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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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BELCO OIL & GAS CORP.
(Exact name of Registrant as specified in its charter)
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NEVADA 1311 13-3869719
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
ROBERT A. BELFER
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
767 FIFTH AVENUE, 46TH FLOOR 767 FIFTH AVENUE, 46TH FLOOR
NEW YORK, NEW YORK 10153 NEW YORK, NEW YORK 10153
(212) 644-2200 (212) 644-2200
(Address, including zip code, and telephone (Name, Address, including zip code,
number, including area code, of and telephone number,
registrant's principal executive offices) including area code, of agent for service)
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Copy to:
ALAN P. BADEN
VINSON & ELKINS L.L.P.
2300 FIRST CITY TOWER
HOUSTON, TEXAS 77002-6760
(713) 758-2430
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effectiveness 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. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO BE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED REGISTRATION FEE
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8 7/8% Series B Senior Subordinated Notes due 2007... $150,000,000 $45,455
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1997
PROSPECTUS
BELCO OIL & GAS CORP.
OFFER TO EXCHANGE
8 7/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
FOR ALL OUTSTANDING 8 7/8% SERIES A
SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED
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Belco Oil & Gas Corp., a Nevada corporation (the "Company"), hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal," and together
with this Prospectus, the "Exchange Offer"), to exchange $1,000 principal amount
of its 8 7/8% Series B Senior Subordinated Notes due 2007 (the "Exchange
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement (as defined herein)
of which this Prospectus constitutes a part, for each $1,000 principal amount of
its outstanding 8 7/8% Series A Senior Subordinated Notes due 2007 (the "Old
Notes"), of which $150,000,000 principal amount is outstanding. The form and
terms of the Exchange Notes are identical in all material respects to the form
and terms of the Old Notes except for certain transfer restrictions and
registration rights relating to the Old Notes. The Exchange Notes will evidence
the same debt as the Old Notes and will be issued under and be entitled to the
benefits of the Indenture (as defined herein). The Exchange Notes and the Old
Notes are collectively referred to herein as the "Notes."
The Notes are senior subordinated obligations of the Company and are
subordinated in right of payment to all existing and future Senior Debt (as
defined herein) of the Company, including indebtedness under the New Credit
Facility (as defined herein), pari passu in right of payment with all existing
or future senior subordinated indebtedness of the Company and senior in right of
payment to all other subordinated indebtedness of the Company.
The Company will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange
Offer expires, which will be , 1997, unless the Exchange Offer is
extended. See "The Exchange Offer -- Expiration Date; Extensions; Amendments."
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the business day prior to the Expiration Date (as defined herein),
unless previously accepted for exchange. The Exchange Offer is not conditioned
upon any minimum principal amount of Old Notes being tendered for exchange.
However, the Exchange Offer is subject to certain conditions which may be waived
by the Company and to the terms and provisions of the Registration Rights
Agreement (as defined herein). Old Notes may be tendered only in denominations
of $1,000 principal amount and integral multiples thereof. The Company has
agreed to pay the expenses of the Exchange Offer. See "The Exchange Offer."
The Exchange Notes will bear interest at the rate of 8 7/8% per annum, payable
semi-annually on March 15 and September 15 of each year, commencing March 15,
1998, to holders of record on the March 1 and September 1 immediately preceding
such interest payment date. Holders of Exchange Notes of record on March 1, 1998
will receive interest on March 15, 1998 from the date of issuance of the
Exchange Notes, plus an amount equal to the accrued interest on the Old Notes
from the date of issuance of the Old Notes, September 23, 1997, to the date of
exchange thereof. Interest on the Old Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
(Cover continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 15 OF THIS PROSPECTUS 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.
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The date of this Prospectus is , 1997
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The Old Notes were sold by the Company on September 23, 1997 to the Initial
Purchasers (as defined herein) in a transaction not registered under the
Securities Act in reliance upon Section 4(2) of the Securities Act. The Old
Notes were thereupon offered and sold by the Initial Purchasers only to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act), each of whom agreed to comply with certain transfer restrictions and other
conditions. Accordingly, the Old Notes may not be offered, resold or otherwise
transferred unless registered under the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is available.
The Exchange Notes are being offered hereunder in order to satisfy the
obligations of the Company under the Registration Rights Agreement entered into
with the Initial Purchasers in connection with the offering of the Old Notes.
See "The Exchange Offer" and "Exchange and Registration Rights Agreement."
Based on no-action letters issued by the staff of the Securities and Exchange
Commission (the "Commission" or "SEC") to third parties, including Exxon Capital
Holdings Corporation, SEC No-Action Letter (available April 13, 1989), Morgan
Stanley & Co. Inc., SEC No-Action Letter (available June 5, 1991) (the "Morgan
Stanley Letter") and Mary Kay Cosmetics, Inc., SEC No-Action Letter (available
June 5, 1991), the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer may be offered for resale, resold and otherwise transferred
by the respective holders thereof (other than a "Restricted Holder," being (i) a
broker-dealer who purchased Old Notes exchanged for such Exchange Notes directly
from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holder is not participating in, and
has no arrangement with any person to participate in, the distribution (within
the meaning of the Securities Act) of such Exchange Notes. Eligible holders
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met. Holders who tender Old Notes in the Exchange Offer
with the intention to participate in a distribution of the Exchange Notes may
not rely upon the Morgan Stanley Letter or similar no-action letters. See "The
Exchange Offer -- General." Each broker-dealer that receives Exchange 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 Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer.
The Exchange Notes will constitute a new issue of securities with no established
trading market, and there can be no assurance as to the liquidity of any markets
that may develop for the Exchange Notes or as to the ability of or price at
which the holders of Exchange Notes would be able to sell their Exchange Notes.
Future trading prices of the Exchange Notes will depend on many factors,
including, among others, prevailing interest rates, the Company's operating
results and the market for similar securities. The Company does not intend to
apply for listing of the Exchange Notes on any securities exchange. Chase
Securities Inc., Goldman, Sachs & Co. and Smith Barney Inc. (together, the
"Initial Purchasers") have informed the Company that they currently intend to
make a market for the Exchange Notes. However, they are not so obligated, and
any such market making may be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of or the trading
market for the Exchange Notes.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
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TABLE OF CONTENTS
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PAGE NO.
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Available Information....................................... 3
Incorporation of Certain Documents by Reference............. 4
Prospectus Summary.......................................... 5
Forward-Looking Statements.................................. 15
Risk Factors................................................ 15
Private Placement........................................... 24
Use of Proceeds............................................. 24
Capitalization.............................................. 24
Selected Historical Financial Data.......................... 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business and Properties..................................... 34
Management.................................................. 53
Certain Affiliate Transactions.............................. 56
Security Ownership of Management and Certain Beneficial
Owners.................................................... 58
The Exchange Offer.......................................... 59
Description of the Notes.................................... 66
Exchange and Registration Rights Agreement.................. 98
Transfer Restrictions on Old Notes.......................... 100
Plan of Distribution........................................ 102
Legal Matters............................................... 102
Experts..................................................... 103
Glossary of Oil and Gas Terms............................... 104
Index to Financial Statements............................... F-1
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements and other information
with the Commission. Such reports and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: Seven World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials 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. In addition, the Commission maintains a site on the World Wide Web that
contains reports, proxy and information statements and other information filed
electronically by the Company with the Commission which can be accessed over the
Internet at http://www.sec.gov. While any Old Notes remain outstanding, the
Company will make available, upon request, to any holder and any prospective
purchaser of Old Notes, the information required pursuant to Rule 144A(d)(4)
under the Securities Act during any period in which the Company is not subject
to Section 13 or 15(d) of the Exchange Act. Any such request should be directed
to the Secretary of the Company, 767 Fifth Avenue, 46th Floor, New York, New
York 10153.
This Prospectus constitutes part of a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus omits certain of the information set forth in
the Registration Statement. Reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the securities offered hereby.
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Statements contained herein concerning the provisions of contracts or other
documents are not necessarily complete, and each such statement is qualified in
its entirety by reference to the copy of the applicable contract or other
document filed with the Commission. Copies of the Registration Statement and the
exhibits thereto are on file at the offices of the Commission and may be
obtained upon payment of the fee prescribed by the Commission, or may be
examined without charge at the public reference facilities of the Commission
described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
pursuant to the Exchange Act (File No. 1-12634) and are incorporated herein by
reference:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996; and
(2) the Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997 and June 30, 1997; and
(3) the Company's Proxy Statement for the Annual Meeting of
Stockholders held May 13, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
thereof. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of such person, a copy of any or all
of the information that has been incorporated by reference in this Prospectus
(not including exhibits to the information that is incorporated by reference
herein unless such exhibits are specifically incorporated by reference in such
information). Requests for such copies should be directed to the Secretary of
the Company at 767 Fifth Avenue, 46th Floor, New York, New York, 10153. In order
to ensure timely delivery of such documents prior to the Expiration Date, any
request should be made by .
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. NEITHER THIS
PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER,
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus. Unless the
context requires otherwise, all references in this Prospectus to "Belco" or the
"Company" refer to Belco Oil & Gas Corp. and its consolidated subsidiaries.
Certain terms relating to the oil and gas business are defined in "Glossary of
Oil and Gas Terms."
THE COMPANY
Belco Oil & Gas Corp. ("Belco" or the "Company") is an independent energy
company engaged in the exploration for and exploitation, development and
production of natural gas and oil primarily in the Rocky Mountains, Texas,
Louisiana and Michigan. Since its inception in April 1992, the Company has grown
and diversified its reserve base largely through a balanced program of
exploration and development drilling. The Company concentrates its activities in
core areas in which it has accumulated detailed geologic knowledge and has
developed significant management and technical expertise. Additionally, the
Company structures its participation in natural gas and oil exploration and
development activities to minimize initial costs and risks, while permitting
substantial follow on investment. For the twelve months ended June 30, 1997, the
Company generated natural gas and oil revenues of $125.6 million and EBITDA of
$105.5 million.
The Company has achieved substantial growth in reserves, production,
revenues and EBITDA since 1992. Belco's estimated proved reserves have increased
at a compound annual growth rate of 46.1%, from 67 Bcfe as of December 31, 1992
to 305 Bcfe as of December 31, 1996. Over this period, average daily production
has increased from 4 MMcfe per day in 1992 to over 153 MMcfe per day in 1996.
Similarly, the growth in the Company's natural gas and oil revenues and EBITDA
has been substantial, increasing from $3.5 million and $2.9 million,
respectively, for the year ended December 31, 1992, to $119.7 million and $105.5
million, respectively, for the year ended December 31, 1996. The Company's low
cost structure is evidenced by its general and administrative expenses of $0.06
per Mcfe and lease operating expenses of $0.14 per Mcfe in 1996. For the three
years ended December 31, 1996, the Company's operating cash inflows per Mcfe
averaged $1.65 and its finding costs averaged approximately $0.80 per Mcfe.
The Company's operations are currently focused on the Green River Basin
(which includes the Moxa Arch Trend), the Wind River and Big Horn Basins, all of
which are in Wyoming, the Giddings Field in east central Texas, the Austin Chalk
Trend in Louisiana and the Central Basin in Michigan. At December 31, 1996, the
Company had estimated proved reserves of 305 Bcfe with a pre-tax Present Value
of $416 million after adjusting for oil and gas commodity hedges. On an Mcfe
basis, the Company's estimated proved reserves were 65% proved developed and 93%
natural gas. As of June 30, 1997, Belco held or controlled interests in
approximately 2.8 million gross (1.3 million net) undeveloped acres and the
Company had an interest in 533 gross (170 net) wells.
BUSINESS STRENGTHS
The Company believes that it has certain strengths that provide it with
significant competitive advantages, including the following:
Proven Growth Record. The Company has generated consistent growth
through a balanced exploration and development program. Over the last four
years, on a compound annual basis, the Company has increased proved
reserves by 46.1%, production by 148.7% and EBITDA by 146.0%.
Substantial Drilling Inventory. The Company has identified over 750
potential drilling locations based on geological and geophysical
evaluations. Additionally, the Company has spent $82.8 million since
January 1, 1996 to increase its acreage position from approximately 330,000
gross (146,000
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net) undeveloped acres to approximately 2.8 million gross (1.3 million net)
undeveloped acres at June 30, 1997.
Strategic Alliances. The Company has formed key strategic alliances
with experienced industry partners such as Amoco Production Company, Union
Pacific Resources Group and OXY USA. In cases where the Company is not the
operator, the alliance has been structured to enable the Company to become
integrally involved with the drilling and production decision making
process. These strategic alliances also provide the Company with the
benefits of shared technological expertise, while affording the Company the
opportunity to diversify risk.
Successful Drilling Record. Since inception through December 31, 1996,
the Company has drilled 438 gross (122.2 net) development wells of which
408 gross (114.1 net) are currently producing. Additionally, the Company
has drilled 36 gross (16.3 net) exploratory wells of which 20 gross (13
net) are currently producing. During this period, the Company's drilling
efforts resulted in over 436 Bcfe of proved reserves (including revisions)
at a finding cost of approximately $0.72 per Mcfe.
High Operating Margins. The Company's drilling success, its high
impact wells and low cost structure have enabled the Company to generate
high gross cash margins (unhedged oil and gas sales less general and
administrative and operating expenses) of $2.09 per Mcfe pre tax ($1.99 per
Mcfe net of tax) for the twelve months ended June 30, 1997. This margin
compares favorably to an average of $1.71 per Mcfe experienced by public
companies which the Company believes are peer companies (and based on
publicly filed industry data) for the same period.
Experienced and Committed Management. Belco's senior management team
has extensive experience in the oil and gas industry. In particular, the
Company's Chief Executive Officer, Robert A. Belfer, began his career in
the oil and gas industry in 1958 with Belco Petroleum Corporation ("BPC"),
which grew to become a Fortune 500 company with operations primarily in the
Rocky Mountains and offshore Peru. In 1983, BPC merged with InterNorth, a
predecessor of Enron Corp. Mr. Belfer and his family own an approximate
77.3% equity interest in the Company.
BUSINESS STRATEGY
The key elements of the Company's strategy are as follows:
Pursue a Balanced Drilling Program. Belco believes that there are
significant exploratory and development opportunities in the Rocky
Mountain, Texas, Louisiana and Michigan acreage positions that the Company
has assembled. The Company has identified potentially more than three years
of drilling inventory based on its existing holdings. Through June 30,
1997, the Company has made capital expenditures of approximately $72
million and plans to spend approximately $78 million through the remainder
of 1997.
Utilize Advanced Technology. The Company extensively uses advanced
technology, including equipment designed specifically for drilling deep
horizontal wells, the application of innovative hydraulic fracturing
techniques and 3-D seismic. Additionally, the Company has acquired
approximately 144 square miles of 3-D seismic data and 54 thousand miles of
2-D seismic data in its core geographic areas and plans to acquire an
additional 130 square miles of 3-D seismic data. The Company's experienced
technical staff includes six petroleum engineers, nine geologists and one
geophysicist, who have, on average, over 17 years of experience in the oil
and gas industry.
Maintain Low Cost Structure. The Company's management team is focused
on maintaining a low cost structure to maximize cash flow and earnings. As
part of this strategy, the Company focuses on core operating areas where it
can achieve economies of scale. The Company believes that maintaining its
low cost structure permits the Company to be consistently profitable in
various pricing environments.
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Reduce Commodity Price Volatility. The Company engages in a wide
variety of commodity price risk management transactions with the objective
of achieving more predictable revenues and cash flows and reducing its
exposure to fluctuations in natural gas and oil prices.
Maintain Financial Flexibility. The Company is committed to
maintaining financial flexibility in order to pursue exploration and
development activities and to take advantage of other opportunities that
may arise. Historically, the Company has funded its growth through
internally generated cash flow, bank credit facilities and proceeds from
its initial public offering in March 1996. The issuance of the Notes
offered hereby in conjunction with the Company's New Credit Facility will
increase liquidity and diversify the Company's capital structure.
Pursue Selective Acquisitions. To augment its growth through the
drillbit, the Company continually reviews potential acquisitions of oil and
gas properties or businesses that complement its existing operations and
that provide long term growth opportunities. The Company focuses its
attention on potential acquisitions principally within its core operating
areas or in areas that may establish a new core area and generally have (i)
high working interests; (ii) long lived reserves; (iii) operational control
or the ability to exercise significant influence over operations; and, (iv)
significant development potential.
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The Company's executive offices are located at 767 Fifth Avenue, 46th
Floor, New York, New York 10153, and its telephone number is (212) 644-2200.
THE PRIVATE PLACEMENT AND USE OF PROCEEDS
The Old Notes were sold by the Company on September 23, 1997 to the Initial
Purchasers and were thereupon offered and sold by the Initial Purchasers only to
certain qualified buyers. A portion of the $145 million net proceeds received by
the Company in connection with the sale of the Old Notes was used to repay all
borrowings outstanding under the Old Credit Facility (as defined herein). It is
anticipated that the remainder of the net proceeds from the sale of the Old
Notes will be used to provide working capital to the Company to fund further
exploration and development of the Company's oil and gas properties, the
acquisition of additional oil and gas properties or businesses, and other
general corporate purposes. See "Private Placement" and "Capitalization."
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $150,000,000 principal
amount of Exchange Notes for up to $150,000,000 principal amount of Old Notes.
The form and terms of the Exchange Notes are identical in all material respects
to the form and terms of the Old Notes except that the Exchange Notes have been
registered under the Securities Act and will not contain certain transfer
restrictions and hence are not entitled to the benefits of the Registration
Rights Agreement relating to the contingent increases in the interest rate
provided for pursuant thereto. The Exchange Notes will evidence the same debt as
the Old Notes and will be issued under and be entitled to the benefits of the
Indenture governing the Old Notes. See "Description of the Notes."
The Exchange Offer......... Each $1,000 principal amount of Exchange Notes will
be issued in exchange for each $1,000 principal
amount of outstanding Old Notes. As of the date
hereof, $150,000,000 principal amount of Old Notes
are issued and outstanding. The Company will issue
the Exchange Notes to tendering holders of Old
Notes on or as promptly as practicable after the
Expiration Date.
Resale..................... The Company believes that the Exchange Notes issued
pursuant to the Exchange Offer generally will be
freely transferable by the holders thereof without
registration or any prospectus delivery requirement
under the Securities Act, except for certain
Restricted Holders who
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may be required to deliver copies of this
Prospectus in connection with any resale of the
Exchange Notes issued in exchange for such Old
Notes. See "The Exchange Offer -- General" and
"Plan of Distribution."
Expiration Date............ 5:00 p.m., New York City time, on ,
1997, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."
Interest on the Notes...... The Exchange Notes will bear interest payable
semi-annually on March 15 and September 15 of each
year, commencing March 15, 1998. Holders of
Exchange Notes of record on March 1, 1998 will
receive interest on March 15, 1998 from the date of
issuance of the Exchange Notes, plus an amount
equal to the accrued interest on the Old Notes from
the date of issuance of the Old Notes, September
23, 1997, to the date of exchange thereof.
Consequently, assuming the Exchange Offer is
consummated prior to the record date in respect of
the March 15, 1998 interest payment for the Old
Notes, holders who exchange their Old Notes for
Exchange Notes will receive the same interest
payment on March 15, 1998 that they would have
received had they not accepted the Exchange Offer.
Interest on the Old Notes accepted for exchange
will cease to accrue upon issuance of the Exchange
Notes. See "The Exchange Offer -- Interest on the
Exchange Notes."
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, or an
Agent's Message (as defined herein) together with
the Old Notes to be exchanged and any other
required documentation to the Exchange Agent at the
address set forth herein and therein or effect a
tender of Old Notes pursuant to the procedures for
book-entry transfer as provided for herein. See
"The Exchange Offer -- Procedures for Tendering."
Special Procedures for
Beneficial Holders....... Any beneficial holder whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on the
beneficial holder's behalf. If such beneficial
holder wishes to tender directly, such beneficial
holder must, prior to completing and executing the
Letter of Transmittal and delivering the Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or
obtain a properly completed bond power from the
registered holder. The transfer of record ownership
may take considerable time. See "The Exchange
Offer -- Procedures for Tendering."
8
<PAGE> 10
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes and
a properly completed Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis
and deliver an Agent's Message, may tender their
Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
business day prior to the Expiration Date, unless
previously accepted for exchange. See "The Exchange
Offer -- Withdrawal of Tenders."
Termination of the Exchange
Offer.................... The Company may terminate the Exchange Offer if it
determines that the Exchange Offer violates any
applicable law or interpretation of the staff of
the Commission. Holders of Old Notes will have
certain rights against the Company under the
Registration Rights Agreement should the Company
fail to consummate the Exchange Offer. See "The
Exchange Offer -- Termination" and "Exchange and
Registration Rights Agreement."
Acceptance of Old Notes and
Delivery of Exchange
Notes.................... Subject to certain conditions (as summarized above
in "Termination of the Exchange Offer" and
described more fully in "The Exchange
Offer -- Termination"), 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
Exchange Notes issued pursuant to the Exchange
Offer will be delivered as promptly as possible
following the Expiration Date. See "The Exchange
Offer -- General."
Exchange Agent............. The Bank of New York is serving as exchange agent
(the "Exchange Agent") in connection with the
Exchange Offer. The mailing address of the Exchange
Agent is: The Bank of New York, 101 Barclay Street,
7th Floor, Reorganization Section, New York, New
York 10286, Attention: . Hand deliveries
and deliveries by overnight courier should be sent
to: The Bank of New York, 101 Barclay Street, New
York, NY 10286, Corporate Trust Services Window,
Ground Level, Attention: Reorganization Section.
For information with respect to the Exchange Offer,
the telephone number for the Exchange Agent is
(212) and the facsimile number for the
Exchange Agent is (212) . See "The
Exchange Offer -- Exchange Agent."
Use of Proceeds............ There will be no cash proceeds payable to the
Company from the issuance of the Exchange Notes
pursuant to the Exchange Offer. See "Use of
Proceeds." For a discussion of the use of the net
proceeds received by the Company from the sale of
the Old Notes, see "Private Placement."
9
<PAGE> 11
TERMS OF THE NOTES
Notes Outstanding.......... $150 million aggregate principal amount of 8 7/8%
Senior
Subordinated Notes due 2007.
Maturity................... September 15, 2007.
Interest Payment Dates..... March 15 and September 15 of each year, commencing
on March 15, 1998.
Mandatory Redemption....... None.
Optional Redemption........ Except as otherwise described below, the Notes will
not be redeemable at the Company's option prior to
September 15, 2002. Thereafter, the Notes will be
subject to redemption at the option of the Company,
in whole or in part, at the redemption prices set
forth herein, plus accrued and unpaid interest
thereon to the applicable redemption date. In
addition, prior to September 15, 2000, the Company
may, at its option, on any one or more occasions,
redeem up to 33 1/3% of the original aggregate
principal amount of the Notes at a redemption price
equal to 108.875% of the principal amount thereof,
plus accrued and unpaid interest, if any, thereon
to the redemption date with all or a portion of the
net proceeds of public sales of Common Stock of the
Company; provided that at least 66 2/3% of the
original aggregate principal amount of the Notes
remains outstanding immediately after the
occurrence of such redemption. See "Description of
the Notes -- Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control, (i) the
Company will have the option, at any time, on or
prior to September 15, 2002 (but in no event more
than 90 days after the occurrence of such Change of
Control) to redeem the Notes, in whole but not in
part, at a redemption price equal to 100% of the
principal amount thereof, plus the Applicable
Premium as of, and accrued and unpaid interest, if
any, thereon to, the date of redemption, and (ii)
if the Company does not so redeem the Notes, the
Company will be required to offer to repurchase all
or a portion of each Holder's Notes at an offer
price in cash equal to 101% of aggregate principal
amount of such Notes plus accrued and unpaid
interest, if any, thereof to the date of
repurchase, and to repurchase all Notes tendered
pursuant to such offer. The Company's New Credit
Facility (the "New Credit Facility") will prohibit
the Company from repurchasing any Notes pursuant to
a Change of Control offer prior to the repayment in
full of the Senior Debt under the New Credit
Facility. If a Change of Control were to occur, the
Company may not have sufficient available funds to
purchase all Notes tendered pursuant to the Change
of Control offer after first satisfying its
obligations under the New Credit Facility or other
Senior Debt that may then be outstanding, if
accelerated. The failure by the Company to purchase
all Notes tendered pursuant to the Change of
Control offer would constitute an Event of Default
(as defined). If any Event of Default occurs, the
Trustee (as defined) or holders of at least 25% in
principal amount of the Notes then outstanding may
declare the principal of and the accrued and unpaid
interest on such Notes to be due and payable
immediately. However, such repayment would be
subject to certain subordination provisions in the
Indenture (as defined). See "Risk
Factors -- Payment Upon a
10
<PAGE> 12
Change of Control" and "Description of the
Notes -- Ranking and Subordination" and
"-- Repurchase at the Option of Holders -- Change
of Control" and "-- Events of Default and
Remedies."
Ranking.................... The Notes will be general unsecured obligations of
the Company and will be subordinated in right of
payment to all existing and future Senior Debt of
the Company, which will include borrowings under
the New Credit Facility. The Notes will rank pari
passu in right of payment with all other senior
subordinated debt of the Company and any other
indebtedness which does not expressly provide that
it is subordinated in right of payment to the
Notes. The Notes will be effectively subordinated
in right of payment to the liabilities of the
Subsidiaries of the Company. As of June 30, 1997,
on a pro forma basis, after giving effect to the
application of the net proceeds from the Offering,
the Company would have had no Senior Debt
outstanding (including no outstanding borrowings
under the New Credit Facility), and there would be
no senior subordinated debt outstanding (exclusive
of the Notes). The Notes will also be effectively
subordinated to all secured debt of the Company. In
addition, the Notes may be structurally
subordinated to all existing and future liabilities
of the Company's subsidiaries. See
"Capitalization," "Description of the Notes --
Ranking and Subordination" and "Description of
Other Indebtedness."
Certain Covenants.......... The Notes will be issued pursuant to an indenture
(the "Indenture") containing certain covenants that
will, among other things, limit the ability of the
Company and its Restricted Subsidiaries to incur
additional indebtedness and issue Disqualified
Capital Stock (as defined), pay dividends, make
distributions, make investments, make certain other
Restricted Payments (as defined), enter into
certain transactions with affiliates, dispose of
certain assets, incur liens securing Indebtedness
(as defined) of any kind other than Permitted Liens
(as defined), and engage in mergers and
consolidations. See "Description of the
Notes -- Certain Covenants."
Transfer Restrictions...... The Old Notes were not registered under the
Securities Act and unless so registered may not be
offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the
registration requirements of the Securities Act.
See "Transfer Restrictions on Old Notes".
Exchange Offer............. Pursuant to a registration rights agreement (the
"Registration Rights Agreement") by and among the
Company and the Initial Purchasers, the Company
agreed to (i) file a registration statement with
the Commission (the "Exchange Offer Registration
Statement") with respect to an offer to exchange
the Old Notes (the "Exchange Offer") for senior
subordinated debt securities of the Company with
terms substantially identical to the Notes (the
"New Notes") (except that the New Notes generally
will not contain terms with respect to transfer
restrictions) within 60 days after the date of
original issuance of the Old Notes, September 23,
1997, and (ii) use its best efforts to cause such
registration statement to become effective under
the Securities Act within 120 days after such issue
date. The Registration Statement of which this
Prospectus is a part constitutes such Exchange
Offer Registration Statement. In the event that
appli-
11
<PAGE> 13
cable law or interpretations of the staff of the
Commission do not permit the Company to effect the
Exchange Offer, or if certain holders of the Notes
notify the Company that they are not permitted to
participate in, or would not receive freely
tradeable Notes pursuant to, the Exchange Offer,
the Company will use its best efforts to cause to
become effective a registration statement (the
"Shelf Registration Statement") with respect to the
resale of the Old Notes and to keep the Shelf
Registration Statement effective until two years
after the date of original issuance of the Old
Notes. The interest rate on the Old Notes is
subject to increase under certain circumstances if
the Company is not in compliance with its
obligations under the Registration Rights
Agreement. See "Exchange and Registration Rights
Agreement."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the Exchange Notes, the
uncertainty of oil and gas prices and certain risks associated with an
investment in the Exchange Notes.
12
<PAGE> 14
SUMMARY FINANCIAL DATA
The following table sets forth summary historical financial data for the
Company as of and for each of the periods indicated. The following information
should be read in conjunction with "Selected Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of the Company and the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Oil and gas sales...................... $ 40,362 $ 68,767 $119,710 $56,646 $ 62,578
Commodity price risk management
activities.......................... 550 9,480 (5,967) 2,633 (3,098)
Interest............................... 195 353 2,653 886 1,268
-------- -------- -------- ------- --------
Total revenues........................... 41,107 78,600 116,396 60,165 60,748
-------- -------- -------- ------- --------
Costs and expenses
Oil and gas operating expenses......... 5,510 5,824 7,847 3,879 4,504
Depreciation, depletion and
amortization........................ 14,072 27,590 40,904 19,320 21,698
General and administrative............. 2,269 2,597 3,059 1,756 1,670
-------- -------- -------- ------- --------
Total costs and expenses................. 21,851 36,011 51,810 24,955 27,872
-------- -------- -------- ------- --------
Income before taxes...................... 19,256 42,589 64,586 35,210 32,876
Pro forma provision for income
taxes(1)............................... 5,030 13,852 21,953 11,790 11,260
-------- -------- -------- ------- --------
Pro forma net income(1).................. $ 14,226 $ 28,737 $ 42,633 $23,420 $ 21,616
======== ======== ======== ======= ========
OPERATING AND OTHER DATA:
EBITDA(2)................................ $ 33,328 $ 70,179 $105,490 $54,530 $ 54,574
Capital expenditures..................... 52,230 71,387 142,712 59,778 71,693
Net cash provided by operating
activities............................. 28,126 62,037 108,059 48,643 53,215
PRO FORMA FINANCIAL DATA:
EBITDA to pro forma interest(3).......... N/A N/A 7.7x N/A 7.9x
Pro forma debt to EBITDA(3).............. N/A N/A 1.4x N/A N/A
Pro forma interest(3).................... N/A N/A $ 13,773 N/A $ 6,886
BALANCE SHEET DATA (END OF PERIOD):
Working capital.......................... $ 14,357 $ 446 $ 48,667 $ 9,673
Total assets............................. 101,625 145,550 303,918 328,082
Long term debt, including current
maturities............................. 6,930 22,000 -- 10,000
Total stockholders' equity............... 89,890 105,015 233,203 254,972
</TABLE>
- ---------------
(1) Gives pro forma effect to the application of federal and state income taxes
to the Company as if it were a taxable corporation for the periods
presented. 1996 excludes a one-time non-cash deferred tax charge of $30.1
million recognized as a result of the Combination (as defined) consummated
on March 29, 1996 in connection with the Company's initial public offering.
(2) EBITDA represents income from continuing operations plus income taxes,
interest expense and depletion, depreciation and amortization expense.
EBITDA is not presented as an indicator of the Company's operating
performance, an indicator of cash available for discretionary spending or a
measure of liquidity. EBITDA may not be comparable to other similarly titled
measures of other companies. On a historical basis, EBITDA data has been
substantially similar to "Consolidated Cash Flow" as used in the Indenture.
See "Description of the Notes" for the detailed definition of "Consolidated
Cash Flow."
(3) Gives effect to the Offering and the application of the net proceeds
therefrom as described under "Use of Proceeds" as if such transaction had
occurred at the beginning of the periods on January 1, 1996 and January 1,
1997.
13
<PAGE> 15
SUMMARY RESERVE AND OPERATING DATA
The following tables set forth summary information with respect to the
Company's estimated net proved oil and gas reserves as of December 31, 1994,
1995 and 1996 and the Company's operating data for the periods indicated.
Information in this Prospectus as of December 31, 1995 and 1996 relating to
estimated net proved oil and gas reserves and the estimated future net revenues
attributable thereto is based upon the reserve reports ("Miller and Lents
Reports") prepared by Miller and Lents, Ltd. ("Miller and Lents"), independent
petroleum engineers. All calculations of estimated net proved reserves have been
made in accordance with the rules and regulations of the Commission and, except
as otherwise indicated, give no effect to federal or state income taxes
otherwise attributable to estimated future net revenues from the sale of oil and
gas. The present value of estimated future net revenues has been calculated
using a discount factor of 10%. See "Risk Factors -- Oil and Gas Reserves" and
"Reserve Engineers."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994(1) 1995(2) 1996
-------- -------- --------
<S> <C> <C> <C>
ESTIMATED PROVED RESERVES (AT DECEMBER 31)(2):
Oil and condensate (MBbls)................................ 1,929 2,452 3,327
Natural gas (MMcf)........................................ 114,655 204,170 284,992
Natural gas equivalents (MMcfe)........................... 126,229 218,882 304,954
Percent natural gas....................................... 91% 93% 93%
Percentage proved developed............................... 88% 69% 65%
PRODUCT PRICES (AT DECEMBER 31)(3):
Oil (per Bbl)............................................. $ 16.57 $ 18.38 $ 25.13
Natural gas (per Mcf)..................................... 1.73 1.96 3.68
FUTURE NET CASH FLOWS BEFORE TAXES ($000)(2)(4):
Undiscounted.............................................. $180,763 $294,567 $747,330
Discounted................................................ 109,785 206,509 415,530
RESERVE ADDITIONS (MMCFE):
Acquisition............................................... -- -- 22,965
Extensions, discoveries and revisions..................... 55,225 135,466 119,160
-------- -------- --------
Total additions........................................... 55,225 135,466 142,125
======== ======== ========
COSTS INCURRED ($000):
Property acquisitions..................................... $ 10,916 $ 13,643 $ 74,401
Exploration and development............................... 41,314 57,744 68,311
-------- -------- --------
Total costs incurred...................................... $ 52,230 $ 71,387 $142,712
======== ======== ========
RESERVE REPLACEMENT COST (PER MCFE)(5)...................... $ 0.95 $ 0.53 $ 1.00
RESERVE REPLACEMENT RATIO(6)................................ 255% 316% 254%
PRODUCTION DATA:
Oil and condensate (MBbls)................................ 691 961 794
Natural gas (MMcf)........................................ 17,482 37,047 51,289
Natural gas equivalent (MMcfe)............................ 21,628 42,813 56,053
UNIT ECONOMICS:
Data per Mcfe:
Oil and gas sales revenues (unhedged)..................... $ 1.86 $ 1.61 $ 2.14
Commodity price risk management activities -- Cash........ .03 .22 .06
-- Non-Cash........ -- -- (.17)
Oil and gas operating expenses............................ (.25) (.14) (.14)
General and administrative................................ (.10) (.06) (.06)
Depreciation, depletion and amortization.................. (.65) (.64) (.73)
Interest income........................................... -- -- .05
-------- -------- --------
Pre-tax operating profit.................................. $ 0.89 $ 0.99 $ 1.15
======== ======== ========
Gross cash margin(7)...................................... $ 1.54 $ 1.63 $ 2.05
======== ======== ========
</TABLE>
- ---------------
(1) The December 31, 1994 information relating to estimated net proved oil and
gas reserves and the estimated future net revenue attributable thereto is
based upon the data compiled by Company engineers in accordance with the
rules and regulations of the Commission and, except as otherwise indicated,
gives no effect to federal or state income taxes otherwise attributable to
estimated future net revenues from the sale of oil and gas.
(2) Excludes 228 MBbls of oil, 15,926 MMcf of gas and 17,294 MMcfe of proved
undeveloped reserves (the "Incremental Reserves") which were included in the
Miller and Lents Report as of December 31, 1995. Consequently, also excludes
$18,089,000 and $11,838,000 of Future Net Cash Flows Before Taxes,
Undiscounted and Discounted, respectively, for the year ended December 31,
1995, attributable to such Incremental Reserves. The Incremental Reserves
related to the Company's contractual option right at December 31, 1995 to
participate in certain undeveloped wells in addition to its leasehold
position. No such option rights are reflected in the Miller and Lents Report
as of December 31, 1996.
(3) Prices shown were used in the calculation of proved reserves and future net
cash flows before taxes.
(4) Oil and gas commodity hedges included in future cash inflows totaled $14.0
million, $7.6 million and ($60.8) million at December 31, 1994, 1995 and
1996, respectively, and such hedges included in discounted future net cash
flows before income taxes totaled $12.4 million, $7.2 million and ($55.2)
million at December 31, 1994, 1995 and 1996, respectively.
(5) Reserve replacement costs are calculated by dividing costs incurred by total
reserve additions.
(6) Reserve replacement is calculated as total reserve additions divided by the
Company's actual production for the period, both on an Mcfe basis.
(7) Includes cash gains (losses) on price risk management activities and
interest income.
14
<PAGE> 16
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements other than statements
of historical facts included in this Prospectus, including without limitation
statements under "Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business and
Properties" regarding planned capital expenditures, the availability of capital
resources to fund capital expenditures, estimates of proved reserves, the number
of anticipated wells to be drilled in 1997 and thereafter, the Company's
financial position, business strategy and other plans and objectives for future
operations, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
There are numerous uncertainties inherent in estimating quantities of proved oil
and natural gas reserves and in projecting future rates of production and timing
of development expenditures, including many factors beyond the control of the
Company. Reserve engineering is a subjective process of estimating underground
accumulations of oil and natural gas that cannot be measured in an exact way,
and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment. As
a result, estimates made by different engineers often vary from one another. In
addition, results of drilling, testing and production subsequent to the date of
an estimate may justify revisions of such estimate and such revisions, if
significant, would change the schedule of any further production and development
drilling. Accordingly, reserve estimates are generally different from the
quantities of oil and natural gas that are ultimately recovered. Additional
important factors that could cause actual results to differ materially from the
Company's expectations are disclosed under "Risk Factors" and elsewhere in this
Prospectus. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by such factors.
RISK FACTORS
In addition to the other information set forth elsewhere in this
Prospectus, the following factors relating to the Company should be carefully
considered when evaluating an investment in the Exchange Notes.
VOLATILITY OF OIL AND GAS PRICES; MARKETABILITY OF PRODUCTION
The Company's revenue, profitability and future rate of growth are
substantially dependent upon the prevailing prices of, and demand for, oil and
natural gas. The Company's ability to maintain or increase its borrowing
capacity and to obtain additional capital on attractive terms is also
substantially dependent upon oil and gas prices. Prices for oil and natural gas
are subject to wide fluctuation in response to relatively minor changes in the
supply of and demand for oil and natural gas, market uncertainty and a variety
of additional factors that are beyond the control of the Company. These factors
include the level of consumer product demand, weather conditions, domestic and
foreign governmental regulations, the price and availability of alternative
fuels, political conditions in the Middle East, the foreign supply of oil and
natural gas, the price of oil and gas imports and overall economic conditions.
From time to time, oil and gas prices have been depressed by excess domestic and
imported supplies. There can be no assurance that current price levels will be
sustained. It is impossible to predict future oil and natural gas price
movements with any certainty. Declines in oil and natural gas prices may
adversely affect the Company's financial condition, liquidity and results of
operations and may reduce the amount of the Company's oil and natural gas that
can be produced economically. Additionally, substantially all of the Company's
sales of oil and natural gas are made in the spot market or pursuant to
contracts based on spot market prices and not pursuant to long-term fixed price
contracts. With the objective of reducing price risk, the Company enters into
hedging transactions with respect to a portion of its expected future
production. There can be no assurance, however, that such hedging transactions
will reduce risk or mitigate the effect of any substantial or extended decline
in oil or natural gas prices. Any substantial or
15
<PAGE> 17
extended decline in the prices of oil or natural gas would have a material
adverse effect on the Company's financial condition and results of operations.
In addition, the marketability of the Company's production depends upon the
availability and capacity of gas gathering systems, pipelines and processing
facilities. Federal and state regulation of oil and gas production and
transportation, general economic conditions and changes in supply and demand all
could adversely affect the Company's ability to produce and market its oil and
natural gas. If market factors were to change dramatically, the financial impact
on the Company could be substantial. The availability of markets and the
volatility of product prices are beyond the control of the Company and represent
a significant risk. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and "Business and
Properties -- Marketing."
Volatile oil and gas prices make it difficult to estimate the value of
producing properties for acquisition and often cause disruption in the market
for oil and gas producing properties, as buyers and sellers have difficulty
agreeing on such value. Price volatility also makes it difficult to budget for
and project the return on acquisitions and development and exploration projects.
UNCERTAINTY OF ESTIMATES OF OIL AND GAS RESERVES
This Prospectus contains estimates of the Company's proved oil and gas
reserves and the estimated future net revenues therefrom based upon the
Company's estimates and the Miller and Lents Report that rely upon various
assumptions, including assumptions required by the Commission as to oil and gas
prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds. The process of estimating oil and gas reserves is
complex, requiring significant decisions and assumptions in the evaluation of
available geological, geophysical, engineering and economic data for each
reservoir. As a result, such estimates are inherently imprecise. Actual future
production, oil and gas prices, revenues, taxes, development expenditures,
operating expenses and quantities of recoverable oil and gas reserves may vary
substantially from those estimated in the Company's estimates and the Miller and
Lents Report. Any significant variance in these assumptions could materially
affect the estimated quantity and value of reserves set forth in this Offering
Memorandum. In addition, the Company's proved reserves may be subject to
downward or upward revision based upon production history, results of future
exploration and development, prevailing oil and gas prices and other factors,
many of which are beyond the Company's control. Actual production, revenues,
taxes, development expenditures and operating expenses with respect to the
Company's reserves will likely vary from the estimates used, and such variances
may be material.
Approximately 35% of the Company's total proved reserves at December 31,
1996 were undeveloped, which are by their nature less certain. Recovery of such
reserves will require significant capital expenditures and successful drilling
operations. The reserve data set forth in the Company's estimates and the Miller
and Lents Report assumes that substantial capital expenditures by the Company
will be required to develop such reserves. Although cost and reserve estimates
attributable to the Company's oil and gas reserves have been prepared in
accordance with industry standards, no assurance can be given that the estimated
costs are accurate, that development will occur as scheduled or that the results
will be as estimated. See "Business and Properties -- Oil and Gas Reserves."
The present value of future net revenues referred to in this Prospectus
should not be construed as the current market value of the estimated oil and gas
reserves 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. Actual future net cash flows also will be affected by increases in
consumption by gas purchasers and changes in governmental regulations or
taxation. The timing of actual future net cash flows from proved reserves, and
thus their actual present value, will be affected by the timing of both the
production and the incurrence of expenses in connection with development and
production of oil and gas properties. In addition, the 10% discount factor,
which is required by the Commission to be used in calculating discounted future
net cash flows for
16
<PAGE> 18
reporting purposes, is not necessarily the most appropriate discount factor
based on interest rates in effect from time to time and risks associated with
the Company or the oil and gas industry in general.
RESERVE REPLACEMENT
As is customary in the oil and gas exploration and production industry, the
Company's future success depends upon its ability to find, develop or acquire
additional oil and gas reserves that are economically recoverable. Unless the
Company replaces its estimated proved reserves (through development, exploration
or acquisition), the Company's proved reserves will generally decline as they
are produced.
Exploratory drilling and, to a lesser extent, development drilling involve
a high degree of risk that no commercial production will be obtained or that the
production will be insufficient to recover drilling and completion costs. The
costs of drilling, completing and operating wells are 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.
Furthermore, completion of a well does not assure a profit on the investment or
a recovery of drilling, completion and operating costs. See "Business and
Properties -- Costs Incurred and Drilling Results."
The Company's current strategy includes increasing its reserve base through
acquisitions of leaseholds with drilling potential and by continuing to exploit
its existing properties. There can be no assurance, however, that the Company's
exploration and development projects will result in significant additional
reserves or that the Company will have continuing success drilling productive
wells at economically viable costs. Furthermore, while the Company's revenues
may increase if prevailing oil and gas prices increase significantly, the
Company's finding costs for additional reserves could also increase. For a
discussion of the Company's reserves, see "Business and Properties -- Oil and
Gas Reserves."
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial expenditures for
the development, exploration, acquisition and production of oil and natural gas
reserves. The Company incurred capital expenditures of $71.4 million during 1995
and $142.7 million during 1996. The Company plans to make capital expenditures,
excluding expenditures for acquisitions, of approximately $150 million in 1997.
Management believes that the Company will have sufficient cash provided by
operating activities, borrowings under the New Credit Facility and the proceeds
from the Offering to fund planned capital expenditures in 1997. However, if
revenues or cash flows from operations decrease as a result of lower oil and
natural gas prices or operating difficulties, the Company may be limited in its
ability to expend the capital necessary to undertake or complete its planned
drilling program, or it may be forced to raise additional debt or equity
proceeds to fund such expenditures. The New Credit Facility will limit the
amounts the Company may borrow to an initial availability of $50 million subject
to increase or decrease based upon borrowing base adjustments. There can be no
assurance that additional debt or equity financing or cash generated by
operations will be available to meet these requirements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ACQUISITION RISKS
The Company continues to pursue the acquisition of oil and gas properties
and businesses. Although no definitive agreements have been reached regarding
any such acquisitions, if consummated such acquisitions may have a material
impact on the Company's business. Any acquisition by the Company must satisfy
the applicable covenants set forth in the Indenture.
Successful acquisition of producing properties generally requires accurate
assessments of (i) recoverable reserves; (ii) future oil and gas prices and
operating costs; (iii) potential environmental and other liabilities; and, (iv)
other factors. Such assessments are necessarily inexact and their accuracy
17
<PAGE> 19
inherently uncertain. It generally is not feasible to review in detail every
individual property involved in an acquisition. Ordinarily, review efforts are
focused on the higher-valued properties. Nevertheless, even a detailed review of
all properties and records 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. Inspections are not always
performed on every well, and environmental problems, such as groundwater
contamination, are not necessarily observable even when an inspection is
undertaken.
HOLDING COMPANY STRUCTURE
The Company conducts all of its operations through subsidiaries.
Accordingly, the Company relies on dividends and cash advances from its
subsidiaries to provide funds necessary to meet its obligations, including the
payment of principal and interest on the Notes. The ability of any such
subsidiary to pay dividends or make cash advances is subject to applicable laws
and contractual restrictions, including restrictions under credit agreements
between such subsidiary and third party lenders, as well as the financial
condition and operating requirements of such subsidiary.
OPERATING HAZARDS AND UNINSURED RISKS; PRODUCTION CURTAILMENTS
Oil and gas drilling and production activities are subject to numerous
risks, many of which are beyond the Company's control. These risks include the
risk that no commercially productive oil or natural gas reservoirs will be
encountered, that operations may be curtailed, delayed or canceled and that
title problems, weather conditions, compliance with governmental requirements,
mechanical difficulties or shortages or delays in the delivery of drilling rigs,
work boats and other equipment may limit the Company's ability to market its
production. There can be no assurance that new wells drilled by the Company will
be productive or that the Company will recover all or any portion of its
investment. Drilling for oil and natural gas may involve unprofitable efforts,
not only from dry wells but also from wells that are productive but do not
produce sufficient net revenues to return a profit after drilling, operating and
other costs. In addition, the Company's properties may be susceptible to
hydrocarbon drainage from production by other operators on adjacent properties.
Industry operating risks include the risk of fire, explosions, blow-outs,
pipe failure, abnormally pressured formations and environmental hazards such as
oil spills, gas leaks, ruptures or discharges of toxic gases, the occurrence of
any of which could result in substantial losses to the Company due to injury or
loss of life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of operations.
Additionally, many of the Company's oil and gas operations are located in an
area that is subject to tropical weather disturbances, some of which can be
severe enough to cause substantial damage to facilities and possibly interrupt
production. In accordance with customary industry practice, the Company
maintains insurance against some, but not all, of the risks described above.
There can be no assurance that any insurance will be adequate to cover losses or
liabilities. The Company cannot predict the continued availability of insurance
at premium levels that justify its purchase. Losses and liabilities arising from
uninsured or under-insured events could have a material adverse effect on the
financial condition and results of operations of the Company.
From time to time, due primarily to contract terms, pipeline interruptions
or weather conditions, the producing wells in which the Company owns an interest
may be subject to production curtailments. The curtailments may vary from a few
days to several months. In most cases the Company will be provided only limited
notice as to when production will be curtailed and the duration of such
curtailments. The Company is currently not curtailed on any of its production.
COMPETITION
The Company operates in a highly competitive environment. The Company
competes with major and independent oil and gas companies for the acquisition of
desirable oil and gas properties, as well as for the equipment and labor
required to develop and operate such properties. Many of these competitors
18
<PAGE> 20
have financial and other resources substantially greater than those of the
Company. See "Business and Properties -- Competition."
RISKS OF PRICE RISK MANAGEMENT TRANSACTIONS
In order to manage its exposure to price risks in the marketing of its oil
and natural gas, the Company has in the past and expects to continue to enter
into oil and natural gas price risk management arrangements with respect to a
portion of its expected production. These arrangements may include futures
contracts on the New York Mercantile Exchange ("NYMEX"), fixed price delivery
contracts and financial swaps. While intended to reduce the effects of
volatility of the price of oil and natural gas, such transactions may limit
potential gains by the Company if oil and natural gas prices were to rise or
fall substantially over the price established by the arrangement. In addition,
such transactions may expose the Company to the risk of financial loss in
certain circumstances, including instances in which (i) production is less than
expected; (ii) if there is a widening of price differentials between delivery
points for the Company's production and the delivery point assumed in the
arrangement; (iii) the counterparties to the Company's future contracts fail to
perform under the contract; or (iv) a sudden, unexpected event materially
impacts oil or natural gas prices. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business and Properties -- Price Risk Management Transactions."
GOVERNMENTAL REGULATION
Oil and gas operations are subject to various United States federal, state
and local governmental regulations that change from time to time in response to
economic or political conditions. Matters subject to regulation include
discharge permits for drilling operations, drilling and abandonment bonds,
reports concerning operations, the spacing of wells, and 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 gas wells below actual production capacity in order to conserve supplies
of oil and gas. In addition, the production, handling, storage, transportation
and disposal of oil and gas, by-products thereof and other substances and
materials produced or used in connection with oil and gas operations are subject
to regulation under federal, state and local laws and regulations primarily
relating to protection of human health and the environment. The Company may also
be subject to substantial clean-up costs for any toxic or hazardous substance
that may exist under any of its properties. To date, expenditures related to
complying with these laws and for remediation of existing environmental
contamination have not been significant in relation to the results of operations
of the Company.
Although the Company believes it is in substantial compliance with all
applicable laws and regulations, the requirements imposed by such laws and
regulations are frequently changed and subject to interpretation. In addition,
the recent trend toward stricter standards in environmental legislation and
regulation is likely to continue. For instance, legislation has been proposed in
Congress from time to time that would reclassify certain crude oil and natural
gas exploration and production wastes as "hazardous wastes" which would make the
reclassified wastes subject to much more stringent handling, disposal and
clean-up requirements. If such legislation were to be enacted, it could have a
significant impact on the operating costs of the Company, as well as the oil and
gas industry in general. The Company could incur substantial costs to comply
with environmental laws and regulations, and the Company is unable to predict
the ultimate cost of compliance with these requirements or their effect on its
production. See "Business and Properties -- Regulation."
EFFECTS OF LEVERAGE
As of June 30, 1997, as adjusted for the issuance of the Old Notes and the
application of the proceeds therefrom, the Company's long-term debt would have
been $150 million. See "Capitalization." In addition, the Indenture allows the
Company to incur additional indebtedness on a secured basis. As of June 30,
1997, after giving effect to the sale of the Old Notes and the application of
the net proceeds
19
<PAGE> 21
therefrom, the Company estimates that it would have had $150 million committed
but undrawn under the New Credit Facility, subject to the borrowing base formula
at the time of draw.
The Company's level of indebtedness will have several important effects on
its operations, including (i) a substantial portion of the Company's cash flow
from operations will be dedicated to the payment of interest on its indebtedness
and will not be available for other purposes; (ii) the covenants contained in
the Indenture limit its ability to borrow additional funds or to dispose of
assets and may affect the Company's flexibility in planning for, and reacting
to, changes in business conditions; and, (iii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired.
Moreover, future acquisition or development activities may require the Company
to alter its capitalization significantly. These changes in capitalization may
significantly alter the leverage of the Company. The Company's ability to meet
its debt service obligations and to reduce its total indebtedness will be
dependent upon the Company's future performance, which will be subject to
general economic conditions and to financial, business and other factors
affecting the operations of the Company, many of which are beyond its control.
There can be no assurance that the Company's future performance will not be
adversely affected by such economic conditions and financial, business and other
factors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Furthermore, to the extent that the Company is unable to repay the
principal amount of the Notes at maturity out of cash on hand, it will need to
refinance the Notes, or repay the Notes with the proceeds of an equity offering,
at or prior to their maturity. There can be no assurance that the Company will
be able to generate sufficient cash flow to service its interest payment
obligations under its indebtedness or that future borrowings or equity financing
will be available for the payment or refinancing of the Company's indebtedness.
To the extent that the Company is not successful in negotiating renewals of its
borrowings or in arranging new financing, it may have to sell significant
assets, which would have a material adverse effect on the Company's business and
results of operations. Among the factors that will affect the Company's ability
to effect an offering of its capital stock or refinance the Notes are financial
market conditions and the value and performance of the Company at the time of
such offering or refinancing. There can be no assurance that any such offering
or refinancing can be successfully completed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes may,
if the Company has not under certain circumstances previously redeemed the
Notes, require the Company to purchase all or a portion of such Holder's Notes
at 101% of the principal amount of the Notes, together with accrued and unpaid
interest, if any, to the date of purchase. Prior to any such repurchase of the
Notes, the Company may be required to (i) repay all or a portion of indebtedness
under the New Credit Facility or (ii) obtain any requisite consent to permit the
repurchase. If the Company is unable to repay all of such indebtedness or is
unable to obtain the necessary consents, the Company would be unable to offer to
repurchase the Notes, which would constitute an Event of Default under the
Indenture. There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) as described above. The definition of "Change
of Control" in the Indenture includes a sale, lease, conveyance or other
disposition of "all or substantially all" of the assets of the Company and its
Subsidiaries, taken as a whole, to a person or group of persons. There is little
case law interpreting the phrase "all or substantially all" in the context of an
indenture. Because there is no precise established definition of this phrase,
the ability of a holder of the Notes to require the Company to repurchase such
Notes as a result of a sale, lease, conveyance or transfer of all or
substantially all of the Company's assets to a person or group of persons may be
uncertain. See "Description of the Notes -- Repurchase at the Option of
Holders -- Change of Control."
The events that constitute a Change of Control under the Indenture may also
be events of default under the New Credit Facility or other Senior Debt of the
Company. Such events may permit the lenders under such debt instruments to
reduce the borrowing base thereunder or accelerate the debt and, if the
20
<PAGE> 22
debt is not paid, to enforce security interests on, or commence litigation that
could ultimately result in a sale of, substantially all the assets of the
Company, thereby limiting the Company's ability to raise cash to repurchase the
Notes and receive the special benefit of the offer-to-purchase provisions to the
Holders of the Notes.
SUBORDINATION OF NOTES
The Indenture governing the Notes limits, but does not prohibit, the
incurrence by the Company of additional indebtedness that is senior in right of
payment to the Notes. In the event of bankruptcy, liquidation, reorganization or
other winding up of the Company, the assets of the Company will be available to
pay the Company's obligations on the Notes only after all Senior Debt has been
paid in full, and there may not be sufficient assets remaining to pay amounts
due on the Notes. In addition, under certain circumstances, no payments may be
made with respect to principal of, premium, if any, or interest on the Notes if
a default exists with respect to any Senior Debt. See "Description of the
Notes -- Ranking and Subordination."
In addition, the Notes will be effectively subordinated to any indebtedness
and liabilities (including trade payables) of the Company's future Subsidiaries
that are not Subsidiary Guarantors (as defined herein).
The Indenture imposes limits on the ability of the Company and its future
Restricted Subsidiaries (as defined herein) to incur additional indebtedness and
liens and to enter into agreements that would restrict the ability of such
future Restricted Subsidiaries to make distributions, loans or other payments to
the Company. These limitations are subject to various qualifications. Subject to
certain limitations, the Company and its Subsidiaries may incur additional
secured indebtedness. For additional details of these provisions and the
applicable qualifications, see "Description of the Notes -- Ranking and
Subordination" and "-- Certain Covenants."
FRAUDULENT CONVEYANCE CONSIDERATIONS RELATING TO FUTURE SUBSIDIARY GUARANTEES
Although the Company currently has no subsidiaries that will be Subsidiary
Guarantors, the Company's obligations under the Notes may under certain
circumstances be guaranteed on an unsecured senior subordinated basis by
Restricted Subsidiaries. Various fraudulent conveyance laws have been enacted
for the protection of creditors and may be utilized by a court of competent
jurisdiction to subordinate or avoid any Subsidiary Guarantee issued by a
Subsidiary Guarantor. It is also possible that under certain circumstances a
court could hold that the direct obligations of a Subsidiary Guarantor could be
superior to the obligations under the Subsidiary Guarantee.
To the extent that a court were to find that at the time a Subsidiary
Guarantor entered into a Subsidiary Guarantee either (x) the Subsidiary
Guarantee was incurred by a Subsidiary Guarantor with the intent to hinder,
delay or defraud any present or future creditor or that a Subsidiary Guarantor
contemplated insolvency with a design to favor one or more creditors to the
exclusion in whole or in part of others or (y) the Subsidiary Guarantor did not
receive fair consideration or reasonably equivalent value for issuing the
Subsidiary Guarantee and, at the time it issued the Subsidiary Guarantee, the
Subsidiary Guarantor (i) was insolvent or rendered insolvent by reason of the
issuance of the Subsidiary Guarantee; (ii) was engaged or about to engage in a
business or transaction for which the remaining assets of the Subsidiary
Guarantor constituted unreasonably small capital; or (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, the court could avoid or subordinate the Subsidiary Guarantee in favor
of the Subsidiary Guarantor's other credits. Among other things, a legal
challenge of a Subsidiary Guarantee issued by a Subsidiary Guarantor on
fraudulent conveyance grounds may focus on the benefits, if any, realized by the
Subsidiary Guarantor as a result of the issuance by the Company of the Notes. To
the extent a Subsidiary Guarantee is avoided as a fraudulent conveyance or held
unenforceable for any other reason, the Holders of the Notes would cease to have
any claim in respect of such Subsidiary Guarantor and would be creditors solely
of the Company.
21
<PAGE> 23
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction that is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its debts, including contingent
liabilities, was greater than the value of all its assets at a fair valuation or
if the present fair saleable value of the debtor's assets was less than the
amount required to repay its probable liability on its debts, including
contingent liabilities, as they become absolute and mature. To the extent that
proceeds from the Offering are used to refinance the indebtedness of the
Company, a court might find that the Company did not receive fair consideration
or reasonably equivalent value for the incurrence of the indebtedness
represented by the Notes.
To the extent that a Subsidiary Guarantee of any Subsidiary Guarantor is
avoided as a fraudulent conveyance or found unenforceable for any other reason,
Holders of the Notes would cease to have any claim in respect of such Subsidiary
Guarantor. In such event, the claims of the Holders of the Notes against such
Subsidiary Guarantor would be subject to the prior payment of all liabilities
and preferred stock claims of such Subsidiary Guarantor. There can be no
assurance that, after providing for all prior claims and preferred stock
interests, if any, there would be sufficient assets to satisfy the claims of the
Holders of the Notes relating to any voided portion of the Subsidiary Guarantee
of such Subsidiary Guarantor.
RELIANCE ON KEY PERSONNEL
The Company depends, and will continue to depend in the foreseeable future,
on the services of the officers and key employees with extensive experience and
expertise in evaluating and analyzing producing oil and gas properties and
drilling prospects, maximizing production from oil and gas properties and
marketing oil and gas production. The ability of the Company to retain its
officers and key employees is important to the continued success and growth of
the Company.
The Company is dependent upon Robert A. Belfer, the Company's Chairman and
Chief Executive Officer, and Laurence D. Belfer, the Company's President and
Chief Operating Officer, in addition to certain of its other executive officers.
The unexpected loss of the services of one or more of these individuals could
have a detrimental effect on the Company. The Company does not maintain key man
life insurance on any of its officers or key employees. See "Management."
CONTROL BY CERTAIN STOCKHOLDERS
Robert A. Belfer, his spouse, his children, his sisters, their spouses,
their children and trusts for their children and grandchildren own approximately
77.3% of the outstanding shares of the Company's common stock, par value $0.01
per share (the "Common Stock"). As a result, such stockholders will be able to
effectively control the outcome of certain matters requiring a stockholder vote,
including the election of directors. Such ownership of Common Stock may have the
effect of delaying, deferring or preventing a change of control of the Company
and may adversely affect the voting and other rights of other stockholders.
CERTAIN POTENTIAL CONFLICTS OF INTERESTS
Robert A. Belfer is a director of Enron Corp. ("Enron"). Enron, primarily
through its majority owned subsidiary, Enron Oil & Gas Company ("EOG"), is
involved in the exploration, development and production of oil and gas. Mr.
Belfer is not a director of EOG. While the Company's activities have not
historically overlapped with the activities of Enron or EOG, the Company may in
the future compete for certain opportunities with Enron or EOG. To the extent
any conflict from such future competition may arise, Mr. Belfer intends to
excuse himself from participating in any decisions of the Board of Directors of
Enron related to such opportunities.
22
<PAGE> 24
ABSENCE OF PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON TRANSFER
The Notes will be new securities for which currently there is no trading
market. The Company does not intend to apply for listing of the Notes on any
securities exchange or stock market. The Notes are expected to be eligible for
trading the Private Offerings, Resale and Trading through Automated Linkages
("PORTAL") market. Although the Initial Purchases have informed the Company that
they currently intend to make a market in the Notes, the Initial Purchasers are
not obligated to do so, and any such market making may be discontinued at any
time without notice. The liquidity of any market for the Notes will depend upon
the number of Holders of the Notes, the interest of securities dealers in making
a market in the Notes and other factors. Accordingly, there can be no assurance
as to the development or liquidity of any market for the Notes, and even if a
market does develop, the price at which the holders of Exchange Notes will be
able to sell such Notes is not assured and the Exchange Notes could trade at a
price above or below either their purchase price or face value.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Notes. There can be no assurance that the market, if any, for the
Notes will not be subject to similar disruptions. Any such disruptions may have
an adverse effect on the Holders of the Notes.
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<PAGE> 25
PRIVATE PLACEMENT
On September 23, 1997, the Company completed the private sale to the
Initial Purchasers of $150,000,000 principal amount of the Old Notes at a price
of 100.00% of the principal amount thereof in a transaction not registered under
the Securities Act in reliance upon Section 4(2) of the Securities Act. The
Initial Purchasers thereupon offered and resold the Old Notes only to qualified
institutional buyers at an initial price to such purchasers of 100.00% of the
principal amount thereof. A portion of the $145 million net proceeds received by
the Company in connection with the sale of the Old Notes was used to repay all
borrowings outstanding under the Old Credit Facility. It is anticipated that the
remainder of the net proceed will be used to provide working capital to the
Company to fund further exploration and development of the Company's oil and gas
properties, the acquisition of additional oil and gas properties or businesses
and other general corporate purposes.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange a like
principal amount of Old Notes, the terms of which are identical in all material
respects to the Exchange Notes. The Old Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any change in capitalization
of the Company.
CAPITALIZATION
The following table sets forth as of June 30, 1997, (i) the actual
capitalization of the Company and (ii) the as adjusted capitalization of the
Company giving effect to the sale of the Old Notes, the New Credit Facility and
the application of the net proceeds therefrom. The table should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current maturities):
Old Credit Facility....................................... $ 10,000 $ --
New Credit Facility....................................... -- --
8 7/8% Senior Subordinated Notes due 2007................. -- 150,000
-------- --------
Total long-term debt, including current maturities..... 10,000 150,000
Total stockholders' equity.................................. 254,972 254,972
-------- --------
Total capitalization........................................ $264,972 $404,972
======== ========
</TABLE>
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SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected financial data regarding the
Company as of and for each of the periods indicated. The historical financial
data, exclusive of the various ratio data, as of and for the three years ended
December 31, 1996, are derived from the financial statements of the Company
audited by Arthur Andersen LLP, independent public accountants. The financial
data as of June 30, 1997 and for the six months ended June 30, 1997 and 1996,
are derived from the Company's unaudited financial statements, which, in the
opinion of management, include all adjustments (which consist only of normal
recurring adjustments) necessary for a fair presentation of the financial
position and results of operations of the Company for such interim periods. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and notes thereto.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 30, SIX MONTHS ENDED
1992) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------------ -------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Oil and gas sales........... $ 3,536 $ 19,255 $ 40,362 $ 68,767 $119,710 $ 56,646 $ 62,578
Commodity price risk
management activities..... -- -- 550 9,480 (5,967) 2,633 (3,098)
Interest.................... 80 57 195 353 2,653 886 1,268
-------- -------- -------- -------- -------- --------- --------
Total revenues.............. 3,616 19,312 41,107 78,600 116,396 60,165 60,748
-------- -------- -------- -------- -------- --------- --------
Costs and expenses
Oil and gas operating
expenses.................. 289 2,495 5,510 5,824 7,847 3,879 4,504
Depreciation, depletion and
amortization.............. 401 4,098 14,072 27,590 40,904 19,320 21,698
General and
administrative............ 424 856 2,269 2,597 3,059 1,756 1,670
-------- -------- -------- -------- -------- --------- --------
Total costs and expenses...... 1,114 7,449 21,851 36,011 51,810 24,955 27,872
-------- -------- -------- -------- -------- --------- --------
Income before taxes........... 2,502 11,863 19,256 42,589 64,586 35,210 32,876
Pro forma provision for income
taxes (1)................... 637 1,504 5,030 13,852 21,953 11,790 11,260
-------- -------- -------- -------- -------- --------- --------
Pro forma net income (1)...... $ 1,865 $ 10,359 $ 14,226 $ 28,737 $ 42,633 $ 23,420 $ 21,616
======== ======== ======== ======== ======== ========= ========
Pro forma earnings per share
(1)(2)...................... $ .07 $ .41 $ .57 $ 1.15 $ 1.42 $ .82 $ .69
======== ======== ======== ======== ======== ========= ========
Weighted Average Common Shares
Outstanding (2)............. 25,000 25,000 25,000 25,000 29,986 28,447 31,500
STATEMENT OF CASH FLOWS DATA:
EBITDA(3)..................... $ 2,903 $ 15,961 $ 33,328 $ 70,179 $105,490 $ 54,530 $ 54,574
Capital expenditures.......... 15,744 32,647 52,230 71,387 142,712 59,778 71,693
Cash flow from operating
activities.................. 729 14,351 28,126 62,037 108,059 48,643 53,215
Cash flow from investing
activities.................. (13,086) (33,698) (52,670) (65,133) (143,826) (55,223) (94,810)
Cash flow from financing
activities.................. 14,115 18,708 30,376 (2,299) 77,684 77,339 --
BALANCE SHEET DATA:
Working capital............... $ 1,184 $ 3,108 $ 14,357 $ 446 $ 48,667 $ 9,673
Total assets.................. 19,671 50,248 101,625 145,550 303,918 328,082
Long-term debt, including
current maturities.......... -- -- 6,930 22,000 -- 10,000
Total stockholders' equity.... 16,617 47,188 89,890 105,015 233,203 254,972
</TABLE>
- ---------------
(1) Gives pro forma effect to the application of federal and state income taxes
to the Company as if it were a taxable corporation for the periods
presented. 1996 excludes a one-time non-cash deferred tax charge of $30.1
million recognized as a result of the Combination consummated on March 29,
1996 in connection with the Company's initial public offering.
(2) Pro forma earnings per share has been computed as if the 25,000,000 shares
of Common Stock that were issued in connection with Combination (as defined
herein) had been outstanding for all years prior to 1996.
(3) EBITDA represents income from continuing operations plus income taxes,
interest expense and depletion, depreciation and amortization expense.
EBITDA is not presented as an indicator of the Company's operating
performance, an indicator of cash available for discretionary spending or a
measure of liquidity. EBITDA may not be comparable to other similarly titled
measures of other companies. On a historical basis, EBITDA data has been
substantially similar to "Consolidated Cash Flow" as used in the Indenture.
See "Description of the Notes" for the detailed definition of "Consolidated
Cash Flow."
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<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in the understanding of the
Company's historical financial position and results of operations for each year
in the two year period ended December 31, 1996 and for the six months ended June
30, 1997 and 1996. Financial Statements and notes thereto included elsewhere in
this Prospectus should be referred to in conjunction with the following
discussion.
OVERVIEW
Since its inception in April 1992, the Company has grown rapidly, with
substantially all of its growth coming "through the drillbit."
The Company's participation in exploration and development activities in
the Moxa Arch Area of Wyoming and in the Austin Chalk Trend in the Giddings
Field of Texas are principally responsible for the substantial expansion of
production, revenues and reserves since the Company's inception.
The Company was organized as a Nevada corporation in January 1996 in
connection with the Combination (the "Combination") of ownership interests (the
"Combined Assets") in certain entities (the "Predecessors") and direct interests
in oil and gas properties and certain hedge transactions owned by members of the
Robert A. Belfer family and by employees of the Predecessors and entities
related thereto ("Direct Interests"). The Company and the owners of the Combined
Assets entered into an Exchange and Subscription Agreement and Plan of
Reorganization, dated as of January 1, 1996 (the "Exchange Agreement"), that
provided for the issuance by the Company of an aggregate of 25,000,000 shares of
Common Stock to such owners in exchange for the Combined Assets on March 29,
1996, the date the Company's initial public offering closed. The owners of the
Combined Assets received shares of Common Stock proportionate to the value of
the Combined Assets underlying their ownership interests in the Predecessors and
the Direct Interests.
Pursuant to the Exchange Agreement, the owners of the Combined Assets
received all revenues attributable to production and are responsible for all
incurred expenses related to the Combined Assets for all periods prior to
January 1, 1996. Effective with the Combination (which was contemporaneous with
the closing of the Company's initial public offering), the Company is entitled
to receive all revenues and is responsible for all expenses related to the
Combined Assets on and after January 1, 1996.
From inception through the date of the Combination, March 29, 1996, the
Predecessors were not required to pay federal income taxes due to their status
as either a partnership, individual owner, Subchapter S corporation, limited
liability corporation or joint venture, which are "pass-through" entities that
are not subject to federal income taxation; instead, taxes relating to the
Combined Assets for such periods were required to be paid by the owners of the
Predecessors and the Direct Interests.
Although the effective date of the Exchange Agreement is January 1, 1996,
each owner of the Combined Assets was required to include in its taxable income,
for all periods ending on the date of or prior to the completion of the
Combination, such owner's allocable portion of the taxable income attributable
to the Combined Assets and was entitled to all tax benefits attributable to the
Combined Assets through completion of the Combination.
The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for natural gas, oil and
condensate. These prices are dependent upon numerous factors beyond the
Company's control, such as economic, political and regulatory developments and
competition from other sources of energy. The energy markets have historically
been very volatile, and there can be no assurance that oil and natural gas
prices will not be subject to wide fluctuations in the future. A substantial or
extended decline in oil and natural gas prices could have a material adverse
effect on the Company's financial position, results of operations and access to
capital, as well as the quantities of natural gas and oil reserves that the
Company may economically produce. Natural gas produced is sold under contracts
that primarily reflect spot market conditions for their particular area. The
Company markets its oil with other working interest owners on spot price
contracts and typically receives a
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<PAGE> 28
premium compared to the price posted for such oil. As of June 30, 1997,
approximately 90% of the Company's production volumes relate to the sale of
natural gas.
The Company utilizes commodity swaps and options and other commodity price
risk management transactions for a portion of its oil and natural gas production
to achieve a more predictable cash flow and to reduce its exposure to price
fluctuations. The Company accounts for these transactions as hedging activities
or uses mark-to-market accounting for those contracts that do not qualify for
hedge accounting. As of December 31, 1996, the Company had various natural gas
and oil price risk management contracts in place with respect to portions of its
estimated production for 1997 and with respect to lesser portions of its
estimated production for 1998 and 1999. The Company expects from time to time to
either add or reduce the amount of price risk management contracts that it has
in place in keeping with its hedging strategy.
