reference is
hereby made to the Indenture for a statement of the respective rights,
limitations of rights, duties and obligations thereunder of the Subsidiary
Guarantors, the Trustee and the Holders.
(20) Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on
this Note.
(21) Governing Law. This Note and the Indenture shall be governed by
and construed in accordance with the laws of the State of New York, as
applied to contracts made and performed within the State of New York,
without regard to principles of conflict of laws. Each of the parties
hereto agrees to submit to the jurisdiction of the courts of the State of
New York in any action or proceeding arising out of or relating to this
Note.
(22) Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Note or an assignee, such as: TEN COM ('
tenants in common), TEN ENT (' tenants by the entireties), JT TEN (' joint
tenants with right of survivorship and not as tenants in common), CUST ('
Custodian), and U/G/M/A (' Uniform Gifts to Minors Act).
(23) CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes as a convenience to the
Holders of the Notes. No representation is made as to the accuracy of such
numbers as printed on the Notes and reliance may be placed only on the
other identification numbers printed hereon.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note. Requests may be made to: PANACO, Inc., PANACO Building, 1050 West Blue
Ridge Boulevard, Kansas City, Missouri 64145-1216.
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint _______________________________________, agent to
transfer this Note on the books of the Company. The agent may substitute another
to act for him.
Dated: _____________________ Signed:___________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:___________________________________________
Signature must be guaranteed by an Eligible Guarantor Institution (as defined by
SEC Rule 17 Ad-15 (12 CFR 240.17 Ad-15) or any similar rule which the Trustee or
Paying Agent deems applicable).
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Note
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) October 9, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer:
<PAGE>
[Check One]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the Securities Act of
1933, as amended; or
(3) __ to an institutional "accredited investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act of 1933, as amended) that has
furnished to the Trustee a signed letter containing certain representations
and agreements (the form of which letter can be obtained from the Trustee);
or
(4) __ outside the United states to a "foreign person" in compliance with Rule
904 of Regulation S under the Securities Act of 1933, as amended; or
(5) __ pursuant to the exemption from registration provided by Rule 144 under
the Securities Act of 1933, as amended; or
(6) __ pursuant to an effective registration statement under the Securities Act
of 1933, as amended; or
(7) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
|_| The transferee is an Affiliate of the Company.
Unless one of the items (1)-(7) is checked, the Trustee will refuse to register
any of the Notes evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided, however, that if item (3), (4),
(5) or (7) is checked, the Company or the Trustee may require, prior to
registering any such transfer of the Notes, in their sole discretion, such
written legal opinions, certifications (including an investment letter in the
case of box (3) or (4)) and other information as the Trustee or the Company have
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.
If none of the foregoing items are checked, the Trustee or
Registrar shall not be obligated to register this Note in the name of any person
other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 2.17 of the Indenture
shall have been satisfied.
Dated: _____________________ Signed:___________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:___________________________________________
Signature must be guaranteed by an Eligible Guarantor Institution (as defined by
SEC Rule 17 Ad-15 (12 CFR 240.17 Ad-15) or any similar rule which the Trustee or
Paying Agent deems applicable).
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: __________________ _______________________________
NOTICE: To be executed by
an executive officer
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3), OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR"),
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL
ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS
SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY,
IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE
BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE INDENTURE.
<PAGE>
PANACO, INC.
10 5/8% SENIOR NOTE DUE 2004, SERIES A
No. 003
PANACO, INC., a Delaware corporation (the "Company", which
term includes any successor entities), for value received promises to pay to
CEDE & CO. or registered assigns the principal sum of Zero Dollars on October 1,
2004.
Interest Payment Dates: April 1 and October 1, commencing April 1, 1998
Record Dates: March 15 and September 15
Reference is made to the further provisions of this Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto or imprinted hereon.
PANACO, INC.
By: ____________________________
Name: H. James Maxwell
Title: President and Chief
Executive Officer
By: ____________________________
Name: Todd R. Bart
Title: Secretary and Chief
Financial Officer
Dated:
<PAGE>
Certificate of Authentication
This is one of the 10 5/8% Senior Notes due 2004, Series A
referred to in the within-mentioned Indenture.
UMB BANK, N.A.,
as Trustee
By:_____________________________
Authorized Signatory
Date of Authentication:
<PAGE>
(REVERSE OF SECURITY)
10 5/8% Senior Note due 2004, Series A
(1) Interest. PANACO, INC., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at the rate per
annum shown above. Interest on the Notes will accrue from the most recent date
on which interest has been paid or, if no interest has been paid, from October
9, 1997. The Company will pay interest semi-annually in arrears on each Interest
Payment Date, commencing April 1, 1998. Interest will be computed on the basis
of a 360-day year of twelve 30-day months and, in the case of a partial month,
the actual number of days elapsed.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes and on overdue installments of interest (without regard to any applicable
grace periods) to the extent lawful.
(2) Method of Payment. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are cancelled on registration of transfer or registration of
exchange (including pursuant to an Exchange Offer (as defined in the
Registration Rights Agreement)) after such Record Date. Holders must surrender
Notes to a Paying Agent to collect principal payments. The Company shall pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal and interest by their check or draft
payable in such U.S. Legal Tender. The Company may deliver any such interest
payment to the Paying Agent or to a Holder at the Holder's registered address.
(3) Paying Agent and Registrar. Initially, UMB Bank, N.A. (the "Trustee")
will act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders.
(4) Indenture. The Company issued the Notes under an Indenture, dated as of
October 9, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors
and the Trustee. This Note is one of a duly authorized issue of Initial Notes of
the Company designated as its 10 5/8% Senior Notes due 2004, Series A (the
"Initial Notes"). The Notes are limited in aggregate principal amount to
$100,000,000. The Notes include the Initial Notes and the Exchange Notes, as
defined below, issued in exchange for the Initial Notes pursuant to the
Registration Rights Agreement. The Initial Notes and the Exchange Notes are
treated as a single class of securities under the Indenture. Capitalized terms
herein are used as defined in the Indenture unless otherwise defined herein. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and said Act for
a statement of them. The Notes are general unsecured obligations of the Company.
Payment on each Note is guaranteed on a senior basis by the Subsidiary
Guarantors pursuant to Article 12 of the Indenture. Each Holder, by accepting a
Note, agrees to be bound by all of the terms and provisions of the Indenture, as
the same may be amended from time to time in accordance with its terms.
(5) Redemption. The Notes will be redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after October 1, 2001,
upon not less than 30 nor more than 60 days' notice, at the following Redemption
Prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on June 1 of the years set forth
below, plus, in each case, accrued interest, if any, thereon to the date of
redemption:
Year Percentage
2001............................ 105.313
2002............................ 102.656
2003 and thereafter............. 100.000%
At any time, or from time to time, on or prior to October 1,
2000, the Company may, at its option, use all or a portion of the net cash
proceeds of one or more Equity Offerings to redeem up to 35% of the aggregate
principal amount of the Notes originally issued at a redemption price equal to
110.625% of the aggregate principal amount of the Notes to be redeemed, plus
accrued interest, if any, thereon to the date of redemption; provided, however,
that at least 65% of the aggregate principal amount of Notes originally issued
remains outstanding immediately after giving effect to any such redemption. In
order to effect the foregoing redemption with the proceeds of any Equity
Offering, the Company shall make such redemption not more than 60 days after the
consummation of any such Equity Offering.
(6) Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the
redemption of the Notes called for redemption shall have been deposited with the
Paying Agent in immediately available funds for redemption on such Redemption
Date, then, unless the Company defaults in the payment of such Redemption Price
plus accrued interest, if any, the Notes called for redemption will cease to
bear interest from and after such Redemption Date and the only right of the
Holders of such Notes will be to receive payment of the Redemption Price plus
accrued interest, if any.
(7) Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide
that, upon the occurrence of a Change of Control (as defined in the Indenture)
and after certain Asset Sales (as defined in the Indenture), and subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
(8) Registration Rights. Pursuant to the Registration Rights Agreement
among the Company, the Subsidiary Guarantors and the Initial Purchasers, the
Company and the Subsidiary Guarantors will be obligated to consummate an
exchange offer pursuant to which the Holder of this Note shall have the right to
exchange this Note for the Company's 10 5/8% Senior Notes due 2004, Series B
(the "Exchange Notes"), which have been registered under the Securities Act, in
like principal amount and having terms identical in all material respects as the
Initial Notes. The Holders of the Initial Notes shall be entitled to receive
certain additional interest payments in the event such exchange offer is not
consummated and upon certain other conditions, all pursuant to and in accordance
with the terms of the Registration Rights Agreement.
(9) Denominations; Transfer; Exchange. The Notes are in registered form,
without coupons, and (except Notes issued as payment of Interest) in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or similar
governmental charges payable in connection therewith as permitted by the
Indenture. The Registrar need not register the transfer of or exchange of any
Notes or portions thereof selected for redemption.
(10) Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
(11) Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Company. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
(12) Discharge Prior to Redemption or Maturity. If the Company at any time
deposit with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and comply with the other provisions of the Indenture relating thereto,
the Company will be discharged from certain provisions of the Indenture and the
Notes (including certain covenants, but including, under certain circumstances,
their obligation to pay the principal of and interest on the Notes but without
affecting the rights of the Holders to receive such amounts from such deposits).
(13) Amendment; Supplement; Waiver. Subject to certain exceptions set forth
in the Indenture, the Indenture or the Notes may be amended or supplemented with
the written consent of the Holders of not less than a majority in aggregate
principal amount of the Notes then outstanding, and any past Default or Event of
Default or noncompliance with any provision may be waived with the written
consent of the Holders of not less than a majority in aggregate principal amount
of the Notes then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, comply
with any requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the TIA or comply with Article Five of the
Indenture or make any other change that does not adversely affect the rights of
any Holder of a Note.
(14) Restrictive Covenants. The Indenture imposes certain limitations on
the ability of the Company and the Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of their Capital
Stock or certain Indebtedness, make certain Investments, create or incur liens,
enter into transactions with Affiliates, create dividend or other payment
restrictions affecting Restricted Subsidiaries, issue Preferred Stock of their
Restricted Subsidiaries, and on the ability of the Company and their Restricted
Subsidiaries to merge or consolidate with any other Person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
Company's and their Restricted Subsidiaries' assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the
Company must annually report to the Trustee on compliance with such limitations.
(15) Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
(16) Defaults and Remedies. Except as set forth in the Indenture, if an
Event of Default occurs and is continuing, the Trustee or the Holders of not
less than 25% in principal amount of Notes then outstanding may declare all the
Notes to be due and payable in the manner, at the time and with the effect
provided in the Indenture. Holders of Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Notes unless it has received indemnity reasonably
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Notes then outstanding to direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of Notes notice of any continuing
Default or Event of Default (except a Default in payment of principal or
interest when due, for any reason or a Default in compliance with Article Five
of the Indenture) if it determines that withholding notice is in their interest.
(17) Trustee Dealings with Company. The Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company, their Subsidiaries or their respective
Affiliates as if it were not the Trustee.
(18) No Recourse Against Others. No partner, director, officer, employee or
stockholder, as such, of the Company or any Subsidiary Guarantor, as such, shall
have any liability for any obligations of the Company or any Subsidiary
Guarantor under the Notes, the Indenture, the Guarantees or the Registration
Rights Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
(19) Guarantees. This Note will be entitled to the benefits of certain
Guarantees, if any, made for the benefit of the Holders. Reference is hereby
made to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Subsidiary Guarantors, the
Trustee and the Holders.
(20) Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
(21) Governing Law. This Note and the Indenture shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflict of laws. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Note.
(22) Abbreviations and Defined Terms. Customary abbreviations may be used
in the name of a Holder of a Note or an assignee, such as: TEN COM (' tenants in
common), TEN ENT (' tenants by the entireties), JT TEN (' joint tenants with
right of survivorship and not as tenants in common), CUST (' Custodian), and
U/G/M/A (' Uniform Gifts to Minors Act).
(23) CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note. Requests may be made to: PANACO, Inc., PANACO Building, 1050 West Blue
Ridge Boulevard, Kansas City, Missouri 64145-1216.
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint _______________________________________, agent to
transfer this Note on the books of the Company. The agent may substitute another
to act for him.
Dated: _____________________ Signed:___________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:___________________________________________
Signature must be guaranteed by an Eligible Guarantor Institution (as defined by
SEC Rule 17 Ad-15 (12 CFR 240.17 Ad-15) or any similar rule which the Trustee or
Paying Agent deems applicable).
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Note
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) October 9, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer:
<PAGE>
[Check One]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the
Securities Act of 1933, as amended; or
(3) __ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as
amended) that has furnished to the Trustee a signed letter
containing certain representations and agreements (the form of
which letter can be obtained from the Trustee); or
(4) __ outside the United states to a "foreign person" in compliance
with Rule 904 of Regulation S under the Securities Act of 1933,
as amended; or
(5) __ pursuant to the exemption from registration provided by Rule
144 under the Securities Act of 1933, as amended; or
(6) __ pursuant to an effective registration statement under the
Securities Act of 1933, as amended; or
(7) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
|_| The transferee is an Affiliate of the Company.
Unless one of the items (1)-(7) is checked, the Trustee will refuse to register
any of the Notes evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided, however, that if item (3), (4),
(5) or (7) is checked, the Company or the Trustee may require, prior to
registering any such transfer of the Notes, in their sole discretion, such
written legal opinions, certifications (including an investment letter in the
case of box (3) or (4)) and other information as the Trustee or the Company have
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.
If none of the foregoing items are checked, the Trustee or
Registrar shall not be obligated to register this Note in the name of any person
other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 2.17 of the Indenture
shall have been satisfied.
Dated: _____________________ Signed:___________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:___________________________________________
Signature must be guaranteed by an Eligible Guarantor Institution (as defined by
SEC Rule 17 Ad-15 (12 CFR 240.17 Ad-15) or any similar rule which the Trustee or
Paying Agent deems applicable).
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: __________________ _______________________________
NOTICE: To be executed by
an executive officer
<PAGE>
EXHIBIT 10.20
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY
INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF
EXCEPT AS PROVIDED HEREIN. THE HOLDER OF THIS WARRANT AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH.
WARRANT
to
PURCHASE SHARES OF COMMON STOCK
of
PANACO, INC.
This Warrant dated as of October 9, 1997 (this "Warrant") certifies that,
for good and valuable consideration, PANACO, INC., a Delaware corporation (the
"Company"), grants to ________________ and, together with any transferee of this
Warrant or Warrant Shares (as defined below) (the "Warrantholder" or
"Warrantholders"), subject to the terms and conditions set forth herein, the
right to subscribe for and purchase from the Company Four Hundred Thirty-Six
Thousand Three Hundred Sixty-Four (436,364) shares of the Company's Common Stock
(as hereinafter defined) issuable to the Warrantholder upon exercise of this
Warrant and as further set forth herein (the "Warrant Shares"), during the
period from the date hereof (the "Initial Exercise Date") and to and including
5:00 p.m. Houston, Texas time on December 31, 1998 (the "Expiration Date") at a
purchase price of $4.125 per share (the "Exercise Price"). "Common Stock" means
shares now or hereafter authorized of the class of Common Stock, $.01 par value,
of the Borrower presently authorized and stock of any other class into which
such shares may hereafter have been reclassified or changed, and includes the
Rights. "Rights" means the Rights issued pursuant to the Rights Agreement, and
any similar rights issued in exchange for, upon conversion of or in substitution
for such Rights. "Rights Agreement" means that certain Rights Agreement, dated
as of August 3, 1995, between the Borrower and American Stock Transfer and Trust
Company, as Rights Agent, as the same may hereafter be amended or supplemented.
The Exercise Price and the number of Warrant Shares are subject to adjustment
from time to time as provided in Section 5.
1. Duration and Exercise of Warrant; Limitation Exercise Payment of Taxes.
1.1 Duration and Exercise of Warrant. The rights represented by this
Warrant may be exercised by the Warrantholder of record, in whole, or from time
to time in part, by surrender of this Warrant, accompanied by the Exercise Form
annexed hereto (the "Exercise Form") duly executed by the Warrantholder of
record and specifying the number of Warrant Shares to be purchased, to the
Company at the office of the Company located at 1050 West Blue Ridge Boulevard,
Panaco Building, Kansas City, Missouri, 64145-1216 (or such other office or
agency of the Company as it may designate by notice to the Warrantholder) during
normal business hours on any day (a "Business Day") other than a Saturday,
Sunday or a day on which the Company is otherwise closed for business (a
"Nonbusiness Day") on or after 9:00 a.m. Central Standard time on the Initial
Exercise Date but not later than 5:00 p.m. on the Expiration Date (or 5:00 p.m.
on the next succeeding Business Day, if the Expiration Date is a Nonbusiness
Day), delivery of payment to the Company of the Exercise Price for the number of
Warrant Shares specified in the Exercise Form, payable in cash or certified bank
check, and such documentation as to the identity and authority of the
Warrantholder as the Company may reasonably request. Such Warrant Shares shall
be deemed by the Company to be issued to the Warrantholder that is the record
holder of such Warrant Shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for the Warrant Shares
as aforesaid. Certificates for the Warrant Shares specified in the Exercise Form
shall be delivered to the Warrantholder as promptly as practicable, and in any
event within 5 Business Days, thereafter. The stock certificates so delivered
shall be in denominations specified by the Warrantholder, and shall be issued in
the name of the Warrantholder or, if permitted by subsection 1.4 and in
accordance with the provisions thereof, such other name as shall be designated
in the Exercise Form. If this Warrant shall have been exercised only in part,
the Company shall, at the time of delivery of the certificates for the Warrant
Shares, deliver to the Warrantholder a new Warrant evidencing the rights to
purchase the remaining Warrant Shares, which new Warrant shall in all other
respects be identical with this Warrant. No adjustments or payments shall be
made on or in respect of Warrant Shares issuable on the exercise of this Warrant
for any cash dividends paid or payable to holders of record of Common Stock
prior to the date as of which the Warrantholder shall be deemed to be the record
holder of such Warrant Shares.
1.2 Limitation on Exercise. If this Warrant is not exercised prior to 5:00
p.m. on the Expiration Date (or the next succeeding Business Day, if the
Expiration Date is a Nonbusiness Day), this Warrant, or any new Warrant issued
pursuant to Section 1.1, shall cease to be exercisable and shall become void and
all rights of the Warrantholder hereunder shall cease.
1.3 Payment of Taxes. The issuance of certificates for Warrant Shares shall
be made without charge to the Warrantholder for any stock transfer or other
issuance tax in respect thereto. 1.4 Transfer; Restriction on Transfer and
Legend.
(1) Subject to the provisions of Section 1.4(b) below, this Warrant shall be
transferrable, in whole or in part, at any time after the date hereof,
without the consent of the Company, by notice from Warrantholder. The
Company shall keep at its principal office a register in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide
for the registration, transfer and exchange of this Warrant. The Company
will not at any time, except upon the dissolution, liquidation or winding
up of the Company, close such register so as to prevent or delay the
exercise or transfer of this Warrant.
(2) Neither this Warrant nor any of the Warrant Shares, nor any interest or
participation in either, may be in any manner transferred or disposed of,
in whole or in part, except in compliance with applicable United States
federal and state securities laws.
Each certificate for Warrant Shares and any Warrant issued at any time in
exchange or substitution for any Warrant bearing such a legend shall bear a
legend similar in effect to the foregoing paragraph unless, in the opinion of
counsel for the Company, the Warrant need no longer be subject to the
restriction contained herein. The provisions of this subsection 1.4 shall be
binding upon all subsequent holders of this Warrant, if any. Warrant Shares
transferred to the public as expressly permitted by, and in accordance with, the
provisions of this Warrant shall thereafter cease to be deemed to be "Warrant
Shares" for purposes hereof.
1.5 Divisibility of Warrant. This Warrant may be divided into warrants
representing one Warrant Share or multiples thereof, upon surrender at the
principal office of the Company on any Business Day, without charge to any
Warrantholder, except as provided below. Upon any such division, and, if
permitted by subsection 1.4 and in accordance with the provisions thereof, the
Warrants may be transferred of record to a name other than that of the
Warrantholder of record; provided, however, that the Warrantholder shall be
required to pay any and all transfer taxes with respect thereto.
1.6 Representations, Warranties and Covenants of the Company. The Company
hereby represents, warrants and covenants as follows:
(1) Existence. The Company is a corporation duly organized and validly existing
under the laws of the State of Delaware and is authorized to do business
and is in good standing as a foreign corporation in every jurisdiction in
which it owns or leases real property or in which the nature of its
business requires it to be so qualified, except where the failure to so
qualify, individually or in the aggregate, could not reasonably be expected
to have a material adverse effect on the Company.
(2) Power and Authority. The Company has all requisite corporate power and
authority, and has taken all corporate action necessary, to execute,
deliver and perform this Warrant, to grant, issue and deliver this Warrant
and to authorize and reserve for issuance and, upon payment from time to
time of the Exercise Price, to issue and deliver the shares of Common Stock
issuable upon exercise of the Warrant. This Warrant has been duly executed
and delivered by the Company.
(3) Reservation, Issuance and Delivery of Common Stock. There have been
reserved for issuance, and the Company shall at all times keep reserved,
out of the authorized and unissued shares of Common Stock, a number of
shares sufficient to provide for the exercise of the rights of purchase
represented by this Warrant, and such shares, when issued upon receipt of
payment therefor in accordance with the terms of this Warrant, will be
legally and validly issued, fully paid and non-assessable and will be free
of any preemptive rights of stockholders.
(4) Execution and Delivery. Neither the execution or delivery of this Warrant
nor the consummation of the transactions herein contemplated does or will
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company is a party
or by which the Company is bound or to which any of the property or assets
of the Company is subject, nor will such action result in any violation of
any provision of the Certificate of Incorporation or Bylaws of the Company
or any statute or any order, rule or regulation or any court or
governmental agency or body having jurisdiction over the Company or any of
its properties.
(5) Valid and Binding Obligations. This Warrant, when duly executed and
delivered, will constitute legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to any
applicable bankruptcy, insolvency or other laws of general application
affecting creditors' rights and judicial decisions interpreting any of the
foregoing.
2. Reservation and Listing of Shares.
All Warrant Shares which are issued upon the exercise of the rights
represented by this Warrant shall, upon issuance and payment of the Exercise
Price, be validly issued, fully paid and nonassessable and free from all taxes,
liens, security interests, charges and other encumbrances with respect to the
issue thereof. During the period within which this Warrant may be exercised, the
Company shall at all times have authorized and reserved, and keep available free
from preemptive rights, a sufficient number of shares of Common Stock to provide
for the exercise of this Warrant, and shall at its expense procure such listing
thereof (subject to official notice of issuance) as then may be required on all
stock exchanges on which the Common Stock is then listed. The Company shall,
from time to time, take all such action as may be required to assure that the
par value per share of the Warrant Shares is at all times equal to or less than
the then effective Exercise Price.
3. Exchange, Loss or Destruction of Warrant.
If permitted by subsection 1.4 or 1.5 and in accordance with the provisions
thereof, upon surrender of this Warrant to the Company with a duly executed
instrument of assignment and funds sufficient to pay any transfer tax, the
Company shall, without charge, execute and deliver a new Warrant of like tenor
in the name of the assignee named in such instrument of assignment and this
Warrant shall promptly be canceled. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction, of such bond or
indemnification as the Company may reasonably require, and, in the case of such
mutilation, upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new Warrant of like tenor. The term "Warrant" as used
herein includes any Warrants issued in substitution or exchange of this Warrant.
4. Ownership of Warrant.
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer as provided in
subsections 1.1, 1.4 and 1.5 or in Section 3.
5. Certain Adjustments.
The Exercise Price at which Warrant Shares may be purchased hereunder, and
the number of Warrant Shares to be purchased upon exercise hereof, are subject
to change or adjustment after October 8, 1996 as follows:
5.1 General. The number of Warrant Shares purchasable upon the exercise of
this Warrant and the Exercise Price shall be subject to adjustment as follows:
(1) If the Company, at any time after October 8, 1996 shall (A) pay a stock
dividend or stock dividends or otherwise make a distribution on shares of
its capital stock payable in shares of Common Stock (or in securities
convertible into shares of Common Stock), (B) except as set forth in clause
(A) above, pay a stock dividend or make a distribution on shares of its
capital stock payable in shares of its capital stock of any class other
than Common Stock or a class convertible into Common Stock, (C) subdivide
outstanding shares of Common Stock into a larger number of shares, (D)
combine outstanding shares of Common Stock into a smaller number of shares,
or (E) issue by reclassification of shares of Common Stock any shares of
capital stock of the Company of any class or classes, the Exercise Price in
effect immediately prior to such action shall be adjusted so that the
holder of this Warrant shall be entitled to receive the number and class or
classes of shares of the capital stock of the Company which it would have
owned or have been entitled to receive immediately after the happening of
any of the events described above, had this Warrant been exercised on or
immediately prior to the record date for such dividend or distribution or
the effective date of such subdivision, combination or reclassification, as
the case may be. An adjustment made pursuant to this subsection 5.1(a)
shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any
event listed above occurs.
(2) In case the Company, at any time after October 8, 1996, shall issue or sell
any shares of Common Stock or any rights or warrants to purchase shares of
Common Stock or securities convertible into Common Stock at a price per
share of Common Stock that is less than the Per Share Market Value (as
hereinafter defined) of Common Stock immediately prior to the time of such
issue or sale (except for the sale of Common Stock to Amoco Production
Company in accordance with the terms of the Purchase Agreement (as defined
in the Senior Subordinated Mortgage Master Loan Agreement, dated as of
October 8, 1996, and amended by the First Amendment to Senior Subordinated
Mortgage Master Loan Agreement, dated as of July 30, 1997 (collectively the
"Credit Amendment") by and among the Company, the lenders a party thereto
(the "Lenders") and _________________________________, as agent for the
Lenders (the "Agent")), the Exercise Price shall be reduced by multiplying
the Exercise Price in effect on the date of issuance of such shares,
warrants, rights or convertible securities by a fraction, of which the
denominator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such
shares, rights, warrants or convertible securities plus the number of
additional shares of Common Stock offered for subscription or purchase or
issuable on conversion, and of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such shares, rights, warrants or convertible
securities plus the number of shares which the aggregate offering price of
the total number of shares so offered, issued or issuable, or, with respect
to convertible securities, the aggregate consideration received by the
Company for the convertible securities, would purchase at such Per Share
Market Value. Such adjustment shall be made successively whenever such
shares, rights, warrants or convertible securities are issued, and shall
become effective immediately after the date of such issuance. However, upon
the expiration of any right or warrant to purchase Common Stock or
conversion right the issuance of which resulted in an adjustment in the
Exercise Price pursuant to this subsection 5.1(b), if any such right,
warrant or conversion right shall expire and shall not have been exercised,
the Exercise Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which
it would have been (but reflecting any other adjustments in the Exercise
Price made pursuant to the provisions of this Section 5.1 after the
issuance of such rights, warrants or convertible securities) had the
adjustment of the Exercise Price made upon the issuance of such rights,
warrants or convertible securities been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock
actually purchased upon the exercise of such rights or warrants actually
exercised or the conversion of the convertible securities actually
converted. "Per Share Market Value" means on any particular date (A) the
last sale price per share of the Common Stock on such date on the principal
stock exchange on which the Common Stock has been listed or, if there is no
such price on such date, then the last price on such exchange on the date
nearest preceding such date, or (B) if the Common Stock is not listed on
any stock exchange, the average between the final bid and the final asked
prices for a share of Common Stock in the over-the-counter market, as
reported by the Nasdaq National Market at the close of business on such
date, or the last sales price if such price is reported and final bid and
asked prices are not available, or (C) if the Common Stock is not quoted on
the Nasdaq National Market, the average between the final bid and final
asked prices for a share of Common Stock in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices), or
(D) if the Common Stock is no longer publicly traded, as determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may
be the firm that regularly examines the financial statements of the
Company) selected in good faith by the Board of Directors of the Company,
provided that none of the transactions related to the foregoing shall
include purchases by any "affiliate" (as such term is defined in the
General Rules and Regulations under the Securities Act of 1933) of the
Company.
(3) In case the Company, at any time after October 8, 1996, shall distribute to
all holders of Common Stock evidences of its indebtedness or assets
(excluding cash dividends or cash distributions paid out of earned surplus
and made in the ordinary course of business) or rights or warrants to
subscribe for or purchase any security (excluding those referred to in
subsection 5.1(b) above) or if the Distribution Date (as defined below)
shall occur, then in each such case the Exercise Price shall be determined
by multiplying the Exercise Price in effect prior to the record date fixed
for determination of stockholders entitled to receive such distribution by
a fraction, of which the denominator shall be the Per Share Market Value of
Common Stock determined as of the record date mentioned above, and of which
the numerator shall be such Per Share Market Value of the Common Stock,
less the then fair market value (as determined by the Board of Directors of
the Company in good faith, whose determination shall be conclusive if made
in good faith; provided, however, that in the event of a distribution or
series of related distributions exceeding 10% of the net assets of the
Company, then such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm
that regularly examines the financial statements of the Company) selected
in good faith by the Board of Directors of the Company, and in either case
shall be described in a statement provided to Warrantholder) of the portion
of assets or evidences of indebtedness so distributed or such subscription
rights or Rights applicable to one share of Common Stock. Such adjustment
shall be made successively whenever any such distribution is made and shall
become effective immediately after the record date mentioned above. In the
event such distribution is not made, the Exercise Price shall again be
adjusted to the number that was in effect immediately prior to such record
date. "Distribution Date" has the meaning set forth in the Rights Agreement
or in any successor agreement pertaining to any similar rights issued in
exchange for, upon conversion of or in substitution for the Rights.
(4) No adjustment in the Exercise Price otherwise required by this Section 5.1
shall be required unless such adjustment would require an increase or
decrease of at least 1% in such price; provided, however, that any
adjustment which by reason of this subsection 5.1(d) is not required to be
made shall be carried forward and taken into account (A) in any subsequent
adjustments, and (B) upon presentment of this Warrant for conversion. All
calculations under this Section 5.1 shall be made to the nearest cent or
the nearest 1/100th of a share, as the case may be.
(5) In case of any reclassification of the Common Stock, any consolidation or
merger of the Company with or into another person, any sale or transfer of
all or substantially all of the assets of the Company or any compulsory
share exchange pursuant to which share exchange the Common Stock is
converted into other securities, cash or property (other than a transaction
described in Section 5.1(a)-(c)), then Warrantholder shall have the right
thereafter to exercise this Warrant only for the kind and amount of shares
of stock and other securities and property receivable upon or deemed to be
held following such reclassification, consolidation, merger, sale, transfer
or share exchange by a Warrantholder of a number of shares of the Common
Stock of the Company into which this Warrant could have been exercised
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange, assuming such holder of Common Stock of Company
(A) is not a Person with which the Company consolidated or into which the
Company merged or which merged into the Company or to which such sale or
transfer was made, as the case may be ("Constituent Person"), or an
Affiliate of a Constituent Person and (B) failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer
(provided that if the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer is not the
same for each share of Common Stock of the Company held immediately prior
to such consolidation, merger, sale or transfer by others than a
Constituent Person or an Affiliate thereof and in respect of which such
rights of election shall not have been exercised ("Non-electing Share"),
then for the purpose of this Section 5.1(e) the kind and amount of
securities, cash and other property receivable upon such consolidation,
merger, sale or transfer by the holders of each Non-electing Share shall be
deemed to be the kind and amount so receivable per share by a plurality of
the Non-electing Shares). This provision shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or
share exchanges.
(6) In case:
(A) the Company shall declare a dividend (or any other distribution)
on the Common Stock payable otherwise than in cash out of its earned
surplus; or
(B) the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
(C) the Company shall authorize the granting to the holders of the
Common Stock of rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any other rights; or
(D) the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock of the Company
(other than a subdivision or combination of the outstanding shares of
Common Stock), any consolidation or merger to which the Company is a party,
any sale or transfer of all or substantially all of the assets of the
Company, or any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; or
(E) of the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; then
the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Warrant, and shall cause to be mailed to
Warrantholder, at least 10 days prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such
dividend, distribution, redemption, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding
up is expected to become effective, and the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, transfer, share
exchange, dissolution, liquidation or winding up (but no failure to mail
such notice or any defect therein or in the mailing thereof shall affect
the validity of the corporate action required to be specified in such
notice).
(7) In case at any time conditions shall arise by reason of action taken by the
Company which, in the opinion of the Board of Directors of the Company, are
not adequately covered by the other provisions hereof and which might
materially and adversely affect the rights of Warrantholder, or in case at
any time any such conditions are expected to arise by reason of any action
contemplated by the Company, the Board of Directors of the Company shall
appoint a firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial
statements of the Company), who shall give their opinion as to the
adjustment, if any (not inconsistent with the standards established in this
Article 5), of the Exercise Price (including, if necessary, any adjustment
as to the securities into which this Note may thereafter be convertible)
which is or would be required to preserve without dilution the rights of
Warrantholder. The Board of Directors of the Company shall make the
adjustment recommended forthwith upon the receipt of such opinion or the
taking of any such action contemplated, as the case may be; provided,
however, that no such adjustment of the Exercise Price shall be made which
in the opinion of the investment banking firm or firm of accountants giving
the aforesaid opinion would result in an increase of the Exercise Price to
more than the Exercise Price then in effect.
5.2 Voluntary Adjustment by the Company. The Company may, at its option, at
any time during the term of the Warrant, reduce the then current Exercise Price
to any amount, consistent with applicable law, deemed appropriate by the Board
of Directors of the Company.
5.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
Exercise Price is adjusted, as herein provided, the Company shall promptly mail
to Warrantholder a notice setting forth the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment. Such
notice prepared in good faith shall be conclusive evidence of the correctness of
such adjustment absent manifest error.
5.4 No Adjustment for Cash Dividends. No adjustment in respect of any cash
dividends shall be made during the term of this Warrant or upon the exercise of
this Warrant.
5.5 Preservation of Purchase Rights Upon Merger, Consolidation, etc. In
case of any consolidation of the Company with or merger of the Company into
another person or in case of any sale, transfer or lease to another corporation
of all or substantially all of the assets of the Company, the Company or such
successor or purchaser, as the case may be, shall execute with the
Warrantholders an agreement that the Warrantholders shall have the right
thereafter upon payment of the Exercise Price in effect immediately prior to
such action to purchase upon exercise of each Warrant the kind and amount of
shares and other securities and property that the holder thereof would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale, transfer or lease had such Warrant been exercised
immediately prior to such action; provided, however, that no adjustment in
respect of cash dividends, interest or other income on or from such shares or
other securities and property shall be made during the term of this Warrant or
upon the exercise of this Warrant. Such agreement shall provide for adjustment,
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 5. The provisions of this subsection 5.5 shall apply
similarly to successive consolidations, mergers, sales, transfers or leases.
6. Registration Rights.
The Warrant Shares shall be Registrable Securities (as defined in the
Credit Amendment) and the Warrantholder shall have all of the rights and
obligations of a Holder, and the Company shall have all of the rights and
obligations of the Borrower, with respect to the Warrant Shares (collectively,
the Warrantholder's and Company's rights and obligations, the "Registration
Rights") under Article VIII of the Credit Agreement. The Warrantholder and
Company shall have the Registration Rights for the term of this Warrant
irrespective of any termination, expiration or unenforceability of the Credit
Agreement. The Registration Rights may not be amended, modified or deleted
without the prior written consent of the Warrantholder and Company in accordance
with Section 8.3 hereof, notwithstanding any subsequent amendments to the Credit
Agreement.
7. No Impairment.
The Company shall not by any action, including, without limitation,
amending its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of the
Warrantholders against impairment. Without limiting the generality of the
foregoing, the Company will (a) not change the par value of any shares of Common
Stock receivable upon the exercise of this Warrant to an amount greater than the
amount payable therefor upon such exercise, (b) take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant, and (c) obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant.
8. Miscellaneous.
8.1 Entire Agreement. This Warrant constitutes the entire agreement between
the Company and the Warrantholders with respect to this Warrant and the Warrant
Shares.
8.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of
and shall be binding upon the Company, the Warrantholders and holders of Warrant
Shares and their respective heirs, legal representatives, successors and
assigns. Nothing in this Warrant, expressed or implied, is intended to or shall
confer on any person other than the Company, the Warrantholders and holders of
Warrant Shares, or their respective heirs, legal representatives, successors or
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Warrant or the Warrant Shares.