The following table sets forth certain operations data of the Company for
the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Oil and Gas Sales (in thousands) (1)...... $40,362 $68,767 $119,710 $56,646 $62,578
Weighted Average Sales Prices (Unhedged):
Oil (per Bbl)........................... $ 16.48 $ 17.35 $ 21.30 $ 19.93 $ 20.49
Gas (per Mcf)........................... $ 1.67 $ 1.42 $ 2.00 $ 1.81 $ 2.12
Net Production Data:
Oil (MBbl).............................. 691 961 794 414 453
Gas (MMcf).............................. 17,482 37,047 51,289 26,787 25,100
Gas equivalent (MMcfe).................. 21,628 42,813 56,053 29,271 27,818
Data per Mcfe:
Oil and gas sales revenues (unhedged)... $ 1.86 $ 1.61 $ 2.14 $ 1.94 $ 2.25
Commodity price risk management
activities
-- Cash............................ .03 .22 .06 .09 (.21)
-- Non-Cash........................ -- -- (.17) -- .10
Oil and gas operating expenses.......... (.25) (.14) (.14) (.13) (.16)
General and administrative.............. (.10) (.06) (.06) (.06) (.06)
Depreciation, depletion and
amortization......................... (.65) (.64) (.73) (.66) (.78)
Interest income......................... -- -- .05 .02 .04
------- ------- -------- ------- -------
Pre-tax operating profit................ $ 0.89 $ 0.99 $ 1.15 $ 1.20 $ 1.18
------- ------- -------- ------- -------
Number of wells drilled or drilling:
Gross................................... 87 118 80 40 59
Net..................................... 22 34 34 17 31
</TABLE>
- ---------------
(1) Oil and gas sales exclude results related to commodity price risk management
activities reported separately.
RESULTS OF OPERATIONS -- JUNE 30, 1997 COMPARED TO JUNE 30, 1996
Revenues
For the first six months of 1997, oil and gas sales revenues (unhedged)
increased $5.9 million, or 10%, to $62.6 million over the prior year comparable
period. The revenue increase is the result of higher average price realizations
for both oil and natural gas. Production volume during the first six months of
1997 on an Mcfe basis declined by 5% to 27,818 MMcfe when compared to the prior
year comparable period but increased 4% when compared to the last half of
calendar year 1996 production. Natural gas production represented approximately
90% of the Company's total production on an Mcfe basis.
As a result of the substantial oil and gas price increases which occurred
in the first quarter of 1997 (which had a positive overall impact on oil and gas
sales revenues), commodity price risk management activities during the first
half of 1997 resulted in a net pre-tax loss of $3.1 million, consisting of
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<PAGE> 29
$5.9 million in realized losses which were partially offset by a $2.8 million
unrealized mark-to-market gain. The impact of such activities on an Mcfe basis
amounted to a net loss of $0.11 ($0.21 cash loss and non-cash gain of $0.10) and
a gain of $0.09 (all cash) per Mcfe for the first half of 1997 and 1996,
respectively.
Costs and Expenses
Production and Operating Expenses. Production and operating expenses
increased 16% from $3.9 million in the first half of 1996 to $4.5 million for
the comparable period in 1997 due mainly to the increased number of wells on
line and higher costs associated with new oil wells and a growing population of
older wells. Operating costs were $0.16 per Mcfe for the first six months of
1997 when compared to $0.13 per Mcfe in the first six months of 1996.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization ("DD&A"), for the first half of 1997 increased 12% over the prior
year comparable period, from $19.3 million to $21.7 million, primarily due to
the drilling of deeper and higher costs wells.
General and Administrative Expenses. General and administrative expense
("G&A") declined 5% in the first half of 1997 to $1.7 million when compared to
the $1.8 million incurred in the first half of 1996. The rate per Mcfe for G&A
costs is unchanged at $0.06.
Income Before Income Taxes
The Company's income before income taxes for the first half of 1997
decreased by approximately $2.3 million, or 7%, to $32.9 million from $35.2
million in the prior year period. The decrease over the prior year comparable
period is due to commodity price risk management activities and lower production
offset in part by higher weighted average prices realized for both oil and
natural gas.
Income Taxes
Income tax expenses for the first half of 1997 were $11.3 million utilizing
an estimated effective income tax rate of 34.25%. In connection with the
Combination and Exchange Agreement, the Company became a taxable corporation
and, as a result, was required to record a one-time, non-cash charge in the
amount of $29.9 million during the first half of 1996 to establish a deferred
tax liability related to prior years on its balance sheet due to the change in
the tax status of the Company. At year end 1996, this estimated amount was
increased to $30.1 million following the completion of related income tax
returns.
RESULTS OF OPERATIONS -- 1996 COMPARED TO 1995
Revenues
Oil and natural gas sales revenues for the year 1996 (unhedged) increased
74% to $119.7 million when compared to the $68.8 million realized in 1995. The
substantial increase is principally identified with the addition of new Giddings
Field wells, in both the Navasota and Independence areas of the Company's
operations, and higher average prices realized for both oil and natural gas.
Weighted average oil and natural gas prices (unhedged) increased 23% and 41%,
respectively, when compared to 1995 price realizations. Production volume in
1996 on an Mcfe basis (using 6 Mcf of gas for 1 barrel of oil) increased 31%
over the prior year to 56,053 MMcfe. Daily production increased to 153,150 Mcfe
for 1996 compared to 117,300 Mcfe for 1995.
Commodity price risk management activities resulted in a pre-tax loss of
$6.0 million for 1996 which included (1) a realized hedging loss of $83,000, (2)
net realized losses on settlements of non-hedging transactions totaling $3.9
million, (3) net premiums received totaling $7.4 million and (4) a non-cash
unrealized loss for mark-to-market accounting of $9.4 million. As a result of
the substantial oil and natural gas price increases which occurred in the fourth
quarter of 1996 (which had a positive impact on oil and gas sales revenue), the
Company recorded a fourth quarter pre-tax loss of $8.4 million from commodity
price risk management activities which included a $4.2 million non-cash charge
for unrealized losses
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<PAGE> 30
related to required mark-to-market accounting. The 1995 results of operations
included pre-tax income of $9.5 million related to realized hedging gains. The
impact of such activities on an Mcfe basis amounted to a loss of $0.11 ($0.06
cash gain and a non-cash loss of $0.17) and a gain of $0.22 (all cash) per Mcfe
for 1996 and 1995, respectively.
Interest income realized during 1996 was $2.7 million compared to $0.4
million for 1995 due to higher average cash balances principally attributable to
the proceeds of the Company's initial public offering.
Costs and Expenses
Production and Operating Expenses. Production and operating expenses
including associated taxes in 1996 amounted to $7.9 million, an increase of 35%
over the $5.8 million incurred in the prior year. Operating costs on a Mcfe
basis were flat at $0.14 per Mcfe for both 1996 and 1995. A substantial portion
of the Company's natural gas production from wells drilled prior to September
1996 in the downdip Giddings Field qualifies for exemption from Texas state
production taxes. This exemption will continue for production through August 31,
2001.
Depreciation, Depletion and Amortization. DD&A costs related to oil and gas
properties totaled $40.9 million for 1996, a 48% increase over the $27.6 million
incurred in the 1995 comparable period. The Company's average DD&A rate per Mcfe
for 1996 was $0.73 compared to a rate of $0.64 per Mcfe in 1995. The increased
rate primarily reflects the higher average cost of drilling deeper wells and
costs associated with the unsuccessful East Texas Cotton Valley Reef Trend
exploration activities.
General and Administrative Expenses. G&A totaled $3.1 million for 1996, net
of capitalized G&A costs directly related to the Company's oil and natural gas
exploration and development efforts, an 18% increase over the prior year. The
increase reflects the addition of new employees hired to assist with the
Company's expanding activities and additional costs incurred in connection with
becoming a publicly traded entity. On an Mcfe basis, G&A costs were flat at
$0.06 for both 1996 and 1995. Operations G&A expenses for 1996 in the amount of
$3.1 million have been capitalized to oil and gas property accounts. The
increase of $1.8 million over the 1995 comparable amount reflects the Company's
rapidly expanding exploration and development efforts.
Income Before Income Taxes
The Company's income before income taxes for 1996 was $64.6 million, a 52%
increase over the $42.6 million realized in the prior year comparable period.
The increase is directly related to increased production from new well additions
in the Giddings Field and substantially higher average prices realized for both
oil and natural gas.
Income Taxes
Income tax expenses for 1996 amounted to $46.4 million. The provision for
taxes includes a one-time, non-cash charge in the amount of $30.1 million that
was required as a result of the Combination and the Exchange Agreement which
changed the tax status of the Company.
RESULTS OF OPERATIONS -- 1995 COMPARED TO 1994
Revenues
During 1995, oil and natural gas sales revenues (unhedged) increased $28.4
million, or 70%, to $68.8 million as compared to 1994. The revenue increase is
principally the result of new Giddings Field well additions in the Navasota
River and Independence areas of the Company's operations. Production volume on
an Mcfe basis increased to 42.8 MMcfe, representing an increase of 98% over the
prior year. Natural gas production represented approximately 87% of the
Company's total production on an Mcf equivalent basis. This significant
improvement in revenues was achieved despite a decline in the Company's average
wellhead natural gas prices in 1995. Weighted average wellhead natural gas
prices
29
<PAGE> 31
(unhedged) were down approximately 15% from 1994 prices and weighted average
wellhead oil prices were up approximately 5% from 1994 prices.
Commencing in late 1993, marketing activities associated with sales of
natural gas and crude oil also included natural gas, crude oil price swap and
option transactions, along with other commodity price hedging of natural gas and
crude oil and condensate prices. These transactions added approximately $9.5
million to net operating revenues for 1995. The average Mcfe price realized for
these transactions amounted to $0.22 per Mcfe for 1995. During 1995, revenues
per Mcfe, including revenue from hedges, per Mcfe totaled $1.83.
Costs and Expenses
Production and Operating Expenses. Production and operating expenses
increased 6% from $5.5 million in 1994 to $5.8 million in 1995. On an Mcfe
basis, operating costs decreased 44% to $0.14 for 1995, compared to $0.25 for
1994. The decrease is due mainly to an increase in the number of highly
productive wells in the Giddings Field.
Depreciation, Depletion and Amortization. DD&A for 1995 increased 96%, from
$14.1 million to $27.6 million, due to increased production. Lower well costs
due to efficiencies achieved related to the Company's experience in its existing
operating areas coupled with the Company's ability to achieve a higher level of
reserve additions for its 1995 wells resulted in a DD&A rate of $0.64 per Mcfe
for 1995, compared to $0.65 per Mcfe in 1994, a 2% reduction.
General and Administrative Expenses. G&A for 1995 increased 14%, from $2.3
million for 1994 to $2.6 million for 1995. The higher G&A expenses for 1995
primarily relate to increases in the number of employees due to a higher level
of overall activity for the Company as well as increases in employee salaries
and benefits. G&A expense totaling $1.2 million and $0.1 million have been
capitalized to oil and gas property accounts for 1995 and 1994, respectively.
Income Before Income Taxes. The Company's income before income taxes for
1995 increased by approximately $23.3 million, or 121% to $42.6 million from
$19.3 million in the prior year period. Increases in revenues were generated
primarily by increases in production from new well additions in the Giddings
Field and were partially offset by increases in operating costs and expenses
related to the new additions and lower natural gas and oil prices. Additionally,
the Company realized approximately $9.5 million related to its commodity price
risk management activities for 1995.
LIQUIDITY AND CAPITAL RESOURCES
General
On March 29, 1996, the Company successfully completed an initial public
offering of 6,500,000 shares of Common Stock. The initial public offering
provided the Company with approximately $113 million net of offering expenses.
Proceeds from the offering were used to repay approximately $35 million of
indebtedness under the Company's Old Credit Facility, fund capital expenditures
and for other general corporate purposes. The remaining proceeds from the
offering, together with cash flows from operations, are currently being used to
fund planned capital expenditures, including lease acquisitions, commitments,
other working capital requirements and general corporate purposes.
Cash Flow
Net operating cash flow (pre-tax), a measure of performance for exploration
and production companies, is generally derived by adjusting net income to
eliminate the effects of the non-cash depreciation, depletion and amortization
expense, provision for deferred income taxes and non-cash effects of commodity
price risk management activities. Net operating cash flow (pre-tax) before
changes in working capital was approximately $49.6 million and $53.9 million for
the first six months of 1997 and 1996, respectively. The Company had working
capital amounting to $9.7 million as of June 30, 1997, a decrease from the $48.7
million available as of December 31, 1996.
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<PAGE> 32
Capital Expenditures
For 1997, the Company has budgeted approximately $150 million for capital
expenditures which may be increased or decreased depending on oil and gas
prices, drilling results and other investment opportunities. The Company is
currently allocating approximately 77% of its budget to development and
exploration projects and approximately 23% to leasehold and seismic acquisition
activities, compared to the 45% for development and exploration and 55% for
leasehold and seismic in 1996. During the eighteen month period ending June 30,
1997, the Company has expended approximately $82.8 million on new leases for
potential development over the next several years.
In June 1997, the Company purchased 2,940,000 shares of common stock of
Hugoton Energy Corporation at $10.50 per share for a total investment of $30.9
million as of June 30, 1997.
Credit Facilities
In December of 1994, the Company entered into a three-year $25 million
Credit Agreement with The Chase Manhattan Bank (the "Old Credit Facility").
Principal outstanding is due and payable upon maturity in December 1997 with
interest due quarterly. In order to finance future capital requirements during
the first quarter of 1996, the Company increased the Old Credit Facility and the
borrowing base thereunder to $40 million. The borrowing base represents the
maximum available amount that may be borrowed under the Old Credit Facility at
any given time. Since all indebtedness under the Old Credit Facility was repaid
with proceeds from the initial public offering, the Company elected to reduce
its Old Credit Facility to $30 million and the borrowing base under the Old
Credit Facility to $15 million on May 1, 1996. The reduction in the borrowing
base permits the Company to pay a lower commitment fee, which is currently
calculated at an annual rate of 0.25 of 1% of the unused portion of the
available borrowing base. As of June 30, 1997, a total of $10 million in
advances were made to the Company and outstanding under the Old Credit Facility.
On September 23, 1997, the Company entered into a five-year $150 million credit
agreement with The Chase Manhattan Bank, as administrative agent, and other
lending institutions with an initial borrowing base of $50 million (the "New
Credit Facility").
The Company intends to fund its planned capital expenditures, commitments
and working capital requirements through cash flows from operations, from the
proceeds of the sale of the Old Notes and to the extent necessary, borrowings
under the New Credit Facility or other potential financings. If there are
changes in oil and natural gas prices, however, that correspondingly affect cash
flows and the borrowing base under the New Credit Facility, the Company has the
discretion and ability to adjust its capital budget. The Company believes it
will have sufficient capital resources and liquidity to fund its capital
expenditures and meet its financial obligations as they come due.
The following is a description of the New Credit Facility:
General. The New Credit Facility is among the Company, The Chase Manhattan
Bank, as administrative agent (the "Agent"), and other lending institutions (the
"Banks"). The New Credit Facility provides for an aggregate principal amount of
revolving loans of up to the lesser of $150 million or the borrowing base as in
effect from time to time, which includes a subfacility from the Agent for
letters of credit of up to $25 million. Initially, the borrowing base will be
$50 million. The borrowing base will be redetermined by the Agent and the Banks
semi-annually based upon their usual and customary oil and gas lending criteria
as such exist from time to time. In addition, the Company may request two
additional redeterminations and the Banks may request one additional
redetermination per year. Capitalized terms used in this description that are
not defined herein have the meaning given to such terms in the New Credit
Facility.
Collateral. Indebtedness of the Company under the New Credit Facility will
be secured by a pledge of the capital stock of each of the Company's material
subsidiaries.
Interest. Indebtedness under the New Credit Facility bears interest at a
floating rate based (at the Company's option) upon (i) the ABR with respect to
ABR Loans or (ii) the Eurodollar Rate for one, two, three or six months (or nine
or twelve months if available to the Banks), plus the Applicable Margin. The ABR
will be the greater of (i) the Prime Rate, (ii) the Base CD Rate plus 1% or
(iii) the Federal Funds
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<PAGE> 33
Effective Rate plus 1/2 of 1%. The Applicable Margin for Eurodollar Loans will
vary from 0.50% to 0.875% depending on the borrowing base usage. Borrowing base
usage will be a ratio of (i) outstanding Loans and letters of credit to (ii) the
then effective borrowing base. Interest on ABR Loans will be payable quarterly
in arrears and interest on Eurodollar Loans will be payable on the last day of
the interest period therefor and, if longer than three months, at three month
intervals.
Maturity. The New Credit Facility will terminate in September 2002. The New
Credit Facility provides that loans may be borrowed, repaid and reborrowed from
time to time until such termination date, subject to the satisfaction of certain
conditions on the date of any such borrowing and, in the case of repayment of
Eurodollar Loans, compliance with certain yield protection provisions.
Scheduled Payments and Prepayments. The New Credit Facility does not
require any scheduled payments of principal. The New Credit Facility provides
for mandatory repayments of loans if the aggregate principal amount of the loans
and the letters of credit exceed the borrowing base then in effect. The first
such prepayment must be in an amount of not less than 50% of the deficiency and
will be due within 90 days of the date such deficiency is determined to exist.
The balance will be due within the next 90 day period.
Amounts under the New Credit Facility may be voluntarily prepaid without
premium or penalty, subject to certain notice requirements, certain required
minimum prepayment amounts and in the case of Eurodollar Loans, certain yield
protection provisions.
Commitment and Letter of Credit Fees. The Company is required to pay to the
Banks a commitment fee based on the committed undrawn amount of the lesser of
the aggregate commitments or the then effective borrowing base during a
quarterly period equal to a percent which varies from 0.20% to 0.30% depending
on the borrowing base usage. Such commitment fees will be payable in arrears on
a quarterly basis. The Company also is required to pay letter of credit fees as
follows: (i) to the Banks, an amount equal to the Applicable Margin for the
daily aggregate amount available to be drawn under each letter of credit
outstanding; and (ii) to the Agent, an issuance fee equal to 0.125% per annum of
the stated amount of each letter of credit. Fees payable under clause (i) and
(ii) are payable quarterly in arrears and fees payable under clause (ii) are
also payable on each anniversary of the date of issuance of such letter of
credit if the letter of credit is outstanding for a period in excess of one
year. The Company will also pay other usual and customary costs and expenses
associated with issuing, effecting payment, amending, negotiating or
administering the letters of credit.
Conditions to Extensions of Credit. The obligation of the Banks to make
subsequent loans or extend letters of credit is subject to the satisfaction of
certain customary conditions including, but not limited to, the absence of a
default or event of default under the New Credit Facility, all representations
and warranties under the New Credit Facility and the other related Loan
Documents (including, without limitation, a material adverse change
representation) being true and correct.
Covenants. The New Credit Facility requires the Company to meet certain
financial tests, including meeting a minimum interest coverage ratio and current
ratio and a maximum leverage ratio. The New Credit Facility also contains
covenants which, among other things, limit the incurrence of additional
indebtedness, the nature of the business of the Company and its subsidiaries,
investments, leases of assets, ownership of subsidiaries, dividends,
transactions with affiliates, asset sales, acquisitions, mergers and
consolidations, liens and encumbrances and other matters customarily restricted
in such agreements. The New Credit Facility also contains additional covenants
which require the Company to maintain its properties and those of its
subsidiaries, together with insurance thereon, to provide certain information to
the Agent and the Banks, including financial statements, notices and reports and
to permit inspections of the books and records of the Company and its
subsidiaries, to comply with applicable laws, including environmental laws and
ERISA, to pay taxes and contractual obligations and to use the proceeds of the
loans for working capital and for other general corporate purposes.
Events of Default. The New Credit Facility contains customary events of
default, including payment defaults, breach of representations, warranties and
covenants (subject to certain cure periods), cross-
32
<PAGE> 34
defaults to certain other indebtedness, certain events of bankruptcy and
insolvency, judgment defaults in excess of $1 million and the failure of any of
the pledges to be in full force and effect.
Indemnification. Under the New Credit Facility, the Company has agreed to
indemnify the Agent and the Banks and related persons from and against any and
all losses, liabilities, claims, damages or expenses (including, without
limitation, fees and disbursements of counsel) that may be incurred by or
asserted against any such indemnified party in connection with any
investigation, litigation or other proceeding relating to the entering into
and/or performance of the New Credit Facility or related Loan Documents,
provided that the Company is not liable for any such losses, liabilities,
claims, damages or expenses resulting from such indemnified party's own gross
negligence or willful misconduct.
Eurodollar Yield Protection; Etc. The New Credit Facility contains
customary provisions protecting the Banks in the event of unavailability of
funding, illegality, capital adequacy requirements, increased costs, withholding
taxes and funding losses.
Commodity Price Risk Management Transactions
Certain of the Company's commodity price risk management arrangements
require the Company to deliver cash collateral or other assurances of
performance to the counterparties in the event that the Company's payment
obligations with respect to its commodity price risk management transactions
exceed certain levels.
With the primary objective of achieving more predictable revenues and cash
flows and reducing the exposure to fluctuations in oil and natural gas prices,
the Company has entered into price risk management transactions of various kinds
with respect to both oil and natural gas. While the use of certain of these
price risk management arrangements limits the downside risk of adverse price
movements, it may also limit future revenues from favorable price movements. The
Company engages in transactions such as selling covered calls or straddles which
are marked-to-market at the end of the relevant accounting period. Since the
futures market historically has been highly volatile, these fluctuations may
cause significant impact on the results of any given accounting period. The
Company has entered into price risk management transactions with respect to a
substantial portion of its estimated production for the remainder of 1997 and
with respect to lesser portions of its estimated production for 1998 and 1999.
The Company continues to evaluate whether to enter into additional price risk
management transactions for 1997 and future years. In addition, the Company may
determine from time to time to unwind its then existing price risk management
positions as part of its price risk management strategy.
Environmental Matters
The Company's operations are subject to various federal, state and local
laws and regulations relating to the protection of the environment, which have
become increasingly stringent. The Company believes its current operations are
in material compliance with current environmental laws and regulations. There
are no environmental claims pending or, to the Company's knowledge, threatened
against the Company. There can be no assurance, however, that current regulatory
requirements will not change, currently unforeseen environmental incidents will
not occur or past noncompliance with environmental laws will not be discovered
on the Company's properties.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 -- "Earnings per
Share" effective for interim and annual periods after December 15, 1997. This
statement replaces primary earnings per share ("EPS") with a newly defined basis
EPS and modifies the computation of diluted EPS. The Company's basic and diluted
EPS computed using the requirements of SFAS 128 are the same as the Company's
current disclosed pro forma net income per common share.
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<PAGE> 35
BUSINESS AND PROPERTIES
GENERAL
Belco is an independent energy company engaged in the exploration for and
exploitation, development and production of natural gas and oil primarily in the
Rocky Mountains, Texas, Louisiana and Michigan. Since its inception in April
1992, the Company has grown and diversified its reserve base largely through a
balanced program of exploration and development drilling. The Company
concentrates its activities in core areas in which it has accumulated detailed
geologic knowledge and has developed significant management and technical
expertise. Additionally, the Company structures its participation in natural gas
and oil exploration and development activities to minimize initial costs and
risks, while permitting substantial follow on investment. For the twelve months
ended June 30, 1997, the Company generated natural gas and oil revenues of
$125.6 million and EBITDA of $105.5 million.
The Company has achieved substantial growth in reserves, production,
revenues and EBITDA since 1992. Belco's estimated proved reserves have increased
at a compound annual growth rate of 46.1%, from 67 Bcfe as of December 31, 1992
to 305 Bcfe as of December 31, 1996. Over this period, average daily production
has increased from 4 MMcfe per day in 1992 to over 153 MMcfe per day in 1996.
Similarly, the growth in the Company's natural gas and oil revenues and EBITDA
has been substantial, increasing from $3.5 million and $2.9 million,
respectively, for the year ended December 31, 1992, to $119.7 million and $105.5
million, respectively, for the year ended December 31, 1996. The Company's low
cost structure is evidenced by its general and administrative expenses of $0.06
per Mcfe and lease operating expenses of $0.14 per Mcfe in 1996. For the three
years ended December 31, 1996, the Company's operating cash inflows per Mcfe
averaged $1.65 and its finding costs averaged approximately $0.80 per Mcfe.
The Company's operations are currently focused on the Green River Basin
(which includes the Moxa Arch Trend), the Wind River and Big Horn Basins, all of
which are in Wyoming, the Giddings Field in east central Texas, the Austin Chalk
Trend in Louisiana and the Central Basin in Michigan. At December 31, 1996, the
Company had estimated proved reserves of 305 Bcfe with a pre-tax Present Value
of $416 million after adjusting for oil and gas commodity hedges. On an Mcfe
basis, the Company's estimated proved reserves were 65% proved developed and 93%
natural gas. As of June 30, 1997, Belco held or controlled interests in
approximately 2.8 million gross (1.3 million net) undeveloped acres and the
Company had an interest in 533 gross (170 net) wells.
BUSINESS STRENGTHS
The Company believes that it has certain strengths that provide it with
significant competitive advantages, including the following:
Proven Growth Record. The Company has generated consistent growth
through a balanced exploration and development program. Over the last four
years, on a compound annual basis, the Company has increased proved
reserves by 46.1%, production by 148.7% and EBITDA by 146.0%.
Substantial Drilling Inventory. The Company has identified over 750
potential drilling locations based on geological and geophysical
evaluations. Additionally, the Company has spent $82.8 million since
January 1, 1996 to increase its acreage position from approximately 330,000
gross (146,000 net) undeveloped acres to approximately 2.8 million gross
(1.3 million net) undeveloped acres at June 30, 1997.
Strategic Alliances. The Company has formed key strategic alliances
with experienced industry partners such as Amoco Production Company
("Amoco"), Union Pacific Resources Group ("UPR") and OXY USA ("OXY"). In
cases where the Company is not the operator, the alliance has been
structured to enable the Company to become integrally involved with the
drilling and production decision making process. These strategic alliances
also provide the Company with the
34
<PAGE> 36
benefits of shared technological expertise, while affording the Company the
opportunity to diversify risk.
Successful Drilling Record. Since inception through December 31, 1996,
the Company has drilled 438 gross (122.2 net) development wells of which
408 gross (114.1 net) are currently producing. Additionally, the Company
has drilled 36 gross (16.3 net) exploratory wells of which 20 gross (13
net) are currently producing. During this period, the Company's drilling
efforts resulted in over 436 Bcfe of proved reserves (including revisions)
at a finding cost of approximately $0.72 per Mcfe.
High Operating Margins. The Company's drilling success, its high
impact wells and low cost structure have enabled the Company to generate
high gross cash margins of $2.09 per Mcfe pre tax ($1.99 per Mcfe net of
tax) for the twelve months ended June 30, 1997. This margin compares
favorably to an average of $1.71 per Mcfe experienced by public companies
which the Company believes are peer companies (and based on publicly filed
industry data) for the same period. This peer group consists of the
following companies: Barrett Resources Corp., Forcenergy Inc., Nuevo Energy
Co., HS Resources, Inc., Seagull Energy Corp., United Meridian Corp., Cross
Timbers Oil Co., Vintage Petroleum, Inc. and Lomak Petroleum, Inc.
Experienced and Committed Management. Belco's senior management team
has extensive experience in the oil and gas industry. In particular, the
Company's Chief Executive Officer, Robert A. Belfer, began his career in
the oil and gas industry in 1958 with Belco Petroleum Corporation, which
grew to become a Fortune 500 company with operations primarily in the Rocky
Mountains and offshore Peru. In 1983, BPC merged with InterNorth, a
predecessor of Enron Corp. Mr. Belfer and his family own an approximate
77.3% equity interest in the Company.
BUSINESS STRATEGY
The key elements of the Company's strategy are as follows:
Pursue a Balanced Drilling Program. Belco believes that there are
significant exploratory and development opportunities in the Rocky
Mountain, Texas, Louisiana and Michigan acreage positions that the Company
has assembled. The Company has identified potentially more than three years
of drilling inventory based on its existing holdings. Through June 30,
1997, the Company has made capital expenditures of approximately $72
million and plans to spend approximately $78 million through the remainder
of 1997.
Utilize Advanced Technology. The Company extensively uses advanced
technology, including equipment designed specifically for drilling deep
horizontal wells, the application of innovative hydraulic fracturing
techniques and 3-D seismic. Additionally, the Company has acquired
approximately 144 square miles of 3-D seismic data and 54 thousand miles of
2-D seismic data in its core geographic areas and plans to acquire an
additional 130 square miles of 3-D seismic data. The Company's experienced
technical staff includes six petroleum engineers, nine geologists and one
geophysicist, who have, on average, over 17 years of experience in the oil
and gas industry.
Maintain Low Cost Structure. The Company's management team is focused
on maintaining a low cost structure to maximize cash flow and earnings. As
part of this strategy, the Company focuses on core operating areas where it
can achieve economies of scale. The Company believes that maintaining its
low cost structure permits the Company to be consistently profitable in
various pricing environments.
Reduce Commodity Price Volatility. The Company engages in a wide
variety of commodity price risk management transactions with the objective
of achieving more predictable revenues and cash flows and reducing its
exposure to fluctuations in natural gas and oil prices.
Maintain Financial Flexibility. The Company is committed to
maintaining financial flexibility in order to pursue exploration and
development activities and take advantage of other opportunities that may
arise. Historically, the Company has funded its growth through internally
generated cash flow, bank credit facilities and proceeds from its initial
public offering in March 1996. The issuance of
35
<PAGE> 37
the Notes offered hereby in conjunction with the Company's New Credit
Facility will increase liquidity and diversify the Company's capital
structure.
Pursue Selective Acquisitions. To augment its growth through the
drillbit, the Company continually reviews potential acquisitions of oil and
gas properties or businesses that complement its existing operations and
that provide long term growth opportunities. The Company focuses its
attention on potential acquisitions principally within its core operating
areas or in areas that may establish a new core area and generally have (i)
high working interests; (ii) long lived reserves; (iii) operational control
or the ability to exercise significant influence over operations; and, (iv)
significant development potential.
PRIMARY OPERATING AREAS
The Company's operations are currently focused in four primary operating
areas: (i) the Rocky Mountains, principally in Wyoming, which include the Green
River Basin (inclusive of the Moxa Arch Trend), the Wind River and the Big Horn
Basins; (ii) Texas, principally in the Giddings Field in east central Texas,
which includes the Navasota, Independence and River Bend prospect areas; (iii)
Louisiana, in the Austin Chalk Trend; and, (iv) Michigan's Central Basin.
Rocky Mountains -- Wyoming
The Company maintains a significant acreage position in the Rocky Mountains
of Wyoming on which it conducts an ongoing exploration and development program.
In June 1992, the Company commenced a development drilling program in the Moxa
Arch Trend pursuant to a farmout from Amoco. In 1996, the Company significantly
expanded its acreage and exploration activities by acquiring the rights to up to
approximately 750,000 gross (250,000 net) acres in the Green River, Wind River
and Big Horn Basins in Wyoming, which lie north and east of the Moxa Arch Trend.
The Company has added approximately 225,565 gross (68,441 net) acres thus far in
1997 in these basins.
Moxa Arch Trend. One of the Company's primary operating areas is the Moxa
Arch Trend located in the Greater Green River Basin in southwestern Wyoming,
principally in Lincoln, Sweetwater and Uinta Counties. Approximately 48% of the
Company's estimated proved reserves at December 31, 1996 were located in this
field. The Company participates in vertical gas wells in this area which target
the Frontier and/or Dakota formations at depths that range from approximately
10,000 to 12,500 feet. The Frontier formation is a relatively blanket "tight gas
sand" formation, while the Dakota formation, beneath the Frontier, tends to be a
more prolific, but less predictable channel sand. Production from Moxa Arch
wells, particularly from the Frontier formation, tends to be long-lived, with 25
to 30 year reserve lives not uncommon.
Through 1996, the Company had participated in 186 gross (55 net) wells in
this field with 118 Frontier wells, 14 Dakota wells and 44 dual completions
(both Frontier and Dakota completed). Average net production for the first half
of 1997 was approximately 24.4 MMcfe per day. Forty-seven of the Company's wells
drilled in 1992 qualified for the Section 29 Tax Credit of approximately $0.59
per Mcf, which is attributable to all qualified production from these wells
through 2002.
Beginning in the middle of 1994, the Company substantially reduced the rate
at which it participated in new Moxa Arch wells. This reduction was primarily
due to: (i) Rocky Mountain gas prices which, on both an absolute and relative
basis, experienced a substantial decline in 1994 through late 1996, but which
recovered in late 1996 and early 1997, and (ii) the Bureau of Land Management
("BLM") which required all operators to perform an environmental impact study
("EIS") along a portion of the Moxa Arch. In March 1997, the BLM issued its
record of decision. In concluding its review of the EIS, the BLM has authorized
the drilling of approximately 700 natural gas wells in the Moxa Arch, subject to
review of certain air quality components. In May 1997, the Company re-commenced
drilling operations in the Moxa Arch Trend and plans to utilize 2-3 rigs to
drill 30+ locations in 1997. See "-- Regulation -- Environmental Regulation."
36
<PAGE> 38
Green River, Wind River and Big Horn Basins. Effective November 1, 1996,
the Company entered into a joint development agreement with Andex Partners and
Andover Partners to conduct exploratory operations in the Green River and Wind
River Basins of Wyoming. Under the agreement, the Company will spend a minimum
of $20 million on seismic, leasing and exploratory activities through December
31, 2001 and will initially earn rights to a 50% interest in approximately
300,000 net acres. At July 31, 1997, four exploratory wells on the acreage were
drilling and two exploratory wells were in the completion phase. Three of the
wells are operated by UPR and three are operated by Yates Petroleum Corporation
("Yates").
Effective December 31, 1996, the Company entered into two joint development
agreements with Snyder Oil Company ("SOCO") pursuant to which the Company
acquired or has the right to acquire a 50% interest in 87,321 net acres in the
Wind River Basin of Wyoming and 110,859 net acres in the Big Horn Basin of
Wyoming. Under such agreements, SOCO will be the operator. In June 1997, the
initial well in the Big Horn Basin tested at the rate of 400 Mcfe per day and is
currently being evaluated. The Tribal #46, the initial well on the Company's
Wind River acreage, was completed in August 1997 and initially produced in
excess of 3.5 MMcf per day.
In June 1997, the Company entered into a participation agreement with Tom
Brown Inc. ("Tom Brown") and Andover Partners covering an approximate one
million acre AMI in the Big Horn Basin and acquired an interest in an initial
100,000 gross (25,000 net) acres.
The Company expects to participate in a series of exploratory wells in
these Basins with UPR, SOCO, Tom Brown and Yates serving as primary operators.
These wells will target multiple formations, the most prevalent of which is the
Frontier formation. If initial results are successful, these projects hold the
potential for multi-well developmental drilling programs for the Company over
the next several years.
Texas
Giddings Field. Approximately 45% of the Company's estimated proved
reserves at December 31, 1996 were located in the Giddings Field of east central
Texas, principally in Grimes, Washington and Fayette Counties. The Giddings
Field is one of the most actively drilled oil and gas fields in the United
States. The primary producing zone in the Giddings Field is the Austin Chalk, a
fractured carbonate formation that has been highly conducive to the application
of horizontal drilling technology. The Austin Chalk formation is encountered in
this field at depths believed by the Company to range between approximately
7,000 and 17,000 feet.
The Company first acquired interests in the Giddings Field in September
1992. During the first half of 1997, average net production from this field was
approximately 108 MMcfe per day. Through June 30, 1997, the Company had drilled
248 gross (85.3 net) wells in this field and continues to control approximately
315,000 gross undeveloped acres in this area. The Company currently divides the
Giddings Field into three prospect areas: (i) Navasota River, primarily in
Grimes County; (ii) Independence, primarily in Washington County; and, (iii)
River Bend, primarily in Fayette County. The Company expects to be drilling new
wells in the Giddings Field for the foreseeable future in addition to
re-entering older wells to drill additional laterals. Currently, a majority of
the Company's interests in this field are held pursuant to agreements with and
operated by Chesapeake Energy Corporation ("Chesapeake") and, to a lesser
extent, UPR. The Company serves as operator in the River Bend prospect area.
The Company believes that its success in the Giddings Field is attributable
to three principal factors: (i) continued technological advances in horizontal
drilling have significantly lowered finding and development costs in the field;
(ii) the geological setting of the deeper downdip areas of the field has created
more extensive fracturing than in other areas of the Texas Austin Chalk Trend;
and, (iii) the Company's acquisition program in cooperation with other operators
has permitted the creation of larger spacing units, thus reducing possible
competition for reserves from offsetting wells. As a result of these factors,
the Company's deeper downdip wells have, on average, produced greater reserves
per well than average wells in other areas of the Texas Austin Chalk Trend.
37
<PAGE> 39
The majority of the Company's acreage in the Giddings Field was classified
as a tight sands reservoir by the Texas Railroad Commission. Wells spud between
June 1989 and September 1996 are exempt from the 7.5% state severance tax on
natural gas through August 2001. See "--Texas Severance Tax Abatement."
Gulf Coast. In March 1996, the Company entered into an exploration
agreement with Edge Petroleum Corporation ("Edge") pursuant to which the parties
expect to jointly conduct a series of 3-D seismic programs covering potentially
up to 750 square miles onshore in the Gulf Coast region of Texas. Under the
program, Edge and the Company initiated the first 50+ square mile 3-D seismic
shoots targeting the shallower Frio formation and potentially larger reserves in
the deeper Wilcox and Yegua formations. Edge will be operator of any shallow
zone wells drilled under the program and under certain circumstances the Company
will operate prospects targeting deeper zones. At June 30, 1997, Belco and Edge
had acquired seismic options on approximately 35,000 gross acres. As of July 31,
1997, three Frio wells have been drilled based on the evaluations of the initial
3-D seismic shoot, with two successful tests. The Company plans to participate
in additional Frio wells and Wilcox and Yegua prospects later this year.
Louisiana -- Austin Chalk Trend
The Louisiana Austin Chalk Trend is an extension of the 200-mile long
Austin Chalk Trend of Texas and represents a continuation of the Company's
exploration and development activities using deep-well horizontal drilling
technology. In December 1994, OXY announced the completion of a single lateral
horizontal Austin Chalk discovery in the Masters Creek area of central
Louisiana, approximately 200 miles east of the Company's activities in the
Giddings Field.
Since 1994, more than two and one-half million acres have been leased in
the Louisiana Austin Chalk Trend by industry participants including the Company,
UPR, Chesapeake, OXY and Sonat, Inc. Currently, approximately 30 rigs are
drilling in the Louisiana Austin Chalk Trend, including two rigs operated by the
Company. Recent drilling results for the Company include the Turner 22#1 well, a
dual lateral horizontal well, which was placed on production in late May and as
of August 1, 1997 has produced in excess of 200,000 barrels of oil and 310 MMcf
of gas. At June 30, 1997, the Company owned or had the right to acquire
approximately 345,000 net acres in this trend, representing a net investment of
approximately $38 million.
In order to further develop its large acreage position, in December 1996
the Company entered into two AMIs with UPR covering approximately 93,000
combined net acres in Avoyelles, Evangeline, Rapides and St. Landry Parishes,
and one AMI with OXY covering approximately 24,000 combined net acres in St.
Landry Parish. These AMIs, which provide for a sharing of costs and benefits as
well as operations in each such area, allow the Company to expedite the
exploration and development of its acreage position and gain the benefits of
shared expertise with two leading industry partners and experienced horizontal
players. Wells are now drilling in each of the UPR AMIs with operations
scheduled to commence in the OXY AMI in September 1997. In May 1997, the Company
created an additional AMI with OXY by selling additional fractional interests in
approximately 29,500 net acres to OXY for $11.8 million, realizing a substantial
gain on this transaction, which gain is applied to reduce the Company's property
pooled. The Company also retained a small royalty interest on such acreage.
Michigan -- Central Basin
In June 1996, the Company entered into an exploration program with two
private oil and gas companies pursuant to which the Company acquired a 35%
interest in approximately 220,000 net acres in the Central Basin of Michigan and
obtained the option to acquire an additional undivided 15% of such acreage
following the completion of a multi-well test program. By June 30, 1997, the
Company had accumulated interests, including the foregoing, in a total of
approximately 422,100 gross and 159,396 net acres in this Basin.
38
<PAGE> 40
The initial objectives of this play are thin gas-bearing sands at depths
ranging from approximately 8,000 to 10,000 feet. In addition, shallower oil
zones are expected to be tested in the Company's 1997 drilling program.
In late 1996, the Company began operations on an initial test program
covering different portions of this large acreage position. Each of these
vertical wells target one or more formations with long-lived reserves
anticipated. At June 30, 1997, the Company had participated in eight wells with
three successful wells, three wells waiting on completion or further evaluation
and two unsuccessful wells. While per well recoveries are expected to be modest,
lower drilling costs and premium pricing to NYMEX create the potential for
overall attractive economics.
ACREAGE
The following table sets forth, as of December 31, 1996, the gross and net
acres that the Company owns, controls or has the right to acquire interests in
both developed and undeveloped acreage. Developed acreage refers to acreage
within producing units and undeveloped acreage refers to acreage that has not
been placed in producing units. "Gross" acres refers to the total number of
acres in which the Company owns a working interest. "Net" acres refers to gross
acres multiplied by the Company's fractional working interest. As of June 30,
1997, the Company had increased its developed acreage to 191,246 gross (68,017
net) acres and its undeveloped acreage to 2,792,625 gross (1,264,941 net) acres.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED(1)
---------------- ---------------------
GROSS NET GROSS NET
------- ------ --------- ---------
<S> <C> <C> <C> <C>
Rocky Mountains:
Green River Basin.............................. -- -- 553,001 150,435
Moxa Arch Trend................................ 25,737 14,290 33,822 19,755
Wind River Basin............................... -- -- 57,923 28,459
Big Horn Basin................................. -- -- 119,034 55,431
Denver-Julesburg Basin......................... -- -- 217,811 131,032
Texas:
Giddings Field................................. 129,422 40,812 313,500 152,538
Gulf Coast..................................... 428 214 35,172 17,720
Louisiana:
Austin Chalk Trend............................. 960 960 459,427 364,605
Michigan:
Central Basin.................................. -- -- 395,023 144,847
Oklahoma:
Golden Trend................................... 11,680 1,686 3,278 983
------- ------ --------- ---------
Totals......................................... 168,227 57,962 2,187,991 1,065,805
======= ====== ========= =========
</TABLE>
- ---------------
(1) Leases covering approximately half of the undeveloped acreage will expire
within the next five years. However, the Company expects to evaluate this
acreage prior to its expiration. The Company's leases generally provide that
the leases will continue past their primary terms if oil or gas in
commercial quantities is being produced from a well on such leases.
39
<PAGE> 41
POTENTIAL DRILLING LOCATIONS
The following table sets forth as of June 30, 1997, the number of potential
drilling locations identified by the Company.
<TABLE>
<S> <C>
Rocky Mountains............................................. 390
Texas....................................................... 125
Louisiana................................................... 120
Michigan.................................................... 120
Oklahoma.................................................... 8
---
Totals............................................ 763
===
</TABLE>
DRILLING ACTIVITY
The following table sets forth the wells participated in by the Company
during the periods indicated. In the table, "gross" refers to the total wells in
which the Company has a working interest, and "net" refers to gross wells
multiplied by the Company's working interest therein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
--------------------------------------------- ENDED JUNE 30,
1994 1995 1996(1) 1997(2)
------------- ------------- ------------- ---------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Development:
Productive...................... 82.0 21.0 84.0 24.0 64.0(3) 23.0 25.0 9.9
Non-productive.................. 0.0 0.0 6.0 1.2 2.0 0.8 5.0 2.8
---- ---- ---- ---- ---- ---- ---- ----
Total................... 82.0 21.0 90.0 25.2 66.0 23.8 30.0 12.7
==== ==== ==== ==== ==== ==== ==== ====
Exploratory:
Productive...................... 5.0 1.2 5.0 1.9 10.0 7.9 8.0 7.3
Non-productive.................. 0.0 0.0 2.0 0.3 3.0 2.4 8.0 4.5
---- ---- ---- ---- ---- ---- ---- ----
Total................... 5.0 1.2 7.0 2.2 13.0 10.3 16.0 11.8
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- ---------------
(1) Does not include 16.0 gross (8.9 net) wells being drilled at December 31,
1996.
(2) Does not include 13.0 gross (6.9 net) wells being drilled at June 30, 1997.
(3) Includes three gross oil and gas wells with multiple completions. Wells with
multiple completions are counted only once for purposes of the above table.
40
<PAGE> 42
VOLUMES, REVENUE, PRICES AND PRODUCTION COSTS
The following table sets forth certain information regarding the production
volumes, revenue, average prices received and average production costs
associated with the Company's sale of oil and natural gas for the periods
indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Production Data:
Oil (MBbl)........................ 691 961 794 414 453
Gas (MMcf)........................ 17,482 37,047 51,289 26,787 25,100
Gas equivalent (MMcfe)............ 21,628 42,813 56,053 29,271 27,818
Oil and Gas Sales ($ in 000's)(1)... $40,362 $68,767 $119,710 $56,646 $62,578
Average Sales Price (Unhedged):
Oil ($ per Bbl)................... $ 16.48 $ 17.35 $ 21.30 $ 19.93 $ 20.49
Gas ($ per Mcf)................... $ 1.67 $ 1.42 $ 2.00 $ 1.81 $ 2.12
Costs ($ per Mcfe):
Oil and gas operating expenses.... $ 0.25 $ 0.14 $ 0.14 $ 0.13 $ 0.16
General and administrative........ $ 0.10 $ 0.06 $ 0.06 $ 0.06 $ 0.06
Depreciation, depletion and
amortization of oil and gas
properties..................... $ 0.65 $ 0.64 $ 0.73 $ 0.66 $ 0.78
</TABLE>
- ---------------
(1) Oil and gas sales exclude results related to commodity price risk management
activities reported separately.
DEVELOPMENT, EXPLORATION AND ACQUISITION EXPENDITURES
The following table sets forth certain information regarding the costs
incurred by the Company in its development, exploration and acquisition
activities during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------------ ENDED
1994 1995 1996 JUNE 30, 1997
------- ------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Development Costs........................... $39,587 $54,451 $ 50,433 $29,442
Exploration Costs........................... 1,727 2,382 17,444 22,148
Acquisition Costs:
Unproved properties....................... 10,916 13,643 64,530 18,227
Proved properties......................... -- -- 9,871 1,876
Capitalized Interest........................ -- 911 434 --
------- ------- -------- -------
Total............................. $52,230 $71,387 $142,712 $71,693
======= ======= ======== =======
</TABLE>
OIL AND GAS RESERVES
The Company engaged Miller and Lents to estimate the Company's net proved
reserves, projected future production, estimated future net revenue attributable
to its proved reserves, and the present value of such estimated future net
revenue as of December 31, 1996. Miller and Lents' estimates were based upon a
review of production histories and other geologic, economic, ownership and
engineering data provided by the Company. In estimating the reserve quantities
that are economically recoverable, Miller and Lents used selling prices and
estimated development and production costs that were in effect during December
1996 without giving effect to hedging activities. In accordance with
requirements of the Commission, no price or cost escalation or de-escalation was
considered by Miller and Lents. Based upon the Miller and Lents Report, the
Company has calculated estimated future net revenues to give effect to the
impact of oil and gas commodity hedges, which are set forth in footnote (5) to
the following table.
41
<PAGE> 43
Horizontal completions are relatively new and, therefore, reserve estimates
for such wells are inherently less certain than estimates of reserves from wells
completed utilizing traditional methods having longer production histories. This
lack of operating history also prevents reservoir engineers from estimating
reserves based on production and pressure performance methods. Reserves assigned
to these properties were necessarily based on analogy with older wells producing
from the same horizons. Reserve estimates based on analogy are less precise than
estimates based on volumetric calculations or analysis of production and
pressure performance.
The table below sets forth information as of December 31, 1996, with
respect to the Company's estimated net proved reserves as estimated by Miller
and Lents. The present value of estimated future net revenue shown is not
intended to represent the current market value of the estimated oil and gas
reserves owned by the Company.
<TABLE>
<CAPTION>
PROVED PROVED
DEVELOPED(1) UNDEVELOPED(2)(3) TOTAL(3)
------------ ----------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Estimated Proved Reserves:
Oil and condensate (MMBbls)...................... 2.1 1.2 3.3
Gas (Bcf)(4)..................................... 184.9 100.1 285.0
Gas equivalents (Bcfe)........................... 197.3 107.7 305.0
Estimated Future Net Revenue Before
Income Taxes(5).................................. $559,131 $248,958 $808,089
Present Value of Estimated Future Net Revenue
Before Income Taxes (Discounted at 10% Per
Annum)(5)........................................ $336,247 $134,332 $470,579
</TABLE>
- ---------------
(1) Proved developed reserves are proved reserves which are expected to be
recovered from existing wells with existing equipment and operating methods.
(2) Proved undeveloped reserves are proved reserves which are expected to be
recovered from new wells drilled to known reservoirs on undrilled acreage
for which the existence and recoverability of such reserves can be estimated
with reasonable certainty or from existing wells where a relatively major
expenditure is required to establish production.
(3) Includes approximately 11 Bcfe of proved undeveloped reserves subject to a
participation right owned by third party investors in the Company's Moxa
Arch Drilling Programs.
(4) Includes natural gas liquids.
(5) Estimated future net revenue before income taxes represents estimated future
gross revenue to be generated from the production of proved reserves, net of
estimated production and future development costs, using prices at year-end
1996, which were $3.68 per Mcf of gas and $25.13 per barrel of oil without
giving effect to commodities price risk management related activities. At
December 31, 1996, the estimated future net revenue before income taxes and
the present value of such estimated future net revenue before income taxes
related to such activities were ($60,760) and ($55,151), respectively (based
on oil and gas prices in effect at December 31, 1996), which amounts have
not been deducted from estimated future net revenue before income taxes and
its present value as shown above. If such amounts were deducted, estimated
future net revenue before income taxes would equal $498,372 (Proved
Developed) and $747,330 (Total) and present values of such estimated future
net revenues before income taxes would equal $281,198 (Proved Developed) and
$415,530 (Total). The amounts shown are in thousands and do not give effect
to non-property related expenses, such as general and administrative
expenses, debt service and future income tax expense or to depreciation,
depletion and amortization. See Note 13 to Notes to Consolidated Financial
Statements.
The prices used in calculating the estimated future net revenue
attributable to proved reserves do not necessarily reflect market prices for oil
and gas production subsequent to December 31, 1996. There can be no assurance
that all of the proved reserves will be produced and sold within the periods
indicated, that the assumed prices will actually be realized for such production
or that existing contracts will be honored or judicially enforced.
With respect to the interests described in Note (3) above, the Company's
actual interests may differ from such assumed interests as a result of Moxa Arch
Program investor's determination to participate in offset wells under applicable
participation agreements.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures, including many factors
42
<PAGE> 44
beyond the control of the Company. The reserve data set forth herein represents
only estimates. Reserve engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
way, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment. As
a result, estimates made by different engineers often vary. In addition, results
of drilling, testing and production subsequent to the date of an estimate may
justify revision of such estimates, and such revisions may be material.
Accordingly, reserve estimates are often different from the quantities of oil
and gas that are ultimately recovered. Furthermore, the estimated future net
revenue from proved reserves and the present value thereof are based upon
certain assumptions, including prices, future production levels and costs, that
may not prove correct over time. Predictions about prices and future production
levels are subject to great uncertainty, and this is particularly true as to
proved undeveloped reserves, which are inherently less certain than proved
developed reserves and which comprise a significant portion of the Company's
proved reserves. See "Risk Factors."
PRODUCTIVE WELL SUMMARY
The following table sets forth the Company's ownership in productive wells
at December 31, 1996. Gross oil and gas wells include three with multiple
completions. Wells with multiple completions are counted only once for purposes
of the following table. Production from various formations in wells without
multiple completions is commingled.
<TABLE>
<CAPTION>
PRODUCTIVE WELLS
----------------
GROSS NET
----- -----
<S> <C> <C>
Gas......................................................... 386.0 105.9
Oil......................................................... 31.0 14.0
----- -----
Total............................................. 417.0 119.9
===== =====
</TABLE>
MARKETING
There are a variety of factors which affect the market for oil and natural
gas, including the extent of domestic production and imports of oil and gas, the
proximity and capacity of natural gas pipelines and other transportation
facilities, demand for oil and gas, the marketing of competitive fuels and the
effects of state and federal regulations of oil and gas production and sales.
The Company has not experienced any difficulties in marketing its oil or gas.
The oil and gas industry also competes with other industries in supplying the
energy and fuel requirements of industrial, commercial and individual customers.
Although the Company seeks to moderate the impact of price volatility
through its commodity price risk management activities, the Company remains
subject to price fluctuations for natural gas sold in the spot market due
primarily to seasonality of demand and other factors beyond the Company's
control. Domestic oil prices generally follow worldwide oil prices, which are
subject to price fluctuations resulting from changes in world supply and demand.
PRODUCTION SALES CONTRACTS
In Wyoming, the Company sells all of its natural gas, natural gas liquids
and condensate from its Moxa Arch Wells under a market sensitive long term sales
contract with Amoco Energy Trading Corporation (the "Amoco Gas Contract"). The
price payable to the Company under the Amoco Gas Contract for the gas is the
Northwest Pipeline Rocky Mountain Index, plus $0.03 per MMBtu, less fuel charges
and gathering fees and adjusted for Btu content. The Amoco Gas Contract expires
on January 1, 1999. The Amoco Gas Contract can be extended by the Company for an
additional three year term.
All of the Company's current Wyoming oil and condensate production is sold
at market related prices pursuant to an option held by Amoco.
The Company's Moxa Arch wells are subject to various gathering agreements
with third parties including, as to wells drilled under the Amoco Farmout
Agreement in the Wilson Ranch, Seven Mile Gulch
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and Bruff areas, a Gas Gathering and Processing Agreement dated March 20, 1992
with Northwest Pipeline. Gathering fees under this agreement are presently
$0.065 per MMBtu, subject to indexed escalation, and fuel charges of 0.5%.
Gathering fees and fuel charges in the Cow Hollow/Shute Creek areas are similar
to those under the Amoco Gas Contract.
In Texas, Louisiana and Oklahoma, the Company sells its gas to purchasers
under percentage of proceeds or index-based contracts. Under the percentage of
proceeds contract, the Company receives a fixed percentage of the resale price
received by the purchaser for sales of residue gas and natural gas liquids
recovered after gathering and processing the Company's gas. The Company receives
between 85% and 92% of the proceeds from residue gas sales and from 85% to 90%
of the proceeds from natural gas liquids sales received by the Company's
purchasers when the products are resold. The residue gas and natural gas liquids
sold by these purchasers are sold primarily based on spot market prices. The
revenue received by the Company from the sale of natural gas liquids is included
in natural gas sales. Under indexed-based contracts, the Company receives for
its gas at the wellhead a price per MMBtu tied to indexes published in Inside
FERC or Gas Daily, subject in most cases to a discount to the relevant index in
lieu of a gathering fee.
All of the Company's Texas, Louisiana and Oklahoma oil production is sold
under market sensitive or spot price contracts to various purchasers.
Sales to individual customers constituting 10% or more of total oil and gas
sales in 1996 were made to Aquila Southwest Pipeline (37%), GPM Gas Corporation
(31%) and Amoco Gas Trading Corp. (10%).
Management believes that the loss of any of the above customers would not
have a material adverse effect on the Company's results of operations or its
financial position.
PRICE RISK MANAGEMENT TRANSACTIONS
Commodity Price Risk Management
With the objective of achieving more predictable revenues and cash flows
and reducing the exposure to fluctuations in gas and oil prices, the Company has
entered into price risk management transactions of various types with respect to
both natural gas and oil, as described below. While the use of these
arrangements limits the downside risk of adverse price movements, it may also
limit future revenues from favorable price movements. The Company had entered
into price risk management transactions with respect to a substantial portion of
its production for 1996 and 1997 and with respect to lesser portions of its
estimated production for 1998 and significantly less for 1999. The Company
continues to evaluate whether to enter into additional such transactions for
1997 and future years. In addition, the Company may determine from time to time
to terminate its then existing hedging and other risk management positions.
All of the Company's price risk management transactions are carried out in
the over-the-counter market and not on the NYMEX, with financial counterparties
having at least an investment grade credit rating. All of these transactions
provide solely for financial settlements relating to closing prices on the
NYMEX.
The following is a summary of the types of price risk management
transactions in effect as of December 31, 1996.
Swaps. Since all of the Company's natural gas and oil is sold on "floating"
or market related prices, the Company has entered into financial swap
transactions which convert a floating price into a fixed price for a future
month. For any particular swap transaction, the counterparty is required to make
a payment to the Company in the event that the NYMEX Reference Price for any
settlement period is less than the swap price for such hedge, and the Company is
required to make a payment to the counterparty in the event that the NYMEX
Reference Price for any settlement period is greater than the swap price for
such hedge.
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<PAGE> 46
Reverse Swaps. When the Company determines it desires to reduce the amount
of swaps because of an assumed favorable outlook for prices it enters into a
reverse swap. Under such a transaction the role of the Company and the role of
the counterparty are reversed.
Collars. A collar provides for an average floor price and an average
ceiling price. For any particular collar transaction, the counterparty is
required to make a payment to the Company if the average NYMEX Reference Price
for the reference period is below the floor price for such transaction, and the
Company is required to make payment to the counterparty if the average NYMEX
Reference Price is above the ceiling price for such transaction.
Options, Puts and Straddles. When the Company believes that it receives a
sufficiently high cash premium (or other consideration) for granting the
counterparty a call or put option, it may enter into such a transaction. If the
Company sold a $23.00 call on oil for $0.40 a barrel in a given month and prices
averaged $22.00 a barrel for such month, the Company would receive a net
realization per barrel of $22.40 ($22.00 plus the $0.40 premium). However, if
for that month the price of oil averaged $25.00 per barrel, the Company would
receive a net realization of $23.40 (the call price, $23.00, plus $0.40). The
Company regards this as a prudent transaction under certain circumstances
provided that the Company always has more physical production for the periods
involved than its related aggregate risk management transactions. The
transactions described in this paragraph are required to be marked to market as
to the value of these transactions on the last day of the accounting period to
which such statement relates.
Basis Swaps. Since a substantial portion of the Company's natural gas is
sold under spot contracts with reference to Houston Ship Channel prices and the
Company's price risk management transactions are based on the NYMEX Reference
Price relating to gas delivered to Henry Hub, Louisiana, the Company has entered
into basis swaps that require the counterparty to make a payment to the Company
in the event that the average NYMEX Reference Price per MMBtu for gas delivered
to Henry Hub, Louisiana for a reference period exceeds the average price for
MMBtu for gas delivered at the Houston Ship Channel for such reference period by
more than a stated differential, and requires the Company to make a payment to
the counterparty in the event that the NYMEX Reference Price for Henry Hub
exceeds the price for Houston Ship Channel gas by less than the stated
differential (or in the event that the Houston Ship Channel price exceeds the
Henry Hub price). The Company also sells Wyoming gas at prices based on the
Northwest Pipeline Rocky Mountain Index (an index of prices for gas delivered at
various delivery points on the Northwest Pipeline in the Northern Rocky Mountain
area) and has entered into basis swaps that requires the counterparty to make a
payment to the Company in the event that the average NYMEX Reference Price per
MMBtu for gas delivered at Henry Hub, Louisiana for a reference period exceeds
the stated differential or to have the Company pay to the counterparty if it is
less than the stated differential (or if the Northwest Pipeline Rocky Mountain
index price is greater than the NYMEX reference price).
The result of all of these transactions with respect to 1996 and the open
positions for both natural gas and oil with respect to future years (primarily
1997 and 1998) are set forth in detail in Footnote 6 to the Consolidated
Financial Statements.
Certain of the Company's price risk management transactions were previously
covered by guarantees of, and certain other collateral from Robert A. Belfer.
Subsequent to the Company's initial public offering, all such guarantees have
been terminated and all such collateral has been returned.
TEXAS SEVERANCE TAX ABATEMENT
Production from natural gas wells that have been certified as tight
formations or deep wells by the Texas Railroad Commission ("high cost gas
wells") and that were spudded or completed during the period from June 16, 1989
to September 1, 1996 qualify for an exemption from the 7.5% severance tax in
Texas on natural gas and natural gas liquids produced by such wells prior to
August 31, 2001. The natural gas production from wells drilled on certain of the
Company's properties in the Austin Chalk area qualify for this tax exemption. In
addition, high cost gas wells that are spudded or completed during the period
from September 1, 1996 to August 31, 2002 are entitled to receive a severance
tax reduction upon obtaining a high cost gas certification from the Texas
Railroad Commission within 180 days after
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<PAGE> 47
first production. The tax reduction is based on a formula composed of the
statewide "median" (as determined by the State of Texas from producer reports)
and the producer's actual drilling and completion costs. More expensive wells
will receive a greater amount of tax credit. This tax rate reduction remains in
effect for 10 years or until the aggregate tax credits received equal 50% of the
total drilling and completion costs.
LOUISIANA SEVERANCE TAX ABATEMENTS
A five-year exemption from severance tax applies to production from oil and
gas wells that are returned to service after having been inactive for two or
more years or having 30 days or less of production during the past two years. An
application must be made to the Louisiana Department of Natural Resources before
commencement of production during the period beginning July 31, 1994, and ending
June 30, 1998. Upon certification, the five-year exemption period begins from
the date of the application.
All severance tax is suspended for 24 months or until payout of the well
cost is achieved, whichever occurs first, on any horizontally drilled well or
recompletion well from which production commences after July 31, 1994. The term
"horizontal drilling" means high angle drilling of bore holes with 50 to 3,000
plus feet of lateral penetration through productive reservoirs, and "horizontal
recompletion" means horizontal drilling in an existing well bore.
Production of natural gas, gas condensate and oil from any well drilled to
a true vertical depth of more than 15,000 feet and where production starts after
July 31, 1994, is exempt from severance tax for 24 months or until payout of the
well cost, whichever occurs first. The exemption applies to production from any
depth in the wellbore.
Currently, the Louisiana severance tax rate on oil is 12.5% of gross value
and the severance tax on gas is 7.7 cents per Mcf. Only one of the severance tax
exemptions discussed above may be taken on a particular well. The Company
anticipates that a substantial portion of its current and future Louisiana wells
will qualify for one of the two exemptions discussed above.
SECTION 29 TAX CREDIT
The natural gas production from wells drilled on certain of the Company's
properties in the Moxa Arch Trend and Golden Trend Field qualifies for the
Section 29 Tax Credit. The Section 29 Tax Credit is an income tax credit against
regular federal income tax liability with respect to sales of the Company's
production of natural gas produced from tight gas sand formations, subject to a
number of limitations. Fuels qualifying for the Section 29 Tax Credit must be
produced from a well drilled or a facility placed in service after November 5,
1990 and before January 1, 1993, and be sold before January 1, 2003.
The basic credit, which is currently approximately $0.52 per MMbtu of
natural gas produced from tight sand reservoirs and approximately $1.03 per
MMbtu of natural gas produced from Devonian Shale, is computed by reference to
the price of crude oil and is phased out as the price of oil exceeds $23.50 in
1979 dollars (as adjusted for inflation) with complete phaseout if such price
exceeds $29.50 in 1979 dollars (as adjusted for inflation). Under this formula,
the commencement of phaseout would be triggered if the average price for crude
oil rose above approximately $45 per Bbl in current dollars. The Company
generated approximately $0.9 million of Section 29 Tax Credits in 1996. The
Section 29 Tax Credit may not be credited against the alternative minimum tax,
but under certain circumstances may be carried over and applied against regular
tax liability in future years. Therefore, no assurances can be given that the
Company's Section 29 Tax Credits will reduce its federal income tax liability in
any particular year.
REGULATION
The oil and gas industry is extensively regulated by federal, state and
local authorities. In particular, oil and gas production operations and
economics are affected by price controls, environmental protection
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<PAGE> 48
statutes and regulations, tax statutes and other laws relating to the petroleum
industry, as well as changes in such laws, changing administrative regulations
and the interpretations and application of such laws, rules and regulations. In
October 1992, comprehensive national energy legislation was enacted which
focuses on electric power, renewable energy sources and conservation. This
legislation, among other things, guarantees equal treatment of domestic and
imported natural gas supplies, mandates expanded use of natural gas and other
alternative fuel vehicles, funds natural gas research and development, permits
continued offshore drilling and use of natural gas for electric generation and
adopts various conservation measures designed to reduce consumption of imported
oil. The legislation may be viewed as generally intended to encourage the
development and use of natural gas. Oil and gas industry legislation and agency
regulation are under constant review for amendment and expansion for a variety
of political, economic and other reasons.
Regulation of Natural Gas and Oil Exploration and Production. The Company's
operations are subject to various types of regulation at the federal, state and
local levels. Such regulation includes requiring permits for the drilling of
wells, maintaining bonding requirements in order to drill or operate wells and
regulating the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are drilled, the
plugging and abandoning of wells and the disposal of fluids used in connection
with operations. The Company's operations are also subject to various
conservation laws and regulations. These include the regulation of the size of
drilling and spacing units or proration units and the density of wells which may
be drilled in and the unitization or pooling of oil and gas properties. In this
regard, some states (such as Oklahoma) allow the forced pooling or integration
of tracts to facilitate exploration while other states (such as Texas) rely on
voluntary pooling of lands and leases. In areas where pooling is voluntary, it
may be more difficult to form units and, therefore, more difficult to develop a
project if the operator owns less than 100% of the leasehold. In addition, state
conservation laws establish maximum rates of production from oil and gas wells,
generally prohibit the venting or flaring of gas and impose certain requirements
regarding the ratability of production. The effect of these regulations may
limit the amount of oil and gas the Company can produce from its wells and may
limit the number of wells or the locations at which the Company can drill. The
regulatory burden on the oil and gas industry increases the Company's costs of
doing business and, consequently, affects its profitability. Inasmuch as such
laws and regulations are frequently expanded, amended or reinterpreted, the
Company is unable to predict the future cost or impact of complying with such
regulations.
The Company has operations located on federal oil and gas leases, which are
administered by the MMS. Such leases are issued through competitive bidding,
contain relatively standardized terms and require compliance with detailed MMS
regulations and orders pursuant to the Outer Continental Shelf Lands Act
("OCSLA") (which are subject to change by the MMS). For offshore operations,
lessees must obtain MMS approval for exploration plans and development and
production plans prior to the commencement of such operations. In addition to
permits required from other agencies (such as the Coast Guard, the Army Corps of
Engineers and the Environmental Protection Agency (the "EPA")), lessees must
obtain a permit from the MMS prior to the commencement of drilling. The MMS has
promulgated regulations requiring offshore production facilities located on the
OCS to meet stringent engineering and construction specifications. The MMS
proposed additional safety-related regulations concerning the design and
operating procedures for OCS production platforms and pipelines. These proposed
regulations were withdrawn pending further discussions among interested federal
agencies. The MMS also has regulations restricting the flaring or venting of
natural gas, liquid hydrocarbons and oil without prior authorization. Similarly,
the MMS has promulgated other regulations governing the plugging and abandonment
of wells located offshore and the removal of all production facilities. To cover
the various obligations of lessees on the OCS, the MMS generally requires that
lessees post substantial bonds or other acceptable assurances that such
obligations will be met. The cost of such bonds or other surety can be
substantial and there is no assurance that bonds or other surety can be obtained
in all cases. Under certain circumstances, the MMS may require Company
operations on federal leases to be suspended or terminated. Any such suspension
or termination could materially and adversely affect the Company's financial
condition and operations.
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<PAGE> 49
The MMS issued a notice of proposed rulemaking in which it proposed to
amend its regulations governing the calculation of royalties and the valuation
of crude oil produced from federal leases. The proposed rule would modify the
valuation procedures for both arm's length and non-arm's length crude oil
transactions to decrease reliance on posted prices and assign a value to crude
oil that better reflects market value, establish a new MMS form for collecting
value differential data and amend the valuation procedure for the sale of
federal royalty oil. The Company cannot predict at this stage of the rulemaking
proceeding how it might be affected by this amendment to the MMS regulations.
In April 1997, after two years of study, the MMS withdrew proposed changes
to the way it values natural gas for royalty payments. These proposed changes
would have established an alternative market-based method to calculate royalties
on certain natural gas sold to affiliates or pursuant to non-arm's length sales
contracts.
Natural Gas and Oil Marketing and Transportation. Historically, the
transportation and sale for resale of natural gas in interstate commerce have
been regulated pursuant to the Natural Gas Act of 1938, the Natural Gas Policy
Act of 1978 (the "NGPA") and the regulations promulgated thereunder by the
Federal Energy Regulatory Commission (the "FERC"). In the past, the federal
government has regulated the prices at which oil and gas could be sold.
Deregulation of wellhead sales in the natural gas industry began with the
enactment of the NGPA. In 1989, the Natural Gas Wellhead Decontrol Act was
enacted. This act amended the NGPA to remove both price and non-price controls
from natural gas sold in "first sales" as of January 1, 1993. While sales by
producers of natural gas and all sales of crude oil, condensate and natural gas
liquids can currently be made at uncontrolled market prices, Congress could
reenact price controls in the future.
Several major regulatory changes have been implemented by the FERC from
1985 to the present that affect the economics of natural gas production,
transportation and sales. In addition, the FERC continues to promulgate
revisions to various aspects of the rules and regulations affecting those
segments of the natural gas industry, most notably interstate natural gas
transmission companies, which remain subject to the FERC's jurisdiction. These
initiatives may also affect the intrastate transportation of gas under certain
circumstances. The stated purposes of many of these regulatory changes is to
promote competition among the various sectors of the gas industry. The ultimate
impact of these complex and overlapping rules and regulations, many of which are
repeatedly subjected to judicial challenge and interpretation, cannot be
predicted.
Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, 636-B and
636-C (collectively, "Order No. 636"), which, among other things, require
interstate pipelines to "restructure" to provide transportation separate, or
"unbundled," from the pipelines' sales of gas. Also, Order No. 636 requires
pipelines to provide open-access transportation on a basis that is equal for all
gas supplies. Order No. 636 has been implemented as a result of FERC orders in
individual pipeline service restructuring proceedings. In many instances, the
result of the Order No. 636 and related initiatives have been to substantially
reduce or bring to an end the interstate pipelines' traditional roles as
wholesalers of natural gas in favor of providing only storage and transportation
services. The FERC has issued final orders in virtually all pipeline
restructuring proceedings, and has completed a series of one year reviews to
determine whether refinements are required regarding individual pipeline
implementations of Order No. 636.
Although Order No. 636 does not directly regulate natural gas producers
such as the Company, the FERC has stated that Order No. 636 is intended to
foster increased competition within all phases of the natural gas industry. It
is unclear what impact, if any, increased competition within the natural gas
industry under Order No. 636 will have on the Company and its natural gas
marketing efforts. The United States Court of Appeals for the District of
Columbia Circuit (the "Court") recently issued its decision in the appeals of
Order No. 636. The Court largely upheld the basic tenets of Order No. 636,
including the requirements that interstate pipelines "unbundle" their sales of
gas from transportation and that pipelines provide open-access transportation on
a basis that is equal for all gas suppliers. The Court remanded several
relatively narrow issues for further explanation by the FERC. In doing so, the
Court
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<PAGE> 50
made it clear that the FERC's existing rules on the remanded issues would remain
in effect pending further consideration. The Company believes that the issues
remanded for further action do not appear to materially affect it. The United
States Supreme Court has decided not to review the Court's decision regarding
Order No. 636. In February 1997, the FERC issued Order No. 636-C, its order on
remand from the Court. Order 636-C is currently pending on rehearing before the
FERC. Although Order No. 636 could provide the Company with additional market
access and more fairly applied transportation service rates, terms and
conditions, it could also subject the Company to more restrictive pipeline
imbalance tolerances and greater penalties for violations of those tolerances.
The Company does not believe, however, that it will be affected by any action
taken with respect to Order No. 636 materially differently than other natural
gas producers and marketers with which it competes.
The FERC has issued a statement of policy and a request for comments
concerning alternatives to its traditional cost-of-service rate making
methodology. This policy statement articulates the criteria that the FERC will
use to evaluate proposals to charge market-based rates for the transportation of
natural gas. The policy statement also provides that the FERC will consider
proposals for negotiated rates for individual shippers of natural gas, so long
as a cost-of-service-based rate is available as a recourse rate. A number of
pipelines have obtained FERC authorization to charge negotiated rates. The FERC
also has requested comments on whether it should allow gas pipelines the
flexibility to negotiate the terms and conditions of transportation service with
prospective shippers. The Company cannot predict what further action the FERC
will take on these matters, however, the Company does not believe that it will
be affected by any action taken materially differently than other natural gas
producers and marketers with which it competes.
The FERC has announced its intention to reexamine certain of its
transportation-related policies, including the manner in which interstate
pipeline shippers may release interstate pipeline capacity under Order No. 636
for resale in the secondary market. While any resulting FERC action would affect
the Company only indirectly, the FERC's current rules and policies may have the
effect of enhancing competition in natural gas markets by, among other things,
encouraging non-producer natural gas marketers to engage in certain purchase and
sale transactions. The Company cannot predict what action the FERC will take on
these matters, nor can it accurately predict whether the FERC's actions will
achieve the goal of increasing competition in markets in which the Company's
natural gas is sold. However, the Company does not believe that it will be
affected by any action taken materially differently than other natural gas
producers and marketers with which it competes.
The FERC has issued a policy statement on how interstate natural gas
pipelines can recover the costs of new pipeline facilities. While the FERC's
policy statement on new construction cost recovery affects the Company only
indirectly, in its present form, the new policy should enhance competition in
natural gas markets and facilitate construction of gas supply laterals. The FERC
has denied requests for rehearing of this policy statement. The FERC has issued
numerous orders approving the spin-down or spin-off by interstate pipelines of
their gathering facilities. A "spin-off" is a FERC-approved sale of gathering
facilities to a non-affiliate. A "spin-down" is a transfer of gathering
facilities to an affiliate. These approvals were given despite the strong
protests of a number of producers concerned that any diminution in FERC's
oversight of interstate pipeline-related gathering services might result in a
denial of open access or otherwise enhance the pipeline's monopoly power. The
FERC's lead decision in this area has been largely affirmed by an appellate
court. While the FERC has stated that it will retain limited jurisdiction over
such gathering facilities and will hear complaints concerning any denial of
access, it is unclear what effect the FERC's gathering policy will have on
producers such as the Company and the Company cannot predict what further action
the FERC will take on these matters. One possible result of the FERC's actions
may be increased state regulatory oversight of gathering.
Commencing in October 1993, the FERC issued a series of rules (Order Nos.
561 and 561-A) establishing an indexing system under which oil pipelines will be
able to change their transportation rates, subject to prescribed ceiling levels.
The indexing system, which allows or may require pipelines to make rate changes
to track changes in the Producer Price Index for Finished Goods, minus one
percent, became effective January 1, 1995. The FERC's decision in this matter
was recently affirmed by the Court.
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The Company is not able at this time to predict the effects of Order Nos. 561
and 561-A, if any, on the transportation costs associated with oil production
from the Company's oil producing operations.
Additional proposals and proceedings that might affect the oil and gas
industry are pending before 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 has been heavily regulated. There is no assurance that the
regulatory approach currently pursued by the FERC will continue indefinitely.
Notwithstanding the foregoing, the Company does not anticipate 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.
Environmental Regulation. Activities of the Company with respect to the
exploration, development and production of oil and natural gas are subject to
stringent environmental regulation by state and federal authorities including
the EPA. Such regulation has increased the cost of planning, designing,
drilling, operating and in some instances, abandoning wells. In most instances,
the regulatory requirements relate to the handling and disposal of drilling and
production waste products and waste created by water and air pollution control
procedures. Although the Company believes that compliance with existing
environmental regulations will not have a material adverse effect on operations
or earnings, the risks of substantial costs and liabilities are inherent in oil
and gas operations, and there can be no assurance that significant costs and
liabilities, including civil and criminal penalties, will not be incurred.
Moreover, it is possible that other developments, such as stricter environmental
laws and regulations, and claims for damages to property or persons resulting
from the Company's operations could result in substantial costs and liabilities
to the Company.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
with respect to the release of a "hazardous substance" into the environment.
These persons include the owner and operator of the disposal site or sites where
the release occurred and companies that disposed or arranged for the disposal of
the hazardous substances released at such site. Persons who are or were
responsible for releases of hazardous substances under CERCLA may be subject to
joint and several liability for the costs of cleaning up the hazardous
substances that have been released into the environment and for damages to
natural resources, and it is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and property damage allegedly
caused by the hazardous substances released into the environment.
The Company generates wastes, including hazardous wastes, that are subject
to the federal Resource Conservation and Recovery Act ("RCRA") and comparable
state statutes. The EPA and various state agencies have limited the approved
methods of disposal for certain hazardous and nonhazardous wastes. Furthermore,
it is possible that certain wastes generated by the Company's oil and natural
gas operations that are currently exempt from treatment as "hazardous wastes"
may in the future be designated as "hazardous wastes" under RCRA or other
applicable statutes and therefore be subject to more rigorous and costly
operating and disposal requirements.
The Company currently owns or leases, and has in the past owned or leased,
numerous properties that for many years have been used for the exploration and
production of oil and gas. Although the Company has utilized operating and
disposal practices that were standard in the industry at the time, hydrocarbons
or other wastes may have been disposed of or released on or under the properties
owned or leased by the Company or on or under other locations where such wastes
have been taken for disposal. In addition, many of these properties have been
owned or operated by third parties whose treatment and disposal or release of
hydrocarbons or other wastes was not under the Company's control. These
properties and the wastes disposed thereon may be subject to CERCLA, RCRA and
analogous state laws. Under such laws, the Company could be required to remove
or remediate previously disposed wastes (including wastes disposed of or
released by prior owners or operators) or property contamination (including
groundwater contamination by prior owners or operators) or to perform remedial
plugging operations to prevent future contamination.
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The Oil Pollution Act of 1990 (the "OPA") amends certain provisions of the
Federal Water Pollution Control Act of 1972, commonly referred to as the Clean
Water Act ("CWA") and other statutes as they pertain to the prevention of and
response to oil spills into navigable waters. The OPA subjects owners and
operators of facilities to strict joint and several liability for all
containment and cleanup costs and certain other public and private damages
arising from a spill, including, but not limited to, the costs of responding to
a release of oil to surface waters. OPA establishes a liability limit for
onshore facilities of $350 million and for offshore facilities, all removal
costs plus $75 million, however, a party cannot take advantage of liability
limits if the spill is caused by gross negligence or willful misconduct or
resulted from a violation of a federal safety, construction or operating
regulation. If a party fails to report a spill or cooperate in the cleanup,
liability limits likewise do not apply. The CWA provides penalties for any
discharges of petroleum product in reportable quantities and imposes substantial
liability for the costs of removing a spill. State laws for the control of water
pollution also provide varying civil and criminal penalties and liabilities in
the case of releases of petroleum or its derivatives into surface waters or into
the ground. Federal regulations under the CWA and OPA require certain owners or
operators of facilities that store or otherwise handle oil, such as the Company,
to prepare and implement spill prevention, control and countermeasure plans and
facility response plans relating to the possible discharge of oil into surface
waters. In addition, the CWA and analogous state laws require permits to be
obtained to authorize discharges into surface waters or to construct facilities
in wetland areas. With respect to certain of its operations, the Company is
required to maintain such permits or meet general permit requirements. In 1992,
the EPA adopted regulations concerning discharges of storm water runoff. This
program requires covered facilities to obtain individual permits, participate in
a group permit or seek coverage under an EPA general permit. The Company
believes that it is in substantial compliance with the requirements of the CWA
and OPA and that any non-compliance would not have a material adverse effect on
the Company.
In April of 1994, the Bureau of Land Management directed that an EIS be
performed along a portion of the Moxa Arch area of Wyoming. The final EIS was
completed in June of 1996. In March of 1997, the BLM issued its record of
decision relating to this EIS. During the pendency of the EIS and record of
decision, regulatory approval to drill wells in the affected area was difficult
to obtain. The BLM's record of decision authorized the drilling of approximately
700 natural gas wells in the Moxa Arch, subject to review of certain air quality
components. The Company believes that drilling activity will now resume, albeit
subject to the record of decision.
OPERATING HAZARDS AND INSURANCE
Oil and gas drilling and production activities are subject to numerous
risks, many of which are beyond the Company's control. These risks include the
risk that no commercially productive oil or natural gas reservoirs will be
encountered, that operations may be curtailed, delayed or canceled as a result
of title problems, weather conditions, compliance with governmental
requirements, mechanical difficulties or shortages or delays in the delivery of
equipment and that the availability or capacity of gathering systems, pipelines
or processing facilities may limit the Company's ability to market its
production. There can be no assurance that new wells drilled by the Company will
be productive or that the Company will recover all or any portion of its
investment. Drilling for oil and natural gas may involve unprofitable efforts,
not only from dry wells, but from wells that are productive but do not produce
sufficient net revenues to return a profit after drilling, operating and other
costs.
In addition, the Company's properties may be susceptible to hydrocarbon
drainage from production by other operators on adjacent properties. Industry
operating risks include the risk of fire, explosions, blow-outs, pipe failure,
abnormally pressured formations and environmental hazards such as oil spills,
gas leaks, ruptures or discharges of toxic gases, the occurrence of any of which
could result in substantial losses to the Company due to injury or loss of life,
severe damage to or destruction of property, natural resources and equipment,
pollution or other environmental damage, clean-up responsibilities, regulatory
investigation and penalties and suspension of operations. Additionally, the
Company's oil and gas
51
<PAGE> 53
operations are located in an area that is subject to tropical weather
disturbances, some of which can be severe enough to cause substantial damage to
facilities and possibly interrupt production.
The MMS requires lessees of OCS properties to post performance bonds in
connection with the plugging and abandonment of wells located offshore and the
removal of all production facilities. The Company has posted an area wide bond
meeting MMS requirements and has obtained additional supplemental bonding on its
offshore leases as required by the MMS.
The Company maintains customary oil and gas related third party liability
coverage, which it must renew annually, that insures the Company against certain
sudden and accidental risks associated with drilling, completing and operating
its wells. There can be no assurance that this insurance will be adequate to
cover any losses or exposure to liability or that the Company will be able to
renew its coverage annually. The Company and its subsidiaries carry workers'
compensation insurance in all states in which they operate. While the Company
believes this coverage is customary in the industry, it does not provide
complete coverage against all operating risks.
TITLE TO PROPERTIES
Title to properties is subject to royalty, overriding royalty, carried, net
profits, working and other similar interests and contractual arrangements
customary in the oil and gas industry, to liens for current taxes not yet due
and to other encumbrances. As is customary in the industry in the case of
undeveloped properties, little investigation of record title is made at the time
of acquisition (other than a preliminary review of local records).
Investigations, including a title opinion of local counsel, are generally made
before commencement of drilling operations. To the extent title opinions or
other investigations reflect title defects, the Company, rather than the seller
of the undeveloped property, is typically responsible to cure any such title
defects at its expense. If the Company were unable to remedy or cure title
defect of a nature such that it would not be prudent to commence drilling
operations on the property, the Company could suffer a loss of its entire
investment in the property. From time to time the Company's title to oil and gas
properties is challenged through legal proceedings. Under the terms of certain
of the Company's joint development, participation and farmout agreements, the
Company's interest (other than interests acquired through holding of leasehold
interests prior to spudding of the well) in each well is conveyed to the Company
upon the successful completion of the well or satisfaction of other conditions.
EMPLOYEES
As of June 30, 1997, the Company had 73 full time employees, none of whom
is represented by organized labor unions. The Company considers its employee
relations to be good.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business that management
believes would not have a material adverse effect on its financial condition or
results of operations.
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<PAGE> 54
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
Company's executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert A. Belfer............... 62 Chairman of the Board and Chief Executive Officer
Laurence D. Belfer............. 31 Director, President and Chief Operating Officer
Philip A. Epstein.............. 41 Senior Financial and Legal Advisor and General Counsel
Dominick J. Golio.............. 51 Vice President -- Financial, Chief Financial Officer
and Treasurer
Shiv K. Sharma................. 55 Senior Vice President -- Engineering
Mel Fife....................... 46 Vice President -- Business Development
Gary Hampton................... 41 Vice President -- Exploration -- Eastern Region
Steven L. Mueller.............. 44 Vice President -- Exploration -- Western Region
M. Bradford Moody.............. 38 Vice President -- Legal and Land
George A. Sheffer.............. 45 Vice President -- Operations
Graham Allison................. 57 Director
Daniel C. Arnold............... 67 Director
Alan D. Berlin................. 57 Director
Jack Saltz..................... 66 Director
Georgiana Sheldon-Sharp........ 73 Director
</TABLE>
Robert A. Belfer, Chairman of the Board and Chief Executive Officer of the
Company. Mr. Belfer began his career at Belco Petroleum Corporation in 1958 and
became Executive Vice President in 1964, President in 1965 and Chairman of the
Board in 1984. BPC was an independent oil and gas producer in the United States
and abroad, which went public in 1959. It was one of the largest independent oil
and gas companies in the United States and was included in Fortune's listing of
the 500 largest industrial companies in the United States prior to merging with
InterNorth, Inc. (now Enron Corp.) in 1983. Following the merger, Mr. Belfer
became Chief Operating Officer of BelNorth Petroleum Corp., a combination of oil
and gas producing operations of BPC and InterNorth. He resigned from his
position with InterNorth in 1986 and pursued personal investments in oil and gas
and other industries. In April 1992, Mr. Belfer founded the Company. In addition
to his position at the Company, Mr. Belfer serves on the boards of Enron, EOTT
Energy Corp., and NAC Re Corporation. Mr. Belfer received his undergraduate
degree from Columbia College (A.B. 1955) and a law degree from the Harvard Law
School (J.D. 1958).
Laurence D. Belfer, Director, President and Chief Operating Officer of the
Company. Mr. Belfer joined the Company as Vice President in September 1992. He
was promoted to Executive Vice President in May 1995 and Chief Operating Officer
in December 1995. He is a founder and Chairman of Harvest Management, Inc., a
money management firm. Mr. Belfer graduated from Harvard University (B.A. 1988)
and from Columbia Law School (J.D. 1992).
Philip A. Epstein, Senior Financial and Legal Advisor and General Counsel
of the Company. Mr. Epstein began his career as a corporate associate with the
New York City law firms of Kaye, Scholer, Fierman, Hays & Handler (1984-1987)
and Fried, Frank, Harris, Shriver & Jacobson (1988-1991), specializing in
mergers and acquisitions and corporate finance. Mr. Epstein joined the Belfer
family in 1991 as Investment Counsel, assuming the founding positions of
Executive Vice President, General Counsel and Secretary of the Company in April
1992. Mr. Epstein resigned from these positions in December 1992 but continues
to serve as Senior Financial and Legal Advisor and General Counsel to the
Company and to the Belfer family. Mr. Epstein received an undergraduate degree
from the University of
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<PAGE> 55
Chicago (B.A. 1978), graduate degree in Politics and Economics from Oxford
University (M.A. Oxon 1981) and his law degree from Northwestern University of
Law (J.D. 1984).
Dominick J. Golio, Vice President -- Finance, Chief Financial Officer and
Treasurer of the Company. Mr. Golio began his career at the New York City office
of Arthur Andersen & Co. in 1972. In 1975, he joined Case, Pomeroy & Company and
Felmont Oil Corporation, its publicly traded affiliate, where he rose to the
position of Vice President Finance. Mr. Golio left Felmont in 1987 following a
merger between Felmont and Homestake Mining Company. He served as Vice President
Finance and Administration at both AEG Corporation, the U.S. electronics
subsidiary of Daimler-Benz North America, until 1991 and at Millmaster Onyx
Group, Inc. until September 1993 at which time he joined the Company. Mr. Golio
is a Certified Public Accountant (NY). He holds undergraduate and graduate
degrees from Pace University (B.B.A. Accounting, 1972, M.B.A. -- Taxation,
1978).
Shiv K. Sharma, Senior Vice President -- Engineering of the Company. Mr.
Sharma began his career in 1967 as a Reservoir Engineer with Shell Oil Company.
In 1970, he joined BPC as a reservoir engineer and was subsequently elected to
Vice President and Senior Vice President of Engineering, a position he held
until his departure from that company in 1988. From 1988 to 1992, Mr. Sharma
worked as a petroleum consultant for several New York companies. He served as a
director and consultant to the Company commencing April 1992 and was elected to
his present position in April 1994. Mr. Sharma received his degrees in petroleum
technology from the Indian School of Mines (B.S. 1963) and petroleum engineering
from Stanford University (M.S. 1966).
Mel Fife, Vice President -- Business Developments of the Company. Mr. Fife
began his career in 1979 as an Independent Landman working for various
companies. Mr. Fife joined Union Pacific Resources Company in 1988 and served as
a Landman until 1994. He joined the Company in November 1995 as Land Manager and
was promoted to Vice President -- Land in January 1997. Mr. Fife has 18 years of
extensive experience in all phases of land in the oil and gas industry. Mr. Fife
is a graduate of Dallas Christian College (1979) from which he received a
Bachelor of Science Degree and attended Emory University's Divinity Program
(1978-1979).
Gary Hampton, Vice President -- Exploration -- Eastern Region of the
Company. Mr. Hampton began his career in 1978 as a Reservoir Geologist for Texas
Eastern (now PanEnergy). Mr. Hampton joined Champlin (currently UPR) in 1980 as
a geologist and remained there until 1984. Mr. Hampton spent the next two years
with Clayton Williams Energy generating prospects and developing acreage plays.
In 1986, he became an independent consultant geologist providing geological
assessments to the energy and environmental industry. Mr. Hampton rejoined
Clayton Williams Energy in 1989 as the geologist responsible for, among other
programs, geological planning associated with the company's Austin Chalk
development program resulting in over 100 horizontal wells drilled in the Austin
Chalk, Buda and Georgetown formations. Mr. Hampton was named Exploration Manager
at Clayton Williams where he remained until February 1995, at which time he
joined the Company as Manager -- Geology. Mr. Hampton was promoted to Vice
President -- Exploration in January 1996 and renamed Vice
President -- Exploration -- Eastern Division in October 1996. He received a B.S.
in Geology from the University of Southern Mississippi in 1978.
M. Bradford Moody, Vice President -- Legal and Land. Mr. Moody began his
career in 1983 as an Associate with Akin, Gump, Strauss, Hauer & Feld in
Washington D.C., specializing in energy law. In 1988, he joined Pennzoil Company
as an Attorney, and later Senior Attorney, specializing in oil and gas law. He
remained at Pennzoil Company until 1996, at which time he joined Belco as Senior
Attorney. In August 1997, Mr. Moody was named Vice President -- Legal and Land
of the Company. Mr. Moody received his undergraduate degree from Rice University
(B.A. Economics 1980) and also attended Richmond College in London, England
(1978-79). He received his law degree from the University of Texas School of Law
(J.D. 1983).
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<PAGE> 56
Steven L. Mueller, Vice President -- Exploration -- Western Region of the
Company. Mr. Mueller began his career in 1975 as a Geological Engineer at
Tenneco Oil, Lafayette. He advanced at Tenneco Oil, Lafayette to Senior
Geological Engineer in 1979, Project Geological Engineer in 1980 and Division
Geological Engineer in the later part of 1980. Mr. Mueller relocated to San
Antonio, Texas in 1985 where he maintained the title of Division Geological
Engineer at Tenneco Oil but had the responsibility of reorganizing and then
supervising an 18 member geological engineering group. Mr. Mueller was then
promoted to Division Exploration Manager in 1987. In 1988 Mr. Mueller joined
Fina Oil in Houston, Texas as Exploration Manager of South Louisiana and in 1992
he joined American Exploration in Houston, Texas as Exploitation Vice President.
He was with American Exploration until October of 1996 when he joined the
Company. Mr. Mueller has over 21 years experience in exploring for and
exploiting oil and gas fields both onshore and offshore and an expertise in 3-D
Seismic, mapping, log analysis and risk management. He holds a BS in Geological
Engineering from the Colorado School of Mines (1975).
George A. Sheffer, Vice President -- Operations of the Company. Mr. Sheffer
began his career in 1974 at Chevron USA where he served in the capacities of
Reservoir Engineer, Drilling Representative and Production Engineer. Mr. Sheffer
went on to serve in various engineering management positions with Meridian Oil
and its predecessor Southland Royalty Company from 1979 to 1992. He joined the
Company as Senior Petroleum Engineer in May 1994 after spending two years at
Mearsk Energy, Inc. as Drilling Manager. He was promoted to Vice
President -- Operations at the Company in November 1994. Mr. Sheffer has more
than 20 years of diverse experience in all phases of petroleum engineering and
operations management in the domestic oil and gas industry. Mr. Sheffer has
specialized in horizontal drilling since 1987 in Oklahoma and Texas. He has
extensive experience in the entire Austin Chalk Trend from South Texas to the
Louisiana Border. Mr. Sheffer is a graduate of Pennsylvania State University
(1974) from which he received a degree in Petroleum and Natural Gas Engineering.
Graham Allison, Director of the Company. Dr. Allison is the Douglas Dillon
Professor of Government and the Director of the Center for Science and
International Affairs at Harvard University. Until March 1994, he served as
Assistant Secretary of Defense for Policy and Plans and continues to serve as
Special Advisor to the Secretary of Defense. From 1977 to 1989, Dr. Allison was
Dean of Harvard's John F. Kennedy School of Government. He was a founding member
of the Trilateral Commission and a Director of the Council on Foreign Relations.
He also formerly served as a Director of the Getty Oil Company, New England
Securities and the Taubman Companies.
Daniel C. Arnold, Director of the Company. Mr. Arnold practiced law with
the firm of Vinson & Elkins L.L.P. in Houston, Texas from 1953 until 1983. From
January 1983 through April 1988, Mr. Arnold served as a Director, and as
President and later Chairman of First City Bancorporation of Texas, Inc. Mr.
Arnold held a number of positions, including serving as Chairman of the Board
and Chief Executive Officer of Farm & Home Financial Corporation and its wholly
owned subsidiary, Farm and Home Savings Association from February 1989 to April
1991. Currently, Mr. Arnold serves as Director of the Parkway Company and U.S.
Physical Therapy, Inc. and is engaged primarily in managing personal
investments.
Alan D. Berlin, Director of the Company. Mr. Berlin is a partner in the law
firm of Aitken Irvin Lewin Berlin Vrooman & Cohn, LLP where he specializes in
international energy matters, taxation and corporate law. For over five years
prior to joining the firm in 1995, he was engaged in the private practice of
law. Mr. Berlin was a special consultant to the United Nations Department of
Technical Cooperation for Development and the Center for Transnational
Corporations (1989-1994). Mr. Berlin has been appointed an Honorary Associate of
the Centre for Petroleum and Mineral Law and Policy at the University of Dundee,
Scotland, and is a member of the Association of International Petroleum
Negotiators. Mr. Berlin was employed in various positions with BPC from 1977 to
1985 with his last position being President of BPC Peru.
Jack Saltz, Director of the Company. Mr. Saltz is a private investor in oil
and gas, real estate development and other industries. He is President of OTS
Corp., a real estate development company and Chairman of Crown Funding Corp., a
mortgage brokerage firm. He is also President of Highpro Corp., a
55
<PAGE> 57
firm that invests in oil and gas exploration projects. Mr. Saltz was a major
stockholder of BPC and served BPC in many capacities including Director and
Senior Vice President.
Georgiana Sheldon-Sharp, Director of the Company. Ms. Sheldon-Sharp has
over 30 years of experience in the executive and legislative branches of the
federal government, as well as politics and private business. Her areas of
expertise include defense, foreign affairs and fossil and nuclear energy. She
served as Acting Chairman and Commissioner of the FERC from 1977 to 1985 and
served on the Board of Directors of Enron from 1985 to 1993. Ms. Sheldon-Sharp
currently serves on the Board of Trustees of Keuka College and the Federal
Woman's Award, Inc. and is a member of the Executive Committee of the United
States Energy Association World Energy Conference.
CERTAIN AFFILIATE TRANSACTIONS
Set forth below is a description of certain transactions entered into
between the Company and certain of its officers, directors and shareholders.
The Company has entered into a substantial portion of its natural gas and
crude oil commodity swap agreements and option agreements with Enron Capital &
Trade Resources Corp. ("ECT"), a subsidiary of Enron. Mr. Robert A. Belfer is a
member of the Board of Directors of Enron. These agreements were entered into in
the ordinary course of business of the Company and are on terms that the Company
believes are no less favorable than the terms of similar arrangements with third
parties. Pursuant to the terms of these agreements ECT paid to the Company a net
amount of approximately $5.243 million with respect to 1996. The amount of
future payments (as well as whether payments will be made by the Company to ECT
or vice versa) is affected by fluctuations in energy commodity prices. The
Company believes that it and ECT will continue to enter into similar
arrangements throughout 1997.
The Company sells, from time to time, liquid products to ECT on a
competitive basis. In addition, the Company entered into a six-month crude
contract with EOTT Energy Corp. ("EOTT"), of which Mr. Robert A. Belfer is a
director, pursuant to which the Company is paid a designated posted price plus a
premium.
In 1995 the Company engaged Midway Partners LLC ("Midway") to serve as
advisor to the Company regarding certain financial matters including the initial
public offering of the Company's Common Stock (the "IPO"). Philip A. Epstein,
the Senior Financial and Legal Advisor and General Counsel of the Company, is
one of two managing partners and principals of Midway. In connection with such
engagement, the Company paid Midway an advisory fee of $50,000. Following
consummation of the IPO, in April 1996 the Company paid Midway an additional
amount of $200,000. The total fees payable to Midway were calculated as the
lesser of $250,000 or 0.25% of the transaction value. The Company believes that
the terms of the Midway fee arrangement compare favorably to the terms which
might have been available from a non-affiliated party.
In December 1995 the Company acquired an interest in the East Texas Cotton
Valley Reef Play. During 1996, the Company drilled one dry hole, conducted a 3-D
seismic survey and subsequently relinquished its interest in the prospect. The
Company expended approximately $7.9 million on the East Texas Cotton Valley Reef
Play. Daniel C. Arnold, a Director of the Company, is the managing partner of
partnerships that are investors in the entity which sold the Company its
interest in the East Texas Cotton Valley Reef Play.
The Company's executive offices are leased from its Chairman and $250,000
was paid under such lease in 1996. Lease expense for the Company's executive
offices for the period from inception through 1995 was paid by the Chairman,
with no reimbursement. The Company has recorded an office space and service
expense and a corresponding capital contribution of approximately $250,000 and
$200,000 for the periods ended December 31, 1995 and 1994, respectively, based
on an estimated allocation of space occupied. The Company's remaining commitment
related to the office space and service charge is $250,000 per year through
1999. Management believes the fee compares favorably to the terms which might
have been available from a non-affiliated party.
56
<PAGE> 58
Additionally, from inception through March 31, 1996, the Company's Chairman
did not draw any compensation from the Company. The Company has recorded salary
and benefits expense and a corresponding capital contribution of $150,000 for
each of the periods ended December 31, 1995 and 1994, based on estimates of time
devoted to the Company and using expected 1996 compensation. In 1996, the
Chairman commenced receiving compensation.
Certain officers and employees of the Company have loans outstanding to the
Company. These loans were made to enable such persons to finance their purchase
of interests in oil and gas properties prior to the IPO. As part of the IPO such
persons were issued shares of Common Stock in exchange for their interests
pursuant to the Combination. The loans remain outstanding and are secured by
certain of such shares of Common Stock. The loans have been modified to provide
for final maturity after three years from the date of the Combination, which
occurred on March 29, 1996, and all outstanding principal will be due at such
date. The loans may be prepaid at any time at the option of the borrower. Each
borrower will have the option of repaying such loan in cash or with shares of
Common Stock. If a borrower chooses to repay with Common Stock, the shares to be
used for such purpose will be valued based on the then fair market value of the
Common Stock. The interest rate on each of the loans is at the prime rate, as
announced from time to time, of The Chase Manhattan Bank. Interest will accrue
during the first two years of such loans but the payment of interest will not be
required during such period. After such two year period, cash payments of
interest will be required quarterly until the loan is repaid. The officers of
the Company who have received such loans, and the principal amounts of their
loans plus accrued interest as applicable as of December 31, 1996 are as
follows: Dominick J. Golio -- $256,923.00, Shiv K. Sharma -- $411,028.00, and
George Sheffer -- $106,775.00.
The officers of the Company have other business positions that they will
continue to pursue independent of the Company; however, none of these interests
are related to the oil and gas business of the Company.
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<PAGE> 59
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The table below sets forth as of August 1, 1997 (i) the name of each person
known by management to own beneficially more than 5% of the Company's
outstanding Common Stock, the number of shares beneficially owned by each such
shareholder and the percentage of outstanding shares owned and (ii) the number
and percentage of outstanding shares of Common Stock beneficially owned by each
of the Company's directors and executive officers and by all directors and
executive officers of the Company as a group. Unless otherwise noted, the
persons named below have sole voting and investment power with respect to such
shares.
The Company knows of no one who beneficially owns in excess of five percent
of a class of the Company's Common Stock except as set forth in the table below.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES(1) CLASS
------------------------ ----------- ----------
<S> <C> <C>
Robert A. Belfer(2)......................................... 12,267,165 38.85%
Renee E. Belfer(3).......................................... 5,882,179 18.62%
Laurence D. Belfer(4)....................................... 2,674,296 8.46%
Jack Saltz(5)(6)(9)......................................... 2,042,828 6.47%
Saltz Investment Group...................................... 1,924,248 6.09%
Robert A. Belfer 1983 Grantor Trust......................... 1,642,040 5.20%
Shiv K. Sharma(7)........................................... 284,054 *
Philip A. Epstein(7)........................................ 219,419 *
Dominick J. Golio(7)(8)..................................... 108,212 *
Graham Allison(9)........................................... 21,000 *
Daniel C. Arnold(9)(10)..................................... 22,000 *
Alan D. Berlin(9)........................................... 2,500 *
Georgiana Sheldon-Sharp(9).................................. 2,000 *
All directors and executive officers as a group(11)......... 17,742,317 56.08%
</TABLE>
- ---------------
* Less than 1%
(1) Under the regulations of the Commission, shares are deemed to be
"beneficially owned" by a person if he or she directly or indirectly has or
shares the power to vote or dispose of such shares, whether or not he or
she has any pecuniary interest in such shares, or if he or she has the
right to acquire the power to vote or dispose of such shares within 60
days, including any right to acquire such power through the exercise of any
option, warrant or right.
(2) Does not include shares owned by Robert A. Belfer's spouse, children or
trusts of which his children or grandchildren are beneficiaries, totaling
10,091,079 shares, of which he disclaims beneficial ownership. Includes
200,000 shares held by Robert A. Belfer as Trustee of the Robert A. and
Renee E. Belfer Family Foundation of which he disclaims beneficial
ownership.
(3) Renee E. Belfer is the spouse of Robert A. Belfer and mother of Laurence D.
Belfer. Includes 1,510,338 shares held by trusts of which Renee E. Belfer
is sole trustee and the beneficiaries of which are her children. Includes
1,642,040 shares held by the Robert A. Belfer 1983 Grantor Trust of which
Renee E. Belfer is co-trustee and has shared voting and investment power.
(4) Includes (i) 557,674 shares held by a trust of which Laurence D. Belfer is
sole trustee and the beneficiaries of which are Laurence D. Belfer and his
two sisters and (ii) options to purchase 12,000 shares of Common Stock.
(5) Includes 1,924,248 shares held by Saltz Investment Group, LLC, a limited
liability company of which Mr. Saltz is sole managing director.
(6) Does not include 259,644 shares held by trusts of which Mr. Saltz's wife is
trustee and the beneficiaries of which are his children, and of which he
disclaims beneficial ownership.
(7) Includes options to purchase 6,000 shares of Common Stock.
(8) Does not include 6,150 shares owned by Dominick J. Golio's spouse and
children, of which he disclaims beneficial ownership.
(9) Includes options to purchase 1,000 shares of Common Stock.
(10) Does not include 5,000 shares owned by Mr. Arnold's spouse, of which he
disclaims beneficial ownership. Includes 20,000 shares owned by two limited
partnerships of which Mr. Arnold is the Managing General Partner and has
shared voting and investment power.
(11) Does not include 6,152,853 shares owned by the spouses of the directors and
officers as a group. If included, the total number of shares owned by the
directors and officers as a group would be 23,881,170 which would
constitute 75.61% of the class of stock.
58
<PAGE> 60
THE EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Notes, the purchasers thereof became
entitled to the benefits of certain registration rights under the Registration
Rights Agreement. The Exchange Notes are being offered hereunder in order to
satisfy the obligations of the Company under the Registration Rights Agreement.
See "Exchange and Registration Rights Agreement."
For each $1,000 principal amount of Old Notes surrendered to the Company
pursuant to the Exchange Offer, the holder of such Old Notes will receive $1,000
principal amount of Exchange Notes. Upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal, the
Company will accept all Old Notes properly tendered prior to 5:00 p.m., New York
City time, on the Expiration Date. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer in integral multiples of $1,000 principal
amount.
Under existing interpretations of the staff of the SEC, including Exxon
Capital Holdings Corporation, SEC No-Action Letter (available April 13, 1989),
the Morgan Stanley Letter and Mary Kay Cosmetics, Inc., SEC No-Action Letter
(available June 5, 1991), the Company believes that the Exchange Notes would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act by the respective holders thereof (other
than a "Restricted Holder," being (i) a broker-dealer who purchased Old Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder is not
participating in, and has no arrangement with any person to participate in, the
distribution (within the meaning of the Securities Act) of such Exchange Notes.
Eligible holders wishing to accept the Exchange Offer must represent to the
Company that such conditions have been met. Any holder of Old Notes who tenders
in the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes could not rely on the interpretation by the staff of the SEC
enunciated in the Morgan Stanley Letter and similar no-action letters, and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including that (i) it is neither an affiliate of the Company nor a broker-dealer
tendering Old Notes acquired directly from the Company for its own account, (ii)
any Exchange Notes to be received by it are being acquired in the ordinary
course of its business and (iii) it is not participating in, and it has no
arrangement with any person to participate in, the distribution (within the
meaning of the Securities Act) of the Exchange Notes. In addition, in connection
with any resales of Exchange Notes, any broker-dealer (a "Participating
Broker-Dealer") who acquired Old Notes for its own account 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 Exchange Notes. The staff of the SEC has
taken the position in no-action letters issued to third parties including
Shearman & Sterling, SEC No-Action Letter (available July 2, 1993), that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of Old Notes) with this Prospectus, as it may be amended
or supplemented from time to time. Under the Registration Rights Agreement, the
Company is required to allow Participating Broker-Dealers to use this
Prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of such Exchange Notes. See "Plan of Distribution."
The Exchange Offer shall be deemed to have been consummated upon the
earlier to occur of (i) the Company having exchanged Exchange Notes for all
outstanding Old Notes (other than Old Notes held by a Restricted Holder)
pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant
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<PAGE> 61
to the Exchange Offer, Exchange Notes for all Old Notes that have been tendered
and not withdrawn on the date that is 30 days following the commencement of the
Exchange Offer. In such event, holders of Old Notes seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of Old Notes are issued and outstanding. In connection with the issuance of the
Old Notes, the Company arranged for the Old Notes to be eligible for trading in
the Private Offering, Resale and Trading through Automated Linkages (PORTAL)
Market, the National Association of Securities Dealers' screen based, automated
market trading of securities eligible for resale under Rule 144A.
The Company shall be deemed to have accepted for exchange validly tendered
Old Notes when, as and if the Company has given oral or written notice thereof
to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as
agent for the tendering holders of Old Notes for the purpose of receiving
Exchange Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an invalid
tender or the occurrence of certain other events set forth herein, 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 of Old Notes who tender 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
"-- Fees and Expenses."
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of the date of this Prospectus.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean , 1997 unless the
Company, in its sole discretion, extends the Exchange Offer, in which case the
term "Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time. The Company reserves the right
(i) to delay acceptance of any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer and to refuse to accept Old Notes not previously
accepted, if any of the conditions set forth herein under "-- Termination" shall
have occurred and shall not have been waived by the Company (if permitted to be
waived by the Company), by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, and (ii) to amend the terms of
the Exchange Offer in any manner deemed by it to be advantageous to the holders
of the Old Notes. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment. Without limiting the manner in which the Company may
choose to make public announcements of any delay in acceptance, extension,
termination or amendment of the Exchange Offer, the Company shall have no
obligation to publish, advertise, or otherwise communicate any such public
announcement, other than by making a timely release to the Dow Jones News
Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest payable semi-annually on March 15 and
September 15 of each year, commencing March 15, 1998. Holders of Exchange Notes
of record on March 1, 1998 will receive interest on March 15, 1998 from the date
of issuance of the Exchange Notes, plus an amount equal to the
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<PAGE> 62
accrued interest on the Old Notes from the date of issuance of the Old Notes,
September 23, 1997, to the date of exchange thereof. Consequently, assuming the
Exchange Offer is consummated prior to the record date in respect of the March
15, 1998 interest payment for the Old Notes, holders who exchange their Old
Notes for Exchange Notes will receive the same interest payment on March 15,
1998 that they would have received had they not accepted the Exchange Offer.
Interest on the Old Notes accepted for exchange will cease to accrue upon
issuance of the Exchange Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, or an Agent's Message,
together with the Old Notes and any other required documents, to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In
addition, either (i) the certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent along with an Agent's Message prior to the Expiration Date or
(iii) the Holder must comply with the guaranteed delivery procedures described
below. The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal. Delivery of all
documents must be made to the Exchange Agent at its address set forth herein.
Holders may also request that their respective brokers, dealers, commercial
banks, trust companies or nominees effect such tender for such holders.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering Old Notes which are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.
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 holders. 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 timely delivery. No Letter of Transmittal or Old Notes should
be sent to the Company. Only a holder of Old Notes may tender such Old Notes in
the Exchange Offer. The term "holder" with respect to the Exchange Offer means
any person in whose name Old Notes are registered on the books of the Company or
any other person who has obtained a properly completed stock power from the
registered holder.
Any beneficial holder whose Old Notes are registered in the name of such
holder's broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on behalf of the registered holder. If such
beneficial holder wishes to tender directly, such beneficial holder must, prior
to completing and executing the Letter of Transmittal and delivering his Old
Notes, either make appropriate arrangements to register ownership of the Old
Notes in such holder's name or obtain a properly completed bond power from the
registered holder. The transfer of record ownership may take considerable time.
If the Letter of Transmittal is signed by the record holder(s) of the Old Notes
tendered thereby, the signature must correspond with the name(s) written on the
face of the Old Notes without alteration, enlargement or any change whatsoever.
If the Letter of Transmittal is signed by a participant in Depositary Trust
Company ("DTC"), the signature must correspond with the name as it appears on
the security position listing as the holder of the Old Notes. Signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, must be
guaranteed by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office
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or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution") unless the Old Notes tendered pursuant thereto are tendered (i) by
a registered holder (or by a participant in DTC whose name appears on a security
position listing as the owner) who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal and the Exchange Notes are being issued directly to such registered
holder (or deposited into the participant's account at DTC) or (ii) for the
account of an Eligible Institution. If the Letter of Transmittal is signed by a
person other than the registered holder of any Old Notes listed therein, such
Old Notes must be endorsed or accompanied by appropriate bond powers which
authorize such person to tender the Old Notes on behalf of the registered
holder, in either case signed as the name of the registered holder or holders
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
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with the Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Old Notes
(or a timely confirmation received of a book-entry transfer of Old Notes into
the Exchange Agent's account at DTC with an Agent's Message) or a Notice of
Guaranteed Delivery from an Eligible Institution is received by the Exchange
Agent. Issuances of Exchange Notes in exchange for Old Notes tendered pursuant
to a Notice of Guaranteed Delivery by an Eligible Institution will be made only
against delivery of the Letter of Transmittal (and any other required documents)
and the tendered Old Notes (or a timely confirmation received of a book-entry
transfer of Old Notes into the Exchange Agent's account at DTC with an Agent's
Message) with the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the 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 the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any conditions of the Exchange Offer or
defects or irregularities in 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) shall 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.
Neither the Company, the Exchange Agent nor any other person shall be under any
duty to give notification of defects or irregularities with respect to tenders
of Old Notes nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering holder of such Old Notes 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 (i) purchase or make offers for any Old Notes that remain
outstanding subsequent to the Expiration Date, or, as set forth under
"-- Termination," to terminate the Exchange Offer and (ii) 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
may differ from the terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Old Notes
at DTC within two business days after the date of this Prospectus, and any
financial institution which is a participant in DTC may make book-entry delivery
of the Old Notes by causing DTC to transfer such Old Notes into the Exchange
Agent's account in accordance with DTC's procedure for such transfer. Although
delivery of
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Old Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, an Agent's Message must be transmitted to and received by the
Exchange Agent on or prior to the Expiration Date at one of its addresses set
forth below under "-- Exchange Agent", or the guaranteed delivery procedure
described below must be complied with. DELIVERY OF DOCUMENTS TO DTC DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in this Prospectus to
deposit or delivery of Old Notes shall be deemed to include DTC's book-entry
delivery method.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer on
a timely basis and deliver an Agent's Message, may effect a tender if: (i) the
tender is made by or through an Eligible Institution; (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
holder of the Old Notes, the registration number or numbers of such Old Notes
(if applicable), and the total principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
business days after the Expiration Date, the Letter of Transmittal, together
with the Old Notes in proper form for transfer (or a confirmation of a
book-entry transfer into the Exchange Agent's account at DTC with an Agent's
Message) and any other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed Letter of Transmittal, together with the
certificate(s) representing all tendered Old Notes in proper form for transfer
(or a confirmation of such a book-entry transfer) and all other documents
required by the Letter of Transmittal are received by the Exchange Agent within
five business days after the Expiration Date.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, certain terms and
conditions which are summarized below and are part of the Exchange Offer.
Each holder who participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that such holder is not participating in, and
has no arrangement with any person to participate in, the distribution (within
the meaning of the Securities Act) of the Exchange Notes, and that such holder
is not a Restricted Holder.
Old Notes tendered in exchange for Exchange Notes (or a timely confirmation
of a book-entry transfer of such Old Notes into the Exchange Agent's account at
DTC) must be received by the Exchange Agent, with the Letter of Transmittal or
an Agent's Message and any other required documents, by the Expiration Date or
within the time periods set forth above pursuant to a Notice of Guaranteed
Delivery from an Eligible Institution. Each holder tendering the Old Notes for
exchange sells, assigns and transfers the Old Notes to the Exchange Agent, as
agent of the Company, and irrevocably constitutes and appoints the Exchange
Agent as the holder's agent and attorney-in-fact to cause the Old Notes to be
transferred and exchanged. The holder warrants that it has full power and
authority to tender, exchange, sell, assign and transfer the Old Notes and to
acquire the Exchange Notes issuable upon the exchange of such tendered Old
Notes, that the Exchange Agent, as agent of the Company, will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances, and that the Old Notes tendered for
exchange are not subject to any adverse claims when accepted by the Exchange
Agent, as agent of the Company. The holder also warrants and agrees that it
will, upon request, execute and deliver any additional documents deemed by the
Company or the Exchange Agent to be necessary or desirable to complete the
exchange, sale, assignment and transfer of the Old Notes. All authority
conferred or agreed to be conferred in the Letter of Transmittal by the holder
will survive the death, incapacity or dissolution of the holder and any
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obligation of the holder shall be binding upon the heirs, personal
representatives, successors and assigns of such holder.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior to
the Expiration Date, unless previously accepted for exchange. To withdraw a
tender of Old Notes in the Exchange Offer, a written or facsimile 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 business day prior
to the Expiration Date and prior to acceptance for exchange thereof by the
Company. 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, if applicable, the registration number
or numbers and total principal amount of such Old Notes), (iii) be signed by the
Depositor 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
permit the Trustee with respect to the Old Notes to register the transfer of
such Old Notes into the name of the Depositor withdrawing the tender, (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor and (v) if applicable because the Old Notes have been
tendered pursuant to the book-entry procedures, specify the name and number of
the participant's account at DTC to be credited, if different than that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange 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 above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange any Old Notes not theretofore accepted for
exchange, and may terminate the Exchange Offer if it determines that the
Exchange Offer violates any applicable law or interpretation of the staff of the
SEC.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Notes, 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 of the Old Notes, if the Exchange Offer
would otherwise expire during such period. Holders of Old Notes will have
certain rights against the Company under the Registration Rights Agreement
should the Company fail to consummate the Exchange Offer.
EXCHANGE AGENT
The Bank of New York, the trustee under the Indenture, has been appointed
as Exchange Agent for the Exchange Offer. Questions and requests for assistance
and requests for additional copies of this
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Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Mail: By Hand or Overnight Courier:
The Bank of New York The Bank of New York
101 Barclay Street, 7th Floor 101 Barclay Street, 7th Floor
Reorganization Section New York, New York 10286
New York, New York 10286 Corporate Trust Services Window
Attention: Ground Level
Facsimile Transmission: (212) Attention: Reorganization Section
Confirm by Telephone: (212)
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone. The Company will not make any payments to brokers,
dealers or other persons soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse the Exchange Agent for its reasonable
out-of-pocket expenses in connection therewith. The Company may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus,
Letters of Transmittal and related documents to the beneficial owners of the Old
Notes and in handling or forwarding tenders for exchange.
The other expenses incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company. The Company will pay all transfer
taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange
Offer. If, however, Exchange Notes or Old Notes not tendered or accepted for
exchange 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, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then 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 with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized by the Company over the term of the Exchange Notes under
generally accepted accounting principles.
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DESCRIPTION OF THE NOTES
The Exchange Notes will be issued and the Old Notes were issued under an
indenture dated as of September 23, 1997 (the "Indenture") between the Company,
as issuer, and The Bank of New York, as trustee (the "Trustee"). A copy of the
Indenture is available upon request. The following summary of the material
provisions of the Indenture does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all of the provisions of the
Indenture, including the definitions of certain terms contained therein. The
definitions of certain capitalized terms used in the following summary are set
forth below under "Certain Definitions."
The Notes and the Exchange Notes will constitute a single series of debt
securities under the Indenture. If the Exchange Offer is consummated, Holders of
Notes who do not exchange their Notes for Exchange Notes will vote together with
Holders of the Exchange Notes for all relevant purposes under the Indenture. In
that regard, the Indenture requires that certain actions by the Holders
thereunder (including acceleration following an Event of Default) must be taken,
and certain rights must be exercised, by specified minimum percentages of the
aggregate principal amount of the outstanding securities issued under the
Indenture. In determining whether Holders of the requisite percentage in
principal amount have given any notice, consent or waiver or taken any other
action permitted under the Indenture, any Notes that remain outstanding after
the Exchange Offer will be aggregated with the Exchange Notes, and the Holders
of such Notes and the Exchange Notes will vote together as a single series for
all such purposes. Accordingly, all references herein to specified percentages
in aggregate principal amount of the outstanding Notes shall be deemed to mean,
at any time after the Exchange Offer is consummated, such percentages in
aggregate principal amount of the Notes and the Exchange Notes then outstanding.
GENERAL
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to Senior Debt. See "-- Ranking and
Subordination." For purposes of this section, the term "Company" means Belco Oil
& Gas Corp. As of the date of the Indenture, all of the Company's Significant
Subsidiaries will be Restricted Subsidiaries. Under certain circumstances,
however, the Company will be able to designate current and future Subsidiaries
as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants set forth in the Indenture. See "-- Certain
Covenants."
TERMS OF THE NOTES
The Notes will be limited in aggregate principal amount to $150 million and
will mature on September 15, 2007. Interest on the Notes will accrue at the rate
of 8 7/8% per annum and will be payable semi-annually in arrears on March 15 and
September 15 of each year, commencing March 15, 1998, to Holders of the Notes of
record on the immediately preceding March 1 and September 1. 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 the date of original issuance.
Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium, if any, and interest on the Notes will
be payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company, payment
of interest may be made by check mailed to the Holders of the Notes at their
respective addresses set forth in the applicable register of Holders of the
Notes. Until otherwise designated by the Company, the Company's office or agency
in New York will be the office of the Trustee maintained for such purpose. The
Notes will be fully registered as to principal and interest in minimum
denominations of $1,000 and integral multiples of $1,000 in excess thereof.
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OPTIONAL REDEMPTION
Except as otherwise described below, the Notes will not be redeemable at
the Company's option prior to September 15, 2002. Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on September 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ 104.438%
2003........................................................ 102.958%
2004........................................................ 101.479%
2005 and thereafter......................................... 100.000%
</TABLE>
Prior to September 15, 2000, the Company may, at its option, on any one or
more occasions, redeem up to 33 1/3% of the original aggregate principal amount
of the Notes at a redemption price equal to 108.875% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the redemption
date, with all or a portion of the net proceeds of public sales of common stock
of the Company; provided that at least 66 2/3% of the original aggregate
principal amount of the Notes remains outstanding immediately after the
occurrence of such redemption.
At any time on or prior to September 15, 2002, the Notes may also be
redeemed as a whole at the option of the Company upon the occurrence of a Change
of Control (but in no event more than 90 days after the occurrence of such
Change of Control) at a redemption price equal to 100% of the principal amount
thereof, plus the Applicable Premium as of, and accrued but unpaid interest, if
any, to the date of redemption (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
SELECTION AND NOTICE
In the case of any partial redemption, selection of the Notes 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 such other Notes are not so listed, on a pro rata basis, by lot
or by such method as such Trustee shall deem fair and appropriate; provided that
no Note of $1,000 or less shall be redeemed in part. Notices 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 the 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 principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on the Notes or portions of them called for redemption.
RANKING AND SUBORDINATION
The payment of principal of, premium, if any, and interest on, the Notes
and any other payment obligations of the Company in respect of the Notes
(including any obligation to repurchase the Notes) will be subordinated in
certain circumstances in right of payment, as set forth in the Indenture, to the
prior payment in full in cash of all Senior Debt, whether outstanding on the
date of the Indenture or thereafter incurred.
Certain Subsidiaries of the Company may, from time to time, guarantee the
Company's obligations under the Notes. See "Limitation on Guarantees of
Indebtedness by Restricted Subsidiaries." Payment by a Subsidiary Guarantor
pursuant to its Subsidiary Guarantee will be subordinated, as set forth in the
Indenture, to the prior payment in full of such Subsidiary's Guarantor Senior
Indebtedness.
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Upon any payment or distribution of property or securities to creditors of
the Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, or in an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior Debt
will be entitled to receive payment in full of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or not a
claim for such interest would be allowed in a proceeding) before the Holders of
the Notes will be entitled to receive any payment with respect to the Notes; and
until all Obligations with respect to Senior Debt are paid in full, any
distribution to which the Holders of the Notes would be entitled shall be made
to the holders of Senior Debt (except that Holders of the Notes may receive
payments made from the trust described under "-- Legal Defeasance and Covenant
Defeasance").
The Company also may not make any payment (whether by redemption, purchase,
retirement, defeasance or otherwise) upon or in respect of the Notes (except
from the trust described under "-- Legal Defeasance and Covenant Defeasance") if
(i) a default in the payment of the principal of, premium, if any, or interest
on Designated Senior Debt of the Company occurs ("payment default") or (ii) any
other default occurs and is continuing with respect to Designated Senior Debt of
the Company that permits, or with the giving of notice or passage of time or
both (unless cured or waived) will permit, holders of the Designated Senior Debt
as to which such default relates to accelerate its maturity ("non-payment
default") and (solely with respect to this clause (ii)) the Trustee receives a
notice of such default (a "Payment Blockage Notice") from the Company or the
holders (or their representative) of any Designated Senior Debt. A Subsidiary
Guarantor will be prohibited from making any payment upon its Subsidiary
Guarantee if (i) a default in the payment of the principal of, premium, if any,
or interest on Designated Senior Debt of such Subsidiary Guarantor occurs (a
"payment default") or (ii) any other default occurs and is continuing with
respect to Designated Senior Debt of such Subsidiary Guarantor that permits or
with the giving of notice or passage of time or both (unless cured or waived)
will permit holders of the Designated Senior Debt as to which such default
related to accelerate its maturity (a "non-payment default") and, with respect
to this clause (ii), the Trustee receives a Payment Blockage Notice from the
Company, the Subsidiary Guarantor or the holders (or their representative) of
any Senior Designated Debt. Cash payments on the Notes or payment under a
Subsidiary Guarantee, as the case may be, shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated or a default of the type described
in clause (ix) under the caption "Events of Default and Remedies" has occurred
and is continuing. No new period of payment blockage may be commenced unless and
until 360 days have elapsed since the date of commencement of the payment
blockage period resulting from the immediately prior Payment Blockage Notice. No
nonpayment default in respect of Designated Senior Debt that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been cured or waived for a period of no less than 90
days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of the Company, Holders of the Notes may recover
less ratably than creditors of the Company who are holders of Senior Debt. As of
June 30, 1997, on a pro forma basis, after giving effect to the application of
the net proceeds from the Offering, the Company would have had no Senior Debt
outstanding (including no outstanding borrowings under the New Credit Facility),
and there would be no senior subordinated debt outstanding (exclusive of the
Notes). See "Description of Other Indebtedness." The Indenture will limit,
subject to certain financial tests, the amount of additional Indebtedness,
including Senior Debt, that the Company and its Subsidiaries can incur. See
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified
Stock."
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MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of the Notes will,
unless the Company shall have elected to redeem the Notes prior to September 15,
2002, upon a Change of Control as permitted by the third paragraph of
"-- Optional Redemption," have the right to require the Company to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount of the Notes plus accrued and unpaid interest, if any, thereon to the
date of purchase (the "Change of Control Payment"). Within 30 days following any
Change of Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offer to
repurchase the Notes pursuant to the procedures required by the Indenture and
described in such notice on a date no earlier than 30 days nor later than 60
days from the date such notice is mailed (the "Change of Control Payment Date").
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all the Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the relevant Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of such Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
the Notes so tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each tendering Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Indenture will provide that, prior to complying with the provisions
of this covenant, but in any event within 30 days following a Change of Control,
the Company will either repay all outstanding Senior Debt or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Debt to permit the repurchase of the Notes required by this covenant. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer if a
third party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of the Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
In the event that the Company makes an offer to purchase the Notes pursuant
to the provisions of this "-- Change of Control" covenant, the Company intends
to comply with any applicable securities
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laws and regulations, including any applicable requirements of Section 14(e) of,
and Rule 14e-1 under, the Exchange Act.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company or the Restricted Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value (as
determined in good faith by the Board of Directors or an officer of the Company
or such Restricted Subsidiary with responsibility for such transaction, which
determination shall be conclusive evidence of compliance with this provision) of
the assets or Equity Interests issued or sold or otherwise disposed of; (ii)
such Asset Sale complies, to the extent applicable, with the covenants described
herein under "Merger, Consolidation, or Sale of Assets" or "Limitation on the
Sale or Issuance of Capital Stock of Restricted Subsidiaries," as applicable and
(iii) at least 75% of the consideration therefor received by the Company or such
Restricted Subsidiary from such Asset Sale is in the form of cash, Cash
Equivalents, properties and capital assets to be used by the Company or any
Restricted Subsidiary in the Oil and Gas Business or oil and gas properties
owned or held by another Person which are to be used in the Oil and Gas Business
of the Company or its Restricted Subsidiaries, or any combination thereof
(collectively the "Cash Consideration"); provided that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability and (y) any non-cash
consideration received by the Company or any such Restricted Subsidiary from
such transferee that is converted by the Company or such Restricted Subsidiary
into cash within 180 days of closing such Asset Sale, shall be deemed to be cash
for purposes of this provision (to the extent of the cash received); provided,
however, that the Company and its Restricted Subsidiaries may make Asset Sales
with a fair market value not exceeding $15 million in the aggregate in any
period of twelve calendar months, free from any of the restrictions,
requirements or other provisions under this "Asset Sales" section.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, in any order or
combination, (a) to reduce Senior Debt, Guarantor Senior Indebtedness or Pari
Passu Indebtedness (provided that, in connection with a reduction of Pari Passu
Indebtedness, the Company or such Restricted Subsidiary redeems a pro rata
portion of the Notes), (b) to make Permitted Investments, (c) to make
investments in interests in other Oil and Gas Businesses, (d) to make capital
expenditures in respect of the Company's or its Restricted Subsidiaries' Oil and
Gas Business or to purchase long-term assets that are used or useful in the Oil
and Gas Business or (e) to repurchase any Notes, as provided below. Pending the
final application of any such Net Proceeds, the Company may temporarily reduce
Senior Debt that is revolving debt or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied as provided in the first sentence of this paragraph
will (after the expiration of the periods specified in this paragraph) be deemed
to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $15 million, the
Company is required to make an offer to all Holders of the Notes and, to the
extent required by the terms thereof, to all holders or lenders of Pari Passu
Indebtedness (an "Asset Sale Offer") to purchase the maximum principal amount of
the Notes and any such Pari Passu Indebtedness to which the Asset Sale Offer
applies that may be purchased out of the Excess Proceeds, at an offer price in
cash equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase, in accordance with the procedures set
forth in the Indenture or the agreements governing the Pari Passu Indebtedness,
as applicable. To the extent that the aggregate principal amount of the Notes
and Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of the
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Notes surrendered by Holders thereof and other Pari Passu Indebtedness
surrendered by holders or lenders thereof, collectively, exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes and Pari Passu Indebtedness
to be purchased on a pro rata basis, based on the aggregate principal amount
thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
In the event that the Company makes an offer to purchase the Notes pursuant
to the provisions of this "-- Asset Sales" covenant, the Company intends to
comply with any applicable securities laws and regulations, including any
applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange
Act.
The New Credit Facility may prohibit the Company from purchasing any Notes
and also provides that certain change of control events with respect to the
Company would constitute a default thereunder. Any future credit agreements or
other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control or Asset Sale Offer occurs at a time when the Company is prohibited from
purchasing the Notes by the terms of the New Credit Facility or other agreements
relating to other Senior Debt, the Company could seek the consent of its lenders
to the purchase or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company may remain prohibited from purchasing the Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the New Credit Facility. In such circumstances, the subordination provisions in
the Indenture would likely restrict payments to the Holders of the Notes.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the Equity
Interests of the Company or any Restricted Subsidiary (including, without
limitation, any payment in connection with any merger or consolidation involving
the Company) to the direct or indirect holders of Equity Interests of the
Company or any Restricted Subsidiary in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company or a Restricted Subsidiary and other than dividends or
distributions payable to the Company or a Restricted Subsidiary so long as, in
the case of any dividend or distribution payable on or in respect of any class
or series of securities issued by a Subsidiary other than a Wholly Owned
Restricted Subsidiary, the Company or a Restricted Subsidiary receives at least
its pro rata share of such dividend or distribution in accordance with its
Equity Interests in such class or series of securities); (ii) purchase, redeem
or otherwise acquire or retire for value any Equity Interests of the Company or
any Subsidiary of the Company that is not a Wholly Owned Restricted Subsidiary
of the Company; (iii) make any principal payment on, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes, except at final maturity or as a mandatory or sinking
fund repayment; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock"; and
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(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (2), (3), (4), (5), (6) and (7) of the next succeeding paragraph),
is less than the sum of (i) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting period) from the beginning
of the first fiscal quarter commencing after the date of the Indenture to
the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit), plus (ii) 100% of the aggregate net cash
proceeds received by the Company from the issue or sale since the date of
the Indenture of Equity Interests of the Company or of debt securities of
the Company that have been converted into or exchanged for such Equity
Interests (other than Equity Interests (or convertible debt securities)
sold to a Subsidiary of the Company and other than Disqualified Stock or
debt securities that have been converted into Disqualified Stock), plus
(iii) 100% of the value of any issue or sale of Equity Interests (other
than Disqualified Stock) since the date of the Indenture used to acquire
any Person engaged in the Oil and Gas Business or assets used in the Oil
and Gas Business, plus (iv) to the extent that any Restricted Investment
that was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash or the receipt of properties used in the Oil
and Gas Business, the lesser of (A) the net cash proceeds of such sale,
liquidation or repayment or the fair market value of property received in
exchange therefor and (B) the amount of such Restricted Investment, plus
(v) the amount received in cash as a return on investment or interest on a
loan constituting a Restricted Investment, provided, however, that the
foregoing provisions of this paragraph (c) will not prohibit Restricted
Payments in an aggregate amount not to exceed $25 million.
The foregoing provisions will not prohibit (1) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (2) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Restricted Subsidiary, respectively
in exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to the Company or a Subsidiary of the Company) of other Equity
Interests of the Company or such Restricted Subsidiary, respectively (other than
any Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(ii) of the preceding paragraph;
(3) the defeasance, redemption or repurchase of any Disqualified Stock of the
Company or any Restricted Subsidiary in exchange for, or out of the
substantially concurrent sale (other than to the Company or a Subsidiary of the
Company) of Disqualified Stock of the Company or such Restricted Subsidiary,
respectively; provided that (i) the Disqualified Stock sold matures, is
mandatorily redeemable, is convertible or exchangeable into Indebtedness or
Disqualified Stock of the Company or a Restricted Subsidiary on a date that is
no earlier than the corresponding date with respect to the Disqualified Stock
that has been so defeased, redeemed or repurchased and (ii) the amount of any
such net cash proceeds that are utilized for any such defeasance, redemption or
repurchase shall be excluded from clause (c)(ii) of the preceding paragraph; (4)
the defeasance, redemption or repurchase of subordinated Indebtedness with the
net cash proceeds from an incurrence of subordinated Permitted Refinancing Debt
or the substantially concurrent sale (other than to a Subsidiary of the Company)
of Equity Interests of the Company; provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Subsidiary of the Company
held by any of the Company's (or any of its Subsidiaries') employees pursuant to
any management equity subscription agreement or stock option agreement in effect
as of the date of the Indenture; provided that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $2 million in any twelve-month period; and provided further that no
Default or Event of Default shall have occurred and be continuing immediately
after such transaction; (6) repurchases of Equity Interests deemed to occur upon
exercise of stock options if such Equity Interests represent a portion of
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the exercise price of such options; and (7) the making of loans by the Company
or any of its Restricted Subsidiaries to officers or directors of the Company;
provided that the aggregate outstanding amount of such loans shall not exceed,
at any time, $2.5 million plus any such loans outstanding on the date of the
Indenture.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (as determined in good faith by the Board of Directors or a
responsible officer of the Company, which determination shall be conclusive
evidence of compliance with this provision) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or the
applicable Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment.
In computing Consolidated Net Income of the Company under paragraph (c)
above, (1) the Company shall use audited financial statements for the portions
of the relevant period for which audited financial statements are available on
the date of determination and unaudited financial statements and other current
financial data based on the books and records of the Company for the remaining
portion of such period and (2) the Company shall be permitted to rely in good
faith on the financial statements and other financial data derived from the
books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment, would in the good faith determination of
the Company be permitted under the requirements of the Indenture, such
Restricted Payment shall be deemed to have been made in compliance with the
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the Company
for any period.
Designation of Unrestricted Subsidiaries
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under clause (c) of the first paragraph of the covenant
"Restricted Payments." All such outstanding Investments will be deemed to
constitute Investments in an amount equal to the greater of the fair market
value or the book value of such Investments at the time of such designation.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness and that the Company and any Subsidiary Guarantors will not issue
any Disqualified Stock and will not permit any of its Restricted Subsidiaries
(other than a Subsidiary Guarantor) to issue any shares of preferred stock to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company; provided, however, that the Company and any Subsidiary Guarantor may
incur Indebtedness or issue shares of Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least 2.5 to 1, determined on a pro forma basis as set forth in the
definition of Fixed Charge Coverage Ratio; and
(ii) no Default or Event of Default shall have occurred and be
continuing at the time such additional Indebtedness is incurred or such
Disqualified Stock is issued or would occur as a
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consequence of the incurrence of the additional Indebtedness or the
issuance of the Disqualified Stock.
Notwithstanding the foregoing, the Indenture does not prohibit any of the
following (collectively, "Permitted Indebtedness"): (a) the Indebtedness
evidenced by the Notes; (b) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness pursuant to Credit Facilities, so long
as the aggregate principal amount of all Indebtedness outstanding under all
Credit Facilities does not, at any one time, exceed the greater of (i) $250
million and (ii) the Borrowing Base, provided that the Company may incur more
than $250 million of Indebtedness pursuant to Credit Facilities only if the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available would have
been at least 2.0 to 1, determined on a pro forma basis as set forth in the
definition of Fixed Charge Coverage Ratio; (c) the guarantee by any Restricted
Subsidiary of any Indebtedness that is permitted by the Indenture to be incurred
by the Company, provided that the covenant under the caption entitled
"-- Certain Covenants -- Guarantees of Indebtedness by Restricted Subsidiaries"
is satisfied in connection with the issuance of such guarantee; (d) all
Indebtedness of the Company and its Restricted Subsidiaries in existence as of
the date of the Indenture; (e) Indebtedness of any Restricted Subsidiary,
provided that and for so long as such Restricted Subsidiary is a Subsidiary
Guarantor (and if on any date such Subsidiary shall cease to be a Subsidiary
Guarantor, such Indebtedness shall be deemed incurred on such date); (f)
intercompany Indebtedness between or among the Company and any of its Wholly
Owned Restricted Subsidiaries; provided, however, that if the Company is the
obligor on such Indebtedness, (i) such Indebtedness is expressly subordinate to
the payment in full of all Obligations with respect to the Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Wholly Owned
Restricted Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence
of such Indebtedness by the Company or such Restricted Subsidiary, as the case
may be; (g) Indebtedness in connection with one or more standby letters of
credit, guarantees, performance bonds or other reimbursement obligations, in
each case, issued in the ordinary course of business and not in connection with
the borrowing of money or the obtaining of advances or credit (other than
advances or credit on open account, includible in current liabilities, for goods
and services in the ordinary course of business and on terms and conditions
which are customary in the Oil and Gas Business, and other than the extension of
credit represented by such letter of credit, guarantee or performance bond
itself); (h) Indebtedness under Interest Rate Hedging Agreements, provided that
the obligations under such agreements are related to payment obligations on
Indebtedness otherwise permitted by the terms of this covenant and that the
aggregate notional amount of such agreements does not exceed 105% of the
principal amount of the Indebtedness to which such agreements relate; (i)
Indebtedness under Oil and Gas Commodity Price Risk Management Contracts, (j)
the incurrence by the Company of Indebtedness not otherwise permitted to be
incurred pursuant to this paragraph, provided that the aggregate principal
amount of all Indebtedness incurred pursuant to this clause (j), together with
all Permitted Refinancing Debt incurred pursuant to clause (k) of this paragraph
in respect of Indebtedness previously incurred pursuant to this clause (j), does
not exceed $20 million at any one time outstanding; (k) Permitted Refinancing
Debt incurred in exchange for, or the net proceeds of which are used to
refinance, extend, renew, replace, defease or refund, Indebtedness that was
permitted by the Indenture to be incurred (including Indebtedness previously
incurred pursuant to this clause (k)); (l) accounts payable or other obligations
of the Company or any Restricted Subsidiary to trade creditors created or
assumed by the Company or such Restricted Subsidiary in the ordinary course of
business in connection with the obtaining of goods or services; (m) Purchase
Money Debt; (n) Indebtedness consisting of obligations in respect of purchase
price adjustments, guarantees or indemnities in connection with the acquisition
or disposition of assets; (o) production imbalances incurred in the ordinary
course of business; (p) Indebtedness of a Subsidiary Guarantor, if any, in
respect of the Subsidiary Guarantee of such Subsidiary Guarantor; and (q)
incurrence by a Restricted Subsidiary of Indebtedness, provided that the
aggregate principal amount of all Indebtedness for all Restricted Subsidiaries
incurred pursuant to this clause (q) does not exceed $5 million at any one time
outstanding.
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The Indenture provides that the Company will not permit any Unrestricted
Subsidiary to incur any Indebtedness other than Non-Recourse Debt; provided,
however, if any such Indebtedness ceases to be Non-Recourse Debt, such event
shall be deemed to constitute an incurrence of Indebtedness by the Company.
No Layering
The Indenture provides that the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes, provided, however, that the foregoing
limitations will not apply to distinctions between categories of Indebtedness
that exist by reason of any Liens arising or created in accordance with the
provisions of the Indenture in respect of some but not all such Indebtedness.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien securing Indebtedness of any kind
(other than Permitted Liens) upon any of its property or assets, now owned or
hereafter acquired, unless all payments under the Notes are secured by such Lien
prior to, or on an equal and ratable basis with, the Indebtedness so secured for
so long as such Indebtedness is secured by such Lien.
The Indenture provides that no Subsidiary Guarantor will directly or
indirectly create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) that secures obligations under any Pari Passu Indebtedness or
under any subordinated Indebtedness of such Subsidiary Guarantor on any asset or
property of such Subsidiary Guarantor or any income or profits therefrom, or
assign or convey any right to receive income therefrom, unless the Subsidiary
Guarantee of such Subsidiary Guarantor is equally and ratably secured with the
obligations so secured or until such time as such obligations are no longer
secured by a Lien.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company or its Restricted Subsidiaries may enter
into a sale and leaseback transaction if (i) the Company could have incurred
Indebtedness in an amount equal to the Attributable Debt relating to such sale
and leaseback transaction pursuant to the test set forth in the first paragraph
of the covenant described above under the caption "Incurrence of Indebtedness
and Issuance of Disqualified Stock" or (ii) the gross cash proceeds of such sale
and leaseback transaction are at least equal to the fair market value (as
determined in good faith by a resolution the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee, which determination shall be
conclusive evidence of compliance with this provision) of the property that is
the subject of such sale and leaseback transaction and the transfer of assets in
such sale and leaseback transaction is permitted by, and the Company applies the
net proceeds of such transaction in compliance with, the covenant described
above under the caption "Repurchase at the Option of Holders -- Asset Sales."
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i) (x) pay dividends or make any
other distributions to the Company or any of the Restricted Subsidiaries of the
Company (1) on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (y) pay any Indebtedness owed
to the Company or any Restricted Subsidiaries of the Company, (ii) make loans or
advances to the Company or any Restricted Subsidiaries of the Company or (iii)
transfer any of its properties or assets to the Company or any Restricted
Subsidiaries of the
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Company, except for such encumbrances or restrictions existing under or by
reason of (a) the New Credit Facility, as in effect as of the date of the
Indenture, and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof or any other
Credit Facility, provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements, refinancings or
other Credit Facilities are no more restrictive with respect to such dividend
and other payment restrictions than those contained in the New Credit Facility,
as in effect on the date of the Indenture, (b) the Indenture and the Notes, (c)
applicable law, (d) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except, in the case of Indebtedness, to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person and its
Subsidiaries, or the property or assets of the Person and its Subsidiaries, so
acquired, provided that, such Indebtedness or Capital Stock was permitted by the
terms of the Indenture to be incurred, (e) by reason of customary non-assignment
provisions in leases entered into in the ordinary course of business, (f)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, (g) Permitted Refinancing Debt, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Debt are no more restrictive than those contained in the agreements governing
the Indebtedness being refinanced, (h) any other security agreement, instrument
or document relating to Senior Debt hereafter in effect, provided that such
encumbrances or restrictions are customary in connection with such documents and
that the terms and conditions of such encumbrances or restrictions are no more
restrictive than those encumbrances or restrictions imposed in connection with
the New Credit Facility, (i) Permitted Liens, (j) customary provisions in joint
venture agreements and other similar agreements relating to the distribution of
revenues from such joint venture or other business venture, or (k) any agreement
relating to a sale and leaseback transaction or capital lease, but only on the
property subject to such transaction or lease and only to the extent that such
restrictions or encumbrances are customary with respect to a sale and leaseback
transaction or capital lease.