8.3 Amendments and Waivers. This Warrant may not be modified or amended
except by an instrument in writing signed by the Company and the Warrantholders.
The Company, any Warrantholder or holders of Warrant Shares may, by an
instrument in writing, waive compliance by the other party with any term or
provision of this Warrant on the part of such other party hereto to be performed
or complied with. The waiver by any such party of a breach of any term or
provision of this Warrant shall not be construed as a waiver of any subsequent
breach.
8.4 Section and Other Headings. The section and other headings contained in
this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
8.5 Further Assurances. Each of the Company, the Warrantholders and holders
of Warrant Shares shall do and perform all such further acts and things and
execute and deliver all such other certificates, instruments and/or powers of
attorney as may be necessary or appropriate as any party hereto may, at any time
and from time to time, reasonably request in connection with the performance of
any of the provisions of this Warrant.
8.6 Notices. All demands, requests, notices and other communications
required or permitted to be given under this Warrant shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
United States certified or registered first class mail, postage prepaid, to the
parties hereto at the following addresses or at such other address as any party
hereto shall hereafter specify by notice to the other party hereto:
(1) if to the Company, addressed to:
Panaco, Inc.
1050 West Blue Ridge Boulevard
Kansas City, Missouri 64145-1216
Attention: H. James Maxwell, President
and Chief Executive Officer
(2) if to any Warrantholder or holder of Warrant Shares, addressed to the
address of such person appearing on the books of the Company.
Except as otherwise provided herein, all such demands, requests,
notices and other communications shall be deemed to have been received
on the date of personal delivery thereof or on the third Business Day
after the mailing thereof.
8.7 Separability. Any term or provision of this Warrant which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable any other term or provision of this Warrant or affecting the
validity or enforceability of any of the terms or provisions of this Warrant in
any other jurisdiction.
8.8 Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the then-current market price.
8.9 Rights of the Holder. No Warrantholder shall, solely by virtue of this
Warrant, be entitled to any rights of a stockholder of the Company, either at
law or in equity.
8.10 Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be governed
by and construed in accordance with the laws of such State applicable to
contracts made and performed in New York.
8.11 Expenses. The Company shall pay all reasonable legal and other
reasonable out-of-pocket expenses of the Warrantholders and their counsel in
connection with the exercise and sale of the Warrant Shares as contemplated by
this Warrant. The Company agrees to reimburse the Agent and Lenders (as defined
in Section 5.1(b) hereof) upon demand for their reasonable out-of-pocket costs
and reasonable expenses incurred in connection with the preparation, review,
negotiation, execution and delivery of this Warrant and all other related
documents.
8.12 Right to Information. The Company will provide to a Warrantholder and
to all holders of Warrant Shares, on a timely basis, copies of all documents and
reports filed with the Securities and Exchange Commission (the "SEC") and
publicly available annual and quarterly financial statements.
8.13 Merger or Consolidation of the Company. So long as this Warrant
remains in effect, the Company will not merge or consolidate with or into, or
sell, transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be,
(i) shall be the Company or (ii) if not the Company, shall expressly assume, by
supplemental agreement executed and delivered to the Warrantholders, the
performance and observance of each and every covenant and condition of this
Warrant to be performed and observed by the Company under this Warrant.
8.14 Rule 144. With a view to making available to Warrantholders the
benefits of certain rules of the SEC that may permit the sale of shares of
Common Stock to the public without registration, the Company hereby covenants
and agrees to use its reasonable business efforts after the Initial Exercise
Date to file in a timely manner all reports and other documents required to be
filed by it under the Securities Act of 1933, as amended (the "Act"), and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
adopted by the SEC thereunder necessary to permit sales under Rule 144 under the
Act, and the Company will take such further action which does not have material
cost to the Company to the extent required from time to time to enable
Warrantholders to sell shares of Common Stock (whether or not any such
securities have been the subject of a piggy-back request pursuant to the
agreement referenced in Section 6 hereof) without registration under the Act
within the limitation of the exemptions provided by (a) Rule 144 under the Act,
as such Rule may be amended from time to time, or (b)any similar rule or
regulation hereafter adopted by the SEC. Upon the written request of a
Warrantholder, the Company will deliver to such Warrantholder a written
statement as to whether it has complied with such requirements.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer as of the date first written above. PANACO, INC.
By:
H. James Maxwell, President
<PAGE>
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned, the record holder of this Warrant, hereby irrevocably
elects to exercise the right, represented by this Warrant, to purchase
__________ of the Warrant Shares and herewith tenders payment for such Warrant
Shares to the order of PANACO, INC., in the amount of $___________ in accordance
with the terms of this Warrant. The undersigned requests that a certificate for
such Warrant Shares be registered in the name of _________________ and that such
certificate be delivered to _______________________________, whose address is
- ----------------------------------------.
Signature:
Date: _________________
<PAGE>
Exhibit 10.21
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 9, 1997
Among
PANACO, INC.,
as Borrower,
FIRST UNION NATIONAL BANK,
as Administrative Agent,
BANQUE PARIBAS,
as Documentation Agent
and
THE LENDERS SIGNATORY HERETO
<PAGE>
-viii-
TABLE OF CONTENTS
Page
ARTICLE IDefinitions and Accounting Matters
Section 1.01 Terms Defined Above..............................................1
Section 1.02 Certain Defined Terms............................................1
Section 1.03 Accounting Terms and Determinations.............................18
ARTICLE IICommitments
Section 2.01 Loans and Letters of Credit.....................................18
Section 2.02 Borrowings, Continuations, Conversions and Letters of Credit....19
Section 2.03 Changes of Aggregate Commitments................................21
Section 2.04 Fees............................................................21
Section 2.05 Several Obligations.............................................23
Section 2.06 Notes...........................................................23
Section 2.07 Prepayments.....................................................23
Section 2.08 Borrowing Base..................................................24
Section 2.09 Assumption of Risks.............................................25
Section 2.10 Obligation to Reimburse and to Prepay...........................26
Section 2.11 Lending Offices.................................................28
ARTICLE IIIPayments of Principal and Interest
Section 3.01 Repayment of Loans..............................................28
Section 3.02 Interest........................................................28
ARTICLE IVPayments; Pro Rata Treatment; Computations; Etc.
Section 4.01 Payments........................................................29
Section 4.02 Pro Rata Treatment..............................................29
Section 4.03 Computations....................................................30
Section 4.04 Non-receipt of Funds by the Administrative Agent................30
Section 4.05 Set-off, Sharing of Payments, Etc...............................30
Section 4.06 Taxes...........................................................31
Section 4.07 Lender Representations..........................................33
Section 4.08 Disposition of Proceeds.........................................34
ARTICLE VAdditional Costs, Capital Adequacy
Section 5.01 Additional Costs................................................35
Section 5.02 Limitation on LIBOR Loans.......................................36
Section 5.03 Illegality......................................................37
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03........37
Section 5.05 Compensation....................................................37
ARTICLE VIConditions Precedent
Section 6.01 Initial Funding.................................................38
Section 6.02 Initial and Subsequent Loans and Letters of Credit..............40
Section 6.03 Conditions Relating to Letters of Credit........................40
ARTICLE VIIRepresentations and Warranties
Section 7.01 Corporate Existence.............................................41
Section 7.02 Financial Condition.............................................41
Section 7.03 Litigation......................................................42
Section 7.04 No Breach.......................................................42
Section 7.05 Authority.......................................................42
Section 7.06 Approvals.......................................................42
Section 7.07 Use of Loans....................................................43
Section 7.08 ERISA...........................................................43
Section 7.09 Taxes...........................................................44
Section 7.10 Titles, etc.....................................................44
Section 7.11 No Material Misstatements.......................................45
Section 7.12 Investment Company Act..........................................45
Section 7.13 Public Utility Holding Company Act..............................45
Section 7.14 Subsidiaries and Partnerships...................................45
Section 7.15 Location of Business and Offices................................45
Section 7.16 Filings.........................................................46
Section 7.17 Environmental Matters...........................................46
Section 7.18 Defaults........................................................47
Section 7.19 Compliance with the Law.........................................47
Section 7.20 Insurance.......................................................48
Section 7.21 Restriction on Liens............................................48
Section 7.22 Hedging Agreement...........................................48
ARTICLE VIIIAffirmative Covenants
Section 8.01 Financial Statements............................................49
Section 8.02 Litigation......................................................51
Section 8.03 Maintenance, Etc................................................51
Section 8.04 Environmental Matters...........................................53
Section 8.05 Engineering Reports.............................................53
Section 8.06 Title Information...............................................54
Section 8.07 Additional Collateral...........................................55
Section 8.08 Further Assurances..............................................56
Section 8.09 Performance of Obligations......................................56
Section 8.10 ERISA Information and Compliance................................56
ARTICLE IXNegative Covenants
Section 9.01 Debt............................................................57
Section 9.02 Liens...........................................................58
Section 9.03 Investments, Loans and Advances.................................58
Section 9.04 Dividends, Distributions and Redemptions........................59
Section 9.05 Sales and Leasebacks............................................59
Section 9.06 Nature of Business..............................................59
Section 9.07 Limitation on Leases............................................60
Section 9.08 Mergers, Etc....................................................60
Section 9.09 Proceeds of Notes...............................................60
Section 9.10 ERISA Compliance................................................60
Section 9.11 Sale or Discount of Receivables.................................61
Section 9.12 Current Ratio...................................................61
Section 9.13 Tangible Net Worth..............................................62
Section 9.14 Interest Coverage Ratio.........................................62
Section 9.15 Sale of Properties..............................................62
Section 9.16 Environmental Matters...........................................62
Section 9.17 Transactions with Affiliates....................................62
Section 9.18 Subsidiaries and Partnerships...................................63
Section 9.19 Negative Pledge Agreements......................................63
ARTICLE XEvents of Default; Remedies
Section 10.01 Events of Default..............................................63
Section 10.02 Remedies.......................................................65
ARTICLE XIThe Administrative Agent
Section 11.01 Appointment, Powers and Immunities.............................66
Section 11.02 Reliance by Administrative Agent...............................67
Section 11.03 Defaults.......................................................67
Section 11.04 Rights as a Lender.............................................67
Section 11.05 Indemnification................................................68
Section 11.06 Non-Reliance on Administrative Agent and other Lenders.........68
Section 11.07 Action by Administrative Agent.................................69
Section 11.08 Resignation or Removal of Administrative Agent.................69
ARTICLE XIIMiscellaneous
Section 12.01 Waiver.........................................................70
Section 12.02 Notices........................................................70
Section 12.03 Payment of Expenses, Indemnities, etc..........................70
Section 12.04 Amendments, Etc................................................73
Section 12.05 Successors and Assigns.........................................73
Section 12.06 Assignments and Participations.................................73
Section 12.07 Invalidity.....................................................75
Section 12.08 Counterparts...................................................75
Section 12.09 References.....................................................75
Section 12.10 Survival.......................................................75
Section 12.11 Captions.......................................................76
Section 12.12 No Oral Agreements.............................................76
Section 12.13 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial76
Section 12.14 Interest.......................................................77
Section 12.15 Confidentiality................................................78
Section 12.16 Effectiveness..................................................79
Section 12.17 EXCULPATION PROVISIONS.........................................79
<PAGE>
Annex I - Maximum Credit Amounts
Exhibit A.........- Form of Note
Exhibit B.........- Form of Borrowing, Continuation and Conversion Request
Exhibit C.........- Form of Compliance Certificate Exhibit D-1.......- Form of
Legal Opinion of special counsel to Borrower Exhibit D-2.......- Form of Legal
Opinion of special Louisiana counsel to Borrower Exhibit D-3.......- Form of
Legal Opinion of special Texas counsel to Borrower Exhibit E.........- List of
Security Instruments Exhibit F.........- Form of Assignment Agreement
Schedule 7.02.....- Debt, etc. Schedule 7.03.....- Litigation Schedule
7.09.....- Taxes Schedule 7.10.....- Titles, etc.
Schedule 7.14.....- List of Subsidiaries and Partnerships Schedule 7.17.....-
Environmental Matters Schedule 7.20.....- Insurance Schedule 7.22.....- Hedging
Agreements Schedule 9.01.....- Debt Schedule 9.02.....- Liens Schedule
9.03.....- Investments, Loans and Advances
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 9,
1997, among: PANACO, INC., a Delaware corporation (the "Borrower"); each of the
lenders that is a signatory hereto or which becomes a signatory hereto as
provided in Section 12.06 (individually, together with its successors and
assigns, a "Lender" and, collectively, the "Lenders"); and FIRST UNION NATIONAL
BANK, a national banking association (in its individual capacity, "First
Union"), as agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Administrative Agent") and BANQUE PARIBAS (in
its individual capacity, "Banque Paribas") as documentation agent for the
Lenders (in such capacity, together with its successors in such capacity, the
"Documentation Agent").
R E C I T A L S
WHEREAS, the Borrower, the Administrative Agent and Banque Paribas
executed that certain Amended and Restated Credit Agreement dated as of October
8, 1996, as amended by First Amendment to Credit Agreement dated as of July 29,
1997 (such Credit Agreement as amended called the "Prior Credit Agreement");
WHEREAS, the Borrower and the Lenders have agreed to amend the Prior
Credit Agreement and restate the Prior Credit Agreement in its entirety in this
Amended and Restated Credit Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and of the loans, extensions of credit and commitments
hereinafter referred to, the parties hereto agree as follows:
ARTICLE I
Definitions and Accounting Matters
ARTICLE I.........Definitions and Accounting Matters
Section 1.01 Terms Defined AboveSection 1.01 Terms Defined
Above. As used in this Agreement, the terms "Administrative Agent," "Banque
Paribas," "Borrower," "Documentation Agent," "First Union," "Lender," and
"Lenders" and "Prior Credit Agreement" shall have the meanings indicated above.
Section 1.02 Certain Defined TermsSection 1.02 Certain Defined
Terms. As used herein, the following terms shall have the following meanings
(all terms defined in this Article I or in other provisions of this Agreement in
the singular to have the same meanings when used in the plural and vice versa):
"Additional Costs" shall have the meaning assigned such term
in Section 5.01(a).
"Affected Loans" shall have the meaning assigned such term
in Section 5.04.
<PAGE>
"Affiliate" of any Person shall mean (i) any Person directly
or indirectly controlled by, controlling or under common control with
such first Person, (ii) any director or officer of such first Person or
of any Person referred to in clause (i) above and (iii) if any Person
in clause (i) above is an individual, any member of the immediate
family (including parents, spouse and children) of such individual and
any trust whose principal beneficiary is such individual or one or more
members of his or her immediate family and any Person who is controlled
by any such member or trust. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under
common control with") shall mean any person which owns directly or
indirectly 10% or more of the securities having ordinary voting power
for the election of directors or other governing body of a corporation
or 10% or more of the partnership or other ownership interests of any
other Person (other than as a limited partner of such other Person)
will be deemed to control such corporation or other Person.
"Agreement" shall mean this Amended and Restated Credit
Agreement, as the same may from time to time be amended or
supplemented.
"Aggregate Commitments" at any time shall equal the amount
calculated in accordance with Section 2.03 hereof.
"Aggregate Maximum Credit Amounts" at any time shall equal the
sum of the Maximum Credit Amounts of the Lenders, which is $75,000,000
as of the Closing Date.
"Applicable Lending Office" shall mean, for each Lender and
for each Type of Loan, the lending office of such Lender (or an
Affiliate of such Lender) designated for such Type of Loan on the
signature pages hereof or such other offices of such Lender (or of an
Affiliate of such Lender) as such Lender may from time to time specify
to the Administrative Agent and the Borrower as the office by which its
Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean for Base Rate Loans or LIBOR
Loans the following rate per annum as applicable:
<PAGE>
Borrowing Base Utilization Percentage Base Rate Loans LIBOR Loans
less than 25% 0% 1.00%
greater than or equal to 25% but less 0% 1.25%
than 50%
greater than or equal to 50% but less 0% 1.50%
than 75%
equal to or greater than 75% 0% 1.75%
"Assignment" shall have the meaning assigned such term in
Section 12.06(b).
"Base Rate" shall mean, with respect to any Base Rate Loan,
for any day, the higher of (a) the Federal Funds Rate for any such day
plus 2 of 1% or (b) the Prime Rate for such day. Each change in any
interest rate provided for herein based upon the Base Rate resulting
from a change in the Base Rate shall take effect at the time of such
change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates
based upon the Base Rate.
"BOPD" shall mean barrels of oil produced per day.
"Borrowing Base" shall mean at any time an amount equal to the
amount determined in accordance with Section 2.08.
"Borrowing Base Utilization Percentage" shall mean, as of any
day, the fraction expressed as a percentage, the numerator of which is
the balance of all Loans and the LC Exposure outstanding on such day,
and the denominator of which is the Borrowing Base in effect on such
day.
"Business Day" shall mean any day other than a day on which
commercial banks are authorized or required to close in North Carolina
and, where such term is used in the definition of "Quarterly Date" in
this Section 1.02 or if such day relates to a borrowing or continuation
of, a payment or prepayment of principal of or interest on, or a
conversion of or into, or the Interest Period for, a LIBOR Loan or a
notice by the Borrower with respect to any such borrowing or
continuation, payment, prepayment, conversion or Interest Period, any
day which is also a day on which dealings in Dollar deposits are
carried out in the London interbank market.
<PAGE>
"Change of Control" means the occurrence of one or more of the
following events: (a) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all or
substantially all of the assets of the Borrower to any Person or group
of related Persons for purposes of Section 13(d) of the Securities
Exchange Act of 1934 (a "Group") (whether or not otherwise in
compliance with the provisions of this Agreement); (b) the approval by
the holders of capital stock of the Borrower of any plan or proposal
for the liquidation or dissolution of the Borrower (whether or not
otherwise in compliance with the provisions of this Agreement); (c) any
Person or Group shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than 20% of the
aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Borrower; provided, that, if any
Person or Group shall become the owner, directly or indirectly,
beneficially or of record, of shares representing up to 50% of the
aggregate ordinary voting power of the Borrower's capital stock as a
result of the acquisition by the Borrower or any of its subsidiaries
from such Person or Group of Oil and Gas Properties, such ownership
shall not constitute a Change of Control; or (d) the replacement of a
majority of the Board of Directors of the Borrower over a two-year
period from the directors whose replacement shall not have been
approved (by recommendation, appointment, nomination or election, as
the case may be) by a vote of at least a majority of the Board of
Directors of the Borrower then still in office who either were members
of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so
approved.
"Closing Date" shall mean October 22, 1997.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and any successor statute.
"Commitment" shall mean, for any Lender, its obligation to
make Loans up to the lesser of such Lender's Maximum Credit Amount or
the Lender's Percentage Share of the amount equal to the then effective
Borrowing Base and to participate in the Letters of Credit as provided
in Section 2.01(b).
"Consolidated Subsidiaries" shall mean each Subsidiary of the
Borrower (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been)
consolidated with the financial statements of the Borrower in
accordance with GAAP.
<PAGE>
"Debt" shall mean, for any Person the sum of the following (without
duplication): (a) all obligations of such Person for borrowed money or
evidenced by bonds, debentures, notes or other similar instruments; (b) all
obligations of such Person (whether contingent or otherwise) in respect of
bankers' acceptances, letters of credit, surety or other bonds and similar
instruments (including principal, interest, fees and charges); (c) all
obligations of such Person to pay the deferred purchase price of Property
or services (other than for borrowed money), arising in the ordinary course
of business of such Person; (d) all obligations under leases which shall
have been, or should have been, in accordance with GAAP, recorded as
capital leases in respect of which such Person is liable, contingently or
otherwise, as obligor, guarantor or otherwise, or in respect of which
obligations such Person otherwise assures a creditor against loss; (e) all
obligations under leases which require such Person or its Affiliate to make
payments over the term of such lease, including payments at termination,
which are substantially equal to at least eighty percent (80%) of the
purchase price of the Property subject to such lease plus interest as an
imputed rate of interest; (f) all Debt and other obligations of others
secured by a Lien on any asset of such Person, whether or not such Debt is
assumed by such Person; (g) all Debt and other obligations of others
guaranteed by such Person; (h) all obligations or undertakings of such
Person to maintain or cause to be maintained the financial position or
covenants of other Persons; (i) the undischarged balance of any production
payment created by such Person or for the creation of which such Person
directly or indirectly received payment; (j) all obligations of such Person
under Hedging Agreements; and (k) obligations to deliver goods or services
including Hydrocarbons in consideration of advance payments.
"Default" shall mean an Event of Default or an event which
with notice or lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United State
of America.
"EBITDA" shall mean, for any period, the sum of Net Income for
such period plus the following expenses or charges to the extent
deducted from Net Income in such period: interest, taxes, exploration
expenses, depreciation, depletion and amortization and other non cash
charges.
"Engineering Reports" shall have the meaning assigned such
term in Section 2.08(b).
<PAGE>
"Environmental Laws" shall mean any and all Governmental Requirements
pertaining to health or the environment in effect in any and all
jurisdictions in which the Borrower or any Subsidiary is conducting or at
any time has conducted business, or where any Property of the Borrower or
any Subsidiary is located, including without limitation, the Oil Pollution
Act of 1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980
("CERCLA"), as amended, the Federal Water Pollution Control Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the
Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Hazardous Materials Transportation Act, as amended, and other
environmental conservation or protection laws. The term "oil" shall have
the meaning specified in OPA, the terms "hazardous substance" and "release"
(or "threatened release") have the meanings specified in CERCLA, and the
terms "solid waste" and "disposal" (or "disposed") have the meanings
specified in RCRA; provided, however, that (i) in the event either OPA,
CERCLA or RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the effective date
of such amendment, and (ii) to the extent the laws of the state in which
any Property of the Borrower or any Subsidiary is located establish a
meaning for "oil," "hazardous substance," "release," "solid waste" or
"disposal" which is broader than that specified in either OPA, CERCLA or
RCRA, such broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether
or not incorporated) which together with the Borrower or any Subsidiary
would be deemed to be a "single employer" within the meaning of section
4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414
of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder, (ii) the
withdrawal of the Borrower, any Subsidiary or any ERISA Affiliate from
a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, (iii) the filing of a notice of
intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, (iv) the institution of
proceedings to terminate a Plan by the PBGC or (v) any other event or
condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer,
any Plan.
"Event of Default" shall have the meaning assigned such term
in Section 10.01.
<PAGE>
"Excepted Liens" shall mean: (i) Liens for taxes, assessments
or other governmental charges or levies not yet due or which are being
contested in good faith by appropriate action and for which adequate
reserves have been maintained; (ii) Liens in connection with workmen's
compensation, unemployment insurance or other social security, old age
pension or public liability obligations not yet due or which are being
contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (iii)
operators', vendors', carriers', warehousemen's, repairmen's,
mechanics', workmen's, materialmen's, construction or other like Liens
arising by operation of law in the ordinary course of business or
incident to the exploration, development, operation and maintenance of
Oil and Gas Properties or statutory landlord's liens, each of which is
in respect of obligations that have not been outstanding more than 90
days or which are being contested in good faith by appropriate
proceedings and for which adequate reserves have been maintained in
accordance with GAAP; (iv) any Liens reserved in leases or farmout
agreements for rent or royalties and for compliance with the terms of
the farmout agreements or leases in the case of leasehold estates, to
the extent that any such Lien referred to in this clause does not
materially impair the use of the Property covered by such Lien for the
purposes for which such Property is held by the Borrower or any
Subsidiary or materially impair the value of such Property subject
thereto; (v) encumbrances (other than to secure the payment of borrowed
money or the deferred purchase price of Property or services),
easements, restrictions, servitudes, permits, conditions, covenants,
exceptions or reservations in any rights of way or other Property of
the Borrower or any Subsidiary for the purpose of roads, pipelines,
transmission lines, transportation lines, distribution lines for the
removal of gas, oil, coal or other minerals or timber, and other like
purposes, or for the joint or common use of real estate, rights of way,
facilities and equipment, and defects, irregularities, zoning
restrictions and deficiencies in title of any rights of way or other
Property which in the aggregate do not materially impair the use of
such rights of way or other Property for the purposes of which such
rights of way and other Property are held by the Borrower or any
Subsidiary or materially impair the value of such Property subject
thereto; (vi) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations and other obligations of a
like nature incurred in the ordinary course of business;(vii) Liens
permitted by the Security Instruments; and (viii) farmout, carried
working interests, joint operating, unitization, royalty, overriding
royalty, sales and similar agreements relating to the exploration or
development of, or production from, oil and gas properties or the sale
of the hydrocarbons after they are produced which are existing at the
time of acquisition of such Property or later incurred in the ordinary
course of such Person's business, and are usual and customary for the
industry.
<PAGE>
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to
the weighted average of the rates on overnight federal funds
transactions with a member of the Federal Reserve System arranged by
federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day,
provided that (i) if the date for which such rate is to be determined
is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day, and (ii) if such
rate is not so published for any day, the Federal Funds Rate for such
day shall be the average rate charged to the Administrative Agent on
such day on such transactions as determined by the Administrative
Agent.
"Fee Letter" shall mean that certain letter agreement from
First Union Capital Markets Corp. to the Borrower and agreed to by
First Union dated of even date with this Agreement concerning certain
fees in connection with this Agreement and any agreements or
instruments executed in connection therewith, as the same may be
amended or replaced from time to time.
"Financial Statements" shall mean the financial statement or
statements of the Borrower and its Consolidated Subsidiaries described
or referred to in Section 7.02.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"Goldking Entities" shall mean Goldking Oil & Gas Corp., Goldking
Companies, Inc., Goldking Acquisition Corp., Goldking Production
Company, Hill Transportation Company, Inc., Umbrella Point Gathering
Co., L.L.C. and Goldking Trinity Bay Corp.
"Governmental Authority" shall include the country, the state,
county, city and political subdivisions in which any Person or such
Person's Property is located or which exercises valid jurisdiction over
any such Person or such Person's Property, and any court, agency,
department, commission, board, bureau or instrumentality of any of
them, including monetary authorities, which exercises valid
jurisdiction over any such Person or such Person's Property. Unless
otherwise specified, all references to Governmental Authority herein
shall mean a Governmental Authority having jurisdiction over, where
applicable, the Borrower, its Subsidiaries or any of their Property or
the Administrative Agent, any Lender or any Applicable Lending Office.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree,
injunction, franchise, permit, certificate, license, authorization or
other directive or requirement (whether or not having the force of
law), including, without limitation, Environmental Laws, energy
regulations and occupational, safety and health standards or controls,
of any Governmental Authority.
"Guarantor" shall mean each Subsidiary now or hereafter
executing a Guaranty Agreement except Atlantic Offshore Insurance, Ltd.
<PAGE>
"Guaranty Agreement" shall mean each guaranty agreement, in form and
substance reasonably satisfactory to the Administrative Agent, now or
hereafter executed by a Subsidiary in favor of the Administrative
Agent and the Lenders, as the same may be amended or modified from
time to time.
"Hedging Agreements" shall mean (i) any interest rate or
currency swap, rate cap, rate floor, rate collar, forward agreement or
other exchange or rate protection agreements or any option with respect
to any such transaction and (ii) any swap agreement, cap, floor,
collar, exchange transaction, forward agreement or other exchange or
protection agreement relating to Hydrocarbons or any option with
respect to any such transaction.
"Highest Lawful Rate" shall mean, with respect to each Lender,
the maximum nonusurious interest rate, if any, that at any time or from
time to time may be contracted for, taken, reserved, charged or
received on the Notes or on other Indebtedness under laws applicable to
such Lender which are presently in effect or, to the extent allowed by
law, under such applicable laws which may hereafter be in effect and
which allow a higher maximum nonusurious interest rate than applicable
laws now allow.
"Hydrocarbon Interests" shall mean all rights, titles,
interests and estates now or hereafter acquired in and to oil and gas
leases, oil, gas and mineral leases, or other liquid or gaseous
hydrocarbon leases, mineral fee interests, overriding royalty and
royalty interests, net profit interests and production payment
interests, including any reserved or residual interests of whatever
nature.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons and all products refined or
separated therefrom.
"Indebtedness" shall mean any and all amounts owing or to be
owing by the Borrower to the Administrative Agent and/or Lenders in
connection with the Notes, any Security Instrument, this Agreement, the
Letter of Credit Agreements and any Hedging Agreements permitted by
Section 9.01(d), including without limitation, principal, interest,
fees, expense reimbursement, Letter of Credit reimbursements,
indemnifications, and unwind costs or other amounts owing under the
Hedging Agreements, now or hereafter arising and all renewals,
extensions and/or rearrangements of any of the above.
"Indemnified Parties" shall have the meaning assigned such
term in Section 12.03(b).
<PAGE>
"Indemnity Matters" shall mean any and all actions, suits, proceedings
(including any investigations, litigation or inquiries), claims,
demands and causes of action made or threatened against a Person and,
in connection therewith, all losses, liabilities, damages (including,
without limitation, consequential damages) or reasonable costs and
expenses of any kind or nature whatsoever incurred by such Person
whether caused by the sole or concurrent negligence of such Person
seeking indemnification.
"Indenture" shall mean that certain Indenture dated as of
October 9, 1997 among the Borrower and United Missouri Bank, pursuant
to which the Senior Unsecured Notes have been issued.
"Initial Funding" shall mean the funding of the initial Loans
or issuance of the first Letter of Credit pursuant to Section 2.01.
"Initial Reserve Report" shall mean the Reserve Reports prepared by
Ryder Scott Company as of September 1, 1997 and W.D. Von Gonten & Co.
as of September 1, 1997.
"Interest Period" shall mean, with respect to any LIBOR Loan,
the period commencing on the date such LIBOR Loan is made and ending on
the numerically corresponding day in the first, second, third or sixth
calendar month thereafter, as the Borrower may select as provided in
Section 2.02 (or such longer period as may be requested by the Borrower
and agreed to by the Majority Lenders), except that each Interest
Period which commences on the last Business Day of a calendar month (or
on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business
Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may
commence before and end after the Termination Date; (ii) each Interest
Period which would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on
the next preceding Business Day); and (iii) no Interest Period shall
have a duration of less than one month and, if the Interest Period for
any LIBOR Loans would otherwise be for a shorter period, such Loans
shall not be available hereunder.
"LC Commitment" at any time shall mean $10,000,000.
"LC Exposure" at any time shall mean the difference between
(i) the aggregate face amount of all undrawn and uncancelled Letters of
Credit and the aggregate of all amounts drawn under all Letters of
Credit and not yet reimbursed, minus (ii) the aggregate amount of cash
securing outstanding Letters of Credit pursuant to Section 2.10(b).
<PAGE>
"Letter of Credit Agreements" shall mean the written agreements with
the Administrative Agent, as issuing lender for any Letter of Credit,
executed or hereafter executed in connection with the issuance by the
Administrative Agent of the Letters of Credit, such agreements to be
on the Administrative Agent's customary form for letters of credit of
comparable amount and purpose as from time to time in effect or as
otherwise agreed to by the Borrower and the Administrative Agent.
"Letters of Credit" shall mean the letters of credit issued
pursuant to Section 2.01(b) or issued pursuant to Section 2.01 of the
Prior Credit Agreement and still outstanding and all reimbursement
obligations pertaining to any such letters of credit, and "Letter of
Credit" shall mean any one of the Letters of Credit and the
reimbursement obligations pertaining thereto.
"LIBOR" shall mean the rate of interest determined on the
basis of the rate for deposits in Dollars for a period equal to the
applicable Interest Period commencing on the first day of such Interest
Period appearing on Telerate Page 3750 as of 11:00 a.m. (London time)
two (2) Business Days prior to the first day of the applicable Interest
Period. In the event that such rate does not appear on Telerate Page
3750, "LIBOR" shall be determined by the Administrative Agent to be the
rate per annum at which deposits in Dollars are offered by leading
reference banks in the London interbank market to First Union at
approximately 11:00 a.m. (London time) two Business Days prior to the
first day of the applicable Interest Period for a period equal to such
Interest Period and in an amount substantially equal to the amount of
the applicable Loan.
"LIBOR Loans" shall mean Loans the interest rates on which are
determined on the basis of rates referred to in the definition of
"LIBOR Rate".
"LIBOR Rate" shall mean, with respect to any LIBOR Loan, a
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) determined by the Administrative Agent to be equal to the quotient
of (i) LIBOR for such Loan for the Interest Period for such Loan
divided by (ii) 1 minus the Reserve Requirement for such Loan for such
Interest Period.
<PAGE>
"Lien" shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on the common law, statute or
contract, and whether such obligation or claim is fixed or contingent,
and including but not limited to (i) the lien or security interest
arising from a mortgage, encumbrance, pledge, security agreement,
conditional sale or trust receipt or a lease, consignment or bailment
for security purposes or (ii) production payments and the like payable
out of Oil and Gas Properties. The term "Lien" shall include
reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other title exceptions
and encumbrances affecting Property. For the purposes of this
Agreement, the Borrower or any Subsidiary shall be deemed to be the
owner of any Property which it has acquired or holds subject to a
conditional sale agreement, or leases under a financing lease or other
arrangement pursuant to which title to the Property has been retained
by or vested in some other Person in a transaction intended to create a
financing.
"Loan Documents" shall mean the Notes, this Agreement, the Security
Instruments and Hedging Agreements between Borrower and any Lender.
"Loans" shall mean the loans as provided for by Section 2.01.
"Majority Lenders" shall mean, at any time while no Loans are
outstanding, Lenders having at least sixty-six and two-thirds percent
(66-2/3%) of the Aggregate Commitments and, at any time while Loans are
outstanding, Lenders holding at least sixty-six and two-thirds percent
(66-2/3%) of the outstanding aggregate principal amount of the Loans
(without regard to any sale by a Lender of a participation in any Loan
under Section 12.06(c)). For purposes of Section 2.08 only, the
percentage in this definition will be seventy-five percent (75%)
instead of sixty-six and two-thirds percent (66-2/3%)
"Material Adverse Effect" shall mean any material and adverse
effect on (i) the assets, liabilities, financial condition, business,
operations or affairs of the Borrower and its Subsidiaries taken as a
whole different from those reflected in the Financial Statements or
from the facts represented or warranted in any Loan Document, or (ii)
the ability of the Borrower and its Subsidiaries taken as a whole to
carry out their business as at the Closing Date or as proposed as of
the Closing Date to be conducted or meet their obligations under the
Loan Documents, on a timely basis.
"Maximum Credit Amount" shall mean, as to each Lender, the
amount set forth opposite such Lender's name on Annex I under the
caption "Maximum Credit Amount", as modified from time to time to
reflect any assignments permitted by Section 12.06(b).
"MCF" shall mean thousand cubic feet.
"MMCF" shall mean million cubic feet.
"MMCFD" shall mean million cubic feet per day.
"Mortgaged Property" shall mean the Property owned by the
Borrower or a Subsidiary and which is subject to the Liens existing and
to exist under the terms of the Security Instruments.
<PAGE>
"Multiemployer Plan" shall mean a Plan defined as such in
Section 3(37) or 4001(a)(3) of ERISA.
"Net Income" shall mean with respect to the Borrower and its
Consolidated Subsidiaries, for any period, the aggregate of the net
income (or loss) of the Borrower and its Consolidated Subsidiaries
after allowance for taxes for such period, determined on a consolidated
basis in accordance with GAAP; provided that there shall be excluded
from such net income (to the extent otherwise included therein) the
following: (a) the net income of any Person in which the Borrower or
any Consolidated Subsidiary has an interest (which interest does not
cause the net income of such other Person to be consolidated with the
net income of the Borrower and its Consolidated Subsidiaries in
accordance with GAAP), except to the extent of the amount of dividends
or distributions actually paid in such period by such other Person to
the Borrower or to a Consolidated Subsidiary, as the case may be; (b)
the net income (but not loss) of any Consolidated Subsidiary to the
extent that the declaration or payment of dividends or similar
distributions or transfers or loans by that Consolidated Subsidiary is
not at the time permitted by the operation of the terms of its charter
or any agreement, instrument or Governmental Requirement applicable to
such Consolidated Subsidiary, or is otherwise restricted or prohibited
in each case determined in accordance with GAAP; (c) the net income (or
loss) of any Person acquired in a pooling of interests transaction for
any period prior to the date of such transaction; (d) any extraordinary
gains or losses, including gains or losses attributable to Property
sales not in the ordinary course of business; and (e) the cumulative
effect of a change in accounting principle and any gains or losses
attributable to writeups or writedowns of assets.
"Notes" shall mean the Notes provided for by Section 2.06, together
with any and all renewals, extensions for any period, increases,
rearrangements, substitutions or modifications thereof.
<PAGE>
"Oil and Gas Properties" shall mean Hydrocarbon Interests; the
Properties now or hereafter pooled or unitized with Hydrocarbon
Interests; all presently existing or future unitization, pooling
agreements and declarations of pooled units and the units created
thereby (including without limitation all units created under orders,
regulations and rules of any Governmental Authority) which may affect
all or any portion of the Hydrocarbon Interests; all operating
agreements, contracts and other agreements which relate to any of the
Hydrocarbon Interests or the production, sale, purchase, exchange or
processing of Hydrocarbons from or attributable to such Hydrocarbon
Interests; all Hydrocarbons in and under and which may be produced and
saved or attributable to the Hydrocarbon Interests, including all oil
in tanks, the lands covered thereby and all rents, issues, profits,
proceeds, products, revenues and other incomes from or attributable to
the Hydrocarbon Interests; all tenements, hereditaments, appurtenances
and Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests; and all Properties, rights,
titles, interests and estates described or referred to above,
including any and all Property, real or personal, now owned or
hereinafter acquired and situated upon, used, held for use or useful
in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs,
automotive equipment or other personal property which may be on such
premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells,
injection wells or other wells, buildings, structures, fuel
separators, liquid extraction plants, plant compressors, pumps,
pumping units, field gathering systems, tanks and tank batteries,
fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables,
wires, towers, casing, tubing and rods, surface leases, rights-of-way,
easements and servitudes together with all additions, substitutions,
replacements, accessions and attachments to any and all of the
foregoing.
"Other Taxes" shall have the meaning assigned such term in Section 4.06(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions.
"Percentage Share" shall mean the percentage of the Aggregate
Commitments to be provided by a Lender under this Agreement as
indicated on Annex I hereto, as modified from time to time to reflect
any assignments permitted by Section 12.06(b).
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust,
unincorporated organization or government or any agency,
instrumentality or political subdivision thereof, or any other form of
entity.
"Plan" shall mean any employee pension benefit plan, as
defined in Section 3(2) of ERISA, which (a) is currently or hereafter
sponsored, maintained or contributed to by the Borrower, any Subsidiary
or an ERISA Affiliate or (b) was at any time during the preceding six
calendar years, sponsored, maintained or contributed to, by the
Borrower, any Subsidiary or an ERISA Affiliate.
<PAGE>
"Post-Default Rate" shall mean, in respect of any principal of any
Loan or any other amount payable by the Borrower under this Agreement
or any Note, a rate per annum equal to 2% per annum above the Base
Rate as in effect from time to time plus the Applicable Margin (if
any), but in no event to exceed the Highest Lawful Rate, provided
that, for a LIBOR Loan, the "Post-Default Rate" for such principal
shall be, for the period commencing on the date of an Event of Default
and ending on the earlier to occur of the last day of the Interest
Period therefor or the date all Events of Default are cured or waived,
2% per annum above the interest rate for such Loan as provided in
Section 3.02, but in no event to exceed the Highest Lawful Rate.
"Prime Rate" shall mean the rate of interest from time to time
announced publicly by the Administrative Agent at the Principal Office
as its prime commercial lending rate. Such rate is set by the
Administrative Agent as a general reference rate of interest, taking
into account such factors as the Administrative Agent may deem
appropriate, it being understood that many of the Administrative
Agent's commercial or other loans are priced in relation to such rate,
that it is not necessarily the lowest or best rate actually charged to
any customer and that the Administrative Agent may make various
commercial or other loans at rates of interest having no relationship
to such rate.
"Principal Office" shall mean the principal office of the
Administrative Agent, presently located at 301 South College Street,
TW-10, Charlotte, North Carolina 28288-0608 or such other location as
designated by the Administrative Agent from time to time.
"Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Quarterly Dates" shall mean the last day of each March, June,
September and December, in each year, the first of which shall be
December 31, 1997; provided, however, that if any such day is not a
Business Day, such Quarterly Date shall be the next succeeding Business
Day.
"Redetermination Date" shall have the meaning assigned such
term in Section 2.08(a).
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System (or any successor), as the same
may be amended or supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Lender,
any change after the Closing Date in any Governmental Requirement
(including Regulation D) or the adoption or making after such date of
any interpretations, directives or requests applying to a class of
lenders (including such Lender or its Applicable Lending Office) of or
under any Governmental Requirement (whether or not having the force of
law) by any Governmental Authority charged with the interpretation or
administration thereof.
<PAGE>
"Required Payment" shall have the meaning assigned such term
in Section 4.04.
"Reserve Report" shall mean, subject to the qualification set
forth below in this definition, a report, in form and substance
satisfactory to the Administrative Agent, setting forth, as of each
January 1 and July 1 (or such other date in the event of an unscheduled
redetermination): (i) the oil and gas reserves attributable to the
Borrower's and its Subsidiaries' Oil and Gas Properties that the
Borrower desires to have evaluated by the Lenders as of such date,
together with a projection of the rate of production and future net
income, taxes, operating expenses and capital expenditures with respect
thereto as of such date, based upon the pricing assumptions as set
forth therein, and (ii) such other information as the Administrative
Agent may reasonably request. The Reserve Report shall be accompanied
by a letter (the "Designation Letter") from the Borrower designating
those portions of the Borrower's and Subsidiaries' Oil and Gas
Properties which the Borrower desires to have evaluated by the Lenders
for the purposes of determining the Borrowing Base. As used in this
Agreement, the term "Reserve Report" shall mean the Reserve Report
insofar only as the same refers to those Oil and Gas Properties of the
Borrower and the Subsidiaries that have been designated for evaluation
by the Borrower pursuant to the Designation Letter, notwithstanding the
fact that other Oil and Gas Properties of the Borrower and the
Subsidiaries may be referred to in such Reserve Report.
"Reserve Requirement" shall mean, for any Interest Period for
any LIBOR Loan, the average maximum rate, at which reserves (including
any marginal, supplemental or emergency reserves) are required to be
maintained during such Interest Period under Regulation D by member
banks of the Federal Reserve System in New York City with deposits
exceeding one billion Dollars against "Eurocurrency liabilities" (as
such term is used in Regulation D). Without limiting the effect of the
foregoing, the Reserve Requirement shall reflect any other reserves
required to be maintained by such member banks by reason of any
Regulatory Change against (i) any category of liabilities which
includes deposits by reference to which the LIBOR Rate for LIBOR Loans
is to be determined as provided in the definition of "LIBOR Rate" in
this Section 1.02 or (ii) any category of extensions of credit or other
assets which include a LIBOR Loan.
"Responsible Officer" shall mean, as to any Person, the Chief
Executive Officer or the President of such Person and, with respect to
financial matters, the term "Responsible Officer" shall include the
Chief Financial Officer of such Person. Unless otherwise specified, all
references to a Responsible Officer herein shall mean a Responsible
Officer of the Borrower.
"Scheduled Redetermination Dates" shall have the meaning
assigned such term in Section 2.08(d).
<PAGE>
"SEC" shall mean the Securities and Exchange Commission or any
successor Governmental Authority.
"Security Instruments" shall mean this Agreement, the Letters
of Credit, the Letter of Credit Agreements, the Fee Letter, the
Guaranty Agreements, the agreements or instruments described or
referred to in Exhibit E, and any and all other agreements or
instruments now or hereafter executed and delivered by the Borrower or
any other Person (other than participation or similar agreements
between any Lender and any other lender or creditor with respect to any
Indebtedness pursuant to this Agreement) in connection with, or as
security for the payment or performance of the Loan Documents, as such
agreements may be amended, supplemented or restated from time to time.
"Senior Unsecured Notes" shall mean those certain 10-5/8%
unsecured senior notes in the aggregate original principal amount of
$100,000,000 dated as of October 9, 1997 and maturing on October 1,
2004 issued under the Indenture and all obligations relating thereto.
"Special Entity" shall mean any joint venture, limited
liability company or partnership, general or limited partnership or any
other type of partnership or company other than a corporation in which
the Borrower or one or more of its other Subsidiaries is a member,
owner, partner or joint venturer and owns, directly or indirectly, at
least a majority of the equity of such entity or controls such entity,
but excluding any tax partnerships that are not classified as
partnerships under state law. For purposes of this definition, any
Person which owns directly or indirectly an equity investment in
another Person which allows the first Person to manage or elect
managers who manage the normal activities of such second Person will be
deemed to "control" such second Person (e.g. a sole general partner
controls a limited partnership).
"Subsidiary" shall mean (i) any corporation of which at least
a majority of the outstanding shares of stock having by the terms
thereof ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled
by the Borrower or one or more of its Subsidiaries or by the Borrower
and one or more of its Subsidiaries, and (ii) any Special Entity.
Unless otherwise indicated herein, each reference to the term
"Subsidiary" shall mean a Subsidiary of the Borrower.
"Tangible Net Worth" shall mean, as at any date, the sum of
the following for the Borrower and its Consolidated Subsidiaries
determined (without duplication) in accordance with GAAP:
<PAGE>
(a) the amount of share capital liability of the Borrower,
plus
(b) the amount of surplus and retained earnings (or, in the
case of a surplus or retained earnings deficit, minus
the amount of such deficit), minus
(c) the sum of the following: any obligations due from
stockholders, employees or Affiliates, cost of treasury
shares and the book value of all assets of the Borrower
and its Consolidated Subsidiaries which should be
classified as intangibles (without duplication of
deductions in respect of items already deducted in
arriving at surplus and retained earnings) but in any
event including as such intangibles the following:
goodwill, research costs, trademarks, trade names,
copyrights, patents and franchises, unamortized debt
discount and expense, all reserves and any writeup in
the book value of assets resulting from a revaluation
thereof or resulting from any changes in GAAP
subsequent to December 31, 1996.
"Taxes" shall have the meaning assigned such term in Section 4.06(a).
"Termination Date" shall mean, unless the Commitments are sooner
terminated pursuant to Section 10.02, October 22, 2002.
"Type" shall mean, with respect to any Loan, a Base Rate Loan or a
LIBOR Loan.
Section 1.03 Accounting Terms and DeterminationsSection 1.03
Accounting Terms and Determinations. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all financial
statements and certificates and reports as to financial matters required to be
furnished to the Administrative Agent or the Lenders hereunder shall be
prepared, in accordance with GAAP, applied on a basis consistent with the
audited financial statements of the Borrower referred to in Section 7.02 (except
for changes concurred with by the Borrower's independent public accountants).
ARTICLE II
Commitments
Section 2.01 Loans and Letters of CreditSection 2.01 Loans
and Letters of Credit.
<PAGE>
(a)Loans. Each Lender severally agrees, on the terms of this Agreement, to
make Loans to the Borrower during the period from and including (i) the Closing
Date or (ii) such later date that such Lender becomes a party to this Agreement
as provided in Section 12.06(b), to and up to, but excluding, the Termination
Date in an aggregate principal amount at any one time outstanding up to but not
exceeding the amount of such Lender's Commitment as then in effect; provided,
however, that the aggregate principal amount of all such Loans by all Lenders
hereunder at any one time outstanding together with the LC Exposure shall not
exceed the Aggregate Commitments. Subject to the terms of this Agreement, during
the period from the Closing Date to and up to, but excluding, the Termination
Date, the Borrower may borrow, repay and reborrow the amount described in this
Section 2.01(a).
(b)Letters of Credit. During the period from and including the Closing Date
to but excluding two (2) Business Days before the Termination Date, the
Administrative Agent, as issuing bank for the Lenders, agrees to extend credit
for the account of the Borrower at any time and from time to time by issuing,
renewing, extending or reissuing Letters of Credit; provided however, the LC
Exposure at any one time outstanding shall not exceed the lesser of (A) the LC
Commitment or (B) the Aggregate Commitments, as then in effect, minus the
aggregate principal amount of all Loans then outstanding. The Lenders shall
participate in such Letters of Credit according to their respective Percentage
Shares. The expiration date of each Letter of Credit shall not exceed the
earlier of one (1) year from the date of issuance or two (2) Business Days
before the Termination Date. Any Letter of Credit issued under the Prior Credit
Agreement and still outstanding on the Closing Date shall be continued as a
Letter of Credit under this Section 2.01(b).
(c)Limitations on Types of Loans. Subject to the other terms and provisions
of this Agreement, at the option of the Borrower, the Loans may be Base Rate
Loans or LIBOR Loans; provided that no more than eight (8) LIBOR Loans may be
outstanding at any time.
Section 2.02 Borrowings, Continuations, Conversions and
Letters of CreditBorrowings, Continuations, Conversions and Letters of Credit.
(a) Borrowings. The Borrower shall give the Administrative
Agent (which shall promptly notify the Lenders) advance notice as
hereinafter provided of each borrowing hereunder, which shall specify
the aggregate amount of such borrowing, the Type and the date (which
shall be a Business Day) of the Loans to be borrowed and (in the case
of LIBOR Loans) the duration of the Interest Period therefor.
(b) Minimum Amounts. All Base Rate Loan borrowings shall be in
amounts of at least $500,000 or the remaining balance of the Aggregate
Commitments, if less, or any whole multiple of $100,000 in excess
thereof, and all LIBOR Loans shall be in amounts of at least $500,000
or any whole multiple of $100,000 in excess thereof.
<PAGE>
(c) Notices. All borrowings, continuations and conversions shall require
advance written notice to the Administrative Agent (which shall promptly notify
the Lenders) in the form of Exhibit B hereto (or telephonic notice promptly
confirmed by such a written notice), which in each case shall be irrevocable,
from the Borrower to be received by the Administrative Agent not later than
11:00 a.m. Charlotte, North Carolina time at least one Business Day prior to the
date of such Base Rate Loan borrowing and three Business Days prior to the date
of each LIBOR Loan borrowing, continuation or conversion. Without in any way
limiting the Borrower's obligation to confirm in writing any telephonic notice,
the Administrative Agent may act without liability upon the basis of telephonic
notice believed by the Administrative Agent in good faith to be from the
Borrower prior to receipt of written confirmation. In each such case, the
Borrower hereby waives the right to dispute the Administrative Agent's record of
the terms of such telephonic notice except in the case of gross negligence or
willful misconduct by the Administrative Agent.
(d) Continuation Options. Subject to the provisions made in this Section
2.02(d), the Borrower may elect to continue all or any part of any LIBOR Loan
beyond the expiration of the then current Interest Period relating thereto by
giving advance notice as provided in Section 2.02(c) to the Administrative Agent
(which shall promptly notify the Lenders) of such election, specifying the
amount of such Loan to be continued and the Interest Period therefor. In the
absence of such a timely and proper election, the Borrower shall be deemed to
have elected to convert such LIBOR Loan to a Base Rate Loan pursuant to Section
2.02(e). All or any part of any LIBOR Loan may be continued as provided herein,
provided that (i) any continuation of any such Loan shall be (as to each Loan as
continued for an applicable Interest Period) in amounts of at least $500,000 or
any whole multiple of $100,000 in excess thereof and (ii) no Default shall have
occurred and be continuing. If a Default shall have occurred and be continuing,
each LIBOR Loan shall be converted to a Base Rate Loan on the last day of the
Interest Period applicable thereto.
(e) Conversion Options. The Borrower may elect to convert all or any part
of any LIBOR Loan on the last day of the then current Interest Period relating
thereto to a Base Rate Loan by giving advance notice to the Administrative Agent
(which shall promptly notify the Lenders) of such election. Subject to the
provisions made in this Section 2.02(e), the Borrower may elect to convert all
or any part of any Base Rate Loan at any time and from time to time to a LIBOR
Loan by giving advance notice as provided in Section 2.02(c) to the
Administrative Agent (which shall promptly notify the Lenders) of such election.
All or any part of any outstanding Loan may be converted as provided herein,
provided that (i) any conversion of any Base Rate Loan into a LIBOR Loan shall
be (as to each such Loan into which there is a conversion for an applicable
Interest Period) in amounts of at least $500,000 or any whole multiple of
$100,000 in excess thereof and (ii) no Default shall have occurred and be
continuing. If a Default shall have occurred and be continuing, no Base Rate
Loan may be converted into a LIBOR Loan.
<PAGE>
(f) Advances. Not later than 11:00 a.m. Charlotte, North Carolina time on
the date specified for each borrowing hereunder, each Lender shall make
available the amount of the Loan to be made by it on such date to the
Administrative Agent, to an account which the Administrative Agent shall
specify, in immediately available funds, for the account of the Borrower. The
amounts so received by the Administrative Agent shall, subject to the terms and
conditions of this Agreement, be made available to the Borrower by depositing
the same, in immediately available funds, in an account of the Borrower,
designated by the Borrower and maintained with the Administrative Agent at the
Principal Office.
(g) Letters of Credit. The Borrower shall give the Administrative Agent
(which shall promptly notify the Lenders of such request and their Percentage
Share of such Letter of Credit) advance notice to be received by the
Administrative Agent not later than 11:00 a.m. Charlotte, North Carolina time
not less than three (3) Business Days prior thereto of each request for the
issuance and at least thirty (30) Business Days prior to the date of the renewal
or extension of a Letter of Credit hereunder which request shall specify the
amount of such Letter of Credit, the date (which shall be a Business Day) such
Letter of Credit is to be issued, renewed or extended, the duration thereof, the
name and address of the beneficiary thereof, the form of the Letter of Credit
and such other information as the Administrative Agent may reasonably request
all of which shall be reasonably satisfactory to the Administrative Agent.
Subject to the terms and conditions of this Agreement, on the date specified for
the issuance, renewal or extension of a Letter of Credit, the Administrative
Agent shall issue such Letter of Credit to the beneficiary thereof.
In conjunction with the issuance of each Letter of Credit, the
Borrower shall execute a Letter of Credit Agreement. In the event of
any conflict between any provision of a Letter of Credit Agreement and
this Agreement, the Borrower, the Administrative Agent and the Lenders
hereby agree that the provisions of this Agreement shall govern.
The Administrative Agent will send to the Borrower and each
Lender, immediately upon issuance of any Letter of Credit, or an
amendment thereto, a true and complete copy of such Letter of Credit,
or such amendment thereto.
Section 2.03 Changes of Aggregate CommitmentsChanges of
Aggregate Commitments. The Aggregate Commitments shall at all times be equal to
the lesser of (i) the Aggregate Maximum Credit Amounts or (ii) the Borrowing
Base as determined from time to time.
Section 2.04 FeesFees.
(a) The Borrower shall pay to the Administrative Agent for the account of
each Lender a commitment fee on the daily unused amount of the Aggregate
Commitment based on the Borrowing Base Utilization Percentage for the period
from and including the Closing Date up to but excluding the earlier of the date
the Aggregate Commitments are terminated or the Termination Date as follows:
<PAGE>
Borrowing Base Utilization Percentage Commitment Fee
(per annum)
less than 50% 0.250%
equal to or greater than 50% 0.375%
Accrued commitment fees shall be payable quarterly in arrears on each
Quarterly Date and on the earlier of the date the Aggregate Commitments
are terminated or the Termination Date.
(b) The Borrower agrees to pay the Administrative Agent, for the account of
each Lender, commissions for issuing the Letters of Credit (calculated
separately for each Letter of Credit) at the rate per annum equal to the
Applicable Margin for LIBOR Loans in effect at the time of calculation, provided
that each Letter of Credit shall bear a minimum commission of $1,000 and that
each Letter of Credit shall be deemed to be outstanding up to the full face
amount of the Letter of Credit until the Administrative Agent has received the
canceled Letter of Credit or a written cancellation of the Letter of Credit from
the beneficiary of such Letter of Credit in form and substance acceptable to the
Administrative Agent, or for any reductions in the amount of the Letter of
Credit (other than from a drawing), written notification from the beneficiary of
such Letter of Credit. Such commissions are payable in advance at issuance of
the Letter of Credit. In addition to the Letter of Credit fee payable to the
Lenders, the Borrower agrees to pay to the Administrative Agent, for its own
account, an issuing fee for each Letter of Credit issued equal to 1/8 of 1% per
annum of the full face amount of such Letter of Credit.
(c) Upon each issuance of any Letter of Credit, the Borrower shall pay to
the Administrative Agent for its own account an issuance fee of $85.
(d) Upon each transfer of any Letter of Credit to a successor beneficiary
in accordance with its terms, the Borrower shall pay the sum of $200 to the
Administrative Agent for its own account.
(e) Upon each drawing of any Letter of Credit, the Borrower shall pay to
the Administrative Agent for its own account a negotiation fee of $100; provided
that such fee shall not be a condition to any drawing.
(f) Upon each amendment of any Letter of Credit, the Borrower shall pay to
the Administrative Agent for its own account the sum of $50.
(g) The Borrower shall pay to First Union Capital Markets Corp. for its
account such other fees as are set forth in the Fee Letter on the dates
specified therein to the extent not paid prior to the Closing Date.
<PAGE>
Section 2.05 Several ObligationsSeveral Obligations. The
failure of any Lender to make any Loan to be made by it or to provide funds for
disbursements or reimbursements under Letters of Credit on the date specified
therefor shall not relieve any other Lender of its obligation to make its Loan
or provide funds on such date, but no Lender shall be responsible for the
failure of any other Lender to make a Loan to be made by such other Lender or to
provide funds to be provided by such other Lender.
Section 2.06 NotesSection 2.06 Notes. The Loans made by each
Lender shall be evidenced by a single promissory note of the Borrower in
substantially the form of Exhibit A hereto, dated (i) the Closing Date or (ii)
upon an assignment by any Lender pursuant to Section 12.06(b), the effective
date of such assignment, payable to the order of such Lender in a principal
amount equal to its Maximum Credit Amount as in effect and otherwise duly
completed and such substitute Notes as required by Section 12.06(b). The date,
amount, Type, interest rate and Interest Period of each Loan made by each
Lender, and all payments made on account of the principal thereof, shall be
recorded by such Lender on its books for its Note, and, prior to any transfer,
may be endorsed by such Lender on the schedule attached to such Note or any
continuation thereof. Such records shall be deemed conclusive absent manifest
error. Failure to make any such notation or to attach a schedule shall not
affect any Lender's or the Borrower's rights or obligations in respect of such
Loans or affect the validity of such transfer by any Lender of its Note.
Section 2.07 PrepaymentsPrepayments.
(a) The Borrower may prepay the Base Rate Loans upon not less
than one (1) Business Day's prior notice to the Administrative Agent
(which shall promptly notify the Lenders), which notice shall specify
the prepayment date (which shall be a Business Day) and the amount of
the prepayment (which shall be at least $100,000 or the remaining
aggregate principal balance outstanding on the Notes) and shall be
irrevocable and effective only upon receipt by the Administrative
Agent, provided that interest on the principal prepaid, accrued to the
prepayment date, shall be paid on the prepayment date. The Borrower may
prepay LIBOR Loans on the same condition as for Base Rate Loans and in
addition such prepayments of LIBOR Loans shall be subject to the terms
of Section 5.05 and shall be in an amount equal to all of the LIBOR
Loans maturing on the same date for the Interest Period prepaid.
<PAGE>
(b) Upon any redetermination of the amount of the Borrowing
Base in accordance with Section 2.08, if the redetermined Borrowing
Base is less than the aggregate outstanding principal amount of the
Loans plus the LC Exposure, the Borrower shall upon notice thereof
prepay the Loans in an aggregate principal amount equal to such excess
in two equal payments due within 90 days and 180 days of receipt of
written notice thereof and if a Borrowing Base deficiency remains after
prepaying all of the Loans because of LC Exposure, pay to the
Administrative Agent on behalf of the Lenders an amount equal to such
Borrowing Base deficiency to be held as cash collateral as provided in
Section 2.10(b) hereof.
(c) Prepayments permitted or required under this Section 2.07
shall be without premium or penalty, except as required under Section
5.05 for prepayment of LIBOR Loans. Any prepayment may be reborrowed
subject to the then effective Aggregate Commitments.
Section 2.08 Borrowing BaseBorrowing Base.
(a) During the period from and after the Closing Date until
the Borrowing Base is redetermined in accordance with this Section
2.08, the amount of the Borrowing Base shall be $40,000,000 and shall
automatically reduce by $4,000,000 on April 1, 1998. The Borrowing Base
and all redeterminations thereof shall be determined in accordance with
Section 2.08(b) by the Administrative Agent with the concurrence of the
Lenders. Upon any redetermination of the Borrowing Base, such
redetermination shall remain in effect until the next successive
Redetermination Date. "Redetermination Date" shall mean the date that
the redetermined Borrowing Base becomes effective subject to the notice
requirements specified in Section 2.08(e) both for scheduled
redeterminations and unscheduled redeterminations. So long as any of
the Commitments are in effect and until all of the Loans outstanding
hereunder are paid in full, this facility shall be governed by the then
effective Borrowing Base.
(b) Upon receipt of the reports required by Section 8.05 and
such other reports, data and supplemental information as may from time
to time be reasonably requested by the Administrative Agent (the
"Engineering Reports"), the Administrative Agent will evaluate such
information in its sole discretion. The Administrative Agent shall
propose to the Lenders a new Borrowing Base within 20 days following
receipt by the Administrative Agent and the Lenders of the Engineering
Reports in a timely and complete manner. After having received notice
of such proposal by the Administrative Agent, the Majority Lenders
shall have 10 days to agree or disagree with such proposal. If at the
end of the 10 days, a Lender has not communicated its approval or
disapproval, such silence shall be deemed to be an approval. The new
Borrowing Base will require the approval of the Majority Lenders. If
the Majority Lenders do not approve the new Borrowing Base either by
timely notice or by silence, the Administrative Agent and the Majority
Lenders shall, within a reasonable period of time, agree on a new
Borrowing Base.
<PAGE>
(c) The Administrative Agent may exclude any Oil and Gas
Property or portion of production therefrom or any income from any
other Property from the Borrowing Base, at any time, because title
information is not reasonably satisfactory, such Property is not
Mortgaged Property or such Property is not assignable (provided,
however, that no Property shall be considered not assignable by reason
of the necessity for consent or approval of any Governmental Authority
to an assignment of interest therein).
(d) So long as any of the Commitments are in effect and until
payment in full of all Loans hereunder, on or around the first (1st)
Business Day of each April and October, commencing April 1, 1998
("Scheduled Redetermination Dates"), the Majority Lenders shall
redetermine the amount of the Borrowing Base as provided in Section
2.08(b). In addition, either the Borrower or the Majority Lenders may
initiate a redetermination of the Borrowing Base at any other time as
they so elect; provided, however, that the Majority Lenders and the
Borrower may each initiate only one such unscheduled redetermination
during any period between Scheduled Redetermination Dates by specifying
in writing to the Borrower the date on which the Borrower is to furnish
a Reserve Report in accordance with Section 8.05(b) and the date on
which such redetermination is to occur and such redeterminations shall
be accomplished as provided in Section 2.08(b).
(e) The Administrative Agent shall promptly notify in writing
the Borrower and the Lenders of each new Borrowing Base determined
pursuant to Section 2.08(d). Any new Borrowing Base shall be effective
without the necessity of the Borrower's consent or signature. Such
redetermination of the Borrowing Base shall not be in effect until
notice is received by the Borrower.
(f) The Borrower may at any time elect to lower the Borrowing
Base from the Borrowing Base then in effect, however, the Majority
Lenders shall not be required to increase the Borrowing Base once
reduced.
(g) Notwithstanding anything to the contrary in this Agreement
or any other Loan Document, the Borrowing Base shall be determined in
the sole discretion of the Administrative Agent and the Majority
Lenders. Even though the Administrative Agent and the Lenders may each
evaluate the oil and gas reserves and other related assets in
accordance with its normal and customary procedures, the Borrowing Base
proposed by the Administrative Agent and agreed to by the Majority
Lenders may be less than another borrower might obtain from the Lenders
for the same Properties. The Aggregate Maximum Credit Amounts has been
established at $75,000,000 as a convenience in documenting possible
increases in the facility to reduce the need for mortgage amendments
and in no way commits the Lenders to ever increase the Borrowing Base
above the then current level, even if the value of the reserves justify
such increase.
<PAGE>
Section 2.09 Assumption of RisksSection 2.09 Assumption of
Risks. As between the Borrower, the Administrative Agent and the Lenders, the
Borrower assumes all risks of the acts or omissions of any beneficiary of any
Letter of Credit or any transferee thereof with respect to its use of such
Letter of Credit. Neither the Administrative Agent (except in the case of
willful misconduct or gross negligence on the part of the Administrative Agent
or any of its employees), its correspondents nor any Lender shall be responsible
for the validity, sufficiency or genuineness of certificates or other documents
or any endorsements thereon, even if such certificates or other documents should
in fact prove to be invalid, insufficient, fraudulent or forged; for errors,
omissions, interruptions or delays in transmissions or delivery of any messages
by mail, telex, or otherwise, whether or not they be in code; for errors in
translation or for errors in interpretation of technical terms; the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be invalid or
ineffective for any reason; the failure of any beneficiary or any transferee of
any Letter of Credit to comply fully with conditions required in order to draw
upon any Letter of Credit; or for any other consequences arising from causes
beyond the Administrative Agent's control or the control of the Administrative
Agent's correspondents. In addition, neither the Administrative Agent nor any
Lender shall be responsible for any error, neglect, or default of any of the
Administrative Agent's correspondents; and none of the above shall affect,
impair or prevent the vesting of any of the Administrative Agent's or any
Lender's rights or powers hereunder or under the Letter of Credit Agreements,
all of which rights shall be cumulative. The Administrative Agent and its
correspondents may accept certificates or other documents that appear on their
face to be in order, without responsibility for further investigation of any
matter contained therein regardless of any notice or information to the
contrary. In furtherance and not in limitation of the foregoing provisions, the
Borrower agrees that any action, inaction or omission taken or not taken by the
Administrative Agent or by any correspondent for the Administrative Agent in
good faith in connection with any Letter of Credit, or any related drafts,
certificates, documents or instruments, shall be binding on the Borrower and
shall not put the Administrative Agent or its correspondents under any resulting
liability to the Borrower.
Section 2.10 Obligation to Reimburse and to PrepayObligation
to Reimburse and to Prepay.
<PAGE>
(a) If a disbursement by the Administrative Agent is made under any Letter
of Credit, the Borrower shall pay to the Administrative Agent within two (2)
Business Days after notice of any such disbursement is received by the Borrower,
the amount of each such disbursement made by the Administrative Agent under the
Letter of Credit (if such payment is not sooner effected as may be required
under this Section 2.10 or under other provisions of the Letter of Credit),
together with interest on the amount disbursed from and including the date of
disbursement until payment in full of such disbursed amount at a varying rate
per annum equal to (i) the then applicable interest rate for Base Rate Loans
through the second Business Day after notice of such disbursement is received by
the Borrower and (ii) thereafter, the Post-Default Rate for Base Rate Loans (but
in no event to exceed the Highest Lawful Rate) for the period from and including
the third Business Day following the date of such disbursement to and including
the date of repayment in full of such disbursed amount. The obligations of the
Borrower under this Agreement with respect to each Letter of Credit shall be
absolute, unconditional and irrevocable and shall be paid or performed strictly
in accordance with the terms of this Agreement under all circumstances
whatsoever, including, without limitation, but only to the fullest extent
permitted by applicable law, the following circumstances: (i) any lack of
validity or enforceability of this Agreement, any Letter of Credit or any of the
Security Instruments; (ii) any amendment or waiver of (including any default),
or any consent to departure from this Agreement (except to the extent permitted
by any amendment or waiver), any Letter of Credit or any of the Security
Instruments; (iii) the existence of any claim, set-off, defense or other rights
which the Borrower may have at any time against the beneficiary of any Letter of
Credit or any transferee of any Letter of Credit (or any Persons for whom any
such beneficiary or any such transferee may be acting), the Administrative
Agent, any Lender or any other Person, whether in connection with this
Agreement, any Letter of Credit, the Security Instruments, the transactions
contemplated hereby or any unrelated transaction; (iv) any statement,
certificate, draft, notice or any other document presented under any Letter of
Credit proves to have been forged, fraudulent, insufficient or invalid in any
respect or any statement therein proves to have been untrue or inaccurate in any
respect whatsoever; (v) payment by the Administrative Agent under any Letter of
Credit against presentation of a draft or certificate which appears on its face
to comply, but does not comply, with the terms of such Letter of Credit; and
(vi) any other circumstance or happening whatsoever, whether or not similar to
any of the foregoing.
Notwithstanding anything in this Agreement to the contrary, the Borrower
will not be liable for payment or performance that results from the gross
negligence or willful misconduct of the Administrative Agent, except where the
Borrower or any Subsidiary actually recovers the proceeds for itself or the
Administrative Agent of any payment made by the Administrative Agent in
connection with such gross negligence or willful misconduct.
<PAGE>
(b) In the event of the occurrence of any Event of Default, a payment or
prepayment pursuant to Sections 2.07(a) and (b) hereof or the maturity of the
Notes, whether by acceleration or otherwise, an amount equal to the LC Exposure
(or the excess in the case of Sections 2.07(a) and (b)) shall be deemed to be
forthwith due and owing by the Borrower to the Administrative Agent and the
Lenders as of the date of any such occurrence; and the Borrower's obligation to
pay such amount shall be absolute and unconditional, without regard to whether
any beneficiary of any such Letter of Credit has attempted to draw down all or a
portion of such amount under the terms of a Letter of Credit, and, to the
fullest extent permitted by applicable law, shall not be subject to any defense
or be affected by a right of set-off, counterclaim or recoupment which the
Borrower may now or hereafter have against any such beneficiary, the
Administrative Agent, the Lenders or any other Person for any reason whatsoever.
Such payments shall be held by the Administrative Agent on behalf of the Lenders
as cash collateral securing the LC Exposure in an account or accounts at the
Principal Office, and the Borrower hereby grants to and by its deposit with the
Administrative Agent grants to the Administrative Agent a security interest in
such cash collateral. In the event of any such payment by the Borrower of
amounts contingently owing under outstanding Letters of Credit and in the event
that thereafter drafts or other demands for payment complying with the terms of
such Letters of Credit are not made prior to the respective expiration dates
thereof, the Administrative Agent agrees, if no Event of Default has occurred
and is continuing or if no other amounts are due and owing under the Loan
Documents, to remit to the Borrower amounts for which the contingent obligations
evidenced by the Letters of Credit have ceased.
(c) Each Lender severally and unconditionally agrees that it shall promptly
reimburse the Administrative Agent an amount equal to such Lender's Percentage
Share of any disbursement made by the Administrative Agent under any Letter of
Credit that is not reimbursed according to this Section 2.10.
Section 2.11 Lending OfficesLending Offices. The Loans of each
Type made by each Lender shall be made and maintained at such Lender's
Applicable Lending Office for Loans of such Type.
ARTICLE III
Payments of Principal and Interest
Section 3.01 Repayment of LoansSection 3.01 Repayment of
Loans. On the Termination Date the Borrower shall repay to the Administrative
Agent, for the account of each Lender, the outstanding aggregate principal and
accrued and unpaid interest under the Notes.
Section 3.02 InterestInterest. The Borrower will pay to the
Administrative Agent, for the account of each Lender, interest on the unpaid
principal amount of each Loan made by such Lender for the period commencing on
the date such Loan is made to but excluding the date such Loan shall be paid in
full, at the following rates per annum:
(a) if such a Loan is a Base Rate Loan, the Base Rate (as in
effect from time to time) plus the Applicable Margin (as in effect from
time to time), but in no event to exceed the Highest Lawful Rate; and
(b) if such a Loan is a LIBOR Loan, for each Interest Period
relating thereto, the LIBOR Rate for such Loan plus the Applicable
Margin (as in effect from time to time), but in no event to exceed the
Highest Lawful Rate.
Notwithstanding the foregoing, the Borrower will pay to the Administrative
Agent, for the account of each Lender interest at the applicable Post-Default
Rate on any principal of any Loan made by such Lender, and (to the fullest
extent permitted by law) on any other amount payable by the Borrower hereunder,
under any Loan Document, or under any Note held by such Lender to or for account
of such Lender, for the period commencing on the date of an Event of Default
until the same is paid in full or all Events of Default are cured or waived.
<PAGE>
Accrued interest on Base Rate Loans shall be payable quarterly on each
Quarterly Date commencing on December 31, 1997, and accrued interest on each
LIBOR Loan shall be payable on the last day of the Interest Period therefor and,
if such Interest Period is longer than three months at three-month intervals
following the first day of such Interest Period, except that interest payable at
the Post-Default Rate shall be payable from time to time on demand and interest
on any LIBOR Loan that is converted into a Base Rate Loan (pursuant to Section
5.04) shall be payable on the date of conversion (but only to the extent so
converted).