Guarantees of Indebtedness by Restricted Subsidiaries
(a) The Indenture provides that the Company will not permit any Restricted
Subsidiary to guarantee the payment of any Indebtedness of the Company or any
Indebtedness of any other Restricted Subsidiary (in each case, the "Guaranteed
Debt") unless (i) if such Restricted Subsidiary is not a Subsidiary Guarantor,
such Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a Subsidiary Guarantee of payment of
the Notes by such Restricted Subsidiary, (ii) if the Notes or the Subsidiary
Guarantee (if any) of such Restricted Subsidiary are subordinated in right of
payment to the Guaranteed Debt, the Subsidiary Guarantee under the supplemental
indenture shall be subordinated to such Restricted Subsidiary's guarantee with
respect to the Guaranteed Debt substantially to the same extent as the Notes or
the Subsidiary Guarantee are subordinated to the Guaranteed Debt under the
Indenture, (iii) if the Guaranteed Debt is by its express terms subordinated in
right of payment to the Notes or the Subsidiary Guarantee (if any) of such
Restricted Subsidiary, any such guarantee of such Restricted Subsidiary with
respect to the Guaranteed Debt shall be subordinated in right of payment to such
Restricted Subsidiary's Subsidiary Guarantee with respect to the Notes
substantially to the same extent as the Guaranteed Debt is subordinated to the
Notes or the Subsidiary Guarantee (if any) of such Restricted Subsidiary, (iv)
until the Notes have been repaid in full or defeased in accordance with the
provisions under the heading "Legal Defeasance and Covenant Defeasance," such
Restricted Subsidiary waives and will not in any manner whatsoever claim or take
the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee; and (v) if such Restricted Subsidiary is required under
clause (i) to execute and deliver a supplemental indenture, at the time of such
delivery such Restricted Subsidiary shall deliver to the Trustee an opinion of
counsel to the effect that (A) such Subsidiary Guarantee of the Notes has been
duly executed and authorized and (B) such Subsidiary
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Guarantee of the Notes constitutes a valid, binding and enforceable obligation
of such Restricted Subsidiary, except insofar as enforcement thereof may be
limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; provided that
this paragraph (a) shall not be applicable to any guarantee of any Restricted
Subsidiary that (A) existed at the time such Person became a Restricted
Subsidiary of the Company and (B) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of the Company.
(b) Notwithstanding the foregoing and the other provisions of the
Indenture, any Subsidiary Guarantee by a Restricted Subsidiary of the Notes
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer, to any Person
not an Affiliate of the Company, of all of the Company's Capital Stock in, or
all or substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) in the case of
a guarantee incurred pursuant to paragraph (a) of this covenant, the release or
discharge of the guarantee which resulted in the creation of such Subsidiary
Guarantee, except a discharge or release by or as a result of payment under such
guarantee.
Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries
The Indenture provides that the Company will not sell or otherwise dispose
of any shares of Capital Stock of a Restricted Subsidiary, and shall not permit
any Restricted Subsidiary (other than a Subsidiary Guarantor), directly or
indirectly, to issue or sell or otherwise dispose of any shares of its Capital
Stock except (i) to the Company or a Wholly Owned Restricted Subsidiary, (ii)
if, immediately after giving effect to such issuance, sale or other disposition,
such Restricted Subsidiary remains a Restricted Subsidiary, (iii) shares of
nonvoting Capital Stock of Restricted Subsidiaries may be issued or sold to
employees or directors of the Company or any Subsidiary, or (iv) if all shares
of Capital Stock of such Restricted Subsidiary are sold or otherwise disposed.
In connection with any sale or disposition of Capital Stock (including a sale or
disposition of Capital Stock of a Subsidiary Guarantor), the Company will be
required to comply with the covenant described under the caption "-- Asset
Sales" above.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets, in one or more related transactions, to another
Person, and the Company may not permit any of its Restricted Subsidiaries to
enter into any such transaction or series of transactions if such transaction or
series of transactions would, in the aggregate, result in a sale, assignment,
transfer, lease, conveyance, or other disposition of all or substantially all of
the properties or assets of the Company to another Person unless (i) the Company
is the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (the "Surviving Entity") is a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia; (ii)
the Surviving Entity (if the Company is not the continuing obligor under the
Indenture) assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately before and after giving effect to such
transaction or series of transactions no Default or Event of Default exists;
(iv) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (and treating any Indebtedness not previously
an obligation of the Company and its Restricted Subsidiaries which becomes the
obligation of the Company or any of its Restricted Subsidiaries as a result of
such transaction as having been incurred at the time of such transaction or
series of transactions), the Consolidated Net Worth of the Company or the
Surviving Entity (if the Company is not the continuing obligor under the
Indenture) is equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction or series of transactions; and, (v) the
Company or the Surviving Entity (if the Company is not the continuing obligor
under the Indenture) will, at the time of
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such transaction or series of transactions and after giving pro forma effect
thereto as if such transaction or series of transactions had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Disqualified Stock." Each Subsidiary Guarantor, if
any, unless it is the other party to the transactions described above, shall
have confirmed by supplemental indenture that its Subsidiary Guarantee shall
apply to such Person's obligations under the Indenture and the Notes.
Notwithstanding the restrictions described in the foregoing clauses (i), (iv)
and (v), any Restricted Subsidiary may consolidate with, merge into or transfer
all or part of its properties and assets to the Company, and any Wholly Owned
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to another Wholly Owned Restricted Subsidiary.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any of
its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i)
such Affiliate Transaction is on terms that are no less favorable to the Company
or the relevant Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5 million, an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above, (b)
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the members
of the Board of Directors who are disinterested with respect to such Affiliate
Transaction, which resolution shall be conclusive evidence of compliance with
this provision, and (c) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$15 million, an Officer's Certificate as described in clause (b) above and an
opinion as to the fairness to the Company or such Subsidiary of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal,
engineering or investment banking firm of national standing (for purposes of
this clause (c) such opinion and the resolution described in clause (b) above
shall be conclusive evidence of compliance with this provision); provided that
the following shall not be deemed Affiliate Transactions: (1) reasonable fees
and compensation paid to (including issuances and grants of securities and stock
options), and employment agreements and stock option and ownership plans for the
benefit of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary of the Company as determined in good faith by the
Company's Board of Directors or senior management; (2) transactions between or
among the Company and/or its Restricted Subsidiaries, (3) Restricted Payments
and Permitted Investments that are permitted by the provisions of the Indenture
described above under the caption "-- Restricted Payments" and the definition of
Permitted Investments, (4) indemnification payments made to officers, directors
and employees of the Company or its Subsidiaries pursuant to charter, by-law,
statutory or contractual provisions, (5) any contracts, agreements or
understandings existing as of the date of the Indenture, and (6) any contracts,
agreements or understandings between the Company and any of its Affiliates with
respect to the lease by the Company from such Affiliate of office space for the
Company in New York City, including any collateral agreements entered into with
respect to such lease.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any material respect in any business other than the Oil and Gas
Business.
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Commission Reports
Notwithstanding that the Company may not be required to remain subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the
extent permitted by the Exchange Act, the Company will file with the Commission
and provide, within 15 days after such filing, the Trustee and Holders with the
annual reports and the information, documents and other reports which are
specified in Sections 13 and 15(d) of the Exchange Act. In the event that the
Company is not permitted to file such reports, documents and information with
the Commission, the Company will provide substantially similar information to
the Trustee and the Holders, as if the Company were subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, within 15 days of the
date the Company would have been obligated to file such reports with the
Commission were the Company permitted to file such reports with the Commission.
The Company also will comply with the other provisions of Section 314(a) of the
Trust Indenture Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) a default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) a default in payment when due of the principal of or premium,
if any, on the Notes (whether or not prohibited by the subordination provisions
of the Indenture); (iii) the failure by the Company to comply with its
obligations under "Certain Covenants -- Merger, Consolidation, or Sale of
Assets" above; (iv) the failure by the Company for 30 days after notice from the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding to comply with the provisions described under the
captions "Repurchase at the Option of Holders" and "Certain Covenants" other
than the provisions described under "-- Merger, Consolidation, or Sale of
Assets"; (v) failure by the Company for 60 days after notice from the Trustee or
the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding to comply with any of its other agreements in the Indenture or the
Notes; (vi) except as permitted by the Indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or a Subsidiary Guarantor, or any
Person acting on behalf of such Subsidiary Guarantor, shall deny or disaffirm
its obligations under its Subsidiary Guarantee; (vii) 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 for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) 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 is then existing a
Payment Default or the maturity of which has been so accelerated, aggregates $10
million or more; (viii) the failure by the Company or any of its Restricted
Subsidiaries to pay final, non-appealable judgments aggregating in excess of $10
million, which judgments remain unpaid or discharged for a period of 60 days;
and (ix) certain events of bankruptcy or insolvency with respect to the Company
or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes then outstanding may
declare the principal of and accrued but unpaid interest on such Notes to be due
and payable immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency, with respect
to the Company or any Significant Subsidiary, all outstanding Notes will become
due and payable without further action or notice. Holders of the Notes may not
enforce the Indenture or the Notes except as provided in the Indenture. Subject
to certain limitations, Holders of a majority in principal amount of the Notes
then outstanding may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of
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Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest or premium on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, within ten
days of becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and have each
Subsidiary Guarantor's, if any, obligation discharged with respect to its
Subsidiary Guarantee ("Legal Defeasance") except for (i) the rights of Holders
of such outstanding Notes to receive payments in respect of the principal of,
premium, if any, or interest on such Notes when such payments are due from the
trust referred to below, (ii) the Company's obligations with respect to such
Notes concerning issuing temporary Notes, registration of such Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payments, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) 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 and
have each Subsidiary Guarantor's, if any, obligation 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. In the event Covenant Defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default and Remedies" will no
longer constitute an Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, 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 outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) 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 such Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) 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 of the
outstanding Notes 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; (iii) 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 such Trustee
confirming that the Holders of the outstanding Notes 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; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to 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; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under, any material agreement
or instrument
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(other than the Indenture) to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company must 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; (vii) the Company must
deliver to the Trustee an Officers' Certificate stating that the deposit was not
made by the Company with the intent of preferring the Holders of the Notes over
the other creditors of the Company, or with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and (viii) the
Company must deliver to the Trustee an Officers' Certificate, stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may (subject to certain restrictions, see "Restrictions on
Transfer") transfer or exchange Notes in accordance with the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company is not required to transfer or exchange any Note selected for
redemption. Also, the Company is not required to transfer or exchange any Note
for a period of 15 days before a selection of the Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes and the Subsidiary Guarantees, if any, may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, the
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes or the Subsidiary Guarantees may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
Notes (including consents obtained in connection with a tender offer or exchange
offer for the Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a nonconsenting Holder): (i) reduce the
principal amount of the Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
as described above under "Optional Redemption" or "Repurchase at the Option of
Holders", (iii) reduce the rate of or change the time for payment of interest on
any Note, (iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in principal
amount of such Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in the
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of the Notes to receive
payments of principal of or premium, if any, or interest on the Notes, (vii)
make any change in the foregoing amendment and waiver provisions or (viii)
except as provided under paragraph (b) of "Certain Covenants -- Guarantees of
Indebtedness by Restricted Subsidiaries" or "Legal Defeasance and Covenant
Defeasance," release a Subsidiary Guarantor, if any, from its obligations under
its Subsidiary Guarantee, if any, or make any change in a Subsidiary Guaranty,
if any that would adversely affect the Holders. In addition, any amendment to
the provisions of Article 10 of the Indenture (which relate to subordination)
will require the consent of the Holders of at least 66 2/3% in principal amount
of the Notes then outstanding if such amendment would adversely affect the
rights of Holders of such Notes. However, no amendment may be made to the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Senior Debt then outstanding unless the holders of such Senior
Debt (or any group or representative thereof authorized to give a consent)
consent to such change.
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Notwithstanding the foregoing, without the consent of any Holder of the
Notes, the Company, a Subsidiary Guarantor, if any (with respect to a Subsidiary
Guarantee, if any, or the Indenture to which it is a party) and the Trustee may
amend or supplement the Indenture or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided, however, that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to provide for the assumption of the Company's obligations or any
Subsidiary Guarantor's obligations to Holders of the Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of the Notes, unless such Holder shall have offered to
such Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees, if any, will
provide that they will be governed by the laws of the State of New York.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Notes will be issued in the form of one or
more fully registered Global Notes (each, a "Global Note"). Each Global Note
will be deposited on the date of the closing of the sale of the Notes offered
hereby (the "Closing Date") with, or on behalf of, The Depository Trust Company,
New York, New York (the "Depositary") and registered in the name of Cede & Co.,
as nominee of the Depositary or will remain in the custody of the Trustee
pursuant to the FAST Balance Certificate Agreement between DTC and the Trustee.
Notes that were issued as described under "Certificated Securities," will
be issued in registered definitive form without coupons (the "Certificated
Securities"). Upon the transfer to a QIB or Institutional Accredited Investor of
Certificated Securities, such Certificated Securities may, unless the Global
Note has previously been exchanged for Certificated Securities, be exchanged for
an interest in the relevant Global Note representing the principal amount of
Notes being transferred. For a description of the restrictions on the transfer
of Certificated Securities, see "Transfer Restrictions."
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depository was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settle-
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ment of securities transactions between Participants through electronic book
entry changes to the accounts of its Participants, thereby eliminating the need
for physical transfer and delivery of certificates. The Depository's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. QIBs and Institutional
Accredited Investors may elect to hold Notes purchased by them through the
Depository. QIBs who are not Participants may beneficially own securities held
by or on behalf of the Depository only through Participants or Indirect
Participants. Institutional Accredited Investors may beneficially own securities
held by or on behalf of the Depository only through Participants or Indirect
Participants.
So long as the Depository or its nominee is the registered owner of the
Global Note, the Depository or such nominee, as the case may be, will be
considered the sole owner or Holder of the Notes represented by the Global Note
for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Notes represented by a Global Note to pledge such
interest to persons or entities that do not participate in the Depository's
system or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Accordingly, each QIB and Institutional Accredited Investors owning a
beneficial interest in a Global Note must rely on the procedures of the
Depository and, if such QIB or Institutional Accredited Investor is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such QIB or Institutional Accredited Investor owns its interest,
to exercise any rights of a Holder under the Indenture or such Global Note. The
Company understands that under existing industry practice, in the event the
Company requests any action of holders or a QIB or Institutional Accredited
Investor that is an owner of a beneficial interest in a Global Note desires to
take any action that the Depository, as the Holder of such Global Note, is
entitled to take, the Depository would authorize the Participants to take such
action and the Participant would authorize QIBs and Institutional Accredited
Investors owning through such Participants to take such action or would
otherwise act upon the instruction of such QIBs and Institutional Accredited
Investors. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Notes by the Depository, or for maintaining, supervising or reviewing any
records of the Depository relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on
any Notes represented by a Global Note registered in the name of the Depository
or its nominee on the applicable record date will be payable by the Trustee to
or at the direction of the Depository or its nominee in its capacity as the
registered Holder of the Global Note representing such Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payment and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of Notes (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in the principal amount of the beneficial interest in the Global Note
as shown on the records of the Depository. Payments by the Participants and the
Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Participants or the Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants designated by the Initial
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Purchaser with an interest in the Global Note and (ii) ownership of the Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depository (with respect to the interest of
Participants), the Participants and the Indirect Participants. The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own and that security interests in negotiable instruments
can only be perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer Notes or to pledge the Notes as collateral
will be limited to such extent. For certain other restrictions on the
transferability of the Notes, see "Transfer Restrictions."
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, or (iii) upon the occurrence of certain
other events, then, upon surrender by the Depository of its Global Notes,
Certificated Securities will be issued to each person that the Depository
identifies as the beneficial owner of the Notes represented by the Global Note.
In addition, subject to certain conditions, any person having a beneficial
interest in a Global Note may, upon request to the Trustee, exchange such
beneficial interest for Certificated Securities. Upon any such issuance, the
Trustee is required to register such Certificated Securities in the name of such
person or persons (or the nominee of any thereof), and cause the same to be
delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related Notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from the Depository
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the Notes to be issued).
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made in immediately available funds. So
long as the Notes are represented by a permanent Global Note or Notes, all
payments of principal, premium, if any, and interest will be made by the Company
in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. So long as the Notes are
represented by a permanent Global Note or Notes registered in the name of the
Depositary or its nominee, the Notes will trade in the Depositary's Same-Day
Funds Settlement System, and secondary market trading activity in the Notes will
therefore be required by the Depositary to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on the trading activity in the Notes.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and
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"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that a
Director or Officer of a Person shall not, for purposes of this definition, be
deemed to control such Person solely by reason of their holding such position or
office. No Person shall be deemed an Affiliate of an oil and gas royalty trust
solely by virtue of ownership of units of beneficial interest in such trust.
"Applicable Premium" means, with respect to a Note at the redemption date,
the greater of (i) 1% of the principal amount of such Note and (ii) the excess
of (A) the present value at such time of (1) the redemption price of such Note
at September 15, 2002 (such redemption price being described under "-- Optional
Redemption"), plus (2) all required interest payments (excluding accrued but
unpaid interest) due on such Note through September 15, 2002, computed using a
discount rate equal to the Treasury Rate plus 75 basis points, over (B) the
then-outstanding principal amount of such Note.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition by
the Company or any of its Restricted Subsidiaries (but excluding the creation of
a Lien) of any assets including, without limitation, by way of a sale and
leaseback (provided that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Subsidiaries taken as
a whole will be governed by the provisions of the Indenture described above
under the caption "-- Repurchase at the Option of Holders -- Change of Control"
and/or the provisions described above under the caption "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets" and not by the provisions
described above under "-- Repurchase at the Option of Holders -- Asset Sales"),
and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries
of Equity Interests of any of the Company's Subsidiaries (including the sale by
the Company or a Restricted Subsidiary of Equity Interests in an Unrestricted
Subsidiary), in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $10 million or (b) for net proceeds in excess of $10 million.
Notwithstanding the foregoing, the following shall not be deemed to be Asset
Sales: (i) a transfer of assets by the Company to a Restricted Subsidiary of the
Company or by a Restricted Subsidiary of the Company to the Company or to
another Restricted Subsidiary of the Company, (ii) an issuance of Equity
Interests by a Wholly Owned Restricted Subsidiary of the Company to the Company
or to another Wholly Owned Restricted Subsidiary of the Company, (iii) the
making of a Restricted Payment or an Investment that is, in either case,
permitted by the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments"; provided that the sale, lease, conveyance or
other disposition by the Company or any of its Restricted Subsidiaries of an
Investment shall be deemed an Asset Sale, (iv) the abandonment, farmout, lease
or sublease of undeveloped oil and gas properties in the ordinary course of
business, (v) the trade or exchange by the Company or any Restricted Subsidiary
of the Company of any oil and gas property or interest therein owned or held by
the Company or such Restricted Subsidiary for any oil and gas property or
interest therein owned or held by another Person, including any cash or Cash
Equivalents necessary in order to achieve an exchange of equivalent value;
provided that any such cash or Cash Equivalents received by the Company or such
Restricted Subsidiary will be subject to the provisions described in the second
and third paragraphs under "-- Asset Sales," which the Board of Directors of the
Company determines in good faith by resolution to be of approximately equivalent
value, (vi) the sale or transfer of hydrocarbons or other mineral products in
the ordinary course of business or (vii) the sale of oil and gas properties in
connection with tax credit transactions complying with sec. 29 or any successor
or analogous provisions of the Code, or (viii) the sale or transfer of surplus
or obsolete equipment in the ordinary course of business.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended to the extent the lease payments during such extension
period are required to be capitalized on a balance sheet in accordance with
GAAP).
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"Borrowing Base" means, as of any date, the aggregate amount of borrowing
availability as of such date under all Credit Facilities that determine
availability on the basis of a borrowing base or other asset-based calculation.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited liability company or
similar entity, any membership or similar interests therein and (v) any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than twelve
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of twelve months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding twelve months
and overnight bank deposits, in each case with any lender party to the New
Credit Facility or with any domestic commercial bank having capital and surplus
in excess of $500 million, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (ii)
and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having a
rating of at least P1 from Moody's Investors Service, Inc. (or its successor) or
a rating of at least A1 from Standard & Poor's Ratings Services (or its
successor) and (vi) investments in money market or other mutual funds
substantially all of whose assets comprise securities of types described in
clauses (ii) through (v) above.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole to any "Person" or group of related
Persons (a "Group") (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act).
(ii) the consummation of any transaction (including, without
limitation, any purchase, sale, acquisition, disposition, merger or
consolidation) the result of which is that any "person" (as defined above)
or Group, other than one or more Permitted Holders, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the
Exchange Act) of more than 50% of the aggregate voting power of all classes
of Capital Stock of the Company having the right to elect directors under
ordinary circumstances.
(iii) the adoption of a plan relating to the liquidation or
dissolution of the Company; and
(iv) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of a majority of the directors of the Company then still in office
who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors then in office.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period plus (i) an amount equal to any extraordinary or non-recurring loss,
and any net loss realized in connection with (a) an Asset Sale
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(together with any related provision for taxes) and (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries, to the extent such losses were included in computing such
Consolidated Net Income, plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letters of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Interest Rate
Hedging Agreements), to the extent that any such expense was included in
computing such Consolidated Net Income, plus (iv) depreciation, depletion and
amortization expenses (including amortization of goodwill and other intangibles)
for such Person and its Restricted Subsidiaries for such period to the extent
that such depreciation, depletion and amortization expenses were included in
computing such Consolidated Net Income, plus (v) exploration expenses for such
Person and its Restricted Subsidiaries for such period to the extent such
exploration expenses were included in computing such Consolidated Net Income,
plus (vi) costs incurred in connection with acquisitions that would be eligible
for capitalization treatment under GAAP, but have been expensed at the time of
incurrence, plus (vii) other non-cash charges (excluding any such non-cash
charge to the extent that it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Restricted Subsidiaries for such
period, including, without limitation, any ceiling limitation write downs and
non-cash losses or charges to net income resulting from the net change in value
of such Person's mark-to-market portfolio of Oil and Gas Commodity Price Risk
Management Contracts, to the extent that such other non-cash charges were
included in computing such Consolidated Net Income, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation, depletion and amortization and other non-cash charges and expenses
of, a Restricted Subsidiary of the relevant Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that the Net Income of such Restricted Subsidiary
was included in calculating the Consolidated Net Income of such Person and only
if a corresponding amount would be permitted at the date of determination to be
dividended to such Person by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Company ending prior to the
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taking of any action for the purpose of which the determination is being made
and for which financial statements are available (but in no event ending more
than 135 days prior to the taking of such action), as (i) the par or stated
value of all outstanding Capital Stock of the Company, plus(ii) paid-in capital
or capital surplus relating to such Capital Stock plus (iii) any retained
earnings or earned surplus less (A) any accumulated deficit (in each case
excluding any minority interest) and (B) any amounts attributable to
Disqualified Stock.
"Credit Facilities" means, with respect to the Company or any Restricted
Subsidiary, one or more debt facilities including, without limitation, the New
Credit Facility or commercial paper facilities with banks or other institutional
lenders providing for revolving credit loans, term loans, production payments,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Credit Facilities outstanding on the date on which the Notes
are first issued and authenticated under the Indenture (after giving effect to
the use of proceeds thereof) shall be deemed to have been incurred on such date
in reliance on the exception provided by clause (b) of the definition of
Permitted Indebtedness.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) the New Credit Facility and (ii) any
other Senior Debt permitted under the Indenture which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $10 million and is specifically designated by the Company or a
Subsidiary Guarantor, as applicable, in the instrument evidencing or governing
such Senior Debt as "Designated Senior Debt" for purposes of the Indenture.
"Disqualified Stock" means any Capital Stock that, 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 for any consideration other than Capital Stock, pursuant to a sinking
fund obligation or otherwise, is convertible or is exchangeable for Indebtedness
or Disqualified Stock or redeemable for any consideration other than Capital
Stock at the option of the holder thereof, in whole or in part, in each case on
or prior to the date that is 91 days after (x) the date on which the Notes
mature or (y) on which there are no Notes outstanding.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock) .
"Existing Investments" means any Investments held by the Company or any of
its Restricted Subsidiaries as of the date of the Indenture.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Interest Rate
Hedging Agreements), (ii) the consolidated interest expense of such Person and
its Restricted Subsidiaries that was capitalized during such period, (iii) any
interest expense on Indebtedness of another Person that is guaranteed by such
Person or any of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or any of its Restricted Subsidiaries (whether or not such guarantee
or Lien is called upon) and
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(iv) the product of (a) all cash dividend payments (and non-cash dividend
payments in the case of a Person that is a Restricted Subsidiary, unless paid in
Equity Interests that are not Disqualified Stock) on any series of preferred
stock of such Person or any of its Restricted Subsidiaries, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP. Notwithstanding the foregoing, when calculating the
amount of Fixed Charges, any interest expense attributable to any Person shall
be included in such calculation to the same extent the Net Income of such Person
was included in the calculation of Consolidated Net Income in connection with
calculating the Fixed Charge Coverage Ratio.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues or
redeems preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the referent Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date (including, without limitation, any acquisition to occur on the Calculation
Date) shall be deemed to have occurred on the first day of the four-quarter
reference period and any cost savings or expense reductions attributable at the
time of such computation or to be attributable in the future to such
acquisition, shall be included in such computation, to the extent that such
adjustments would be permitted under Article 11 of Regulation S-X and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, (ii) the net proceeds of Indebtedness incurred or
Disqualified Stock issued by the referent Person pursuant to the first paragraph
of the covenant described under the caption "-- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Disqualified Stock" during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have been received by the referent Person or
any of its Restricted Subsidiaries on the first day of the four-quarter
reference period and applied to its intended use on such date, (iii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iv) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"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 or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession of the United States of America, which are in effect on the Issuance
Date.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor Senior Indebtedness" means any Indebtedness of a Subsidiary
Guarantor permitted to be incurred under the terms of the Indenture, unless the
instrument under which such Indebtedness is
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incurred expressly provides that it is on a parity with or subordinated in right
of payment to the Subsidiary Guarantee of such Subsidiary Guarantor, including
interest accruing subsequent to the filing of, or which would have accrued but
for the filing of, a petition of bankruptcy, whether or not such interest is an
allowable claim in such bankruptcy proceeding. Notwithstanding anything to the
contrary in the foregoing sentence, Guarantor Senior Indebtedness will not
include (1) any liability for federal, state, local or other taxes owed or owing
by any Subsidiary Guarantor, (2) any obligation of a Subsidiary Guarantor to the
Company or to any other Restricted Subsidiary of the Company, (3) any accounts
payable or trade liabilities of a Subsidiary Guarantor arising in the ordinary
course of business (including instruments evidencing such liabilities), (4) any
Indebtedness of Subsidiary Guarantor that is incurred in violation of the
Indenture, (5) Indebtedness of a Subsidiary Guarantor which, when incurred and
without respect to any election under Section 1111(b) of Title 11, United States
Code, is without recourse to such Subsidiary Guarantor, (6) any Indebtedness,
guarantee or obligation of a Subsidiary Guarantor which is subordinate or junior
to any other Indebtedness, guarantee or obligation of such Subsidiary Guarantor,
(7) Indebtedness evidenced by a Subsidiary Guarantee and (8) Capital Stock of a
Subsidiary Guarantor.
"Indebtedness" means, with respect to any Person, without duplication, (a)
any indebtedness of such Person, whether or not contingent, (i) in respect of
borrowed money, (ii) evidenced by bonds, notes, debentures or similar
instruments, (iii) evidenced by letters of credit (or reimbursement agreements
in respect thereof) or banker's acceptances, (iv) representing Capital Lease
Obligations, (v) representing the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable, (vi) representing any obligations in respect of
Interest Rate Hedging Agreements or Oil and Gas Commodity Price Risk Management
Contracts, and (vii) in respect of any Production Payment, (b) all Indebtedness
of others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person), (c) obligations of such Person in
respect of production imbalances, (d) Acquired Debt of such Person, (e)
Attributable Debt of such Person, and (f) to the extent not otherwise included
in the foregoing, the guarantee by such Person of any Indebtedness of any other
Person.
"Interest Rate Hedging Agreements" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations, but
excluding trade credit) or capital contributions, purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
the following shall not constitute Investments: (i) an acquisition of assets,
Equity Interests or other securities by the Company for consideration consisting
of common equity securities of the Company, (ii) Interest Rate Hedging
Agreements entered into in accordance with the limitations set forth in clause
(h) of the second paragraph of the covenant described under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Disqualified
Stock," (iii) Oil and Gas Commodity Price Risk Management Contracts entered into
in accordance with the limitations set forth in clause (i) of the second
paragraph of the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock", (iv)
endorsements of negotiable instruments and documents in the ordinary course of
business, (v) extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices, and (vi) bonds, notes, debentures or
other securities received in compliance with covenants described under the
caption "--Certain Covenants--Asset Sales." If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Equity Interests of
any direct or indirect Restricted Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such entity is no longer a
Subsidiary of the Company, the Company
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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 Equity Interests of such
Subsidiary not sold or disposed of.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or loss,
together with any related provision for taxes on such gain or loss, realized in
connection with (a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together
with any related provision for taxes on such extraordinary or nonrecurring gain
or loss.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries within 90 days of any Asset Sale, in respect
of any Asset Sale (including, without limitation, any cash received upon the
sale or other disposition of any non-cash consideration received in any Asset
Sale, but excluding cash amounts placed in escrow, until such amounts are
released to the Company), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting, investment banking and other
professional fees and expenses, and sales commissions) and any relocation
expenses incurred as a result thereof, taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements), amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP and any reserve
established for future liabilities.
"New Credit Facility" means that certain credit agreement, dated as of
September 23, 1997, among the Company, The Chase Manhattan Bank, as Agent and
lender and the other parties thereto, providing for up to $150 million of
Indebtedness, including any related notes, guarantees, security or pledge
agreements, collateral documents, instruments and agreements executed by the
Company or any Subsidiary of the Company in connection therewith, and in each
case as amended, restated, modified, renewed, refunded, replaced or refinanced,
in whole or in part, from time to time, whether or not with the same lenders or
agents; provided that no such amendments, restatements, modifications, renewals,
refundings, replacements or refinancings shall result in provisions for
Indebtedness or outstanding Indebtedness in excess of $250 million, and provided
further, that the total amount of Indebtedness outstanding under the New Credit
Facility and all documents executed in connection therewith and referred to in
this definition shall be no greater than $250 million in the aggregate.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness), or (b) is directly or
indirectly liable (as guarantor or otherwise); and (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time, or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) the explicit terms of which provide that there is
no recourse against any of the assets of the Company or its Restricted
Subsidiaries (other than the Capital Stock of an Unrestricted Subsidiary).
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
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"Oil and Gas Business" means (i) the acquisition, exploration, development,
operation and disposition of interests in oil, gas and other hydrocarbon
properties, (ii) the gathering, marketing, distribution, treating, processing,
storage, selling and transporting of any production from such interests or
properties and the marketing of oil and gas obtained from unrelated Persons,
(iii) any business relating to exploration for or development, production,
treatment, processing, storage, transportation, gathering or marketing of oil,
gas and other minerals and products produced in association therewith, (iv) any
business relating to oil field sales and service and (v) any activity that is
ancillary to or necessary or appropriate for the activities described in clauses
(i) through (iv) of this definition.
"Oil and Gas Commodity Price Risk Management Contracts" means any oil and
gas purchase or commodity price risk management agreement, and other agreement
or arrangement, entered into in the ordinary course of business, in each case,
that is utilized in connection with the Company's policy of achieving a more
predictable cash flow, and reducing the Company's exposure to fluctuations in
gas and oil prices.
"Pari Passu Indebtedness" means (a) with respect to the Notes, Indebtedness
that ranks pari passu in right of payment to the Notes and (b) with respect to
any Subsidiary Guarantee, Indebtedness which ranks pari passu in right of
payment to such Subsidiary Guarantee.
"Permitted Holders" means (1) Robert A. Belfer, Renee E. Belfer, Laurence
D. Belfer and Jack Saltz, (2) the spouses and descendants of such individuals,
(3) the estates or legal representatives of the individuals named in clauses (1)
and (2) and (4) trusts created for the benefit of Persons named in clauses (1)
and (2).
"Permitted Indebtedness" has the meaning given in the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Disqualified Stock."
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Restricted Subsidiary of the Company in
a Person if, as a result of such Investment and any related transactions that at
the time of such Investment are contractually mandated to occur, (i) such Person
becomes a Restricted Subsidiary of the Company or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys all or
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company; (d) any Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales" or not constituting an
Asset Sale by reason of the $5 million threshold contained in the definition
thereof; (e) any Investment acquired by the Company in exchange for Equity
Interests in the Company (other than Disqualified Stock), (f) shares of Capital
Stock received in connection with any good faith settlement of a bankruptcy
proceeding involving a trade creditor; (g) Interest Rate Hedging Agreements or
Oil and Gas Commodity Price Risk Management Contracts; (h) loans and advances to
employees in the ordinary course of business for bona fide business purposes;
(i) entry into operating agreements, joint ventures, partnership agreements,
working interests, royalty interests, mineral leases, processing agreements,
farm-out or farm-in agreements, contracts for the sale, transportation or
exchange of oil and natural gas, unitization agreements, pooling arrangements,
area of mutual interest agreements, production sharing agreements or other
similar or customary agreements, transactions, properties, interests or
arrangements, and Investments and expenditures in connection therewith or
pursuant thereto, in each case made or entered into in the ordinary course of
the Oil and Gas Business, excluding however, Investments in corporations other
than any Investment received pursuant to the Asset Sale provision and (j) any
other Investments in any Person or Persons not otherwise permitted to be made
pursuant to clauses (a)-(i) above, when taken together with all other
Investments made pursuant to this clause (j) that are at the time outstanding,
having an aggregate amount (such amount to be calculated on a cost basis) not to
exceed the greater of (i) the sum of (x) Existing Investments and any
Investments made with the proceeds of any sales thereof therefrom plus (y) $15
million and (ii) 15% of Total Assets, as calculated at the time of such
Investment. For purposes of clause (i) of the preceding sentence, the
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amount of any Existing Investment (including any Investment made with the
proceeds therefrom) is to be calculated on a cost basis.
"Permitted Liens" means:
(i) Liens securing Indebtedness of a Subsidiary or Liens securing
Senior Debt that is outstanding on the date of issuance of the Notes and
Liens securing Senior Debt that is permitted by the terms of the Indenture
to be incurred;
(ii) Liens in favor of the Company or any Restricted Subsidiary;
(iii) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company and Liens on property or
assets of a Subsidiary existing at the time it became a Subsidiary;
provided that such Lien was not created in contemplation of the acquisition
of the property, and provided further that no such Lien shall extend to any
assets other than the acquired property or the property of the acquired
subsidiary;
(iv) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
or other kinds of social security, or to secure the payment or performance
of tenders, statutory or regulatory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the
ordinary course of business (including lessee or operator obligations under
statutes, governmental regulations or instruments related to the ownership,
exploration and production of oil, gas and minerals on state or federal
lands or waters);
(v) Liens existing on the date of the Indenture;
(vi) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(vii) statutory liens of landlords, mechanics, suppliers, vendors,
warehousemen, carriers or other like Liens arising in the ordinary course
of business;
(viii) pre-judgment Liens and judgment Liens not giving rise to an
Event of Default so long as any appropriate legal proceeding that may have
been duly initiated for the review of such judgment shall not have been
finally terminated or the period within which such proceeding may be
initiated shall not have expired;
(ix) Liens on, or related to, properties or assets to secure all or
part of the costs incurred in the ordinary course of the Oil and Gas
Business for the exploration, drilling, development, production,
processing, transportation, marketing, storage or operation thereof;
(x) Liens on pipeline or pipeline facilities that arise under
operation of law;
(xi) Liens arising under operating agreements, joint venture
agreements, partnership agreements, oil and gas leases, farm-out or farm-in
agreements, division orders, contracts for the sale, transportation or
exchange of oil or natural gas, unitization and pooling declarations and
agreements, area of mutual interest agreements and other agreements that
are customary in the Oil and Gas Business;
(xii) Liens reserved in oil and gas mineral leases for bonus or rental
payments and for compliance with the terms of such leases,
(xiii) Liens securing the Notes;
(xiv) Liens constituting survey exceptions, encumbrances, easements,
and reservations of, and rights to others for, rights-of-way, zoning and
other restrictions as to the use of real properties, and minor defects of
title which, in the case of any of the foregoing, do not secure the payment
of
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borrowed money, and in the aggregate do not materially adversely affect the
value of the assets of the Company and its Restricted Subsidiaries, taken
as a whole, or materially impair the use of such properties for the
purposes for which such properties are held by the Company or such
subsidiaries;
(xv) any interest or title of a lessor under any Capital Lease
Obligation or operating lease;
(xvi) Liens resulting from the deposit of funds or evidences of
Indebtedness in trust for the purpose of defeasing Indebtedness of the
Company or any of the Restricted Subsidiaries;
(xvii) Liens securing obligations under Interest Rate Hedging
Agreements or Oil and Gas Commodity Price Risk Management Contracts;
(xviii) Liens upon specific items of inventory or other goods and
proceeds of the Company or any Restricted Subsidiary securing the Company's
or such Restricted Subsidiary's, as the case may be, obligations in respect
of bankers' acceptances issued or created for the account of the Company or
such Restricted Subsidiary, as the case may be, to facilitate the purchase,
shipment or storage of such inventory or other goods;
(xix) 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;
(xx) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets;
(xxi) 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;
(xxii) Liens securing Purchase Money Debt; provided however that the
related Purchase Money Debt shall not be secured by any property or assets
of the Company or any Restricted Subsidiary other than the property and
assets acquired by the Company with the proceeds of such Purchase Money
Debt;
(xxiii) Liens on the Capital Stock of Unrestricted Subsidiaries;
(xxiv) Liens to secure any Permitted Refinancing Debt, provided that
the Indebtedness so exchanged, extended, refinanced, renewed, replaced,
defeased or refunded was secured by Liens permitted pursuant to clause
(iii) or (v) of this definition, provided however, that (a) such new Liens
shall be limited to all or part of the same property that secured the
original Lien, plus improvements on the property and (b) the Permitted
Refinancing Debt secured by such Lien at such time is not increased to any
amount greater than the sum of (x) the outstanding principal amount or, if
greater, the committed amount of the Indebtedness secured by Liens
described under clause (iii) or (v) of this definition at the time the
original Lien became a Lien permitted in accordance with the Indenture and
(y) an amount necessary to pay any fees and expenses, including premiums,
related to such exchange, extension, refinancing, renewal, replacement,
defeasement or refunding;
(xxv) Liens securing Attributable Indebtedness under any sale and
leaseback transaction permitted by the terms of the Indenture, but only on
the property subject to such sale and leaseback transaction.
(xxvi) Liens not otherwise permitted by clauses (i) through (xv) that
are incurred in the ordinary course of business of the Company or any
Subsidiary with respect to obligations that do not exceed $10 million at
any one time outstanding.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew,
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replace, defease or refund other Indebtedness (other than Indebtedness incurred
under a Credit Facility) of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount of such Permitted Refinancing
Indebtedness does not exceed the principal amount of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith (other than increases
resulting from the capitalization of interest or fees)); (ii) such Permitted
Refinancing Indebtedness has a final maturity date on or later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes or the Subsidiary Guarantees,
as the case may be, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in right of
payment to, the Notes or the Subsidiary Guarantees, as the case may be, on terms
at least as favorable taken as a whole to the Holders of the Notes, or the
Subsidiary Guarantees, as the case may be, as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Production Payments" means Dollar-Denominated Production Payments and
Volumetric Production Payments, collectively.
"Purchase Money Debt" means Indebtedness incurred in connection with the
purchase by the Company or any of its Subsidiaries of any equipment, real or
personal property, or any other asset, other than Equity Interests of any Person
(i) as to which the obligee expressly waives the provisions of Section 1111(b)
of Title 11, United States Code; (ii) as to which neither the Company nor any of
its Restricted Subsidiaries (a) provides any guarantee or credit support of any
kind (including any undertaking, guarantee, indemnity, agreement or instrument
that would constitute Indebtedness), or (b) is directly or indirectly liable (as
guarantor or otherwise) other than the pledge of the equipment, real or personal
property or other assets acquired with the proceeds of such Indebtedness; (iii)
no default with respect to which (including any rights that the holders thereof
may have to take enforcement actions against an Unrestricted Subsidiary) would
permit (upon notice, lapse of time, or both) any holder of any other
Indebtedness of the Company or any of its Restricted Subsidiaries to declare a
default on such other indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iv) the explicit terms
of which provide that there is no recourse against any of the assets of the
Company or its Restricted Subsidiaries, other than recourse against the
equipment, real or personal property or other assets acquired with the proceeds
of such Indebtedness.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any direct or indirect Subsidiary of the
Company that is not an Unrestricted Subsidiary.
"Senior Debt" means (i) Indebtedness of the Company or any Subsidiary of
the Company under or in respect of any Credit Facility, whether for principal,
interest (including interest accruing after the filing of a petition initiating
any proceeding pursuant to any bankruptcy law, whether or not the claim for such
interest is allowed as a claim in such proceeding), reimbursement obligations,
fees, commissions, expenses, indemnities or other amounts, and (ii) any other
Indebtedness permitted under the terms of the Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes. Notwithstanding
anything to the contrary in the foregoing sentence, Senior Debt will not include
(w) any liability for federal, state, local or other taxes owed or owing by the
Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in
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violation of the Indenture (other than Indebtedness under (i) the New Credit
Facility or (ii) any other credit facility that is incurred on the basis of a
representation by the Company to the applicable lenders that it is permitted to
incur such Indebtedness under the Indenture).
"Significant Subsidiary" means (i) each Subsidiary that for the most recent
fiscal year of such Subsidiary had consolidated revenues greater than $10
million or as at the end of such fiscal year had assets or liabilities greater
than $10 million and (ii) any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock, entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Subsidiary Guarantee" mean any guarantee of the obligations of the Company
under the Indenture and Notes by any Person in accordance with the provisions of
the Indenture.
"Subsidiary Guarantor" means any Person that incurs a Subsidiary Guarantee;
provided that upon the release and discharge of such Person from its subsidiary
Guarantee in accordance with the Indenture, such Person shall cease to be a
Subsidiary Guarantor.
"Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and its Restricted Subsidiaries, as shown on the most
recent balance sheet of such Person.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two Business Days prior to the redemption
date (or, if such Statistical Release is no longer published, any publicly
available source or similar market data)) most nearly equal to the period from
the redemption date to September 15, 2002; provided that if the period from the
redemption date to September 15, 2002 is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the period
from the redemption date to September 15, 2002 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary or a Person becoming a Subsidiary through merger or
consolidation or Investment therein) to be an Unrestricted Subsidiary only if
(a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien
on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary; (b) all the Indebtedness of such Subsidiary shall, at the date of
designation, and will at all times thereafter, consist of Non-Recourse Debt; (c)
the Company certifies that such designation complies with the limitations of the
"Restricted Payments" covenant; (d) such Subsidiary, either alone or in the
aggregate with all other Unrestricted Subsidiaries, does not operate, directly
or indirectly, all or substantially all of the business of the Company and its
Restricted Subsidiaries; (e) such Subsidiary does not, directly or indirectly,
own any Indebtedness of or Equity Interest in, and has no investments in, the
Company or any Restricted Subsidiary; (f) such Subsidiary is a Person with
respect to which neither the Company nor any of its Restricted
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Subsidiaries has any direct or indirect obligation to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; and (g) on the date such Subsidiary is designated
an Unrestricted Subsidiary, such Subsidiary is not a party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary with terms substantially less favorable to the Company or such
Restricted Subsidiary than those that might have been obtained from Persons who
are not Affiliates of the Company. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing with the
Trustee a resolution of the Board of Directors of the Company giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions. If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred as of such date. The Board of Directors of the Company may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
that (i) immediately after giving effect to such designation, no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof and the Company could incur at least $1.00 of additional
Indebtedness (excluding Permitted Indebtedness) pursuant to the first paragraph
of the "Incurrence of Indebtedness and Issuance of Disqualified Stock" covenant
on a pro forma basis taking into account such designation and (ii) such
Subsidiary executes a Guarantee if required by the terms of the Indenture.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned, directly or indirectly, by such Person or by one or more
Wholly Owned Restricted Subsidiaries of such Person.
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EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The Company and the Initial Purchasers entered into an exchange and
registration rights agreement (the "Exchange and Registration Rights Agreement")
pursuant to which the Company agreed to use its reasonable best efforts (i) to
file with the Commission on or prior to 60 days after September 23, 1997, the
date of original issuance of the Notes (the "Issue Date") the Exchange Offer
Registration Statement relating to a registered exchange offer (the "Exchange
Offer") for Exchange Notes under the Securities Act and (ii) to cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act within 120 days after the Issue Date. As soon as practicable
after the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the Holders of Old Notes who are not prohibited by any law
or policy of the Commission from participating in the Exchange Offer the
opportunity to exchange their Old Notes for Exchange Notes, identical in all
material respects to Old Notes (except that the Exchange Notes will not contain
terms with respect to transfer restrictions) that would be registered under the
Securities Act. The Company will keep the Exchange Offer open for not less than
30 days (or longer, if required by law) after the date notice of the Exchange
Offer is mailed to the Holders of Old Notes. If (i) applicable interpretations
of the staff of the Commission do not permit the Company to effect the Exchange
Offer as contemplated thereby or (ii) for any other reason the Exchange Offer is
not consummated within 150 days after the Issue Date or (iii) any Holder either
(A) is not eligible to participate in the Exchange Offer or (B) participates in
the Exchange Offer and does not receive freely transferable Exchange Notes in
exchange for tendered Old Notes, the Company will file with the Commission a
shelf registration statement (the "Shelf Registration Statement") to cover
resales of Transfer Restricted Securities (as defined below) by such Holders who
satisfy certain conditions relating to, among other things, the provision of
information in connection with the Shelf Registration Statement. For purposes of
the foregoing, "Transfer Restricted Securities" means each Old Note until (i)
the date on which such Old Note has been exchanged for a freely transferable
Exchange Note in the Exchange Offer, (ii) the date on which such Old Note has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) the date on which such
Old Note is distributed to the public pursuant to Rule 144 under the Securities
Act or is saleable pursuant to Rule 144(k) under the Securities Act.
The Company will use its reasonable best efforts to have the Exchange Offer
Registration Statement and, if applicable, the Shelf Registration Statement
(each a "Registration Statement") declared effective by the Commission as
promptly as practicable after the filing thereof. Unless the Exchange Offer
would not be permitted by a policy of the Commission, the Company will commence
the Exchange Offer and will use its best efforts to consummate the Exchange
Offer as promptly as practicable, but in any event prior to 150 days after the
Issue Date. If applicable, the Company will use its reasonable best efforts to
keep the Shelf Registration Statement effective for a period of two years after
the Issue Date, subject to certain exceptions, including suspending the
effectiveness thereof for certain valid business reasons. If (i) the applicable
Registration Statement is not filed with the Commission on or prior to 60 days
after the Issue Date, (ii) the Exchange Offer Registration Statement or the
Shelf Registration Statement, as the case may be, is not declared effective
within 120 days after the Issue Date (or in the case of a Shelf Registration
Statement required to be filed in response to a change in law or the applicable
interpretations of Commission's staff, if later, within 60 days after
publication of the change in law or interpretation), (iii) the Exchange Offer is
not consummated on or prior to 150 days after the Issue Date or (iv) the Shelf
Registration Statement is filed and declared effective within 120 days after the
Issue Date (or in the case of a Shelf Registration Statement required to be
filed in response to a change in law or the applicable interpretations of
Commission's staff, if later, within 60 days after publication of the change in
law or interpretation), but shall thereafter cease to be effective (at any time
that the Company is obligated to maintain the effectiveness thereof) without
being succeeded within 60 days by an additional Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the Company will generally be obligated to pay
liquidated damages to each Holder of Transfer Restricted Securities, during the
period of such Registration Default in an amount equal to $0.192 per week per
$1,000 principal amount of the Notes constituting Transfer Restricted Securities
held by such Holder until the applicable Registration Statement is filed or
declared effective,
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<PAGE> 100
the Exchange Offer is consummated or the Shelf Registration Statement again
becomes effective, as the case may be; provided, however, no liquidated damages
shall be payable for a Registration Default under clause (iii) above if a Shelf
Registration Statement covering resales of the Transfer Restricted Securities
for which the Exchange Offer was intended shall have been declared effective.
All accrued liquidated damages shall be paid to Holders in the same manner as
interest payments on the Notes on semi-annual payment dates which correspond to
interest payment dates for the Notes. Following the cure of all Registration
Defaults, the accrual of liquidated damages will cease.
The Exchange and Registration Rights Agreement also provides that the
Company (i) shall make available for a period of 90 days after the consummation
of the Exchange Offer a prospectus meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale of any such
Exchange Notes and (ii) shall pay all expenses incident to the Exchange Offer
(including the expenses of one counsel to the holders of the Notes) and will
indemnify certain Holders of the Notes (including any broker-dealer) against
certain liabilities, including liabilities under the Securities Act. A
broker-dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act, and will be bound by the provisions of the Exchange and
Registration Rights Agreement (including certain indemnification rights and
obligations).
Each Holder of Old Notes that wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange 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 Exchange Notes and
(iii) it is not an "affiliate," 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 a 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
Exchange Notes. If a Holder is a broker-dealer that will receive Exchange 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 Exchange Notes.
Holders of Old Notes will be required to make certain representations to
the Company (as described above) in order to participate in the Exchange Offer
and will be required to deliver information to be used in connection with the
Shelf Registration Statement in order to have their Old Notes included in the
Shelf Registration Statement and benefit from the provisions regarding
liquidated damages set forth in the preceding paragraphs. A Holder who sells Old
Notes pursuant to the Shelf Registration Statement generally will be required to
be named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Exchange and Registration Rights Agreement which
are applicable to such a holder (including certain indemnification obligations).
For so long as Old Notes are outstanding, the Company will continue to
provide to Holders of Old Notes and to prospective purchasers of Old Notes the
information required by paragraph (d)(4) of Rule 144A under the Securities Act
("Rule 144A").
The foregoing description of the Exchange and Registration Rights Agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the Exchange and Registration Rights
Agreement.
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TRANSFER RESTRICTIONS ON OLD NOTES
OFFERS AND SALES BY THE INITIAL PURCHASERS
The Old Notes were not registered under the Securities Act and may not be
offered or sold in the United States or to, or for the account or benefit of,
U.S. persons except in accordance with an applicable exemption from the
registration requirements thereof. Accordingly, the Old Notes were offered and
sold only in the United States to QIBs under Rule 144A under the Securities Act
who, prior to their purchase of Old Notes, delivered to the Initial Purchasers a
letter containing certain representations and agreements, in a private sale
exempt from the registration requirements of the Securities Act.
INVESTOR REPRESENTATIONS AND RESTRICTIONS ON RESALE
Each purchaser of Old Notes was deemed to have acknowledged, represented to
and agreed with the Company and the Initial Purchasers as follows:
1. It understands and acknowledges that the Old Notes have not been
registered under the Securities Act or any other applicable securities
laws, and that the Old Notes are being offered for resale in transactions
not requiring registration under the Securities Act or any other securities
laws, including sales pursuant to Rule 144A and, unless so registered, may
not be offered, sold or otherwise transferred except in compliance with the
registration requirements of the Securities Act or any other applicable
securities laws, pursuant to any exemption therefrom or in a transaction
not subject thereto and in each case in compliance with the conditions for
transfer set forth in paragraph (4) below.
2. It is not an "affiliate" (as defined in Rule 144 under the
Securities Act) of the Company or acting on behalf of the Company and is a
QIB and is aware that any sale of Old Notes to it will be made in reliance
on Rule 144A and such acquisition will be for its own account or for the
account of another QIB.
3. It acknowledges that none of the Company, the Initial Purchasers or
any person representing the Company or the Initial Purchasers has made any
representation to it with respect to the Company, or the Offering, other
than the information contained in the Offering Memorandum, which has been
delivered to it and upon which it is relying in making its investment
decision with respect to the Old Notes. It has had access to such financial
and other information concerning the Company and the Old Notes as it has
deemed necessary in connection with its decision to purchase the Old Notes,
including an opportunity to ask questions of and request information from
the Company and the Initial Purchasers.
4. It is purchasing the Old Notes for its own account or for one or
more investor accounts for which it is acting as a fiduciary or agent, in
each case not with a view to, or for offer or sale in connection with, any
distribution thereof in violation of the Securities Act, subject to any
requirement of law that the disposition of its property or the property of
such investor account or accounts be at all times within its or their
control and subject to its or their ability to resell such Old Notes
pursuant to Rule 144A or any exemption from registration available under
the Securities Act. It agrees on its own behalf and on behalf of any
investor account for which it is purchasing the Old Notes, and each
subsequent Holder of the Old Notes by its acceptance thereof will agree, to
offer, sell or otherwise transfer such Old Notes prior to the date which is
two years after the later of the date of original issue and the last date
that the Company or any affiliate of the Company was the owner of such Old
Notes or any predecessor thereto) (the "Resale Restriction Termination
Date") only (a) to the Company, (b) pursuant to a registration statement
that has been declared effective under the Securities Act, (c) for so long
as the Old Notes are eligible for resale pursuant to Rule 144A, to a person
it reasonably believes is a QIB that purchases for its own account or for
the account of a QIB to whom notice is given that the transfer is being
made in reliance on Rule 144A, (d) pursuant to offers and sales that occur
outside the United States within the meaning of Regulation S under the
Securities
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<PAGE> 102
Act, (e) to an Institutional Accredited Investor that is purchasing for its
own account or for the account of such Institutional Accredited Investor,
in each case in a minimum principal amount of the Old Notes of $250,000 or
(f) pursuant to any other available exemption from the registration
requirements of the Securities Act, subject in each of the foregoing cases
to any requirement of law that the disposition of its property or the
property of such investor account or accounts be at all times within its or
their control. The foregoing restrictions on resale will not apply
subsequent to the Resale Restriction Termination Date. If any resale or
other transfer of the Old Notes is proposed to be made pursuant to clause
(e) above prior to the Resale Restriction Termination Date, the transferor
shall deliver a letter from the transferee substantially in the form of
Annex A hereto to the Company and the Trustee, which shall provide, among
other things, that the transferee is an Institutional Accredited Investor
that is acquiring such Notes not for distribution in violation of the
Securities Act. Each purchaser acknowledges that the Company and the
Trustee reserve the right prior to any offer, sale or other transfer prior
to the Resale Restriction Termination Date of the Old Notes pursuant to
clauses (d), (e) and (f) above to require the delivery of an opinion of
counsel, certifications and/or other information satisfactory to the
Company and the Trustee. Each purchaser acknowledges that each Old Note
will contain a legend substantially to the following effect.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR
OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C)
FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501 (a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR
ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED
INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF
$250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR
SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES
ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE
TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN
THE CASE OF THE FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
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5. It acknowledges that the Company, the Initial Purchasers and others
will rely upon the truth and accuracy of the foregoing acknowledgments,
representations and agreements and agrees that, if any of the
acknowledgments, representations or warranties deemed to have been made by
it by its purchase of Old Notes are no longer accurate, it shall promptly
notify the Company and the Initial Purchasers. If it is acquiring any Old
Notes as a fiduciary or agent for one or more investor accounts, it
represents that it has sole investment discretion with respect to each such
account and that it has full power to make the foregoing acknowledgments,
representations and agreements on behalf of each such account.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange 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 Exchange 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 Exchange 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 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 1997, all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange 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 Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange 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 Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the issuance of the Exchange Notes offered hereby is being
passed upon for the Company by Vinson & Elkins L.L.P., Houston, Texas.
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EXPERTS
The audited consolidated financial statements included in this Prospectus,
to the extent and for the periods indicated in their report, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
Information relating to the estimated proved reserves of oil and natural
gas and the related estimates of future net revenues and present values thereof
as of December 31, 1996 and 1995, as included in this Prospectus and in the
notes to the financial statements of the Company, have been prepared by Miller
and Lents, Ltd., independent petroleum engineers and, to such extent, are
included herein in reliance upon the authority of such firm as experts with
respect to such reports and audits.
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GLOSSARY OF OIL AND GAS TERMS
The definitions set forth below shall apply to the indicated terms as used
in this Prospectus. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.
AMI. Area of Mutual Interest.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Btu. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
Completion. The installation of permanent equipment for the production of
oil or natural gas, or in the case of a dry hole, the reporting of abandonment
to the appropriate agency.
Developed acreage. The number of acres that are allocated or assignable to
producing wells or wells capable of production.
Development well. A well drilled within the proved area of an oil or
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.
Dry hole or well. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production exceed
production expenses and taxes.
Exploratory well. A well drilled to find and produce oil or natural gas
reserves not classified as proved, to find a new reservoir in a field previously
found to be productive of oil or natural gas in another reservoir or to extend a
known reservoir.
Field. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.
Finding costs. Total costs incurred in oil and gas acquisition, exploration
and development activities and capitalized interest divided by total reserve
additions, including purchases of minerals in place, extensions, discoveries,
revisions and other additions.
Gross acres or gross wells. The total acres or wells, as the case may be,
in which a working interest is owned.
Liquids. Crude oil, condensate and natural gas liquids.
MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.
Mcf. One thousand cubic feet.
Mcf/d. One thousand cubic feet per day.
Mcfe. One thousand cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
MMS. Mineral Management Service of the United States Department of the
Interior.
MMbtu. One million Btus.
MMcf. One million cubic feet.
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MMcfe. One million cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Net acres or net wells. The sum of the fractional working interests owned
in gross acres or gross wells, as the case may be.
Oil. Crude oil and condensate.
Operating cash inflows per Mcfe. Net operating cash inflows as listed in
the Consolidated Statements of Cash Flows in the Consolidated Financial
Statements divided by net gas equivalent production for the applicable periods.
Present value or PV10. When used with respect to oil and natural gas
reserves, the estimated future gross revenue to be generated from the production
of proved reserves, net of estimated production and future development costs,
using prices and costs in effect as of the date indicated, without giving effect
to non-property related expenses such as general and administrative expenses,
debt service and future income tax expenses or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.
Productive well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
Proved developed nonproducing reserves. Proved developed reserves expected
to be recovered from zones behind casing in existing wells.
Proved developed producing reserves. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and capable of production to market.
Proved reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids 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 undeveloped location. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.
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
another formation from that in which the well has been previously completed.
Reservoir. A porous and permeable underground formation containing a
natural accumulation of producible oil and/or natural gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
Royalty interest. An interest in an oil and natural gas property entitling
the owner to a share of oil or natural gas production free of costs of
production.
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.
Updip. A higher point in the reservoir.
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.
Workover. Operations on a producing well to restore or increase production.
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BELCO OIL & GAS CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996
(Audited) and June 30, 1997 (Unaudited)................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996 (Audited) and for the Six
Months Ended June 30, 1996 and 1997 (Unaudited)........... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996 (Audited) and
for the Six Months Ended June 30, 1997 (Unaudited)........ F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996 (Audited) and for the Six
Months Ended June 30, 1996 and 1997 (Unaudited)........... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
None
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-1
<PAGE> 108
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Belco Oil & Gas Corp.:
We have audited the accompanying consolidated balance sheets of Belco Oil &
Gas Corp. (a Nevada Corporation) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. 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.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Belco Oil &
Gas Corp. and subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 28, 1997
F-2
<PAGE> 109
BELCO OIL & GAS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SIX MONTHS ENDED
1995 1996 JUNE 30, 1997
-------- -------- ----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 1,556 $ 43,473 $ 1,878
Accounts receivable, oil and gas..................... 16,979 28,934 22,571
Assets from commodity price risk management
activities........................................ -- 2,249 2,876
Advances to oil and gas operators.................... 45 69 674
Other current assets................................. 401 456 2,196
-------- -------- ---------
Total Current Assets......................... 18,981 75,181 30,195
-------- -------- ---------
PROPERTY AND EQUIPMENT:
Oil and gas properties at cost based on full-cost
accounting --
Proved oil and gas properties..................... 152,081 237,150 294,936
Unproved oil and gas properties................... 19,927 77,570 79,677
Less -- Accumulated depreciation, depletion and
amortization.................................... (45,771) (86,490) (108,188)
-------- -------- ---------
Net property and equipment................... 126,237 228,230 266,425
-------- -------- ---------
OTHER ASSETS........................................... 332 507 31,462
-------- -------- ---------
Total Assets................................. $145,550 $303,918 $ 328,082
======== ======== =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt................. $ -- $ -- $ 10,000
Accounts payable and accrued liabilities............. 8,440 16,886 4,931
Distribution payable................................. 10,095 -- --
Liabilities from commodity price risk management
activities........................................ -- 7,220 5,578
Income taxes payable................................. -- 2,408 13
-------- -------- ---------
Total Current Liabilities.................... 18,535 26,514 20,522
-------- -------- ---------
LONG-TERM DEBT......................................... 22,000 -- --
DEFERRED INCOME TAXES.................................. -- 39,967 48,871
LIABILITIES FROM COMMODITY PRICE RISK MANAGEMENT
ACTIVITIES........................................... -- 4,234 3,717
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 10,000,000 shares
authorized; none issued or outstanding............ -- -- --
Common Stock, $0.01 par value; 120,000,000 shares
authorized; 31,577,300 shares issued and
outstanding at December 31, 1996 and June 30,
1997, respectively................................ -- 316 316
Additional paid-in capital........................... -- 186,703 186,798
Retained earnings.................................... -- 48,244 69,861
Combined equity of predecessor entities.............. 105,849 -- --
Unearned compensation................................ -- (1,285) (1,228)
Notes receivable for equity interest................. (834) (775) (775)
-------- -------- ---------
Total Stockholders' Equity................... 105,015 233,203 254,972
-------- -------- ---------
Total Liabilities and Stockholders' Equity... $145,550 $303,918 $ 328,082
======== ======== =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-3
<PAGE> 110
BELCO OIL & GAS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------------------- --------------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Oil and gas sales............... $40,362 $68,767 $119,710 $56,646 $62,578
Commodity price risk management
activities................... 550 9,480 (5,967) 2,633 (3,098)
Interest........................ 195 353 2,653 886 1,268
------- ------- -------- ------- -------
Total revenues.......... 41,107 78,600 116,396 60,165 60,748
------- ------- -------- ------- -------
COSTS AND EXPENSES:
Oil and gas operating
expenses..................... 5,510 5,824 7,847 3,879 4,504
Depreciation, depletion and
amortization................. 14,072 27,590 40,904 19,320 21,698
General and administrative...... 2,269 2,597 3,059 1,756 1,670
------- ------- -------- ------- -------
Total costs and
expenses.............. 21,851 36,011 51,810 24,955 27,872
------- ------- -------- ------- -------
INCOME BEFORE INCOME TAXES........ 19,256 42,589 64,586 35,210 32,876
------- ------- -------- ------- -------
PROVISION FOR INCOME TAXES........ -- -- 46,404(a) 36,264(a) 11,260
------- ------- -------- ------- -------
NET INCOME (LOSS)................. $19,256 $42,589 $ 18,182(a) $(1,054)(a) $21,616
======= ======= ======== ======= =======
PRO FORMA NET INCOME:
Income before income taxes...... $19,256 $42,589 $ 64,586 $35,210 $32,876
Pro forma provision for income
taxes........................ 5,030 13,852 21,953 11,790 11,260
------- ------- -------- ------- -------
Pro forma net income.... $14,226 $28,737 $ 42,633 $23,420 $21,616
======= ======= ======== ======= =======
PRO FORMA NET INCOME PER COMMON
SHARE........................... $ 0.57 $ 1.15 $ 1.42 $ 0.82 $ 0.69
======= ======= ======== ======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING..................... 25,000 25,000 29,986 28,447 31,500
======= ======= ======== ======= =======
</TABLE>
- ---------------
(a) Includes a one-time non-cash deferred tax charge of $30.1 million recognized
as a result of the Combination consummated on March 29, 1996. See Note 1.
Historical net income per share, including the deferred tax charge, was
$0.61 for the year ended December 31, 1996 and ($0.04) for the six months
ended June 30, 1996. The pro forma amounts present the Company as if a
taxable corporation for all periods and are based on the average number of
shares outstanding during the period assuming the shares issued in
connection with the Combination were outstanding for all periods.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE> 111
BELCO OIL & GAS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL COMBINED RECEIVABLE
--------------- PAID-IN UNEARNED RETAINED PREDECESSOR FOR EQUITY
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS EQUITY INTEREST TOTAL
------ ------ ---------- ------------ -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993... -- $ -- $ -- $ -- $ -- $ 47,188 $ -- $ 47,188
------ ---- -------- ------- ------- -------- ----- --------
Contributions................ -- -- -- -- -- 50,040 -- 50,040
Distributions................ -- -- -- -- -- (26,468) -- (26,468)
Issuance of employee notes
receivable................. -- -- -- -- -- -- (126) (126)
Income before income taxes... -- -- -- -- -- 19,256 -- 19,256
------ ---- -------- ------- ------- -------- ----- --------
BALANCE, December 31, 1994... -- $ -- $ -- $ -- $ -- $ 90,016 $(126) $ 89,890
------ ---- -------- ------- ------- -------- ----- --------
Contributions................ -- -- -- -- -- 4,512 -- 4,512
Distributions................ -- -- -- -- -- (31,268) -- (31,268)
Issuance of employee notes
receivable................. -- -- -- -- -- -- (868) (868)
Repayment of employee notes
receivable................. -- -- -- -- -- -- 160 160
Income before income taxes... -- -- -- -- -- 42,589 -- 42,589
------ ---- -------- ------- ------- -------- ----- --------
BALANCE, December 31, 1995... -- $ -- $ -- $ -- $ -- $105,849 $(834) $105,015
------ ---- -------- ------- ------- -------- ----- --------
Exchange combination......... 25,000 250 72,142 -- -- (72,392) -- --
Public stock offering, net of
costs of $10.4 million..... 6,500 65 113,050 -- -- -- -- 113,115
Restricted stock issued...... 77 1 1,511 (1,285) -- -- -- 227
Repayment of employee notes
receivable................. -- -- -- -- -- -- 59 59
Distributions to predecessor
owners..................... -- -- -- -- -- (3,395) -- (3,395)
Net Income (a)............... -- -- -- -- 48,244 (30,062) -- 18,182
------ ---- -------- ------- ------- -------- ----- --------
BALANCE, December 31, 1996... 31,577 $316 $186,703 $(1,285) $48,244 $ -- $(775) $233,203
------ ---- -------- ------- ------- -------- ----- --------
Restricted stock issued
(Unaudited)................ 4 -- 95 57 -- -- -- 152
Net income (Unaudited)....... -- -- -- -- 21,617 -- -- 21,617
------ ---- -------- ------- ------- -------- ----- --------
BALANCE, June 30, 1997
(Unaudited)................ 31,581 $316 $186,798 $(1,228) $69,861 $ -- $(775) $254,972
------ ---- -------- ------- ------- -------- ----- --------
</TABLE>
- ---------------
(a) Includes a one-time non-cash deferred tax charge of $30.1 million recognized
as a result of the Combination consummated on March 29, 1996. See Note 1.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE> 112
BELCO OIL & GAS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
-------- -------- --------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(a).............................. $ 19,256 $ 42,589 $ 18,182 $ (1,054) $ 21,616
Adjustments to reconcile net income to net
operating cash inflows --
Depreciation, depletion and
amortization........................... 14,072 27,590 40,904 19,320 21,698
Deferred tax provision(a)................ -- -- 39,967 35,644 8,904
Amortization of restricted stock
compensation........................... -- -- 227 -- 152
Commodity price risk management
activities............................. 277 (570) 9,436 -- (2,786)
Changes in operating assets and
liabilities --
Accounts receivable, oil and gas....... (6,084) (6,445) (11,955) (8,207) 6,363
Other current assets................... -- -- (286) 401 53
Accounts payable and accrued
liabilities......................... 605 (1,127) 11,584 2,539 (2,785)
-------- -------- --------- -------- --------
Net operating cash inflows.......... 28,126 62,037 108,059 48,643 53,215
-------- -------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures... (52,230) (71,387) (142,712) (59,778) (71,693)
Investment in Hugoton Energy Corporation... -- -- -- -- (30,870)
Changes in accounts payable and accrued
liabilities for oil and gas
expenditures............................. 721 5,243 (730) 4,616 (1,564)
Proceeds from sale of oil and gas
properties............................... -- -- -- -- 11,800
Change in advances to oil and gas
operators................................ (1,012) 1,566 (24) 45 (605)
Changes in other assets.................... (149) (555) (360) (106) (1,878)
-------- -------- --------- -------- --------
Net investing cash outflows......... (52,670) (65,133) (143,826) (55,223) (94,810)
-------- -------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering...... -- -- 113,115 113,115 --
Long-term borrowings....................... 6,930 17,170 13,300 13,300 --
Long-term debt repayments.................. -- (2,100) (35,300) (35,300) --
Equity contributions....................... 50,040 4,512 -- -- --
Equity distributions....................... (26,468) (21,173) (13,490) (13,865) --
Employee loans, net........................ (126) (708) 59 89 --
-------- -------- --------- -------- --------
Net financing cash inflows
(outflows)........................ 30,376 (2,299) 77,684 77,339 --
-------- -------- --------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 5,832 (5,395) 41,917 70,759 (41,595)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD..................................... 1,119 6,951 1,556 1,556 43,473
-------- -------- --------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD... $ 6,951 $ 1,556 $ 43,473 $ 72,315 $ 1,878
======== ======== ========= ======== ========
</TABLE>
- ---------------
(a) Prior to March 29, 1996, the earnings of the Company were not subject to
corporate income taxes as the Company, prior to the Combination, was a group
of non-taxpaying entities. See Note 1.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE> 113
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
Organization
Belco Oil & Gas Corp. was organized as a Nevada corporation in January 1996
in connection with the combination of assets (the "Combination") consisting of
ownership interests (the "Combined Assets") in certain entities and direct
interests in oil and gas properties and certain hedge transactions owned by the
predecessors and entities related thereto. On March 29, 1996, Belco Oil & Gas
Corp. completed its initial public offering (the "Offering") issuing 6,500,000
shares of Common Stock at $19 per share. Belco Oil & Gas Corp. and the owners of
the Combined Assets entered into an Exchange and Subscription Agreement and Plan
of Reorganization dated as of January 1, 1996 (the "Exchange Agreement") that
provided for the issuance by the Company of an aggregate of 25,000,000 shares of
Common Stock to such owners in exchange for the Combined Assets on March 29,
1996, the date the Offering closed. The owners of the Combined Assets received
shares of Common Stock proportionate to the value of the Combined Assets
underlying their ownership interests in the predecessors and the direct
interests.
The Combination was accounted for as a reorganization of entities under
common control because of the common control of the stockholders of Belco Oil &
Gas Corp. and by virtue of their direct ownership of the entities and interests
exchanged. Accordingly, the net assets acquired in the Combination have been
recorded at the historical cost basis of the affiliated predecessor owners.
Belco Oil & Gas Corp. and its subsidiaries and prior to March 29, 1996, the
combined predecessor entities, are referred to herein as "Belco" or the
"Company".
Nature of Operations
The Company is an independent energy company engaged in the exploration,
development and production of natural gas and oil. The Company operates in this
single industry segment, and all operations are conducted in the United States.
The Company's operations are presently focused in the Giddings Field (east
central Texas), the Moxa Arch Trend (southwest Wyoming) and to a lesser extent
the Golden Trend Field (southern Oklahoma) and Louisiana.
Substantially all of the Company's production is sold under
market-sensitive contracts. The Company's revenue, profitability and future rate
of growth are substantially dependent upon the price of, and demand for, oil,
natural gas and natural gas liquids. Prices for oil and natural gas are subject
to wide fluctuation in response to relatively minor changes in the supply of and
demand for oil and natural gas, market uncertainty and a variety of additional
factors that are beyond the control of the Company. These factors include the
level of consumer product demand, weather conditions, domestic and foreign
governmental regulations, the price and availability of alternative fuels,
political conditions in the Middle East, the foreign supply of oil and natural
gas, the price of foreign imports and overall economic conditions. The Company
is affected more by fluctuations in natural gas prices than oil prices, because
a majority of its production (92 percent during 1996 on a volumetric equivalent
basis) was natural gas. With the objective of reducing price risk, the Company
has entered into hedging and related price risk management transactions with
respect to a significant amount of its expected future production (see Note 6).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements for the year ended December 31, 1996
include the accounts of the Company and its wholly-owned subsidiaries. The
Company's interests in the Moxa Arch investment
F-7
<PAGE> 114
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
programs (the 1992 Moxa Arch Drilling Program, the 1993 Moxa Arch Drilling
Program and the Moxa Arch 1992 Offset Drilling Program) are accounted for using
the proportionate consolidation method of accounting for investments in oil and
gas property interests, whereby the Company's share of each program's assets,
liabilities, revenues and expenses is included in the appropriate accounts of
the consolidated financial statements. All material intercompany balances and
transactions have been eliminated.