Promptly after the determination of any interest rate provided for
herein or any change therein, the Administrative Agent shall notify the Lenders
to which such interest is payable and the Borrower thereof. Each determination
by the Administrative Agent of an interest rate or fee hereunder shall, except
in cases of manifest error, be final, conclusive and binding on the parties.
ARTICLE IV
Payments; Pro Rata Treatment; Computations; Etc.
Section 4.01 PaymentsSection 4.01 Payments. Except to the
extent otherwise provided herein, all payments of principal, interest and other
amounts to be made by the Borrower under this Agreement, the Notes and the
Letter of Credit Agreements shall be made in Dollars, in immediately available
funds, to the Administrative Agent at such account as the Administrative Agent
shall specify by notice to the Borrower from time to time, not later than 12:00
p.m. Charlotte, North Carolina time on the date on which such payments shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day). Such payments shall be
made without (to the fullest extent permitted by applicable law) defense,
set-off or counterclaim. Each payment received by the Administrative Agent under
this Agreement or any Note for account of a Lender shall be paid promptly to
such Lender, in immediately available funds. Except as provided in clause (ii)
of the definition of "Interest Period", if the due date of any payment under
this Agreement or any Note would otherwise fall on a day which is not a Business
Day, such date shall be extended to the next succeeding Business Day and
interest shall be payable for any principal so extended for the period of such
extension. At the time of each payment to the Administrative Agent of any
principal of or interest on any borrowing, the Borrower shall notify the
Administrative Agent of the Loans to which such payment shall apply. In the
absence of such notice the Administrative Agent may specify the Loans to which
such payment shall apply, but to the extent possible such payment or prepayment
will be applied first to the Loans comprised of Base Rate Loans.
<PAGE>
Section 4.02 Pro Rata TreatmentPro Rata Treatment. Except to the extent
otherwise provided herein each Lender agrees that: (a) each borrowing from the
Lenders under Section 2.01 and each continuation and conversion under Section
2.02 shall be made from the Lenders pro rata in accordance with their Percentage
Share, and each payment of commitment fee or other fees under Section 2.04(a)
and Section 2.04(b) shall be made for account of the Lenders pro rata in
accordance with their Percentage Share; (b) each payment of principal of Loans
by the Borrower shall be made for account of the Lenders pro rata in accordance
with the respective unpaid principal amount of the Loans held by the Lenders;
(c) each payment of interest on Loans by the Borrower shall be made for account
of the Lenders pro rata in accordance with the amounts of interest due and
payable to the respective Lenders; and (d) each reimbursement by the Borrower of
disbursements under Letters of Credit shall be made for account of the Lenders
pro rata in accordance with the amounts of reimbursement obligations due and
payable to each respective Lender.
Section 4.03 ComputationsComputations. Interest on LIBOR Loans
and fees shall be computed on the basis of a year of 360 days and actual days
elapsed (including the first day but excluding the last day) occurring in the
period for which such interest is payable, unless such calculation would exceed
the Highest Lawful Rate, in which case interest shall be calculated on the per
annum basis of a year of 365 or 366 days, as the case may be. Interest on Base
Rate Loans shall be computed on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed (including the first day but excluding the
last day) occurring in the period for which such interest is payable.
Section 4.04 Non-receipt of Funds by the Administrative
AgentNon-receipt of Funds by the Administrative Agent. Unless the Administrative
Agent shall have been notified by a Lender or the Borrower prior to the date on
which such notifying party is scheduled to make payment to the Administrative
Agent (in the case of a Lender) of the proceeds of a Loan or a payment under a
Letter of Credit to be made by it hereunder or (in the case of the Borrower) a
payment to the Administrative Agent for account of one or more of the Lenders
hereunder (such payment being herein called the "Required Payment"), which
notice shall be effective upon receipt, that it does not intend to make the
Required Payment to the Administrative Agent, the Administrative Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient(s) on such date and, if such Lender or the Borrower (as
the case may be) has not in fact made the Required Payment to the Administrative
Agent, the recipient(s) of such payment shall, on demand, repay to the
Administrative Agent the amount so made available together with interest thereon
in respect of each day during the period commencing on the date such amount was
so made available by the Administrative Agent until but excluding the date the
Administrative Agent recovers such amount at a rate per annum which, for any
Lender as recipient, will be equal to the Federal Funds Rate, and for the
Borrower as recipient, will be equal to the Base Rate plus the Applicable
Margin.
Section 4.05 Set-off, Sharing of Payments, Etc.Section 4.05 Set-off,
Sharing of Payments, Etc.
<PAGE>
(a) The Borrower agrees that, in addition to (and without limitation of)
any right of set-off, bankers' lien or counterclaim a Lender may otherwise have,
each Lender shall have the right and be entitled (after consultation with the
Administrative Agent), at its option, to offset balances held by it or by any of
its Affiliates for account of the Borrower or any Subsidiary at any of its
offices, in Dollars or in any other currency, against any principal of or
interest on any of such Lender's Loans, or any other Indebtedness payable to
such Lender under the Loan Documents, which is not paid when due (regardless of
whether such balances are then due to the Borrower), in which case it shall
promptly notify the Borrower and the Administrative Agent thereof, provided that
such Lender's failure to give such notice shall not affect the validity thereof.
(b) If any Lender shall obtain payment of any Indebtedness through the
exercise of any right of set-off, banker's lien or counterclaim or similar right
or otherwise, and, as a result of such payment, such Lender shall have received
a greater percentage of the Indebtedness then due under the Loan Documents by
the Borrower to such Lender than the percentage received by any other Lenders,
it shall promptly (i) notify the Administrative Agent and each other Lender
thereof and (ii) purchase from such other Lenders participations in (or, if and
to the extent specified by such Lender, direct interests in) the Indebtedness
made by such other Lenders in such amounts, and make such other adjustments from
time to time as shall be equitable, to the end that all the Lenders shall share
the benefit of such excess payment (net of any expenses which may be incurred by
such Lender in obtaining or preserving such excess payment) pro rata in
accordance with the unpaid Indebtedness held by each of the Lenders. To such end
all the Lenders shall make appropriate adjustments among themselves (by the
resale of participations sold or otherwise) if such payment is rescinded or must
otherwise be restored. The Borrower agrees that any Lender so purchasing a
participation (or direct interest) in the Indebtedness made by other Lenders may
exercise all rights of set-off, banker's lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of the Indebtedness in the amount of such participation. Nothing
contained herein shall require any Lender to exercise any such right or shall
affect the right of any Lender to exercise, and retain the benefits of
exercising, any such right with respect to any other Indebtedness. If under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a set-off to which this Section 4.05 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders entitled
under this Section 4.05 to share the benefits of any recovery on such secured
claim.
Section 4.06 TaxesSection 4.06 Taxes.
<PAGE>
(a) Payments Free and Clear. Any and all payments by the Borrower hereunder
shall be made, in accordance with Section 4.01, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding, in
the case of each Lender and the Administrative Agent, taxes imposed on its
income, and franchise or similar taxes imposed on it, by (i) any jurisdiction
(or political subdivision thereof) of which the Administrative Agent or such
Lender, as the case may be, is a citizen or resident or in which such Lender has
an Applicable Lending Office, (ii) the jurisdiction (or any political
subdivision thereof) in which the Administrative Agent or such Lender is
organized, or (iii) any jurisdiction (or political subdivision thereof) in which
such Lender or the Administrative Agent is presently doing business in which
taxes are imposed solely as a result of doing business in such jurisdiction (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Lenders or the Administrative Agent (i) the sum payable shall
be increased by the amount necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 4.06) such Lender or the Administrative Agent (as the case may be)
shall receive an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxing authority or
other Governmental Authority in accordance with applicable law.
(b) Other Taxes. In addition, to the fullest extent permitted by applicable
law, the Borrower agrees to pay any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies that arise from
any payment made hereunder or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement, any Assignment or any other
Security Instrument (hereinafter referred to as "Other Taxes").
<PAGE>
(c) Indemnification. To the fullest extent permitted by applicable law, the
Borrower will indemnify each Lender and the Administrative Agent for the full
amount of Taxes and Other Taxes (including, but not limited to, any Taxes or
Other Taxes imposed by any Governmental Authority on amounts payable under this
Section 4.06) paid by such Lender or the Administrative Agent (on their behalf
or on behalf of any Lender), as the case may be, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted
unless the payment of such taxes was not correctly or legally asserted and such
Lender's payment of such Taxes or Other Taxes was the result of its gross
negligence or willful misconduct. Any payment pursuant to such indemnification
shall be made within thirty (30) days after the date any Lender or the
Administrative Agent, as the case may be, makes written demand therefor. If any
Lender or the Administrative Agent receives a refund or credit in respect of any
Taxes or Other Taxes for which such Lender or the Administrative Agent has
received payment from the Borrower hereunder it shall promptly notify the
Borrower of such refund or credit and shall, if no Default has occurred and is
continuing, within thirty( 30) days after receipt of a request by the Borrower
(or promptly upon receipt, if the Borrower has requested application for such
refund or credit pursuant hereto), pay an amount equal to such refund or credit
to the Borrower without interest (but with any interest so refunded or
credited), provided that the Borrower, upon the request of such Lender or the
Administrative Agent, agrees to return such refund or credit (plus penalties,
interest or other charges) to such Lender or the Administrative Agent in the
event such Lender or the Administrative Agent is required to repay such refund
or credit.
Section 4.07 Lender RepresentationsLender Representations.
<PAGE>
(a) Each Lender represents that it is either (i) a corporation organized
under the laws of the United States of America or any state thereof or (ii) it
is entitled to complete exemption from United States withholding tax imposed on
or with respect to any payments, including fees, to be made to it pursuant to
this Agreement (A) under an applicable provision of a tax convention to which
the United States of America is a party or (B) because it is acting through a
branch, agency or office in the United States of America and any payment to be
received by it hereunder is effectively connected with a trade or business in
the United States of America. Each Lender that is not a corporation organized
under the laws of the United States of America or any state thereof agrees to
provide to the Borrower and the Administrative Agent on the Closing Date, or on
the date of its delivery of the Assignment pursuant to which it becomes a
Lender, and at such other times as required by United States law or as the
Borrower or the Administrative Agent shall reasonably request, two accurate and
complete original signed copies of either (A) Internal Revenue Service Form 4224
(or successor form) certifying that all payments to be made to it hereunder will
be effectively connected to a United States trade or business (the "Form 4224
Certification") or (B) Internal Revenue Service Form 1001 (or successor form)
certifying that it is entitled to the benefit of a provision of a tax convention
to which the United States of America is a party which completely exempts from
United States withholding tax all payments to be made to it hereunder (the "Form
1001 Certification"). In addition, each Lender agrees that if it previously
filed a Form 4224 Certification, it will deliver to the Borrower and the
Administrative Agent a new Form 4224 Certification prior to the first payment
date occurring in each of its subsequent taxable years; and if it previously
filed a Form 1001 Certification, it will deliver to the Borrower and the
Administrative Agent a new certification prior to the first payment date falling
in the third year following the previous filing of such certification. Each
Lender also agrees to deliver to the Borrower and the Administrative Agent such
other or supplemental forms as may at any time be required as a result of
changes in applicable law or regulation in order to confirm or maintain in
effect its entitlement to exemption from United States withholding tax on any
payments hereunder, provided that the circumstances of such Lender at the
relevant time and applicable laws permit it to do so. If a Lender determines, as
a result of any change in either (i) a Governmental Requirement or (ii) its
circumstances, that it is unable to submit any form or certificate that it is
obligated to submit pursuant to this Section 4.07, or that it is required to
withdraw or cancel any such form or certificate previously submitted, it shall
promptly notify the Borrower and the Administrative Agent of such fact. If a
Lender is organized under the laws of a jurisdiction outside the United States
of America, unless the Borrower and the Administrative Agent have received a
Form 1001 Certification or Form 4224 Certification satisfactory to them
indicating that all payments to be made to such Lender hereunder are not subject
to United States withholding tax, the Borrower shall withhold taxes from such
payments at the applicable statutory rate. Each Lender agrees to indemnify and
hold harmless the Borrower or Administrative Agent, as applicable, from any
United States taxes, penalties, interest and other expenses, costs and losses
incurred or payable by (i) the Administrative Agent as a result of such Lender's
failure to submit any form or certificate that it is required to provide
pursuant to this Section 4.07 or (ii) the Borrower or the Administrative Agent
as a result of their reliance on any such form or certificate which such Lender
has provided to them pursuant to this Section 4.07.
(b) For any period with respect to which a Lender has failed to provide the
Borrower with the form required pursuant to this Section 4.07, if any, (other
than if such failure is due to a change in a Governmental Requirement occurring
subsequent to the date on which a form originally was required to be provided),
such Lender shall not be entitled to indemnification under Section 4.06 with
respect to taxes imposed by the United States which taxes would not have been
imposed but for such failure to provide such forms; provided, however, that
should a Lender, which is otherwise exempt from or subject to a reduced rate of
withholding tax becomes subject to taxes because of its failure to deliver a
form required hereunder, the Borrower shall take such steps as such Lender shall
reasonably request to assist such Lender to recover such taxes.
(c) Any Lender claiming any additional amounts payable pursuant to this
Section 4.07 shall use reasonable efforts (consistent with legal and regulatory
restrictions) to file any certificate or document requested by the Borrower or
the Administrative Agent or to change the jurisdiction of its Applicable Lending
Office or to contest any tax imposed if the making of such a filing or change or
contesting such tax would avoid the need for or reduce the amount of any such
additional amounts that may thereafter accrue and would not, in the sole
determination of such Lender, be otherwise disadvantageous to such Lender.
Section 4.08 Disposition of ProceedsSection 4.08 Disposition
of Proceeds. The Security Instruments contain an assignment by the Borrower unto
and in favor of the Administrative Agent for the benefit of the Lenders of all
production and all proceeds attributable thereto which may be produced from or
allocated to the Mortgaged Property, and the Security Instruments further
provide in general for the application of such proceeds to the satisfaction of
the Indebtedness and other obligations described therein and secured thereby.
Notwithstanding the assignment contained in such Security Instruments, until the
occurrence of an Event of Default, the Lenders agree that they will neither
notify the purchaser or purchasers of such production nor take any other action
to cause such proceeds to be remitted to the Lenders, but the Lenders will
instead permit such proceeds to be paid to the Borrower.
<PAGE>
ARTICLE V
Additional Costs, Capital Adequacy
(a) LIBOR Regulations, etc. The Borrower shall pay directly to
each Lender from time to time such amounts as such Lender may determine
to be necessary to compensate such Lender for any costs which it
determines are attributable to its making or maintaining of any LIBOR
Loans or issuing or participating in Letters of Credit hereunder or its
obligation to make any LIBOR Loans or issue or participate in any
Letters of Credit hereunder, or any reduction in any amount receivable
by such Lender hereunder in respect of any of such LIBOR Loans, Letters
of Credit or such obligation (such increases in costs and reductions in
amounts receivable being herein called "Additional Costs"), resulting
from any Regulatory Change which: (i) changes the basis of taxation of
any amounts payable to such Lender under this Agreement or any Note in
respect of any of such LIBOR Loans or Letters of Credit (other than
taxes imposed on the overall net income of such Lender or of its
Applicable Lending Office for any of such LIBOR Loans by the
jurisdiction in which such Lender has its principal office or
Applicable Lending Office); or (ii) imposes or modifies any reserve,
special deposit, minimum capital, capital ratio or similar requirements
(other than the Reserve Requirement utilized in the determination of
the LIBOR Rate for such Loan) relating to any extensions of credit or
other assets of, or any deposits with or other liabilities of such
Lender (including any of such LIBOR Loans or any deposits referred to
in the definition of "LIBOR Rate" in Section 1.02 hereof), or the
Commitment or Loans of such Lender or the LIBOR interbank market; or
(iii) imposes any other condition affecting this Agreement or any Note
(or any of such extensions of credit or liabilities) or such Lender's
Commitment or Loans. Each Lender will notify the Administrative Agent
and the Borrower of any event occurring after the Closing Date which
will entitle such Lender to compensation pursuant to this Section
5.01(a) as promptly as practicable after it obtains knowledge thereof
and determines to request such compensation, and will designate a
different Applicable Lending Office for the Loans of such Lender
affected by such event if such designation will avoid the need for, or
reduce the amount of, such compensation and will not, in the sole
opinion of such Lender, be disadvantageous to such Lender, provided
that such Lender shall have no obligation to so designate an Applicable
Lending Office located in the United States. If any Lender requests
compensation from the Borrower under this Section 5.01(a), the Borrower
may, by notice to such Lender, suspend the obligation of such Lender to
make additional Loans of the Type with respect to which such
compensation is requested until the Regulatory Change giving rise to
such request ceases to be in effect (in which case the provisions of
Section 5.04 shall be applicable).
<PAGE>
(b) Regulatory Change. Without limiting the effect of the
provisions of Section 5.01(a), in the event that, by reason of any
Regulatory Change or any other circumstances arising after the Closing
Date affecting such Lender, the LIBOR interbank market or such Lender's
position in such market, any Lender either (i) incurs Additional Costs
based on or measured by the excess above a specified level of the
amount of a category of deposits or other liabilities of such Lender
which includes deposits by reference to which the interest rate on
LIBOR Loans is determined as provided in this Agreement or a category
of extensions of credit or other assets of such Lender which includes
LIBOR Loans or (ii) becomes subject to restrictions on the amount of
such a category of liabilities or assets which it may hold, then, if
such Lender so elects by notice to the Borrower, the obligation of such
Lender to make additional LIBOR Loans shall be suspended until such
Regulatory Change or other circumstances ceases to be in effect (in
which case the provisions of Section 5.04 shall be applicable).
(c) Capital Adequacy. Without limiting the effect of the
foregoing provisions of this Section 5.01 (but without duplication),
the Borrower shall pay directly to any Lender from time to time on
request such amounts as such Lender may reasonably determine to be
necessary to compensate such Lender or its parent or holding company
for any costs which it determines are attributable to the maintenance
by such Lender or its parent or holding company (or any Applicable
Lending Office), pursuant to any Governmental Requirement following any
Regulatory Change, of capital in respect of its Commitment, its Note,
its Loans or any interest held by it in any Letter of Credit, such
compensation to include, without limitation, an amount equal to any
reduction of the rate of return on assets or equity of such Lender or
its parent or holding company (or any Applicable Lending Office) to a
level below that which such Lender or its parent or holding company (or
any Applicable Lending Office) could have achieved but for such
Governmental Requirement. Such Lender will notify the Borrower that it
is entitled to compensation pursuant to this Section 5.01(c) as
promptly as practicable after it determines to request such
compensation.
(d) Compensation Procedure. Any Lender notifying the Borrower
of the incurrence of additional costs under this Section 5.01 shall in
such notice to the Borrower and the Administrative Agent set forth in
reasonable detail the basis and amount of its request for compensation.
Determinations and allocations by each Lender for purposes of this
Section 5.01 of the effect of any Regulatory Change pursuant to Section
5.01(a) or (b), or of the effect of capital maintained pursuant to
Section 5.01(c), on its costs or rate of return of maintaining Loans or
its obligation to make Loans or issue Letters of Credit, or on amounts
receivable by it in respect of Loans or Letters of Credit, and of the
amounts required to compensate such Lender under this Section 5.01,
shall be conclusive and binding for all purposes, provided that such
determinations and allocations are made on a reasonable basis. Any
request for additional compensation under this Section 5.01 shall be
paid by the Borrower within thirty (30) days of the receipt by the
Borrower of the notice described in this Section 5.01(d).
Section 5.02 Limitation on LIBOR LoansLimitation on LIBOR
Loans. Anything herein to the contrary notwithstanding, if, on or prior to the
determination of any LIBOR Rate for any Interest Period:
<PAGE>
(a) the Administrative Agent determines (which determination
shall be conclusive, absent manifest error) that quotations of interest
rates for the relevant deposits referred to in the definition of "LIBOR
Rate" in Section 1.02 are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining rates of
interest for LIBOR Loans as provided herein; or
(b) the Administrative Agent determines (which determination
shall be conclusive, absent manifest error) that the relevant rates of
interest referred to in the definition of "LIBOR Rate" in Section 1.02
upon the basis of which the rate of interest for LIBOR Loans for such
Interest Period is to be determined are not sufficient to adequately
cover the cost to the Lenders of making or maintaining LIBOR Loans;
then the Administrative Agent shall give the Borrower prompt notice thereof, and
so long as such condition remains in effect, the Lenders shall be under no
obligation to make additional LIBOR Loans.
Section 5.03 IllegalityIllegality. Notwithstanding any other
provision of this Agreement, in the event that it becomes unlawful for any
Lender or its Applicable Lending Office to honor its obligation to make or
maintain LIBOR Loans hereunder, then such Lender shall promptly notify the
Borrower thereof and such Lender's obligation to make LIBOR Loans shall be
suspended until such time as such Lender may again make and maintain LIBOR Loans
(in which case the provisions of Section 5.04 shall be applicable).
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02
and 5.03Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03. If the
obligation of any Lender to make LIBOR Loans shall be suspended pursuant to
Sections 5.01, 5.02 or 5.03 ("Affected Loans"), all Affected Loans which would
otherwise be made by such Lender shall be made instead as Base Rate Loans (and,
if an event referred to in Section 5.01(b) or Section 5.03 has occurred and such
Lender so requests by notice to the Borrower, all Affected Loans of such Lender
then outstanding shall be automatically converted into Base Rate Loans on the
date specified by such Lender in such notice) and, to the extent that Affected
Loans are so made as (or converted into) Base Rate Loans, all payments of
principal which would otherwise be applied to such Lender's Affected Loans shall
be applied instead to its Base Rate Loans.
Section 5.05 CompensationCompensation. The Borrower shall pay
to each Lender within thirty (30) days of receipt of written request of such
Lender (which request shall set forth, in reasonable detail, the basis for
requesting such amounts and which shall be conclusive and binding for all
purposes provided that such determinations are made on a reasonable basis), such
amount or amounts as shall compensate it for any loss, cost, expense or
liability which such Lender determines are attributable to:
<PAGE>
(a) any payment, prepayment or conversion of a LIBOR Loan
properly made by such Lender or the Borrower for any reason (including,
without limitation, the acceleration of the Loans pursuant to Section
10.02) on a date other than the last day of the Interest Period for
such Loan; or
(b) any failure by the Borrower for any reason (including but
not limited to, the failure of any of the conditions precedent
specified in Article VI to be satisfied) to borrow, continue or convert
a LIBOR Loan from such Lender on the date for such borrowing,
continuation or conversion specified in the relevant notice given
pursuant to Section 2.02(c).
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the principal amount so paid, prepaid or converted
or not borrowed for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
which would have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Loan provided for herein over (ii) the
interest component of the amount such Lender would have bid in the London
interbank market for Dollar deposits of leading lenders in amounts comparable to
such principal amount and with maturities comparable to such period (as
reasonably determined by such Lender).
ARTICLE VI
Conditions Precedent
Section 6.01 Initial FundingInitial Funding.
The obligation of the Lenders to make the Initial Funding is
subject to the receipt by the Administrative Agent and the Lenders of all fees
due and payable pursuant to Section 2.04 on or before the date of the Initial
Funding and the receipt by the Administrative Agent of the following documents
and satisfaction of the other conditions provided in this Section 6.01, each of
which shall be satisfactory to the Administrative Agent in form and substance:
<PAGE>
(a) A certificate of the Secretary or an Assistant Secretary
of each of the Borrower and the Guarantors setting forth (i)
resolutions of its board of directors with respect to the authorization
of such Person to execute and deliver the Loan Documents to which it is
a party and to enter into the transactions contemplated in those
documents, (ii) the officers of such Person (y) who are authorized to
sign the Loan Documents to which such Person is a party and (z) who
will, until replaced by another officer or officers duly authorized for
that purpose, act as its representative for the purposes of signing
documents and giving notices and other communications in connection
with this Agreement and the transactions contemplated hereby, (iii)
specimen signatures of the authorized officers, and (iv) the articles
or certificate of incorporation and bylaws of such Person, certified as
being true and complete. The Administrative Agent and the Lenders may
conclusively rely on such certificate until the Administrative Agent
receives notice in writing from the Borrower to the contrary.
(b) Certificates of the appropriate state agencies with
respect to the existence, qualification and good standing of the
Borrower and each Guarantor where applicable from the States of
Delaware, Kansas, Louisiana and Texas.
(c) A compliance certificate which shall be substantially in
the form of Exhibit C, duly and properly executed by a Responsible
Officer of the Borrower, and dated as of the date of the Initial
Funding.
(d) The Notes, duly completed and executed.
(e) The Security Instruments including those described on
Exhibit E, duly completed and executed in sufficient number of
counterparts for recording, if necessary.
(f) An opinion of (i) Shughart, Thompson & Kilroy, special
counsel to the Borrower, substantially in the form of Exhibit D-1
hereto, (ii) Schully, Roberts, Slattery & Jaubert, special Louisiana
counsel to the Borrower, substantially in the form of Exhibit D-2
hereto, and (iii) Looper, Reed, Mark & McGraw special Texas counsel for
the Borrower, substantially in the form of Exhibit D-3 hereto.
(g) A certificate of insurance coverage of the Borrower
evidencing that the Borrower is carrying insurance in accordance with
Section 7.20 hereof.
(h) Issuance of the Senior Unsecured Notes in the amount of
$100,000,000 pursuant to the Indenture on terms satisfactory to the
Administrative Agent and the payment in full of all outstanding Debt of
the Borrower and its Subsidiaries for borrowed money (including any
subordinated Debt) other than the Indebtedness and Debt listed on
Schedule 9.01.
(i) Due diligence, including the review of title opinions, as
the Administrative Agent may require concerning the title to the Oil
and Gas Properties of the Goldking Entities.
(j) Borrower shall have paid to the Administrative Agent
all unpaid loans, interest, fees and expenses owing
under or in connection with the Prior Credit
Agreement.
(k) Releases or assignments of all Liens securing the existing
Debt for borrowed money of the Goldking Entities except for
items 19 and 20 on Schedule 9.02.
<PAGE>
(l) Releases of all Liens securing the Debt under the Second
Mortgage Loan Agreements (as defined in the Prior Credit Agreement) and
the Second Mortgage Loan Agreements terminated.
(m) Such other documents as the Administrative Agent or any
Lender or special counsel to the Administrative Agent
may reasonably request.
Section 6.02 Initial and Subsequent Loans and Letters of
CreditInitial and Subsequent Loans and Letters of Credit. The obligation of the
Lenders to make Loans to the Borrower upon the occasion of each borrowing
hereunder and to issue, renew, extend or reissue Letters of Credit for the
account of the Borrower (including the Initial Funding) is subject to the
further conditions precedent that, as of the date of such Loans and after giving
effect thereto: (i) no Default shall have occurred and be continuing; (ii) no
Material Adverse Effect shall have occurred; and (iii) the representations and
warranties made by the Borrower in Article VII and in the Security Instruments
shall be true on and as of the date of the making of such Loans or issuance,
renewal, extension or reissuance of a Letter of Credit with the same force and
effect as if made on and as of such date and following such new borrowing,
except to the extent such representations and warranties are expressly limited
to an earlier date or the Majority Lenders may expressly consent in writing to
the contrary. Each request for a borrowing or the issuance, renewal, extension
or reissuance of a Letter of Credit by the Borrower hereunder shall constitute a
certification by the Borrower to the effect set forth in the preceding sentence
(both as of the date of such notice and, unless the Borrower otherwise notifies
the Administrative Agent prior to the date of and immediately following such
borrowing or issuance, renewal, extension or reissuance of a Letter of Credit as
of the date thereof).
Section 6.03 Conditions Relating to Letters of
CreditConditions Relating to Letters of Credit. In addition to the satisfaction
of all other conditions precedent set forth in this Article VI, the issuance,
renewal, extension or reissuance of the Letters of Credit referred to in Section
2.01(b) hereof is subject to the following conditions precedent:
(a) At least three (3) Business Days prior to the date of the
issuance and at least thirty (30) Business Days prior to the date of
the renewal, extension or reissuance of each Letter of Credit, the
Administrative Agent shall have received a written request for a Letter
of Credit.
(b) Each of the Letters of Credit shall (i) be issued by the
Administrative Agent, (ii) contain such terms and provisions as are
reasonably required by the Administrative Agent, (iii) be for the
account of the Borrower and (iv) expire not later than one (1) year
from the date of issuance, renewal, extension or reissuance or two (2)
Business Days before the Termination Date.
(c) The Borrower shall have duly and validly executed and
delivered to the Administrative Agent a Letter of Credit Agreement
pertaining to the Letter of Credit.
<PAGE>
ARTICLE VII
Representations and Warranties
The Borrower represents and warrants to the Administrative Agent and
the Lenders that (each representation and warranty herein is given as of the
Closing Date and shall be deemed repeated and reaffirmed on the dates of each
borrowing and issuance, renewal, extension or reissuance of a Letter of Credit
as provided in Section 6.02):
Section 7.01 Corporate ExistenceCorporate Existence. Each of
the Borrower and each Subsidiary: (a) is duly organized or formed, legally
existing and in good standing, if applicable under the laws of the jurisdiction
of its incorporation or formation; (b) has all requisite power, and has all
material governmental licenses, authorizations, consents and approvals necessary
to own its assets and carry on its business as now being or as proposed to be
conducted; and (c) is qualified to do business in all jurisdictions in which the
nature of the business conducted by it makes such qualification necessary and
where failure so to qualify would have a Material Adverse Effect.
<PAGE>
Section 7.02 Financial ConditionFinancial Condition. (a) The audited
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of December 31, 1996 and the related consolidated statement of income,
stockholders' equity and cash flow of the Borrower and its Consolidated
Subsidiaries for the fiscal year ended on said date, with the opinion thereon of
Arthur Andersen LLP heretofore furnished to each of the Lenders and the
unaudited consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of June 30, 1997 and the related consolidated statements of
income, stockholders' equity and cash flow of the Borrower and its Consolidated
Subsidiaries for the six month period ended on such date, heretofore furnished
to the Administrative Agent, and (b) the audited consolidated balance sheet of
the Goldking Entities as of December 31, 1996 and the related consolidated
statement of income, stockholders' equity and cash flow of the Goldking Entities
for the fiscal year ended on said date, with the opinion thereon of Ernst &
Young LLP heretofore furnished to each of the Lenders and the unaudited
consolidated balance sheet of the Goldking Entities as of June 30, 1997 and the
related consolidated statements of income, stockholders' equity and cash flow of
the Goldking Entities for the six month period ended on such date heretofore
furnished to the Administrative Agent are complete and correct and fairly
present the consolidated financial condition of the Borrower and its
Consolidated Subsidiaries and the Goldking Entities as at said dates and the
results of its operations for the fiscal year and the six month period ended,
respectively, on said dates, all in accordance with GAAP, as applied on a
consistent basis (subject, in the case of the interim financial statements, to
normal year-end adjustments). Neither the Borrower nor any Subsidiary has on the
Closing Date any Debt, contingent liabilities, liabilities for taxes, unusual
forward or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided for in
the June 30, 1997 Financial Statements of the Borrower and the Goldking Entities
or in Schedule 7.02 or which are not material on a consolidated basis. Since
June 30, 1997, there has been no change or event having a Material Adverse
Effect. Since June 30, 1997, neither the business nor the Properties of the
Borrower or any Subsidiary taken as a whole have been materially and adversely
affected as a result of any fire, explosion, earthquake, flood, drought,
windstorm, accident, strike or other labor disturbance, embargo, requisition or
taking of Property or cancellation of contracts, permits or concessions by any
Governmental Authority, riot, activities of armed forces or acts of God or of
any public enemy.
Section 7.03 LitigationLitigation. Except as disclosed to the
Lenders in Schedule 7.03 hereto, at the Closing Date there is no litigation,
legal, administrative or arbitral proceeding, investigation or other action of
any nature pending or, to the knowledge of the Borrower threatened against or
affecting the Borrower or any Subsidiary which involves the possibility of any
judgment or liability against the Borrower or any Subsidiary not fully covered
by insurance (except for normal deductibles), and which would have a Material
Adverse Effect.
Section 7.04 No BreachSection 7.04 No Breach. Neither the
execution and delivery of the Loan Documents, nor compliance with the terms and
provisions hereof will conflict with or result in a breach of, or require any
consent which has not been obtained as of the Closing Date under, the respective
charter or by-laws of the Borrower or any Subsidiary, or any material
Governmental Requirement or any material agreement or instrument to which the
Borrower or any Subsidiary is a party or by which it is bound or to which it or
its Properties is subject, or constitute a default under any such agreement or
instrument, or result in the creation or imposition of any Lien upon any of the
revenues or assets of the Borrower or any Subsidiary pursuant to the terms of
any such agreement or instrument other than the Liens created by the Loan
Documents.
Section 7.05 AuthorityAuthority. The Borrower and each
Subsidiary have all necessary power and authority to execute, deliver and
perform its obligations under the Loan Documents to which it is a party; and the
execution, delivery and performance by the Borrower and each Subsidiary of the
Loan Documents to which it is a party, have been duly authorized by all
necessary action on its part; and the Loan Documents constitute the legal, valid
and binding obligations of the Borrower and each Subsidiary, enforceable in
accordance with their terms.
Section 7.06 ApprovalsApprovals. No authorizations, approvals
or consents of, and no filings or registrations with, any Governmental Authority
are necessary for the execution and delivery by the Borrower or any Subsidiary
of the Loan Documents to which it is a party or for the validity or
enforceability thereof, except for the recording and filing of the Security
Instruments as required by this Agreement. No authorizations, approvals or
consents of, and no filings or registrations with, any Governmental Authority,
where the failure to obtain such authorization, approvals or consents or to so
file or register would not have a Material Adverse Effect, are necessary for the
performance by the Borrower or any Subsidiary of the Loan Documents to which it
is a party or for the validity or enforceability thereof, except for the
recording and filing of the Security Instruments as required by this Agreement.
<PAGE>
Section 7.07 Use of LoansSection 7.07 Use of Loans. The
proceeds of the Loans may only be used for the acquisition of and development of
directly owned Oil and Gas Properties and for general corporate purposes by the
Borrower or any Guarantor. The Borrower is not engaged principally, or as one of
its important activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying margin stock
(within the meaning of Regulation U or X of the Board of Governors of the
Federal Reserve System) and no part of the proceeds of any Loan hereunder will
be used to buy or carry any margin stock.
Section 7.08 ERISAERISA.
(a) The Borrower, each Subsidiary and each ERISA Affiliate
have complied in all material respects with ERISA and, where
applicable, the Code regarding each Plan.
(b) Each Plan is, and has been, maintained in
substantial compliance with ERISA and, where applicable, the Code.
(c) No act, omission or transaction has occurred which could
result in imposition on the Borrower, any Subsidiary or any ERISA
Affiliate (whether directly or indirectly) of (i) either a civil
penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a
tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii)
breach of fiduciary duty liability damages under section 409 of ERISA.
(d) No Plan (other than a defined contribution plan) or any
trust created under any such Plan has been terminated since September
2, 1974. No liability to the PBGC (other than for the payment of
current premiums which are not past due) by the Borrower, any
Subsidiary or any ERISA Affiliate has been or is expected by the
Borrower, any Subsidiary or any ERISA Affiliate to be incurred with
respect to any Plan. No ERISA Event with respect to any Plan has
occurred.
(e) Full payment when due has been made of all amounts which
the Borrower, any Subsidiary or any ERISA Affiliate is required under
the terms of each Plan or applicable law to have paid as contributions
to such Plan, and no accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code), whether or not
waived, exists with respect to any Plan.
(f) The actuarial present value of the benefit liabilities
under each Plan which is subject to Title IV of ERISA does not, as of
the end of the Borrower's most recently ended fiscal year, exceed the
current value of the assets (computed on a plan termination basis in
accordance with Title IV of ERISA) of such Plan allocable to such
benefit liabilities. The term "actuarial present value of the benefit
liabilities" shall have the meaning specified in section 4041 of ERISA.
<PAGE>
(g) None of the Borrower, any Subsidiary or any ERISA Affiliate
sponsors, maintains, or contributes to an employee welfare benefit plan, as
defined in section 3(1) of ERISA, including, without limitation, any such
plan maintained to provide benefits to former employees of such entities,
that may not be terminated by the Borrower, a Subsidiary or any ERISA
Affiliate in its sole discretion at any time without any material
liability.
(h) None of the Borrower, any Subsidiary or any ERISA
Affiliate sponsors, maintains or contributes to, or has at any time in
the preceding six calendar years sponsored, maintained or contributed
to, any Multiemployer Plan.
(i) None of the Borrower, any Subsidiary or any ERISA
Affiliate is required to provide security under section 401(a)(29) of
the Code due to a Plan amendment that results in an increase in current
liability for the Plan.
Section 7.09 TaxesSection 7.09 Taxes. Except as set out in
Schedule 7.09, each of the Borrower and its Subsidiaries has filed all United
States federal income tax returns and all other tax returns which are required
to be filed by them and have paid all material taxes due pursuant to such
returns or pursuant to any assessment received by the Borrower or any
Subsidiary. The charges, accruals and reserves on the books of the Borrower and
its Subsidiaries in respect of taxes and other governmental charges are, in the
opinion of the Borrower, adequate. To the knowledge of the Borrower, no tax lien
has been filed and no claim is being asserted with respect to any such tax, fee
or other charge, except as set out in Schedule 9.02.
Section 7.10 Titles, etc.Titles, etc.
(a) Except as set out in Schedule 7.10, each of the Borrower
and its Subsidiaries has good and defensible title to its material
(individually or in the aggregate) Properties, free and clear of all
Liens except Liens permitted by Section 9.02. Except as set forth in
Schedule 7.10, after giving full effect to the Liens permitted by
Section 9.02, the Borrower owns the net interests in production
attributable to the lands and leases reflected in the most recently
delivered Reserve Report and the ownership of such Properties shall not
in any material respect obligate the Borrower to bear the costs and
expenses relating to the maintenance, development and operations of
each such Property in an amount in excess of the working interest of
each such Property set forth in the most recently delivered Reserve
Report. All information contained in the most recently delivered
Reserve Report is true and correct in all material respects as of the
date thereof.
(b) All material leases and agreements necessary for the
conduct of the business of the Borrower and its Subsidiaries are valid
and subsisting, in full force and effect and there exists no default or
event or circumstance which with the giving of notice or the passage of
time or both would give rise to a default under any such lease or
leases, which would affect in any material respect the conduct of the
business of the Borrower and its Subsidiaries.
<PAGE>
(c) The rights, Properties and other assets presently owned, leased or
licensed by the Borrower and its Subsidiaries including, without
limitation, all easements and rights of way, include all rights, Properties
and other assets necessary to permit the Borrower and its Subsidiaries to
conduct their business in all material respects in the same manner as its
business has been conducted prior to the Closing Date.
(d) All of the assets and Properties of the Borrower and its
Subsidiaries which are reasonably necessary for the operation of its
business are in good working condition and are maintained in accordance
with prudent business standards.
(e) All of the Borrower's and its Subsidiaries' Oil & Gas
Properties evaluated in the Initial Reserve Report are subject, except
for Liens permitted by Section 9.02, to a first priority mortgage Lien
in favor of the Administrative Agent for the benefit of the Lenders.
Section 7.11 No Material MisstatementsNo Material
Misstatements. No written information, statement, exhibit, certificate, document
or report furnished to the Administrative Agent and the Lenders (or any of them)
by the Borrower or any Subsidiary in connection with the negotiation of this
Agreement contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statement contained therein not
materially misleading in the light of the circumstances in which made and with
respect to the Borrower and its Subsidiaries taken as a whole. There is no fact
peculiar to the Borrower or any Subsidiary which has a Material Adverse Effect
or in the future is reasonably likely to have (so far as the Borrower can now
foresee) a Material Adverse Effect and which has not been set forth in this
Agreement or the other documents, certificates and statements furnished or
otherwise disclosed to the Administrative Agent by or on behalf of the Borrower
or any Subsidiary prior to, or on, the Closing Date in connection with the
transactions contemplated hereby.
Section 7.12 Investment Company ActInvestment Company Act.
Neither the Borrower nor any Subsidiary is an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
Section 7.13 Public Utility Holding Company ActPublic Utility
Holding Company Act. Neither the Borrower nor any Subsidiary is a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," or a
"public utility" within the meaning of the Public Utility Holding Company Act of
1935, as amended.
Section 7.14 Subsidiaries and PartnershipsSubsidiaries and
Partnerships. Except as listed on Schedule 7.14, the Borrower has no
Subsidiaries and has no interest in any partnerships (other than tax
partnerships which are not partnerships under applicable state law).
<PAGE>
Section 7.15 Location of Business and OfficesLocation of Business and
Offices. The Borrower's chief executive office is located at the address stated
on the signature page of this Agreement. The chief executive office of each
Subsidiary is located at the same address or at 1221 McKinney, Suite 1800,
Houston, Texas 77002 and 1100 Louisiana, Suite 5110, Houston, Texas 77002.
Section 7.16 FilingsFilings. To the best of the Borrower's
knowledge, neither the Borrower nor any Subsidiary has violated, and neither the
Borrower nor any Subsidiary will be in violation of, any provisions of The
Natural Gas Act or The Natural Gas Policy Act of 1978 or any other Federal or
State law or any of the regulations thereunder (including those of the
respective Conservation Commissions and Land Offices of the various
jurisdictions having authority over its Oil and Gas Properties) with respect to
its Oil and Gas Properties which would have a Material Adverse Effect, and the
Borrower and each Subsidiary have or will have made all necessary rate filings,
certificate applications, well category filings, interim collection filings and
notices, and any other filings or certifications, and has or will have received
all necessary regulatory authorizations (including without limitation necessary
authorizations, if any, with respect to any processing arrangements conducted by
it or others respecting its Oil and Gas Properties or production therefrom)
required under said laws and regulations with respect to all of its Oil and Gas
Properties or production therefrom so as not to have a Material Adverse Effect.
To the best of the Borrower's knowledge, said material rate filings, certificate
applications, well category filings, interim collection filings and notices, and
other filings and certifications contain no untrue statements of material facts
nor do they omit any statements of material facts necessary in said filings.
Section 7.17 Environmental MattersEnvironmental Matters.
Except (i) as provided in Schedule 7.17 or (ii) as would not have a Material
Adverse Effect (or with respect to (c), (d) and (e) below, where the failure to
take such actions would not have a Material Adverse Effect):
(a) Neither any Property of the Borrower or any Subsidiary nor the
operations conducted thereon violate any order or requirement of any court
or Governmental Authority or any Environmental Laws;
(b) Without limitation of clause (a) above, no Property of the
Borrower or any Subsidiary nor the operations currently conducted thereon
or, to the best knowledge of the Borrower, by any prior owner or operator
of such Property or operation, are in violation of or subject to any
existing, pending or threatened action, suit, investigation, inquiry or
proceeding by or before any court or Governmental Authority or to any
remedial obligations under Environmental Laws;
(c) All notices, permits, licenses or similar authorizations, if any,
required to be obtained or filed in connection with the operation or use of
any and all Property of the Borrower and each Subsidiary, including without
limitation, past or present treatment, storage, disposal or release of a
hazardous substance or solid waste into the environment, have been duly
obtained or filed, and the Borrower and each Subsidiary are in compliance
with the terms and conditions of all such notices, permits, licenses and
similar authorizations;
<PAGE>
(d) All hazardous substances, solid waste, and oil and gas exploration
and production wastes, if any, generated at any and all Property of the
Borrower or any Subsidiary have in the past been transported, treated and
disposed of in accordance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or welfare or the
environment, and, to the best knowledge of the Borrower, all such transport
carriers and treatment and disposal facilities have been and are operating
in compliance with Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the environment,
and are not the subject of any existing, pending or threatened action,
investigation or inquiry by any Governmental Authority in connection with
any Environmental Laws;
(e) The Borrower has taken all steps reasonably necessary to determine
and has determined that no hazardous substances, solid waste, or oil and
gas exploration and production wastes, have been disposed of or otherwise
released and there has been no threatened release of any hazardous
substances on or to any Property of the Borrower or any Subsidiary except
in compliance with Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the environment;
(f) To the extent applicable, all Property of the Borrower and each
Subsidiary currently satisfies all design, operation, and equipment
requirements imposed by the OPA or scheduled as of the Closing Date to be
imposed by OPA during the term of this Agreement, and the Borrower does not
have any reason to believe that such Property, to the extent subject to
OPA, will not be able to maintain compliance with the OPA requirements
during the term of this Agreement; and
(g) Neither the Borrower nor any Subsidiary has any known contingent
liability in connection with any release or threatened release of any oil,
hazardous substance or solid waste into the environment.
Section 7.18 DefaultsDefaults. Neither the Borrower nor any
Subsidiary is in default nor has any event or circumstance occurred which, but
for the expiration of any applicable grace period or the giving of notice, or
both, would constitute a default under any material agreement or instrument to
which the Borrower or any Subsidiary is a party or by which the Borrower or any
Subsidiary is bound which default would have a Material Adverse Effect. No
Default hereunder has occurred and is continuing.
<PAGE>
Section 7.19 Compliance with the LawCompliance with the Law. Neither the
Borrower nor any Subsidiary has violated any Governmental Requirement or failed
to obtain any license, permit, franchise or other governmental authorization
necessary for the ownership of any of its Properties or the conduct of its
business, which violation or failure would have (in the event such violation or
failure were asserted by any Person through appropriate action) a Material
Adverse Effect. Except for such acts or failures to act as would not have a
Material Adverse Effect, the Oil and Gas Property (and properties unitized
therewith) has been maintained, operated and developed in a good and workmanlike
manner and in conformity with all applicable laws and all rules, regulations and
orders of all duly constituted authorities having jurisdiction and in conformity
with the provisions of all leases, subleases or other contracts comprising a
part of the Hydrocarbon Interests and other contracts and agreements forming a
part of the Oil and Gas Property; specifically in this connection, (i) after the
Closing Date, no Oil and Gas Property is subject to having allowable production
reduced below the full and regular allowable (including the maximum permissible
tolerance) because of any overproduction (whether or not the same was
permissible at the time) prior to the Closing Date and (ii) none of the wells
comprising a part of the Oil and Gas Property (or properties unitized therewith)
are deviated from the vertical more than the maximum permitted by applicable
laws, regulations, rules and orders, and such wells are, in fact, bottomed under
and are producing from the Oil and Gas Property (or, in the case of wells
located on properties unitized therewith, such unitized properties).
Section 7.20 InsuranceInsurance. Schedule 7.20 attached hereto
contains an accurate and complete description of all material policies of
insurance owned or held by the Borrower and each Subsidiary. Except as set forth
on Schedule 7.20, all such policies are in full force and effect, all premiums
with respect thereto covering all periods up to and including the date of the
closing have been paid, and no notice of cancellation or termination has been
received with respect to any such policy. Such policies are sufficient for
compliance with all requirements of law and of all agreements to which the
Borrower or any Subsidiary is a party; are valid, outstanding and enforceable
policies; provide adequate insurance coverage in at least such amounts and
against at least such risks (but including in any event public liability) as are
usually insured against in the same general area by companies engaged in the
same or a similar business for the assets and operations of the Borrower and
each Subsidiary; will remain in full force and effect through the respective
dates set forth in Schedule 7.20 without the payment of additional premiums
except as set forth on Schedule 7.20; and will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement. Neither the Borrower nor any Subsidiary has been refused any
insurance with respect to its assets or operations, nor has its coverage been
limited below usual and customary policy limits, by an insurance carrier to
which it has applied for any such insurance or with which it has carried
insurance during the last three years.
Section 7.21 Restriction on LiensRestriction on Liens. Neither
the Borrower nor any of its Subsidiaries is a party to any agreement or
arrangement (other than the Loan Documents or the Indenture or the Second
Mortgage Loan Agreements (as defined in the Prior Credit Agreement)), or subject
to any order, judgment, writ or decree, which either restricts or purports to
restrict its ability to grant Liens to other Persons on or in respect of their
respective assets of Properties.
<PAGE>
Section 7.22 Hedging AgreementHedging Agreement. Schedule 7.22 sets forth,
as of the Closing Date, a true and complete list of all Hedging Agreements
(including commodity price swap agreements, forward agreements or contracts of
sale which provide for prepayment for deferred shipment or delivery of oil, gas
or other commodities) of the Borrower and each Subsidiary, the material terms
thereof (including the type, term, effective date, termination date and notional
amounts or volumes), the net mark to market value thereof, all credit support
agreements relating thereto (including any margin required or supplied), and the
counterparty to each such agreement.
ARTICLE VIII
Affirmative Covenants
The Borrower covenants and agrees that, so long as any of the
Commitments are in effect and until payment in full of all Indebtedness
hereunder, all interest thereon and all other amounts payable by the Borrower
hereunder:
Section 8.01 Financial StatementsFinancial Statements. The
Borrower shall deliver, or shall cause to be delivered, to the Administrative
Agent with sufficient copies of each for the Lenders:
(a) As soon as available and in any event within 90 days after the end of
each fiscal year of the Borrower, the audited consolidated and unaudited
consolidating statements of income, stockholders' equity, changes in financial
position and cash flow of the Borrower and its Consolidated Subsidiaries for
such fiscal year, and the related consolidated and consolidating balance sheets
of the Borrower and its Consolidated Subsidiaries as at the end of such fiscal
year, and setting forth in each case in comparative form the corresponding
figures for the preceding fiscal year, and accompanied by the related opinion of
independent public accountants of recognized national standing acceptable to the
Administrative Agent which opinion shall state that said financial statements
fairly present the consolidated and consolidating financial condition and
results of operations of the Borrower and its Consolidated Subsidiaries as at
the end of, and for, such fiscal year and that such financial statements have
been prepared in accordance with GAAP except for such changes in such principles
with which the independent public accountants shall have concurred and such
opinion shall not contain a "going concern" or like qualification or exception,
and a certificate of such accountants stating that, in making the examination
necessary for their opinion, they obtained no knowledge, except as specifically
stated, of any Default.
<PAGE>
(b) As soon as available and in any event within 45 days after the end of
each of the first three fiscal quarterly periods of each fiscal year of the
Borrower, a consolidated and consolidating statements of income, stockholders'
equity, changes in financial position and cash flow of the Borrower and its
Consolidated Subsidiaries for such period and for the period from the beginning
of the respective fiscal year to the end of such period, and the related
consolidated and consolidating balance sheets as at the end of such period, and
setting forth in each case in comparative form the corresponding figures for the
corresponding period in the preceding fiscal year, accompanied by the
certificate of a Responsible Officer, which certificate shall state that said
financial statements fairly present the consolidated and consolidating financial
condition and results of operations of the Borrower and its Consolidated
Subsidiaries in accordance with GAAP, as at the end of, and for, such period
(subject to normal year-end audit adjustments).
(c) Promptly after the Borrower knows that any Default or any Material
Adverse Effect has occurred, a notice of such Default or Material Adverse
Effect, describing the same in reasonable detail and the action the Borrower
proposes to take with respect thereto.
(d) Promptly upon receipt thereof, a copy of each other report or letter
submitted to the Borrower or any Subsidiary by independent accountants in
connection with any annual, interim or special audit made by them of the books
of the Borrower and its Subsidiaries, and a copy of any response by the Borrower
or any Subsidiary of the Borrower, or the Board of Directors of the Borrower or
any Subsidiary of the Borrower, to such letter or report.
(e) Promptly upon its becoming available, each financial statement, report,
notice or proxy statement sent by the Borrower to stockholders generally and
each regular or periodic report and any registration statement, prospectus or
written communication (other than transmittal letters) in respect thereof filed
by the Borrower with or received by the Borrower in connection therewith from
any securities exchange or the SEC or any successor agency.
(f) Promptly after the furnishing thereof, copies of any statement, report
or notice furnished to or any Person pursuant to the terms of any material
indenture, loan or credit or other similar agreement, other than this Agreement
and not otherwise required to be furnished to the Lenders pursuant to any other
provision of this Section 8.01.
(g) From time to time such other information regarding the business,
affairs or financial condition of the Borrower or any Subsidiary (including,
without limitation, any Plan or Multiemployer Plan and any reports or other
information required to be filed under ERISA) as any Lender or the
Administrative Agent may reasonably request.
<PAGE>
(h) As soon as available and in any event within forty-five (45) days after
the last day of each calendar quarter, a report, in form and substance
satisfactory to the Administrative Agent, setting forth as of the last Business
day of such calendar quarter, a true and complete list of all Hedging Agreements
(including commodity price swap agreements, forward agreements or contracts of
sale which provide for prepayment for deferred shipment or delivery of oil, gas
or other commodities) of the Borrower and each Subsidiary, the material terms
thereof (including the type, term, effective date, termination date and notional
amounts or volumes), the net mark to market values therefor, any new credit
support agreements relating thereto not listed on Schedule 7.22, any margin
required or supplied under any credit support document, and the counterparty to
each such agreement.
The Borrower will furnish to the Administrative Agent, at the time it furnishes
each set of financial statements pursuant to paragraphs (a) or (b) above, a
certificate substantially in the form of Exhibit C hereto executed by a
Responsible Officer (i) certifying as to the matters set forth therein and
stating that no Default has occurred and is continuing (or, if any Default has
occurred and is continuing, describing the same in reasonable detail), and (ii)
setting forth in reasonable detail the computations necessary to determine
whether the Borrower is in compliance with Sections 9.12, 9.13, 9.14 and 9.15 as
of the end of the respective fiscal quarter or fiscal year.
Section 8.02 LitigationSection 8.02 Litigation. The Borrower
shall promptly give to the Administrative Agent notice of all legal or arbitral
proceedings, and of all proceedings before any Governmental Authority affecting
the Borrower or any Subsidiary, except proceedings which, if adversely
determined, would not have a Material Adverse Effect. The Borrower will, and
will cause each of its Subsidiaries to, promptly notify the Administrative Agent
and each of the Lenders of any judgment, Lien or other encumbrance affecting any
Property of the Borrower or any Subsidiary other than Liens permitted by Section
9.02 if the value of the judgment, Lien, or other encumbrance affecting such
Property shall exceed $250,000.
Section 8.03 Maintenance, Etc.Maintenance, Etc.
<PAGE>
(a) The Borrower shall and shall cause each Subsidiary to: preserve
and maintain its existence and all of its material rights, privileges and
franchises; keep books of record and account in which full, true and
correct entries will be made of all dealings or transactions in relation to
its business and activities; comply with all Governmental Requirements if
failure to comply with such requirements will have a Material Adverse
Effect; pay and discharge all taxes, assessments and governmental charges
or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for
any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained in accordance with GAAP; upon
reasonable notice, permit representatives of the Administrative Agent or
any Lender, during normal business hours, to examine, copy and make
extracts from its books and records, to inspect its Properties, and to
discuss its business and affairs with its officers, all to the extent
reasonably requested by such Lender or the Administrative Agent (as the
case may be); and keep, or cause to be kept, insured by financially sound
and reputable insurers all Property of a character usually insured by
Persons engaged in the same or similar business similarly situated against
loss or damage of the kinds and in the amounts customarily insured against
by such Persons and carry such other insurance as is usually carried by
such Persons including, without limitation, environmental risk insurance to
the extent reasonably available; and cause the Administrative Agent to be
named as loss payee on behalf of the Lenders in all casualty policies
covering the Mortgaged Properties.
(b) Contemporaneously with the delivery of the financial statements
required by Section 8.01(a) to be delivered for each year, the Borrower
will furnish or cause to be furnished to the Administrative Agent and the
Lenders a certificate of insurance coverage from the insurer in form and
substance satisfactory to the Administrative Agent and, if requested, will
furnish the Administrative Agent and the Lenders copies of the applicable
policies.
(c) The Borrower will and will cause each Subsidiary to, at its own
expense, do or cause to be done all things reasonably necessary to preserve
and keep in good repair, working order and efficiency (except for normal
wear and tear) all of its Mortgaged Properties and other material
Properties including, without limitation, all equipment, machinery and
facilities, and from time to time will make all the reasonably necessary
repairs, renewals and replacements so that at all times the state and
condition of its Mortgaged Properties and other material Properties will be
fully preserved and maintained, allowing for depletion in the ordinary
course of business, except to the extent a portion of such Properties is no
longer capable of producing Hydrocarbons in economically reasonable
amounts. The Borrower will and will cause each Subsidiary to promptly: (i)
pay and discharge, or make reasonable and customary efforts to cause to be
paid and discharged, all delay rentals, royalties, expenses and
indebtedness accruing under the leases or other agreements affecting or
pertaining to its Mortgaged Properties; (ii) perform or make reasonable and
customary efforts to cause to be performed, in accordance with industry
standards the obligations required by each and all of the assignments,
deeds, leases, sub-leases, contracts and agreements affecting its interests
in its Mortgaged Properties and other material Properties; (iii) will and
will cause each Subsidiary to do all other things necessary to keep
unimpaired, except for Liens described in Section 9.02, its rights with
respect to each and all of the assignments, deeds, leases, sub-leases,
contracts and agreements affecting its interests in its Mortgaged
Properties and other material Properties and prevent any forfeiture thereof
or a default thereunder, except (A) to the extent a portion of such
Properties is no longer capable of producing Hydrocarbons in economically
reasonable amounts and (B) for dispositions permitted by Section 9.15
hereof. The Borrower will and will cause each Subsidiary to operate its
Mortgaged Properties and other material Properties or cause or make
reasonable and customary efforts to cause such Mortgaged Properties and
other material Properties to be operated in a reasonably prudent manner in
accordance with the practices of the industry and in compliance in all
material respects with all applicable contracts and agreements and in
compliance in all material respects with all Governmental Requirements.
<PAGE>
Section 8.04 Environmental MattersEnvironmental Matters.
(a) The Borrower will and will cause each Subsidiary to
establish and implement such procedures as may be reasonably necessary
to continuously determine and assure that any failure of the following
does not have a Material Adverse Effect: (i) all Property of the
Borrower and its Subsidiaries and the operations conducted thereon and
other activities of the Borrower and its Subsidiaries are in compliance
with and do not violate the requirements of any Environmental Laws,
(ii) no oil, hazardous substances or solid wastes are disposed of or
otherwise released on or to any Property owned by any such party except
in compliance with Environmental Laws, (iii) no hazardous substance
will be released on or to any such Property in a quantity equal to or
exceeding that quantity which requires reporting pursuant to Section
103 of CERCLA, and (iv) no oil, oil and gas exploration and production
wastes, or hazardous substance is released on or to any such Property
so as to pose an imminent and substantial endangerment to public health
or welfare or the environment.
(b) The Borrower will promptly notify the Administrative Agent
and the Lenders in writing of any threatened action, investigation or
inquiry by any Governmental Authority of which the Borrower has
knowledge in connection with any Environmental Laws, excluding routine
testing, corrective or non-material action.
(c) The Borrower will and will cause each Subsidiary to
provide environmental audits and tests in accordance with American
Society for Testing and Materials standards as reasonably requested by
the Administrative Agent and the Lenders or as otherwise required to be
obtained by the Administrative Agent and the Lenders by any
Governmental Authority in connection with any future acquisitions of
Oil and Gas Properties or other material Properties.
Section 8.05 Engineering ReportsEngineering Reports.
(a) By March 1 and September 1 of each year commencing March 1, 1998,
the Borrower shall furnish to the Administrative Agent and the Lenders a
Reserve Report. The Reserve Report due each March 1 shall be prepared as of
January 1 of such year by certified independent petroleum engineers or
other independent petroleum consultant(s) acceptable to the Administrative
Agent, such acceptance not to be unreasonably withheld, and the Reserve
Report due each September 1 shall be prepared as of July 1 of each year by
or under the supervision of the chief engineer of the Borrower who shall
certify such Reserve Report to be true and accurate and to have been
prepared in accordance with the procedures used in the Reserve Report due
each March 1.
<PAGE>
(b) In the event of an unscheduled redetermination, the Borrower shall
furnish to the Administrative Agent and the Lenders a Reserve Report
prepared by or under the supervision of the chief engineer of the Borrower
who shall certify such Reserve Report to be true and accurate and to have
been prepared in accordance with the procedures used in the immediately
preceding Reserve Report. For any unscheduled redetermination requested by
the Majority Lenders or the Borrower pursuant to Section 2.08(d), the
Borrower shall provide such Reserve Report with an "as of date" as required
by the Majority Lenders as soon as possible, but in any event no later than
30 days following the receipt of the request by the Administrative Agent on
behalf of the Majority Lenders.
(c) With the delivery of each Reserve Report, the Borrower shall
provide to the Lenders, a certificate from a Responsible Officer certifying
that, to the best of his knowledge and in all material respects: (i) the
information contained in the Reserve Report and any other information
delivered in connection therewith is true and correct, (ii) the Borrower
owns good and defensible title to its Oil and Gas Properties evaluated in
such Reserve Report and such Properties are free of all Liens except for
Liens permitted by Section 9.02, (iii) except as set forth on an exhibit to
the certificate, on a net basis there are no gas imbalances, take or pay or
other prepayments with respect to its Oil and Gas Properties evaluated in
such Reserve Report which would require the Borrower to deliver
Hydrocarbons produced from such Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor, (iv) none of
its Oil and Gas Properties have been sold since the date of the last
Borrowing Base determination, except as permitted pursuant to Section 9.15
as set forth on an exhibit to the certificate, which certificate shall list
all of its Oil and Gas Properties sold and in such detail as reasonably
required by the Majority Lenders, (v) attached to the certificate is a list
of its Oil and Gas Properties added to and deleted from the immediately
prior Reserve Report and a list of all Persons disbursing proceeds to the
Borrower from its Oil and Gas Properties, (vi) except as set forth on a
schedule attached to the certificate all of the Oil and Gas Properties
evaluated by such Reserve Report are Mortgaged Property and (vii) any
change in working interest or net revenue interest in its Oil and Gas
Properties from that described in the immediately preceding Reserve Report
and the reason for such change.
Section 8.06 Title InformationTitle Information.
(a) On or before the delivery to the Administrative Agent and the
Lenders of each Reserve Report required by Section 8.05(a), the Borrower
will provide the Administrative Agent with current title opinions covering
the Mortgaged Properties for which title opinions have not previously been
provided to Administrative Agent so that at all times the value of the
Mortgaged Properties for which title opinions are or have been provided to
Administrative Agent shall equal or exceed 80% of the net present value of
the future net income discounted at 10% per annum of all of the Mortgaged
Properties as set forth in the most recently delivered Reserve Report
<PAGE>
(b) The Borrower shall cure any title defects or exceptions which are
not Liens permitted by Section 9.02 raised by such information delivered
pursuant to Section 8.06(a), or substitute acceptable Mortgaged Properties
with no title defects or exceptions except for Liens permitted by Section
9.02 covering Mortgaged Properties of an equivalent value, within 60 days
after a request by the Administrative Agent or the Lenders to cure such
defects or exceptions. If the Borrower is unable to cure any title defect
requested by the Administrative Agent or the Lenders to be cured within the
60 day period, such default shall not be a Default or an Event of Default,
but instead such Property shall remain excluded from the Borrowing Base as
provided in Section 8.06(c) until such time as title is satisfactory to the
Administrative Agent.
(c) Upon the discovery of any title defect or exception which is not
an Lien permitted by Section 9.02, the Administrative Agent and the Lenders
shall have the right to exercise the following remedy in their sole
discretion from time to time, and any failure to so exercise this remedy at
any time shall not be a waiver as to future exercise of the remedy by the
Administrative Agent or the Lenders. To the extent that the Administrative
Agent or the Lenders are not satisfied with title to any Mortgaged
Property, the Administrative Agent may, without regard to the expiration of
the 60 day period described in Section 8.06(b), send a notice to the
Borrower and the Lenders that the then outstanding Borrowing Base shall be
reduced by an amount equal to the value of such Property as set forth in
the most recent Reserve Report. This new Borrowing Base shall become
effective immediately after receipt of such notice.
Section 8.07 Additional Collateral
(a) Should the Borrower designate any Oil and Gas Property for
inclusion in the Borrowing Base that is not already Mortgaged Property
and which the Lenders have allotted value in the Borrowing Base
determination, the Borrower will grant or cause to be granted to the
Administrative Agent as security for the Indebtedness a first-priority
Lien interest (subject only to Liens permitted by Section 9.02) on the
Borrower's or Subsidiary's interest in such Oil and Gas Properties not
already subject to a Lien of the Security Instruments, which Lien will
be created and perfected by and in accordance with the provisions of
deeds of trust, security agreements and financing statements, or other
Security Instruments, all in form and substance satisfactory to the
Administrative Agent in its sole discretion and in sufficient executed
(and acknowledged where necessary or appropriate) counterparts for
recording purposes.
(b) Concurrently with the granting of the Lien or other action
referred to in Section 8.07(a) above, the Borrower will provide to the
Administrative Agent title information in form and substance
satisfactory to the Administrative Agent in its sole discretion with
respect to the Borrower's interests in such Oil and Gas Properties.
<PAGE>
(c) The Borrower shall cause all of its Subsidiaries that are
100% owned directly or indirectly to execute a Guaranty Agreement
except for Atlantic Offshore Insurance, Ltd.; provided that Atlantic
Offshore Insurance, Ltd. shall at no time guarantee the Senior
Unsecured Notes.
Section 8.08 Further AssurancesFurther Assurances. The
Borrower will and will cause each Subsidiary to cure promptly any defects in the
creation and issuance of the Notes and the execution and delivery of the
Security Instruments, including this Agreement. The Borrower at its expense will
and will cause each Subsidiary to promptly execute and deliver to the
Administrative Agent upon request all such other documents, agreements and
instruments to comply with or accomplish the covenants and agreements of the
Borrower or any Subsidiary in the Security Instruments, including this
Agreement, or to further evidence and more fully describe the collateral
intended as security for the Notes, or to correct any omissions in the Security
Instruments, or to state more fully the security obligations set out herein or
in any of the Security Instruments, or to perfect, protect or preserve any Liens
created pursuant to any of the Security Instruments, or to make any recordings,
to file any notices or obtain any consents, all as may be reasonably necessary
or appropriate in connection therewith.
Section 8.09 Performance of ObligationsPerformance of
Obligations. The Borrower will pay the Notes according to the reading, tenor and
effect thereof; and the Borrower will and will cause each Subsidiary to do and
perform every act and discharge all of the obligations to be performed and
discharged by them under the Security Instruments, including this Agreement, at
the time or times and in the manner specified.
Section 8.10 ERISA Information and ComplianceERISA Information
and Compliance. The Borrower will promptly furnish and will cause the
Subsidiaries and any ERISA Affiliate to promptly furnish to the Administrative
Agent with sufficient copies to the Lenders (i) promptly after the filing
thereof with the United States Secretary of Labor, the Internal Revenue Service
or the PBGC, copies of each annual and other report with respect to each Plan or
any trust created thereunder, (ii) immediately upon becoming aware of the
occurrence of any ERISA Event or of any "prohibited transaction," as described
in section 406 of ERISA or in section 4975 of the Code, in connection with any
Plan or any trust created thereunder, a written notice signed by a Responsible
Officer specifying the nature thereof, what action the Borrower, the Subsidiary
or the ERISA Affiliate is taking or proposes to take with respect thereto, and,
when known, any action taken or proposed by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto, and (iii) immediately upon
receipt thereof, copies of any notice of the PBGC's intention to terminate or to
have a trustee appointed to administer any Plan. With respect to each Plan
(other than a Multiemployer Plan), the Borrower will, and will cause each
Subsidiary and ERISA Affiliate to, (i) satisfy in full and in a timely manner,
without incurring any late payment or underpayment charge or penalty and without
giving rise to any lien, all of the contribution and funding requirements of
section 412 of the Code (determined without regard to subsections (d), (e), (f)
and (k) thereof) and of section 302 of ERISA (determined without regard to
sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the
PBGC in a timely manner, without incurring any late payment or underpayment
charge or penalty, all premiums required pursuant to sections 4006 and 4007 of
ERISA.
<PAGE>
ARTICLE IX
Negative Covenants
The Borrower covenants and agrees that, so long as any of the
Commitments are in effect and until payment in full of Loans hereunder, all
interest thereon and all other amounts payable by the Borrower hereunder,
without the prior written consent of the Majority Lenders:
Section 9.01 DebtDebt. Neither the Borrower nor any Subsidiary
will incur, create, assume or suffer to exist any Debt, except:
(a) the Notes or other Indebtedness or any guaranty of or suretyship
arrangement for the Notes or other Indebtedness;
(b) accounts payable (for the deferred purchase price of Property or
services) from time to time incurred in the ordinary course of business
which, if greater than 90 days past the invoice or billing date, are being
contested in good faith by appropriate proceedings if reserves adequate
under GAAP shall have been established therefor;
(c) Debt associated with bonds or surety obligations required by
Governmental Requirements in connection with the operation of the
Borrower's and the Subsidiaries' Oil and Gas Properties;
(d) Debt under Hedging Agreements covering interest rates, oil or gas
with any Lender as a counterparty or with such other Persons as approved by
the Majority Lenders entered into as a part of its normal business
operations as a risk management strategy and/or hedge against changes
resulting from market conditions related to the Borrower's and the
Subsidiaries' operations but not to exceed the following:
(i) for oil, the total volumes to be hedged for any year shall not exceed
80% of expected oil production as indicated in the Reserve Reports for such
year;
(ii) for gas, the total volumes to be hedged for any year shall not exceed
80% of expected gas production as indicated in the Reserve Reports for such
year;
(iii) for interest rates for the Borrower, the aggregate notional amount to
be hedged shall never exceed the principal balance outstanding on the
Notes;
(e) the Senior Unsecured Notes;
<PAGE>
(f) other Debt including capital leases (as required to be reported on
the financial statements of the Borrower pursuant to GAAP) not to exceed
$3,000,000; and
(g) Debt disclosed on Schedule 9.01.
Section 9.02 LiensLiens. Neither the Borrower nor any
Subsidiary will create, incur, assume or permit to exist any Lien on any of its
Properties (now owned or hereafter acquired), except:
(a) Liens securing the payment of any Indebtedness pursuant to the
Security Instruments for the benefit of all the Lenders;
(b) Liens securing the obligation of the Hedging Agreements with any
Lender arising from a margin arrangement between the Borrower and the
Administrative Agent;
(c) Excepted Liens;
(d) Liens disclosed on Schedule 9.02;
(e) Liens on cash or securities of the Borrower or any Subsidiary
securing the Debt described in Section 9.01(c);
(f) Liens securing capital leases and purchase money Debt allowed
under Section 9.01(f) but only on the Property under lease; and
(g) Liens securing the Subordinated Debt as defined in the Prior
Credit Agreement; provided, such Liens are released within 20 Business Days
after the Closing Date.
Section 9.03 Investments, Loans and AdvancesInvestments, Loans
and Advances. Neither the Borrower nor any Subsidiary will make or permit to
remain outstanding any loans or advances to or investments in any Person, except
that the foregoing restriction shall not apply to:
(a) investments, loans or advances reflected in the Financial
Statements or which are disclosed to the Lenders in Schedule 9.03;
(b) investments by the Borrower or any Guarantor in direct ownership
interests in additional Oil and Gas Properties and gas gathering systems
related thereto;
(c) accounts receivable arising out of the sale of Hydrocarbons, other
assets or services in the ordinary course of business;
<PAGE>
(d) direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, in each
case maturing within one year from the date of creation thereof;
(e) commercial paper maturing within one year from the date of
creation thereof rated in one of the two highest grades by Standard & Poors
Corporation or Moody's Investors Service, Inc.;
(f) deposits maturing within one year from the date of creation
thereof with, including certificates of deposit issued by, any Lender or
any office located in the United States of any other bank or trust company
which is organized under the laws of the United States or any state
thereof, has capital, surplus and undivided profits aggregating at least
$100,000,000.00 (as of the date of such Lender's or bank or trust company's
most recent financial reports) and has a short term deposit rating of no
lower than A2 or P2, as such rating is set forth from time to time, by
Standard & Poors Corporation or Moody's Investors Service, Inc.,
respectively;
(g) investments, loans or advances in any Subsidiary of the Borrower
which is a Guarantor; and
(h) deposits in money market funds investing exclusively in
investments described in Sections 9.03(d), 9.03(e) or 9.03(f).
Section 9.04 Dividends, Distributions and
RedemptionsDividends, Distributions and Redemptions. The Borrower will not
declare or pay any dividend, purchase, redeem or otherwise acquire for value any
of its stock now or hereafter outstanding, return any capital to its
stockholders or make any distribution of its assets to its stockholders, except
that the Borrower may pay dividends or make distributions in any fiscal year of
the Borrower provided that they do not exceed 25% of Net Income for such fiscal
year in the aggregate and provided further that no Default shall have occurred
and be continuing or would result from such distribution.