For the years ended December 31, 1995 and 1994, the combined accounts are
prepared using the historical costs and results of operations of the combined
predecessor entities as if such entities had always been combined.
Property and Equipment
The Company follows the full-cost method of accounting for oil and gas
properties. Accordingly, all costs associated with acquisition, exploration and
development of oil and gas reserves, including directly related internal costs,
are capitalized. The Company capitalized $3,065,000, $1,181,000 and $127,000 of
internal costs during 1996, 1995 and 1994, respectively.
Oil and gas properties are amortized on the unit-of-production method using
estimates of proved reserve quantities. Investments in unproved properties are
not amortized until proved reserves associated with the projects can be
determined or until impairment occurs. The amortizable base includes estimated
future development costs and, where significant, dismantlement, restoration and
abandonment costs, net of estimated salvage values.
In addition, the capitalization costs of proved oil and gas properties are
subject to a "ceiling test," which limits such costs to the estimated present
value net of related tax effects, discounted at a 10 percent interest rate, of
future net cash flows from proved reserves, based on current economic and
operating conditions. If capitalized costs exceed this limit, the excess is
charged to depreciation, depletion and amortization.
Sales and other dispositions of proved and unproved properties are
accounted for as adjustments of capitalized costs with no gain or loss
recognized, unless significant reserves are involved. Abandonments of properties
are accounted for as adjustments of capitalized costs with no loss recognized.
Management Fees
The Company manages three investment Programs which were formed during
1992-1994 to acquire and develop interests in certain drilling prospects. The
Company offered, to certain qualified investors, the opportunity to invest in
the prospects through participation in the Programs. In return for its
management activities on behalf of the Programs, the Company earns an annual
management fee of one percent of committed capital. After elimination of
management fees received from affiliated entities, including predecessor owners,
the Company earned management fees totaling $583,000, $602,000 and $763,000
during 1996, 1995 and 1994, respectively. Such management fees have been
credited to oil and gas property costs.
Capitalization of Interest
Interest costs related to the acquisition and development of unproved
properties are capitalized to oil and gas properties. Interest costs capitalized
for the years ended December 31, 1996 and 1995, totaled $434,000 and $911,000,
respectively. Interest costs for the year ended December 31, 1994, were not
significant.
F-8
<PAGE> 115
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for Commodity Price Risk Management Activities
The Company periodically engages in price risk management activities in
order to manage its exposure to oil and gas price volatility. Gains and losses,
including terminated hedges, related to qualifying hedges of the Company's oil
and gas production are deferred and are recognized as revenues as the associated
production occurs.
Estimates of future cash flows applicable to oil and gas commodity hedges
are reflected in future cash flows from proved reserves in the supplemental oil
and gas disclosures, with such estimates based on prices in effect as of the
date of the reserve report (See Note 13).
Transactions that do not qualify for hedge accounting are accounted for
using the mark-to-market method. Under such method, the financial instruments
are reflected at market value at the end of the period with resulting unrealized
gains and losses recorded as assets and liabilities in the consolidated
financial statements. Changes in the market value of outstanding financial
instruments are recognized as gains or losses in the period of change.
Revenue Recognition
Revenue from oil and gas sales is recorded on an accrual basis as title is
transferred with deliveries at the wellhead.
Gas Balancing
The Company uses the sales method to account for natural gas imbalances.
Under the sales method, the Company recognizes revenues based on the amount of
gas sold to purchasers, which may differ from the amounts to which the Company
is entitled based on its interests in the properties. However, revenue is
deferred and a liability is recorded for those properties where production sold
by the Company exceeds its entitled share of remaining natural gas reserves. Gas
balancing obligations as of December 31, 1996 and 1995 were not significant.
Additionally, gas imbalances are generally reflected as adjustments to reported
gas reserves and future cash flows in the supplemental oil and gas disclosures.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109 -- "Accounting for Income Taxes,"
which provides for an asset and liability approach for accounting for income
taxes. Under this approach, deferred tax assets and liabilities are recognized
based on anticipated future tax consequences, using currently enacted tax laws,
attributable to differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases. Deferred tax assets are
reduced by a valuation allowance when, based upon management's estimate, it is
more likely than not that a portion of the deferred tax assets will not be
realized in a future period.
The earnings for the years ended December 31, 1995 and 1994 were not
subject to corporate income taxes as the Company was a combination of
nontaxpaying entities, including Subchapter S, limited liability corporations,
partnership and joint venture entities and individual interest. Accordingly,
earnings were directly taxable to the individual owners. The pro forma provision
for income tax is an estimate of the Company's income taxes that would have been
provided in accordance with SFAS No. 109, if the Company were a taxable entity
during the periods presented (See Note 5).
F-9
<PAGE> 116
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Compensation
The Company accounts for employee stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees." Accordingly, the adoption of
SFAS No. 123, "Accounting for Stock-Based Compensation" in 1996 had no effect on
the Company's results of operations.
Equity Distribution Payable
Undistributed production revenues for 1995, net of costs and expenses
through December 31, 1995 were estimated at $10.1 million for distribution to
the predecessor owners in 1996. This amount was accrued as an equity
distribution payable at December 31, 1995. Actual required distributions totaled
$13.5 million and were distributed in 1996.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Pro Forma Net Income Per Share
Pro forma net income per share is based on the weighted average number of
shares of Common Stock outstanding. The computation assumes that the Company was
incorporated during the periods presented and presents the shares issued in
connection with the Combination as outstanding for all periods. The effects of
Common Stock equivalent shares (stock options) and restricted stock were not
material for the year ended 1996.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 -- "Earnings per Share" effective for interim and annual periods after
December 15, 1997. This statement replaces primary earnings per share ("EPS")
with a newly defined basic EPS and modifies the computation of diluted EPS. The
Company's basic and diluted EPS computed using the requirements of SFAS 128 are
substantially the same as the Company's currently disclosed pro forma net income
per common share.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates with regard to these financial statements include the estimated fair
value of oil and gas commodity price risk management contracts and the estimate
of proved oil and gas reserve volumes and the related discounted future net cash
flows therefrom (See Notes 6 and 13).
Unaudited Interim Information
The unaudited interim combined financing statements as of June 30, 1997 and
for each of the six month periods ended June 30, 1997 and 1996, included herein,
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the unaudited
interim combined financial statements contain all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation. The
interim financial results are not necessarily indicative of operating results
for an entire year.
F-10
<PAGE> 117
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- DEBT
In December 1994, Belco Energy L.P. entered into a three-year revolving
credit facility with The Chase Manhattan Bank (the "Bank"). Semiannually, the
Bank will make a determination of the Company's borrowing base, determined
solely at the discretion of the Bank. The Company may request two additional
borrowing base redeterminations per annum. At December 31, 1996 the Credit
Facility was $30 million with a borrowing base of $15 million.
Principal outstanding, if any, is due and payable upon maturity in December
1997 with interest due quarterly. The terms of the agreement provide for
interest at rates ranging from the prime rate plus .25 percent to .375 percent,
or the Eurodollar Rate (ER) plus 1.75 percent to 1.875 percent. The applicable
margin over the prime rate or ER varies depending on the aggregate advances
outstanding as a percentage of the borrowing base. The unused portions of the
borrowing base are subject to a .25 percent commitment fee.
Covenants contained in the revolving credit agreement limit Belco Energy
L.P.'s ability to incur additional indebtedness, create liens on its assets and
prohibit speculative transactions in any commodities or futures market. Belco
Energy L.P. is also limited in its ability to make loans, investments or
guarantees and distributions of retained earnings. At December 31, 1996
restricted retained earnings totaled approximately $30 million. Additionally,
Belco Energy L.P. is required to maintain a minimum tangible net worth ($30
million) and certain ratios of leverage (not greater than 1.5:1) and interest
coverage (earnings before interest, taxes and depreciation, depletion and
amortization to interest expense of not less than 2.75:1). The Bank has the
ability in the event of default to perfect a security interest in certain of the
Company's properties.
The Company repaid all of its outstanding bank debt in March 1996 and as of
December 31, 1996, there was no outstanding balance. As of June 30, 1997, $10
million was outstanding under the facility. The credit facility remains in
effect to finance future obligations of the Company.
NOTE 4 -- RELATED-PARTY TRANSACTIONS
The Company enters into a substantial portion of its Commodity Price Risk
Management Activities with Enron Capital & Trade Resources (ECT), a subsidiary
of Enron Corp. The Company's Chairman serves on the board of directors of Enron
Corp. These agreements were entered into in the ordinary course of business of
the Company and are on terms that the Company believes are no less favorable
than the terms of similar arrangements with third parties. Pursuant to the terms
of these agreements, (i) ECT has paid to the Company a net amount of
approximately $5,243,000 with respect to 1996, (ii) ECT has paid to the Company
a net amount of approximately $5,370,000 with respect to 1995 and (iii) the
Company paid to ECT a net amount of approximately $22,000 with respect to 1994.
The Company's executive offices are leased from its Chairman and $250,000
was paid under such lease in 1996. Lease expense for the Company's executive
offices for the period from inception through 1995 was paid by the Chairman,
with no reimbursement. The Company has recorded an office space and service
expense and a corresponding capital contribution of approximately $250,000 and
$200,000 for the periods ended December 31, 1995 and 1994, respectively, based
on an estimated allocation of space occupied. The Company's remaining commitment
related to the office space and service charge is $250,000 per year through
1999. Management believes the fee compares favorably to the terms which might
have been available from a non-affiliated party.
Additionally, from inception through March 31, 1996, the Company's Chairman
did not draw any compensation from the Company. The Company has recorded salary
and benefits expense and a corresponding capital contribution of $150,000 for
each of the periods ended December 31, 1995 and
F-11
<PAGE> 118
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994, based on estimates of time devoted to the Company and using expected 1996
compensation. In 1996, the Chairman commenced receiving compensation.
Certain employees of the Company had an ownership interest in certain oil
and gas properties held by the Company as of December 31, 1995, and 1994. The
Company had receivables of $775,000, $834,000 and $126,000 as of December 31,
1996, 1995 and 1994, respectively, related to amounts loaned to employees in
connection with employee purchases of oil and gas interests. Such receivables
have been recorded as a reduction of equity in the consolidated balance sheets,
as such interests were exchanged for Common Stock in the Combination (see Note
1). The Company also had payables of $102,000 and $81,000 to the employees at
December 31, 1995 and 1994, respectively, related to revenues generated by the
properties in which the employees had such ownership interest.
In 1995, the Company engaged Midway Partners LLC (Midway) to serve as
advisor in connection with certain financial matters of the Company, including
the Combination and the potential initial public offering of the Company's
Common Stock. The Company's Senior Financial and Legal Advisor and General
Counsel is one of two managing partners and principals of Midway. In connection
with such engagement, the Company has paid Midway an advisory fee of $50,000. In
1996, upon consummation of the offering, the Company paid Midway an additional
$200,000.
NOTE 5 -- INCOME TAXES
Prior to March 29, 1996, the earnings of the Company were not subject to
corporate income taxes as the Company, prior to the Combination, was a
combination of non-taxpaying entities, including Subchapter S, limited liability
corporations, partnership and joint venture entities and individual interests.
Accordingly, taxable earnings were directly taxable to the individual owners
through the date of the Combination. As a result of the Combination consummated
on March 29, 1996, the Company became a taxpaying entity and recorded, in the
first quarter of 1996, a $30.1 million one-time, non-cash charge to earnings to
establish a deferred tax liability. The historical provision for income taxes
for the year ended December 31, 1996 includes the one-time charge. The pro forma
provision for income taxes reflected in the Consolidated Statements of
Operations for the years ended December 31, 1996, 1995 and 1994 has been
presented to reflect the Company's income taxes under the assumption that the
Company was a taxpaying entity since its inception.
Although the effective date of the Exchange Agreement is January 1, 1996,
each owner of the Combined Assets will be required under existing federal income
tax rules and regulations to include in its taxable income, for all periods
ending on the date of or prior to the completion of the Combination (March 29,
1996), its allocable portion of the taxable income attributable to the Combined
Assets and will be entitled to all tax benefits related to the Combined Assets
through the completion of the Combination on March 29, 1996.
Total provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
Payable currently:
Federal................................................... $ 6,345
State..................................................... 92
-------
6,437
-------
Deferred: 39,967
-------
Total provision for income taxes.................. $46,404
=======
</TABLE>
F-12
<PAGE> 119
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between the statutory federal income taxes and the
Company's pro forma effective taxes is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory federal income taxes...................... $ 6,740 $14,906 $22,605
State income tax, net of federal benefit............ 50 115 80
Section 29 tax credits.............................. (1,530) (909) (947)
Other............................................... (230) (260) 215
------- ------- -------
Pro forma provision for income taxes................ $ 5,030 $13,852 $21,953
======= ======= =======
</TABLE>
The principal components of the Company's net deferred income tax liability
at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
Deferred income tax assets
Commodity price risk management activities................ $(1,494)
Other..................................................... (245)
-------
(1,739)
-------
Deferred income tax liabilities
Depreciation, depletion and amortization.................. 41,159
Other..................................................... 547
-------
41,706
-------
Net deferred income tax liability................. $39,967
=======
</TABLE>
Section 29 Tax Credit
The natural gas production from wells drilled on certain of the Company's
properties in the Moxa Arch Trend and Golden Trend Field qualifies for the
Section 29 Tax Credit. The Section 29 Tax Credit is an income tax credit against
regular federal income tax liability with respect to sales of the Company's
production of natural gas produced from tight gas sand formations, subject to a
number of limitations. Fuels qualifying for the Section 29 Tax Credit must be
produced from a well drilled or a facility placed in service after November 5,
1990 and before January 1, 1993, and be sold before January 1, 2003.
The basic credit, which is currently approximately $0.52 per MMBtu of
natural gas produced from tight sand reservoirs and approximately $1.03 per
MMBtu of natural gas produced from Devonian Shale, is computed by reference to
the price of crude oil and is phased out as the price of oil exceeds $23.50 in
1979 dollars (as adjusted for inflation) with complete phaseout if such price
exceeds $29.50 in 1979 dollars (as adjusted for inflation). Under this formula,
the commencement of phaseout would be triggered if the average price for crude
oil rose above approximately $45 per Bbl in current dollars. The Company
estimates that it generated approximately $0.9 million of Section 29 Tax Credits
in 1996. The Section 29 Tax Credit may not be credited against the alternative
minimum tax, but under certain circumstances may be carried over and applied
against regular tax liability in future years. Therefore, no assurances can be
given that the Company's Section 29 Tax Credits will reduce its federal income
tax liability in any particular year. As production from qualified wells
decline, the production based tax credit will also decline.
F-13
<PAGE> 120
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Texas Severance Tax Abatement
Production from natural gas wells that have been certified as tight
formations or deep wells by the Texas Railroad Commission ("high cost gas
wells") and that are spudded or completed during the period from June 16, 1989
to September 1, 1996 qualify for an exemption from the 7.5% severance tax in
Texas on natural gas and natural gas liquids produced by such wells prior to
August 31, 2001. The natural gas production from wells drilled on certain of the
Company's properties in the Austin Chalk area qualify for this tax reduction. In
addition, high cost gas wells that are spudded or completed during the period
from September 1, 1996 to August 31, 2002 are entitled to receive a severance
tax reduction upon obtaining a high cost gas certification from the Texas
Railroad Commission within 180 days after first production. The tax reduction is
based on a formula composed of the statewide "median" (as determined by the
State of Texas from producer reports) and the producer's actual drilling and
completion costs. More expensive wells will receive a greater amount of tax
credit. This tax rate reduction remains in effect for 10 years or until the
aggregate tax credits received equal 50% of the total drilling and completion
costs. The reduction in severance taxes for such wells is reflected as a
reduction in oil and gas operating expenses and an increase in the standardized
measure of discounted future net cash flows relating to proved oil and gas
reserves (See Note 13).
NOTE 6 -- COMMODITY PRICE RISK MANAGEMENT ACTIVITIES AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
Hedging Transactions
With the objective of achieving more predictable revenues and cash flows
and reducing the exposure to fluctuations in gas and oil prices, the Company has
entered into hedging transactions of various kinds with respect to both gas and
oil. While the use of these hedging arrangements limits the downside risk of
adverse price movements, it may also limit future revenues from favorable price
movements. As of December 31, 1996, the Company had entered into hedging
transactions with respect to a significant portion of its estimated production
for 1997 and to a lesser extent its estimated production for 1998 and 1999. The
Company continues to evaluate whether to enter into additional hedging
transactions for future years. In addition, the Company may determine from time
to time to terminate its then existing hedging positions if market conditions
warrant.
F-14
<PAGE> 121
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table and notes thereto cover the Company's pricing and
notional volumes on open natural gas and oil commodity hedges as of December 31,
1996:
<TABLE>
<CAPTION>
PRODUCTION PERIODS
--------------------------------------
1997 1998 1999 TOTAL
------- ------- ------ -------
<S> <C> <C> <C> <C>
Gas --
Price swaps -- receive fixed price
(thousand MMBtu)(1)(6)................. 14,305 3,665 -- 17,970
Average price, per MMBtu............... $ 2.10 $ 2.01 -- $ 2.08
Collars and options (thousand MMBtu)(2)... 8,350 9,885 -- 18,235
Average floor price, per MMBtu......... $ 2.05 $ 1.92 -- $ 1.98
Average ceiling price, per MMBtu....... $ 2.44 $ 2.16 -- $ 2.29
Price swaps -- pay fixed price (thousand
MMBtu)(3).............................. 8,777 1,070 -- 9,847
Average price, per MMBtu............... $ 2.20 $ 2.30 -- $ 2.21
Basis swaps (thousand MMBtu)(4)(5)........ 35,158 10,950 -- 46,108
Average basis differential, per
MMBtu................................ $ .20 $ .39 -- $ .25
Oil --
Price swaps -- receive fixed price
(MBbls)(1)............................. 301 35 -- 336
Average price, per Bbl................. $ 18.49 $ 18.49 -- $ 18.49
Collars and options (MBbls)(2)............ 353 242 25 620
Average floor price, per Bbl........... $ 18.22 $ 17.21 $17.00 $ 17.78
Average ceiling price, per Bbl......... $ 21.16 $ 18.92 $18.50 $ 20.18
Price swaps -- pay fixed price
(MBbls)(3)............................. 60 -- -- 60
Average price, per Bbl................. $ 21.70 -- -- $ 21.70
</TABLE>
- ---------------
(1) For any particular swap transaction, the counterparty is required to make a
payment to the Company in the event that the NYMEX Reference Price for any
settlement period is less than the swap price for such hedge, and the
Company is required to make a payment to the counterparty in the event that
the NYMEX Reference Price for any settlement period is greater than the swap
price for such hedge.
(2) For any particular collar transaction, the counterparty is required to make
a payment to the Company if the average NYMEX Reference Price for the
reference period is below the floor price for such transaction, and the
Company is required to make payment to the counterparty if the average NYMEX
Reference Price is above the ceiling price for such transaction.
(3) In order to close certain commodity price hedge positions, the Company
entered into various swap positions where the Company is the fixed-price
payor on the swap. In these transactions, the counterparty is required to
make a payment to the Company in the event that the NYMEX Reference Price
for any settlement period is greater than the swap price, and the Company is
required to make a payment to the counterparty in the event that the NYMEX
Reference Price for any settlement period is less than the swap price.
(4) Since most of the Company's gas is sold under spot contracts with reference
to Houston Ship Channel prices and substantially all of the Company's hedge
transactions are based on the NYMEX Reference Price, the Company has entered
into basis swaps that require the counterparty to make a payment to the
Company in the event that the average NYMEX Reference Price per MMBtu for a
reference period exceeds the average price per MMBtu for gas delivered at
the Houston Ship Channel for such reference period by a stated differential,
and requires the Company to make a payment to the counterparty in the event
that the NYMEX Reference Price exceeds the Houston Ship Channel price by
less than a stated differential (or in the event that the Houston Ship
Channel price exceeds the NYMEX Reference Price). The Company also sells its
Wyoming gas at prices based on the Northwest Pipeline Rocky Mountain Index
and has entered into basis swaps that require the counterparty to make a
payment to the Company in the event that the NYMEX Reference Price per MMBtu
for a reference period exceeds the Northwest Pipeline Rocky Mountain Index
Price by more than a stated differential and requires the Company to make a
payment to the counterparty in the event that the NYMEX Reference Price
exceeds the Northwest Pipeline Rocky Mountain Index Price by less than a
stated differential (or in the event that the Northwest Pipeline Rocky
Mountain Index Price is greater than the NYMEX Reference Price).
(5) Does not include 3,650 thousand MMBtu of basis swaps in 1997 that are
extendable at the election of the counterparty.
(6) Does not include 1,825 and 8,205 thousand MMBtu of swaps in 1997 and 1998,
respectively, that are extendable at the election of the counterparty.
F-15
<PAGE> 122
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All of the above transactions were carried out in the over-the-counter
market, and not on the NYMEX, with financial counterparties having at least an
investment grade credit rating. All of these transactions provide solely for
financial settlements related to closing prices on the NYMEX.
In 1995 and 1994, a realized hedging gain of $9.5 million and $550,000,
respectively, was included in Commodity Price Risk Management Revenues. At
December 31, 1995, the Company had net deferred losses of $145,000 for settled
derivative contracts and net deferred premium costs of $86,000, relative to
future production periods. The current portion of these amounts are included in
other current assets and the long-term portion in other assets.
In 1996, a realized hedging loss of $83,000 was included in Commodity Price
Risk Management Revenues. At December 31, 1996, the Company had accrued
liabilities of $307,000 for settled derivative contracts and net deferred
premium costs of $465,000, relative to future production periods. These amounts
are included in Price Risk Management Activities as a current liability and
current asset, respectively.
Non-Hedging Transactions
As described in Note 2, the Company uses the mark-to-market method of
accounting for instruments that do not qualify for hedge accounting. The 1996
results of operations included an aggregate pre-tax loss of $5.9 million related
to these activities which included (1) net realized losses on settlements
totaling $3.9 million, (2) net premiums received totaling $7.4 million and (3)
the unrealized loss resulting from net change in the value of the Company's
mark-to-market portfolio of price risk management activities for the year ended
December 31, 1996 of $9.4 million, all included in Commodity Price Risk
Management Revenues. As a result of the increase in oil and natural gas prices
which occurred in the fourth quarter, the Company recorded a fourth quarter
pre-tax loss of $8.4 million from Commodity Price Risk Management Activities
which included a $4.2 million ($2.77 million net of tax) non-cash charge for
unrealized losses related to mark-to-market accounting requirements. At December
31, 1996, the Company's consolidated balance sheet reflects $1.8 million and
$11.2 million of price risk management assets and liabilities, respectively,
which includes primarily the mark-to-market reserve. The Company had not entered
into any financial instruments that did not qualify for hedge accounting prior
to 1996.
F-16
<PAGE> 123
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table and notes thereto cover the Company's pricing and
notional volumes on open natural gas and oil financial instruments at December
31, 1996, that do not qualify for hedge accounting:
<TABLE>
<CAPTION>
PRODUCTION PERIODS
----------------------------------------
1997 1998 1999 TOTAL
------- ------- ------- -------
<S> <C> <C> <C> <C>
Gas --
Straddles (thousand MMBtu)(1).......... 1,825 -- -- 1,825
Average price, per MMBtu............ $ 2.24 -- -- $ 2.24
Calls Sold (thousand MMBtu)(2)......... 11,260 10,950 -- 22,210
Average price, per MMBtu............ $ 2.04 $ 2.27 -- $ 2.15
Puts Sold (thousand MMBtu)(2).......... 5,360 1,093 -- 6,453
Average price, per MMBtu............ $ 1.98 $ 2.00 -- $ 1.98
Price swaps -- pay fixed price
(thousand MMBtu).................... 5,430 -- -- 5,430
Average price, per MMBtu............ $ 1.99 -- -- $ 1.99
Oil --
Calls Sold (MBbls)(2).................. 301 68 6 375
Average price, per Bbl.............. $ 22.41 $ 22.21 $ 22.00 $ 22.37
Puts Sold (MBbls)(2)................... -- 60 -- 60
Average price, per Bbl.............. -- $ 19.75 -- $ 19.75
</TABLE>
- ---------------
(1) A straddle is a combination of a put sold and a call sold. The Company is
required to make a payment to the counterparty in the event that the NYMEX
Reference Price for any settlement period is greater than the ceiling price
or less than the floor price. The Company receives a significant premium
upon entering into such contract.
(2) Calls sold or puts sold under written option contracts, in return for a
significant premium received by the Company upon initiation of the contract,
the Company is required to make a payment to the counterparty in the event
that the NYMEX Reference Price for any settlement period is greater than the
price of the call sold, or less than the price of the put sold.
Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1996 and 1995. SFAS No.
107 defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................... $ 1,556 $ 1,556 $43,473 $43,473
Long-term bank debt......................... 22,000 22,000 -- --
Oil and gas commodity -- Hedges............. 231 9,200 158 (8,555)
-- Non-hedges..... -- -- (9,363) (9,363)
</TABLE>
The following methods and assumptions were used to estimate the fair value
of the financial instruments summarized in the above table. The carrying values
of trade receivables and trade payables included in the accompanying
consolidated balance sheets approximated market value at December 31, 1996 and
1995.
Cash and Cash Equivalents
The carrying amounts approximate fair value because of the short maturity
of those instruments.
F-17
<PAGE> 124
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Term Debt
The fair value of the Company's debt is assumed to be the same as the
carrying value because the interest rate is variable and is reflective of market
rates.
Oil and Gas Commodity Financial Instruments
The estimated fair value of oil and gas commodity financial instruments has
been determined by using available market data and applying certain valuation
methodologies. In some cases, quotes of termination values were available.
Judgment is necessarily required in interpreting market data, and the use of
different market assumptions or estimation methodologies could result in
different estimates of fair value.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Future Contingencies Related to the Moxa Arch Programs
From 1992 to 1994, the Company established three Moxa Arch investment
programs: the 1992 Moxa Arch Drilling Program, the 1993 Moxa Arch Drilling
Program, and the Moxa Arch 1992 Offset Drilling Program. The Programs were
established to develop certain drilling prospects acquired as a result of a
farmout agreement with Amoco Production Company and others. The Company offered
certain qualified investors (the Investors) the opportunity to invest in the
prospects through participation in the Programs. The Programs have invested
$116.6 million in connection with the development of the Moxa Arch Trend of
Southwest Wyoming. Through October 30, 1996, the Company owned approximately
55.20 percent of the 1992 Moxa Arch Drilling Program, 32.45 percent of the 1993
Moxa Arch Drilling Program, and 58.21 percent of the Moxa Arch 1992 Offset
Drilling Program. On October 31, 1996 the Company purchased from certain
third-party investors interests (the "Acquired Interests") in the Belco Oil &
Gas Corp. 1992, 1993 and 1992 Offset Moxa Arch Drilling Programs. The effective
date of the purchase was October 31, 1996 for financial reporting purposes. The
Acquired Interests represent incremental working interests in the Company's
natural gas wells in the Moxa Arch trend located in Lincoln, Sweetwater and
Uinta Counties, Wyoming. The Company paid aggregate cash consideration of $9.9
million plus an 80% participation in potential natural gas price increases (net
of incremental production costs) associated with production from the wells
through July 31, 1999 (the "Price Participation Right"). After the purchase, the
Company's interest in these programs was increased to 81.5% of the 1992 Moxa
Arch Drilling Program, 74.0% of the 1993 Moxa Arch Drilling Program, and 80.5%
of the Moxa Arch 1992 Offset Drilling Program. The transaction was accounted for
using the purchase method of accounting.
The remaining third-party investors in the Programs may "put" their
interest to Belco annually through 2003, based upon a valuation by a nationally
recognized independent petroleum engineering firm of the discounted net present
value of the future net revenues from production of proved reserves attributable
to the interests. The put amount is to be calculated based upon certain
specified parameters including prices, discount factors and reserve life. No
investor under the Programs exercised the put right in 1996. The Company is not
obligated to repurchase in any one calendar year more than 30% of the interests
originally acquired by the program investors (including, for purposes of this
calculation, the Company's interest). The Company's purchase price under the put
right has not been calculated given that no investors have exercised such right.
However, using reserve values presented in Note 13, Standardized Measure of
Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves (SEC
basis using year-end prices and a 10% discount rate), the maximum purchase price
if all remaining investors exercised the put option would not be material to the
Company as of December 31, 1996.
F-18
<PAGE> 125
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Lease Commitments
At December 31, 1996, the Company had operating leases covering office
space. Minimum rental commitments under such operating leases are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997................................................. $354
1998................................................. 365
1999................................................. 250
----
Total........................................... $969
====
</TABLE>
For the years ended December 31, 1996, 1995 and 1994, total rental expense
was approximately $329,000, $317,000 and $200,000, respectively.
Legal Proceedings
The Company is a named defendant in routine litigation incidental to its
business. While the ultimate results of these proceedings cannot be predicted
with certainty, the Company does not believe that the outcome of these matters
will have a material adverse effect on the Company.
Environmental Matters
The Company's operations are subject to various federal, state and local
laws and regulations relating to the protection of the environment, which have
become increasingly stringent. The Company believes its current operations are
in material compliance with current environmental laws and regulations. There
are no environmental claims pending or, to the Company's knowledge, threatened
against the Company. There can be no assurance, however, that current regulatory
requirements will not change, currently unforeseen environmental incidents will
not occur or past noncompliance with environmental laws will not be discovered
on the Company's properties.
NOTE 8 -- CASH FLOW INFORMATION
The Company paid $4.0 million in income taxes during the 1996 period with
the remaining 1996 liability for such taxes due in the first quarter of 1997.
The Company paid $4.7 and $0.6 million in income taxes during the six-month
periods ended June 30, 1997 and June 30, 1996, respectively. No income taxes
were paid by the Company in 1995 and 1994 because the applicable taxes were paid
by the individual owners of the affiliated entities and properties now included
in the Company (See Note 5).
NOTE 9 -- CUSTOMER INFORMATION
Concentrations of Credit Risk
The Company's revenues are derived from uncollateralized sales to customers
in the oil and gas industry. The concentration of credit risk in a single
industry affects the Company's overall exposure. The Company has not experienced
significant credit losses on such sales.
Major Customers
Oil and gas sales for 1996 include $44.6 million, $37.7 million and $11.7
million in revenues received from three customers. Also, 1996 revenues included
net losses in the amount of $5.9 million related to Commodity Price Risk
Management Activities. Oil and gas sales for 1995 include $7.9 million, $21.1
million, $17.2 million and $14.0 million in revenues received from four
customers. Also, 1995 revenues
F-19
<PAGE> 126
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
include commodity price risk management gains totaling $9.5 million. Oil and gas
sales for 1994 include $15.1 million, $7.6 million, $4.9 million and $9.7
million in revenues received from four customers. No other customers
individually accounted for 10 percent or more of revenues.
NOTE 10 -- EMPLOYEE BENEFIT PLAN
Retirement Plan
The Company adopted a 401(k) and savings plan for its employees on January
1, 1995. The plan qualifies under Section 401(k) of the Internal Revenue Code as
a salary reduction plan. Under the plan, but subject to certain limitations
imposed under the Internal Revenue Code, eligible employees are permitted to (a)
defer receipt of up to 15 percent of their compensation on a pre-tax basis
(salary deferral contributions) or (b) contribute up to 10 percent of their
compensation to the plan on an after-tax basis. The plan provides for a Company
matching contribution in an amount equal to 50 percent of a participant's salary
deferral contributions that are not in excess of 6 percent of such participant's
compensation. The plan also permits the Company, in its sole discretion, to make
a contribution that is allocated on the last day of each calendar year to
certain eligible participants. Company matching and discretionary contributions
are vested over a period of five years at the rate of 20 percent per year.
During 1996 and 1995, the Company incurred $62,443 and $37,293,
respectively, in connection with this plan.
Performance Unit Plan
In 1996, Belco adopted a performance unit plan which is a long-term
incentive compensation plan to be administered by the Stock Option Committee of
the Board of Directors. All employees of the Company are eligible to receive an
award of performance units under the plan. A performance unit has a performance
period that is four consecutive calendar years beginning with and including the
calendar year in which the performance unit is granted. The value of a
performance unit will be determined based on the ranking of the Company's return
on Common Stock during an applicable performance period compared to the return
on the shares of Common Stock of certain companies with which the Company
competes; however, the maximum value is $2.00 per unit. While payments with
respect to performance units will normally be made at the end of the four-year
performance period, pro-rated payments may also be made at an earlier time in
the event a participant's employment with the Company is involuntarily
terminated without cause or is terminated by reason of retirement, death or
disability. Payments with respect to performance units will be made in a single
sum and may be made in cash, Common Stock or a combination thereof as the Stock
Option Committee in its sole discretion may determine. During 1996, the Company
granted 250,000 performance units. As of December 31, 1996 the Company has made
no cash payments in connection with this plan.
NOTE 11 -- CAPITAL STOCK
Exchange Agreement and Public Equity Offering
On March 29, 1996, the Exchange Agreement was consummated resulting in the
issuance of 25,000,000 shares to the Predecessor Owners (See Note 1). In
addition, on March 29, 1996, the Company completed its initial public offering
issuing 6,500,000 shares at $19 per share. Net proceeds totaled $113.1 million
after offering costs of $10.4 million.
Stock Incentive Plans
On March 25, 1996, the Company adopted a Stock Incentive Plan (the Plan)
under which options for shares of Belco's Common Stock may be granted to
officers and employees for up to
F-20
<PAGE> 127
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2,250,000 shares of Common Stock. Under the Plan, options granted may either be
incentive stock options or non-qualified stock options with a maximum term of 10
years and are granted at no less than the fair market of the stock at the date
of grant. Options vest 20% per year until fully vested five years from the date
of grant.
A separate plan has been established under which options for shares of
Belco's Common Stock may be granted to nonemployee directors for up to
approximately 158,000 shares of Common Stock. The plan provides that each
non-employee director be granted stock options for 3,000 shares annually as of
the date of the Annual Meeting. The option price of shares issued is equal to
the fair market value of the stock on the date of grant. All options vest
33 1/3% per year, beginning one year from date of grant, until fully vested and
expire ten years after the date of grant.
A summary of the status of the Company's plans (the Plans) as of December
31, 1996 and the changes during the year then ended is presented below:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at beginning of year........................ -- $ --
Granted............................................... 409,000 20.91
Exercised............................................. -- --
Forfeited............................................. (8,000) 20.09
Expired............................................... -- --
---------- --------
Outstanding at end of year.............................. 401,000 $20.91
Exercisable at end of year.............................. -- $ --
========== ========
Available for grant at end of year...................... 1,929,700
----------
Weighted average fair value of options granted during
the year.............................................. $ 12.73
----------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AT AVERAGE WEIGHTED EXERCISABLE AT WEIGHTED
DECEMBER 31, REMAINING AVERAGE DECEMBER 31, AVERAGE
RANGE OF PRICES 1996 CONTRACTUAL LIFE EXERCISE PRICE 1996 EXERCISE PRICE
--------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$19.00............... 310,000 9.25 $19.00 -- $ --
$24.06-32.68......... 91,000 9.56 27.40 -- --
------- ------
401,000 9.31 $20.91 -- $ --
======= ======
</TABLE>
As permitted by SFAS No. 123, the Company applies APB Opinion No. 25 and
related Interpretations in accounting for its stock option plans. Accordingly,
no compensation expense has been recognized for the Plans. Had compensation
costs been determined based on the fair value at the grant dates consistent with
the method of SFAS No. 123, the Company's pro forma net income and pro forma
earnings per share would have been reduced to the pro forma amounts indicated
below (in thousands, except for per share amounts):
<TABLE>
<S> <C> <C>
Pro Forma Net Income....................................... As Reported $42,633
Pro Forma $42,117
Pro Forma Earnings Per Share............................... As Reported $ 1.42
Pro Forma $ 1.40
</TABLE>
F-21
<PAGE> 128
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of grants was estimated on the date of grant using the
Black-Scholes options pricing model with the following weighted average
assumptions used: risk-free interest rate of 6.74 percent, expected volatility
of 31.0 percent, expected lives of 7.5 years and no dividend yield. The pro
forma amounts shown above may not be representative of future results since 1996
was the first year for the Plans.
Under the Stock Incentive Plan, participants may be granted stock without
cost (restricted stock). During 1996, 77,300 shares of restricted stock were
issued under the Plan. The restrictions on disposition lapse 20% each year and
non-vested shares must be forfeited in the event employment ceases. Unearned
compensation was charged for the market value of the restricted shares at the
date the shares were issued. The unearned compensation is shown as a reduction
of stockholders' equity in the accompanying consolidated balance sheet and is
being amortized ratably as the restrictions lapse. During 1996, $227,000 was
charged to expense relating to the Plan.
NOTE 12 -- SUPPLEMENTAL QUARTERLY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS):
<TABLE>
<CAPTION>
QUARTERS
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
1995
Revenues......................................... $15,701 $19,456 $20,728 $22,715
======= ======= ======= =======
Costs and Expenses............................... $ 7,070 $ 8,910 $ 9,015 $11,016
======= ======= ======= =======
Pro Forma Net Income............................. $ 5,783 $ 7,066 $ 7,848 $ 8,040
======= ======= ======= =======
Pro Forma Net Income Per Share................... $ 0.23 $ 0.28 $ 0.31 $ 0.33
======= ======= ======= =======
1996
Revenues......................................... $28,610 $31,555 $28,027 $28,204
======= ======= ======= =======
Costs and Expenses............................... $12,118 $12,837 $13,206 $13,649
======= ======= ======= =======
Pro Forma Net Income............................. $11,066 $12,354 $ 9,782 $ 9,431
======= ======= ======= =======
Pro Forma Net Income Per Share................... $ 0.44 $ 0.39 $ 0.31 $ 0.30
======= ======= ======= =======
</TABLE>
The sum of the individual quarterly pro forma net income per share amounts
may not agree with year-to-date pro forma net income per share as each period's
computation is based on the weighted average number of common shares outstanding
during that period.
F-22
<PAGE> 129
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCING
ACTIVITIES (UNAUDITED):
Capitalized Costs
The following table sets forth the capitalized costs and related
accumulated depreciation, depletion and amortization relating to the Company's
oil and gas production, exploration and development activities as of December
31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Proved properties........................................... $152,081 $237,150
Unproved properties......................................... 19,927 77,570
-------- --------
Total capitalized costs..................................... 172,008 314,720
Less -- Accumulated depreciation, depletion and
amortization.............................................. (45,771) (86,490)
-------- --------
Net capitalized costs....................................... $126,237 $228,230
======== ========
</TABLE>
Costs Not Being Amortized
The following table sets forth a summary of unproved oil and gas property
costs not being amortized at December 31, 1996, by the year in which such costs
were incurred (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995 1996 TOTAL
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Leasehold and seismic............... $1,426 $8,085 $10,491 $57,568 $77,570
------ ------ ------- ------- -------
</TABLE>
Costs Incurred
The following table sets forth the costs incurred in oil and gas
acquisition, exploration and development activities as of December 31, 1996,
1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Property acquisitions costs --
Proved........................................... $ -- $ -- $ 9,871
Unproved......................................... 10,916 13,643 64,530
Exploration costs.................................. 1,727 2,382 17,444
Development costs.................................. 39,587 54,451 50,433
Capitalized interest............................... -- 911 434
------- ------- --------
Total costs incurred............................. $52,230 $71,387 $142,712
======= ======= ========
</TABLE>
F-23
<PAGE> 130
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Results of Operations for Oil and Gas Producing Activities
The following table sets forth revenue and direct cost information relating
to the Company's oil and gas exploration and production activities as of
December 31, 1996, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Oil and gas revenues (including commodity price
risk management activities)...................... $40,912 $78,247 $113,743
Costs and expenses --
Lease operating expenses......................... 3,431 4,136 7,024
Production taxes................................. 2,079 1,688 823
Depreciation, depletion and amortization......... 14,072 27,590 40,904
------- ------- --------
Results of operations from producing activities
before income taxes.............................. 21,330 44,833 64,992
Pro forma provision for income taxes............... 5,756 14,638 22,095
Pro forma results of operations from producing
activities....................................... $15,574 $30,195 $ 42,897
======= ======= ========
Amortization rate per Mcf equivalent, recurring.... $ .65 $ .64 $ .73
======= ======= ========
</TABLE>
Oil and Gas Reserve Information
The following summarizes the policies used by the Company in preparing the
accompanying oil and gas reserves and the changes in such standardized measure
of discounted future net cash flows relating to proved oil and gas reserves and
the changes in such standardized measure from period to period.
Proved reserves are estimated quantities of crude oil and natural gas 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 reserves are proved reserves that can
reasonably be expected to be recovered through existing wells with existing
equipment and operating methods.
Proved oil and gas reserve quantities and the related discounted future net
cash flows (without giving effect to hedging activities) as of December 31, 1996
and 1995 are based on estimates prepared by Miller & Lents, independent
petroleum engineers. Such estimates have been prepared in accordance with
guidelines established by the Securities and Exchange Commission (SEC). Reserve
estimates for periods prior to December 31, 1995 were not prepared by an
independent petroleum engineer. While reserve reports for years ended prior to
December 31, 1995 were not prepared contemporaneously, they have been prepared
by an in-house engineer on a basis generally consistent with the Miller & Lents
report. The Company used the December 31, 1995 Miller & Lents estimates as an
initial basis and adjusted such data for actual production and extensions,
discoveries and other additions in 1994 to determine the relevant data for each
of these periods. The Company also calculated the reserve economics at the end
of 1994 using oil and gas prices in effect as of the end of the year.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
Company. The reserve data set forth herein represent only estimates. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact way, and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. As a result, estimates
made by different engineers often vary. In addition, results of drilling,
testing and production subsequent to the date of an estimate may justify
revision of such estimates, and such revisions may be material.
F-24
<PAGE> 131
BELCO OIL & GAS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accordingly, reserve estimates are often different from the quantities of oil
and gas that are ultimately recovered.
The standardized measure of discounted future net cash flows from
production of proved reserves was developed by first estimating the quantities
of proved reserves and the future periods during which they are expected to be
produced based on year-end economic conditions. The estimated future cash flows
from proved reserves were then determined based on year-end prices, except in
those instances where fixed contracts provide for a higher or lower amount.
Estimates of future cash flows applicable to oil and gas commodity hedges have
been prepared by the Company and are reflected in future cash flows from proved
reserves with such estimates based on prices in effect as of the date of the
reserve report. Additionally, future cash flows were reduced by estimated
production costs, costs to develop and produce the proved reserves, and when
significant, certain abandonment costs, all based on year-end economic
conditions. Future net cash flows have been discounted by 10 percent in
accordance with SEC guidelines.
The standardized measure of discounted future net cash flows does not
purport, nor should it be interpreted, to present the fair value of the
Company's oil and gas reserves. An estimate of fair value would also take into
account, among other things, the recovery of reserves not presently classified
as proved, anticipated future changes in prices and costs and a discount factor
more representative of the time value of money and the risks inherent in reserve
estimates.
Under SEC rules, companies that follow full-cost accounting methods are
required to make quarterly "ceiling test" calculations. Under this test, proved
oil and gas property costs may not exceed the present value of estimated future
net revenues from proved reserves, discounted at 10 percent, as adjusted for
related tax effects and deferred tax reserves. Application of these rules during
periods of relatively low oil and gas prices, even if of short-term duration,
may result in write-downs.
F-25
<PAGE> 132
BELCO OIL & GAS CORP.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Future cash inflows(2)................................. $244,782 $427,213 $1,071,550
Future production costs................................ (55,364) (96,643) (253,159)
Future development costs............................... (8,655) (36,003) (71,061)
Future net inflows before income taxes(2).............. 180,763 294,567 747,330
Discount at 10% annual rate............................ (70,978) (88,058) (331,800)
-------- -------- ----------
Discounted future net cash flows before income
taxes............................................. 109,785 206,509 415,530
Pro forma discounted future income taxes(1)............ (29,000) (58,000) (134,957)
-------- -------- ----------
Standardized measure of discounted future net cash
flows................................................ $ 80,785 $148,509 $ 280,573
======== ======== ==========
</TABLE>
- ---------------
(1) The earnings of the Company were not subject to corporate income taxes prior
to March 29, 1996 as the Company was a combination of nontaxpaying entities.
Concurrent with the Exchange Agreement (see Note 1), the Company became a
taxable corporation. The estimated pro forma income taxes as of December 31,
1995 and 1994, discounted at 10%, have been presented assuming the Company
was a taxable entity for all periods.
(2) Oil and gas commodity hedges included in future cash inflows totaled ($60.8)
million, $7.6 million and $14.0 million at December 31, 1996, 1995 and 1994,
respectively, and such hedges included in discounted future net cash flows
before income taxes totaled ($55.2) million, $7.2 million and $12.4 million
at December 31, 1996, 1995 and 1994, respectively.
F-26
<PAGE> 133
BELCO OIL & GAS CORP.
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Balance, Beginning of year............................. $ 61,108 $ 80,785 $ 148,509
Sales and transfers of oil and gas produced, net of
production costs..................................... (35,402) (72,423) (111,780)
Net change in sales price and production costs......... (11,205) 11,390 145,133
Extensions and discoveries............................. 38,812 104,549 153,920
Purchases of minerals in place......................... -- -- 7,843
Changes in estimated future development costs.......... 835 8,655 24,618
Revisions in quantities................................ -- -- 50,309
Accretion of discount.................................. 8,511 10,979 20,651
Other, principally revisions in estimates of timing of
production........................................... 23,126 33,574 (81,673)
Change in income taxes................................. (5,000) (29,000) (76,957)
-------- -------- ---------
Balance, End of year................................... $ 80,785 $148,509 $ 280,573
======== ======== =========
</TABLE>
F-27
<PAGE> 134
BELCO OIL & GAS CORP.
RESERVE QUANTITY INFORMATION
PROVED RESERVES
<TABLE>
<CAPTION>
(MBBLS) (MMCF)
------- -------
OIL GAS
<S> <C> <C>
Balance at December 31, 1993................................ 963 86,854
Purchases of minerals in place............................ -- --
Extensions, discoveries and other additions............... 1,657 45,283
Revisions of previous estimates........................... -- --
Sales of minerals in place................................ -- --
Production................................................ (691) (17,482)
Balance at December 31, 1994................................ 1,929 114,655
Purchases of minerals in place............................ -- --
Extensions, discoveries and other additions............... 1,484 126,562
Revisions of previous estimates........................... -- --
Sales of minerals in place................................ -- --
Production................................................ (961) (37,047)
Balance at December 31, 1995................................ 2,452 204,170
Purchases of minerals in place............................ 162 21,993
Extensions, discoveries and other additions............... 1,411 87,319
Revisions of previous estimates........................... 96 22,799
Sales of minerals in place................................ -- --
Production................................................ (794) (51,289)
Balance at December 31, 1996................................ 3,327 284,992
PROVED DEVELOPED RESERVES
December 31, 1993........................................... 938 86,223
December 31, 1994........................................... 1,793 100,113
December 31, 1995........................................... 1,838 140,725
December 31, 1996........................................... 2,070 184,904
----- -------
</TABLE>
NOTE 14 -- EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF AUDITORS' REPORT
The Company is currently offering $150,000,00 of senior subordinated notes
due 2007. The notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all existing and future senior debt
of the Company.
In June 1997 the Company purchased 2,940,000 shares of common stock of
Hugoton Energy Corporation (Hugoton) at $10.50 per share or a total investment
of $30.9 million. The Company's offer to purchase the remaining shares of
Hugoton was subsequently withdrawn. This investment is presently carried at cost
on the Company's Balance Sheet.
F-28
<PAGE> 135
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Nevada Private Corporation Law ("NPCL") provides that a corporation may
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that such person was an officer of director of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to (x) any action or suit by or in the right
of the corporation against expenses, including amounts paid in settlement and
attorneys' fees, actually and reasonably incurred, in connection with the
defense or settlement believed to be in, or not opposed to, the best interests
of the corporation, except that indemnification may not be made for any claim,
issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction to be liable to the corporation or for amounts paid in
settlement to the corporation and (y) any other action or suit or proceeding
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement, actually and reasonably incurred, if he or she acted in good
faith and in a manner which he or she reasonably believed to be in, or not
opposed to, reasonable cause to believe his or her conduct was unlawful. To the
extent that a director, officer, employee or agent has been "successful on the
merits or otherwise" the corporation must indemnify such person. The articles of
incorporation or bylaws may provide that the expenses of officers and directors
incurred in defending any such action must be paid as incurred and in advance of
the final disposition of such action. The NPCL also permits the Registrant to
purchase and maintain insurance on behalf of the Registrant's directors and
officers against any liability arising out of their status as such, whether or
not Registrant would have the power to indemnify him or her against such
liability. These provisions may be sufficiently broad to indemnify such persons
for liabilities arising under the Securities Act.
The Company's Articles and Bylaws provide that the Company shall, to the
fullest extent not prohibited by applicable law, indemnify any director or
officer of the Company in connection with certain actions, suits or proceedings,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred. The Company is also required to
pay any expenses incurred by a director or officer in defending such an action,
in advance of the final disposition of such action. The Company's Articles and
Bylaws further provide that, by resolution of the Board of Directors, such
benefits may be extended to employees, agents or other representatives of the
Company. In addition, the Company's Articles and Bylaws provide that all rights
to indemnification and advancement of expenses are deemed to arise out of a
contract between the Company and each person to be indemnified which may be
evidenced by a separate contract between the Company and each such person.
The Company has entered into indemnity agreements with each of its
directors and executive officers. Under each indemnity agreement, the Company
will pay on behalf of the Indemnitee, and his executors, administrators and
heirs, any amount which he is or becomes legally obligated to pay because of (i)
any claim or claims from time to time threatened or made against him by any
person because of any act or omission or neglect or breach of duty, including
any actual or alleged error or misstatement or misleading statement, which he
commits or suffers while acting in his capacity as a director and/or officer of
the Company or an affiliate or (ii) being a party, or being threatened to be
made a party, to any threatened, pending or contemplated action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact the he is or was an officer, director, employee or agent of the
Company or an affiliate or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The payment which the Company will be
obligated to make hereunder shall include, inter alia, damages, charges,
judgments, fines, penalties, settlements and costs, cost of investigation and
cost of defense of legal, equitable or criminal actions, claims or proceedings
and appeals therefrom, and costs of attachment, supersedes,
II-1
<PAGE> 136
bail, surety or other bonds. The Company also provides liability insurance for
each of its directors and executive officers.
The Registrant has authority under the NPCL to indemnify its officers,
directors, employees and agents to the extent provided in such statute. Sections
4.16 and 4.17 of the Registrant's Bylaws, referenced as Exhibit 3.2 hereto,
provide for indemnification of the Registrant's officers, directors, employees
and agents.
The NPCL provides that a corporation's articles of incorporation may
contain a provision which eliminates or limits the personal liability of a
director or officer to the corporation or its stockholders for damages for
breach of fiduciary duty as a director or officer, provided that such a
provision must not eliminate or limit the liability of a director or officer
for: (a) acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law; or (b) the payment of illegal distributions. The
Company's Articles include a provision eliminating the personal liability of
directors for breach of fiduciary duty except that such provision will not
eliminate or limit any liability which may not be so eliminated or limited under
applicable law.
Section 4.18 of the Registrant's Bylaws provides that the Registrant may
maintain insurance, at its expense, to protect itself and any of its directors,
officers, employees or agents or any person serving at the request of the
Registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any expense,
liability or loss, whether or not the Registrant would have the power to
indemnify such person against such expense, liability or loss under the NPCL.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers of persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed 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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
The following instruments and documents are included as Exhibits to this
Registration Statement. Exhibits incorporated by reference are so indicated by
parenthetical information.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
3.1 -- Articles of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (File No. 333-1034))
3.2 -- By-Laws of the Company (Incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-1 (File No. 333-1034))
4.1 -- Indenture dated as of September 23, 1997 among the
Company, as issuer, and The Bank of New York, as trustee
4.2 -- Exchange and Registration Rights Agreement dated
September 23, 1997 by and among the Company and Chase
Securities Inc., Goldman, Sachs & Co. and Smith Barney
Inc.
5.1 -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Credit Agreement dated as of September 23, 1997 by and
among Belco Oil & Gas Corp. and The Chase Manhattan Bank,
as administrative agent, and certain financial
institutions named therein as Lenders.
11.1 -- Computation of earnings per share.
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Miller and Lents Ltd.
23.3 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
5.1)
24.1 -- Power of Attorney (included on the signature pages of
this Registration Statement)
25.1 -- Statement of Eligibility of The Bank of New York
99.1 -- Form of Letter of Transmittal
</TABLE>
II-2
<PAGE> 137
(b) Consolidated Financial Statement Schedules.
All schedules are omitted because they are not applicable or the required
information has been provided in the consolidated financial statements or the
notes thereto.
ITEM 22. UNDERTAKINGS.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
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 director, 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 Act and will
be governed by the final adjudication of such issue.
(3) 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.
(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
II-3
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, the State of
New York on October 3, 1997.
BELCO OIL & GAS CORP.
By: /s/ ROBERT A. BELFER
----------------------------------
Robert A. Belfer
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert A. Belfer, Laurence D. Belfer or Philip A.
Epstein, or any of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign on his behalf individually and in
each capacity stated below any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ ROBERT A. BELFER Chairman of the Board and Chief October 3, 1997
- ----------------------------------------------------- Executive Officer (Principal
Robert A. Belfer Executive Officer)
/s/ LAURENCE D. BELFER Director, President and Chief October 3, 1997
- ----------------------------------------------------- Operating Officer
Laurence D. Belfer
/s/ DOMINICK J. GOLIO Vice President -- Finance and Chief October 3, 1997
- ----------------------------------------------------- Financial Officer (Principal
Dominick J. Golio Financial and Accounting Officer)
/s/ GRAHAM ALLISON Director October 3, 1997
- -----------------------------------------------------
Graham Allison
/s/ DANIEL C. ARNOLD Director October 3, 1997
- -----------------------------------------------------
Daniel C. Arnold
/s/ ALAN D. BERLIN Director October 3, 1997
- -----------------------------------------------------
Alan D. Berlin
/s/ JACK SALTZ Director October 3, 1997
- -----------------------------------------------------
Jack Saltz
/s/ GEORGIANA SHELDON-SHARP Director October 3, 1997
- -----------------------------------------------------
Georgiana Sheldon-Sharp
</TABLE>
II-4
<PAGE> 139
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
3.1 -- Articles of Incorporation of the Company (Incorporated by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (File No. 333-1034))
3.2 -- By-Laws of the Company (Incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-1 (File No. 333-1034))
4.1 -- Indenture dated as of September 23, 1997 among the
Company, as issuer, and The Bank of New York, as trustee
4.2 -- Exchange and Registration Rights Agreement dated
September 23, 1997 by and among the Company and Chase
Securities Inc., Goldman, Sachs & Co. and Smith Barney
Inc.
5.1 -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Credit Agreement dated as of September 23, 1997 by and
among Belco Oil & Gas Corp. and The Chase Manhattan Bank,
as administrative agent, and certain financial
institutions named therein as Lenders.
11.1 -- Computation of earnings per share.
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Miller & Lents Ltd.
23.3 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
5.1)
24.1 -- Power of Attorney (included on the signature pages of
this Registration Statement)
25.1 -- Statement of Eligibility of The Bank of New York
99.1 -- Form of Letter of Transmittal
</TABLE>
<PAGE> 1
EXHIBIT 4.1
EXECUTION COPY
================================================================================
BELCO OIL & GAS CORP.
As Issuer
8-7/8% SENIOR SUBORDINATED NOTES DUE 2007
------------------
INDENTURE
Dated as of September 23, 1997
------------------
THE BANK OF NEW YORK
As Trustee
------------------
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C> <C>
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6; 7.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6; 11.2; 11.5
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3; 4.4; 11.2; 11.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3-10.5
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 11.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1
</TABLE>
- -------------
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 1.3. Incorporation By Reference of Trust Indenture Act . . . . . . . . . . . . . . . . 25
Section 1.4. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 2
THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.2. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.4. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.5. Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.7. Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.8. Outstanding Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 2.9. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 2.10. CUSIP Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 3
REDEMPTION AND PREPAYMENT . . . . . . . . . . . . . . . . . . . . . 38
Section 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3.2. Selection of Notes to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.3. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.4. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 3.5. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 3.6. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 3.7. Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 3.8. Mandatory Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.9. Offer to Purchase By Application of Excess Proceeds . . . . . . . . . . . . . . . 42
ARTICLE 4
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.1. Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.3. Commission Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 4.4. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 4.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 4.6. Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
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Section 4.7. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 4.8. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries . . . . 51
Section 4.9. Incurrence of Indebtedness and Issuance of Disqualified Stock . . . . . . . . . . 52
Section 4.10. Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 4.11. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 4.12. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 4.13. Offer to Repurchase Upon Change of Control . . . . . . . . . . . . . . . . . . . 58
Section 4.14. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 4.15. No Senior Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 4.16. Guarantees of Indebtedness by Restricted Subsidiaries . . . . . . . . . . . . . . 60
Section 4.17. Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 4.18. Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 5
SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 5.1. Merger, Consolidation, or Sale of Substantially All Assets . . . . . . . . . . . 62
Section 5.2. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE 6
DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . 63
Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 6.7. Rights of Holders of Notes to Receive Payment . . . . . . . . . . . . . . . . . . 68
Section 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE 7
TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 7.5. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 7.6. Reports by Trustee to Holders of the Notes . . . . . . . . . . . . . . . . . . . 73
</TABLE>
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Section 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 7.9. Successor Trustee by Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . 76
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 7.11. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . 76
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . 76
Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . 76
Section 8.2. Legal Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 8.3. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 8.4. Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . 78
Section 8.5. Deposited Money and Government Securities to be Held in Trust; Other
Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 8.6. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 8.7. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . 81
Section 9.1. Without Consent of Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . 81
Section 9.2. With Consent of Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.3. Compliance with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . 84
Section 9.4. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 9.5. Notation on or Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 9.6. Trustee to Sign Amendment, etc. . . . . . . . . . . . . . . . . . . . . . . . . 84
ARTICLE 10
SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.1. Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.2. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.3. Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.4. Default on Designated Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.5. Acceleration of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.6. When Distribution Must Be Paid Over . . . . . . . . . . . . . . . . . . . . . . . 90
Section 10.7. Notice by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 10.8. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 10.9. Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 10.10. Subordination May Not Be Impaired by Company or the Subsidiary Guarantors,
If Any . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 10.11. Payment, Distribution or Notice to Representative . . . . . . . . . . . . . . . . 91
Section 10.12. Rights of Trustee and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . 92
Section 10.13. Authorization to Effect Subordination . . . . . . . . . . . . . . . . . . . . . . 92
Section 10.14. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
</TABLE>
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Section 10.15. No Waiver of Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . 93
ARTICLE 11
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 11.1. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 11.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 11.3. Communication by Holders of Notes with Other Holders of Notes . . . . . . . . . . 95
Section 11.4. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . 95
Section 11.5. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . 95
Section 11.6. Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 11.7. No Personal Liability of Directors, Officers, Employees and Stockholders . . . . 96
Section 11.8. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 11.9. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . 96
Section 11.10. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 11.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 11.12. Counterpart Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 11.13. Table of Contents, Headings, Etc. . . . . . . . . . . . . . . . . . . . . . . . 97
</TABLE>
EXHIBITS
Exhibit A FORM OF INITIAL NOTE
Exhibit B FORM OF EXCHANGE NOTE
Exhibit C FORM OF TRANSFEREE LETTER OF REPRESENTATION
Exhibit D FORM OF SUPPLEMENTAL INDENTURE
-iv-
<PAGE> 7
INDENTURE dated as of September 23, 1997 among Belco Oil & Gas
Corp., a Nevada corporation (the "Company"), as issuer and The Bank of New
York, a New York banking corporation, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of
each other and for the equal and ratable benefit of the Holders of the 8-7/8%
Senior Subordinated Notes due 2007 of the Company (the "Initial Notes"), and if
and when issued in exchange for Initial Notes as provided in the Registration
Rights Agreement (as hereinafter defined), the Company's 8-7/8% Senior
Subordinated Notes due 2007 (the "Exchange Notes" and, together with the
Initial Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1. Definitions.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that a Director or Officer of a Person shall not, for purposes of this
definition, be deemed to control such Person solely by reason of their holding
such position or office. No Person shall be deemed an Affiliate of an oil and
gas royalty trust solely by virtue of ownership of units of beneficial interest
in such trust.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Premium" means, with respect to a Note at the
redemption date, the greater of (i) 1% of the principal
<PAGE> 8
amount of such Note and (ii) the excess of (A) the present value at such time
of (1) the redemption price of such Note at September 15, 2002, as set forth in
Section 3.7, plus (2) all required interest payments (excluding accrued but
unpaid interest) due on such Note through September 15, 2002, computed using a
discount rate equal to the Treasury Rate plus 75 basis points, over (B) the
then-outstanding principal amount of such Note.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition by the Company or any of its Restricted Subsidiaries (but excluding
the creation of a Lien) of any assets including, without limitation, by way of
a sale and leaseback; provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole shall be governed by Sections 4.13 and/or 5.1
hereof and not by Section 4.10 hereof), and (ii) the issue or sale by the
Company or any of its Restricted Subsidiaries of Equity Interests of any of the
Company's Subsidiaries (including the sale by the Company or a Restricted
Subsidiary of Equity Interests in an Unrestricted Subsidiary), in the case of
either clause (i) or (ii), whether in a single transaction or a series of
related transactions (a) that have a fair market value in excess of $10.0
million or (b) for net proceeds in excess of $10.0 million. Notwithstanding
the foregoing, the following shall not be deemed to be Asset Sales: (1) a
transfer of assets by the Company to a Restricted Subsidiary of the Company or
by a Restricted Subsidiary of the Company to the Company or to another
Restricted Subsidiary of the Company, (2) an issuance of Equity Interests by a
Wholly Owned Restricted Subsidiary of the Company to the Company or to another
Wholly Owned Restricted Subsidiary of the Company, (3) the making of a
Restricted Payment or an Investment that is, in either case, permitted by
Section 4.7; provided that the sale, lease, conveyance or other disposition by
the Company or any of its Restricted Subsidiaries of an Investment shall be
deemed an Asset Sale, (4) the abandonment, farm-out, lease or sublease of
undeveloped oil and gas properties in the ordinary course of business, (5) the
trade or exchange by the Company or any Restricted Subsidiary of the Company of
any oil and gas property or interest therein owned or held by the Company or
such Restricted Subsidiary for any oil and gas property or interest therein
owned or held by another Person, including any cash or Cash Equivalents
necessary in order to achieve an exchange of equivalent value; provided that
any such cash or Cash Equivalents received by the Company or such Restricted
Subsidiary will be subject to the provisions described in the second and third
paragraphs in Section 4.10 which the Board of Directors of the Company
determines in good faith by resolution to be of approximately equivalent value,
(6) the sale or transfer of hydrocarbons or other mineral products in the
ordinary course of business, (7) the sale of oil and gas properties in
connection with tax credit transactions complying with Section 29 or any
successor
<PAGE> 9
3
or analogous provisions of the Internal Revenue Code or (8) the sale or
transfer of surplus or obsolete equipment in the ordinary course of business.
"Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended to the extent the lease payments during such
extension period are required to be capitalized on a balance sheet in
accordance with GAAP).
"Bankruptcy Code" means Title 11 of the United States Code, as
amended.
"Board of Directors" means the Board of Directors of a Person or
any authorized committee of such Board of Directors.
"Borrowing Base" means, as of any date, the aggregate amount of
borrowing availability as of such date under all Credit Facilities that
determine availability on the basis of a borrowing base or other asset-based
calculation.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance sheet
in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited), (iv) in the case of a limited liability
company or similar entity, any membership or similar interests therein and (v)
any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than twelve months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of twelve
<PAGE> 10
4
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding twelve months and overnight bank deposits, in each
case with any lender party to the New Credit Facility or with any domestic
commercial bank having capital and surplus in excess of $500 million, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having a rating of at least P1 from Moody's
or a rating of at least A1 from S&P, and (vi) investments in money market or
other mutual funds substantially all of whose assets comprise securities of the
types described in clauses (ii) through (v) above.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole to any "Person" or group
of related Persons (a "Group") (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act);
(ii) the consummation of any transaction (including, without
limitation, any purchase, sale, acquisition, disposition, merger or
consolidation) the result of which is that any "person" (as defined
above) or Group, other than one or more Permitted Holders, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act) of more than 50% of the aggregate voting power
of all classes of Capital Stock of the Company having the right to elect
directors under ordinary circumstances;
(iii) the adoption of a plan relating to the liquidation or
dissolution of the Company; and
(iv) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors of the
Company then still in office who were either directors at the beginning
of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the Board of Directors then in office.
"Closing Date" means the date of the closing of the sale of the
Notes offered pursuant to the Offering.
<PAGE> 11
5
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for
any period, the Consolidated Net Income of such Person and its Restricted
Subsidiaries for such period plus (i) an amount equal to any extraordinary or
non-recurring loss, and any net loss realized in connection with (a) an Asset
Sale (together with any related provision for taxes) and (b) the disposition of
any securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries, to the extent such losses were included in computing such
Consolidated Net Income, plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such
Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letters of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Interest Rate Hedging Agreements), to the extent that any such
expense was included in computing such Consolidated Net Income, plus (iv)
depreciation, depletion and amortization expenses (including amortization of
goodwill and other intangibles) for such Person and its Restricted Subsidiaries
for such period to the extent that such depreciation, depletion and
amortization expenses were included in computing such Consolidated Net Income,
plus (v) exploration expenses for such Person and its Restricted Subsidiaries
for such period to the extent such exploration expenses were included in
computing such Consolidated Net Income, plus (vi) costs incurred in connection
with acquisitions that would be eligible for capitalization treatment under
GAAP, but have been expensed at the time of incurrence, plus (vii) other
non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period, including, without
limitation, any ceiling limitation write downs and non-cash losses or charges
to net income resulting from the net change in value of such Person's mark-to-
market portfolio of Oil and Gas Commodity Price Risk Management Contracts, to
the extent that such other non-cash charges were included in computing such
Consolidated Net Income, in each case, on a consolidated basis and determined
in accordance with GAAP. Notwithstanding the foregoing, the provision for
taxes on the income or profits of,
<PAGE> 12
6
and the depreciation, depletion and amortization and other non-cash charges and
expenses of, a Restricted Subsidiary of the relevant Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that the Net Income of such Restricted Subsidiary
was included in calculating the Consolidated Net Income of such Person and only
if a corresponding amount would be permitted at the date of determination to be
dividended to such Person by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that
is not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded and (iv) the cumulative effect of a change in accounting
principles shall be excluded.
"Consolidated Net Worth" means the total of the amounts shown on
the balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of
the most recent fiscal quarter of the Company ending prior to the taking of any
action for the purpose of which the determination is being made and for which
financial statements are available (but in no event ending more than 135 days
prior to the taking of such action), as (i) the par or stated value of all
outstanding Capital Stock of the Company, plus (ii) paid-in capital or capital
surplus relating to such Capital Stock, plus (iii) any retained earnings or
earned surplus, less (a) any accumulated deficit (in each case excluding any
minority interest) and (b) any amounts attributable to Disqualified Stock.
<PAGE> 13
7
"Corporate Trust Office of the Trustee" shall be at the address
of the Trustee specified in Section 11.2 hereof or such other address as to
which the Trustee may give notice to the Company.
"Credit Facilities" means, with respect to the Company or any
Restricted Subsidiary, one or more debt facilities (including, without
limitation, the New Credit Facility) or commercial paper facilities with banks
or other institutional lenders providing for revolving credit loans, term
loans, production payments, receivables financing (including through the sale
of receivables to such lenders or to special purpose entities formed to borrow
from such lenders against such receivables) or letters of credit, in each case,
as amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time. Indebtedness under Credit Facilities
outstanding on the date on which the Notes are first issued and authenticated
under this Indenture (after giving effect to the use of proceeds thereof) shall
be deemed to have been incurred on such date in reliance on the exception
provided by clause (b) of the definition of Permitted Indebtedness set forth in
Section 4.9 hereof.
"Default" means any event that is or with the passage of time or
the giving of notice or both would be an Event of Default.
"Depository" means, with respect to the Notes issued in the form
of one or more Global Notes, DTC or another Person designated as Depository by
the Company, which must be a clearing agency registered under the Exchange Act.
"Designated Senior Debt" means (i) the New Credit Facility and
(ii) any other Senior Debt permitted under this Indenture which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to lend
up to, at least $10 million and is specifically designated by the Company or a
Subsidiary Guarantor, as applicable, in the instrument evidencing or governing
such Senior Debt as "Designated Senior Debt" for purposes of this Indenture.
"Disqualified Stock" means any Capital Stock that, 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 for any consideration other than Capital Stock, pursuant to a
sinking fund obligation or otherwise, is convertible or is exchangeable for
Indebtedness or Disqualified Stock or redeemable for any consideration other
than Capital Stock at the option of the holder thereof, in whole or in part, in
each case on or prior to the date that is 91 days after (x) the date on which
the Notes mature or (y) on which there are no Notes outstanding.
<PAGE> 14
8
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Equity Interests" means Capital Stock and all warrants, options
or other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Investments" means any Investments held by the Company
or any of its Restricted Subsidiaries as of the date of the Indenture.
"Fixed Charges" means, with respect to any Person for any period,
the sum, without duplication, of (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Interest Rate Hedging Agreements), (ii) the consolidated interest expense of
such Person and its Restricted Subsidiaries that was capitalized during such
period, (iii) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or any of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or any of its Restricted Subsidiaries (whether or
not such guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Restricted Subsidiary, unless paid in Equity Interests that are not
Disqualified Stock) on any series of preferred stock of such Person or any of
its Restricted Subsidiaries, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
Notwithstanding the foregoing, when calculating the amount of Fixed Charges,
any interest expense attributable to any Person shall be included in such
calculation to the same extent the Net Income of such Person was included in
the calculation of Consolidated Net Income in connection with calculating the
Fixed Charge Coverage Ratio.
<PAGE> 15
9
"Fixed Charge Coverage Ratio" means with respect to any Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the Company or any of its Restricted Subsidiaries incurs, assumes, guarantees
or redeems any Indebtedness (other than revolving credit borrowings) or issues
or redeems preferred stock subsequent to the commencement of the period for
which the Fixed Charge Coverage Ratio is being calculated but prior to the date
on which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the referent Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the
Calculation Date (including, without limitation, any acquisition to occur on
the Calculation Date) shall be deemed to have occurred on the first day of the
four-quarter reference period and any cost savings or expense reductions
attributable at the time of such computation or to be attributable in the
future to such acquisition, shall be included in such computation, to the
extent that such adjustments would be permitted under Article 11 of Regulation
S-X and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, (ii) the net proceeds of Indebtedness
incurred or Disqualified Stock issued by the referent Person pursuant to the
first paragraph of Section 4.9 hereof during the four-quarter reference period
or subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have been received by the referent Person or any of its
Restricted Subsidiaries on the first day of the four-quarter reference period
and applied to its intended use on such date, (iii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall
be excluded and (iv) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges shall not be obligations of
the referent Person or any of its Restricted Subsidiaries following the
Calculation Date.
"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
<PAGE> 16
10
Accounting Standards Board or in such other statements by such other entity as
have been approved by a significant segment of the accounting profession of the
United States of America, which are in effect as of the date hereof.
"Government Securities" means securities that are (a) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such
Government Security or a specific payment of principal of or interest on any
such Government Security held by such custodian for the account of the holder
of such depository receipt; provided, that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the custodian
in respect of the Government Security or the specific payment of principal of
or interest on the Government Security evidenced by such depository receipt.