Section 9.05 Sales and LeasebacksSales and Leasebacks. Neither
the Borrower nor any Subsidiary will enter into any arrangement, directly or
indirectly, with any Person whereby the Borrower or any Subsidiary shall sell or
transfer any of its Property, whether now owned or hereafter acquired, and
whereby the Borrower or any Subsidiary shall then or thereafter rent or lease as
lessee such Property or any part thereof or other Property which the Borrower or
any Subsidiary intends to use for substantially the same purpose or purposes as
the Property sold or transferred.
Section 9.06 Nature of BusinessNature of Business. Neither the
Borrower nor any Subsidiary will allow any material change to be made in the
character of its business as an independent oil and gas exploration and
production company.
<PAGE>
Section 9.07 Limitation on LeasesLimitation on Leases. Neither the Borrower
nor any Subsidiary will create, incur, assume or suffer to exist any obligation
for the payment of rent or hire of Property of any kind whatsoever (real or
personal but excluding capital leases and leases of Hydrocarbon Interests),
under leases or lease agreements which would cause the aggregate amount of all
payments made by the Borrower and its Subsidiaries pursuant to such leases or
lease agreements to exceed $2,000,000 in any period of twelve consecutive
calendar months.
Section 9.08 Mergers, Etc.Section 9.08 Mergers, Etc. Neither
the Borrower nor any Subsidiary will merge into or with or consolidate with any
other Person, or sell, lease or otherwise dispose of (whether in one transaction
or in a series of transactions) all or substantially all of its Property or
assets to any other Person, except that a wholly-owned Subsidiary of the
Borrower may merge into or with or consolidate with another wholly-owned
Subsidiary of the Borrower or with the Borrower, if, in such case, the Borrower
is the surviving entity.
Section 9.09 Proceeds of NotesProceeds of Notes. The Borrower
will not permit the proceeds of the Notes to be used for any purpose other than
those permitted by Section 7.07. Neither the Borrower nor any Person acting on
behalf of the Borrower has taken or will take any action which might cause the
Loan Documents, to violate Regulation U or X or any other regulation of the
Board of Governors of the Federal Reserve System or to violate Section 7 of the
SEC or any rule or regulation thereunder, in each case as now in effect or as
the same may hereinafter be in effect.
Section 9.10 ERISA ComplianceERISA Compliance. The Borrower
will not, and will not permit any Subsidiary to, at any time to:
(a) Engage in, or permit any Subsidiary or ERISA Affiliate to engage
in, any transaction in connection with which the Borrower, any Subsidiary
or any ERISA Affiliate could be subjected to either a civil penalty
assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed
by Chapter 43 of Subtitle D of the Code;
(b) Terminate, or permit any Subsidiary or ERISA Affiliate to
terminate, any Plan in a manner, or take any other action with respect to
any Plan, which could result in any liability to the Borrower, any
Subsidiary or any Subsidiary or ERISA Affiliate to the PBGC;
(c) Fail to make, or permit any Subsidiary or ERISA Affiliate to fail
to make, full payment when due of all amounts which, under the provisions
of any Plan, agreement relating thereto or applicable law, the Borrower or
any Subsidiary or ERISA Affiliate is required to pay as contributions
thereto;
(d) Permit to exist, or allow any Subsidiary or ERISA Affiliate to
permit to exist, any accumulated funding deficiency within the meaning of
Section 302 of ERISA or section 412 of the Code, whether or not waived,
with respect to any Plan;
<PAGE>
(e) Permit, or allow any Subsidiary or ERISA Affiliate to permit, the
actuarial present value of the benefit liabilities under any Plan
maintained by the Borrower, any Subsidiary or any ERISA Affiliate which is
regulated under Title IV of ERISA to exceed the current value of the assets
(computed on a plan termination basis in accordance with Title IV of ERISA)
of such Plan allocable to such benefit liabilities. The term "actuarial
present value of the benefit liabilities" shall have the meaning specified
in section 4041 of ERISA;
(f) Contribute to or assume an obligation to contribute to, or permit
any Subsidiary or ERISA Affiliate to contribute to or assume an obligation
to contribute to, any Multiemployer Plan;
(g) Acquire, or permit any Subsidiary or ERISA Affiliate to acquire,
an interest in any Person that causes such Person to become an ERISA
Affiliate with respect to the Borrower, any Subsidiary or any ERISA
Affiliate if such Person sponsors, maintains or contributes to, or at any
time in the six-year period preceding such acquisition has sponsored,
maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other
Plan that is subject to Title IV of ERISA under which the actuarial present
value of the benefit liabilities under such Plan exceeds the current value
of the assets (computed on a plan termination basis in accordance with
Title IV of ERISA) of such Plan allocable to such benefit liabilities;
(h) Incur, or permit any Subsidiary or ERISA Affiliate to incur, a
liability to or on account of a Plan under sections 515, 4062, 4063, 4064,
4201 or 4204 of ERISA;
(i) Contribute to or assume an obligation to contribute to, or permit
any Subsidiary or ERISA Affiliate to contribute to or assume an obligation
to contribute to, any employee welfare benefit plan, as defined in section
3(1) of ERISA, including, without limitation, any such plan maintained to
provide benefits to former employees of such entities, that may not be
terminated by such entities in their sole discretion at any time without
any material liability; or
(j) Amend or permit any Subsidiary or ERISA Affiliate to amend, a Plan
resulting in an increase in current liability such that the Borrower, any
Subsidiary or any ERISA Affiliate is required to provide security to such
Plan under section 401(a)(29) of the Code.
Section 9.11 Sale or Discount of ReceivablesSale or Discount
of Receivables. Neither the Borrower nor any Subsidiary will discount or sell
(with or without recourse) any of its notes receivable or accounts receivable.
<PAGE>
Section 9.12 Current RatioSection 9.12 Current Ratio. The Borrower will not
permit its Current Ratio to be less than 1.0 to 1.0 at any time. As used in this
Section 9.12, "Current Ratio" shall mean, as of any time, the ratio of (i)
current assets at such time, plus unused availability under the Aggregate
Commitments, minus the sum of (A) prepaid expenses at such time, (B) advance
payments on wells at such time, and (C) the aggregate book value of all of the
Borrower's assets held for sale and classified as a current asset on the
Borrower's balance sheet, to (ii) current liabilities at such time, minus
current maturities on the Notes at such time.
Section 9.13 Tangible Net WorthSection 9.13 Tangible Net
Worth. The Borrower will not permit its Tangible Net Worth to be less at the end
of any fiscal quarter than an amount equal to 85% of Tangible Net Worth as
September 30, 1997 plus 85% of the Borrower's Net Income (only if positive) for
each fiscal quarter of the Borrower after September 30, 1997, plus 75% of the
net proceeds of any new issuance of capital stock or other equity securities of
the Borrower issued after the Closing Date.
Section 9.14 Interest Coverage RatioInterest Coverage Ratio.
The Borrower will not permit its Interest Coverage Ratio as of the end of any
fiscal quarter of the Borrower (calculated quarterly as of the last day of each
fiscal quarter) to be less than (i) 2.0 to 1.0 for any fiscal quarter for the
period from the Initial Funding through December 31, 1998 and (ii) 2.5 to 1.0
for any fiscal quarter thereafter. For the purposes of this Section 9.14,
"Interest Coverage Ratio" shall mean the ratio of (i) EBITDA for the four fiscal
quarters ending on such date to (ii) cash interest payments made for such four
fiscal quarters of the Borrower and its Consolidated Subsidiaries..
Section 9.15 Sale of PropertiesSale of Properties. The
Borrower will not, and will not permit any Subsidiary to, sell, assign,
farm-out, convey or otherwise transfer any Property or any interest in any
Property except for: (i) sales of Hydrocarbons in the ordinary course of
business; (ii) farmouts of nonproven acreage or nonproven depths and assignments
in connection with such farmouts; (iii) the sale or transfer of equipment that
is no longer necessary for the business of the Borrower or such Subsidiary or is
replaced by equipment of at least comparable value and use and (iv) during any
fiscal year of the Borrower, sales in the ordinary course of business of
Properties which shall not exceed $3,000,000 in the aggregate, provided that no
more than $1,000,000 of which shall be Mortgaged Property.
Section 9.16 Environmental MattersEnvironmental Matters.
Neither the Borrower nor any Subsidiary will cause or permit any of its Property
to be in violation of, or do anything or permit anything to be done which will
subject any such Property to any remedial obligations under, any Environmental
Laws, assuming disclosure to the applicable Governmental Authority of all
relevant facts, conditions and circumstances, if any, pertaining to such
Property where such violations or remedial obligations would have a Material
Adverse Effect.
<PAGE>
Section 9.17 Transactions with AffiliatesTransactions with Affiliates.
Neither the Borrower nor any Subsidiary will enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of Property
or the rendering of any service, with any Affiliate unless such transactions are
otherwise permitted under this Agreement, are in the ordinary course of its
business and are upon fair and reasonable terms no less favorable to it than it
would obtain in a comparable arm's length transaction with a Person not an
Affiliate.
Section 9.18 Subsidiaries and PartnershipsSubsidiaries and
Partnerships. Without the prior written consent of the Administrative Agent, the
Borrower shall not create, acquire or suffer to exist any additional
Subsidiaries or partnerships (other than tax law partnerships which are not
partnerships under applicable state law). The Borrower shall not and shall not
permit any Subsidiary to sell or to issue any stock or ownership interest of a
Subsidiary except to the Borrower and except in compliance with Section 9.03.
Section 9.19 Negative Pledge AgreementsSection 9.19 Negative
Pledge Agreements. Neither the Borrower nor any Subsidiary will create, incur,
assume or suffer to exist any contract, agreement or understanding (other than
the Loan Documents or the Indenture) which in any way prohibits or restricts the
granting, conveying, creation or imposition of any Lien on any of its Property
or restricts any Subsidiary from paying dividends to the Borrower, or which
requires the consent of or notice to other Persons in connection therewith.
Section 9.20 Senior Unsecured Notes. The Borrower will not modify or
amend the terms of the Indenture and any related documents without the consent
of the Majority Lenders, if the effect of such modification or amendment would
be to shorten the time for payment on any Senior Unsecured Notes, increase the
principal amount of the Senior Unsecured Notes above $100,000,000, increase the
rate of interest on any Senior Unsecured Note or change the method of
calculating interest so as to effectively increase the rate of interest on any
Senior Unsecured Note, change any of the provisions of the covenants and events
of default and any of the definitions used in or relating thereto, or any other
provisions which would detrimentally effect the rights of the Lenders or the
ability of the Borrower to perform its obligations under the Loan Documents. The
Borrower shall not prepay, redeem, defease or purchase the Senior Unsecured
Notes if a Default or an Event of Default exists or would result therefrom.
ARTICLE X
Events of Default; Remedies
Section 10.01 Events of Default One or more of the following events
shall constitute an "Event of Default":
(a) The Borrower shall default in the payment or prepayment when due
of any principal of or interest on any Loan, of any reimbursement
obligation for a disbursement made under any Letter of Credit, or any fees
or other amount payable by it hereunder or under any Security Instrument;
or
<PAGE>
(b) The Borrower or any Subsidiary shall default in the payment when
due of any principal of or interest on any of its other Debt aggregating
$1,000,000 or more, or any event specified in any note, agreement,
indenture or other document evidencing or relating to any such Debt shall
occur if the effect of such event is to cause, or (with the giving of any
notice or the lapse of time or both) to permit the holder or holders of
such Debt (or a trustee or agent on behalf of such holder or holders) to
cause, such Debt to become due prior to its stated maturity; or
(c) Any representation, warranty or certification made or deemed made
herein or in any Security Instrument by the Borrower or any Subsidiary, or
any certificate furnished to any Lender or the Administrative Agent
pursuant to the provisions hereof or any Security Instrument, shall prove
to have been false or misleading as of the time made or furnished in any
material respect; or
(d) The Borrower shall default in the performance of any of its
obligations under Article IX or any other Article of this Agreement other
than under Article VIII; or the Borrower shall default in the performance
of any of its obligations under Article VIII or any Security Instrument
(other than the payment of amounts due which shall be governed by Section
10.01(a)) and such default shall continue unremedied for a period of 30
days after the earlier to occur of (i) notice thereof to the Borrower by
the Administrative Agent or any Lender (through the Administrative Agent),
or (ii) the Borrower otherwise becoming aware of such default; or
(e) The Borrower shall admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due; or
(f) The Borrower shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of its creditors, (iii) commence
a voluntary case under the Federal Bankruptcy Code (as now or hereafter in
effect), (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or readjustment of debts, (v) fail to controvert in a timely
and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Federal Bankruptcy Code, or
(vi) take any corporate action for the purpose of effecting any of the
foregoing; or
<PAGE>
(g) A proceeding or case shall be commenced, without the application
or consent of the Borrower, in any court of competent jurisdiction, seeking
(i) its liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of the Borrower or of
all or any substantial part of its assets, or (iii) similar relief in
respect of the Borrower under any law relating to bankruptcy, insolvency,
reorganization, winding-up, liquidation or composition or adjustment of
debts, and such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of 60 days; or
(iv) an order for relief against the Borrower shall be entered in an
involuntary case under the Federal Bankruptcy Code; or
(h) A judgment or judgments for the payment of money in excess of
$500,000 in the aggregate shall be rendered by a court against the Borrower
or any Subsidiary and the same shall not be discharged (or provision shall
not be made for such discharge), or a stay of execution thereof shall not
be procured, within 30 days from the date of entry thereof and the Borrower
or such Subsidiary shall not, within said period of 30 days, or such longer
period during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal;
or
(i) The Security Instruments after delivery thereof shall for any
reason, except to the extent permitted by the terms thereof, cease to be in
full force and effect and valid, binding and enforceable in accordance with
their terms, or cease to create a valid and perfected Lien of the priority
required thereby on any of the collateral purported to be covered thereby,
except to the extent permitted by the terms of this Agreement, or the
Borrower or any Guarantor shall so state in writing; or
(j) Any Letter of Credit becomes the subject matter of any order,
judgment, injunction or any other such determination, or if the Borrower or
any other Person shall petition or apply for or obtain any order
restricting payment by the Administrative Agent under any Letter of Credit
or extending the Lenders' liability under any Letter of Credit beyond the
expiration date stated therein or otherwise agreed to by the Administrative
Agent; or
(k) the occurrence of a Change of Control; or
(l) Any Subsidiary takes, suffers or permits to exist any of the
events or conditions referred to in paragraphs (e), (f), (g) or (h) hereof;
or
(m) An event or events shall occur having a Material Adverse Effect.
Section 10.02 RemediesRemedies.
<PAGE>
(a) In the case of an Event of Default other than one referred
to in clauses (e), (f) or (g) of Section 10.01 or in clause (l) to the
extent it relates to clauses (e), (f) or (g), the Administrative Agent
upon request of the Majority Lenders, shall, by notice to the Borrower,
cancel the Commitments and/or declare the principal amount then
outstanding of, and the accrued interest on, the Loans and all other
amounts payable by the Borrower hereunder and under the Notes
(including without limitation the payment of cash collateral to secure
the LC Exposure as provided in Section 2.10(b) hereof) to be forthwith
due and payable, whereupon such amounts shall be immediately due and
payable without presentment, demand, protest, notice of intent to
accelerate, notice of acceleration or other formalities of any kind,
all of which are hereby expressly waived by the Borrower.
(b) In the case of the occurrence of an Event of Default
referred to in clauses (e), (f) or (g) of Section 10.01 or in clause
(l) to the extent it relates to clauses (e), (f) or (g), the
Commitments shall be automatically canceled and the principal amount
then outstanding of, and the accrued interest on, the Loans and all
other amounts payable by the Borrower hereunder and under the Notes
(including without limitation the payment of cash collateral to secure
the LC Exposure as provided in Section 2.10(b) hereof) shall become
automatically immediately due and payable without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration or
other formalities of any kind, all of which are hereby expressly waived
by the Borrower.
(c) All proceeds received after maturity of the Notes, whether
by acceleration or otherwise shall be applied first pro rata to
reimbursement of expenses and indemnities provided for in the Loan
Documents; second pro rata to accrued interest pursuant to the Loan
Documents; third pro rata to fees pursuant to the Loan Documents;
fourth pro rata to principal outstanding on the Indebtedness; fifth, to
serve as cash collateral to be held by the Administrative Agent to
secure the LC Exposure and future obligations under any Hedging
Agreement with a Lender; and any excess shall be paid to the Borrower
or as otherwise required by any Governmental Requirement.
ARTICLE XI
The Administrative Agent
<PAGE>
Section 11.01 Appointment, Powers and ImmunitiesAppointment, Powers and
Immunities. Each Lender hereby irrevocably appoints and authorizes the
Administrative Agent to act as its agent hereunder and under the Security
Instruments with such powers as are specifically delegated to the Administrative
Agent by the terms of this Agreement and the Security Instruments, together with
such other powers as are reasonably incidental thereto. The Administrative Agent
(which term as used in this sentence and in Section 11.05 and the first sentence
of Section 11.06 shall include reference to its Affiliates and its and its
Affiliates' officers, directors, employees, attorneys, accountants, experts and
agents): (a) shall have no duties or responsibilities except those expressly set
forth in the Loan Documents, and shall not by reason of the Loan Documents be a
trustee or fiduciary for any Lender; (b) makes no representation or warranty to
any Lender and shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement, or in any
certificate or other document referred to or provided for in, or received by any
of them under, this Agreement, or for the value, validity, effectiveness,
genuineness, execution, effectiveness, legality, enforceability or sufficiency
of this Agreement, any Note or any other document referred to or provided for
herein or for any failure by the Borrower or any other Person (other than the
Administrative Agent) to perform any of its obligations hereunder or thereunder
or for the existence, value, perfection or priority of any collateral security
or the financial or other condition of the Borrower, the Subsidiaries or any
other obligor or guarantor; (c) except pursuant to Section 11.07, shall not be
required to initiate or conduct any litigation or collection proceedings
hereunder; and (d) shall not be responsible for any action taken or omitted to
be taken by it hereunder or under any other document or instrument referred to
or provided for herein or in connection herewith including its own ordinary
negligence, except for its own gross negligence or willful misconduct. The
Administrative Agent may employ agents, accountants, attorneys and experts and
shall not be responsible for the negligence or misconduct of any such agents,
accountants, attorneys or experts selected by it in good faith or any action
taken or omitted to be taken in good faith by it in accordance with the advice
of such agents, accountants, attorneys or experts. The Administrative Agent may
deem and treat the payee of any Note as the holder thereof for all purposes
hereof unless and until a written notice of the assignment or transfer thereof
permitted hereunder shall have been filed with the Administrative Agent. The
Administrative Agent is authorized to release any collateral that is permitted
to be sold or released pursuant to the terms of the Loan Documents. The
Documentation Agent, in such capacity, shall have no duties or responsibilities
and shall incur no liabilities under the Loan Documents; provided that this
Section 11.01 shall not limit its obligations as a Lender.
Section 11.02 Reliance by Administrative AgentReliance by
Administrative Agent. The Administrative Agent shall be entitled to rely upon
any certification, notice or other communication (including any thereof by
telephone, telex, telecopier, telegram or cable) believed by it to be genuine
and correct and to have been signed or sent by or on behalf of the proper Person
or Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Administrative Agent.
Section 11.03 DefaultsSection 11.03 Defaults. The
Administrative Agent shall not be deemed to have knowledge of the occurrence of
a Default (other than the non-payment of principal of or interest on Loans or of
fees or failure to reimburse for Letter of Credit drawings) unless the
Administrative Agent has received notice from a Lender or the Borrower
specifying such Default and stating that such notice is a "Notice of Default."
In the event that the Administrative Agent receives such a notice of the
occurrence of a Default, the Administrative Agent shall give prompt notice
thereof to the Lenders. In the event of a payment Default, the Administrative
Agent shall give each Lender prompt notice of each such payment Default.
<PAGE>
Section 11.04 Rights as a LenderSection 11.04 Rights as a Lender. With
respect to its Commitments and the Loans made by it, and its participation in
the issuance of Letters of Credit, First Union (and any successor acting as
Administrative Agent) in its capacity as a Lender hereunder shall have the same
rights and powers hereunder as any other Lender and may exercise the same as
though it were not acting as the Administrative Agent, and the term "Lender" or
"Lenders" shall, unless the context otherwise indicates, include the
Administrative Agent in its individual capacity. First Union (and any successor
acting as Administrative Agent) and its Affiliates may (without having to
account therefor to any Lender) accept deposits from, lend money to and
generally engage in any kind of banking, trust or other business with the
Borrower (and any of its Affiliates) as if it were not acting as the
Administrative Agent, and First Union and its Affiliates may accept fees and
other consideration from the Borrower for services in connection with this
Agreement or otherwise without having to account for the same to the Lenders.
Section 11.05 IndemnificationSection 11.05 Indemnification.
The Lenders agree to indemnify the Administrative Agent and the Documentation
Agent ratably in accordance with their Percentage Shares for the Indemnity
Matters as described in Section 12.03 to the extent not indemnified or
reimbursed by the Borrower under Section 12.03, but without limiting the
obligations of the Borrower under said Section 12.03 for any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Administrative Agent or the
Documentation Agent in any way relating to or arising out of: (a) this
Agreement, the Security Instruments or any other documents contemplated by or
referred to herein or the transactions contemplated hereby, but excluding,
unless a Default has occurred and is continuing, normal administrative costs and
expenses incident to the performance of its agency duties hereunder); or (b) the
enforcement of any of the terms of this Agreement, any Security Instrument or of
any such other documents; whether or not any of the foregoing specified in this
Section 11.05 arises from the sole or concurrent negligence of the indemnitee,
provided that no Lender shall be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct of the indemnitee.
<PAGE>
Section 11.06 Non-Reliance on Administrative Agent and other
LendersNon-Reliance on Administrative Agent and other Lenders. Each Lender
acknowledges and agrees that it has, independently and without reliance on the
Administrative Agent, the Documentation Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis of the Borrower and its decision to enter into this Agreement, and that
it will, independently and without reliance upon the Administrative Agent, the
Documentation Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement.
Neither the Administrative Agent nor the Documentation Agent shall be required
to keep itself informed as to the performance or observance by the Borrower of
this Agreement, the Notes, the Security Instruments or any other document
referred to or provided for herein or to inspect the properties or books of the
Borrower. Except for notices, reports and other documents and information
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder, neither the Administrative Agent nor the Documentation Agent shall
have any duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or business of the
Borrower (or any of its Affiliates) which may come into the possession of the
Administrative Agent, the Documentation Agent or any of their Affiliates. In
this regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in
this transaction as special counsel to the Administrative Agent only, except to
the extent otherwise expressly stated in any legal opinion or any Loan Document.
Each Lender will consult with its own legal counsel to the extent that it deems
necessary in connection with the Loan Documents and the matters contemplated
therein.
Section 11.07 Action by Administrative AgentSection 11.07
Action by Administrative Agent. Except for action or other matters expressly
required of the Administrative Agent hereunder, the Administrative Agent shall
in all cases be fully justified in failing or refusing to act hereunder unless
it shall (i) receive written instructions from the Majority Lenders (or all of
the Lenders as expressly required by Section 12.04) specifying the action to be
taken, and (ii) be indemnified to its satisfaction by the Lenders against any
and all liability and expenses which may be incurred by it by reason of taking
or continuing to take any such action. The instructions of the Majority Lenders
(or all of the Lenders as expressly required by Section 12.04) and any action
taken or failure to act pursuant thereto by the Administrative Agent shall be
binding on all of (or all of the Lenders as expressly required by Section 12.04)
the Lenders. If a Default has occurred and is continuing, the Administrative
Agent shall take such action with respect to such Default as shall be directed
by the Majority Lenders in the written instructions (with indemnities) described
in this Section 11.07, provided that, unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default as it shall deem advisable in the best interests of the
Lenders. In no event, however, shall the Administrative Agent be required to
take any action which exposes the Administrative Agent to personal liability or
which is contrary to this Agreement and the Security Instruments or applicable
law.
Section 11.08 Resignation or Removal of Administrative
AgentSection 11.08 Resignation or Removal of Administrative Agent. Subject to
the appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving notice thereof
to the Lenders and the Borrower, and the Administrative Agent may be removed at
any time with or without cause by the Majority Lenders. Upon any such
resignation or removal, the Majority Lenders shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Majority Lenders and shall have accepted such
appointment within thirty (30) days after the retiring Administrative Agent's
giving of notice of resignation or the Majority Lenders' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent. Upon the acceptance of
such appointment hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. After any retiring Administrative Agent's resignation or
removal hereunder as Administrative Agent, the provisions of this Article XI and
Section 12.03 shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as the Administrative
Agent.
<PAGE>
ARTICLE XII
Miscellaneous
Section 12.01 WaiverWaiver. No failure on the part of the
Administrative Agent or any Lender to exercise and no delay in exercising, and
no course of dealing with respect to, any right, power or privilege under any of
the Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under any of the Loan
Documents preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
Section 12.02 NoticesSection 12.02 Notices. All notices and
other communications provided for herein and in the other Loan Documents
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement or the other Loan Documents) shall be given or made by
telex, telecopy, telegraph, cable, courier or U.S. Mail or in writing and
telexed, telecopied, telegraphed, cabled, mailed or delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof or in the other Loan Documents, except that for notices and other
communications to the Administrative Agent other than the payment of money, the
Borrower need only send such notices and communications to the Administrative
Agent care of the Houston address of First Union Capital Markets Corp.; or, as
to any party, at such other address as shall be designated by such party in a
notice to each other party. Except as otherwise provided in this Agreement or in
the other Loan Documents, all such communications shall be deemed to have been
duly given when transmitted, if transmitted before 1:00 p.m. Charlotte, North
Carolina, time on a Business Day (otherwise on the next succeeding Business Day)
by telex or telecopier, and evidence or confirmation of receipt is obtained, or
personally delivered or, in the case of a mailed notice, three (3) Business Days
after the date deposited in the mails, postage prepaid, in each case given or
addressed as aforesaid.
Section 12.03 Payment of Expenses, Indemnities, etcSection
12.03 Payment of Expenses, Indemnities, etc. The Borrower agrees to:
<PAGE>
(a) whether or not the transactions hereby contemplated are
consummated, pay all reasonable expenses of the Administrative Agent in the
administration (both before and after the execution hereof and including
advice of counsel as to the rights and duties of the Administrative Agent
and the Lenders with respect thereto) of, and in connection with the
negotiation, syndication, investigation, preparation, execution and
delivery of, recording or filing of, preservation of rights under,
enforcement of, and refinancing, renegotiation or restructuring of, and of
the Loan Documents and any amendment, waiver or consent relating thereto
(including, without limitation, travel, photocopy, mailing, courier,
telephone and other similar expenses of the Administrative Agent, the cost
of environmental audits, surveys and appraisals at reasonable intervals,
the reasonable fees and disbursements of counsel and other outside
consultants for the Administrative Agent, and in the case of enforcement,
the reasonable fees and disbursements of counsel for the Administrative
Agent and any of the Lenders); and promptly reimburse the Administrative
Agent for all amounts expended, advanced or incurred by the Administrative
Agent or the Lenders to satisfy any obligation of the Borrower under this
Agreement or any Security Instrument, including, without limitation, all
costs and expenses of foreclosure;
(b) indemnify the Administrative Agent, the Documentation Agent and
each Lender and each of their Affiliates and each of their officers,
directors, employees, representatives, agents, attorneys, accountants and
experts ("Indemnified Parties") from, hold each of them harmless against
and promptly upon demand pay or reimburse each of them for the Indemnity
Matters which may be incurred by or asserted against or involve any of them
(whether or not any of them is designated a party thereto) as a result of,
arising out of or in any way related to (i) any actual or proposed use by
the Borrower of the proceeds of any of the Loans or Letters of Credit, (ii)
the execution, delivery and performance of the Loan Documents, (iii) the
operations of the business of the Borrower and its Subsidiaries, (iv) the
failure of the Borrower or any Subsidiary to comply with the terms of any
Security Instrument, or this Agreement, or with any Governmental
Requirement, (v) any inaccuracy of any representation or any breach of any
warranty of the Borrower set forth in any of the Loan Documents (vi) the
issuance, execution and delivery or transfer of or payment or failure to
pay under any letter of credit, (vii) the payment of a drawing under any
letter of credit notwithstanding the non-compliance, non-delivery or other
improper presentation of the manually executed draft(s) and
certification(s), (viii) any assertion that the Lenders were not entitled
to receive the proceeds received pursuant to the Security Instruments, or
(ix) any other aspect of the loan documents, including, without limitation,
the reasonable fees and disbursements of counsel and all other expenses
incurred in connection with investigating, defending or preparing to defend
any such action, suit, proceeding (including any investigations, litigation
or inquiries) or claim and including all Indemnity Matters arising by
reason of the ordinary negligence of any Indemnified Party, but excluding
all Indemnity Matters arising solely by reason of claims between the
Lenders or any Lender and the Administrative Agent or the Documentation
Agent or a Lender's shareholder against the Administrative Agent, the
Documentation Agent or Lender or by reason of the gross negligence or
willful misconduct on the part of the Indemnified Party; and
<PAGE>
(c) indemnify and hold harmless from time to time the Indemnified
Parties from and against any and all losses, claims, cost recovery actions,
administrative orders or proceedings, damages and liabilities to which any
such Person may become subject (i) under any Environmental Law applicable
to the Borrower or any Subsidiary or any of their Properties, including
without limitation, the treatment or disposal of Hazardous Substances on
any of their Properties, (ii) as a result of the breach or non-compliance
by the Borrower or any Subsidiary with any Environmental Law applicable to
the Borrower or any Subsidiary, (iii) due to past ownership by the Borrower
or any Subsidiary of any of their Properties or past activity on any of its
Properties or past activity on any of its Properties which, though lawful
and fully permissible at the time, could result in present liability, (iv)
the presence, use, release, storage, treatment or disposal of Hazardous
Substances on or at any of the Properties owned or operated by the Borrower
or any Subsidiary, or (v) any other environmental, health or safety
condition in connection with the loan documents, provided, however, no
indemnity shall be afforded under this Section 12.03(c) in respect of any
Property for any occurrence arising from the acts or omissions of the
Administrative Agent or any Lender during the period after which such
Person, its successors or assigns shall have obtained possession of such
Property (whether by foreclosure or deed in lieu of foreclosure, as
mortgagee-in-possession or otherwise).
(d) No Indemnified Party may settle any claim to be indemnified
without the consent of the indemnitor, such consent not to be unreasonably
withheld; provided, that the indemnitor may not reasonably withhold consent
to any settlement that an Indemnified Party proposes, if the indemnitor
does not have the financial ability to pay all its obligations outstanding
and asserted against the indemnitor at that time, including the maximum
potential claims against the Indemnified Party to be indemnified pursuant
to this Section 12.03.
(e) In the case of any indemnification hereunder, the Administrative
Agent or Lender, as appropriate shall give notice to the Borrower of any
such claim or demand being made against an Indemnified Party and the
Borrower shall have the non-exclusive right to join in the defense against
any such claim or demand provided that if the Borrower provides a defense,
the Indemnified Party shall bear its own cost of defense unless there is a
conflict between the Borrower and such Indemnified Party.
<PAGE>
(f) The foregoing indemnities shall extend to the Indemnified Parties
notwithstanding the sole or concurrent negligence of every kind or
character whatsoever, whether active or passive, whether an affirmative act
or an omission, including without limitation, all types of negligent
conduct identified in the Restatement (Second) of Torts of one or more of
the Indemnified Parties or by reason of strict liability imposed without
fault on any one or more of the Indemnified Parties. To the extent that an
Indemnified Party is found to have committed an act of gross negligence or
willful misconduct, this contractual obligation of indemnification shall
continue but shall only extend to the portion of the claim that is deemed
to have occurred by reason of events other than the gross negligence or
willful misconduct of the Indemnified Party.
(g) The Borrower's obligations under this Section 12.03 shall survive
any termination of this Agreement and the payment of the Notes and shall
continue thereafter in full force and effect.
(h) The Borrower shall pay any amounts due under this Section 12.03
within thirty (30) days of the receipt by the Borrower of notice of the
amount due.
Section 12.04 Amendments, Etc.Amendments, Etc. Any provision
of this Agreement or any Security Instrument may be amended, modified or waived
with the Borrower's and the Majority Lenders' prior written consent; provided
that (a) no amendment, modification or waiver which extends the final maturity
of the Loans, the Termination Date, increases the Aggregate Maximum Credit
Amounts, forgives the principal amount of any Indebtedness outstanding under
this Agreement, releases any guarantor of the Indebtedness or releases all or
substantially all of the collateral, reduces the interest rate applicable to the
Loans or the fees payable to the Lenders generally, extends the due date for any
mandatory prepayment under Section 2.07(b) or for any payment of interest or
fees, affects Section 2.03, Section 2.07(b), this Section 12.04 or Section
12.06(a) or modifies the definition of "Majority Lenders" shall be effective
without consent of all Lenders; (b) no amendment, modification or waiver which
increases the Maximum Credit Amount of any Lender shall be effective without the
consent of such Lender; (c) no amendment, modification or waiver which modifies
the rights, duties or obligations of the Administrative Agent shall be effective
without the consent of the Administrative Agent, and (d) no amendment,
modification or waiver which modifies the rights, duties or obligations of the
Documentation Agent shall be effective without the consent of the Documentation
Agent.
Section 12.05 Successors and AssignsSection 12.05 Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Section 12.06 Assignments and ParticipationsAssignments and
Participations.
(a) The Borrower may not assign its rights or obligations
hereunder or under the Notes or any Letters of Credit without the prior
consent of all of the Lenders and the Administrative Agent.
<PAGE>
(b) Any Lender may, upon the written consent of the
Administrative Agent and of the Borrower which consent shall not be
unreasonably withheld, assign to one or more assignees all or a portion
of its rights and obligations under this Agreement pursuant to an
Assignment Agreement substantially in the form of Exhibit F (an
"Assignment") provided, however, that (i) any such assignment shall be
in the amount of at least $5,000,000 or such lesser amount to which the
Borrower, in its sole discretion, has consented, and (ii) the assignee
shall pay to the Administrative Agent a processing and recordation fee
of $2,500 for each assignment. Any such assignment will become
effective upon the execution and delivery to the Administrative Agent
of the Assignment and the consent of the Administrative Agent and the
Borrower which consent shall not be unreasonably withheld. Promptly
after receipt of an executed Assignment, the Administrative Agent shall
send to the Borrower a copy of such executed Assignment. Upon receipt
of such executed Assignment, the Borrower, will, at its own expense,
execute and deliver new Notes to the assignor and/or assignee, as
appropriate, in accordance with their respective interests as they
appear. Upon the effectiveness of any assignment pursuant to this
Section 12.06, the assignee will become a "Lender," if not already a
"Lender," for all purposes of this Agreement and the other Security
Instruments. The assignor shall be relieved of its obligations
hereunder to the extent of such assignment (and if the assigning Lender
no longer holds any rights or obligations under this Agreement, such
assigning Lender shall cease to be a "Lender" hereunder except that its
rights under Sections 4.06, 5.01, 5.05 and 12.03 shall not be
affected). The Administrative Agent will prepare on the last Business
Day of each month during which an assignment has become effective
pursuant to this Section 12.06(b), a new Exhibit G giving effect to all
such assignments effected during such month, and will promptly provide
the same to the Borrower and each of the Lenders.
(c) Each Lender may transfer, grant or assign participations
in all or any part of such Lender's interests hereunder pursuant to
this Section 12.06(c) to any Person, provided that: (i) such Lender
shall remain a "Lender" for all purposes of this Agreement and the
transferee of such participation shall not constitute a "Lender"
hereunder; and (ii) no participant under any such participation shall
have rights to approve any amendment to or waiver of this Agreement,
the Notes or any Security Instrument except to the extent such
amendment or waiver would (x) forgive any principal owing on any
Indebtedness or extend the final maturity of the Loans, (y) reduce the
interest rate (other than as a result of waiving the applicability of
any post-default increases in interest rates) or fees applicable to any
of the Commitments or Loans or Letters of Credit in which such
participant is participating, or postpone the payment of any thereof,
or (z) release any guarantor of the Indebtedness or release all or
substantially all of the collateral (except as expressly provided in
the Loan Documents) supporting any of the Commitments or Loans or
Letters of Credit in which such participant is participating. In the
case of any such participation, the participant shall not have any
rights under this Agreement or any of the Security Instruments (the
participant's rights against the granting Lender in respect of such
participation to be those set forth in the agreement with such Lender
creating such participation), and all amounts payable by the Borrower
hereunder shall be determined as if such Lender had not sold such
participation, provided that such participant shall be entitled to
receive additional amounts under Article V on the same basis as if it
were a Lender and be indemnified under Section 12.03 as if it were a
Lender. In addition, each agreement creating any participation must
include an agreement by the participant to be bound by the provisions
of Section 12.15.