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Guarantor Senior Indebtedness" means any Indebtedness of a
Subsidiary Guarantor permitted to be incurred under the terms of this
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Subsidiary Guarantee of such Subsidiary Guarantor, including
interest accruing subsequent to the filing of, or which would have accrued but
for the filing of, a petition of bankruptcy, whether or not such interest is an
allowable claim in such bankruptcy proceeding. Notwithstanding anything to the
contrary in the foregoing sentence, Guarantor Senior Indebtedness will not
include (1) any liability for federal, state, local or other taxes owed or
owing by any Subsidiary Guarantor, (2) any obligation of a Subsidiary Guarantor
to the Company or to any other Restricted Subsidiary of the Company, (3) any
accounts payable or trade liabilities of a Subsidiary Guarantor arising in the
ordinary course of business (including instruments evidencing such
liabilities), (4) any Indebtedness of Subsidiary Guarantor that is incurred in
violation of this Indenture, (5) Indebtedness of a Subsidiary Guarantor which,
when incurred and without
<PAGE> 17
11
respect to any election under Section 1111(b) of Title 11, United States Code,
is without recourse to such Subsidiary Guarantor, (6) any Indebtedness,
guarantee or obligation of a Subsidiary Guarantor which is subordinate or
junior to any other Indebtedness, guarantee or obligation of such Subsidiary
Guarantor, (7) Indebtedness evidenced by a Subsidiary Guarantee and (8) Capital
Stock of a Subsidiary Guarantor.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Indebtedness" means, with respect to any Person, without
duplication, (a) any indebtedness of such Person, whether or not contingent,
(i) in respect of borrowed money, (ii) evidenced by bonds, notes, debentures or
similar instruments, (iii) evidenced by letters of credit (or reimbursement
agreements in respect thereof) or banker's acceptances, (iv) representing
Capital Lease Obligations, (v) representing the balance deferred and unpaid of
the purchase price of any property, except any such balance that constitutes an
accrued expense or trade payable, (vi) representing any obligations in respect
of Interest Rate Hedging Agreements or Oil and Gas Commodity Price Risk
Management Contracts, and (vii) in respect of any Production Payment, (b) all
Indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person), (c) obligations of such
Person in respect of production imbalances, (d) Acquired Debt of such Person,
(e) Attributable Debt of such Person, and (f) to the extent not otherwise
included in the foregoing, the guarantee by such Person of any Indebtedness of
any other Person.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Initial Purchasers" means Chase Securities Inc., Goldman, Sachs
& Co. and Smith Barney Inc. as initial purchasers of the Notes.
"Institutional Accredited Investors" means an institutional
"accredited investor" within the meaning of Rules 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Rate Hedging Agreements" means, with respect to any
Person, the obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investments" means, with respect to any Person, all investments
by such Person in other Persons (including Affiliates) in the forms of direct
or indirect loans (including
<PAGE> 18
12
guarantees of Indebtedness or other obligations, but excluding trade credit) or
capital contributions, purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that the following shall not constitute
Investments: (i) an acquisition of assets, Equity Interests or other securities
by the Company for consideration consisting of common equity securities of the
Company, (ii) Interest Rate Hedging Agreements entered into in accordance with
the limitations set forth in clause (h) of the second paragraph of Section 4.9,
(iii) Oil and Gas Commodity Price Risk Management Contracts entered into in
accordance with the limitations set forth in clause (i) of the second paragraph
of Section 4.9 and (iv) endorsements of negotiable instruments and documents in
the ordinary course of business, (v) extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices, and (vi) bonds,
notes, debentures or other securities received in accordance with the
limitations set forth in Section 4.10. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Equity Interests
of any direct or indirect Restricted Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such entity is no longer 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 Equity Interests of such Subsidiary not sold or disposed of.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain or loss, together with any
<PAGE> 19
13
related provision for taxes on such gain or loss, realized in connection with
(a) any Asset Sale (including, without limitation, dispositions pursuant to
sale and leaseback transactions) or (b) the disposition of any securities by
such Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any
extraordinary or nonrecurring gain or loss, together with any related provision
for taxes on such extraordinary or nonrecurring gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries within 90 days of any Asset Sale,
in respect of any Asset Sale (including, without limitation, any cash received
upon the sale or other disposition of any non-cash consideration received in
any Asset Sale, but excluding cash amounts placed in escrow, until such amounts
are released to the Company), net of the direct costs relating to such Asset
Sale (including, without limitation, legal, accounting, investment banking and
other professional fees and expenses, and sales commissions) and any relocation
expenses incurred as a result thereof, taxes paid or payable as a result
thereof (after taking into account any available tax credits or deductions and
any tax sharing arrangements), amounts required to be applied to the repayment
of Indebtedness secured by a Lien on the asset or assets that were the subject
of such Asset Sale and any reserve for adjustment in respect of the sale price
of such asset or assets established in accordance with GAAP and any reserve
established for future liabilities.
"New Credit Facility" means that certain Credit Agreement, dated
as of September 23, 1997, among the Company, The Chase Manhattan Bank, as Agent
and lender and the other parties thereto, providing for up to $150 million of
Indebtedness, including any related notes, guarantees, security or pledge
agreements, collateral documents, instruments and agreements executed by the
Company or any Subsidiary of the Company in connection therewith, and in each
case as amended, restated, modified, renewed, refunded, replaced or refinanced,
in whole or in part, from time to time, whether or not with the same lenders or
agents; provided that no such amendments, restatements, modifications,
renewals, refundings, replacements or refinancings shall result in provisions
for Indebtedness or outstanding Indebtedness in excess of $250 million, and
provided further, that the total amount of Indebtedness outstanding under the
New Credit Facility and all documents executed in connection therewith and
referred to in this definition shall be no greater than $250 million in the
aggregate.
"Non-Recourse Debt" means Indebtedness (i) as to which neither
the Company nor any of its Restricted Subsidiaries (a) provides any guarantee
or credit support of any kind (including any undertaking, guarantee, indemnity,
agreement or
<PAGE> 20
14
instrument that would constitute Indebtedness), or (b) is directly or
indirectly liable (as guarantor or otherwise); (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) the explicit terms of which provide
that there is no recourse against any of the assets of the Company or its
Restricted Subsidiaries (other than the Capital Stock of an Unrestricted
Subsidiary).
"Note Custodian" means the Trustee or the Registrar, as custodian
with respect to the Notes in global form, or any successor entity thereto or
any entity acting as custodian with respect to Notes in global form.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary, the Assistant Secretary or any Vice-President of
such Person.
"Officers' Certificate" means a certificate signed on behalf of
the Company, by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.5 hereof.
"Oil and Gas Business" means (i) the acquisition, exploration,
development, operation and disposition of interests in oil, gas and other
hydrocarbon properties, (ii) the gathering, marketing, distribution, treating,
processing, storage, selling and transporting of any production from such
interests or properties and the marketing of oil and gas obtained from
unrelated Persons, (iii) any business relating to exploration for or
development, production, treatment, processing, storage, transportation,
gathering or marketing of oil, gas and other minerals and products produced in
association therewith, (iv) any business relating to oil field sales and
service and (v) any activity that is ancillary to or necessary or appropriate
for the
<PAGE> 21
15
activities described in clauses (i) through (iv) of this definition.
"Oil and Gas Commodity Price Risk Management Contracts" means any
oil and gas purchase or commodity price risk management agreement, and other
agreement or arrangement, entered into in the ordinary course of business, in
each case, that is utilized in connection with the Company's policy of
achieving a more predictable cash flow, and reducing the Company's exposure to
fluctuations in gas and oil prices.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.5 hereof. The counsel may be an employee of or counsel to the Company or
the Trustee.
"Pari Passu Indebtedness" means (a) with respect to the Notes,
Indebtedness that ranks pari passu in right of payment to the Notes and (b)
with respect to any Subsidiary Guarantee, Indebtedness which ranks pari passu
in right of payment to such Subsidiary Guarantee.
"Permitted Holders" means (1) Robert A. Belfer, Renee E. Belfer,
Laurence D. Belfer and Jack Saltz, (2) the spouses and descendants of such
individuals, (3) the estates or legal representatives of the individuals named
in clauses (1) and (2) and (4) trusts created for the benefit of Persons named
in clauses (1) and (2).
"Permitted Indebtedness" has the meaning given in the covenant
described in Section 4.9
"Permitted Investments" means (a) any Investment in the Company
or in a Restricted Subsidiary of the Company; (b) any Investment in Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person if, as a result of such Investment and any related
transactions that at the time of such Investment are contractually mandated to
occur, (i) such Person becomes a Restricted Subsidiary of the Company or (ii)
such Person is merged, consolidated or amalgamated with or into, or transfers
or conveys all or substantially all of its assets to, or is liquidated into,
the Company or a Restricted Subsidiary of the Company; (d) any Investment made
as a result of the receipt of non-cash consideration from an Asset Sale that
was made pursuant to and in compliance with Section 4.10 or not constituting an
Asset Sale by reason of the $5 million threshold contained in the definition
thereof; (e) any Investment acquired by the Company in exchange for Equity
Interests in the Company (other than Disqualified Stock), (f) shares of Capital
Stock received in connection with any good faith settlement of a bankruptcy
proceeding involving a trade creditor; (g) Interest Rate Hedging Agreements or
Oil and Gas Commodity Price Risk
<PAGE> 22
16
Management Contracts; (h) loans and advances to employees in the ordinary
course of business for bona fide business purposes; (i) entry into operating
agreements, joint ventures, partnership agreements, working interests, royalty
interests, mineral leases, processing agreements, farm-out or farm-in
agreements, contracts for the sale, transportation or exchange of oil and
natural gas, unitization agreements, pooling arrangements, area of mutual
interest agreements, production sharing agreements or other similar or
customary agreements, transactions, properties, interests or arrangements, and
Investments and expenditures in connection therewith or pursuant thereto, in
each case made or entered into in the ordinary course of the Oil and Gas
Business, excluding however, Investments in corporations other than any
Investment received pursuant to the provisions set forth in Section 4.10 and
(j) any other Investments in any Person or Persons not otherwise permitted to
be made pursuant to clauses (a)-(i) above, when taken together with all other
Investments made pursuant to this clause (j) that are at the time outstanding,
having an aggregate amount (such amount to be calculated on a cost basis) not
to exceed the greater of (i) the sum of (x) Existing Investments and any
Investments made with the proceeds of any sales thereof therefrom plus (y) $15
million and (ii) 15% of Total Assets, as calculated at the time of such
Investment. For purposes of clause (i) of the preceding sentence, the amount
of any Existing Investment (including any Investment made with the proceeds
therefrom) is to be calculated on a cost basis.
"Permitted Liens" means:
(i) Liens securing Indebtedness of a Subsidiary or Liens
securing Senior Debt that is outstanding on the date of issuance of the
Notes and Liens securing Senior Debt that is permitted by the terms of
this Indenture to be incurred;
(ii) Liens in favor of the Company or any Restricted
Subsidiary;
(iii) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company and Liens on
property or assets of a Subsidiary existing at the time it became a
Subsidiary; provided that such Lien was not created in contemplation of
the acquisition of the property, and provided further that no such Lien
shall extend to any assets other than the acquired property or the
property of the acquired subsidiary;
(iv) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance or other kinds of social security, or to secure the payment or
performance of tenders, statutory or regulatory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
<PAGE> 23
17
incurred in the ordinary course of business (including lessee or
operator obligations under statutes, governmental regulations or
instruments related to the ownership, exploration and production of oil,
gas and minerals on state or federal lands or waters);
(v) Liens existing on the date of this Indenture;
(vi) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good
faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made therefor;
(vii) statutory liens of landlords, mechanics, suppliers,
vendors, warehousemen, carriers or other like Liens arising in the
ordinary course of business;
(viii) pre-judgement Liens and judgment Liens not giving rise
to an Event of Default so long as any appropriate legal proceeding that
may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such proceeding
may be initiated shall not have expired;
(ix) Liens on, or related to, properties or assets to secure
all or part of the costs incurred in the ordinary course of the Oil and
Gas Business for the exploration, drilling, development, production,
processing, transportation, marketing, storage or operation thereof;
(x) Liens on pipeline or pipeline facilities that arise
under operation of law;
(xi) Liens arising under operating agreements, joint venture
agreements, partnership agreements, oil and gas leases, farm-out or
farm-in agreements, division orders, contracts for the sale,
transportation or exchange of oil or natural gas, unitization and
pooling declarations and agreements, area of mutual interest agreements
and other agreements that are customary in the Oil and Gas Business;
(xii) Liens reserved in oil and gas mineral leases for bonus
or rental payments and for compliance with the terms of such leases,
(xiii) Liens securing the Notes,
(xiv) Liens constituting survey exceptions, encumbrances,
easements, and reservations of, and rights to others for, rights-of-way,
zoning and other restrictions as to the use of real properties, and
minor defects of title
<PAGE> 24
18
which, in the case of any of the foregoing, do not secure the payment of
borrowed money, and in the aggregate do not materially adversely affect
the value of the assets of the Company and its Restricted Subsidiaries,
taken as a whole, or materially impair the use of such properties for
the purposes for which such properties are held by the Company or such
Subsidiaries,
(xv) any interest or title of a lessor under any Capital
Lease Obligation or operating lease,
(xvi) Liens resulting from the deposit of funds or evidences
of Indebtedness in trust for the purpose of defeasing Senior
Indebtedness of the Company or any of the Restricted Subsidiaries,
(xvii) Liens securing obligations under Interest Rate Hedging
Agreements or Oil and Gas Commodity Price Risk Management Contracts,
(xviii) Liens upon specific items of inventory or other goods
and proceeds of the Company or any Restricted Subsidiary securing the
Company's or such Restricted Subsidiary's, as the case may be,
obligations in respect of bankers' acceptances issued or created for the
account of the Company or such Restricted Subsidiary, as the case may
be, to facilitate the purchase, shipment or storage of such inventory or
other goods,
(xix) 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,
(xx) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of the Company
or its Restricted Subsidiaries relating to such property or assets,
(xxi) 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;
(xxii) Liens securing Purchase Money Debt; provided however
that the related Purchase Money Debt shall not be secured by any
property or assets of the Company or any Restricted Subsidiary other
than the property and assets acquired by the Company with the proceeds
of such Purchase Money Debt,
(xxiii) Liens on the Capital Stock of Unrestricted Subsidiaries,
<PAGE> 25
19
(xxiv) Liens to secure any Permitted Refinancing Debt, provided
that the Indebtedness so exchanged, extended, refinanced, renewed,
replaced, defeased or refunded was secured by Liens permitted pursuant
to clause (iii) or (v) of this definition, provided however, that (a)
such new Liens shall be limited to all or part of the same property that
secured the original Lien, plus improvements on the property and (b) the
Permitted Refinancing Debt secured by such Lien at such time is not
increased to any amount greater than the sum of (x) the outstanding
principal amount or, if greater, the committed amount of the
Indebtedness secured by Liens described under clause (iii) or (v) of
this definition at the time the original Lien became a Lien permitted in
accordance with the Indenture and (y) an amount necessary to pay any
fees and expenses, including premiums, related to such exchange,
extension, refinancing, renewal, replacement, defeasement or refunding,
(xxv) Liens securing Attributable Indebtedness under any sale
and leaseback transaction permitted by the terms of the Indenture, but
only on the property subject to such sale and leaseback transaction, and
(xxvi) Liens not otherwise permitted by clauses (i) through
(xxiv) that are incurred in the ordinary course of business of the
Company or any Subsidiary with respect to obligations that do not exceed
$10 million at any one time outstanding.
"Permitted Refinancing Debt" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness (other than Indebtedness incurred under a Credit
Facility) of the Company or any of its Restricted Subsidiaries; provided that:
(i) the principal amount of such Permitted Refinancing Indebtedness does not
exceed the principal amount of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith (other than increases resulting from the
capitalization of interest or fees)); (ii) such Permitted Refinancing
Indebtedness has a final maturity date on or later than the final maturity date
of, and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes or the Subsidiary Guarantees, as
the case may be, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in right of
payment to, the Notes or the Subsidiary Guarantees, as the case may be, on
terms at least as favorable taken as a whole to the Holders of the
<PAGE> 26
20
Notes or the Subsidiary Guarantees, as the case may be, as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred
either by the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Production Payments" means Dollar-Denominated Production
Payments and Volumetric Production Payments, collectively.
"Purchase Agreement" means the agreement, dated September 17,
1997, among the Company and the Initial Purchasers relating to the Offering.
"Purchase Money Debt" means Indebtedness incurred in connection
with the purchase by the Company or any of its Subsidiaries of any equipment,
real or personal property, or any other asset, other than Equity Interests of
any Person (i) as to which the obligee expressly waives the provisions of
Section 1111(b) of Title 11, United States Code; (ii) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides any guarantee or
credit support of any kind (including any undertaking, guarantee, indemnity,
agreement or instrument that would constitute Indebtedness), or (b) is directly
or indirectly liable (as guarantor or otherwise) other than the pledge of the
equipment, real or personal property or other assets acquired with the proceeds
of such Indebtedness; (iii) no default with respect to which (including any
rights that the holders thereof may have to take enforcement actions against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time, or both) any
holder of any other Indebtedness of the Company or any of its Restricted
Subsidiaries to declare a default on such other indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iv) the explicit terms of which provide that there is no recourse against any
of the assets of the Company or its Restricted Subsidiaries, other than
recourse against the equipment, real or personal property or other assets
acquired with the proceeds of such Indebtedness.
"QIB" means any "qualified institutional buyer" (as defined in
Rule 144A).
"Registered Exchange Offer" means the offer to exchange the
Initial Notes for the Exchange Notes issued under a registration statement
filed pursuant to the terms of the Registration Rights Agreement.
<PAGE> 27
21
"Registration Rights Agreement" means the exchange and
registration rights agreement, dated September 23, 1997, among the Company and
the Initial Purchasers.
"Repurchase Offer" means an offer made by the Company to purchase
all or any portion of a Holder's Notes pursuant to Section 4.10 or 4.13 hereof.
"Responsible Officer" when used with respect to the Trustee,
means any officer within the Corporate Trust Department of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject. When used with respect to the
Company, "Responsible Officer" means any officer of the Company to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" means any direct or indirect Subsidiary
of the Company that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Services and its
successors.
"Securities" means the securities issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means (i) Indebtedness of the Company or any
Subsidiary of the Company under or in respect of any credit facility, whether
for principal, interest (including interest accruing after the filing of a
petition initiating any proceeding pursuant to any bankruptcy law, whether or
not the claim for such interest is allowed as a claim in such proceeding),
reimbursement obligations, fees, commissions, expenses, indemnities or other
amounts, and (ii) any other Indebtedness permitted under the terms of this
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes. Notwithstanding anything to the contrary in the
foregoing sentence, Senior Debt will not include (w) any liability for federal,
state, local or other taxes owed or owing by the Company, (x) any Indebtedness
of the Company to any of its Subsidiaries or other Affiliates, (y) any trade
payables or (z)
<PAGE> 28
22
any Indebtedness that is incurred in violation of this Indenture (other than
Indebtedness under (i) the New Credit Facility or (ii) any other credit
facility that is incurred on the basis of a representation by the Company to
the applicable lenders that it is permitted to incur such Indebtedness under
this Indenture).
"Shelf Registration Statement" has the meaning ascribed to such
term in the Registration Rights Agreement.
"Significant Subsidiary" means (i) each Subsidiary that for the
most recent fiscal year of such Subsidiary had consolidated revenues greater
than $10 million or as at the end of such fiscal year had assets or liabilities
greater than $10 million and (ii) any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or indirectly,
by such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means any guarantee of the obligations of
the Company under this Indenture and the Notes by any Person in accordance with
the provisions of this Indenture.
"Subsidiary Guarantor" means any Person that incurs a Subsidiary
Guarantee; provided that upon the release and discharge of such Person from its
Subsidiary Guarantee in accordance with this Indenture, such Person shall cease
to be a Subsidiary Guarantor.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of this Indenture.
"Total Assets" means, with respect to any Person, the total
consolidated assets of such Person and its Restricted Subsidiaries, as shown on
the most recent balance sheet of such Person.
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.6 hereof.
<PAGE> 29
23
"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15(519) which has become publicly available at least two Business Days prior
to the redemption date (or, if such Statistical Release is no longer published,
any publicly available source or similar market data)) most nearly equal to the
period from the redemption date to September 15, 2002; provided that if the
period from the redemption date to September 15, 2002 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the redemption date to September 15, 2002
is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year shall be
used.
"Trustee" means the party named as such in the preamble to this
Indenture until a successor replaces it in accordance with the applicable
provisions of this Indenture and thereafter means the successor serving
hereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
which at the time of determination shall be an Unrestricted Subsidiary (as
designated by the Board of Directors of the Company, as provided below) and
(ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of
the Company may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary or a Person becoming a Subsidiary through
merger or consolidation or Investment therein) to be an Unrestricted Subsidiary
only if: (a) such Subsidiary does not own any Capital Stock of, or own or hold
any Lien on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary; (b) all the Indebtedness of such Subsidiary shall at the date of
designation, and will at all times thereafter consist of, Non-Recourse Debt;
(c) the Company certifies that such designation was permitted by Section 4.7;
(d) such Subsidiary, either alone or in the aggregate with all other
Unrestricted Subsidiaries, does not operate, directly or indirectly, all or
substantially all of the business of the Company and its Restricted
Subsidiaries; (e) such Subsidiary does not, directly or indirectly, own any
Indebtedness of or Equity Interest in, and has no Investments in, the Company
or any Restricted Subsidiary; (f) such Subsidiary is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation to maintain or preserve such Person's financial
condition or to cause such Person to achieve any specified levels of operating
results; and (g) on the date such Subsidiary is designated an Unrestricted
<PAGE> 30
24
Subsidiary, such Subsidiary is not a party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary with
terms substantially less favorable to the Company or such Restricted Subsidiary
than those that might have been obtained from Persons who are not Affiliates of
the Company. Any such designation by the Board of Directors of the Company
shall be evidenced to the Trustee by filing with the Trustee a resolution of
the Board of Directors of the Company giving effect to such designation and an
Officer's Certificate certifying that such designation complied with the
foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail
to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of this
Indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred as of such date. The Board of Directors of the Company may designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that (1)
immediately after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof and the Company could incur at least $1.00 of additional Indebtedness
(excluding Permitted Indebtedness) pursuant to Section 4.9 on a pro forma basis
taking into account such designation and (2) such Subsidiary executes a
Guarantee if required by Section 4.16 of this Indenture.
"Volumetric Production Payments" means production payment
obligations recorded as deferred revenue in accordance with GAAP, together with
all undertakings and obligations in connection therewith.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned, directly or indirectly, by such Person or by one or
more Wholly Owned Restricted Subsidiaries of such Person.
<PAGE> 31
25
Section 1.2. Other Definitions.
<TABLE>
<CAPTION>
Defined
in
Term Section
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . . . 4.11
"Agent Members" . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
"Asset Sale Offer" . . . . . . . . . . . . . . . . . . . . . . . 3.9
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . 10.2
"Cash Consideration" . . . . . . . . . . . . . . . . . . . . . . 4.10
"Change of Control Offer" . . . . . . . . . . . . . . . . . . . . 4.13
"Change of Control Payment" . . . . . . . . . . . . . . . . . . . 4.13
"Change of Control Payment Date" . . . . . . . . . . . . . . . . 4.13
"Change of Control Redemption Payment" . . . . . . . . . . . . . 3.7
"Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
"Common Stock" . . . . . . . . . . . . . . . . . . . . . . . . . 3.7
"Covenant Defeasance" . . . . . . . . . . . . . . . . . . . . . . 8.3
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
"DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Definitive Notes" . . . . . . . . . . . . . . . . . . . . . . . 2.1
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . 6.1
"Excess Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . 4.10
"Global Note" . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
"incur" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9
"Legal Defeasance" . . . . . . . . . . . . . . . . . . . . . . . 8.2
"Non-Global Purchasers . . . . . . . . . . . . . . . . . . . . . 2.1
"Notice of Default" . . . . . . . . . . . . . . . . . . . . . . . 6.1
"Offer Amount" . . . . . . . . . . . . . . . . . . . . . . . . . 3.9
"Offer Period" . . . . . . . . . . . . . . . . . . . . . . . . . 3.9
"outstanding" . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Payment Blockage Notice" . . . . . . . . . . . . . . . . . . . . 10.4
"Payment Default" . . . . . . . . . . . . . . . . . . . . . . . . 6.1
"Permitted Indebtedness" . . . . . . . . . . . . . . . . . . . . 4.9
"Purchase Date" . . . . . . . . . . . . . . . . . . . . . . . . . 3.9
"Register" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Representative" . . . . . . . . . . . . . . . . . . . . . . . . 10.2
"Restricted Payments" . . . . . . . . . . . . . . . . . . . . . . 4.7
"Rule 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
"Senior Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2
</TABLE>
Section 1.3. Incorporation By Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
<PAGE> 32
26
"indenture securities" means the Notes;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" with respect to the Notes means the Company and with
respect to the Subsidiary Guarantees, if any, means the Subsidiary Guarantors
and any successor obligor upon the Notes and the Subsidiary Guarantees,
respectively.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by rule enacted by
the Commission under the TIA have the meanings so assigned to them.
Section 1.4. 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;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) references to sections of or rules under the Securities
Act shall be deemed to include substitute, replacement of successor
sections or rules adopted by the Commission from time to time.
ARTICLE 2
THE NOTES
Section 2.1. Form and Dating.
The Initial Notes and the Trustee's certificate of authentication
thereon shall be substantially in the form of Exhibit A hereto, the terms of
which are hereby incorporated herein and made part of this Indenture. Any
Exchange Notes and the Trustee's certificate of authentication thereon shall be
substantially in the form of Exhibit B hereto, the terms of which are hereby
incorporated herein and made part of this Indenture. The Notes may have
notations, legends or endorsements required by
<PAGE> 33
27
law, stock exchange rule or usage. The Notes shall be printed, typewritten,
lithographed or engraved or produced by any combination of those methods, all
as determined by the officers of the Company executing the Notes, as evidenced
by their execution thereof. Each Note shall be dated the date of its original
issuance and shall show the date of its authentication. The Notes will be
fully registered as to principal and interest in minimum denominations of
$1,000 and integral multiples of $1,000 in excess thereof.
(a) Global Notes. The Initial Notes are being offered and
sold by the Company pursuant to the Purchase Agreement.
Initial Notes offered and sold to QIBs in accordance with Rule
144A under the Securities Act ("Rule 144A") as provided in the Purchase
Agreement, shall be issued initially in the form of one or more permanent
global notes in definitive, fully registered form without interest coupons with
the Global Securities Legend and Restricted Securities Legend (until such
Restricted Securities Legend is removed in accordance with Section 2.6(g)
hereof) called for by Exhibit A hereto (each, a "Global Note"), which shall be
deposited on behalf of the Initial Purchasers with the Trustee, as custodian
for the Depository, and registered in the name of Cede & Co., as nominee of the
Depository, or will remain in the custody of the Trustee pursuant to the FAST
Balance Certificate Agreement between DTC and the Trustee. The Global Note or
Notes will be duly executed by the Company and authenticated by the Trustee as
hereinafter provided. Secondary sales to Institutional Accredited Investors
who are not QIBs will be reflected in a separate Global Note. The Exchange
Notes shall be issued initially in the form of one or more Global Notes. The
aggregate principal amounts of the Global Notes may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
Note Custodian, and the Depository or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply
only to Global Notes deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance
with this Section 2.1(b), authenticate and deliver initially one or more Global
Notes that (i) shall be registered in the name of the Depository for such
Global Note or Global Notes or the nominee of such Depository and (ii) shall be
held by the Trustee as custodian for the Depository. After the issuance of
Exchange Notes under a Registered Exchange Offer, the Trustee shall have no
duty to hold any Global Note as custodian for the Depository or any other
Security registered in the name of the Depository or a nominee of the
Depository.
Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Indenture with respect
<PAGE> 34
28
to any Global Note held on their behalf by the Depository or by the Trustee as
the custodian of the Depository or under such Global Note, 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 of such Depository governing the exercise of the rights of
a holder of a beneficial interest in any Global Note.
(c) Certificated Securities. Except as otherwise provided
herein, owners of beneficial interests in Global Notes will not be entitled to
receive physical delivery of certificated Securities. Purchasers of Initial
Notes who are not QIBs or Institutional Accredited Investors (referred to
herein as the "Non-Global Purchasers") will receive certificated Initial Notes
bearing the Restricted Securities Legend set forth in Exhibit A hereto
("Definitive Notes"); provided, however, that upon transfer of such
certificated Securities to a QIB or Institutional Accredited Investor, such
certificated Securities will, unless the relevant Global Note has previously
been exchanged, be exchanged for an interest in a Global Note pursuant to the
provisions of Section 2.6 hereof. Definitive Notes will include the Restricted
Securities Legend unless removed in accordance with Section 2.6(g) hereof.
Section 2.2. Execution and Authentication.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be affixed or reproduced on the
Notes and may be in facsimile form.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall authenticate and make available for delivery
(1) Initial Notes for original issue in an aggregate principal amount of $150.0
million, and (2) Exchange Notes for issue only in a Registered Exchange Offer,
pursuant to the Registration Rights Agreement, in exchange for Initial Notes of
an equal principal amount, in each case upon a written order of the Company
signed by two Officers. Such order shall specify the amount of the Notes to be
authenticated, the date on which the original issue of Notes is to be
authenticated and whether the
<PAGE> 35
29
Notes are to be Initial Notes or Exchange Notes. Unless otherwise specified in
such order, the Initial Notes and the Exchange Notes shall be issued initially
as Global Notes. The aggregate principal amount of Notes outstanding at any
time may not exceed $150.0 million.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. 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 agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or an Affiliate of the Company.
Section 2.3. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York where (i) Notes may be presented for
registration of transfer or for exchange ("Registrar") and (ii) Notes may be
presented for payment ("Paying Agent"). The Registrar shall keep a register of
the Notes and of their transfer and exchange (the "Register"). The Company may
appoint one or more co-registrars and one or more additional paying agents.
The term "Registrar" includes any co-registrar and the term "Paying Agent"
includes any additional paying agent. The Company may change any Paying Agent
or Registrar without notice to any Holder. The Company shall enter into an
appropriate agency agreement with any Registrar, Paying Agent or co-registrar
not a party to this Indenture, which shall incorporate the terms of the TIA.
The agreement shall implement the provisions of this Indenture that relate to
such Agent. The Company shall notify the Trustee in writing of the name and
address of any Agent not a party to this Indenture. If the Company fails to
appoint or maintain another entity as Registrar or Paying Agent, the Trustee
shall act as such. The Company or any of its Subsidiaries may act as Paying
Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC")to act as Depository with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Notes.
Section 2.4. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent, including the
Trustee (who shall be deemed to have agreed by its execution of this
Indenture), to agree in writing that the Paying Agent shall hold in trust for
the benefit of Holders or the Trustee (unless the Paying Agent is the Trustee,
in which case it shall hold in trust for the Holders) all money held by the
Paying Agent
<PAGE> 36
30
for the payment of principal, premium, if any, or interest, on the Notes, and
shall notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Holders all money held by it as Paying Agent.
Upon any bankruptcy or reorganization proceedings relating to the Company or a
Subsidiary, the Trustee shall serve as sole Paying Agent for the Notes.
Section 2.5. 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
all Holders. If the Trustee is not the Registrar, the Company shall furnish to
the Trustee at least seven Business Days before each interest payment date and
at such other times as the Trustee may request in writing, a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of the Holders of Notes.
Section 2.6. Transfer and Exchange. (a) Transfer and Exchange
of Definitive Notes. When Definitive Notes are presented to the Registrar or a
co-registrar with a request:
(x) to register the transfer of such Definitive Notes;
or
(y) to exchange such Definitive Notes for an equal principal
amount of Definitive Notes of other authorized denominations,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction (which may
call for a legal opinion) are met; provided, however, that the Definitive Notes
surrendered for transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form and substance reasonably satisfactory to
the Company and the Registrar or co-registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing; and
(ii) if such Definitive Notes are Transfer Restricted
Securities, then such Definitive Notes shall be accompanied by the
following additional information and documents, as applicable:
<PAGE> 37
31
(A) if such Transfer Restricted Securities are being
delivered to the Registrar by a Holder thereof for registration
in the name of such Holder, without transfer, a certification
from such Holder to that effect (in substantially the form set
forth on the reverse of the Security); or
(B) if such Transfer Restricted Securities are being
transferred to the Company or to a QIB in accordance with Rule
144A, a certification to that effect (in substantially the form
set forth on the reverse of the Security); or
(C) if such Transfer Restricted Securities are being
transferred (w) pursuant to an exemption from registration in
accordance with Rule 144 or Regulation S under the Securities
Act; or (x) to an Institutional Accredited Investor that is
acquiring the Note for its own account, or for the account of
such an Institutional Accredited Investor, with respect to which
it exercises sole discretion, in each case in a minimum principal
amount of the Notes of $250,000 for investment purposes and not
with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act; or (y) in
reliance on another exemption from the registration requirements
of the Securities Act: (i) a certification to that effect (in
substantially the form set forth on the reverse of the Note),
(ii) if the Company or Registrar so requests, an Opinion of
Counsel reasonably acceptable to the Company and to the Registrar
to the effect that such transfer is in compliance with the
Securities Act and (iii) in the case of clause (x), a signed
letter from the transferee substantially in the form of Exhibit C
hereto.
(b) Restrictions on Transfer of a Definitive Note for a
Beneficial Interest in a Global Note. A Definitive Note may not be exchanged
for a beneficial interest in a Global Note except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive
Note, duly endorsed or accompanied by appropriate instruments of transfer, in
form and substance satisfactory to the Trustee and the Company, together with:
(i) if such Definitive Note is a Transfer Restricted Security,
certification, substantially in the form set forth on the reverse of the
Note, that such Definitive Note is being transferred to (x) a QIB in
accordance with Rule 144A under the Securities Act or (y) an
Institutional Accredited Investor that is acquiring the Note for its own
account, or for the account of such an Institutional Accredited
Investor, with respect to which it exercises sole discretion, in each
case in a minimum principal amount of
<PAGE> 38
32
the Notes of $250,000 for investment purposes and not with a view to, or
for offer or sale in connection with, any distribution in violation of
the Securities Act and in the case of clause (y), (i) if the Company or
Registrar so requests, an Opinion of Counsel reasonably acceptable to
the Company and to the Registrar to the effect that such transfer is in
compliance with the Securities Act and (ii) a signed letter from the
transferee substantially in the form of Exhibit C hereto; and
(ii) whether or not such Definitive Note is a Transfer
Restricted Security, written instructions directing the Trustee to make,
or to direct the Note Custodian to make, an adjustment on its books and
records with respect to such Global Note to reflect an increase in the
aggregate principal amount of the Notes represented by the Global Note,
then the Trustee shall cancel such Definitive Note and cause, or direct the
Note Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Note Custodian, the
aggregate principal amount of Notes represented by the Global Note to be
increased accordingly. If no Global Notes are then outstanding, the Company
shall issue and the Trustee shall authenticate, upon written order of the
Company in the form of an Officer's Certificate, a new Global Note in the
appropriate principal amount.
(c) Transfer and Exchange of Global Notes. The transfer and
exchange of Global Notes or beneficial interests therein shall be effected
through the Depository, in accordance with this Indenture (including applicable
restrictions on transfer set forth herein, if any) and the procedures of the
Depository therefor.
(d) Transfer of a Beneficial Interest in a Global Note for a
Definitive Note.
(i) Any Person having a beneficial interest in a Global Note
that is being transferred or exchanged (i) pursuant to an effective
registration statement under the Securities Act, (ii) that is not a
Transfer Restricted Note or (iii) pursuant to clause (A),(B) or (C)
below may upon request, and if accompanied by the information specified
below, exchange such beneficial interest for a Definitive Note of the
same aggregate principal amount. Upon receipt by the Trustee of written
instructions or such other form of instructions as is customary for the
Depository from the Depository or its nominee on behalf of any Person
having a beneficial interest in a Global Note and upon receipt by the
Trustee of a written order or such other form of instructions as is
customary for the Depository or the Person designated by the Depository
as having such a
<PAGE> 39
33
beneficial interest in a Transfer Restricted Security only, the
following additional information and documents:
(A) if such beneficial interest is being transferred to
the Person designated by the Depository as being the owner of a
beneficial interest in a Global Note, a certification from such
Person to that effect (in substantially the form set forth on the
reverse of the Note); or
(B) if such beneficial interest is being transferred (x)
to a QIB in accordance with Rule 144A or (y) pursuant to an
effective registration statement under the Securities Act, a
certification from such Person to that effect (in substantially
the form set forth on the reverse of the Note); or
(C) if such beneficial interest is being transferred (w)
pursuant to an exemption from registration in accordance with
Rule 144 or Regulation S under the Securities Act; or (x) to an
Institutional Accredited Investor that is acquiring the Note for
its own account, or for the account of such an Institutional
Accredited Investor, with respect to which it exercises sole
discretion, in each case in a minimum principal amount of the
Notes of $250,000 for investment purposes and not with a view to,
or for offer or sale in connection with, any distribution in
violation of the Securities Act; or (y) in reliance on another
exemption from the registration requirements of the Securities
Act: (i) a certification to that effect from the transferee or
transferor (in substantially the form set forth on the reverse of
the Note), (ii) if the Company or Registrar so requests, an
Opinion of Counsel reasonably acceptable to the Company and to
the Registrar to the effect that such transfer is in compliance
with the Securities Act, and (iii) in the case of clause (x), a
signed letter from the transferee substantially in the form of
Exhibit C hereto,
then the Trustee or the Note Custodian, at the direction of the Trustee,
will cause, in accordance with the standing instructions and procedures
existing between the Depository and the Note Custodian, the aggregate
principal amount of the Global Note to be reduced on its books and
records and, following such reduction, the Company will execute and the
Trustee will authenticate and make available for delivery to the
transferee a Definitive Note.
(ii) Definitive Notes issued in exchange for a beneficial
interest in a Global Note pursuant to this Section 2.6(d) shall be
registered in such names and in such authorized denominations as the
Depository, pursuant to instructions from its direct or indirect
participants or
<PAGE> 40
34
otherwise, shall instruct the Trustee. The Trustee shall make such
Definitive Notes available for delivery to the Persons in whose names
such Notes are so registered in accordance with the instructions of the
Depository.
(e) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.6), 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 another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Authentication of Definitive Notes in Absence of Depository.
If at any time:
(i) the Depository for the Notes notifies the Company that the
Depository is unwilling or unable to continue as Depository for the
Global Notes and a successor Depository for the Global Notes is not
appointed by the Company within 90 days after delivery of such notice;
or
(ii) the Company, in its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of Definitive Notes
under this Indenture,
then the Company will execute, and the Trustee, upon receipt of an Officer's
Certificate requesting the authentication and delivery of Definitive Notes to
the Persons designated by the Company, will authenticate and make available for
delivery Definitive Notes, in an aggregate principal amount equal to the
principal amount of Global Notes, in exchange for such Global Notes.
(g) Legend.
(i) Except as permitted by the following paragraph (ii), each
Note certificate evidencing the Global Notes and the Definitive Notes
(and all Notes issued in exchange therefor or substitution thereof)
shall bear a legend (the "Restricted Securities Legend") in
substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
<PAGE> 41
35
PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS
TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST
DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER
OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE
COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES
ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN
THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT
THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT
OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM
PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000 FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR
TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND (F)
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF THE
FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED
BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Note) pursuant to Rule 144 or an effective registration statement
under the Securities Act:
(A) in the case of any Transfer Restricted Security that
is a Definitive Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
Definitive Note that does not bear the legend set forth above and
rescind any restriction on the transfer of such Transfer
Restricted Security; and
(B) any such Transfer Restricted Security represented by
a Global Note shall not be subject to the provisions set forth in
clause (i) of this Section 2.6(g) (such sales or transfers being
subject only to the provisions of Section 2.6(c) hereof);
provided,
<PAGE> 42
36
however, that with respect to any request for an exchange of a
Transfer Restricted Security that is represented by a Global Note
for a Definitive Note that does not bear a legend, which request
is made in reliance upon Rule 144, the Holder thereof shall
certify in writing to the Registrar that such request is being
made pursuant to Rule 144 (such certification to be substantially
in the form set forth on the reverse of the Note).
(h) Cancellation and/or Adjustment of Global Note. At such time
as all beneficial interests in a Global Note have either been exchanged for
Definitive Notes, redeemed, repurchased or canceled, such Global Note shall be
returned to the Depository for cancellation or retained and canceled by the
Trustee. At any time prior to such cancellation, if any beneficial interest in
a Global Note is exchanged for Definitive Notes, redeemed, repurchased or
canceled, the principal amount of Notes represented by such Global Note shall
be reduced and an adjustment shall be made on the books and records of the
Trustee (if it is then the Note Custodian for such Global Note) or the Note
Custodian with respect to such Global Note, by the Trustee or the Note
Custodian, to reflect such reduction.
(i) Obligations with Respect to Transfers and Exchanges of
Notes.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Definitive
Notes and Global Notes at the Registrar's or co-registrar's request.
(ii) 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, assessments, or similar
governmental charge payable in connection therewith.
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (a) any Definitive Note selected
for redemption in whole or in part pursuant to Article 3, except the
unredeemed portion of any Definitive Note being redeemed in part, or (b)
any Note for a period beginning 15 Business Days before the mailing of a
notice of an offer to repurchase or redeem Notes or 15 Business Days
before an interest payment date.
(iv) Prior to the due presentation for registration of transfer
of any Note, each of the Company, the Trustee, the Paying Agent, the
Registrar and any co-registrar may deem and treat the Person in whose
name a Note is registered as the absolute owner of such Note for the
purpose of receiving payment of principal of and interest on such Note
and for all other purposes whatsoever, whether or not such Note is
<PAGE> 43
37
overdue, and none of the Company, the Trustee, the Paying Agent, the
Registrar and any co-registrar shall be affected by notice to the
contrary.
(v) All Notes issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same benefits under this Indenture as the Notes
surrendered upon such transfer or exchange.
(j) No Obligation of the Trustee. (i) The Trustee shall have
no responsibility or obligation to any beneficial owner of a Global Note, a
Agent Member of the Depository or other Person with respect to the accuracy of
the records of the Depository or its nominee or of any Agent Member thereof,
with respect to any ownership interest in the Notes or with respect to the
delivery to any participant, member, beneficial owner or other Person (other
than the Depository) of any notice (including any notice of redemption) or the
payment of any amount, under or with respect to such Notes. All notices and
communications to be given to the Holders and all payments to be made to
Holders under the Notes shall be given or made only to or upon the order of the
registered Holders (which shall be the Depository or its nominee in the case of
a Global Note). The rights of beneficial owners in any Global Note in global
form shall be exercised only through the Depository subject to the applicable
rules and procedures of the Depository. The Trustee may conclusively rely and
shall be fully protected in relying upon information furnished by the
Depository with respect to its Agent Members and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer imposed
under this Indenture or under applicable law with respect to any transfer of
any interest in any Note (including, without limitation, any transfers between
or among Agent Members or beneficial owners in any Global Note) other than to
require delivery of such certificates and other documentation or evidence as
are expressly required by, and to do so if and when expressly required by, the
terms of this Indenture, and to examine the same to determine substantial
compliance as to form with the express requirements hereof.
Section 2.7. Replacement Notes.
If any mutilated Note is surrendered to the Registrar, or if the
Holder of a Note claims that the Note has been lost, destroyed or wrongfully
taken, the Company and the Trustee receive evidence to their satisfaction of
the destruction, loss or theft of any Note, the Company shall issue and the
Trustee, upon the receipt of a written authentication order of the Company
signed by two Officers of the Company, shall authenticate a replacement Note if
the Trustee's requirements are met. If required by the Trustee or the Company,
an indemnity bond must be
<PAGE> 44
38
supplied by the Holder that is sufficient in the judgment of the Trustee and
the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company and the Trustee may charge for its expenses in replacing
a Note.
Every replacement Note is an obligation of the Company and shall
be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.8. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated
by the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding and those deemed paid pursuant to Section 8.2. A
Note does not cease to be outstanding because the Company or an Affiliate of
the Company holds the Note.
If a Note is replaced pursuant to Section 2.7 hereof, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
Section 2.9. Temporary Notes.
Until Definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes. Temporary Notes
shall be substantially in the form of Definitive Notes but may have variations
that the Company considers appropriate for temporary Notes. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate Definitive Notes and make them available for delivery in exchange
for temporary Notes.
Section 2.10. 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 that any such notice may state that no
representation is made 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.
<PAGE> 45
39
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall dispose
of cancelled Notes in accordance with its customary procedures (subject to the
record retention requirements of the Exchange Act); provided, however, that it
shall not be required to destroy any Notes. The Company may not issue new
Notes to replace Notes that it has paid or that have been delivered to the
Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.1 hereof. 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. The Company shall fix or cause to be
fixed each such special record date and payment date, provided that no such
special record date shall be less than 10 days prior to the related payment
date for such defaulted interest. At least 15 days before the special record
date, the Company (or, upon the written request of the Company, the Trustee in
the name and at the expense of the Company) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such interest to be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.1. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof, then it shall furnish to the
Trustee, at least 30 days but not more than 60 days before a redemption date,
an Officers' Certificate setting forth (i) the paragraph of the Notes and/or
Section of this Indenture pursuant to which the redemption shall occur, (ii)
the redemption date, (iii) the principal amount of Notes to be redeemed and
(iv) the redemption price.
<PAGE> 46
40
Section 3.2. Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption shall 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 so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. In the
event of partial redemption by lot, the particular Notes to be redeemed shall
be selected, unless otherwise provided herein, not less than 30 nor more than
60 days prior to the redemption date by the Trustee from the outstanding Notes
not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof shall be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after the redemption date,
unless the Company defaults in payment of the redemption price, interest ceases
to accrue on Notes or portions of them called for redemption. Except as
provided in this Section 3.2, provisions of this Indenture that apply to Notes
called for redemption also apply to portions of Notes called for redemption.
The provisions of the two preceding paragraphs of this Section
3.2 shall not apply with respect to any redemption affecting only a Global
Note, whether such Global Note is to be redeemed in whole or in part. In case
of any such redemption in part, the unredeemed portion of the principal amount
of the Global Note shall be in an authorized denomination.
Section 3.3. Notice of Redemption.
Subject to the provisions of Section 3.9 hereof, at least 30 days
but not more than 60 days before a redemption date, the Company shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
of Notes to be redeemed at such Holder's registered address, provided, however,
that the Company shall provide notice to the Trustee in accordance with Section
3.1 hereof at least five days prior to the mailing of the notice pursuant to
this Section 3.3.
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
<PAGE> 47
41
(b) the redemption price;
(c) 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 upon surrender of such Note, a new Note or Notes in principal amount equal
to the unredeemed portion shall be issued upon cancellation of the original
Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such
redemption payment, interest on Notes called for redemption ceases to accrue on
and after the redemption date;
(g) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for redemption are being redeemed,
and, if the redemption is to occur pursuant to Section 3.7, a description of
the transaction or transactions that constitute the Change of Control; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Notes.
If any of the Notes to be redeemed is in the form of a Global
Note, then such notice shall be modified in form but not substance to the
extent appropriate to accord with the procedures of the Depository applicable
to redemptions.
At the Company's request and expense, the Trustee shall give the
notice of redemption in the Company's name; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, a notice signed by two Officers requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as
provided in the preceding paragraph.
Section 3.4. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section
3.3 hereof, Notes or portions thereof called for redemption become irrevocably
due and payable on the redemption date at the redemption price. A notice of
redemption may not be conditional.
Section 3.5. Deposit of Redemption Price.
On or prior to the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on
<PAGE> 48
42
all Notes or portions thereof to be redeemed on that date. The Trustee or the
Paying Agent shall promptly return to the Company any money deposited with the
Trustee or the Paying Agent by the Company in excess of the amounts necessary
to pay the redemption price of and accrued interest on, all Notes or portions
thereof to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is
redeemed on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest to the redemption
date shall be paid to the Person in whose name such Note was registered at the
close of business on such record date. If any Note called for redemption shall
not be so paid upon surrender for redemption because of the failure of the
Company to comply with the preceding paragraph, interest shall be paid on the
unpaid principal, from the redemption date until such principal is paid, and to
the extent lawful on any interest not paid on such unpaid principal, in each
case at the rate provided in the Notes and in Section 4.1 hereof.
Section 3.6. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon the receipt of a written authentication order of the
Company signed by two Officers of the Company, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
Section 3.7. Optional Redemption.
(a) Except as set forth in clauses (b) and (c) of this Section
3.7, the Company shall not have the option to redeem the Notes pursuant to this
Section 3.7 prior to September 15, 2002. From and after September 15, 2002,
the Company shall have the option to redeem the Notes, in whole or in part,
upon not less than 30 nor more than 60 days notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on September 15 of each of the years
indicated below:
<TABLE>
<CAPTION>
Percentage of
Year Principal Amount
---- ----------------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.438%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.958%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.479%
2005 and thereafter . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
<PAGE> 49
43
(b) Notwithstanding the provisions of clause (a) of this
Section 3.7, at any time prior to September 15, 2000, the Company may, at its
option, on any one or more occasions, redeem up to 33-1/3% of the original
aggregate principal amount of Notes at a redemption price of 108.875% of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the redemption date with all or a portion of the net proceeds of public sales
of common stock of the Company (the "Common Stock"); provided that at least 66
2/3% of the original aggregate principal amount of Notes remains outstanding
immediately after the occurrence of such redemption.
(c) Notwithstanding the provisions of clause (a) of this
Section 3.7, upon the occurrence of a Change of Control at any time on or prior
to September 15, 2002, the Company may, at its option, redeem in whole but not
in part, the Notes at a redemption price equal to 100% of the principal amount
thereof, plus the Applicable Premium as of, and accrued but unpaid interest, if
any, to, the date of redemption (the "Change of Control Redemption Payment")
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) provided that such
redemption shall be made no more than 90 days after the occurrence of a Change
of Control. Provided the Company complies with Section 3.3 and the other
provisions hereof applicable to such redemption, a redemption pursuant to this
Section 3.7(c) can occur simultaneously with the occurrence of a Change of
Control. Notwithstanding any provision of Section 3.7(d), the Company shall
notify the Trustee and, by mail, the Holders of the Notes of its decision to
redeem the Notes pursuant to this Section 3.7(c) no later than 30 days after
the occurrence of a Change of Control.
(d) Any redemption pursuant to this Section 3.7 shall be made
pursuant to the provisions of Sections 3.1 through 3.6 hereof and, as to
Section 3.7(c) only, pursuant to the provisions of Section 4.13.
Section 3.8. Mandatory Redemption.
Except as set forth under Sections 4.10 and 4.13 hereof, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Section 3.9. Offer to Purchase By Application of Excess
Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company
shall be required to commence an offer to all Holders of Notes and, to the
extent required by the terms thereof, to all
<PAGE> 50
44
holders or lenders of other Pari Passu Indebtedness, to purchase Notes and any
such Pari Passu Indebtedness (an "Asset Sale Offer"), it shall follow the
procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof, giving effect to any
related offer for Pari Passu Indebtedness pursuant to Section 4.10, (the "Offer
Amount") or, if less than the Offer Amount has been tendered, all Notes
tendered in response to the Asset Sale Offer. Payment for any Notes so
purchased shall be made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
shall be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall
send, by first class mail, a notice to the Trustee and each of the Holders.
The notice shall contain all instructions and materials necessary to enable
such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale
Offer shall be made to all Holders. The notice, which shall govern the terms
of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.9 and Section 4.10 hereof and the length of time the Asset
Sale Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase
Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Company defaults in making such payment,
any Note accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to
an Asset Sale Offer may only elect to have all of such Note purchased
and may not elect to have only a portion of such Note purchased;
<PAGE> 51
45
(f) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, or transfer by book-entry transfer, to the Company, a
Depository, if appointed by the Company, or a Paying Agent at the
address specified in the notice at least three Business Days before the
Purchase Date;
(g) that Holders shall be entitled to withdraw their election
if the Company, the Depository or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a telegram,
facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Note the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have such Note
purchased;
(h) that, if the aggregate principal amount of Notes
surrendered by Holders and by holders of Pari Passu Debt exceeds the
Offer Amount, the Company shall select the Notes and Pari Passu Debt 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 integral multiples thereof, shall be purchased) in the manner
provided in Section 4.10; and
(i) that Holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered (or transferred by book-entry transfer).
If any of the Notes subject to an Asset Sale Offer is in the form
of a Global Note, then such notice may be modified in form but not substance to
the extent appropriate to accord with the procedures of the Depository
applicable to repurchases.
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.9. The Company, the Depository or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering
Holder an amount equal to the purchase price of the Notes tendered by such
Holder and accepted by the Company for purchase, and the Company shall promptly
issue a new Note, and the Trustee, upon receipt of a written authentication
order of the Company signed by two Officers of the Company shall authenticate
and mail or deliver
<PAGE> 52
46
such new Note to such Holder, in a principal amount equal to any unpurchased
portion of the Note surrendered. Any Note not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company shall
publicly announce the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.9, any
purchase pursuant to this Section 3.9 shall be made pursuant to the provisions
of Sections 3.1 through 3.6 hereof.
ARTICLE 4
COVENANTS
Section 4.1. Payment of Notes.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date
money deposited by the Company in immediately available funds and designated
for and sufficient to pay all such amounts then due.
The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal at the rate
equal to 1% per annum in excess of the then applicable interest rate on the
Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest (without regard to any applicable grace period) at the same rate to
the extent lawful.
Section 4.2. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City
of New York, an office or agency (which may be an office of the Trustee or an
Affiliate of the Trustee, Registrar or co-registrar) where principal, premium,
if any, and interest on the Notes will be paid and where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may
be served. The Company shall give prompt 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 Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to
<PAGE> 53
47
time rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in the Borough of Manhattan, the City of New York
for such purposes. The Company shall give prompt written notice to the Trustee
of any such designation or rescission and of any change in the location of any
such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.3.
Section 4.3. Commission Reports.
Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, to the extent permitted by the Exchange Act, the Company shall file with
the Commission and provide, within 15 days after such filing, the Trustee and
Holders with the annual reports and the information, documents and other
reports that are specified in Sections 13 and 15(d) of the Exchange Act (but
without exhibits in the case of the Holders). In the event that the Company is
not permitted to file such reports, documents and information with the
Commission, the Company will provide substantially similar information to the
Trustee and the Holders as if the Company were subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act within 15 days of the
date the Company would have been obligated to file such reports with the
Commission, were the Company permitted to file such reports with the
Commission. The Company also will comply with the other provisions of Section
314(a) of the TIA.
Section 4.4. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Restricted Subsidiaries during
the preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in
the performance or observance of any of the terms, provisions and conditions of
this Indenture (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or she may have
knowledge and what action the Company is taking or proposes to take with
respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of, premium, if any, or interest on
<PAGE> 54
48
the Notes is prohibited or if such event has occurred, a description of the
event and what action the Company is taking or proposes to take with respect
thereto. As of the date hereof, the Company's fiscal year ends on December 31
of each calendar year. In the event the Company changes its fiscal year, it
shall promptly notify the Trustee of such change.
(b) The Company and each Subsidiary Guarantor, if any, shall,
so long as any of the Notes are outstanding, deliver to the Trustee, within
five Business Days of any Officer becoming aware of any Default or Event of
Default, a certificate of two officers specifying such Default or Event of
Default and what action the Company is taking or proposes to take with respect
thereto.
Section 4.5. Taxes.
The Company shall pay, and shall cause each of its Restricted
Subsidiaries to pay, prior to delinquency all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
Section 4.6. Stay, Extension and Usury Laws.
Each of the Company and the Subsidiary Guarantors, if any,
covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance
of this Indenture; and each of the Company and the Subsidiary Guarantors, if
any, (to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it shall not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law has been enacted.
Section 4.7. Restricted Payments.
The Company shall not and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any other payment or distribution on account of the Equity Interests of
the Company or any Restricted Subsidiary (including, without limitation, any
payment in connection with any merger or consolidation involving the Company)
to the direct or indirect holders of Equity Interests of the Company or any
Restricted Subsidiary in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or a Restricted Subsidiary and other than dividends or
distributions
<PAGE> 55
49
payable to the Company or a Restricted Subsidiary so long as, in the case of
any dividend or distribution payable on or in respect of any class or series of
securities issued by a Subsidiary other than a Wholly Owned Restricted
Subsidiary, the Company or a Restricted Subsidiary receives at least its pro
rata share of such dividend or distribution in accordance with its Equity
Interests in such class or series of securities); (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company or
any Subsidiary of the Company that is not a Wholly Owned Restricted Subsidiary
of the Company; (iii) make any principal payment on, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes, except at final maturity or as a mandatory or
sinking fund repayment; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.9 hereof; and
(c) such Restricted Payment, together with the aggregate of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of this Indenture (excluding Restricted
Payments permitted by clauses (2), (3), (4), (5), (6) and (7) of the
next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of this Indenture to the end of the Company's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds
received by the Company from the issue and sale since the date of this
Indenture of Equity Interests of the Company or of debt securities of
the Company that have been converted into or exchanged for such Equity
Interests (other than Equity Interests (or convertible debt securities)
sold to a Subsidiary of the Company and other than Disqualified Stock or
debt securities that have been converted into Disqualified Stock), plus
(iii) 100% of the value of any issue or sale of Equity Interests (other
than
<PAGE> 56
50
Disqualified Stock) since the date of this Indenture used to acquire any
Persons engaged in the Oil and Gas Business or assets used in the Oil
and Gas Business, plus (iv) to the extent that any Restricted Investment
that was made after the date of this Indenture is sold for cash or
otherwise liquidated or repaid for cash or the receipt of properties
used in the Oil and Gas Business, the lesser of (A) the net proceeds of
such sale, liquidation or repayment or the fair market value of property
received in exchange therefor and (B) the amount of such Restricted
Investment, plus (v) the amount received in cash as a return on
investment or interest on a loan constituting a Restricted Investment,
provided, however, that the foregoing provisions of this paragraph (c)
will not prohibit Restricted Payments in an aggregate amount not to
exceed $25 million.
The foregoing provisions shall not prohibit: (1) the payment of
any dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of
this Indenture; (2) the redemption, repurchase, retirement or other acquisition
of any Equity Interests of the Company or any Restricted Subsidiary,
respectively in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to the Company or a Subsidiary of the Company) of
other Equity Interests of the Company or such Restricted Subsidiary,
respectively (other than any Disqualified Stock); provided that the amount of
any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause
(c)(ii) of the preceding paragraph; (3) the defeasance, redemption or
repurchase of any Disqualified Stock of the Company or any Restricted
Subsidiary in exchange for, or out of the substantially concurrent sale (other
than to the Company or a Subsidiary of the Company) of Disqualified Stock of
the Company or such Restricted Subsidiary, respectively; provided that (i) the
Disqualified Stock sold matures, is mandatorily redeemable, is convertible or
exchangeable into Indebtedness or Disqualified Stock of the Company or a
Restricted Subsidiary on a date that is no earlier than the corresponding date
with respect to the Disqualified Stock that has been so defeased, redeemed or
repurchased and (ii) the amount of any such net cash proceeds that are utilized
for any such defeasance, redemption or repurchase shall be excluded from clause
(c)(ii) of the preceding paragraph; (4) the defeasance, redemption or
repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of subordinated Permitted Refinancing Debt or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
of the Company; provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c)(ii) of the preceding paragraph; (5) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company or any
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51
Subsidiary of the Company held by any of the Company's (or any of its
Subsidiaries') employees pursuant to any management equity subscription
agreement or stock option agreement in effect as of the date of this Indenture;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $2.0 million in any
twelve-month period; and provided further that no Default or Event of Default
shall have occurred and be continuing immediately after such transaction; (6)
repurchases of Equity Interests deemed to occur upon exercise of stock options
if such Equity Interests represent a portion of the exercise price of such
options; and (7) the making of loans by the Company or any of its Restricted
Subsidiaries to officers or directors of the Company; provided that the
aggregate outstanding amount of such loans shall not exceed, at any time, $2.5
million plus any such loans outstanding on the date of this Indenture.
The amount of all Restricted Payments (other than cash) shall be
the fair market value (as determined in good faith by the Board of Directors or
a Responsible Officer of the Company, which determination shall be conclusive
evidence of compliance with this provision) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or the
applicable Restricted Subsidiary, as the case may be, pursuant to the
Restricted Payment.
In computing Consolidated Net Income for purposes of clause (c)
of this Section 4.7, (i) the Company shall use audited financial statements for
the portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (ii) the Company shall be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment, would in the good faith determination of
the Company be permitted under the requirements of this Indenture, such
Restricted Payment shall be deemed to have been made in compliance with this
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the Company
for any period.
The Board of Directors of the Company may designate any
Restricted Subsidiary to be an Unrestricted Subsidiary if such designation
would not cause a Default. For purposes of making such determination, all
outstanding Investments by the Company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated shall be deemed
to be Restricted Payments at the time of such designation and shall reduce the
amount available for Restricted Payments under clause
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(c) of the first paragraph of this covenant. All such outstanding Investments
shall be deemed to constitute Investments in an amount equal to the greater of
the fair market value or the book value of such Investments at the time of such
designation. Such designation shall only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Section 4.8. Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(x) pay dividends or make any other distributions
to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (y) pay any Indebtedness owed by it to the Company or any of
its Restricted Subsidiaries, (ii) make loans or advances to the Company or any
of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) the New Credit
Facility as in effect as of the date of this Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof or any other Credit Facility, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements, refinancings or any other Credit
Facilities are no more restrictive with respect to such dividend and other
payment restrictions than those contained in the New Credit Facility as in
effect on the date of this Indenture, (b) this Indenture and the Notes, (c)
applicable law, (d) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except, in the case of Indebtedness, to
the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person and its Subsidiaries, or the property or assets of the Person and
its Subsidiaries, so acquired, provided that, such Indebtedness or Capital
Stock was permitted by the terms of this Indenture to be incurred, (e) by
reason of customary non-assignment provisions in leases entered into in the
ordinary course of business, (f) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, (g)
Permitted Refinancing Debt, provided that the restrictions contained in the
agreements governing such Permitted Refinancing
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Debt are no more restrictive than those contained in the agreements governing
the Indebtedness being refinanced, (h) any other security agreement, instrument
or document relating to Senior Debt in effect after the date of this Indenture,
provided that such encumbrances or restrictions are customary in connection
with such documents and that the terms and conditions of such encumbrances or
restrictions are no more restrictive than those encumbrances or restrictions
imposed in connection with the New Credit Facility, (i) Permitted Liens, (j)
customary provisions in joint venture agreements and other similar agreements
relating to the distribution of revenue from such joint venture or other
business venture or (k) any agreement relating to a sale and leaseback
transaction or capital lease, but only on the property subject to such
transaction or lease and only to the extent that such restrictions and
encumbrances are customary with respect to a sale and leaseback transaction or
capital lease.
Section 4.9. Incurrence of Indebtedness and Issuance of
Disqualified Stock.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness, and neither the
Company nor any Subsidiary Guarantor, if any, shall issue any Disqualified
Stock and the Company shall not permit any of its Restricted Subsidiaries
(other than a Subsidiary Guarantor) to issue any shares of preferred stock to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of
the Company; provided, however, that the Company and any Subsidiary Guarantor
may incur Indebtedness or issue shares of Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued
would have been at least 2.5 to 1, determined on a pro forma basis as
set forth in the definition of Fixed Charge Coverage Ratio; and
(ii) no Default or Event of Default shall have occurred and
be continuing at the time such additional Indebtedness is incurred or
such Disqualified Stock is issued or would occur as a consequence of the
incurrence of the additional Indebtedness or the issuance of the
Disqualified Stock.
Notwithstanding the foregoing, this Indenture shall not prohibit
any of the following (collectively, "Permitted Indebtedness"): (a) the
Indebtedness evidenced by the Notes;
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54
(b) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness pursuant to Credit Facilities, so long as the aggregate principal
amount of all Indebtedness outstanding under all Credit Facilities does not, at
any one time, exceed the greater of (1) $250.0 million and (2) the Borrowing
Base, provided that the Company may incur more than $250 million of
Indebtedness pursuant to Credit Facilities only if the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available would have been at least 2.0 to 1,
determined on a pro forma basis as set forth in the definition of Fixed Charge
Coverage Ratio; (c) the guarantee by any Restricted Subsidiary of any
Indebtedness that is permitted by this Indenture to be incurred by the Company,
provided that the provisions of Section 4.16 are satisfied in connection with
the issuance of such guarantee; (d) all Indebtedness of the Company and its
Restricted Subsidiaries in existence as of the date of this Indenture; (e)
Indebtedness of any Restricted Subsidiary, provided that and for so long as
such Restricted Subsidiary is a Subsidiary Guarantor (and if on any date such
Subsidiary shall cease to be a Subsidiary Guarantor, such Indebtedness shall be
deemed incurred on such date); (f) intercompany Indebtedness between or among
the Company and any of its Wholly Owned Restricted Subsidiaries; provided,
however, that if the Company is the obligor on such Indebtedness, (i) such
Indebtedness is expressly subordinate to the payment in full of all Obligations
with respect to the Notes and (ii)(A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a Person
other than the Company or a Wholly Owned Restricted Subsidiary and (B) any sale
or other transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Restricted Subsidiary shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be; (g) Indebtedness in connection with
one or more standby letters of credit, guarantees, performance bonds or other
reimbursement obligations, in each case, issued in the ordinary course of
business and not in connection with the borrowing of money or the obtaining of
advances or credit (other than advances or credit on open account, includible
in current liabilities, for goods and services in the ordinary course of
business and on terms and conditions which are customary in the Oil and Gas
Business, and other than the extension of credit represented by such letter of
credit, guarantee or performance bond itself); (h) Indebtedness under Interest
Rate Hedging Agreements, provided that the obligations under such agreements
are related to payment obligations on Indebtedness otherwise permitted by the
terms of this covenant and that the aggregate notional amount of such
agreements does not exceed 105% of the principal amount of the Indebtedness to
which such agreements relate; (i) Indebtedness under Oil and Gas Commodity
Price Risk Management Contracts; (j) the incurrence by the Company of
Indebtedness not otherwise permitted to be incurred pursuant to
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this paragraph, provided that the aggregate principal amount of all
Indebtedness incurred pursuant to this clause (j), together with all Permitted
Refinancing Debt incurred pursuant to clause (k) of this paragraph in respect
of Indebtedness previously incurred pursuant to this clause (j), does not
exceed $20.0 million at any one time outstanding; (k) Permitted Refinancing
Debt incurred in exchange for, or the net proceeds of which are used to
refinance, extend, renew, replace, defease or refund, Indebtedness that was
permitted by this Indenture to be incurred (including Indebtedness previously
incurred pursuant to this clause (k)); (l) accounts payable or other
obligations of the Company or any Restricted Subsidiary to trade creditors
created or assumed by the Company or such Restricted Subsidiary in the ordinary
course of business in connection with the obtaining of goods or services; (m)
Purchase Money Debt; (n) Indebtedness consisting of obligations in respect of
purchase price adjustments, guarantees or indemnities in connection with the
acquisition or disposition of assets; (o) production imbalances incurred in the
ordinary course of business; (p) Indebtedness of a Subsidiary Guarantor, if
any, in respect of the Subsidiary Guarantee of such Subsidiary Guarantor; and
(q) incurrence by a Restricted Subsidiary of Indebtedness, provided that the
aggregate principal amount of all Indebtedness for all Restricted Subsidiaries
pursuant to this clause (q) does not exceed $5 million at any one time
outstanding.
The Company shall not permit any Unrestricted Subsidiary to incur
any Indebtedness other than Non-Recourse Debt; provided, however, if any such
Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to
constitute an incurrence of Indebtedness by the Company.
Section 4.10. Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time
of such Asset Sale at least equal to the fair market value (as determined in
good faith by the Board of Directors or an Officer of the Company or such
Restricted Subsidiary with responsibility for such transaction, which
determination shall be conclusive evidence of compliance with this provision)
of the assets or Equity Interests issued or sold or otherwise disposed of, (ii)
such Asset Sale complies, to the extent applicable, with Section 5.1 and 4.17,
as applicable and (iii) at least 75% of the consideration therefor received by
the Company or such Restricted Subsidiary from such Asset Sale is in the form
of cash, Cash Equivalents, properties and capital assets to be used by the
Company or any Restricted Subsidiary in the Oil and Gas Business or oil and gas
properties owned or held by another Person which are to be used in the Oil and
Gas Business of the Company or its Restricted Subsidiaries, or any combination
thereof (collectively the "cash consideration");
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provided that the amount of (x) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet), of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability and (y) any non-cash consideration received by the Company or any
such Restricted Subsidiary from such transferee that is converted by the
Company or such Restricted Subsidiary into cash within 180 days of closing such
Asset Sale, shall be deemed to be cash for purposes of this provision (to the
extent of the cash received); provided, however, that the Company and its
Restricted Subsidiaries may make Asset Sales with a fair market value not
exceeding $15 million in the aggregate in any period of twelve calendar months,
free from any of the restrictions, requirements or other provisions set forth
in this Section 4.10.
Within 360 days after the receipt of any Net Proceeds from an
Asset Sale, the Company may apply such Net Proceeds, at its option, in any
order or combination: (a) to reduce Senior Debt, Guarantor Senior Indebtedness
or Pari Passu Indebtedness (provided that, in connection with a reduction of
Pari Passu Indebtedness, the Company or such Restricted Subsidiary redeems a
pro rata portion of the Notes), (b) to make Permitted Investments, (c) to make
investments in interests in other Oil and Gas Businesses, (d) to make capital
expenditures in respect of the Company's or its Restricted Subsidiaries' Oil
and Gas Business or to purchase long-term assets that are used or useful in
such Oil and Gas Business or (e) to repurchase any Notes, as provided below.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce Senior Debt that is revolving debt or otherwise invest such
Net Proceeds in any manner that is not prohibited by this Indenture. Any Net
Proceeds from Asset Sales that are not applied as provided in the first
sentence of this paragraph shall (after the expiration of the periods specified
in this paragraph) be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $15.0
million, the Company shall make an Asset Sale Offer to purchase the maximum
principal amount of Notes and any other Pari Passu Indebtedness to which the
Asset Sale Offer applies that may be purchased out of the Excess Proceeds, at
an offer price in cash in an amount equal to, in the case of the Notes, 100% of
the principal amount thereof plus accrued and unpaid interest thereon to the
date of purchase or, in the case of any other Pari Passu Indebtedness, 100% of
the principal amount thereof (or with respect to discount Pari Passu
Indebtedness, the accrued value thereof) on the date of purchase, in each case,
in accordance with the procedures set forth in Section 3.9 hereof or the
agreements governing Pari Passu Indebtedness, as applicable. To
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the extent that the aggregate principal amount (or accreted value, as the case
may be) of the Notes and Pari Passu Indebtedness tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the sum of (i) the
aggregate principal amount of Notes surrendered by Holders thereof, and (ii)
the aggregate principal amount or accreted value, as the case may be, of other
Pari Passu Indebtedness surrendered by holders or lenders thereof, exceeds the
amount of Excess Proceeds, the Trustee and the trustee or other lender
representatives for the Pari Passu Indebtedness shall select the Notes and
other Pari Passu Indebtedness to be purchased on a pro rata basis, based on the
aggregate principal amount (or accreted value, as applicable) thereof
surrendered in such Asset Sale Offer. Upon completion of such Asset Sale
Offer, the Excess Proceeds shall be reset at zero.
In the event the Company, pursuant to this Section 4.10, makes an
Asset Sale Offer to purchase the Notes and any other Pari Passu Indebtedness to
which such Asset Sale Offer applies, the Company shall comply with applicable
securities laws and regulations, including any applicable requirements of
Section 14(e) of, and Rule 14e-1 under, the Exchange Act.
Section 4.11. Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any of
its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i)
such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Subsidiary than those that would have been obtained in
a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to an
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5 million, an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above, (b)
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10 million, a
resolution of the Board of Directors set forth in an Officer's Certificate
certifying that such Affiliate Transaction or series of related Affiliate
Transactions complies with clause (i) above and that such Affiliate Transaction
or series of related Affiliate Transactions has been approved by a majority of
the members of the Board of Directors of the Company who are disinterested with
respect to such Affiliate Transaction or series of related Affiliate
Transactions (which resolution shall be conclusive evidence of compliance with
this provision) and (c) with respect to any Affiliate
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Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $15 million, an Officer's Certificate as described
in clause (b) above and an opinion as to the fairness to the Company or such
Subsidiary of such Affiliate Transaction or series of related Affiliate
Transactions from a financial point of view issued by an accounting, appraisal,
engineering or investment banking firm of national standing (for purposes of
this clause (c) such opinion and the resolution described in clause (b) above
shall be conclusive evidence of compliance with this provision), provided,
however, that the foregoing shall not apply to (1) reasonable fees and
compensation paid to (including issuances and grants of securities and stock
options), and employment agreements and stock option and ownership plans for
the benefit of, officers, directors, employees or consultants of the Company or
any Restricted Subsidiary of the Company as determined in good faith by the
Company's Board of Directors or senior management, (2) transactions between or
among the Company and/or its Restricted Subsidiaries, (3) Restricted Payments
and Permitted Investments that are permitted by Section 4.7 and the definition
of Permitted Investments, (4) indemnification payments made to officers,
directors and employees of the Company or its Subsidiaries pursuant to charter,
by-law, statutory or contractual provisions, (5) any contracts, agreements or
understandings existing as of the date of this Indenture and (6) any contracts,
agreements or understandings between the Company and any of its Affiliates with
respect to the lease by the Company from such Affiliate of office space for the
Company in New York City, including any collateral agreements entered into with
respect to such lease.
Section 4.12. Liens.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien securing Indebtedness of any kind (other than
Permitted Liens) upon any of its property or assets, now owned or hereafter
acquired, unless all payments under the Notes are secured by such Lien prior
to, or on an equal and ratable basis with, the Indebtedness so secured for so
long as such Indebtedness is secured by such Lien.
No Subsidiary Guarantor, if any, shall directly or indirectly
create, incur, assume or suffer to exist any Lien (other than Permitted Liens)
that secures obligations under any Pari Passu Indebtedness or under any
subordinated Indebtedness of such Subsidiary Guarantor on any asset or property
of such Subsidiary Guarantor or any income or profits therefrom, or assign or
convey any right to receive income therefrom, unless the Subsidiary Guarantee
of such Subsidiary Guarantor is equally and ratably secured with the
obligations so secured or until such time as such obligations are no longer
secured by a Lien.
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Section 4.13. Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder of
the Notes shall, unless the Company shall have elected to redeem the Notes
prior to September 15, 2002 pursuant to Section 3.7(c), have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount of the Notes plus accrued and unpaid
interest if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder stating: (1) a description of the transaction or
transactions that constitute the Change of Control; (2) that the Change of
Control Offer is being made pursuant to this Section 4.13 and that all Notes
tendered shall be accepted for payment; (3) the purchase price and the purchase
date described below (the "Change of Control Payment Date"); (4) that any Note
not tendered will not be purchased and shall continue to accrue interest; (5)
that, unless the Company defaults in the payment of the Change of Control
Payment, all Notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest, if any, after the Change of Control Payment
Date; (6) that Holders electing to have any Notes purchased pursuant to a
Change of Control Offer shall be required to surrender the Notes, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Notes
completed, or transfer by book-entry transfer to the Company, a Depository, if
appointed by the Company, or a Paying Agent at the address specified in the
notice prior to the close of business on the third Business Day preceding the
Change of Control Payment Date; (7) that Holders shall be entitled to withdraw
their election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Change of Control Payment
Date, a telegram, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have the Notes
purchased; and (8) that Holders whose Notes are being purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof. The Company and each
Subsidiary Guarantor, if any, shall 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 to such party in
connection with the repurchase of the Notes as a result of a Change of Control.
(b) On a Business Day that is no earlier than 30 days nor
later than 60 days from the date that the Company mails or
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causes to be mailed notice of the Change of Control to the Holders (the "Change
of Control Payment Date"), the Company shall, to the extent lawful, (i) accept
for payment all Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to
the Change of Control Payment in respect of all the Notes or portions thereof
so tendered and (iii) deliver or cause to be delivered to the Trustee the
relevant Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of such Notes or portions thereof being purchased by
the Company. The Paying Agent shall promptly mail to each Holder of the Notes
so tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note shall be in a
principal amount of $1,000 or an integral multiple thereof. The Company
shall publicly announce the results of the Change of Control Offer on or as
soon as practicable after the Change of Control Payment Date.
(c) Prior to complying with the provisions of this Section
4.13, but in any event within 30 days following a Change of Control, the
Company shall either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of the Notes required by this Section 4.13.
The Change of Control provisions described above shall be
applicable whether or not any other provisions of this Indenture are
applicable.
The Company shall not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Section 4.13 and purchases all Notes (or
portions thereof) validly tendered and not withdrawn under such Change of
Control Offer.
Section 4.14. Corporate Existence.
Subject to Article 5 hereof, the Company and its Restricted
Subsidiaries shall do or cause to be done all things necessary to preserve and
keep in full force and effect (i) the Company's corporate existence, and the
corporate, partnership or other existence of each of its Restricted
Subsidiaries, in accordance with the respective organizational documents (as
the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (charter, partnership agreement and statutory),
licenses and franchises of the Company and its Restricted Subsidiaries;
provided, however, that the Company and its Restricted Subsidiaries shall not
be required to preserve any such right, license or franchise, or the corporate,
partnership
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or other existence of any of its Restricted Subsidiaries, if the Board of
Directors of the relevant Person shall determine that the preservation thereof
is no longer desirable in the conduct of the business of the Company and its
Restricted Subsidiaries, taken as a whole, and that the loss thereof is not
adverse in any material respect to the Holders of the Notes.
Section 4.15. No Senior Subordinated Debt.
Notwithstanding the provisions of Section 4.9 hereof, (i) the
Company shall not incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment
to any Senior Debt of the Company and senior in any respect in right of payment
to the Notes and (ii) the Subsidiary Guarantors, if any, shall not directly or
indirectly incur, create, issue, assume, guarantee or otherwise become liable
for any Indebtedness that is subordinate or junior in right of payment to
Senior Debt and senior in any respect in right of payment to the Subsidiary
Guarantees; provided, however, that the foregoing limitations shall not apply
to distinctions between categories of Indebtedness that exist by reason of any
Liens arising or created in respect of some but not all such Indebtedness.
Section 4.16. Guarantees of Indebtedness by Restricted
Subsidiaries.
(a) The Company shall not permit any Restricted Subsidiary to
guarantee the payment of any Indebtedness of the Company or any Indebtedness of
any other Restricted Subsidiary (in each case, the "Guaranteed Debt" ) unless
(i) if such Restricted Subsidiary is not a Subsidiary Guarantor, such
Restricted Subsidiary simultaneously executes and delivers a supplemental
Indenture, substantially in the form of Exhibit D hereto or such other form as
may be reasonably satisfactory to the Trustee and the Company, to this
Indenture providing for a Subsidiary Guarantee of payment of the Notes by such
Restricted Subsidiary, (ii) if the Notes or the Subsidiary Guarantee (if any)
of such Restricted Subsidiary are subordinated in right of payment to the
Guaranteed Debt, the Subsidiary Guarantee under the supplemental Indenture
shall be subordinated to such Restricted Subsidiary's guarantee with respect to
the Guaranteed Debt substantially to the same extent as the Notes or the
Subsidiary Guarantee are subordinated to the Guaranteed Debt under this
Indenture, (iii) if the Guaranteed Debt is by its express terms subordinated in
right of payment to the Notes or the Subsidiary Guarantee (if any) of such
Restricted Subsidiary, any such guarantee of such Restricted Subsidiary with
respect to the Guaranteed Debt shall be subordinated in right of payment to
such Restricted Subsidiary's Subsidiary Guarantee with respect to the Notes
substantially to the same extent as the Guaranteed Debt is subordinated to the
Notes or the Subsidiary Guarantee (if any) of such Restricted Subsidiary, (iv)
until the Notes have been
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repaid in full or defeased in accordance with Section 8.2 or 8.3, such
Restricted Subsidiary waives and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee; and (v) if such Restricted Subsidiary is required under
clause (i) to execute and deliver a supplemental Indenture, at the time of such
delivery such Restricted Subsidiary shall deliver to the Trustee an Opinion of
Counsel to the effect that (A) such Subsidiary Guarantee of the Notes has been
duly executed and authorized and (B) such Subsidiary Guarantee of the Notes
constitutes a valid, binding and enforceable obligation of such Restricted
Subsidiary, except insofar as enforcement thereof may be limited by bankruptcy,
insolvency or similar laws (including, without limitation, all laws relating to
fraudulent transfers) and except insofar as enforcement thereof is subject to
general principles of equity; provided that this paragraph (a) shall not be
applicable to any guarantee of any Restricted Subsidiary that (A) existed at
the time such Person became a Restricted Subsidiary of the Company and (B) was
not incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary of the Company.
(b) Notwithstanding the foregoing and the other provisions of
this Indenture, any Subsidiary Guarantee by a Restricted Subsidiary of the
Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the
Company's Capital Stock in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited by
this Indenture) or (ii) in the case of a guarantee incurred pursuant to clause
(a) of this covenant, the release or discharge of the guarantee which resulted
in the creation of such Subsidiary Guarantee, except a discharge or release by
or as a result of payment under such guarantee.
Section 4.17. Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries.
The Company shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary (other than a Subsidiary Guarantor), directly or indirectly, to
issue or sell or otherwise dispose of any shares of its Capital Stock except
(i) to the Company or a Wholly Owned Restricted Subsidiary, (ii) if,
immediately after giving effect to such issuance, sale or other disposition,
such Restricted Subsidiary remains a Restricted Subsidiary, (iii) shares of
nonvoting Capital Stock of Restricted Subsidiaries may be issued or sold to
employees or directors of the Company or any Subsidiary; or (iv) if all shares
of Capital Stock of such Restricted Subsidiary are sold or otherwise
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disposed of. In connection with any such sale or disposition of Capital Stock,
the Company shall comply with Section 4.10 hereof.
Section 4.18. Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company or its Restricted Subsidiaries may enter into a sale and leaseback
transaction if (i) the Company could have incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the test set forth in the first paragraph of Section 4.9 hereof or
(ii) the gross cash proceeds of such sale and leaseback transaction are at
least equal to the fair market value (as determined in good faith by a
resolution the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee, which determination shall be conclusive evidence of
compliance with this provision) of the property that is the subject of such
sale and leaseback transaction and the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company applies the net proceeds
of such transaction in compliance with Section 4.10 hereof.
Section 4.19. Business Activities.
The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any material respect in any business other than the
Oil and Gas Business.
ARTICLE 5
SUCCESSORS
Section 5.1. Merger, Consolidation, or Sale of Substantially All
Assets.
The Company shall not consolidate or merge with or into (whether
or not the Company is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its
properties or assets, in one or more related transactions, to another Person,
and the Company shall not permit any of its Restricted Subsidiaries to enter
into any such transaction or series of transactions if such transaction or
series of transactions would, in the aggregate, result in a sale, assignment,
transfer, lease, conveyance, or other disposition of all or substantially all
of the properties or assets of the Company to another Person, in either case
unless (i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (the "Surviving Entity") is a corporation organized or
existing under the laws of the United States, any state thereof or the District
of Columbia; (ii) the Surviving Entity (if the Company is not the continuing
obligor under this Indenture) assumes all the obligations of the
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Company under the Notes and this Indenture pursuant to a supplemental Indenture
in a form reasonably satisfactory to the Trustee; (iii) immediately before and
after giving effect to such transaction or series of transactions no Default or
Event of Default exists; (iv) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating any
Indebtedness not previously an obligation of the Company or any of its
Restricted Subsidiaries which becomes the obligation of the Company or any of
its Restricted Subsidiaries as a result of such transaction or series of
transactions as having been incurred at the time of such transaction or series
of transactions), the Consolidated Net Worth of the Company or the Surviving
Entity (if the Company is not the continuing obligor under this Indenture) is
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction or series of transactions and (v) the Company or
Surviving Entity (if the Company is not the continuing obligor under this
Indenture) will, at the time of such transaction or series of transactions and
after giving pro forma effect thereto as if such transaction or series of
transactions had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the test set forth in the first paragraph of Section 4.9 hereof.
Each Subsidiary Guarantor, if any, unless it is the other party to the
transactions described above, shall have confirmed by supplemental Indenture
that its Subsidiary Guarantee shall apply to such Person's obligations under
this Indenture and the Notes. Notwithstanding the foregoing clauses (i) (iv)
and (v), any Restricted Subsidiary may consolidate with, merge into or transfer
all or part of its properties and assets to the Company, and any Wholly Owned
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to another Wholly Owned Restricted Subsidiary.
Section 5.2. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, lease, conveyance
or other disposition of all or substantially all of the assets of the Company
in accordance with Section 5.1 hereof, the Surviving Entity shall succeed to,
and be substituted for (so that from and after the date of such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the Surviving Entity and not to the Company), and may exercise every right and
power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets that meets the requirements of Section 5.1 hereof, and,
provided further that, in all events, the Company shall not be released from
its obligations under Section 7.7.
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ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on the
Notes when the same becomes due and payable and the Default continues
for a period of 30 days, whether or not such payment is prohibited by
the provisions of Article 10 hereof;
(2) the Company defaults in the payment of the principal of or
premium, if any, on the Notes, whether or not such payment is prohibited
by the provisions of Article 10 hereof;
(3) the Company or a Subsidiary Guarantor fails to observe or
perform any covenant, condition or agreement on the part of the Company
or a Subsidiary Guarantor to be observed or performed pursuant to
Article 5 hereof;
(4) the Company fails to observe or perform any covenant,
condition or agreement on the part of the Company to be observed or
performed pursuant to Sections 4.3, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12,
4.13, 4.15, 4.18 and 4.19 hereof and the Default continues for the
period and after the notice specified below;
(5) the Company fails to comply with any of its other
agreements or covenants in, or provisions of, the Notes or this
Indenture and the Default continues for consecutive days after the
notice specified below;
(6) except as permitted herein, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or a
Subsidiary Guarantor, or any Person acting on behalf of a Subsidiary
Guarantor, shall deny or disaffirm such Subsidiary Guarantor's
obligation under its Subsidiary Guarantee;
(7) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company
or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries),
whether such Indebtedness or guarantee now exists or shall be created
hereafter, which default (a) is caused by a failure to pay principal of
such Indebtedness prior to the expiration of
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the grace period provided in such Indebtedness on the date of such
default (a "Payment Default") or (b) 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 is then existing
a Payment Default or the maturity of which has been so accelerated,
aggregates $10 million or more;
(8) a final non-appealable judgment or order or final non-
appealable judgments or orders are rendered against the Company or any
Restricted Subsidiary that remain unpaid or discharged for a period of
60 days and that require the payment of money, either individually or in
an aggregate amount, in excess of $10 million;
(9) the Company or any Restricted Subsidiary:
(a) commences a voluntary case or proceeding,
(b) consents to the entry of an order for relief
against it in an involuntary case or proceeding,
(c) consents to the appointment of a Custodian of it or
for all or substantially all of its property or
(d) makes a general assignment for the benefit of its
creditors;
(10) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against the Company or any Restricted
Subsidiary, in an involuntary case or proceeding,
(b) appoints a Custodian of the Company, any Restricted
Subsidiary, or for all or substantially all of the property of
the Company or any Restricted Subsidiary, or
(c) orders the liquidation of the Company or any
Restricted Subsidiary,
and in each case the order or decree remains unstayed and in effect for
60 consecutive days.
The term "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
A Default under clause (4) is not an Event of Default until the
Trustee notifies the Company, or the Holders of at
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least 25% in principal amount of the then outstanding Notes notify the Company
and the Trustee, of the Default and the Company does not cure the Default
within 30 consecutive days after receipt of the notice. A Default under clause
(5) is not an Event of Default until the Trustee notifies the Company, or the
Holders of at least 25% in principal amount of the then outstanding Notes
notify the Company and the Trustee, of the Default and the Company does not
cure the Default within 60 days after receipt of the notice. Each notice must
specify the Default, demand that it be remedied and state that the notice is a
"Notice of Default."
Section 6.2. Acceleration.
If an Event of Default (other than an Event of Default specified
in clauses (9) and (10) of Section 6.1 hereof) relating to the Company or any
Subsidiary Guarantor, if any, occurs and is continuing, the Trustee by notice
to the Company, or the Holders of at least 25% in principal amount of the then
outstanding Notes by written notice to the Company and the Trustee, may declare
the unpaid principal amount of and any accrued and unpaid interest on all the
Notes to be due and payable immediately. If payment of the Notes is
accelerated because of an Event of Default, the Company or the Trustee shall
notify the holders of Designated Senior Debt of such acceleration. Upon such
declaration the principal and interest shall be due and payable immediately;
provided, however, that so long as any Designated Senior Debt or any commitment
therefor is outstanding, any such notice or declaration shall not become
effective until the earlier of (a) five Business Days after such notice is
delivered to the Representative for the Designated Senior Debt or (b) the
acceleration of any Designated Senior Debt and thereafter, payments on the
Notes pursuant to this Article 6 shall be made only to the extent permitted
pursuant to Article 10 herein. Notwithstanding the foregoing, if any Event of
Default specified in clause (9) or (10) of Section 6.1 hereof relating to the
Company, or any Significant Subsidiary occurs, such an amount shall ipso facto
become and be immediately due and payable without any declaration or other act
or notice on the part of the Trustee or any Holder.
After a declaration of acceleration under this Indenture, but
before a judgment or decree for payment of principal, premium, if any, and
interest on the Notes due under this Article 6 has been obtained by the
Trustee, Holders of a majority in principal amount of the then outstanding
Notes by written notice to the Company and the Trustee may rescind an
acceleration and its consequences if (i) the Company or any Subsidiary
Guarantor, if any, has paid or deposited with the Trustee a sum sufficient to
pay (a) all sums paid or advanced by the Trustee under this Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and (b) all overdue interest on the Notes, if any,
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(ii) the rescission would not conflict with any judgment or decree of a court
of competent jurisdiction and (iii) all existing Events of Default (except
nonpayment of principal, premium, if any, or interest that has become due
solely because of the acceleration) have been cured or waived.
Section 6.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision
of the Notes or this Indenture.
The Trustee may maintain a proceeding 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 of a Note 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. All
remedies are cumulative to the extent permitted by law.
Section 6.4. Waiver of Past Defaults.
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 of the Notes waive an existing Default or Event of Default and
its consequences hereunder, except a continuing Default or Event of Default in
the payment of principal of, premium, if any, or interest on, the Notes
(including in connection with an offer to purchase) (provided, however, that
the Holders of a majority in aggregate principal amount of the then outstanding
Notes may rescind an acceleration and its consequences, including any related
payment Default that resulted from such acceleration). Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
Section 6.5. Control by Majority.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability, it being understood that (subject to Section
7.1) the Trustee shall have no duty to ascertain whether or not such actions or
forebearances are unduly prejudicial to such Holders. The Trustee may take any
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other action deemed proper by the Trustee which is not inconsistent with such
direction.
Section 6.6. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice
of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the
then outstanding Notes make a written request to the Trustee to pursue
the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.7. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right
of any Holder of a Note to receive payment of principal, premium, if any, and
interest on the Note, on or after the respective due dates expressed in the
Note (including in connection with an offer to purchase), or to bring suit for
the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
Section 6.8. Collection Suit by Trustee.
If an Event of Default specified in Section 6.1(1) or (2) occurs
and is continuing, the Trustee is authorized to recover judgment in its own
name and as trustee of an express trust against the Company or any Subsidiary
Guarantor, if any, for the whole amount of principal of, premium, if any, and
interest remaining unpaid on the Notes and interest on overdue principal and,
to the extent lawful, interest and such further
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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 6.9. Trustee May File Proofs of Claim.
The Trustee is authorized to 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 and counsel)
and the Holders of the Notes allowed in any judicial proceedings relative to
the Company or any of the Subsidiary Guarantors, if any (or any other obligor
upon the Notes), its creditors or its property and shall be entitled and
empowered to collect, receive and distribute any money or other property
payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments
to the Trustee, and in the event that the Trustee shall consent to the making
of such payments directly to the Holders, to pay to the Trustee any amount due
to it for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee
under Section 7.7 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment
of the same shall be secured by a Lien on, and shall be paid out of, any and
all distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. 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, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding provided, however, that the Trustee may, on
behalf of the Holders, vote for the election of a trustee in bankruptcy or
similar official and may be a member of the creditors' committee.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it
shall, subject to the provisions of Article 10, pay out the money in the
following order:
First: to the Trustee, its agents and attorneys for amounts due
under Sections 6.8 and 7.7 hereof, including payment of all compensation,
expense and liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
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Second: to Senior Debt to the extent required by Article 10;
Third: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium, if any, and accrued interest, ratably, without
preference or priority of any kind, according to the amounts due and payable on
the Notes for principal, premium, if any, and accrued interest, as the case may
be, respectively; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes 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 a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
Section 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
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.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
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(ii) 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 any notices, requests,
statements, certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the Trustee
shall examine those certificates and opinions which, by any provision of
this Indenture, are specifically required to be furnished to the Trustee
to determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) 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 6.5 hereof.
(d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or incur any liability in the performance of
any of its duties hereunder or in the exercise of any of its rights or powers.
The Trustee shall be under no obligation to exercise any of its rights and
powers under this Indenture at the request of any Holders, unless such Holder
shall have furnished to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
(e) Whether or not therein expressly so provided, 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.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.2. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document
believed by it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
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(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. 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. The Trustee may
consult with counsel and the advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection from liability in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any attorney or
agent (other than any agent who is an employee of the Trustee) appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company or any Subsidiary
Guarantor, if any, shall be sufficient if signed by an Officer of the Company
or such Subsidiary Guarantor.
(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 or
direction of any of the Holders unless such Holders shall have furnished to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
(g) The Trustee shall have no duty to inquire as to the
performance of the Company's covenants in Article 4 hereof. In addition, the
Trustee shall not be deemed to have knowledge of any Default or Event of
Default except (i) any Event of Default occurring pursuant to Sections 4.1, 4.4
and 6.1(1) or (2) hereof or (ii) any Default or Event of Default of which the
Trustee shall have received written notification. For purposes of determining
the Trustee's responsibility hereunder, whenever reference is made in this
Indenture to a Default or Event of Default, such reference shall be construed
to refer only to a Default or Event of Default of which the Trustee is deemed
to have notice pursuant to this Section 7.2(g)
(h) The Trustee shall not be required to give any bond or surety
in respect of the performance of its powers and duties hereunder.
(i) the Trustee shall not be bound to ascertain or inquire as to
the performance or observance of any covenants, conditions, or agreements on
the part of the Company, except as
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otherwise set forth herein, but the Trustee may require of the Company full
information and advice as to the performance of the covenants, conditions and
agreements contained herein and shall be entitled in connection herewith to
examine the books, records and premises of the Company.
(j) The permissive rights of the Trustee to perform the acts
enumerated in this Indenture shall not be construed as a duty and the Trustee
shall not be answerable for other than its gross negligence or willful
misconduct.
Section 7.3. 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, the
Subsidiary Guarantors, if any, or any Affiliate of the Company with the same
rights it would have if it were not Trustee. However, in the event that the
Trustee acquires any conflicting interest, as defined in Section 310(b) of the
TIA, it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue as trustee or resign. Any Agent may do the same
with like rights and duties. The Trustee is also subject to Sections 7.10 and
7.11 hereof.
Section 7.4. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, the Notes, or
the Subsidiary Guarantees, if any, it shall not be accountable for the
Company's use of the proceeds from the Notes or any money paid to the Company
or upon the Company's direction under any provision of this Indenture, and it
shall not be responsible for any statement or recital herein or in any
certificate delivered pursuant hereto or any statement in the Notes or any
other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
Section 7.5. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if
it is actually known to the Trustee, the Trustee shall mail to Holders of Notes
a notice of the Default or Event of Default within 90 days after it occurs.
Except in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on, any Note, the Trustee may withhold the notice
if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of
the Notes.
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Section 7.6. Reports by Trustee to Holders of the Notes.
Within 60 days after each September 15, beginning with the
September 15 following the date of this Indenture, and for so long as Notes
remain outstanding, the Trustee shall mail to the Holders of the Notes a brief
report dated as of such reporting date that complies with TIA Section 313(a)
(but if no event described in TIA Section 313(a) has occurred within the
twelve months preceding the reporting date, no report need be transmitted).
The Trustee also shall comply with TIA Section 313(b)(2) and transmit by mail
all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders
of Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Notes are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Notes are
listed on any stock exchange.
Section 7.7. Compensation and Indemnity.
The Company and the Subsidiary Guarantors, if any, shall pay to
the Trustee from time to time reasonable compensation for its acceptance of
this Indenture and services hereunder, including, without limitation,
extraordinary services such as default administration. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company and the Subsidiary Guarantors, if any, shall
reimburse the Trustee upon demand for all reasonable disbursements, advances
and expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Company and the Subsidiary Guarantors, if any, shall
indemnify the Trustee against any and all losses, liabilities or expenses
incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against the Company and the Subsidiary
Guarantors, if any (including this Section 7.7) and investigating or defending
itself against any claim (whether asserted by the Company, the Subsidiary
Guarantors, if any, or any Holder or any other Person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its gross negligence or bad faith. The Trustee shall notify
the Company and the Subsidiary Guarantors, if any, promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Company
and the Subsidiary Guarantors shall not relieve the Company and the Subsidiary
Guarantors, if any, of their obligations hereunder. The Company and the
Subsidiary Guarantors, if any, shall defend the claim and
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the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Company and the Subsidiary Guarantors, if any, shall pay the
reasonable fees and expenses of such counsel. The Company and the Subsidiary
Guarantors, if any, need not pay for any settlement made without their consent,
which consent shall not be unreasonably withheld.
The obligations of the Company and the Subsidiary Guarantors, if
any, under this Section 7.7 are joint and several and shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's and the Subsidiary Guarantors', if any
payment obligations in this Section, the Trustee shall have a Lien prior to the
Notes on all money or property held or collected by the Trustee. Such Lien
shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(9) or (10) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
Section 7.8. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged
from the trust hereby created by so notifying the Company. The Holders of
Notes of a majority in principal amount of the then outstanding Notes may
remove the Trustee by so notifying the Trustee and the Company in writing. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
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If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
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 Notes of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who
has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, 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 successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.8, the Company's obligations under Section 7.7
hereof shall continue for the benefit of the retiring Trustee.
Section 7.9. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $50 million as set forth in its most recent published annual report of
condition.
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This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1. Option to Effect Legal Defeasance or Covenant
Defeasance.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article 8.
Section 8.2. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.2, the Company and the Subsidiary
Guarantors, if any, shall, subject to the satisfaction of the conditions set
forth in Section 8.4 hereof, be deemed to have been discharged from their
obligations with respect to all outstanding Notes and the Subsidiary
Guarantees, if any, thereof on the date the conditions set forth below are
satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding Notes, which shall
thereafter be deemed to be "outstanding" only for the purposes of Section 8.5
hereof and the other Sections of this Indenture referred to in (a) and (b)
below, and to have satisfied all its other obligations under such Notes and
this Indenture (and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust fund described in
Section 8.4 hereof, and as more fully set forth in such Section, (b) the
Company's obligations with respect to such Notes under Article 2 and Section
4.2 hereof, (c) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and the Company's obligations in connection therewith
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and (d) this Article 8. Subject to compliance with this Article 8, the Company
may exercise its option under this Section 8.2 notwithstanding the prior
exercise of its option under Section 8.3 hereof.
Section 8.3. Covenant Defeasance.
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.3, the Company and the Subsidiary
Guarantors, if any, shall, subject to the satisfaction of the conditions set
forth in Section 8.4 hereof, be released from their obligations under the
covenants contained in Sections 4.3, 4.4, 4.5, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12,
4.13, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof and in clause (iv) and clause (v)
of Section 5.1 and the covenants contained in the Subsidiary Guarantees, if
any, with respect to the outstanding Notes on and after the date the conditions
set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the
Notes shall thereafter be deemed not "outstanding" for the purposes of any
compliance certificate, direction, waiver, consent or declaration or act of
Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Notes shall not be deemed outstanding
for accounting purposes). For this purpose, Covenant Defeasance means that,
with respect to the outstanding Notes, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference
in any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.1 hereof, but, except as specified above, the remainder of this
Indenture, such Notes and such Subsidiary Guarantees, if any, shall be
unaffected thereby. In addition, upon the Company's exercise under Section 8.1
hereof of the option applicable to this Section 8.3 hereof, subject to the
satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(3)
(but only with respect to the Company's failure to observe or perform the
covenants, conditions and agreements of the Company under clause (iv) and
clause (v) of Section 5.1), 6.1(4), 6.1(7) and 6.1(8) hereof shall not
constitute Events of Default.
Section 8.4. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
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(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Notes, cash in United States
dollars, non-callable Government Securities, 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 outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date;
(b) in the case of an election under Section 8.2 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) 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 of the
outstanding Notes 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;
(c) in the case of an election under Section 8.3 hereof, 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 of the
outstanding Notes 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 (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit) or
insofar as Section 6.1(9) or 6.1(10) hereof is 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, any material
agreement or instrument (other than this Indenture) 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 Opinion
of Counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the
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effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g) the Company shall deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of the Notes over the other creditors of the
Company, or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(h) the Company shall have delivered to the Trustee an
Officers' Certificate stating that all conditions precedent provided for or
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
Section 8.5. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions.
Subject to Section 8.6 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.5, the "Trustee") pursuant to Section 8.4 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as Paying Agent) as the Trustee may determine, to the Holders of such
Notes of all sums due and to become due thereon in respect of principal,
premium, if any, and interest, but such money need not be segregated from other
funds except to the extent required by law.
The Company and the Subsidiary Guarantors, if any, shall pay and
indemnify the Trustee against any tax, fee or other charge imposed on or
assessed against the cash or non-callable Government Securities deposited
pursuant to Section 8.4 hereof or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.4 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.4(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
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Section 8.6. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Note and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to the Company.
Section 8.7. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the obligations of the Company and the
Subsidiary Guarantors, if any, under this Indenture, the Notes and the
Subsidiary Guarantees, if any, shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.2 or 8.3 hereof, as the case may be;
provided, however, that if the Company or any Subsidiary Guarantor, if any,
makes any payment of principal of, premium, if any, or interest on any Note
following the reinstatement of its obligations, the Company or such Subsidiary
Guarantor shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.1. Without Consent of Holders of Notes.
Notwithstanding Section 9.2 of this Indenture, the Company, the
Subsidiary Guarantors, if any, and the Trustee may amend or supplement this
Indenture, the Notes or the Subsidiary Guarantees, if any, without the consent
of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
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(b) to provide for uncertificated Securities in addition to or
in place of certificated Securities (provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Internal Revenue Code of 1986, as amended (the
"Code"), or in a manner such that the uncertificated Securities are
described in Section 163(f)(2)(B) of the Code);
(c) to provide for the assumption of the Company's or any
Subsidiary Guarantor's, if any, obligations to the Holders of the Notes
in the case of any transaction permitted under Article 5 hereof;
(d) to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights hereunder of any Holder of the Note;
(e) to secure the Notes;
(f) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA; or
(g) to add a Subsidiary Guarantee under this Indenture.
Upon the request of the Company accompanied by a resolution of
the Board of Directors of the Company and each of the Subsidiary Guarantors, if
any, as the case may be, authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Sections 9.6, 11.4 and 11.5 hereof, the Trustee shall join with
the Company and the Subsidiary Guarantors, if any, in the execution of any
amended or supplemental Indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations that
may be therein contained, but the Trustee shall not be obligated to enter into
such amended or supplemental Indenture that adversely affects its own rights,
duties or immunities under this Indenture or otherwise.
Section 9.2. With Consent of Holders of Notes.
Except as provided below in this Section 9.2, the Company, the
Subsidiary Guarantors, if any, and the Trustee may amend or supplement this
Indenture, the Notes and the Subsidiary Guarantees, if any, with the consent of
the Holders of at least a majority in aggregate principal amount of the Notes
then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for the
Notes), and, subject to Sections 6.4 and 6.7 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of
the principal of, premium, if
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any, or interest on the Notes) or compliance with any provision of this
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for the Notes).
In addition, any amendment to the provisions of Article 10 of
this Indenture shall require the consent of the Holders of at least 66 2/3% in
aggregate principal amount of the Notes then outstanding if such amendment
would adversely affect the rights of Holders of Notes; provided that, no
amendment may be made to the provisions of Article 10 of this Indenture that
adversely affects the rights of any holder of Senior Debt then outstanding
unless the holders of such Senior Debt (or any group or representative thereof
authorized to consent) consent to such change.
Subject to Sections 6.4 and 6.7 hereof, the Holders of a majority
in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company or any Subsidiary Guarantor,
if any, with any provision of this Indenture, the Notes or a Subsidiary
Guarantee, if any. However, without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Notes held by a non-consenting
Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of
any Note or alter the provisions with respect to the redemption of the
Notes (except as provided above with respect to Sections 3.9, 4.10 and
4.13 hereof);
(c) reduce the rate of or change the time for payment of
interest on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a
majority in principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in
the Notes;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of Notes
to receive payments of principal or premium, if any, or interest on the
Notes;
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(g) make any change in the foregoing amendment and waiver
provisions; or
(h) except as provided under clause (b) of Section 4.16 or
Section 8.2 and 8.3, release a Subsidiary Guarantor, if any, from its
obligations under its Subsidiary Guarantee, if any, or make any change
in a Subsidiary Guaranty, if any, that would adversely affect the
Holders.
Upon the request of the Company accompanied by a resolution of
the Board of Directors of the Company and each of the Subsidiary Guarantors, if
any, as the case may be, authorizing the execution of any such amended or
supplemental indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in
Sections 9.6, 11.4 and 11.5 hereof, the Trustee shall join with the Company and
the Subsidiary Guarantors, if any, in the execution of such amended or
supplemental Indenture unless such amended or supplemental indenture affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.2 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver.
Section 9.3. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in an amended or supplemental Indenture that complies with
the TIA as then in effect.
Section 9.4. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note 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. However, any such Holder of a Note or subsequent
Holder of a Note may revoke the consent as to its Note if the Trustee receives
written notice of revocation before the
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date the waiver, supplement or amendment becomes effective. An amendment,
supplement or waiver becomes effective in accordance with its terms and
thereafter binds every Holder.
Section 9.5. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
Section 9.6. Trustee to Sign Amendment, etc.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
Neither the Company nor any Subsidiary Guarantor, if any, may sign an amendment
or supplemental Indenture until its respective Board of Directors approves it.
In executing any amended or supplemental Indenture, the Trustee shall be
entitled to receive and (subject to Section 7.1) shall be fully protected in
relying upon, an Officer's Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture and that there has been compliance with all
conditions precedent.
ARTICLE 10
SUBORDINATION
Section 10.1. Agreement to Subordinate.
The Company and each Subsidiary Guarantor, if any, agree, and
each Holder by accepting a Note agrees, that (i) the Indebtedness evidenced by
(a) the Notes, including, but not limited to, the payment of principal of,
premium, if any, and interest on the Notes, and any other payment Obligation of
the Company in respect of the Notes (including any obligation to repurchase the
Notes) is subordinated in right of payment, to the extent and in the manner
provided in this Article, to the prior payment in full in cash of all Senior
Debt of the Company (whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed), (b) the Subsidiary Guarantees, if
any, and other payment Obligations in respect of the Subsidiary Guarantees are
subordinate in right of payment, to the extent and in the manner provided in
this Article and (ii) the subordination is for the benefit of the Holders of
Senior Debt.
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Section 10.2. Certain Definitions.
"Bankruptcy Law" means title 11, U.S. Code or any similar Federal
or state law for the relief of debtors.
"Representative" means the indenture trustee or other trustee,
agent or representative for any Senior Debt.
"Senior Debt" means (i) Indebtedness of the Company or any
Subsidiary of the Company under or in respect of any Credit Facility, whether
for principal, interest (including interest accruing after the filing of a
petition initiating any proceeding pursuant to any Bankruptcy Law, whether or
not the claim for such interest is allowed as a claim in such proceeding),
reimbursement obligations, fees, commissions, expenses, indemnities or other
amounts, and (ii) any other Indebtedness permitted under the terms of this
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes. Notwithstanding anything to the contrary in the
foregoing sentence, Senior Debt will not include (w) any liability for federal,
state, local or other taxes owed or owing by the Company, (x) any Indebtedness
of the Company to any of its Subsidiaries or other Affiliates, (y) any trade
payables or (z) any Indebtedness that is incurred in violation of this
Indenture (other than Indebtedness under (i) the New Credit Facility or (ii)
any other credit facility that is incurred on the basis of a representation by
the Company to the applicable lenders that it is permitted to incur such
Indebtedness under this Indenture).
A "distribution" may consist of cash, securities or other
property, by set-off or otherwise.
All Designated Senior Debt now or hereafter existing and all
other Obligations relating thereto shall not be deemed to have been paid in
full unless the holders or owners thereof shall have received payment in full
in cash (or other form of payment consented to by the holders of such
Designated Senior Debt) with respect to such Designated Senior Debt and all
other Obligations with respect thereto.
Section 10.3. Liquidation; Dissolution; Bankruptcy.
(a) Upon any payment or distribution of property or securities
to creditors of the Company in a liquidation or dissolution of the Company or
in a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, or in an assignment for the benefit of
creditors or any marshalling of the Company's assets and liabilities:
(1) the holders of Senior Debt of the Company shall be
entitled to receive payment in full in cash of all
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Obligations in respect of such Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the
applicable Senior Debt, whether or not a claim for such interest would
be allowed in such proceeding) before the Holders of Notes shall be
entitled to receive any payment with respect to the Notes and related
Obligations (except in each case that Holders of Notes may receive
securities that are subordinated at least to the same extent as the
Notes to Senior Debt and any securities issued in exchange for Senior
Debt and payments made from any defeasance trust created pursuant to
Section 8.1 hereof provided that the applicable deposit does not violate
Article 8 or 10 of this Indenture); and
(2) until all Obligations with respect to Senior Debt of the
Company (as provided in subsection (1) above) are paid in full in cash,
any payment or distribution to which the Holders of Notes and the
related Subsidiary Guarantees, if any, would be entitled shall be made
to holders of Senior Debt of the Company (except that Holders of the
Notes and the related Subsidiary Guarantees, if any, may receive
securities that are subordinated at least to the same extent as the
Notes to Senior Debt and any securities issued in exchange for Senior
Debt and payments made from any defeasance trust created pursuant to
Section 8.1 hereof provided that the applicable deposit does not violate
Article 8 or 10 of this Indenture).
(b) Upon any payment or distribution of property or securities
to creditors of a Subsidiary Guarantor, if any, in a liquidation or dissolution
of such Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Subsidiary Guarantor or its
property, or in an assignment for the benefit of creditors or any marshalling
of such Subsidiary Guarantor's assets and liabilities:
(1) the holders of Senior Debt of such Subsidiary Guarantor
shall be entitled to receive payment in full in cash of all Obligations
in respect of such Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the
applicable Senior Debt, whether or not a claim for such interest would
be allowed in such proceeding) before the Holders of Notes and the
related Subsidiary Guarantees, if any, shall be entitled to receive any
payment or distribution with respect to the Subsidiary Guarantee made by
such Subsidiary Guarantor (except in each case that Holders of Notes and
the related Subsidiary Guarantees, if any, may receive securities that
are subordinated at least to the same extent as the Notes to Senior Debt
and any securities issued in exchange for Senior Debt and payments made
from any defeasance trust created pursuant to Section 8.1 hereof
provided that the applicable
<PAGE> 95
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deposit does not violate Article 8 or 10 of this Indenture); and
(2) until all Obligations with respect to Senior Debt of such
Subsidiary Guarantor (as provided in subsection (1) above) are paid in
full in cash, any payment or distribution to which the Holders of Notes
and the related Subsidiary Guarantees, if any, would be entitled shall
be made to holders of Senior Debt of such Subsidiary Guarantor (except
that Holders of Notes and the related Subsidiary Guarantees, if any, may
receive securities that are subordinated at least to the same extent as
the Notes to Senior Debt and any securities issued in exchange for
Senior Debt and payments made from any defeasance trust created pursuant
to Section 8.1 hereof provided that the applicable deposit does not
violate Article 8 or 10 of this Indenture).
(c) Under the circumstances described in this Section 10.3,
the Company, any Subsidiary Guarantor or any receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person making any payment or
distribution of cash or other property or securities is authorized or
instructed to make any payment or distribution to which the Holders of the
Notes and the related Subsidiary Guarantees, if any, would otherwise be
entitled (other than securities that are subordinated at least to the same
extent as the Notes to Senior Debt and any securities issued in exchange for
Senior Debt and payments made from any defeasance trust referred to in the
second parenthetical clause of each of clauses (a)(1), (b)(1), (a)(2) and
(b)(2) above, which shall be delivered or paid to the Holders of Notes as set
forth in such clauses) directly to the holders of the Senior Debt of the
Company and any Subsidiary Guarantors, as applicable (pro rata to such holders
on the basis of the respective amounts of Senior Debt of the Company and any
Subsidiary Guarantor held by such holders), or their Representatives, or to any
trustee or trustees under any other indenture pursuant to which any such Senior
Debt may have been issued, as their respective interests appear, to the extent
necessary to pay all such Senior Debt in full, in cash or cash equivalents
after giving effect to any concurrent payment, distribution or provision
therefor to or for the holders of such Senior Debt.
To the extent any payment of or distribution in respect of Senior
Debt (whether by or on behalf of the Company or any Subsidiary Guarantor, if
any, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then if such payment or distribution is
recovered by, or paid over to, such receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person, the Senior Debt or part
thereof originally
<PAGE> 96
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intended to be satisfied shall be deemed to be reinstated and outstanding as if
such payment had not occurred. To the extent the obligation to repay any
Senior Debt is declared to be fraudulent, invalid or otherwise set aside under
any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then the obligation so declared fraudulent, invalid or otherwise set aside (and
all other amounts that would come due with respect thereto had such obligation
not been so affected) shall be deemed to be reinstated and outstanding as
Senior Debt for all purposes hereof as if such declaration, invalidity or
setting aside had not occurred.
Section 10.4. Default on Designated Senior Debt.
The Company and the Subsidiary Guarantors, if any, may not make,
with respect to the Company, any payment (whether by redemption, purchase,
retirements, defeasance or otherwise) upon or in respect of the Notes (other
than securities that are subordinated at least to the same extent as the Notes
to Senior Debt and any securities issued in exchange for Senior Debt and
payments and other distributions made from any defeasance trust created
pursuant to Section 8.1 hereof if the applicable deposit does not violate
Article 8 or 10 of this Indenture) and, with respect to a Subsidiary Guarantor,
any payment with respect to its Subsidiary Guarantee, if any (other than
securities that are subordinated at least to the same extent as the Notes to
Senior Debt and any securities issued in exchange for Senior Debt and payments
and other distributions made from any defeasance trust created pursuant to
Section 8.1 hereof if the applicable deposit does not violate Article 8 or 10
of this Indenture), until all principal and other Obligations with respect to
the Senior Debt of the Company or such Subsidiary Guarantor, as applicable,
have been paid in full if:
(i) a default in the payment of any principal of, premium,
if any, or interest on Designated Senior Debt of the Company or such
Subsidiary Guarantor, as applicable, occurs; or
(ii) any other default occurs and is continuing with respect
to Designated Senior Debt of the Company or such Subsidiary Guarantor,
as applicable, that permits, or with the giving of notice or passage of
time or both (unless cured or waived) would permit, holders of the
Designated Senior Debt as to which such default relates to accelerate
its maturity and the Trustee receives a notice of the default (a
"Payment Blockage Notice") from the Company, such Subsidiary or the
holders (or their Representative) of any Designated Senior Debt. If the
Trustee receives any such Payment Blockage Notice, no subsequent Payment
Blockage Notice shall be effective for purposes of this Section unless
and until 360 days shall have elapsed since the date of commencement of
the payment blockage period resulting from the immediately prior Payment
Blockage Notice. No
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nonpayment default in respect of any Designated Senior Debt that existed
or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice unless such default shall have been cured or waived for
a period of no less than 90 days.
The Company and the Subsidiary Guarantors, if any, shall resume
payments on and distributions in respect of the Notes and the Subsidiary
Guarantees, if any, upon:
(1) in the case of a default referred to in Section 10.4(i)
hereof the date upon which the default is cured or waived, or
(2) in the case of a default referred to in Section 10.4(ii)
hereof, the earliest of (1) the date on which such nonpayment default is
cured or waived or (2) 179 days after the date on which the applicable
Payment Blockage Notice is received unless (A) the maturity of any
Designated Senior Debt has been accelerated or (B) a Default or Event of
Default under Section 6.1(9) or (10) has occurred and is continuing,
if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
Section 10.5. Acceleration of Notes.
If payment of the Notes is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the
acceleration.
Section 10.6. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder receives any payment
or distribution of or in respect of any Obligations with respect to the Notes
or the Subsidiary Guarantees, if any, at a time when such payment or
distribution is prohibited by Section 10.3 or Section 10.4 hereof, such payment
or distribution shall be held by the Trustee (if the Trustee has actual
knowledge that such payment or distribution is prohibited by Section 10.3 or
10.4) or such Holder, in trust for the benefit of, and shall be paid forthwith
over and delivered to, the holders of Senior Debt as their interests may appear
or their Representative under the indenture or other agreement (if any)
pursuant to which such Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of all Obligations with
respect to Senior Debt remaining unpaid to the extent necessary to pay such
Obligations in full in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt.
<PAGE> 98
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With respect to the holders of Senior Debt, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt, and, except as provided in
Section 10.12, neither the Trustee nor the Paying Agent shall be liable to any
such holders if the Trustee or Paying Agent shall pay over or distribute to or
on behalf of Holders of Notes or the Company, the Subsidiary Guarantors, if
any, or any other Person money or assets to which any holders of Senior Debt
shall be entitled by virtue of this Article 10, except if such payment is made
as a result of the willful misconduct or gross negligence of the Trustee.
Section 10.7. Notice by Company.
The Company shall promptly notify the Trustee and the Paying
Agent of any facts known to the Company that would cause a payment of any
Obligations with respect to the Notes to violate this Article, but failure to
give such notice shall not affect the subordination of the Notes to the Senior
Debt as provided in this Article.
Section 10.8. Subrogation.
After all Senior Debt is paid in full and until the Notes are
paid in full, Holders of Notes shall be subrogated (equally and ratably with
all other Indebtedness pari passu with the Notes) to the rights of holders of
Senior Debt to receive distributions and payments applicable to Senior Debt to
the extent that distributions and payments otherwise payable to the Holders of
Notes have been applied to the payment of Senior Debt. A payment or
distribution made under this Article to holders of Senior Debt that otherwise
would have been made to Holders of Notes is not, as between the Company and
Holders of Notes, a payment by the Company on the Notes.
Section 10.9. Relative Rights.
This Article defines the relative rights of Holders of Notes and
the related Subsidiary Guarantees, if any, and holders of Senior Debt. Nothing
in this Indenture shall:
(1) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders of Notes and the
related Subsidiary Guarantees, if any, and creditors of the Company
other than their rights in relation to holders of Senior Debt; or
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(3) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Debt to receive distributions and
payments otherwise payable to Holders of Notes and the related
Subsidiary Guarantees, if any.
If the Company fails because of this Article to pay principal of
or interest on a Note on the due date, the failure is still a Default or Event
of Default.
Section 10.10. Subordination May Not Be Impaired by Company or
the Subsidiary Guarantors, If Any.
No right of any present or future holders of any Senior Debt to
enforce subordination as provided in this Article Ten will at any time in any
way be prejudiced or impaired by any act or failure to act on the part of the
Company or any Subsidiary Guarantor (if any) or by any act or failure to act,
in good faith, by any such holder, or by any noncompliance by the Company or
any Subsidiary Guarantor (if any) with the terms of this Indenture, regardless
of any knowledge thereof that any such holder of Senior Debt may have or
otherwise be charged with. The provisions of this Article Ten are intended to
be for the benefit of, and shall be enforceable directly by, the holders of
Senior Debt.
Section 10.11. Payment, Distribution or Notice to
Representative.
Whenever a payment or distribution is to be made or a notice
given to holders of Senior Debt, the distribution may be made and the notice
given to their Representative, if any.
Upon any payment or distribution of assets or securities of the
Company or any Subsidiary Guarantor (if any) referred to in this Article 10,
the Trustee and the Holders of Notes and the related Subsidiary Guarantees, if
any, shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other Person making any payment or distribution
to the Trustee or to the Holders of Notes for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
the Senior Debt and other Indebtedness of the Company or any Subsidiary
Guarantor (if any), the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Article 10.
Section 10.12. Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be
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charged with knowledge of the existence of any facts that would prohibit the
making of any payment or distribution by the Trustee, and the Trustee and the
Paying Agent may continue to make payments on the Notes and the Subsidiary
Guarantees, if any, unless the Trustee shall have received at its Corporate
Trust Office at least one Business Day prior to the date of such payment
written notice of facts that would cause the payment of any Obligations with
respect to the Notes or Subsidiary Guarantees, if any, to violate this Article,
which notice shall specifically refer to Section 10.3 or 10.4 hereof. Only the
Company or a Representative may give the notice. Nothing in this Article 10
shall impair the claims of, or payments to, the Trustee under or pursuant to
Section 7.7 hereof.
The Trustee in its individual or any other capacity may hold
Senior Debt with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
Section 10.13. Authorization to Effect Subordination.
Each Holder by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact
for any and all such purposes. If the Trustee does not file a proper proof of
claim or proof of debt in the form required in any proceeding referred to in
Section 6.9 hereof at least 30 days before the expiration of the time to file
such claim, each lender under the Designated Senior Debt is hereby authorized
to file an appropriate claim for and on behalf of the Holders of the Notes and
the related Subsidiary Guarantees, if any.
Section 10.14. Amendments.
No amendment may be made to the provisions of or the definitions
of any terms appearing in this Article 10, or to the provisions of Section 6.2
relating to the Designated Senior Debt, that adversely affects the rights of
any holder of Senior Debt then outstanding unless the holders of such Senior
Debt (or any group or Representative authorized to give a consent) consent to
such change.
Section 10.15. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 10.9 of
this Indenture, the holders of Senior Debt may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders, without
incurring responsibility to the Holders and without impairing or releasing the
subordination provided in this Article Ten or the obligations hereunder of the
Holders to the holders of Senior Debt, do any one or more of the following: (a)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, Senior Debt or
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any instrument evidencing the same or any agreement under which Senior Debt is
outstanding or secured; (b) sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Debt; (c) release any
Person liable in any manner for the collection of Senior Debt; and (d) exercise
or refrain from exercising any rights against the Company and each Subsidiary
Guarantor (if any) and any other Person.
ARTICLE 11
MISCELLANEOUS
Section 11.1. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA Section 318(c), the imposed duties shall
control. If any provisions of this Indenture modifies or excludes any
provision of the TIA that may be so modified or excluded, the latter provision
shall be deemed to apply to this Indenture as so modified or excluded, as the
case may be.
Section 11.2. Notices.
Any notice or communication by the Company, the Subsidiary
Guarantors, if any, or the Trustee to the others is duly given if in writing
and delivered in Person or mailed by first class mail (registered or certified,
return receipt requested), telecopier or overnight air courier guaranteeing
next day delivery, to the others' address:
If to the Company or any Subsidiary Guarantor, if any:
Belco Oil & Gas Corp.
767 Fifth Avenue, 46th Fl.
New York, New York 10153
Telecopier No.: (212) 644-2230
Attention: Robert A. Belfer
With a copies to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Telecopier No.: (713) 615-5437
Attention: Alan P. Baden
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96
If to the Trustee:
The Bank of New York
101 Barclay Street - 21W
New York, New York 10286
Telecopier No.: (212) 815-5915
Attention: Corporate Trust Department
Ref: Belco Oil & Gas Corp.
The Company or any Subsidiary Guarantor, if any, or the Trustee,
by notice to the others may designate additional or different addresses for
subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if by telecopy; and the
next Business Day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA Section 313(c), to the extent required by the TIA.
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 within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company or any Subsidiary Guarantor, if any, mails a
notice or communication to Holders, it shall mail a copy to the Trustee and
each Agent at the same time.
Section 11.3. Communication by Holders of Notes with Other
Holders of Notes.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the Notes.
The Company, the Subsidiary Guarantors, if any, the Trustee, the Registrar and
anyone else shall have the protection of TIA Section 312(c).
<PAGE> 103
97
Section 11.4. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company or any Subsidiary
Guarantor, if any, to the Trustee to take any action under this Indenture, the
Company or such Subsidiary Guarantor, if any, as the case may be, shall furnish
to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 11.5 hereof) stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture (including any covenants compliance with which constitutes a
condition precedent) relating to the proposed action have been complied
with; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 11.5 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been complied
with.
Section 11.5. 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 a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions
of TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) 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;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him
or her to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
Section 11.6. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make
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98
reasonable rules and set reasonable requirements for its functions.
Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Note shall bind every future
Holder of the same Note or the Holder of every Note issued upon the transfer
thereof or in exchange therefor or in lieu thereof to the same extent as the
original Holder, in respect of anything done, suffered or omitted to be done by
the Trustee, any Paying Agent or the Company in reliance thereon, whether or
not notation of such action is made upon such Note.
Section 11.7. No Personal Liability of Directors, Officers,
Employees and Stockholders.
No director, officer, employee, incorporator or stockholder of
the Company or any Subsidiary Guarantor, if any, as such, shall have any
liability for any obligations of the Company or any Subsidiary Guarantor under
the Notes, any Subsidiary Guarantee, if any, or this Indenture 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 issuance
of the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
Section 11.8. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES, IF
ANY.
Section 11.9. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Company or their respective Subsidiaries or of
any other Person. Any such indenture, loan or debt agreement may not be used
to interpret this Indenture and the Subsidiary Guarantees, if any.
Section 11.10. Successors.
All agreements of the Company and each Subsidiary Guarantor, if
any, in this Indenture, the Notes and the Subsidiary Guarantees, if any, shall
bind its respective successors. All agreements of the Trustee in this
Indenture shall bind its successors.
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Section 11.11. Severability.
In case any provision in this Indenture, in the Notes or in any
Subsidiary Guarantee shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 11.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
Section 11.13. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
<PAGE> 106
SIGNATURES
Dated as of
September __, 1997
BELCO OIL & GAS CORP.
Attest: By:
----------------------------------
Name:
--------------------------------
Title:
- ------------------------------ -------------------------------
THE BANK OF NEW YORK,
as Trustee
Attest: By:
----------------------------------
Name:
--------------------------------
Title:
- ------------------------------ -------------------------------
<PAGE> 107
EXHIBIT A
[FORM OF FACE OF INITIAL NOTE]
SERIES A NOTE
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, 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 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 NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE
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<PAGE> 108
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER
THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR
THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A
MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000 FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND IN THE CASE OF THE FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
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<PAGE> 109
BELCO OIL & GAS CORP.
8-7/8% Senior Subordinated Notes due 2007
No. 1 $150,000,000
CUSIP Number:
BELCO OIL & GAS CORP., a Nevada corporation, promises to pay to
Cede & Co., or registered assigns, the principal sum of One Hundred Fifty
Million Dollars on September 15, 2007.
Interest Payment Dates: March 15 and September 15.
Record Dates: March 1 and September 1.
Additional provisions of this Security are set forth on the other
side of this Security.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto and imprinted hereon.
Dated: September 23, 1997
BELCO OIL & GAS CORP.
By
----------------------------
Name:
Title:
By
----------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
The Bank of New York,
as Trustee, certifies that this is
one of the Notes referred to in the
within-mentioned Indenture:
By
-------------------------------------
Authorized Signatory
Dated:
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<PAGE> 110
(Back of Note)
8-7/8% Senior Subordinated Notes due 2007
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
1. Interest. Belco Oil & Gas Corp., a Nevada corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at the rate of 8-7/8% per annum, which interest shall be payable in cash
semiannually in arrears on each March 15 and September 15, or if any such day
is not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"); provided that the first Interest Payment Date shall be March
15, 1998. Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
2. Method of Payment. On each Interest Payment Date the
Company will pay interest to the Person who is the Holder of record of this
Note as of the close of business on the March 1 or September 1 immediately
preceding such Interest Payment Date, even if this Note is cancelled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. Principal,
premium, if any, and interest on this Note will be payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, in the event the Notes do not remain in book-entry form, at the
option of the Company, payment of interest may be made by check mailed to the
Holder of this Note at its address set forth in the register of Holders of
Notes; provided that all payments with respect to the Global Notes and
Definitive Notes having an aggregate principal amount of $5.0 million or more
the Holders of which have given wire transfer instructions to the Company at
least 10 Business Days prior to the applicable payment date will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, The Bank of New
York, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any
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Subsidiary Guarantor, if any, or any other of the Company's Subsidiaries may
act in any such capacity.
4. Indenture. The Company issued the Notes under an
Indenture dated as of September 23, 1997 ("Indenture") between the Company and
the Trustee. 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, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject
to all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. The Notes are general unsecured senior subordinated
obligations of the Company equal in an aggregate principal amount to
$150,000,000 and will mature on September 15, 2007.
The Notes are general unsecured senior subordinated obligations
of the Company limited to $150,000,000 aggregate principal amount (subject to
Section 2.7 of the Indenture). This Note is one of the Initial Notes referred
to in the Indenture. The Notes include the Initial Notes and any Exchange
Notes issued in exchange for the Initial Notes pursuant to the Indenture and
the Registration Rights Agreement. The Initial Notes and the Exchange Notes
are treated as a single class of securities under the Indenture. The Indenture
imposes certain limitations on the incurrence of Indebtedness by the Company
and its Restricted Subsidiaries, the payment of dividends and other
distributions on the Capital Stock of the Company and its Restricted
Subsidiaries, the purchase or redemption of Capital Stock of the Company and
Capital Stock of such Restricted Subsidiaries, certain purchases or redemptions
of Indebtedness, the sale or transfer of assets and Capital Stock of Restricted
Subsidiaries, the issuance or sale of Capital Stock of Restricted Subsidiaries,
the Investments of the Company and its Subsidiaries and transactions with
Affiliates. In addition, the Indenture limits the ability of the Company and
its Restricted Subsidiaries to restrict distributions and dividends from
Restricted Subsidiaries.
5. Optional Redemption.
(a) The Notes are not redeemable at the Company's option prior
to September 15, 2002. From and after September 15, 2002, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on September 15 of the years indicated below:
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<PAGE> 112
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . . 104.438%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . 102.958%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . 101.479%
2005 and thereafter . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this
Paragraph 5, at any time prior to September 15, 2000, the Company may, at its
option, on any one or more occasions, redeem up to 33-1/3% of the original
aggregate principal amount of Notes at a redemption price of 108.875% of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the redemption date with all or a portion of the net proceeds of public sales
of common stock of the Company (the "Common Stock"); provided that at least 66
2/3% of the original aggregate principal amount of Notes remains outstanding
immediately after the occurrence of such redemption.
(c) Notwithstanding the provisions of clause (a) of this
Paragraph 5, upon the occurrence of a Change of Control at any time on or prior
to September 15, 2002, the Company may, at its option, redeem in whole but not
in part, the Notes at a redemption price equal to 100% of the principal amount
thereof, plus the Applicable Premium as of, and accrued but unpaid interest, if
any, thereon to, the date of redemption (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
Interest Payment Date) provided that such redemption shall be made no more than
90 days after the occurrence of a Change of Control. The Company shall notify
the Trustee and, by mail, the Holders of the Notes of its decision to redeem
the Notes pursuant to this Paragraph 5(c) within 30 days of the occurrence of a
Change of Control.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not
be required to make mandatory redemption or sinking fund payments with respect
to the Notes.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, if the Company
does not redeem the Notes pursuant to paragraph 5(c), each Holder of Notes
shall have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest, if any, thereon to the date of purchase (the
"Change of Control Payment"). The right of the Holders of the Notes to require
the Company to repurchase such
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Notes upon a Change of Control may not be waived by the Trustee without the
approval of the Holders of the Notes required by Section 9.2 of the Indenture.
Within 30 days following any Change of Control, the Company will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase the Notes pursuant to the
procedures required by the Indenture and described in such notice. The Change
of Control Payment shall be made on a business day not less than 30 days nor
more than 60 days after such notice is mailed. The Company and each Subsidiary
Guarantor, if any, 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 the Notes as a result of a Change of Control.
(b) If the Company or a Restricted Subsidiary consummates any
Asset Sales permitted by the Indenture, when the aggregate amount of Excess
Proceeds exceeds $15 million, the Company shall make an Asset Sale Offer to
purchase the maximum principal amount of Notes and any other Pari Passu
Indebtedness to which the Asset Sale Offer applies that may be purchased out of
the Excess Proceeds, at an offer price in cash in an amount equal to, in the
case of the Notes, 100% of the principal amount thereof, plus accrued and
unpaid interest thereon to the date of purchase or, in the case of any Pari
Passu Indebtedness, 100% of the principal amount thereof (or with respect to
discount Pari Passu Indebtedness, the accreted value thereof) on the date of
purchase, in each case, in accordance with the procedures set forth in Section
3.9 of the Indenture or the agreements governing the Pari Passu Indebtedness,
as applicable. To the extent that the aggregate principal amount (or accreted
value, as the case may be) of Notes, and Pari Passu Indebtedness tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
sum of (i) the aggregate principal amount of Notes surrendered by Holders
thereof and (ii) the aggregate principal amount or accreted value, as the case
may be, of Pari Passu Indebtedness surrendered by holders or lenders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and
the other Pari Passu Indebtedness to be purchased on a pro rata basis, based on
the aggregate principal amount (or accreted value, as applicable) thereof
surrendered in such Asset Sale Offer. Upon completion of such Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
8. 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 whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in integral
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to
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<PAGE> 114
accrue on the aggregate principal amount of the Notes called for redemption.
9. Denominations, Transfer, Exchange. The Notes may be
issued initially in the form of one or more fully registered Global Notes. The
Notes may also be issued in registered form without coupons in minimum
denominations of $1,000 and integral multiples of $1,000. The transfer of
Notes may be registered and Notes may be exchanged as provided in the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Note for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date
and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note
may be treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in aggregate principal amount of
the Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or the tender offer or exchange offer for, such
Notes), and any existing Default or Event of Default under, or compliance with
any provision of the Indenture or the Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding Notes.
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Securities in addition to or in place of
certificated Securities, to provide for the assumption of the Company's or any
Subsidiary Guarantor's, if any, obligations to Holders of the Notes in case of
a merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not adversely
affect the legal rights under the Indenture of any such Holder, or to comply
with the requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or to add a
Subsidiary Guarantee under the Indenture.
12. Defaults and Remedies. Events of Default include: (i)
default for 30 consecutive days in the payment when due of interest on the
Notes (whether or not prohibited by the provisions of Article 10 of the
Indenture); (ii) default in payment when due of the principal of or premium, if
any, on the
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<PAGE> 115
Notes (whether or not prohibited by the provisions of Article 10 of the
Indenture); (iii) failure by the Company or a Subsidiary Guarantor, if any, to
comply with the provisions of Article 5 of the Indenture; (iv) failure by the
Company for 30 consecutive days after notice from the Trustee or the Holders of
at least 25% in aggregate principal amount of the Notes then outstanding to
comply with the provisions of Sections 4.3, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12,
4.13, 4.15, 4.18 and 4.19 of the Indenture; (v) failure by the Company for 60
consecutive days after notice from the Trustee or the Holders of at least 25%
in aggregate principal amount of the Notes then outstanding to comply with any
of its other agreements or covenants in, or provisions of, this Note or in the
Indenture; (vi) except as permitted by the Indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or a Subsidiary
Guarantor or any Person acting on behalf of a Subsidiary Guarantor, shall deny
or disaffirm such Subsidiary Guarantor's obligations under its Subsidiary
Guarantee; (vii) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists
or shall be created hereafter, which default (a) is caused by a failure to pay
principal of such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) 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 is then existing a Payment Default or the maturity of which has been so
accelerated, aggregates $10 million or more; (viii) a final non-appealable
judgment or order or final non-appealable judgments or orders are rendered
against the Company or any Restricted Subsidiary that remain unpaid or
discharged for a period of 60 days and that require the payment in money,
either individually or in an aggregate amount, that is more than $10 million;
and (ix) certain events of bankruptcy or insolvency with respect to the Company
or any Restricted Subsidiary. If any Event of Default (other than an Event of
Default described in clause (ix) above) occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding
Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company, or any
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority
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<PAGE> 116
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest or
premium on, or the principal of, the Notes. The Company is required to deliver
to the Trustee annually a statement regarding compliance with the Indenture,
and the Company and each Subsidiary Guarantees, if any, is required, within
five Business days after becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
13. Subordination. The Notes are subordinated to Senior Debt
of the Company. To the extent provided in the Indenture, Senior Debt must be
paid before the Notes may be paid. The Company agrees, and each Holder by
accepting a Note agrees, (a) that the Indebtedness evidenced by the Notes,
including, but not limited to, the payment of principal of, premium, if any,
and interest on the Notes, and any other payment Obligation of the Company in
respect of the Notes is subordinated in right of payment, and (b) the
Subsidiary Guarantees, if any, and any other payment Obligations in respect of
the Subsidiary Guarantees, are Subordinated in right of payment, to the extent
and in the manner provided in the Indenture, to the prior payment in full in
cash of all Senior Debt of the Company (whether outstanding on the date hereof
or hereafter created, incurred, assumed or guaranteed) and authorizes the
Trustee to give effect and appoints the Trustee as attorney-in-fact for such
purpose.
14. Trustee Dealings with Company. The Indenture contains
certain limitations on the rights of the Trustee, should it become a creditor
of the Company, to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest, as defined in Section 310(b)
of the TIA, it must eliminate such conflict within 90 days, apply to the
Commission for permission to continue or resign.
15. No Recourse Against Others. No director, officer,
employee, incorporator or stockholder of the Company or any Subsidiary
Guarantor, if any, as such, shall have any liability for any obligations of the
Company or any Subsidiary Guarantor under the Notes, any Subsidiary Guarantee,
if any, or this Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes, by
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<PAGE> 117
accepting a Note, waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
16. Authentication. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
17. Abbreviations. Customary abbreviations may be used in the
name of a Holder 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.
18. 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 and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
Belco Oil & Gas Corp.
767 Fifth Avenue, 46th Fl.
New York, New York 10153
Telecopier No.: (212) 644-2230
Attention: Robert A. Belfer
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<PAGE> 118
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Note on
the books of the Company. The agent may substitute another to act for
him.
- --------------------------------------------------------------------------------
Date: Your Signature:
-------------------- ---------------------------
Signature Guarantee:*
-------------------------------------------
(Signature must be guaranteed)
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Note.
In connection with any transfer or exchange of any of the Notes evidenced by
this certificate occurring prior to the date that is two years after the later
of the date of original issuance of such Notes and the last date, if any, on
which such Notes were owned by the Company or any Affiliate of the Company, the
undersigned confirms that such Notes are being:
CHECK ONE BOX BELOW:
1[ ] acquired for the undersigned's own account, without
transfer (in satisfaction of Section 2.6(a)(ii)(A) or
Section 2.6(d)(i)(A) of the Indenture); or
2[ ] transferred to the Company; or
3[ ] transferred pursuant to and in compliance with Rule 144A
under the Securities Act of 1933; or
4[ ] transferred pursuant to an effective registration
statement under the Securities Act; or
- ------------------------------
(*/) Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
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<PAGE> 119
5[ ] transferred pursuant to and in compliance with Rule 144 or
Regulation S under the Securities Act of 1933; or
6[ ] transferred to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act of 1933), that has furnished to the Trustee
a signed letter containing certain representations and
agreements (the form of which letter appears as Exhibit C
to the Indenture); or
7[ ] transferred pursuant to another available exemption from
the registration requirements of the Securities Act of
1933.
Unless one of the boxes 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 box (5), (6) or (7)
is checked, the Trustee or the Company may require, prior to registering any
such transfer of the Notes, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company may
reasonably request 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, such as the exemption provided by
Rule 144 under such Act.
-------------------------------
Signature
Signature Guarantee:*
- ------------------------------------ -------------------------------
(Signature must be guaranteed) Signature
- --------------------------------------------------------------------------------
- ----------------------------------
(*/) Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
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<PAGE> 120
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.13 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.13
If you want to elect to have only part of the Note purchased by
the Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state
the principal amount you elect to have purchased: $______________
Date: Your Signature:
------------------- -----------------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee:*
----------------------------
- ----------------------------------
(*/) Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
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<PAGE> 121
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have
been made:
<TABLE>
<CAPTION>
Principal Amount of Signature of
Amount of decrease in Amount of increase in this Global Note authorized officer of
Date of Principal Amount of Principal Amount of following such Trustee or Note
Exchange this Global Note this Global Note decrease or increase Custodian
<S> <C> <C> <C> <C>
</TABLE>
A-15
<PAGE> 122
EXHIBIT B
(Form of Face of Exchange Note)
SERIES B NOTE
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, 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 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 NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
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BELCO OIL & GAS CORP.
8-7/8% Senior Subordinated Notes due 2007
No. 1 $150,000,000
CUSIP Number:
BELCO OIL & GAS CORP., a Nevada corporation, promises to pay to
Cede & Co., or registered assigns, the principal sum of One Hundred Fifty
Million Dollars on September 15, 2007.
Interest Payment Dates: March 15 and September 15.
Record Dates: March 1 and September 1.
Additional provisions of this Security are set forth on the other
side of this Security.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto and imprinted hereon.
Dated:
BELCO OIL & GAS CORP.
By
----------------------------
Name:
Title:
By
----------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
The Bank of New York,
as Trustee, certifies that this is
one of the Notes referred to in the
within-mentioned Indenture:
By
-------------------------------------
Authorized Signatory
Dated:
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<PAGE> 124
(Back of Note)
8-7/8% Senior Subordinated Notes due 2007
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
1. Interest. Belco Oil & Gas Corp., a Nevada corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at the rate of 8-7/8% per annum, which interest shall be payable in cash
semiannually in arrears on each March 15 and September 15, or if any such day
is not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"); provided that the first Interest Payment Date shall be March
15, 1998. Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
2. Method of Payment. On each Interest Payment Date the
Company will pay interest to the Person who is the Holder of record of this
Note as of the close of business on the March 1 or September 1 immediately
preceding such Interest Payment Date, even if this Note is cancelled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. Principal,
premium, if any, and interest on this Note will be payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, in the event the Notes do not remain in book-entry form, at the
option of the Company, payment of interest may be made by check mailed to the
Holder of this Note at its address set forth in the register of Holders of
Notes; provided that all payments with respect to the Global Notes and
Definitive Notes having an aggregate principal amount of $5.0 million or more
the Holders of which have given wire transfer instructions to the Company at
least 10 Business Days prior to the applicable payment date will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, The Bank of New
York, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any
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Subsidiary Guarantor, if any, or any other of the Company's Subsidiaries may
act in any such capacity.
4. Indenture. The Company issued the Notes under an
Indenture dated as of September 23, 1997 ("Indenture") between the Company and
the Trustee. 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, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject
to all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. The Notes are general unsecured senior subordinated
obligations of the Company equal in an aggregate principal amount to
$150,000,000 and will mature on September 15, 2007.
The Notes are general unsecured senior subordinated obligations
of the Company limited to $150,000,000 million aggregate principal amount
(subject to Section 2.7 of the Indenture). This Note is one of the Initial
Notes referred to in the Indenture. The Notes include the Initial Notes and
any Exchange Notes issued in exchange for the Initial Notes pursuant to the
Indenture and the Registration Rights Agreement. The Initial Notes and the
Exchange Notes are treated as a single class of securities under the Indenture.