<PAGE>
(d) The Lenders may furnish any information concerning the
Borrower in the possession of the Lenders from time to time to
assignees and participants (including prospective assignees and
participants); provided that, such Persons agree to be bound by the
provisions of Section 12.15 hereof.
(e) Notwithstanding anything in this Section 12.06 to the
contrary, any Lender may assign and pledge all or any of its Notes to
any Federal Reserve Bank or the United States Treasury as collateral
security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any operating circular issued by such
Federal Reserve System and/or such Federal Reserve Bank. No such
assignment and/or pledge shall release the assigning and/or pledging
Lender from its obligations hereunder.
(f) Notwithstanding any other provisions of this Section
12.06, no transfer or assignment of the interests or obligations of any
Lender or any grant of participations therein shall be permitted if
such transfer, assignment or grant would require the Borrower to file a
registration statement with the SEC or to qualify the Loans under the
"Blue Sky" laws of any state.
Section 12.07 InvalidityInvalidity. In the event that any one
or more of the provisions contained in any of the Loan Documents or the Letters
of Credit, the Letter of Credit Agreements or in any other Security Instrument
shall, for any reason, be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of the Notes, this Agreement, the Letter of Credit Agreements or any
Security Instrument.
Section 12.08 CounterpartsCounterparts. This Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument and any of the parties hereto may execute
this Agreement by signing any such counterpart.
Section 12.09 ReferencesReferences. The words "herein,"
"hereof," "hereunder" and other words of similar import when used in this
Agreement refer to this Agreement as a whole, and not to any particular article,
section or subsection. Any reference herein to a Section shall be deemed to
refer to the applicable Section of this Agreement unless otherwise stated
herein. Any reference herein to an exhibit or schedule shall be deemed to refer
to the applicable exhibit or schedule attached hereto unless otherwise stated
herein.
<PAGE>
Section 12.10 SurvivalSurvival. The obligations of the parties
under Section 4.06, Article V, and Sections 11.05 and 12.03 shall survive the
repayment of the Loans and the termination of the Commitments. To the extent
that any payments on the Indebtedness or proceeds of any collateral are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, debtor in possession, receiver or other
Person under any bankruptcy law, common law or equitable cause, then to such
extent, the Indebtedness so satisfied shall be revived and continue as if such
payment or proceeds had not been received and the Administrative Agent's and the
Lenders' Liens, security interests, rights, powers and remedies under this
Agreement and each Security Instrument shall continue in full force and effect.
In such event, each Security Instrument shall be automatically reinstated and
the Borrower shall take such action as may be reasonably requested by the
Administrative Agent and the Lenders to effect such reinstatement.
Section 12.11 CaptionsCaptions. Captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.
Section 12.12 No Oral AgreementsNo Oral Agreements. THE LOAN
DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND
SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING
TO THE SUBJECT MATTER HEREOF AND THEREOF. THIS WRITTEN AGREEMENT, THE NOTES AND
THE SECURITY INSTRUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
Section 12.13 Governing Law; Submission to Jurisdiction;
Waiver of Jury TrialSection 12.13 Governing Law; Submission to Jurisdiction;
Waiver of Jury Trial.
(a) This Agreement and the Notes shall be governed by, and construed
in accordance with, the laws of the State of Texas except to the extent
that United States federal law permits any Lender to charge interest at the
rate allowed by the laws of the state where such Lender is located. Tex.
Rev. Civ. Stat. Ann. Art. 5069, Ch. 15 (which regulates certain revolving
credit loan accounts and revolving tri-party accounts) shall not apply to
this Agreement or the Notes.
<PAGE>
(b) any legal action or proceeding with respect to the loan documents
shall be brought in the courts of the state of Texas or of the united
states of America for the southern district of Texas, Houston division,
and, by execution and delivery of this agreement, the borrower hereby
accepts for itself and (to the extent permitted by law) in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. The borrower hereby irrevocably waives any objection, including,
without limitation, any objection to the laying of venue or based on the
grounds of forum non conveniens, which it may now or hereafter have to the
bringing of any such action or proceeding in such respective jurisdictions.
This submission to jurisdiction is nonexclusive and does not preclude the
agent or any lender from obtaining jurisdiction over the borrower in any
court otherwise having jurisdiction.
(c) the Borrower hereby irrevocably designates Larry M. Wright located
at 1100 Louisiana, Suite 5110, Houston, Texas 77002 , as the designee,
appointee and agent of the Borrower to receive, for and on behalf of the
Borrower, service of process in such respective jurisdictions in any legal
action or proceeding with respect to the Loan Documents. it is understood
that a copy of such process served on such agent will be promptly forwarded
by overnight courier to the Borrower at its address set forth under its
signature below, but the failure of the Borrower to receive such copy shall
not affect in any way the service of such process. the Borrower further
irrevocably consents to the service of process of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to the Borrower at its said
address, such service to become effective thirty (30) days after such
mailing.
(d) nothing herein shall affect the right of the Administrative Agent
or any Lender or any holder of a Note to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed
against the Borrower in any other jurisdiction.
(e) each of the Borrower and each lender hereby (i) irrevocably and
unconditionally waive, to the fullest extent permitted by law, trial by
jury in any legal action or proceeding relating to this Agreement or any
Security Instrument and for any counterclaim therein; (ii) irrevocably
waive, to the maximum extent not prohibited by law, any right it may have
to claim or recover in any such litigation any special, exemplary, punitive
or consequential damages, or damages other than, or in addition to, actual
damages; (iii) certify that no party hereto nor any representative or agent
of counsel for any party hereto has represented, expressly or otherwise, or
implied that such party would not, in the event of litigation, seek to
enforce the foregoing waivers, and (iv) acknowledge that it has been
induced to enter into this Agreement, the Security Instruments and the
transactions contemplated hereby and thereby by, among other things, the
mutual waivers and certifications contained in this section 12.13.
<PAGE>
Section 12.14 InterestInterest. It is the intention of the parties hereto
that each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Lender under laws applicable to it (including the laws of the United States of
America and the State of Texas or any other jurisdiction whose laws may be
mandatorily applicable to such Lender notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to the contrary
in any of the Loan Documents or any agreement entered into in connection with or
as security for the Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by such Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the holder thereof resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to any Lender may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be canceled automatically by such Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by such Lender on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have been or would
thereby be paid in full, refunded by such Lender to the Borrower). All sums paid
or agreed to be paid to any Lender for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by law applicable to such Lender,
be amortized, prorated, allocated and spread throughout the full term of the
Loans evidenced by the Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time and from time to time (i) the
amount of interest payable to any Lender on any date shall be computed at the
Highest Lawful Rate applicable to such Lender pursuant to this Section 12.14 and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable
to such Lender, then the amount of interest payable to such Lender in respect of
such subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of interest
payable to such Lender shall equal the total amount of interest which would have
been payable to such Lender if the total amount of interest had been computed
without giving effect to this Section 12.14. To the extent that Article
5069-1.04 of the Texas Revised Civil Statutes is relevant for the purpose of
determining the Highest Lawful Rate, such Lender elects to determine the
applicable rate ceiling under such Article by the indicated weekly rate ceiling
from time to time in effect.
<PAGE>
Section 12.15 ConfidentialityConfidentiality. The
Administrative Agent and the Lenders shall maintain all information furnished by
the Borrower in connection with this Agreement and the other Loan Documents in
confidence in accordance with the standards of care and diligence that each
utilizes in maintaining its own confidential information. This obligation of
confidence shall not apply to such portions of the information which (i) are in
the public domain, (ii) hereafter become part of the public domain without the
Administrative Agent or the Lenders breaching their obligation of confidence to
the Borrower, (iii) are previously known by the Administrative Agent or the
Lenders from some source other than the Borrower, (iv) are hereafter developed
by the Administrative Agent or the Lenders without using the Borrower's
information, (v) are hereafter obtained by or available to the Administrative
Agent or the Lenders from a third party who owes no obligation of confidence to
the Borrower with respect to such information or through any other means other
than through disclosure by the Borrower, (vi) are disclosed with the Borrower's
consent, (vii) must be disclosed either pursuant to any Governmental Requirement
or to Persons regulating the activities of the Administrative Agent or the
Lenders, or (viii) as may be required by law or regulation or order of any
Governmental Authority in any judicial, arbitration or governmental proceeding.
Further, the Administrative Agent or a Lender may disclose any such information
to any other Lender, any independent petroleum engineers or consultants, any
independent certified public accountants, any legal counsel employed by such
Person in connection with this Agreement or any Loan Document, including without
limitation, the enforcement or exercise of all rights and remedies thereunder,
or any assignee or participant (including prospective assignees and
participants) in the Loans; provided, however, that the Administrative Agent or
the Lenders shall receive a confidentiality agreement from the Person to whom
such information is disclosed such that said Person shall have the same
obligation to maintain the confidentiality of such information as is imposed
upon the Administrative Agent or the Lenders hereunder. The Borrower on behalf
of itself waives any and all other rights it may have to confidentiality as
against the Administrative Agent and the Lenders arising by contract, agreement,
statute or law except as expressly stated in this Section 12.15.
Section 12.16 EffectivenessEffectiveness. This Agreement shall be effective
on the Closing Date.
<PAGE>
Section 12.17 EXCULPATION PROVISIONSSection 12.17 EXCULPATION PROVISIONS.
EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS
AGREEMENT AND THE OTHER SECURITY INSTRUMENTS AND AGREES THAT IT IS CHARGED WITH
NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER SECURITY
INSTRUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND
HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS
AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS
CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND
THE OTHER SECURITY INSTRUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN
ENTERING INTO THIS AGREEMENT AND THE OTHER SECURITY INSTRUMENTS; AND THAT IT
RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER SECURITY
INSTRUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS
OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH
LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE
VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND
THE OTHER SECURITY INSTRUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR
KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS."
[SIGNATURES BEGIN NEXT PAGE]
<PAGE>
The parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
BORROWER:......... ........PANACO, INC.
By:
Name: H. James Maxwell
Title: Chief Executive Officer
Address for Notices:
Panaco, Inc.
1050 West Blue Ridge Boulevard
Panaco Building
Kansas City, MO 64145-1216
Telecopier No.: (816) 942-6305
Telephone No.: (816) 942-6300
Attention: H. James Maxwell
<PAGE>
AGENT AND LENDER: FIRST UNION NATIONAL BANK
By:
Name: Michael J. Kolosowsky
Title: Vice President
Applicable Lending Office for
Base Rate Loans and LIBOR Loans:
First Union National Bank
301 South College Street, TW-10
Charlotte, North Carolina 28288
Address for Notices:
First Union Capital Markets Corp.
1001 Fannin, Suite 2255
Houston, Texas 77002
Telecopier No.: (713) 650-6354
Telephone No.: (713) 650-3716
Attention: Paul Riddle
<PAGE>
LENDERS: BANQUE PARIBAS
By:_____________________________
Name: Barton D. Schouest
Title: Managing Director
By:_____________________________
Name: Brian Malone
Title: Vice President
Lending Office for Base Rate Loans,
LIBOR Loans and Notices:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telecopier No.: 713/659-6915
Telephone No.: 713/659-4811
Attention: A. David Dodd
<PAGE>
Exhibit 21.1
List of PANACO, Inc. Subsidiaries
Name Jurisdiction of Incorporation
Goldking Acquisition Corp. Delaware
2. Goldking Companies, Inc. Delaware
3. Goldking Oil & Gas Corp. Texas
4. Goldking Trinity Bay Corp. Texas
5. Goldking Production Company Texas
6. Hill Transportation Company, Inc. Louisiana
7. Umbrella Point Gathering Co., L.L.C. Texas
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
Ryder Scott Co. hereby consents to the use of its oil and gas reserve reports in
the Form S-4 Registration Statement (the "Registration Statement") to be filed
with the Securities and Exchange Commission on approximately November 7, 1997 by
PANACO, Inc., Goldking Trinity Bay Corp., Goldking Production Company, Hill
Transportation Company, Inc. and Umbrella Point Gathering Co. L.L.C., and to the
reference to our firm under the captions "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business and Properties" and
"Experts" in the Registration Statement.
RYDER SCOTT CO.
PETROLEUM ENGINEERS
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
W.D. Von Gonten & Co. hereby consents to the use of the September 1, 1997
oil and gas reserve report in the Form S-4 Registration Statement (the
"Registration Statement") to be filled with the Securities and Exchange
Commission on approximately November 7, 1997 by PANACO, Inc., Goldking
Acquisition Corp., Company, Hill Transportation Company, Inc. and Umbrella Point
Gathering Co., L.L.C., and to the references to our firm under the caption
"Experts" in the Registration Statement.
W.D. Von Gonten & Co.
By: \s\ W.D. Von Gonten Jr.
Name: W.D. Von Gonten Jr.
Title: President
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
McCune Engineering, P.E. hereby consents to the use of its oil and gas
reserve reports in the Form S-4 Registration Statement (the "Registration
Statement") to be filed with the Securities and Exchange Commission on
approximately November 7, 1997 by PANACO, Inc., Goldking Acquisition Corp.,
Goldking Companies, Inc., Goldking Oil & Gas Corp., and Umbrella Point Gathering
Co., L.L.C. and to the reference to our firm under the caption "Experts" in the
Registration Statement.
McCUNE ENGINEERING, P.E.
By: \s\ Dwayne McCune
Name: Dwayne McCune
Title: Professional Engineer
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in and made a part of the
Form S-4 registration statement to exchange Panaco, Inc.'s 10-5/8% Series B
Senior Notes due 2004 for any and all of its outstanding 10-5/8% Senior Notes
due 2004.
Arthur Andersen LLP
Kansas City, Missouri
November 7, 1997
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the use our report dated September 2, 1997 with respect to the
financial statements of Goldking Companies, Inc. in the Registration Statement
(S-4) to eschange Panaco, Inc.'s 10-5/8% Series B Senior Notes due 2004 for any
and all of its outstanding 10-5/8% Senior Notes due 2004.
Ernst & Young LLP
Houston, Texas
November 7, 1997
<PAGE>
EXHIBIT 25.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
UMB BANK, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
44-0201230
(I.R.S. Employer
Identification No.)
928 Grand Avenue, Kansas City, Missouri.............................64106
(Address of principal executive offices) (Zip Code)
Panaco, Inc.
(Exact name of obligor as specified in its charter)
Delaware 43-1593374
(State or other jurisdiction of
incorporation or organization) (I.R.S. employer identification No.)
1050 West Blue Ridge Boulevard
Kansas City, Missouri 64145-1216
(Address of principal executive offices) (Zip Code)
10 5/8% Senior Notes due 2004, Series B
(Title of the indenture securities)
<PAGE>
Item 1. General Information
(a) Name and address of each examining or supervising authority to
which the Trustee is subject is as follows:
The Comptroller of the Currency
Mid-Western District
2345 Grand Avenue, Suite 700
Kansas City, Missouri 64108
Federal Reserve Bank of Kansas City
Federal Reserve P.O. Station
Kansas City, Missouri 64198
Supervising Examiner
Federal Deposit Insurance Corporation
720 Olive Street, Suite 2909
St. Louis, Missouri 63101
(b) The Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor and Underwriters
The Obligor is not affiliated with the Trustee.
Item 3. Voting securities of the Trustee
The following information as to each class of voting securities of the
Trustee is furnished as of November 5, 1997:
Column A Column B
Title of Class Amount Outstanding
Common 660,000
Item 4. Trusteeships under other indentures
The Trustee is not a trustee under another indenture under which any
other securities, or certificates of interest or participation in
other securities, of the Obligor are outstanding. The Trustee does
serve as Trustee for the Obligor's 10 5/8% Senior Notes due 2004,
Series A, which are to be exchanged for the indenture securities.
Item 5. Interlocking directorates and similar relationships with the obligor
or underwriters
Neither the Trustee nor any of its directors or officers is a director,
officer, partner, employee, appointee, or representative of the
Obligor.
<PAGE>
Item 6. Voting securities of the Trustee owned by the Obligor or its officials
No voting securities of the Trustee are owned beneficially by the
Obligor or its directors and executive officers as of November 5,
1997.
Item 7. Voting securities of the Trustee owned by underwriters or their
officials
No voting securities of the Trustee and not more than 1% of the voting
securities of the Trustee's parent holding company are owned
beneficially by an Underwriter for the Obligor or its directors,
partners or executive officers as of November 5, 1997.
Item 8. Securities of the Obligor owned or held by the Trustee
No securities of Obligor are owned beneficially or held as collateral
security for obligations in default by the Trustee as of November
5, 1997.
Item 9. Securities of the underwriters owned or held by the Trustee
No securities of an Underwriter for the Obligor are owned beneficially
or held as collateral security for Obligations in default as of
November 5, 1997.
Item 10. Ownership or holdings by the Trustee of voting securities of
certain affiliates or security holders of the Obligor
The Trustee neither owns beneficially nor holds as collateral security
for obligations in default any voting securities of a person who,
to the knowledge of the Trustee, (1) owns 10 percent or more of the
voting securities of the Obligor, or (2) is an affiliate, other
than a subsidiary of Obligor, as of November 5, 1997.
Item 11. Ownership or holdings by the Trustee of any securities of a person
owning 50 percent or more of the voting securities of the Obligor
The Trustee neither owns beneficially nor holds as collateral security
for obligations in default any securities of a person who, to the
knowledge of the Trustee, owns 50 percent or more of the voting
shares of the Obligor as of November 5, 1997.
Item 12. Indebtedness of the Obligor to the Trustee
Not Applicable
Item 13. Defaults of the Obligor
Not Applicable
Item 14. Affiliations with the Underwriters
Not Applicable
<PAGE>
Item 15. Foreign Trustee
Not Applicable
Item 16. List of exhibits
Listed below are all exhibits filed as a part of this statement of
eligibility and qualification.
Exhibit
Number Exhibit
1. Articles of Association of the Trustee, as now in effect.
2. Certificate of Authority from the Comptroller of the Currency and
evidence of subsequent changes in the corporate title of the
Association.
3. Certificate from the Comptroller of the Currency evidencing authority
to exercise corporate trust powers.
4. Bylaws, as amended, of the Trustee.
5. N/A
6. Consent of the Trustee required by Section 321 (b) of the Act.
7. Report of Condition of the Trustee as of September 30, 1997.
8. N/A
9. N/A
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, UMB, National Association, a national bank organized and existing under
the laws of the United States of America, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Kansas City, and State of Missouri, on the 6th
day of November, 1997.
UMB BANK, NATIONAL ASSOCIATION
BY:
R. William Bloemker, Vice President
<PAGE>
T-l Exhibit No. l
TO WHOM IT MAY CONCERN
The attached Articles of Association are the Articles of Association for
the UMB Bank, National Association and are current as of this date.
BY:
Assistant Secretary
November 6, 1997
[SEAL]
<PAGE>
UMB BANK, NATIONAL ASSOCIATION
RESTATED ARTICLES OF ASSOCIATION
FIRST: The title of this Association shall be "UMB Bank, National
Association" (amended as of October 1, 1994).
SECOND: The main office shall be in the City of Kansas City, County of
Jackson, State of Missouri. The general business of this Association, and its
operations of discount and deposit, shall be conducted at its main office.
THIRD: The Board of Directors of this Association shall consist of not
less than five nor more than twenty-five shareholders, the exact number of
Directors within such minimum and maximum limits to be fixed and determined from
time to time by resolution of a majority of the full Board of Directors or by
resolution of the shareholders at any annual or special meeting thereof. Unless
otherwise provided by the laws of the Untied States, any vacancy in the Board of
Directors for any reason, including an increase in the number thereof, may be
filled by action of the Board of Directors.
<PAGE>
FOURTH: The regular annual meeting of the shareholders for the
election of directors and the transaction of whatever other business which may
be brought before said meeting shall be held at the main office, or at such
other place as the Board of Directors may designate, on the day of each year
specified therefor in the By-Laws of the Association, but if no election be
held on that day it may be held on any subsequent day according to the
provisions of law.
FIFTH: The amount of authorized capital stock of this Association
shall be Thirteen Million Two Hundred Fifty Thousand Dollars ($16,500,000),
divided into 660,000 shares of common stock of the par value of Twenty-Five
Dollars ($25) each; but said capital stock may be increased or decreased from
time to time in accordance with the provisions of the laws of the United States.
If the capital stock is increased by the sale of additional shares
thereof, each shareholder shall be entitled to subscribe for such additional
shares in proportion to the number of shares of said capital stock owned by him
at the time the increase is authorized by the shareholders, unless another time
subsequent to the date of the shareholders' meeting is specified in a resolution
adopted by the shareholders at the time the increase is authorized. The Board of
Directors shall have the power to prescribe a reasonable period of time within
which the preemptive rights to subscribe to the new shares of capital stock must
be exercised.
<PAGE>
If the capital stock is increased by a stock dividend, each
shareholder shall be entitled to his proportion of the amount of such increase
in accordance with the number of shares of capital stock owned by him at the
time the increase is authorized by the shareholders, unless another time
subsequent to the date of the shareholders' meeting is specified in a resolution
adopted by the shareholders at the time the increase is authorized.
SIXTH: The Board of Directors shall appoint one of its members to be
President of this Association. The Board of Directors may appoint one of its
members to be Chairman of the Board, who shall perform such duties as the Board
of Directors may designate.
The Board of Directors shall have the power to appoint one or more
Vice Presidents and to appoint a Cashier and such other officers and employees
as may be required to transact the business of the Association.
<PAGE>
The Board of Directors shall have the power to define the duties of
the officers and employees of the Association; to fix the salaries to be paid
to them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase in the capital of the
Association shall be made; to manage and administer the business and affairs
of the Association; to make all By-Laws that it may be lawful for them to
make; and generally to do and perform all acts that it may be legal for the
Board of Directors to do and perform.
The Board of Directors, without the approval of the shareholders, but
subject to the approval of the Comptroller of the Currency, shall have the power
to change the location of the main office of the Association to any other place
within the limits of Kansas City, Missouri and to establish or change the
location of any branch or branches to any other location permitted under
applicable law.
SEVENTH: The corporate existence of this Association shall continue
until terminated in accordance with the laws of the United States.
<PAGE>
EIGHTH: The Board of Directors of this Association, or any three or
more shareholders owning, in the aggregate, not less than ten percent (10%) of
the stock of this Association, may call a special meeting of the shareholders
at any time; provided, however, that unless otherwise provided by law, not
less than ten (10) days prior to the date fixed for any such meeting, a notice
of the time, place and purpose of the meeting shall be given by first class
mail, postage prepaid, to all shareholders of record at their respective
addresses as shown upon the books of the Association.
Subject to the provisions of the laws of the United States, these
Articles of Association may be amended at any meeting of the shareholders, for
which adequate notice has been given, by the affirmative vote of the owners of
two-thirds of the stock of this Association, voting in person or by proxy.
<PAGE>
NINTH: Any person, his heirs, executors, or administrators, may be
indemnified or reimbursed by the Association for reasonable expenses actually
incurred in connection with any action, suit, or proceeding, civil or criminal,
to which he or they shall be made a party by reason of his being or having been
a director, officer, or employee of the Association or any firm, corporation, or
organization which he served in any capacity at the request of the Association;
provided, however, that no person shall be so indemnified or reimbursed in
relation to any matter in such action, suit, or proceeding as to which he shall
finally be adjudged to have been guilty of or liable for gross negligence or
willful misconduct or criminal acts in the performance of his duties to the
Association; and, provided further, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding which
has been made the subject of a compromise settlement except with the approval of
a court of competent jurisdiction, or the holders of record of a majority of the
outstanding shares of the Association, or the Board of Directors, acting by vote
of directors not parties to the same or substantially the same action, suit, or
proceeding, constituting a majority of the whole number of the directors. The
foregoing right of indemnification or reimbursement shall not be exclusive of
other rights to which such person, his heirs, executors, or administrators, may
be entitled as a matter of law.
<PAGE>
CERTIFICATE
For and on behalf of UMB Bank, National Association, a national
banking association organized under the laws of the United States of America
(formerly named The City National Bank and Trust Company of Kansas City and
the United Missouri Bank of Kansas City, National Association and United
Missouri Bank, National Association), the undersigned, K. Scott Mathews,
Assistant Secretary of said Association, hereby certifies that attached
hereto are the following:
1) A true and correct copy of the certificate of the Comptroller of
the Currency, dated December 19, 1997, evidencing a change in corporate
title from the City National Bank and Trust Company of Kansas City to
United Missouri Bank of Kansas City National Association;
2) A true and correct copy of the letter of authorization from the
Comptroller of the Currency, dated April 9, 1991, authorizing the
Association to adopt the name United Missouri Bank, National Association;
and
3) Certified Resolution evidencing recordation of change of the name
of the Association to UMB Bank, National Association.
Certified under the corporate seal of said Association this 6th day
of November, 1997.
Assistant Secretary
<PAGE>
CERTIFIED RESOLUTION
I hereby certify that the following is an excerpt from a letter dated
October 3, 1994 from the Office of the Comptroller of the Currency (OCC)
confirming the Bank's change of name:
The OCC has recorded that, as of October 1, 1994, the title of United
Missouri Bank, National Association, Charter No. 13936, was changed
to "UMB Bank, National Association."
Assistant Secretary
<PAGE>
CERTIFICATE
For and on behalf of UMB Bank, National Association, a national
banking association under the laws of the United States of America, the
undersigned, K. Scott Mathews, Assistant Secretary of said Association,
hereby certifies that the attached document is a true and correct copy of
the certificate issued by the Comptroller of the Currency of the United
States evidencing its authority to exercise fiduciary powers under the
statutes of the United States.
Certified under the corporate seal of said Association this 6th day
of November, 1977.
Assistant Secretary
<PAGE>
TO WHOM IT MAY CONCERN
The attached By-Laws are the By-Laws for the UMB Bank, National
Association and are current as of this date.
Assistant Secretary
November 6, 1977
[SEAL]
<PAGE>
UMB BANK, NATIONAL ASSOCIATION
BY-LAWS
ARTICLE I
Meetings of Shareholders
Section 1.1 - Where Held. All meetings of shareholders of this Association shall
be held at its main banking house in Kansas City, Jackson County, Missouri, or
at such other place as the Board of Directors may from time to time designate.
Section 1.2 - Annual Meeting. The annual meeting of shareholders shall be held
at 11 o'clock in the forenoon, or at such other time as shall be stated in the
notice thereof, on the third Wednesday of January in each year or, if that day
be a legal holiday, on the next succeeding banking day, for the purpose of
electing a Board of Directors and transacting such other business as may
properly come before the meeting.
Section 1.3 - Special Meetings. Except as otherwise provided by law, special
meetings of shareholders may be called for any purpose, at any time, by the
Board of Directors or by any three or more shareholders owning, in the
aggregate, not less than ten percent (10%) of the outstanding stock in the
Association.
Section 1.4 - Notice of Meetings. Written notice of the time, place, and purpose
of any meeting of shareholders shall be given to each shareholder (a) by
delivering a copy thereof in person to the shareholder, or (b) by depositing a
copy thereof in the U.S. mails, postage prepaid, addressed to the shareholder at
his address appearing on the books of the Association, in either case at least
ten (10) days prior to the date fixed for the meeting.
Section 1.5 - Quorum. A majority of the outstanding capital stock, represented
in person or by proxy, shall constitute a quorum for the transaction of business
at any meeting or shareholders, unless otherwise provided by law. A majority of
the votes cast shall decide every question or matter submitted to the
shareholders at any meeting, unless otherwise provided by law or by the Articles
of Association.
Section 1.6 - Adjournment. Any meeting of shareholders may, by majority vote of
the shares represented at such meeting, in person or by proxy, though less than
a quorum, be adjourned from day to day or from time to time, not exceeding, in
the case of elections of directors, sixty (60) days from such adjournment,
without further notice, until a quorum shall attend or the business thereof
shall be completed. At any such adjourned meeting, any business may be
transacted which might have been transacted at the meeting as originally called.
Section 1.7 - Voting. Each shareholder shall be entitled to one (1) vote on each
share of stock held, except that in the election of directors each shareholder
shall have the right to cast as many votes, in the aggregate, as shall equal the
number of shares owned by him, multiplied by the number of directors to be
elected, and said votes may be cast for one director or distributed among two
(2) or more candidates. Voting may be in person or by proxy, but no officer or
employee of this Association shall act as proxy. Authority to vote by proxy
shall be by written instrument, dated and filed with the records of the meeting,
and shall be valid only for one meeting, to be specified therein, and any
adjournments of such meeting.
ARTICLE II
Directors
<PAGE>
Section 2.1 - Number and Qualifications. The Board of Directors (hereinafter
sometimes referred to as the "Board") shall consist of not less than five (5)
nor more than twenty-five (25) shareholders, the exact number, within such
limits, to be fixed and determined from time to time by resolution of a majority
of the full Board of Directors or by resolution of the shareholders at any
meeting thereof; provided, however, that a majority of the full Board of
Directors shall not increase the number of directors to a number which: (a)
exceeds by more than two (2) the number of directors last elected by
shareholders where such number was fifteen (15) or less; or (b) exceeds by more
than four (4) the number of directors last elected by shareholders where such
number was sixteen (16) or more. No person who has attained the age of seventy
(70) shall be eligible for election to the Board of Directors unless such person
is actively engaged in business at the time of his election, but any person not
so disqualified at the time of his election as a director shall be entitled to
serve until the end of his term. All directors shall hold office for one (1)
year and until their successors are elected and qualified.
Section 2.2 - Advisory Directors. The Board of Directors may appoint Advisory
Directors, chosen from former directors of the Association or such other persons
as the Board shall select. The Advisory Directors shall meet with the Board at
all regular and special meetings of the Board and may participate in such
meetings but shall have no vote. They shall perform such other advisory
functions and shall render such services as may from time to time be directed by
the Board.
Section 2.3 - Powers. The Board shall manage and administer the business and
affairs of the Association. Except as expressly limited by law, all corporate
powers of the Association shall be vested in and may be exercised by said Board.
It may not delegate responsibility for its duties to others, but may assign the
authority and responsibility for various functions to such directors, committees
and officers or other employees as it shall see fit.
Section 2.4 - Vacancies. In case of vacancy occurring on the Board through
death, resignation, disqualification, disability or any other cause, such
vacancy may be filled at any regular or special meeting of the Board by vote of
a majority of the surviving or remaining directors then in office. Any director
elected to fill a vacancy shall hold office for the unexpired term of the
director whose place was vacated and until the election and qualification of his
successor.
Section 2.5 - Organization Meeting. Following the annual meeting of
shareholders, the Corporate Secretary shall notify the directors elect of their
election and of the time and place of the next regular meeting of the Board, at
which the new Board will be organized and the members of the Board will take the
oath required by law, after which the Board will appoint committees and the
executive officers of the Association, and transact such other business as may
properly come before the meeting; provided, however, that if the organization
meeting of the Board shall be held immediately following the annual meeting of
shareholders, no notice thereof shall be required except an announcement thereof
at the meeting of directors.
Section 2.6 - Regular Meetings. The regular meetings of the Board of Directors
shall be held, without notice except as provided for the organization meeting,
on the third Wednesday of each month at the main banking house in Kansas City,
Jackson County, Missouri. When any regular meeting of the Board falls upon a
holiday, the meeting shall be held on the next banking day, unless the Board
shall designate some other day. A regular monthly meeting of the Board may, by
action of the Board at its preceding meeting, be postponed to a later day in the
same month.
<PAGE>
Section 2.7 - Special Meetings. Special meetings of the Board may be called
by the Corporate Secretary on direction of the President or of the Chairman
of the Board, or at the request of three (3) or more directors. Each member
of the Board shall be given notice, by telegram, letter, or in person,
stating the time, place and purpose of such meeting.
Section 2.8 - Quorum. Except when otherwise provided by law, a majority of the
directors shall constitute a quorum for the transaction of business at any
meeting, but a lesser number may adjourn any meeting, from time to time, and the
meeting may be held, as adjourned, without further notice.
Section 2.9 - Voting. A majority of the directors present and voting at any
meeting of the Board shall decide each matter considered. A director may not
vote by proxy.
Section 2.10 - Compensation of Directors. The compensation to be paid the
directors of the Association for their services shall be determined from time to
time by the Board.
ARTICLE III
Committees Appointed by the Board
Section 3.1 - Standing Committees. The standing committees of this Association
shall be the Management Committee, Executive Committee, the Officers' Salary
Committee, the Discount Committee, the Bond Investment Committee, the Trust
Policy Committee, the Bank Examining Committee and the Trust Auditing Committee.
The members of the standing committees shall be appointed annually by the Board
of Directors at its organization meeting, or, on notice, at any subsequent
meeting of the Board, to serve until their respective successors shall have been
appointed. The President and the Chairman of the Board shall be, ex officio,
members of all standing committees except the Bank Examining Committee and the
Trust Auditing Committee. Each standing committee shall keep minutes of its
meetings, showing the action taken on all matters considered. A report of all
action so taken shall be made to the Board, and a copy of such minutes shall be
available for examination by members of the Board.
Section 3.2 - Management Committee. The Management Committee shall consist of
such executive officers of the Association as shall be designated by the Board.
One of the members of the Committee shall be designated by the Board as
Chairman. The Committee may adopt policies (not inconsistent with policies and
delegations of authority prescribed by these By-Laws or by the Board) with
respect to the executive and administrative functions of the Association, and in
general, it shall coordinate the performance of such functions in and among the
various departments of the Association, assisting and advising the executive
officers or department heads upon matters referred to it by such officers or
department heads. The Committee shall make reports and recommendations to the
Board upon such policies or other matters as it deems advisable or as may be
referred to it by the Board, and shall have such other powers and duties as may
be delegated or assigned to it by the Board from time to time. The secretary of
the Committee may be designated by the Board, or, in default thereof, by the
Committee, and may but need not be a member thereof.
Section 3.3 - Executive Committee. The Executive Committee shall consist of such
executive officers of the Association as shall be designated by the Board. One
of the members of the Committee shall be designated by the Board as Chairman.
The Committee shall carry out such responsibilities and duties as the Management
Committee shall delegate to it, from time to time.
<PAGE>
Section 3.4 - Officers' Salary Committee. The Officers' Salary Committee
shall consist of such directors and officers of the Association as may be
designated by the Board. It shall study and consider the compensation to be
paid to officers of the Association and shall make recommendations to the
Board with respect thereto and with respect to such other matters as may be
referred to it by the Board.
Section 3.5 - Discount Committee. The Discount Committee shall consist of such
directors and officers as shall be designated by the Board of Directors. It
shall have the power to discount and purchase bills, notes and other evidences
of debt; to buy and sell bills of exchange; to examine and approve loans and
discounts; and to exercise authority regarding loans and discounts held by the
Association. At each regular meeting of the Board, the Board shall approve or
disapprove the report filed with it by the Discount Committee and record its
actions in the minutes of its meeting. The powers and authority conferred upon
the Discount Committee by this Section may, with the approval of the Board of
Directors, be assigned or delegated by it, to officers of the Association,
subject to such limits and controls as the Committee may deem advisable.
Section 3.6 - Bond Investment Committee. The Bond Investment Committee shall
consist of such directors and officers as shall be designated by the Board of
Directors. It shall have power to buy and sell bonds, to examine and approve the
purchase and sale of bonds, and to exercise authority regarding bonds held by
the Association. At each regular meeting of the Board, the Board shall approve
or disapprove the report filed with it by the Bond Investment Committee and
record its action in the minutes of its meeting.
Section 3.7 - Trust Policy Committee. The Trust Policy Committee shall consist
of such directors and officers of the Association as shall be designated by the
Board of Directors. Such committee shall have and exercise such of the Bank's
fiduciary powers as may be assigned to it by the Board, with power to further
assign, subject to its control, the exercise of such powers to other committees,
officers and employees. The action of the Trust Policy Committee shall, at all
times, be subject to control by the Board.
Section 3.8 - Bank Examining Committee. The Bank Examining Committee shall
consist of such directors of the Association as shall be designated by the
Board, none of whom shall be an active officer of the Association. It shall make
suitable examinations at least once during each period of twelve (12)
months of the affairs of the Association or cause a suitable audit to be made by
auditors responsible only to the Board of Directors. The result of such
examinations shall be reported in writing, to the Board at the next regular
meeting thereafter and shall state whether the Association is in a sound and
solvent condition, whether adequate internal controls and procedures are being
maintained, and shall recommend to the Board such changes as the Committee shall
deem advisable. The Bank Examining Committee, with the approval of the Board of
Directors, may employ a qualified firm of certified public accountants to make
an examination and audit of the Association. If such a procedure is followed,
the annual examination of directors, will be deemed sufficient to comply with
the requirements of this section of the By-Laws.
<PAGE>
Section 3.9 - Trust Auditing Committee. The Trust Auditing Committee shall
consist of such directors of the Association as shall be designated by the
Board, none of whom shall be an active officer of the Association. At least
once during each calendar year, and within fifteen (15) months of the last
such audit, the Trust Auditing Committee shall make suitable audits of the
Trust Departments or cause suitable audit to be made by auditors
responsible only to the Board of Directors, and at such time shall
ascertain whether the Departments have been administered in accordance with
law, the Regulations of the Comptroller and sound fiduciary practices. As
an alternative, in lieu of such periodic audits, the Board may elect to
adopt an adequate continuous audit system.
Section 3.10 - Other Committees. The Board may appoint, from time to time, from
its own members or from officers of the Association, or both, other committees
of one or more persons for such purposes and with such powers as the Board may
determine.
Section 3.11 - Compensation of Committee Members. The Board shall determine the
compensation to be paid to each member of any committee appointed by it for
services on such committee, but no such compensation shall be paid to any
committee member who shall at the time be receiving a salary from the
Association as an officer thereof.
ARTICLE IV
Officers and Employees
Section 4.1 - Chairman of the Board. The Board of Directors shall appoint one of
its members (who may, but need not, be President of the Association) as Chairman
of the Board. He shall preside at all meeting of the Board of Directors and
shall have general executive powers and such further powers and duties as from
time to time may be conferred upon, or assigned to, him by the Board of
Directors. He shall be, ex officio, a member of all standing committees except
the Bank Examining Committee and the Trust Auditing Committee.
Section 4.2 - President. The Board of Directors shall appoint one of its members
to be the President of this Association. The President shall be the chief
executive officer of the Association, except as the Board of Directors may
otherwise provide, and shall have and may exercise any and all other powers and
duties pertaining to such office. He shall also have and may exercise such
further powers and duties as from time to time may be conferred upon, or
assigned to, him by the Board of Directors. He shall be, ex officio, a member of
all standing committees except the Bank Examining Committee and the Trust
Auditing Committee.
Section 4.3 - Chairman of the Executive Committee. The Board of Directors may
appoint a Chairman of the Executive Committee, who shall have general executive
powers and shall have and may exercise such further powers and duties as from
time to time may be conferred upon, or assigned to, him by the Board of
Directors.
Section 4.4 - Vice Presidents. The Board of Directors shall appoint one or more
Vice Presidents. Each Vice President shall have such powers and duties as may be
assigned to him by the Board and may be given such descriptive or functional
titles as the Board may designate.
<PAGE>
Section 4.5 - Trust Officers. The Board of Directors shall appoint one or
more Trust Officers. Each Trust Officer shall have such powers and duties
as may be assigned to him by the Board of Directors in accordance with the
provisions of Article V. The Trust Officers may be given such descriptive
or functional titles as the Board may designate.
Section 4.6 - Corporate Secretary. The Board of Directors shall appoint a
Corporate Secretary. The Corporate Secretary shall be responsible for the
minutes book of the Association, in which he shall maintain and preserve the
organization papers of the Association, the Articles of Association, the
By-Laws, minutes of regular and special meetings of the shareholders and of the
Board of Directors, and reports by officers and committees of the Association to
the shareholders and to the Board of Directors. He shall attend all meetings of
the shareholders and of the Board of Directors and shall act as the clerk of
such meetings and shall prepare and sign the minutes of such meetings. He shall
have custody of the corporate seal of the Association and of the stock transfer
books, except as given to the Comptroller's Department or the Corporate Trust
Department to act as transfer agent and registrar of the Association's capital
stock, and of such other documents and records as the Board of Directors shall
entrust to him. The Secretary shall give such notice of meetings of the
shareholders and of the Board of Directors as is required by law, the Articles
of the Association and the By-Laws. In addition, he shall perform such other
duties as may be assigned to him from time to time by the Board of Directors.
The Assistant Secretaries shall render the Corporate Secretary such assistance
as he shall require in the performance of his office. During his absence or
inability to act, the Assistant Secretaries shall be vested with the powers and
perform the duties of the Corporate Secretary.
Section 4.7 - Cashier. The Board of Directors may appoint a Cashier. He shall
have such powers and shall perform such duties as may be assigned to him by
resolution of the Board of Directors.
Section 4.8 - Comptroller. The Board of Directors shall appoint a Comptroller.
The Comptroller shall institute and maintain the accounting policies and
practices established by the Board of Directors. He shall maintain, or cause to
be maintained, adequate records of all transactions of the Association. He shall
be responsible for the preparation of reports and returns to taxing and
regulatory authorities, and at meetings of the Board of Directors shall furnish
true and correct statements of condition and statements of operations of the
Association and such further information and data, and analyses thereof, as the
Board of Directors may require. He shall have custody of the Association's
insurance policies. In addition, the Comptroller shall perform such other duties
as may be assigned to him, from time to time by the Board of Directors. The
Assistant Comptroller(s) shall render the Comptroller such assistance as he
shall require in the performance of the duties of his office and, during his
absence or inability to act, the Assistant Comptroller(s), in the order
designated by the Board of Directors, shall be vested with the powers and
perform the duties of the Comptroller.
Section 4.9 - Auditor. The Board of Directors shall appoint an Auditor of the
Association. He shall see that adequate audits of the Association are currently
and regularly made and that adequate audit systems and controls are established
and maintained. He shall examine each department and activity of the Association
and may inquire into transactions affecting the Association involving any
officer or employee thereof. The Board, however, may, in lieu of appointing an
Auditor, assign the duties thereof to the Auditor of the parent company of the
Association.
<PAGE>
Section 4.10 - Other Officers. The Board of Directors may appoint one or more
Assistant Vice Presidents, one or more Assistant Trust Officers, one or more
Assistant Secretaries, one or more Assistant Cashiers, and such other officers
and Attorneys-In-Fact as from time to time may appear to the Board of Directors
to be required or desirable to transact the business of the Association. The
power to appoint such assistant or the additional officers may be delegated to
the Chairman of the Board or the President, or to such other executive officer
or officers as the Board may designate, but the power to appoint any officer of
the Audit Department or any Assistant Secretary may not be so delegated. Any
officer and Attorney-In-Fact appointed as herein provided shall exercise such
powers and perform such duties as pertain to his office or as may be conferred
upon or assigned to him by the Board of Directors of by the officer authorized
to make such appointment.
Section 4.11 - Tenure of Office. The Chairman of the Board and the President
shall hold office for the current year for which Board of Directors of which
they are members was elected, unless either of them shall resign, become
disqualified or be removed, and any vacancy occurring in either of such offices
shall be filled promptly by the Board of Directors. All other officers of the
Association shall serve at the pleasure of the Board of Directors.
Section 4.12 - Compensation of Officers. The compensation of the officers of the
Association shall be fixed and may be altered, from time to time, by the Board
of Directors or, in the case of officers appointed by another officer, as
authorized by Section 4.10 of this Article, by the officer or officers making
such appointment, subject to the supervisory control of, and in accordance with
the policies established by, the Board.
Section 4.13 - Combining Offices. The Board of Directors, in its discretion, may
combine two or more offices and direct that they be filled by the same
individual, except that (a) the office of Corporate Secretary shall not be
combined with that of the Chairman of the Board or of the President and (b) the
office of Auditor shall not be combined with any other office.
Section 4.14 - Succession. During the absence of the Chairman of the Board, or
such other officer designated as Chief Executive Officer, all of the duties
pertaining to his office under these By-Laws and the resolutions of the Board of
Directors shall, subject to the supervisory control of the Board, devolve upon,
and be performed by, the officers, successively, who are next in the order of
authority as established by the Board of Directors from time to time, or, in the
absence of an order of authority so established, in the order of Chairman of the
Board, President and Chairman of the Executive Committee as may be applicable in
the particular case.
Section 4.15 - Clerks and Agents. Any one of the Chairman of the Board,
President or Chairman of the Executive Committee, or any officer of the
Association authorized by them, may appoint and dismiss all or any clerks,
agents and employees and prescribe their duties and the conditions of their
employment, and from time to time fix their compensation.
Section 4.16 - Requiring Bond. The Board of Directors shall require such
officers and employees of the Association as it shall designate to give bond, of
suitable amount, with security to be approved by the Board, conditioned for the
honest and faithful discharge by each such officer or employee of his respective
duties. In the discretion of the Board, such bonds may be in blanket form and
the premiums may be paid by the Association. The amount of such bonds, form of
coverage, and the company acting as surety therefor, shall be reviewed by the
Board of Directors each year.
<PAGE>
ARTICLE V
Administration of Trust Powers
Section 5.1 - Trust Department. Organization. There shall be one or more
departments of the Association which shall perform the fiduciary
responsibilities of the Association.
Section 5.2 - Management of Department. The Board of Directors shall be
responsible for the management and administration of the Trust Department or
Departments, but is may assign or delegate such of its powers and authority to
the Trust Policy Committee and to such other committees and officers of the
Association as it may deem advisable.
Section 5.3 - Department Heads. The Board of Directors shall designate one of
the Trust Officers as the chief executive of each Trust Department. His duties
shall be to manage, supervise and direct all activities of such Department,
subject to such supervision as may be vested in the Trust Policy and other
committees. He shall do, or cause to be done, all things necessary or proper in
carrying on the business of such Department in accordance with provisions of
law, applicable regulations and policies established by authority of the Board.
He shall act pursuant to opinions of counsel where such opinion is deemed
necessary. He shall be responsible for all assets and documents held by the
Association in connection with fiduciary matters, in such Department, except as
otherwise provided in this Article V.
Section 5.4 - Custody of Securities. The Board of Directors shall designate two
or more officers or employees of the Association to have joint custody of the
investments of each trust account administered by the Trust Department or
Departments.
Section 5.5 - Trust Department Files. There shall be maintained in each Trust
Department files containing all fiduciary records necessary to assure that it
fiduciary responsibilities have been properly undertaken and discharged.
Section 5.6 - Trust Investments. Funds held in a fiduciary capacity shall be
invested in accordance with the instrument establishing the fiduciary
relationship and governing law. Where such instrument does not specify the
character and class of investments to be made and does not vest in the
Association a discretion in the matter, funds held pursuant to such instrument
shall be invested in investments in which corporate fiduciaries may invest under
the laws of the State of Missouri and the decisions of its courts.
ARTICLE VI
Stock and Stock Certificates
Section 6.1 - Transfers. Shares of the capital stock of the Association shall be
transferable only on the books of the Association, and a transfer book shall be
kept in which all transfers of stock shall be recorded.
<PAGE>
Section 6.2 - Stock Certificates. Certificates of stock shall bear the
signatures of (i) the Chairman of the Board, the President or any Vice
President, and (ii) the Secretary, Cashier, any Assistant Secretary, or any
other officer appointed by the Board of Directors for that purpose; and the
seal of the Association shall be impressed, engraved, or printed thereon.
Such signatures may be manual or engraved, printed or otherwise impressed
by facsimile process; but if both of the required signatures are by
facsimile then such certificates shall be manually countersigned by the
person or persons thereunto authorized by the Board of Directors.
Certificates bearing the facsimile signature of an authorized officer may
be validly issued even though the person so named shall have ceased to hold
such office at the time of issuance. Each certificate shall recite on its
face that the stock represented thereby is transferable only upon the books
of the Association upon the surrender of such certificate properly
endorsed.
Section 6.3 - Closing Transfer Books or Fixing Record Date. The Board of
Directors shall have power to close the transfer books of the Association for a
period not exceeding thirty (30) days preceding the date of any meeting of
shareholders, or the date of payment of any dividend, or the date of allotment
of rights, or the date when any change or conversion of exchange of shares shall
go into effect; provided, however, that in lieu of closing the said transfer
books, the Board of Directors may fix, in advance, a date, not exceeding thirty
(30) days preceding the date of any such event, as record date for the
determination of the shareholders entitled to notice of, and to vote at, any
such meeting (and any adjournment thereof), or entitled to receive payment of
any such dividend or allotment of such rights, or to exercise rights in respect
of any such change, conversion or exchange of shares, and in such case, only
such shareholders as shall be shareholders of record at the close of business on
the date of closing the transfer books or on the record date so fixed shall be
entitled to notice of, and to vote at, such meeting (and any adjournment
thereof), or to receive payment of such dividend or allotment of such rights, or
to exercise such rights, as the case may be.
ARTICLE VII
Corporate Seal
Section 7.1 - Authority to Affix. The President, the Corporate Secretary, the
Cashier, and any Assistant Secretary or other officer designated by the Board of
Directors, shall have authority to affix the corporate seal on any document
requiring such seal, and to attest the same. The seal shall be substantially in
the following form:
ARTICLE VIII
Miscellaneous Provisions
Section 8.1 - Fiscal Year. The fiscal year of the Association shall be the
calendar year.
Section 8.2 - Execution of Instruments. All agreements, indentures, mortgages,
deeds, conveyances, transfers, certificates, declarations, receipts, discharges,
releases, satisfactions, settlements, petitions, schedules, accounts,
affidavits, bonds, undertakings, proxies and other instruments or documents may
be signed, executed, acknowledged, verified, delivered or accepted on behalf of
the Association by the Chairman of the Board, the President, any Vice President,
or the Cashier; and, if in connection with the exercise of fiduciary powers of
the Association, by any of said officers or by any authorized officer of the
Trust Department or Departments. Any such instruments may also be executed,
acknowledged, verified, delivered, or accepted on behalf of the Association in
such other manner and by such other officers as the Board of Directors may from
time to time direct. The provisions of this Section are supplementary to any
other provisions of these By-Laws.
<PAGE>
Section 8.3 - Banking Hours. The Association shall be open for business on such
days and during such hours as may be prescribed by resolution of the Board of
Directors. Unless and until the Directors shall prescribe other and different
banking hours, this Association's main office shall be open for business from
9:30 o'clock a.m. to 2:00 o'clock p.m. of each day, except Fridays when the
hours shall be from 9:30 o'clock a.m. to 6:00 o'clock p.m., and except that the
Association shall be closed on Saturdays and Sundays, and, with the approval of
the Board on days recognized by the laws of the State of Missouri as public
holiday.
ARTICLE IX
By-Laws
Section 9.1. - Inspection. A copy of the By-Laws, with all amendments thereto,
shall at all times be kept in a convenient place at the main office of the
Association and shall be open for inspection to all shareholders during banking
hours.
Section 9.2 - Amendments. The By-Laws may be amended, altered or repealed by
vote of a majority of the entire Board of Directors at any meeting of the Board,
provided that ten (10) days' written notice of the proposed change has been
given to each Director. No amendment may be made unless the By-Laws, as amended,
is consistent with the requirements of the laws of the United States and with
the provisions of the Articles of the Association. A certified copy of all
amendments to the By-Laws shall be forwarded to the Comptroller of the Currency
immediately after adoption.
10-1-94
<PAGE>
CONSENT OF TRUSTEE
Pursuant to Section 32l(b) of the Trust Indenture Act of l939, UMB Bank,
National Association, a national bank organized under the laws of the United
States, hereby consents that reports of examinations by the Comptroller of the
Currency, of the Federal Deposit Insurance Corporation, and any other federal,
state, territorial or district authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefore.
UMB BANK, NATIONAL ASSOCIATION
R. William Bloemker, Vice President
Date: November 6, 1997
<PAGE>
Legal Title of Bank: UMB Bank, NATIONAL ASSOCIATION
Call Date: 9/30/97 ST-BK: 29-2668 FFIEC 032
Address: P. O. Box 419226
City, State Zip: Kansas City, MO 64141-6226
FDIC Certificate No.: 1 3 6 0 1
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for September 30, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC - - Balance Sheet
Dollar Amounts in Thousands RCON Bil Mil Thou
ASSETS
<TABLE>
<CAPTION>
1. Cash and balances due from depository institutions (from Schedule RC-A)
a. Noninterest-bearing balances and currency and coin (1) 0081 630,876 1.a.
<S> <C> <C> <C> <C> <C> <C>
....................................................................
b. Interest-bearing balances (2) 0071 2,091 1.b.
....................................................................
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 121,868 2.a.
.............................................................
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 930,540 2.b.
...........................................................
3. Federal funds sold and securities purchased under agreements to resell 1350 125,201 3.
...............................................
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RCON 2122 1,559,006 4.a.
RC-C)
a. LESS: Allowance for loan and lease losses RCON 3123 16,512 4.b.
.....................................
c. LESS: Allocated transfer risk reserve RCON 3128 0 4.c.
...............................................
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c) 2125 1,542,494 4.d.
.........................................................................
5. Trading assets (from Schedule RC-D) 3545 82,915 5.
.........................................................................
6. Premises and fixed assets (including capitalized leases) 2145 117,070 6.
........................................................................
7. Other real estate owned (from Schedule RC-M) 2150 1,583 7.
........................................................................
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 2130 0 8.
.............
9. Customers' liability to this bank on acceptances outstanding 2155 3,813 9.
..................................................................
10. Intangible assets (from Schedule 2143 31,833 10.
RC-M)...................................................................
11. Other assets (from Schedule RC-F) 2160 74,797 11.
........................................................................
12. Total assets (sum of items 1 through 11) 2170 3,665,081 12.
.................................................................
</TABLE>
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
Legal Title of Bank: UMB Bank, NATIONAL ASSOCIATION
Call Date: 9/30/97 ST-BK: 29-2668 FFIEC
Address: P. O. Box 419226
City, State Zip: Kansas City, MO 64141-6226
----------------------- --- --- ---- --- ----
FDIC Certificate No.: 1 3 6 0 1
----------------------- --- --- ---- --- ----
Schedule RC - - Continued
<TABLE>
<CAPTION>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E) 2200 2,923,517 13.a.
<S> <C> <C> <C> <C> <C> <C>
.....................................
a. (1) Noninterest-bearing (1) RCON 6631 1,317,945 13.a.(1)
...............................................................
(2) Interest-bearing RCON 6636 1,605,572 13.a.(2)
..........................................................................
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
..........................................................
(1) Noninterest-bearing
........................................................................
(2) Interest-bearing
.........................................................................
14. Federal funds purchased and securities sold under agreements to repurchase 2800 333,218 14.
......................................
15. a. Demand notes issued to the U.S. Treasury 2840 0 15.a.
.........................................................................
b. Trading liabilities (from Schedule RC-D) 3548 0 15.b
.........................................................................
16. Other borrowed money (includes mortgage indebtedness and obligations under capitalized
leases):
a. With a remaining maturity of one year or less 2332 0 16.a.
........................................................................
b. With a remaining maturity of more than one year through three years A547 0 16.b.
................................................
c. With a remaining maturity of more than three years A548 0 16.c.
........................................................................
17. Not applicable
18. Bank's liability on acceptances executed and outstanding 2920 3,813 18.
......................................................................
19. Subordinated notes and debentures (2) 3200 0 19.
........................................................................
20. Other liabilities (from Schedule RC-G) 2930 46,036 20.
........................................................................
21. Total liabilities (sum of items 13 through 20) 2948 3,306,584 21.
........................................................................
22. Not applicable
EQUITY
CAPITAL
23. Perpetual preferred stock and related surplus 3838 0 23.
.......................................................................
24. Common stock 3230 16,500 24.
.......................................................................
25. Surplus (exclude all surplus related to preferred stock) 3839 133,822 25.
.......................................................................
26. a. Undivided profits and capital reserves 3632 206,931 26.a.
.....................................................................
b. Net unrealized holding gains (losses) on available-for-sale securities 8434 1,244 26.b.
................................................
27. Cumulative foreign currency translation adjustments
.....................................................................
28. Total equity capital (sum of items 23 through 27) 3210 358,497 28.
.....................................................................
29. Total liabilities and equity capital (sum of items 21 and 28) 3300 3,665,081 29.
.....................................................................
- --------------------------
(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
(2) Includes limited-life preferred stock and related surplus.
</TABLE>
718492.v1
Exhibit 99.1
LETTER OF TRANSMITTAL
PANACO, INC.
OFFER FOR ALL OUTSTANDING 10 5/8% SERIES A SENIOR NOTES DUE 2004
IN EXCHANGE FOR 10 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2004
Pursuant to the Prospectus Dated ___________, 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
_____________, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY
BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
By Hand/overnight Express/mail/overnight Delivery
(Insured or Registered Recommended)
UMB Bank, N.A. UMB Bank, N.A.
Attn: Corporate Trust Attn: Corporate Trust
1 Battery Park Plaza, 8th Floor or 13th Floor, 928 Grand Boulevard
New York, NY 10004-1405 Kansas City, MO 64106
Via Facsimile: Via Facsimile:
(212) 514-5730 (816) 221-0438
For Information Call: For Information Call:
(212) 968-1990 (816) 860-7428
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE DELIVERY.
The undersigned acknowledges that he or she has received the
Prospectus, dated , 1997 (the "Prospectus"), of PANACO, Inc., a
Delaware corporation (the "Company"), and this Letter of Transmittal
(this "Letter"), which together constitute the Company's offer (the
"Exchange Offer") to exchange an aggregate principal amount at
maturity of up to $100,000,000 of 10 5/8% Series B Senior Notes Due
2004 (the "New Notes") of the Company for a like principal amount at
maturity of the issued and outstanding 10 5/8% Series A Senior Notes
Due 2004 (the "Old Notes") of the Company from the holders thereof.
<PAGE>
For each Old Note accepted for exchange, the holder of such Old Note
will receive a New Note having a principal amount at maturity equal to that of
the surrendered Old Note. Interest on the New Notes will accrue from the last
interest payment date on which interest was paid on the Old Notes surrendered in
exchange therefor or, if no interest has been paid on the Old Notes, from the
date of original issue of the Old Notes. Holders of Old Notes accepted for
exchange will be deemed to have waived the right to receive any other payments
or accrued interest on the Old Notes. The Company reserves the right, at any
time or from time to time, to extend the Exchange Offer at its discretion, in
which event the term "Expiration Date" shall mean the latest time and date to
which the Exchange Offer is extended. The Company shall notify holders of the
Old Notes of any extension by means of a press release or other public
announcement prior to 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
ABook-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus. Holders of Old
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a
ABook-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed
this Letter to indicate the action the undersigned desires to take with respect
to the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount at
maturity of Old Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF 10 5/8% SERIES A SENIOR NOTES DUE 2004 BEING TENDERED
Name and Address of Aggregate Principal Amount Principal Amount Tendered
Registered Holder(s) Certificate Represented by (must be in Integral
(Please fill in, if blanks) Number(s) Certificate(s)(1) Multiples of $1,000)(2)
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------- ------------- ------------------------------------- -------------------------------
- -------------------------------- ------------- ------------------------------------- -------------------------------
- -------------------------------- ------------- ------------------------------------- -------------------------------
- -------------------------------- ------------- ------------------------------------- -------------------------------
- -------------------------------- ------------- ------------------------------------- -------------------------------
- -------------------------------- ------------- ------------------------------------- -------------------------------
(1) Need not be completed if Old Notes are being tendered by book-entry transfer.
(2) Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in column
2. See Instruction 2. Old Notes tendered hereby must be in denominations of
principal amount at maturity of $1,000 and any integral multiple thereof. See
Instruction 1.
</TABLE>
<PAGE>
Q CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
Account Number:
Transaction Code Number:
Q CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s):
Window Ticket Number (if any):
Date of Execution of Notice of Guaranteed Delivery:
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number:
Transaction Code Number:
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount at
maturity of Old Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the holder of such Old Notes nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the holder of such Old Notes nor
any such other person is an Aaffiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being
made in reliance on an interpretation by the staff of the Securities and
Exchange Commission (the "SEC") that the New Notes issued in exchange for the
Old Notes pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by holders thereof (other than any such holder that is an
Aaffiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangements with any person to participate in the distribution of such New
Notes. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an Aunderwriter" within the meaning of
the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus.
<PAGE>
Unless otherwise indicated in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES" ABOVE
AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS SET
FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Old Notes not certificates for Old
Notes exchanged and/or New Notes are to be issued in the other than the
person or someone other than the person or persons whose persons Letter
above or to above, or if Old Notes delivered by book-entry such person or
are to be shown in the box entitled "Description of Old Notes" returned by
Book-Entry Transfer Facility other than the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s):
(Please Type or Print)
Address:
(Including Zip Code)
(Complete Substitute Form W-9)
Q Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below:
(Book-Entry Transfer Facility Account Number,
If Applicable)
- --------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4, 5 and 6)
To be completed ONLY if not exchanged and/or New Notes are to be sent to
name of and sent to someone whose signature(s) appear(s) on this Letter
signature(s) appear(s) on this persons at an address other than transfer
which are not accepted for exchange credit to an account maintained at the
on this Letter above.
Mail: New Notes and/or Old Notes to:
Name(s):
(Please Type or Print)
Address:
(Including Zip Code)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER
REQUIRED DOCUMENTS OR THE SIGNATURES OF OWNERS NOTICE OF GUARANTEED
DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW
YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
X
Date
X
Date
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the
Old Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a
trustee, executor, administrator, guardian, officer or other person acting
in a fiduciary or representative capacity, please set forth full title.
(See Instruction 3.)
NAME(S):
CAPACITY:
ADDRESS:
(Including Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by a participant
in a recognized signature guarantee medallion program:
(Authorized Signature)
(Title)
(Name and Firm)
(Date)
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE 10 5/8%
SERIES B SENIOR NOTES DUE 2004 IN EXCHANGE FOR THE 10 5/8% SERIES A SENIOR
NOTES DUE 2004 OF PANACO, INC.
1. Delivery of this Letter and Notes; Guaranteed Delivery Procedures.
This Letter is to be completed by noteholders either if certificates are to be
forwarded herewith or if tenders are to be made pursuant to the procedures for
delivery by book-entry transfer set forth in AThe Exchange Offer--Book-Entry
Transfer" section of the Prospectus. Certificates for all physically tendered
Old Notes, or Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed Letter (or manually signed facsimile hereof) and any
other documents required by this Letter, must be received by the Exchange Agent
at the address set forth herein on or prior to the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Old Notes tendered hereby must be in denominations of principal amount of
maturity of $1,000 and any integral multiple thereof.
Noteholders whose certificates for Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through an
Eligible Institution (as defined in Instruction 3 below), (ii) prior to the
Expiration Date, the Exchange Agent must receive from such Eligible Institution
a properly completed and duly executed Letter (or facsimile thereof) and Notice
of Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically tendered Old Notes,
or a Book-Entry Confirmation, and any other documents required by the Letter
will be deposited by the Eligible Institution with the Exchange Agent, and (iii)
the certificates for all physically tendered Old Notes, in proper form for
transfer, or Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter, are received by the Exchange Agent within
five NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
The method of delivery of this Letter, the Old Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old Notes are sent by mail, it is suggested that the mailing
be made sufficiently in advance of the Expiration Date to permit the delivery to
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date.
See "The Exchange Offer" section in the Prospectus.
<PAGE>
2. Partial Tenders (not applicable to noteholders who tender by book-entry
transfer). If less than all of the Old Notes evidenced by a submitted
certificate are to be tendered, the tendering holder(s) should fill in the
aggregate principal amount at maturity of Old Notes to be tendered in the box
above entitled "Description of Old Notes-- Principal Amount at Maturity
Tendered." A reissued certificate representing the balance of nontendered Old
Notes will be sent to such tendering holder, unless otherwise provided in the
appropriate box on this Letter, promptly after the Expiration Date. All of the
Old Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
3. Signatures on this Letter; Powers of Attorney and Endorsements;
Guarantee of Signatures. If this Letter is signed by the registered holder of
the Old Notes tendered hereby, the signature must correspond exactly with the
name as written on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the
Old Notes specified herein and tendered hereby, no endorsements of certificates
or separate powers of attorney are required. If, however, the New Notes are to
be issued, or any untendered Old Notes are to be reissued, to a person other
than the registered holder, then endorsements of any certificates transmitted
hereby or separate powers of attorney are required.
Signatures on such certificate(s) must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder
or holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names on the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or powers of attorney are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Old Notes or signatures on powers of
attorney required by this Instruction 3 must be guaranteed by a firm which is a
participant in a recognized signature guarantee medallion program ("Eligible
Institutions").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Old Notes are tendered (i) by a registered holder of
Old Notes (which term, for purposes of the Exchange Offer, includes any
participant in the Book-Entry Transfer Facility system whose name appears on a
security position listing as the holder of such Old Notes) who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter, or (ii) for the account of an Eligible
Institution.
<PAGE>
4. Special Issuance and Delivery Instructions. Tendering holders of Old
Notes should indicate in the applicable box the name and address to which New
Notes issued pursuant to the Exchange Offer and/or substitute certificates
evidencing Old Notes not exchanged are to be issued or sent, if different from
the name or address of the person signing this letter. In the case of issuance
in a different name, the employer identification or social security number of
the person named must also be indicated. Noteholders tendering Old Notes by
book-entry transfer may request that Old Notes not exchanged be credited to such
account maintained at the Book-Entry Transfer Facility as such noteholder may
designate hereon. If no such instructions are given, such Old Notes not
exchanged will be returned to the name and address of the person signing this
Letter.
5. Tax Identification Number. Federal income tax law generally requires
that a tendering holder whose Old Notes are accepted for exchange must provide
the Company (as payor) with such holder's correct Taxpayer Identification Number
("TIN") on Substitute Form W-9 below, which in the case of a tendering holder
who is an individual, is his or her social security number. If the Company is
not provided with the current TIN or an adequate basis for an exemption, such
tendering holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery to such tendering holder of New Notes may be
subject to backup withholding in an amount equal to 31% of all reportable
payments made after the exchange. If withholding results in an overpayment of
taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of a failure to report all interest or
dividends, or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must provide the Company a completed Form W-8,
Certificate of Foreign Status. These forms may be obtained from the Exchange
Agent. If the Old Notes are in more than one name or are not in the name of the
actual owner, such holder should consult the W-9 Guidelines for information on
which TIN to report. If such holder does not have a TIN, such holder should
consult the W-9 Guidelines for instructions on applying for a TIN, check the box
in Part 2 of the Substitute Form W-9 and write Aapplied for" in lieu of its TIN.
6. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Notes to it or its order pursuant to the
Exchange Offer. If however, New Notes and/or substitute Old Notes not exchanged
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Notes tendered hereby, or if
tendered Old Notes are registered in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed for any reason other
than the transfer of Old Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering holder.
<PAGE>
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
7. Waiver of Conditions. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
8. No Conditional Transfers. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Notes, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Old Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Old Notes nor shall any of them incur any liability for failure to
give any such notice.
9. Mutilated, lost, stolen or destroyed Old Notes. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
10. Requests for Assistance or Additional Copies. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter, may be directed to the Exchange Agent, at the
address and telephone number indicated above.
<PAGE>
<TABLE>
<CAPTION>
TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5)
PAYOR'S NAME: PANACO, INC.
SUBSTITUTE Name (if joint names, list first and circle
FORM W-9 the name of the person or entity whose number
you enter in Part 1, below.)
Department of the Treasury
Internal Revenue Service Social Security Number
OR
Address .Employer Identification Number
<S> <C> <C> <C> <C> <C> <C>
Payer's Request for Taxpayer
Identification Number (TIN) City, State and Zip Code
Part 3--Awaiting TIN Q
------------------------------------------------
------------------------------------------------
Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX
AT RIGHT AND CERTIFY BY SIGNING AND DATING
BELOW.
- --------------------------------------------------------------------------------------------------------------------
Part 2--Certification--Under Penalties of Perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to backup
withholding.
Certification Instructions--You must cross out item (2) in Part 2 above if you
have been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item (2).
- --------------------------------------------------------------------------------------------------------------------
SIGNATURE DATE
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
10 5/8% SERIES A SENIOR NOTES DUE 2004
OF
PANACO, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 10 5/8% Series A Senior Notes
due 2004 (the "Old Notes") are not immediately available, (ii) Old Notes, the
Letter of Transmittal and all other required documents cannot be delivered to
UMB Bank, N.A. (the "Exchange Agent") on or prior to the Expiration Date (as
defined in the Prospectus referred to below) or (iii) the procedures for
delivery by book-entry transfer cannot be completed on a timely basis. This
Notice of Guaranteed Delivery may be delivered by hand, overnight courier or
mail, or transmitted by facsimile transmission, to the Exchange Agent. See AThe
Exchange Offer" in the Prospectus. In addition, in order to utilize the
guaranteed delivery procedure to tender Old Notes pursuant to the Exchange
Offer, a completed, signed and dated Letter of Transmittal relating to the Old
Notes (or facsimile thereof) must also be received by the Exchange Agent on or
prior to the Expiration Date. Capitalized terms not defined herein have the
meanings assigned to them in the Prospectus.
The Exchange Agent For The Exchange Offer Is:
UMB Bank, N.A. UMB Bank, N.A.
Attn: Corporate Trust Attn: Corporate Trust
1 Battery Park Plaza, 8th Floor or 13th Floor, 928 Grand Boulevard
New York, NY 10004-1405 Kansas City, MO 64106
Via Facsimile: Via Facsimile:
(212) 514-5730 (816) 221-0438
For Information Call: For Information Call:
(212) ____-_______ (816)
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to PANACO, Inc., a Delaware corporation
(the "Company"), upon the terms and subject to the conditions set forth in the
Prospectus dated ____________, 1997 (as the same may be amended or supplemented
from time to time, the "Prospectus"), and the related Letter of Transmittal
(which together constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, the aggregate principal amount of Old Notes set forth below
pursuant to the guaranteed delivery procedures set forth in the Prospectus under
the caption "The Exchange Offer."
<TABLE>
<CAPTION>
- -------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Principal Amount of Old Notes Tendered: All authority herein conferred or agreed to be
conferred shall survive the death or incapacity of
the undersigned and every obligation of the
undersigned hereunder shall be binding upon the
Name(s) of Registered Holder(s): heirs, personal representatives, successors and
assigns of the undersigned.
PLEASE SIGN HERE
X
Amount Tendered: $
X
Certificate No(s). (if available): (Signature(s) of Owner(s) or Authorized Signatory)
(Date)
(Total Principal Amount Represented by Old Notes
Certificate(s)) Area Code and Telephone Number
$ Must be signed by the holder(s) of the Old Notes as
their name(s) appear(s) on certificates for Old
If Old Notes will be tendered by book-entry transfer, Notes or on a security position listing, or by
provide the following information: person(s) authorized to become registered holder(s)
by endorsement and documents transmitted with this
DTC Account Number: Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian,
Date: attorney-in-fact, officer or other person acting in
a fiduciary or representative capacity, such person
* Must be in denominations of $1,000 and any integral must set forth his or her full title below. Please
multiple thereof. print name(s) and address(es).
Name(s):
Capacity:
Address(es):
- -------------------------------------------------------- ------------------------------------------------------
</TABLE>
<PAGE>
GUARANTEE
(Not To Be Used For Signature Guarantee)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an Aeligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker or government securities dealer, (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Old Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Old Notes to the Exchange Agent's account at The Depository
Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set
forth in the Prospectus, in either case together with one or more properly
completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and
nay other required documents within five business days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
(Please Type or Print)
Name of Firm:
Authorized Signature
Address: Title:
Zip Code Date:
Area Code and Telephone No.
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM, CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 882074
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,353,000
<SECURITIES> 1,701,000
<RECEIVABLES> 6,030,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,636,000
<PP&E> 151,014,000
<DEPRECIATION> 88,180,000
<TOTAL-ASSETS> 74,841,000
<CURRENT-LIABILITIES> 6,033,000
<BONDS> 0
0
0
<COMMON> 143,000
<OTHER-SE> 40,604,000
<TOTAL-LIABILITY-AND-EQUITY> 74,841,000
<SALES> 14,287,000
<TOTAL-REVENUES> 14,287,000
<CGS> 0
<TOTAL-COSTS> 11,936,000
<OTHER-EXPENSES> 60,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,265,000
<INCOME-PRETAX> 1,146,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,146,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,146,000
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