The Indenture imposes certain limitations on the incurrence of Indebtedness by
the Company and its Restricted Subsidiaries, the payment of dividends and other
distributions on the Capital Stock of the Company and its Restricted
Subsidiaries, the purchase or redemption of Capital Stock of the Company and
Capital Stock of such Restricted Subsidiaries, certain purchases or redemptions
of Indebtedness, the sale or transfer of assets and Capital Stock of Restricted
Subsidiaries, the issuance or sale of Capital Stock of Restricted Subsidiaries,
the Investments of the Company and its Subsidiaries and transactions with
Affiliates. In addition, the Indenture limits the ability of the Company and
its Restricted Subsidiaries to restrict distributions and dividends from
Restricted Subsidiaries.
5. Optional Redemption.
(a) The Notes are not redeemable at the Company's option prior
to September 15, 2002. From and after September 15, 2002, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on September 15 of the years indicated below:
B-4
<PAGE> 126
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 104.438%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . 102.958%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . 101.479%
2005 and thereafter . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this
Paragraph 5, at any time prior to September 15, 2000, the Company may, at its
option, on any one or more occasions, redeem up to 33-1/3% of the original
aggregate principal amount of Notes at a redemption price of 108.875% of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the redemption date with all or a portion of the net proceeds of public sales
of common stock of the Company (the "Common Stock"); provided that at least 66
2/3% of the original aggregate principal amount of Notes remains outstanding
immediately after the occurrence of such redemption.
(c) Notwithstanding the provisions of clause (a) of this
Paragraph 5, upon the occurrence of a Change of Control at any time on or prior
to September 15, 2002, the Company may, at its option, redeem in whole but not
in part, the Notes at a redemption price equal to 100% of the principal amount
thereof, plus the Applicable Premium as of, and accrued but unpaid interest, if
any, thereon to, the date of redemption (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
Interest Payment Date) provided that such redemption shall be made no more than
90 days after the occurrence of a Change of Control. The Company shall notify
the Trustee and, by mail, the Holders of the Notes of its decision to redeem
the Notes pursuant to this Paragraph 5(c) within 30 days of the occurrence of a
Change of Control.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not
be required to make mandatory redemption or sinking fund payments with respect
to the Notes.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, if the Company
does not redeem the Notes pursuant to paragraph 5(c), each Holder of Notes
shall have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest, if any, thereon to the date of purchase (the
"Change of Control Payment"). The right of the Holders of the Notes to require
the Company to repurchase such
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Notes upon a Change of Control may not be waived by the Trustee without the
approval of the Holders of the Notes required by Section 9.2 of the Indenture.
Within 30 days following any Change of Control, the Company will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Notes pursuant to the procedures
required by the Indenture and described in such notice. The Change of Control
Payment shall be made on a business day not less than 30 days nor more than 60
days after such notice is mailed. The Company and each Subsidiary Guarantor,
if any 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 the
Notes as a result of a Change of Control.
(b) If the Company or a Restricted Subsidiary consummates any
Asset Sales permitted by the Indenture, when the aggregate amount of Excess
Proceeds exceeds $15 million, the Company shall make an Asset Sale Offer to
purchase the maximum principal amount of Notes and any other Pari Passu
Indebtedness to which the Asset Sale Offer applies that may be purchased out of
the Excess Proceeds, at an offer price in cash in an amount equal to, in the
case of the Notes, 100% of the principal amount thereof, plus accrued and
unpaid interest thereon to the date of purchase or, in the case of any Pari
Passu Indebtedness, 100% of the principal amount thereof (or with respect to
discount Pari Passu Indebtedness, the accreted value thereof) on the date of
purchase, in each case, in accordance with the procedures set forth in Section
3.9 of the Indenture or the agreements governing the Pari Passu Indebtedness,
as applicable. To the extent that the aggregate principal amount (or accreted
value, as the case may be) of Notes, and Pari Passu Indebtedness tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
sum of (i) the aggregate principal amount of Notes surrendered by Holders
thereof and (ii) the aggregate principal amount or accreted value, as the case
may be, of Pari Passu Indebtedness surrendered by holders or lenders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and
the other Pari Passu Indebtedness to be purchased on a pro rata basis, based on
the aggregate principal amount (or accreted value, as applicable) thereof
surrendered in such Asset Sale Offer. Upon completion of such Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
8. 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 whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in integral
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to
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<PAGE> 128
accrue on the aggregate principal amount of the Notes called for redemption.
9. Denominations, Transfer, Exchange. The Notes may be
issued initially in the form of one or more fully registered Global Notes. The
Notes may also be issued in registered form without coupons in minimum
denominations of $1,000 and integral multiples of $1,000. The transfer of
Notes may be registered and Notes may be exchanged as provided in the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Note for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date
and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note
may be treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in aggregate principal amount of
the Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or the tender offer or exchange offer for, such
Notes), and any existing Default or Event of Default under, or compliance with
any provision of the Indenture or the Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding Notes.
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Securities in addition to or in place of
certificated Securities, to provide for the assumption of the Company's or any
Subsidiary Guarantor's, if any, obligations to Holders of the Notes in case of
a merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not adversely
affect the legal rights under the Indenture of any such Holder, or to comply
with the requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or to add a
Subsidiary Guarantee under the Indenture.
12. Defaults and Remedies. Events of Default include: (i)
default for 30 consecutive days in the payment when due of interest on the
Notes (whether or not prohibited by the provisions of Article 10 of the
Indenture); (ii) default in payment when due of the principal of or premium, if
any, on the
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Notes (whether or not prohibited by the provisions of Article 10 of the
Indenture); (iii) failure by the Company or a Subsidiary Guarantor, if any, to
comply with the provisions of Article 5 of the Indenture; (iv) failure by the
Company for 30 consecutive days after notice from the Trustee or the Holders of
at least 25% in aggregate principal amount of the Notes then outstanding to
comply with the provisions of Sections 4.3, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12,
4.13, 4.15, 4.18 and 4.19 of the Indenture; (v) failure by the Company for 60
consecutive days after notice from the Trustee or the Holders of at least 25%
in aggregate principal amount of the Notes then outstanding to comply with any
of its other agreements or covenants in, or provisions of, this Note or in the
Indenture; (vi) except as permitted by the Indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or a Subsidiary
Guarantor or any Person acting on behalf of a Subsidiary Guarantor, shall deny
or disaffirm such Subsidiary Guarantor's obligations under its Subsidiary
Guarantee; (vii) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists
or shall be created hereafter, which default (a) is caused by a failure to pay
principal of such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) 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 is then existing a Payment Default or the maturity of which has been so
accelerated, aggregates $10 million or more; (viii) a final non-appealable
judgment or order or final non-appealable judgments or orders are rendered
against the Company or any Restricted Subsidiary that remain unpaid or
discharged for a period of 60 days and that require the payment in money,
either individually or in an aggregate amount, that is more than $10 million;
and (ix) certain events of bankruptcy or insolvency with respect to the Company
or any Restricted Subsidiary. If any Event of Default (other than an Event of
Default described in clause (ix) above) occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding
Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company, or any
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority
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<PAGE> 130
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest or
premium on, or the principal of, the Notes. The Company is required to deliver
to the Trustee annually a statement regarding compliance with the Indenture,
and the Company and each Subsidiary Guarantee, if any, is required, within five
Business days after becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
13. Subordination. The Notes are subordinated to Senior Debt
of the Company. To the extent provided in the Indenture, Senior Debt must be
paid before the Notes may be paid. The Company agrees, and each Holder by
accepting a Note agrees, (a) that the Indebtedness evidenced by the Notes,
including, but not limited to, the payment of principal of, premium, if any,
and interest on the Notes, and any other payment Obligation of the Company in
respect of the Notes is subordinated in right of payment, and (b) the
Subsidiary Guarantees, if any, and any other payment Obligations in respect of
the Subsidiary Guarantees, as Subordinated in right of payment, to the extent
and in the manner provided in the Indenture, to the prior payment in full in
cash of all Senior Debt of the Company (whether outstanding on the date hereof
or hereafter created, incurred, assumed or guaranteed) and authorizes the
Trustee to give effect and appoints the Trustee as attorney-in-fact for such
purpose.
14. Trustee Dealings with Company. The Indenture contains
certain limitations on the rights of the Trustee, should it become a creditor
of the Company, to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest, as defined in Section 310(b)
of the TIA, it must eliminate such conflict within 90 days, apply to the
Commission for permission to continue or resign.
15. No Recourse Against Others. No director, officer,
employee, incorporator or stockholder of the Company or any Subsidiary
Guarantor, if any, as such, shall have any liability for any obligations of the
Company or any Subsidiary Guarantor under the Notes, any Subsidiary Guarantee,
if any, or this Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes, by
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accepting a Note, waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
16. Authentication. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
17. Abbreviations. Customary abbreviations may be used in the
name of a Holder 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.
18. 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 and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
Belco Oil & Gas Corp.
767 Fifth Avenue, 46th Fl.
New York, New York 10153
Telecopier No.: (212) 644-2230
Attention: Robert A. Belfer
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ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Note on
the books of the Company. The agent may substitute another to act for
him.
- --------------------------------------------------------------------------------
Date: Your Signature:
--------------------- -----------------------------
Signature Guarantee:*
-----------------------------------------------
(Signature must be guaranteed)
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Note.
- ----------------------------------
(*/) Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
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<PAGE> 133
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.13 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.13
If you want to elect to have only part of the Note purchased by
the Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state
the principal amount you elect to have purchased: $______________
Date: Your Signature:
----------------- ----------------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee:*
----------------------------
- ----------------------------------
(*/) Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
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<PAGE> 134
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have
been made:
<TABLE>
<CAPTION>
Principal Amount of Signature of
Amount of decrease in Amount of increase in this Global Note authorized officer of
Date of Principal Amount of Principal Amount of following such Trustee or Note
Exchange this Global Note this Global Note decrease or increase Custodian
<S> <C> <C> <C> <C>
</TABLE>
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<PAGE> 135
EXHIBIT C
FORM OF
TRANSFEREE LETTER OF REPRESENTATION
Belco Oil & Gas Corp.
c/o The Bank of New York, Trustee
101 Barclay Street, Floor 21 West
New York, New York 10286
The Bank of New York, Trustee
101 Barclay Street, Floor 21 West
New York, New York 10286
Ladies & Gentlemen
This certificate is delivered to request a transfer of
$__________ principal amount of the 8-7/8% Senior Subordinated Notes due 2007
(the "Notes") of Belco Oil & Gas Corp. (the "Company").
Upon transfer, the Notes would be registered in the name of the
new beneficial owner as follows:
Name:
-------------------------------------------------------
Address:
----------------------------------------------------
Taxpayer ID Number:
-----------------------------------------
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule
501 (a) (1), (2), (3) or (7) under the Securities Act of 1933, as amended (the
"Securities Act")) purchasing for our own account or for the account of such an
institutional "accredited investor" at least $250,000 principal amount of the
Notes, and we are acquiring the Notes not with a view to, or for offer or sale
in connection with, any distribution in violation of the Securities Act. We
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risk of our investment in the Notes and we
invest in or purchase securities similar to the Notes in the normal course of
our business. We and any accounts for which we are acting are each able to
bear the economic risk of our or its investment.
C-1
<PAGE> 136
2. We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted
in the following sentence. We agree on our own behalf and on behalf of any
investor account for which we are purchasing Notes to offer, sell or otherwise
transfer such Notes prior to the date which is two years after the later of the
date of original issue and the last date on which the Company or any affiliate
of the Company was the owner of such Notes (or any predecessor thereto) (the
"Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to
a registration statement which has been declared effective under the Securities
Act, (c) in a transaction complying with the requirements of Rule 144A under
the Securities Act, to a Person we reasonably believe is a qualified
institutional buyer under Rule 144A (a "QIB") that purchases for its own
account or for the account of a QIB and to whom notice is given that the
transfer is being made in reliance on Rule 144A, (d) pursuant to offers and
sales that occur outside the United States within the meaning of Regulation S
under the Securities Act, (e) to an institutional "accredited investor" (within
the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that
is purchasing for its own account or for the account of such an institutional
"accredited investor," in each case in a minimum principal amount of Notes of
$250,000 or (f) pursuant to any other available exemption from the registration
requirements of the Securities Act, subject in each of the foregoing cases to
any requirement of law that the disposition of our property or the property of
such investor account or accounts be at all times within our or their control
and in compliance with any applicable state securities laws. The foregoing
restrictions on resale will not apply subsequent to the Resale Restriction
Termination Date. If any resale or other transfer of the Notes is proposed to
be made pursuant to clause (e) above prior to the Resale Restriction
Termination Date, the transferor shall deliver a letter from the transferee
substantially in the form of this letter to the Company and the Trustee, which
shall provide, among other things, that the transferee is an institutional
"accredited investor" (within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act) that is acquiring such Notes for investment purposes
and not for distribution in violation of the Securities Act. Each purchaser
acknowledges that the Company and the Trustee reserve the right prior to any
offer, sale or other transfer prior to the Resale Termination Date of the Notes
pursuant to clause (d), (e) or (f) above to require the delivery of an opinion
of counsel, certifications and/or other information satisfactory to the Company
and the Trustee.
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TRANSFEREE:
-------------------------------
3. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
By:
---------------------------
(Name of Purchaser)
Upon transfer, the Notes should be registered in the name of the new beneficial
owner as follows:
Name:
Address:
Taxpayer ID Number:
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<PAGE> 138
EXHIBIT D
FORM OF SUPPLEMENTAL INDENTURE TO BE
DELIVERED BY SUBSIDIARY GUARANTORS
SUPPLEMENTAL INDENTURE (this Supplemental Indenture) dated as of
________________, between _____________________ (the "Subsidiary Guarantor"), a
subsidiary of Belco Oil & Gas Corp. (or its successor), a company incorporated
under the laws of the State of Nevada (the "Company"), and The Bank of New
York, a New York banking corporation, as trustee under the indenture referred
to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of September 23, 1997,
providing for the issuance of an aggregate principal amount at maturity of
$150,000,000 of 8-7/8% Senior Subordinated Notes due 2007 (the "Notes");
WHEREAS, Section 4.16 of the Indenture provides that, under certain
circumstances, the Company is required to cause the Subsidiary Guarantor to
execute and deliver to the Trustee a Subsidiary Guarantee on the terms and
conditions set forth herein; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Company, the
Subsidiary Guarantor and the Trustee are authorized to execute and deliver this
Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Company, the Subsidiary Guarantor and the Trustee mutually covenant and agree
for the equal and ratable benefit of the holders of the Notes as follows:
1. CAPITALIZED TERMS.
Capitalized terms used herein without definition shall have the
meanings assigned to them in the Indenture.
2. INDENTURE PROVISION PURSUANT TO WHICH GUARANTEE IS GIVEN.
This Supplemental Indenture is being executed and delivered
pursuant to Sections 4.16 and 9.1 of the Indenture.
3. AGREEMENTS TO GUARANTEE.
The Subsidiary Guarantor hereby agrees as follows:
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<PAGE> 139
(a) The Subsidiary Guarantor, jointly and severally with all
other Subsidiary Guarantors, if any, unconditionally guarantees to each Holder
of a Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, regardless of the validity and enforceability of the
Indenture, the Notes and the obligations of the Company under the Indenture and
the Notes, that:
(i) the principal of, premium, if any, and interest on
the Notes shall be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal
of, premium, if any, and interest on the Notes, to the extent lawful, and all
other obligations of the Company to the Holders or the Trustee thereunder shall
be promptly paid in full, all in accordance with the terms thereof; and
(ii) in case of any extension of time for payment or
renewal of any Notes or any of such other obligations, that the same shall be
promptly paid in full when due in accordance with the terms of the extension or
renewal, whether at maturity, by acceleration or otherwise.
Notwithstanding the foregoing, in the event that this Subsidiary
Guarantee would constitute or result in a violation of any applicable
fraudulent conveyance or similar law of any relevant jurisdiction, the
liability of the Subsidiary Guarantor under this Supplemental Indenture and its
Subsidiary Guarantee shall be limited to such amount as will not, after giving
effect thereto, and to all other liabilities of the Subsidiary Guarantor,
result in such amount constituting a fraudulent transfer or conveyance.
4. SUBORDINATION.
The Subsidiary Guarantor agrees, and each Holder by accepting a
Note agrees, that (a) the obligations of the Subsidiary Guarantor under this
Subsidiary Guarantee are subordinated in right of payment to the prior payment
in full (when due) of all existing and future Guarantor Senior Indebtedness of
the Subsidiary Guarantor, including without limitation any guarantee by the
Subsidiary Guarantor of the Indebtedness under the New Credit Facility or of
any Senior Debt of the Company or of any Guarantor Senior Indebtedness of any
other Subsidiary Guarantor, to the extent and in the matter provided in Article
10 (including, without limitation, Section 10.12) of the Indenture (as if the
Subsidiary Guarantor were the Company for purposes of such Article 10 and all
defined terms used therein, and the Guarantor Senior Indebtedness of the
Guarantor were Senior Debt), and this Subsidiary Guarantee is made subject to
such provisions (which are hereby incorporated herein by reference), and (b)
such subordination is for the
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<PAGE> 140
benefit of and enforceable by the holders of Guarantor Senior Indebtedness of
the Subsidiary Guarantor.
5. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE
(a) To evidence its Subsidiary Guarantee set forth in this
Supplemental Indenture, the Subsidiary Guarantor hereby agrees that a notation
of such Subsidiary Guarantee substantially in the form of Annex A hereto shall
be endorsed by an officer of such Subsidiary Guarantor on each Note
authenticated and delivered by the Trustee after the date hereof.
(b) Notwithstanding the foregoing, the Subsidiary Guarantor
hereby agrees that its Subsidiary Guarantee set forth herein shall remain in
full force and effect notwithstanding any failure to endorse on each Note a
notation of such Subsidiary Guarantee.
(c) If an officer whose signature is on this Supplemental
Indenture or on the Subsidiary Guarantee no longer holds that office at the
time the Trustee authenticates the Note on which a Subsidiary Guarantee is
endorsed, the Subsidiary Guarantee shall be valid nevertheless.
(d) The delivery of a Note by the Trustee, after the
authentication thereof under the Indenture, shall constitute due delivery of
the Subsidiary Guarantee set forth in this Supplemental Indenture on behalf of
the Subsidiary Guarantor.
(e) The Subsidiary Guarantor hereby agrees that its
obligations hereunder shall be unconditional, regardless of the validity,
regularity or enforceability of the Notes or the 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, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor.
(f) The Subsidiary Guarantor hereby waives 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 Subsidiary Guarantee made pursuant to this Supplemental
Indenture will not be discharged except by complete performance of the
obligations contained in the Notes and the Indenture or pursuant to Section
6(b) of this Supplemental Indenture.
(g) If the Trustee or any Holder has instituted any proceeding
to enforce any right or remedy under this Supplemental Indenture or under the
Subsidiary Guarantee made pursuant to this
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<PAGE> 141
Supplemental Indenture and such proceeding has been discontinued or abandoned
for any reason, or has been determined adversely to the Trustee or to such
Holder, then, and in every such case, subject to any determination in such
proceeding, the Subsidiary Guarantor, the Trustee and the Holders shall be
restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Subsidiary Guarantor, the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
(h) The Subsidiary Guarantor hereby waives and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Subsidiary Guarantor as a result of any payment by such Subsidiary
Guarantor under its Subsidiary Guarantee. The Subsidiary Guarantor further
agrees that, as between the Subsidiary Guarantors, on the one hand, and the
Holders and the Trustee, on the other hand:
(i) the maturity of the obligations guaranteed hereby may
be accelerated as provided in Article 6 of the Indenture for the purposes of
the Subsidiary Guarantee made pursuant to this Supplemental Indenture,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby; and
(ii) in the event of any declaration of acceleration of
such obligations as provided in such Article 6, such obligations (whether or
not due and payable) shall forthwith become due and payable by the Subsidiary
Guarantor for the purpose of the Subsidiary Guarantee made pursuant to this
Supplemental Indenture.
(i) The Subsidiary Guarantor shall have the right to seek
contribution from any other non-paying Subsidiary Guarantor, if any, so long as
the exercise of such right does not impair the rights of the Holders under the
Subsidiary Guarantee made pursuant to this Supplemental Indenture.
(j) The Subsidiary Guarantor covenants (to the extent that it
may lawfully do so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of the Indenture or this
Subsidiary Guarantee; and the Subsidiary Guarantor (to the extent that it may
lawfully do so) 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.
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<PAGE> 142
6. SUBSIDIARY GUARANTOR MAY CONSOLIDATE, ETC. ON CERTAIN TERMS
(a) Except as set forth in Articles 4 and 5 of the Indenture,
nothing contained in the Indenture, this Supplemental Indenture or in the Notes
shall prevent any consolidation or merger of the Subsidiary Guarantor with or
into the Company or any other Subsidiary Guarantor or shall prevent any
transfer, sale or conveyance of the property of the Subsidiary Guarantor as an
entirety or substantially as an entirety, to the Company or any other
Subsidiary Guarantor.
(b) Except as set forth in Article 5 of the Indenture, upon the
sale or disposition of all of the Capital Stock of the Subsidiary Guarantor by
the Company or the Subsidiary of the Company, or upon the consolidation or
merger of the Subsidiary Guarantor with or into any Person, or the sale of all
or substantially all of the assets of the Subsidiary Guarantor (in each case,
other than to an Affiliate of the Company), such Subsidiary Guarantor shall be
deemed automatically and unconditionally released and discharged from all
obligations under this Subsidiary Guarantee without any further action required
on the part of the Trustee or any Holder if no Default shall have occurred and
be continuing; provided, that in the event of an Asset Sale, the Net Proceeds
therefrom are treated in accordance with Section 4.10 of the Indenture. Except
with respect to transactions set forth in the preceding sentence, the Company
and the Subsidiary Guarantor covenant and agree that upon any such
consolidation, merger or transfer of assets, the performance of all covenants
and conditions of this Supplemental Indenture to be performed by such
Subsidiary Guarantor shall be expressly assumed by supplemental indenture
satisfactory in form to the Trustee, by the corporation formed by such
consolidation, or into which the Subsidiary Guarantor shall have merged, or by
the corporation which shall have acquired such property. Upon receipt of an
Officer's Certificate of the Company or the Subsidiary Guarantor, as the case
may be, to the effect that the Company or such Subsidiary Guarantor has
complied with the first sentence of this Section 6(b), the Trustee shall
execute any documents reasonably requested by the Company or the Subsidiary
Guarantor, at the cost of the Company or such Subsidiary Guarantor, as the case
may be, in order to evidence the release of such Subsidiary Guarantor from its
obligations under its Guarantee endorsed on the Notes and under the Indenture
and this Supplemental Indenture.
7. RELEASES UPON RELEASE OF GUARANTEE OF GUARANTEED INDEBTEDNESS.
Concurrently with the release or discharge of the Subsidiary
Guarantor's guarantee of the payment of [describe indebtedness the guarantee of
which gave rise to the delivery of
D-5
<PAGE> 143
this Supplemental Indenture] ("Guaranteed Debt") (other than a release or
discharge by or as a result of payment under such guarantee of Guaranteed
Indebtedness), the Subsidiary Guarantor shall be automatically and
unconditionally released and relieved of its obligations under this
Supplemental Indenture and its Subsidiary Guarantee made pursuant to Section 5
of this Supplemental Indenture. Upon delivery by the Company to the Trustee of
an Officer's Certificate to the effect that such release or discharge has
occurred, the Trustee shall execute any documents reasonably required in order
to evidence the release of the Subsidiary Guarantor from its obligations under
this Supplemental Indenture and its Subsidiary Guarantee made pursuant hereto;
provided such documents shall not affect or impair the rights of the Trustee
and Paying Agent under Section 7.7 of the Indenture.
8. NEW YORK LAW TO GOVERN.
The substantive law of the State of New York shall govern and be
used to construe this Supplemental Indenture.
9. COUNTERPARTS.
The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
10. RECITALS, ETC.
The recitals herein contained are made by the Company and not by
the Trustee, and the Trustee assumes no responsibility for the correctness
thereof. The Trustee makes no representations as to the validity or
sufficiency of this Supplemental Indenture.
11. EFFECT OF HEADINGS.
The Section headings herein are for convenience only and shall
not effect the construction hereof.
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<PAGE> 144
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
BELCO OIL & GAS CORP.
By:
-------------------------------
Name:
Title:
[SUBSIDIARY GUARANTOR]
By:
-------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Trustee
By:
-------------------------------
Name:
Title:
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<PAGE> 145
ANNEX A TO SUPPLEMENTAL INDENTURE
FORM OF NOTATION OF SUBSIDIARY GUARANTEE ON NOTE
Each Subsidiary Guarantor (as defined in the Indenture) has jointly and
severally unconditionally guaranteed (a) the due and punctual payment of the
principal of, premium, if any, and interest on the Notes, whether at Stated
Maturity or an Interest Payment Date, by acceleration, call for redemption or
otherwise, (b) the due and punctual payment of interest on the overdue
principal and premium of, and interest, to the extent lawful, on the Notes and
(c) that in case of any extension of time of payment or renewal of any Notes or
any of such other obligations, the same will be promptly paid in full when due
in accordance with the terms of the extension of renewal, whether at stated
maturity, by acceleration or otherwise.
Notwithstanding the foregoing, in the event that the Subsidiary
Guarantee would constitute or result in a violation of any applicable
fraudulent conveyance or similar law of any relevant jurisdiction, the
liability of the Subsidiary Guarantor under its Subsidiary Guarantee shall be
limited to such amount as will not, after giving effect thereto, and to all
other liabilities of the Subsidiary Guarantor, result in such amount
constituting a fraudulent transfer or conveyance.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Note upon which the
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized signatories.
Dated: ,
-------------------- -------
[SUBSIDIARY GUARANTOR]
By:
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4.2
BELCO OIL & GAS CORP.
$150,000,000
8-7/8% Senior Subordinated Notes due 2007
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
September 23, 1997
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
SMITH BARNEY INC.
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Belco Oil & Gas Corp., a Nevada corporation (the "Company"),
proposes to issue and sell to Chase Securities Inc. ("CSI"), Goldman, Sachs &
Co. and Smith Barney Inc. (together with CSI, the "Initial Purchasers"), upon
the terms and subject to the conditions set forth in a purchase agreement dated
September 17, 1997 (the "Purchase Agreement"), $150,000,000 aggregate principal
amount of its 8-7/8% Senior Subordinated Notes due 2007 (the "Securities").
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the
Purchase Agreement and in satisfaction of a condition to the obligations of the
Initial Purchasers thereunder, the Company agrees with the Initial Purchasers,
for the benefit of the holders (including the Initial Purchasers) of the
Securities, the Exchange Securities (as defined herein) and the Private
Exchange Securities (as defined herein) (collectively, the "Holders"), as
follows:
1. Registered Exchange Offer. The Company shall use its
reasonable best efforts to (i) prepare and, not later than 60 days following
the date of original issuance of the Securities (the
<PAGE> 2
"Issue Date"), file with the Commission a registration statement (the "Exchange
Offer Registration Statement") on an appropriate form under the Securities Act
with respect to a proposed offer to the Holders of the Securities (the
"Registered Exchange Offer") to issue and deliver to such Holders, in exchange
for the Securities, a like aggregate principal amount of debt securities of the
Company (the "Exchange Securities") that are identical in all material
respects to the Securities, except for the transfer restrictions relating to
the Securities, (ii) cause the Exchange Offer Registration Statement to become
effective under the Securities Act no later than 120 days after the Issue Date
and the Registered Exchange Offer to be consummated no later than 150 days
after the Issue Date and (iii) keep the Exchange Offer Registration Statement
effective for not less than 30 days (or longer, if required by applicable law)
after the date on which notice of the Registered Exchange Offer is mailed to
the Holders (such period being called the "Exchange Offer Registration
Period"). The Exchange Securities will be issued under the Indenture or an
indenture (the "Exchange Securities Indenture") between the Company and the
Trustee or such other bank or trust company that is reasonably satisfactory to
the Initial Purchasers, as trustee (the "Exchange Securities Trustee"), such
indenture to be identical in all material respects to the Indenture, except for
the transfer restrictions relating to the Securities (as described above).
Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange Offer,
it being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for Exchange Securities to do so (assuming that
such Holder (a) is not an affiliate of the Company or an Exchanging Dealer (as
defined herein) not complying with the requirements of the next sentence, (b)
is not an Initial Purchaser with Securities that have, or that are reasonably
likely to have, the status of an unsold allotment in an initial distribution,
(c) acquires the Exchange Securities in the ordinary course of such Holder's
business and (d) has no arrangements or understandings with any person to
participate in the distribution of the Exchange Securities) and to trade such
Exchange Securities from and after their receipt without any limitations or
restrictions under the Securities Act and without material restrictions under
the securities laws of the several states of the United States. The Company,
the Initial Purchasers and each Exchanging Dealer (as defined herein)
acknowledge that, pursuant to current interpretations by the Commission's staff
of Section 5 of the Securities Act, each Holder that is a broker-dealer
electing to exchange Securities, acquired for its own account as a result of
market-making activities or other trading activities, for Exchange Securities
(an "Exchanging Dealer"), is required to deliver a prospectus containing
substantially the information set forth in Annex A hereto on the cover, in
Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of
the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution"
section of such prospectus in connection with a sale of any such Exchange
Securities received by such Exchanging Dealer pursuant to the Registered
Exchange Offer.
If, prior to the consummation of the Registered Exchange
Offer, any Holder holds any Securities 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
Registered Exchange Offer, the Company shall, upon the request of any such
Holder, simultaneously with the delivery of the Exchange Securities in the
Registered Exchange Offer, issue and deliver to any such Holder, in exchange
for the Securities held by
<PAGE> 3
3
such Holder (the "Private Exchange"), a like aggregate principal amount of debt
securities of the Company (the "Private Exchange Securities") that are
identical in all material respects to the Exchange Securities, except for the
transfer restrictions relating to such Private Exchange Securities. The
Private Exchange Securities will be issued under the same indenture as the
Exchange Securities, and the Company shall use its reasonable best efforts to
cause the Private Exchange Securities to bear the same CUSIP number as the
Exchange Securities.
In connection with the Registered Exchange Offer, the Company
shall:
(a) mail to each Holder a copy of the prospectus forming
part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less
than 30 days (or longer, if required by applicable law) after the date
on which notice of the Registered Exchange Offer is mailed to the
Holders;
(c) utilize the services of a depositary for the
Registered Exchange Offer with an address in the Borough of Manhattan,
The City of New York;
(d) permit Holders to withdraw tendered Securities at any
time prior to the close of business, New York City time, on the last
business day on which the Registered Exchange Offer shall remain open;
and
(e) otherwise comply in all respects with all laws that
are applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered
Exchange Offer and any Private Exchange, as the case may be, the Company shall:
(a) accept for exchange all Securities tendered and not
validly withdrawn pursuant to the Registered Exchange Offer and the
Private Exchange;
(b) deliver to the Trustee for cancellation all
Securities so accepted for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee,
as the case may be, promptly to authenticate and deliver to each
Holder, Exchange Securities or Private Exchange Securities, as the
case may be, equal in principal amount to the Securities of such
Holder so accepted for exchange.
The Company shall use its reasonable 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 used by
all persons subject to the prospectus delivery
<PAGE> 4
4
requirements of the Securities Act for such period of time as such persons must
comply with such requirements in order to resell the Exchange Securities;
provided that (i) in the case where such prospectus and any amendment or
supplement thereto must be delivered by an Exchanging Dealer, such period shall
be the lesser of 180 days and the date on which all Exchanging Dealers have
sold all Exchange Securities held by them and (ii) the Company shall make such
prospectus and any amendment or supplement thereto available to any
broker-dealer for use in connection with any resale of any Exchange Securities
for a period of not less than 90 days after the consummation of the Registered
Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the
case may be, shall provide that the Securities, the Exchange Securities and the
Private Exchange Securities shall vote and consent together on all matters as
one class and that none of the Securities, the Exchange Securities or the
Private Exchange Securities will have the right to vote or consent as a
separate class on any matter.
Interest on each Exchange Security and Private Exchange
Security issued pursuant to the Registered Exchange Offer and in the Private
Exchange will accrue from the last interest payment date on which interest was
paid on the Securities surrendered in exchange therefor or, if no interest has
been paid on the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer
shall be required to represent to the Company that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder will have no arrangements or understanding with any person to
participate in the distribution of the Securities or the Exchange Securities
within the meaning of the Securities Act and (iii) such Holder is not an
affiliate of the Company or, if it is such an affiliate, such Holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Company will
ensure that (i) any Exchange Offer Registration Statement and any amendment
thereto and any prospectus forming part thereof and any supplement thereto
complies in all material respects with the Securities Act and the rules and
regulations of the Commission thereunder, (ii) any Exchange Offer Registration
Statement and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (iii) any prospectus forming part of any Exchange Offer
Registration Statement, and any supplement to such prospectus, does not, as of
the consummation of the Registered Exchange Offer, include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
2. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff the Company is not
permitted to effect the
<PAGE> 5
5
Registered Exchange Offer as contemplated by Section 1 hereof, or (ii) any
Securities validly tendered pursuant to the Registered Exchange Offer are not
exchanged for Exchange Securities within 150 days after the Issue Date, or
(iii) any Initial Purchaser so requests with respect to Securities or Private
Exchange Securities not eligible to be exchanged for Exchange Securities in the
Registered Exchange Offer and held by it following the consummation of the
Registered Exchange Offer, or (iv) any applicable law or interpretations do not
permit any Holder to participate in the Registered Exchange Offer, or (v) any
Holder that participates in the Registered Exchange Offer does not receive
freely transferable Exchange Securities in exchange for tendered Securities
then the following provisions shall apply:
(a) The Company shall use its reasonable best efforts to
file as promptly as practicable (but in no event more than 45 days after so
required or requested pursuant to this Section 2) with the Commission, and
thereafter shall use its reasonable best efforts to cause to be declared
effective, a shelf registration statement on an appropriate form under the
Securities Act relating to the offer and sale of the Transfer Restricted
Securities (as defined herein) by the Holders thereof from time to time in
accordance with the methods of distribution set forth in such registration
statement (hereafter, a "Shelf Registration Statement" and, together with any
Exchange Offer Registration Statement, a "Registration Statement").
(b) The Company shall use its reasonable best efforts to
keep the Shelf Registration Statement continuously effective in order to permit
the prospectus forming part thereof to be used by Holders of Transfer
Restricted Securities for a period ending the earlier of (i) two years from the
Issue Date or such shorter period that will terminate when all the Transfer
Restricted Securities covered by the Shelf Registration Statement have been
sold pursuant thereto and (ii) the date the Securities become eligible for
resale without volume restrictions pursuant to Rule 144 under the Securities
Act (in any such case, such period being called the "Shelf Registration
Period"). The Company shall be deemed not to have used its reasonable best
efforts to keep the Shelf Registration Statement effective during the requisite
period if it voluntarily takes any action that would result in Holders of
Transfer Restricted Securities covered thereby not being able to offer and sell
such Transfer Restricted Securities during that period, unless such action is
required by applicable law.
(c) Notwithstanding any other provisions hereof, the
Company will ensure that (i) any Shelf Registration Statement and any amendment
thereto and any prospectus forming part thereof and any supplement thereto
complies in all material respects with the Securities Act and the rules and
regulations of the Commission thereunder, (ii) any Shelf Registration Statement
and any amendment thereto (in either case, other than with respect to
information included therein in reliance upon or in conformity with written
information furnished to the Company by or on behalf of any Holder specifically
for use therein (the "Holders' Information")) does 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 not misleading and
(iii) any prospectus forming part of any Shelf Registration Statement, and any
supplement to such prospectus (in either case, other than with respect to
Holders' Information), does not include an untrue statement of a material
<PAGE> 6
6
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.
3. Liquidated Damages. (a) The parties hereto agree that the
Holders of Transfer Restricted Securities will suffer damages if the Company
fails to fulfill its obligations under Section 1 or Section 2, as applicable,
and that it would not be feasible to ascertain the extent of such damages.
Accordingly, if (i) the applicable Registration Statement is not filed with the
Commission on or prior to 60 days after the Issue Date, (ii) the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
is not declared effective within 120 days after the Issue Date (or in the case
of a Shelf Registration Statement required to be filed in response to a change
in law or the applicable interpretations of Commission's staff, if later,
within 60 days after publication of the change in law or interpretation), (iii)
the Registered Exchange Offer is not consummated on or prior to 150 days after
the Issue Date, or (iv) the Shelf Registration Statement is filed and declared
effective within 120 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of Commission's staff, if later, within 60 days
after publication of the change in law or interpretation) but shall thereafter
cease to be effective (at any time that the Company is obligated to maintain
the effectiveness thereof) without being succeeded within 60 days by an
additional Registration Statement filed and declared effective (each such event
referred to in clauses (i) through (iv), a "Registration Default"), the Company
will be obligated to pay liquidated damages to each Holder of Transfer
Restricted Securities, during the period of one or more such Registration
Defaults, in an amount equal to $ 0.192 per week per $1,000 principal amount of
Transfer Restricted Securities held by such Holder until (i) the applicable
Registration Statement is filed, (ii) the Exchange Offer Registration Statement
is declared effective and the Registered Exchange Offer is consummated, (iii)
the Shelf Registration Statement is declared effective or (iv) the Shelf
Registration Statement again becomes effective, as the case may be. Following
the cure of all Registration Defaults, the accrual of liquidated damages will
cease. As used herein, the term "Transfer Restricted Securities" means (i)
each Security until the date on which such Security has been exchanged for a
freely transferable Exchange Security in the Registered Exchange Offer, (ii)
each Security or Private Exchange Security until the date on which it has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iii) each Security or Private
Exchange Security until the date on which it is distributed to the public
pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule
144(k) under the Securities Act.
Notwithstanding anything to the contrary in this Section 3(a),
the Company shall not be required to pay liquidated damages to a Holder of
Transfer Restricted Securities if such Holder failed to comply with its
obligations to make the representations set forth in the second to last
paragraph of Section 1 or failed to provide the information required to be
provided by it, if any, pursuant to Section 4(n).
(b) The Company shall notify the Trustee and the Paying
Agent under the Indenture immediately upon the happening of each and every
Registration Default. The
<PAGE> 7
7
Company shall pay the liquidated damages due on the Transfer Restricted
Securities by depositing with the Paying Agent (which may not be the Company
for these purposes), in trust, for the benefit of the Holders thereof, prior to
10:00 a.m., New York City time, on the next interest payment date specified by
the Indenture and the Securities, sums sufficient to pay the liquidated damages
then due. The liquidated damages due shall be payable on each interest payment
date specified by the Indenture and the Securities to the record holder
entitled to receive the interest payment to be made on such date. Each
obligation to pay liquidated damages shall be deemed to accrue from and
including the date of the applicable Registration Default.
(c) The parties hereto agree that the liquidated damages
provided for in this Section 3 constitute a reasonable estimate of and are
intended to constitute the sole damages that will be suffered by Holders of
Transfer Restricted Securities by reason of the failure of (i) the Shelf
Registration Statement or the Exchange Offer Registration Statement to be
filed, (ii) the Shelf Registration Statement to remain effective or (iii) the
Exchange Offer Registration Statement to be declared effective and the
Registered Exchange Offer to be consummated, in each case to the extent
required by this Agreement.
4. Registration Procedures. In connection with any Registration
Statement, the following provisions shall apply:
(a) The Company shall (i) furnish to each Initial
Purchaser, prior to the filing thereof with the Commission, a copy of the
Registration Statement and each amendment thereof and each supplement, if any,
to the prospectus included therein and shall use its reasonable best efforts to
reflect in each such document, when so filed with the Commission, such comments
as any Initial Purchaser may reasonably propose; (ii) include the information
set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange
Offer Procedures" section and the "Purpose of the Exchange Offer" section and
in Annex C hereto in the "Plan of Distribution" section of the prospectus
forming a part of the Exchange Offer Registration Statement, and include the
information set forth in Annex D hereto in the Letter of Transmittal delivered
pursuant to the Registered Exchange Offer; and (iii) if requested by any
Initial Purchaser, include the information required by Items 507 or 508 of
Regulation S-K, as applicable, in the prospectus forming a part of the Exchange
Offer Registration Statement.
(b) The Company shall advise each Initial Purchaser, each
Exchanging Dealer and the Holders (if applicable) and, if requested by any such
person, confirm such advice in writing (which advice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the use of
the prospectus until the requisite changes have been made):
(i) when any Registration Statement and any amendment thereto
has been filed with the Commission and when such Registration
Statement or any post-effective amendment thereto has become
effective;
<PAGE> 8
8
(ii) of any request by the Commission for amendments or
supplements to any Registration Statement or the prospectus
included therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or
the initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the
Securities, the Exchange Securities or the Private Exchange
Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the making of
any changes in any Registration Statement or the prospectus
included therein in order that the statements therein are not
misleading and do not omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading.
(c) The Company will make every reasonable effort to
obtain the withdrawal at the earliest possible time of any order suspending the
effectiveness of any Registration Statement.
(d) The Company will furnish to each Holder of Transfer
Restricted Securities included within the coverage of any Shelf Registration
Statement, without charge, at least one conformed copy of such Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, if any such Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
(e) The Company will, during the Shelf Registration
Period, promptly deliver to each Holder of Transfer Restricted Securities
included within the coverage of any Shelf Registration Statement, without
charge, as many copies of the prospectus (including each preliminary
prospectus) included in such Shelf Registration Statement and any amendment or
supplement thereto as such Holder may reasonably request; and the Company
consents to the use of such prospectus or any amendment or supplement thereto
by each of the selling Holders of Transfer Restricted Securities in connection
with the offer and sale of the Transfer Restricted Securities covered by such
prospectus or any amendment or supplement thereto.
(f) The Company will furnish to each Initial Purchaser
and each Exchanging Dealer, and to any other Holder who so requests, without
charge, at least one conformed copy of the Exchange Offer Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules and, if any Initial Purchaser or Exchanging Dealer or
any such Holder so requests in writing, all exhibits thereto (including those,
if any, incorporated by reference).
<PAGE> 9
9
(g) The Company will, during the Exchange Offer
Registration Period or the Shelf Registration Period, as applicable, promptly
deliver to each Initial Purchaser, each Exchanging Dealer and such other
persons that are required to deliver a prospectus following the Registered
Exchange Offer, without charge, as many copies of the final prospectus included
in the Exchange Offer Registration Statement or the Shelf Registration
Statement and any amendment or supplement thereto as such Initial Purchaser,
Exchanging Dealer or other persons may reasonably request; and the Company
consents to the use of such prospectus or any amendment or supplement thereto
by any such Initial Purchaser, Exchanging Dealer or other persons, as
applicable, as aforesaid.
(h) Prior to the effective date of any Registration
Statement, the Company will use its reasonable best efforts to register or
qualify, or cooperate with the Holders of Securities, Exchange Securities or
Private Exchange Securities included therein and their respective counsel in
connection with the registration or qualification of, such Securities, Exchange
Securities or Private Exchange Securities for offer and sale under the
securities or blue sky laws of such jurisdictions as any such Holder reasonably
requests in writing; provided that the Company will not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or to take any action which would subject it to general service of process or
to taxation in any such jurisdiction where it is not then so subject.
(i) The Company will cooperate with the Holders of
Securities, Exchange Securities or Private Exchange Securities to facilitate
the timely preparation and delivery of certificates representing Securities,
Exchange Securities or Private Exchange Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as the Holders thereof may request
in writing prior to sales of Securities, Exchange Securities or Private
Exchange Securities pursuant to such Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through
(v) occurs during the period for which the Company is required to maintain an
effective Registration Statement, the Company will promptly prepare and file
with the Commission a post-effective amendment to the Registration Statement or
a supplement to the related prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Securities, Exchange
Securities or Private Exchange Securities from a Holder, the prospectus will
not include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(k) Not later than the effective date of the applicable
Registration Statement, the Company will provide a CUSIP number for the
Securities, the Exchange Securities and the Private Exchange Securities, as the
case may be, and provide the applicable trustee with printed certificates for
the Securities, the Exchange Securities or the Private Exchange Securities, as
the case may be, in a form eligible for deposit with The Depository Trust
Company.
<PAGE> 10
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(l) The Company will comply with all applicable rules and
regulations of the Commission and will make generally available to its security
holders as soon as practicable after the effective date of the applicable
Registration Statement an earning statement satisfying the provisions of
Section 11(a) and Rule 158(a) of the Securities Act.
(m) The Company will cause the Indenture or the Exchange
Securities Indenture, as the case may be, to be qualified under the Trust
Indenture Act as required by applicable law in a timely manner.
(n) The Company may require each Holder of Transfer
Restricted Securities to be registered pursuant to any Shelf Registration
Statement to furnish to the Company such information concerning the Holder and
the distribution of such Transfer Restricted Securities as the Company may from
time to time reasonably require for inclusion in such Shelf Registration
Statement, and the Company may exclude from such registration the Transfer
Restricted Securities of any Holder that fails to furnish such information
within a reasonable time after receiving such request.
(o) In the case of a Shelf Registration Statement, each
Holder of Transfer Restricted Securities to be registered pursuant thereto
agrees by acquisition of such Transfer Restricted Securities that, upon receipt
of any notice from the Company pursuant to Section 4(b)(ii) through (v), such
Holder will discontinue disposition of such Transfer Restricted Securities
until such Holder's receipt of copies of the supplemental or amended prospectus
contemplated by Section 4(j) or until advised in writing (the "Advice") by the
Company that the use of the applicable prospectus may be resumed. If the
Company shall give any notice under Section 4(b)(ii) through (v) during the
period that the Company is required to maintain an effective Registration
Statement (the "Effectiveness Period"), such Effectiveness Period shall be
extended by the number of days during such period from and including the date
of the giving of such notice to and including the date when each seller of
Transfer Restricted Securities covered by such Registration Statement shall
have received (x) the copies of the supplemental or amended prospectus
contemplated by Section 4(j) (if an amended or supplemental prospectus is
required) or (y) the Advice (if no amended or supplemental prospectus is
required).
(p) In the case of a Shelf Registration Statement, the
Company shall enter into such customary agreements (including, if requested, an
underwriting agreement in customary form) and take all such other action, if
any, as Holders of a majority in aggregate principal amount of the Securities,
Exchange Securities and Private Exchange Securities being sold or the managing
underwriters (if any) shall reasonably request in order to facilitate any
disposition of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Shelf Registration Statement.
(q) In the case of a Shelf Registration Statement, the
Company shall (i) make reasonably available for inspection by a representative
of, and Special Counsel (as defined below) acting for, Holders of a majority in
aggregate principal amount of the Securities,
<PAGE> 11
11
Exchange Securities and Private Exchange Securities being sold and any
underwriter participating in any disposition of Securities, Exchange Securities
or Private Exchange Securities pursuant to such Shelf Registration Statement,
all relevant financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries and (ii) use its reasonable best
efforts to have its officers, directors, employees, accountants and counsel
supply all relevant information reasonably requested by such representative,
Special Counsel or any such underwriter (an "Inspector") in connection with
such Shelf Registration Statement.
(r) In the case of a Shelf Registration Statement, the
Company shall, if requested by Holders of a majority in aggregate principal
amount of the Securities, Exchange Securities and Private Exchange Securities
being sold, their Special Counsel or the managing underwriters (if any) in
connection with such Shelf Registration Statement, use its reasonable best
efforts to cause (i) its counsel to deliver an opinion relating to the Shelf
Registration Statement and the Securities, Exchange Securities or Private
Exchange Securities, as applicable, in customary form, (ii) its officers to
execute and deliver all customary documents and certificates requested by
Holders of a majority in aggregate principal amount of the Securities, Exchange
Securities and Private Exchange Securities being sold, their Special Counsel or
the managing underwriters (if any) and (iii) its independent public accountants
to provide a comfort letter in customary form, subject to receipt of
appropriate documentation as contemplated, and only if permitted, by Statement
of Auditing Standards No. 72.
5. Registration Expenses. The Company will bear all expenses
incurred in connection with the performance of its obligations under Sections
1, 2, 3 and 4 and the Company will reimburse the Initial Purchasers and the
Holders for the reasonable fees and disbursements of one firm of attorneys (in
addition to any local counsel) chosen by the Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities to be sold pursuant to each Registration Statement (the
"Special Counsel") acting for the Initial Purchasers or Holders in connection
therewith.
6. Indemnification. (a) In the event of a Shelf Registration
Statement or in connection with any prospectus delivery pursuant to an Exchange
Offer Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, the Company shall indemnify and hold harmless each Holder
(including, without limitation, any such Initial Purchaser or Exchanging
Dealer), its affiliates, their respective officers, directors, employees,
representatives and agents, and each person, if any, who controls such Holder
within the meaning of the Securities Act or the Exchange Act (collectively
referred to for purposes of this Section 6 and Section 7 as a Holder) from and
against any loss, claim, damage or liability, joint or several, or any action
in respect thereof (including, without limitation, any loss, claim, damage,
liability or action relating to purchases and sales of Securities, Exchange
Securities or Private Exchange Securities), to which that Holder may become
subject, whether commenced or threatened, under the Securities Act, the
Exchange Act, any other federal or state statutory law or regulation, at common
law or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of
<PAGE> 12
12
a material fact contained in any such Registration Statement or any prospectus
forming part thereof or in any amendment or supplement thereto or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and
shall reimburse each Holder promptly upon demand for any legal or other
expenses reasonably incurred by that Holder in connection with investigating or
defending or preparing to defend against or appearing as a third party witness
in connection with any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with any Holders' Information; and provided,
further, that with respect to any such untrue statement in or omission from any
related preliminary prospectus, the indemnity agreement contained in this
Section 6(a) shall not inure to the benefit of any Holder from whom the person
asserting any such loss, claim, damage, liability or action received
Securities, Exchange Securities or Private Exchange Securities to the extent
that such loss, claim, damage, liability or action of or with respect to such
Holder results from the fact that both (A) a copy of the final prospectus was
not sent or given to such person at or prior to the written confirmation of the
sale of such Securities, Exchange Securities or Private Exchange Securities to
such person and (B) the untrue statement in or omission from the related
preliminary prospectus was corrected in the final prospectus unless, in either
case, such failure to deliver the final prospectus was a result of
non-compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement, each
Holder shall indemnify and hold harmless the Company, its affiliates, their
respective officers, directors, employees, representatives and agents, and each
person, if any, who controls the Company within the meaning of the Securities
Act or the Exchange Act (collectively referred to for purposes of this Section
6(b) and Section 7 as the Company), from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to which the
Company may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement
or alleged untrue statement of a material fact contained in any such
Registration Statement or any prospectus forming part thereof or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with any Holders'
Information furnished to the Company by such Holder, and shall reimburse the
Company promptly upon demand for any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending or
preparing to defend against or appearing as a third party witness in connection
with any such loss, claim, damage, liability or action as such expenses are
incurred; provided,
<PAGE> 13
13
however, that no such Holder shall be liable for any indemnity claims hereunder
in excess of the amount of net proceeds received by such Holder from the sale
of Securities, Exchange Securities or Private Exchange Securities pursuant to
such Shelf Registration Statement.
(c) Promptly after receipt by an indemnified party under
this Section 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party pursuant to Section 6(a) or 6(b), notify the
indemnifying party in writing of the claim or the commencement of that action;
provided, however, that the failure to notify the indemnifying party shall not
relieve it from any liability which it may have under this Section 6 except to
the extent that it has been materially prejudiced (through the forfeiture of
substantive rights or defenses) by such failure; and provided, further, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 6. If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of
its election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under this Section 6 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than the reasonable costs of
investigation; provided, however, that an indemnified party shall have the
right to employ its own counsel in any such action, but the fees, expenses and
other charges of such counsel for the indemnified party will be at the expense
of such indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (2)
the indemnified party has reasonably concluded (based upon advice of counsel to
the indemnified party) that there may be legal defenses available to it or
other indemnified parties that are different from or in addition to those
available to the indemnifying party, (3) a conflict or potential conflict
exists (based upon advice of counsel to the indemnified party) between the
indemnified party and the indemnifying party (in which case the indemnifying
party will not have the right to direct the defense of such action on behalf of
the indemnified party) or (4) the indemnifying party has not in fact employed
counsel reasonably satisfactory to the indemnified party to assume the defense
of such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified party or parties. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No indemnifying
party shall be liable for any settlement of any such action effected without
its written consent (which consent shall not be unreasonably withheld), but if
settled with its written consent or if there be a final judgment for
<PAGE> 14
14
the plaintiff in any such action, the indemnifying party agrees to indemnify
and hold harmless any indemnified party from and against any loss or liability
by reason of such settlement or judgment. No indemnifying party shall, without
the prior written consent of the indemnified party (which consent shall not be
unreasonably withheld), effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
7. Contribution. If the indemnification provided for in Section
6 is unavailable or insufficient to hold harmless an indemnified party under
Section 6(a) or 6(b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such loss, claim, damage or liability,
or action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company from the offering and
sale of the Securities, on the one hand, and a Holder with respect to the sale
by such Holder of Securities, Exchange Securities or Private Exchange
Securities, on the other, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and such Holder on the
other with respect to the statements or omissions that resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and a Holder on the other with respect to such offering
and such sale shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Securities (before deducting expenses)
received by or on behalf of the Company as set forth in the table on the cover
of the Offering Memorandum, on the one hand, bear to the total proceeds
received by such Holder with respect to its sale of Securities, Exchange
Securities or Private Exchange Securities, on the other. The relative fault
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 the Company or information supplied by the
Company on the one hand or to any Holders' Information supplied by such Holder
on the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 7 were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 7 shall be deemed
to include, for purposes of this Section 7, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending or preparing to defend any such action or claim. Notwithstanding
the provisions of this Section 7, an indemnifying party that is a Holder of
Securities, Exchange Securities or Private Exchange Securities shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Securities, Exchange Securities or Private Exchange
Securities sold by such indemnifying party
<PAGE> 15
15
to any purchaser exceeds the amount of any damages which such indemnifying
party has otherwise paid or become liable to pay by reason of any untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
8. Rules 144 and 144A. The Company shall use its reasonable best
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act in a timely manner and, if at any time the Company is not
required to file such reports, it will, upon the written request of any Holder
of Transfer Restricted Securities, make publicly available other information so
long as necessary to permit sales of such Holder's securities pursuant to Rules
144 and 144A. The Company covenants that it will take such further action as
any Holder of Transfer Restricted Securities may reasonably request, all to the
extent required from time to time to enable such Holder to sell Transfer
Restricted Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rules 144 and 144A (including, without
limitation, the requirements of Rule 144A(d)(4)). Upon the written request of
any Holder of Transfer Restricted Securities, the Company shall deliver to such
Holder a written statement as to whether it has complied with such
requirements. Notwithstanding the foregoing, nothing in this Section 8 shall be
deemed to require the Company to register any of its securities pursuant to the
Exchange Act.
9. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders
of a majority in aggregate principal amount of such Transfer Restricted
Securities included in such offering, subject to the consent of the Company
(which shall not be unreasonably withheld or delayed), and such Holders shall
be responsible for all underwriting commissions and discounts in connection
therewith.
No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Securities on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
10. Miscellaneous. (a) 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, unless the
Company has obtained the written consent of Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities, taken as a single class. 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 whose Securities, Exchange
Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement
<PAGE> 16
16
and that does not directly or indirectly affect the rights of other Holders may
be given by Holders of a majority in aggregate principal amount of the
Securities, the Exchange Securities and the Private Exchange Securities being
sold by such Holders pursuant to such Registration Statement.
(b) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail, telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by
such Holder to the Company in accordance with the provisions of this
Section 10(b), which address initially is, with respect to each
Holder, the address of such Holder maintained by the Registrar under
the Indenture, with a copy in like manner to Chase Securities Inc.,
Goldman, Sachs & Co. and Smith Barney Inc.
(2) if to an Initial Purchaser, initially at its address set
forth in the Purchase Agreement; and
(3) if to the Company, initially at the address of the
Company set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; one business
day after being delivered to a next-day air courier; five business days after
being deposited in the mail; and when receipt is acknowledged by the
recipient's telecopier machine, if sent by telecopier.
(c) Successors And Assigns. This Agreement shall be
binding upon the Company and its successors and assigns.
(d) Counterparts. This Agreement may be executed in any
number of counterparts (which may be delivered in original form or by
telecopier) 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.
(e) Definition of Terms. For purposes of this Agreement,
(a) the term "business day" means any day on which the New York Stock Exchange,
Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth
in Rule 405 under the Securities Act and (c) except where otherwise expressly
provided, the term "affiliate" has the meaning set forth in Rule 405 under the
Securities Act.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
<PAGE> 17
17
(g) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
(h) Remedies. In the event of a breach by the Company or
by any Holder of any of their obligations under this Agreement, each Holder or
the Company, as the case may be, in addition to being entitled to exercise all
rights granted by law, including recovery of damages (other than the recovery
of damages for a breach by the Company of its obligations under Sections 1 or 2
hereof for which liquidated damages have been paid pursuant to Section 3
hereof), will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agree that, in the
event of any action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.
(i) No Inconsistent Agreements. The Company represents,
warrants and agrees that (i) it has not entered into, and shall not, on or
after the date of this Agreement, enter into any agreement that is inconsistent
with the rights granted to the Holders in this Agreement or otherwise conflicts
with the provisions hereof, (ii) it has not previously entered into any
agreement which remains in effect granting any registration rights with respect
to any of its debt securities to any person and (iii) without limiting the
generality of the foregoing, without the written consent of the Holders of a
majority in aggregate principal amount of the then outstanding Transfer
Restricted Securities, it shall not grant to any person the right to request
the Company to register any debt securities of the Company under the Securities
Act unless the rights so granted are not in conflict or inconsistent with the
provisions of this Agreement.
(j) No Piggyback on Registrations. None of the Company
or any of its security holders (other than the Holders of Transfer Restricted
Securities in such capacity) shall have the right to include any securities of
the Company in any Shelf Registration or Registered Exchange Offer other than
Transfer Restricted Securities.
(k) Severability. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law. 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 reasonable 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 executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.
<PAGE> 18
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the Initial Purchasers.
Very truly yours,
BELCO OIL & GAS CORP.
By
-----------------------------
Name:
Title:
Accepted:
CHASE SECURITIES INC.
By
------------------------------
Authorized Signatory
GOLDMAN, SACHS & CO.
By
------------------------------
Authorized Signatory
SMITH BARNEY INC.
By
------------------------------
Authorized Signatory
<PAGE> 19
Annex A to Registration Rights Agreement
Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Securities received in
exchange for Securities where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
<PAGE> 20
Annex B to Registration Rights Agreement
Each broker-dealer that receives Exchange Securities for its
own account in exchange for Securities, where such Securities 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 Exchange Securities. See "Plan of Distribution."
<PAGE> 21
Annex C to Registration Rights Agreement
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. 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 Exchange
Securities received in exchange for Securities where such Securities were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days after the Expiration
Date, it will make this prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale. In addition,
until _______________, 199_, all dealers effecting transactions in the Exchange
Securities may be required to deliver a prospectus.(1)
The Company will not receive any proceeds from any sale of
Exchange Securities by broker-dealers. Exchange Securities received by
broker-dealers for their own account pursuant to the Registered 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 Exchange Securities 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 may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Securities. Any
broker-dealer that resells Exchange Securities that were received by it for its
own account pursuant to the Registered Exchange Offer and any broker or dealer
that participates in a distribution of such Exchange Securities may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Securities and any commission or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Registered Exchange Offer (including the expenses of one
counsel for the Holders of the Securities) other than commissions or
concessions of any broker-dealers and will indemnify the Holders of the
Securities (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
- --------------------
(1) In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Registered Exchange Offer
prospectus.
<PAGE> 22
Annex D to Registration Rights Agreement
[ ] 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:
---------------------------
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 Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities 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 Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE> 1
EXHIBIT 5.1
[VINSON & ELKINS LETTERHEAD]
October 2, 1997
Belco Oil & Gas Corp.
767 Fifth Avenue, 46th Floor
New York, New York 10153
Ladies and Gentlemen:
We have acted as counsel to Belco Oil & Gas Corp., a Nevada
corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-4 (the "Registration Statement") to be filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Company's 8 7/8% Series B Senior Subordinated Notes due 2007 (the "Notes").
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of (i) the Articles of Incorporation and Bylaws
of the Company, (ii) the Indenture dated as of September 23, 1997 (the
"Indenture") by and among the Company and The Bank of New York, as Trustee (the
"Trustee") and (iii) such other certificates, statutes and other instruments
and documents as we considered appropriate for purposes of the opinions
hereafter expressed.
In connection with this opinion, we have assumed that the Registration
Statement, and any amendments thereto (including post-effective amendments),
will have become effective and the Notes will be issued and sold in compliance
with applicable federal and state securities laws and in the manner described
in the Registration Statement and the applicable Prospectus.
Based on the foregoing, we are of the opinion that when the Indenture
has been duly qualified under the Trust Indenture Act of 1939, as amended, and
the Notes have been duly executed, authenticated, issued and delivered in
accordance with the provisions of the Indenture, such Notes will be legally
issued and will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as such
enforcement is subject to any applicable bankruptcy, insolvency, reorganization
or other law relating to or affecting creditors' rights generally and general
principles of equity, and will be entitled to the benefits of the Indenture.
The foregoing opinion is limited in all respects to the laws of the
State of New York and federal laws.
<PAGE> 2
Belco Oil & Gas Corp.
Page 2
October 2, 1997
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. By giving such consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission issued
thereunder.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
<PAGE> 1
EXHIBIT 10.1
EXECUTION COPY
================================================================================
$150,000,000
CREDIT AGREEMENT
among
BELCO OIL & GAS CORP.,
as Borrower
The Several Lenders
from Time to Time Parties Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of September 23, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . 18
SECTION 2. AMOUNT AND TERMS OF REVOLVING COMMITMENTS . . . . . . . . . 19
2.1 Revolving Credit Commitments . . . . . . . . . . . . . . . . 19
2.2 Procedure for Revolving Credit Borrowing . . . . . . . . . . 19
2.3 Repayment of Loans; Evidence of Debt . . . . . . . . . . . . 20
SECTION 3. LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . 20
3.1 The L/C Commitment . . . . . . . . . . . . . . . . . . . . . 20
3.2 Procedure for Issuance of Letters of Credit . . . . . . . . . 21
3.3 Fees, Commissions and Other Charges . . . . . . . . . . . . . 21
3.4 L/C Participations . . . . . . . . . . . . . . . . . . . . . 22
3.5 Reimbursement Obligation of the Borrower . . . . . . . . . . 23
3.6 Obligations Absolute . . . . . . . . . . . . . . . . . . . . 23
3.7 Letter of Credit Payments . . . . . . . . . . . . . . . . . . 24
3.8 L/C Applications . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . 24
4.1 Interest Rates and Payment Dates . . . . . . . . . . . . . . 24
4.2 Computation of Interest and Fees . . . . . . . . . . . . . . 24
4.3 Conversion and Continuation Options . . . . . . . . . . . . . 25
4.4 Minimum Amounts Maximum Number of Tranches . . . . . . . . . 25
4.5 Optional Prepayments and Commitment Reductions . . . . . . . 25
4.6 Commitment Fee; Administrative Agent's Fee; Other Fees . . . 27
4.7 Inability to Determine Interest Rate . . . . . . . . . . . . 27
4.8 Pro Rata Treatment and Payments . . . . . . . . . . . . . . . 28
4.9 Computation of Borrowing Base . . . . . . . . . . . . . . . . 28
4.10 Borrowing Base Compliance . . . . . . . . . . . . . . . . . 30
4.11 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.12 Requirements of Law . . . . . . . . . . . . . . . . . . . . 30
4.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.14 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.15 Change of Lending Office . . . . . . . . . . . . . . . . . . 33
SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 34
5.1 Financial Condition . . . . . . . . . . . . . . . . . . . . . 34
5.2 No Change . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.3 Existence; Compliance with Law . . . . . . . . . . . . . . . 35
5.4 Power; Authorization; Enforceable Obligations . . . . . . . . 35
5.5 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . 35
5.6 No Material Litigation . . . . . . . . . . . . . . . . . . . 35
5.7 No Default . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.8 Ownership of Property; Liens . . . . . . . . . . . . . . . . 36
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.9 Intellectual Property . . . . . . . . . . . . . . . . . . . . 36
5.10 No Burdensome Restrictions . . . . . . . . . . . . . . . . . 36
5.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.12 Federal Reserve Regulations . . . . . . . . . . . . . . . . 37
5.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.14 Investment Company Act; Other Regulations . . . . . . . . . 37
5.15 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 37
5.16 Purpose of Loans . . . . . . . . . . . . . . . . . . . . . . 37
5.17 Environmental Matters . . . . . . . . . . . . . . . . . . . 38
5.18 No Material Misstatements . . . . . . . . . . . . . . . . . 38
5.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.20 Future Commitments . . . . . . . . . . . . . . . . . . . . . 39
5.21 Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . 39
6.1 Conditions to Initial Extensions of Credit . . . . . . . . . 39
6.2 Conditions to Each Extension of Credit . . . . . . . . . . . 42
SECTION 7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . 42
7.1 Financial Statements . . . . . . . . . . . . . . . . . . . . 43
7.2 Certificates; Other Information . . . . . . . . . . . . . . . 43
7.3 Payment of Obligations . . . . . . . . . . . . . . . . . . . 44
7.4 Conduct of Business and Maintenance of Existence; Compliance
with Law and Contractual Obligations . . . . . . . . . . . 44
7.5 Maintenance of Property; Insurance . . . . . . . . . . . . . 44
7.6 Inspection of Property; Books and Records; Discussions . . . 44
7.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.8 Environmental Laws . . . . . . . . . . . . . . . . . . . . . 45
7.9 Additional Collateral . . . . . . . . . . . . . . . . . . . . 46
7.10 Maintenance and Operation of Property . . . . . . . . . . . 47
7.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . 47
SECTION 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 47
8.1 Financial Covenant Conditions . . . . . . . . . . . . . . . . 47
8.2 Limitation on Indebtedness . . . . . . . . . . . . . . . . . 48
8.3 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . 49
8.4 Limitation on Guarantee Obligations . . . . . . . . . . . . . 50
8.5 Limitation on Fundamental Changes . . . . . . . . . . . . . . 51
8.6 Limitation on Sale of Assets . . . . . . . . . . . . . . . . 51
8.7 Limitation on Restricted Payments . . . . . . . . . . . . . . 52
8.8 Limitation on Investments, Loans and Advances . . . . . . . . 53
8.9 Limitation on Optional Payments and Modifications of Debt
Instruments, Other Material Agreements . . . . . . . . . . 54
8.10 Limitation on Transactions with Affiliates . . . . . . . . . 54
8.11 Limitation on Sales and Leasebacks . . . . . . . . . . . . . 54
8.12 Limitation on Changes in Fiscal Year . . . . . . . . . . . . 54
8.13 Limitation on Negative Pledge Clauses . . . . . . . . . . . 54
8.14 Limitation on Lines of Business . . . . . . . . . . . . . . 55
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.15 Forward Sales . . . . . . . . . . . . . . . . . . . . . . . 55
8.16 Hedging Agreements . . . . . . . . . . . . . . . . . . . . . 55
8.17 Unrestricted Subsidiaries . . . . . . . . . . . . . . . . . 55
SECTION 9. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 10. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . 59
10.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . 59
10.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . 59
10.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . 59
10.4 Reliance by Administrative Agent . . . . . . . . . . . . . . 59
10.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . 60
10.6 Non-Reliance on Administrative Agent and Other Lenders . . . 60
10.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . 60
10.8 Administrative Agent in Its Individual Capacity . . . . . . 61
10.9 Successor Administrative Agent . . . . . . . . . . . . . . . 61
10.10 Issuing Lender . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 61
11.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . 61
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 62
11.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . 63
11.4 Survival of Representations and Warranties . . . . . . . . . 63
11.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . 63
11.6 Successors and Assigns; Participations and Assignments . . . 64
11.7 Adjustments; Set-off . . . . . . . . . . . . . . . . . . . . 66
11.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 67
11.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . 67
11.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . 67
11.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . 67
11.12 Submission To Jurisdiction; Waivers . . . . . . . . . . . . 67
11.13 Acknowledgments; Designated Senior Debt . . . . . . . . . . 68
11.14 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . . 68
11.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 68
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C>
SCHEDULES
1.1(a) Commitments
5.1 Sales, Transfers and Dispositions; Acquisitions
5.15 Subsidiaries
5.20 Future Commitments
5.21 UCC Filings
8.2(e) Existing Indebtedness
8.3 Existing Liens
8.4 Guarantee Obligations
8.8 Existing Investments
8.10 Affiliate Transactions
11.2 Addresses for Notices
EXHIBITS
A Form of Revolving Credit Note
B Form of Pledge Agreement
C-1 Form of Opinion of Vinson & Elkins L.L.P.,
counsel to the Borrower and to each Pledgor
C-2 Form of Opinion of Woodburn and Wedge,
Nevada counsel to the Loan Parties
C-3 Form of Opinion of Brown Drew Massey & Sullivan,
Wyoming counsel to the Loan Parties
D Form of Borrowing Certificate
E Form of Assignment and Acceptance
</TABLE>
- iv -
<PAGE> 6
CREDIT AGREEMENT, dated as of September 23, 1997, among Belco
Oil & Gas Corp., a Nevada corporation (the "Borrower"), the several banks,
financial institutions and other entities from time to time parties to this
Agreement (collectively, the "Lenders") and The Chase Manhattan Bank, as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Lenders to extend
credit in the form of Loans (such term and each other capitalized term used but
not defined in these recitals having the meaning given to it in Section 1);
WHEREAS, the Borrower has requested the Issuing Lender to
issue Letters of Credit to support payment obligations incurred in the ordinary
course of business;
WHEREAS, concurrently herewith, the Borrower intends to issue,
though a Rule 144A or other private placement or public offering (the "Senior
Subordinated Note Offering"), at least $150,000,000 in aggregate principal
amount of senior subordinated debt securities due 2007 (the "Senior
Subordinated Notes");
WHEREAS, the proceeds of the Loans and the Letters of Credit
are to be used for working capital and for the general corporate purposes of
the Borrower and its Subsidiaries in the ordinary course of business;
NOW THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on
such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall
mean the rate of interest per annum publicly announced from time to
time by Chase as its prime rate in effect at its principal office in
New York City (the Prime Rate not being intended to be the lowest rate
of interest charged by Chase in connection with extensions of credit
to debtors); "Base CD Rate" shall mean the sum of (a) the product of
(i) the Three-Month Secondary CD Rate and (ii) a fraction, the
numerator of which is one and the denominator of which is one minus
the C/D Reserve Percentage and (b) the C/D Assessment Rate;
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day shall not be a Business Day,
the next preceding Business Day) by the Board of Governors of the
Federal Reserve System (the "Board") through the public information
telephone line of the Federal Reserve Bank of New York (which rate
will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week
following such day), or, if such rate shall not be so reported on such
day or such next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of major
money center
<PAGE> 7
2
banks in New York City received at approximately 10:00 A.M., New York
City time, on such day (or, if such day shall not be a Business Day,
on the next preceding Business Day) by the Administrative Agent from
three New York City negotiable certificate of deposit dealers of
recognized standing selected by it; and "Federal Funds Effective Rate"
shall mean, for any day, the weighted average of the rates on
overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business
Day, the average of the quotations for the day of such transactions
received by the Administrative Agent from three federal funds brokers
of recognized standing selected by it. Any change in the ABR due to a
change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate, the
Three-Month Secondary CD Rate or the Federal Funds Effective Rate,
respectively.
"ABR Loans": Loans the rate of interest applicable to which
is based upon the ABR.
"Administrative Agent": as defined in the preamble to this
Agreement.
"Affiliate": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such Person. For
purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the management
and policies of such Person, whether by contract or otherwise;
provided that no Person shall be deemed to be an Affiliate of a Person
solely by virtue of being a Director of such Person.
"Aggregate Revolving Credit Exposure": as to any Lender at
any time, an amount equal to the sum of (a) the aggregate principal
amount of all Loans made by such Lender then outstanding and (b) such
Lender's Commitment Percentage of the Letter of Credit Outstandings at
such time.
"Agreement": this Credit Agreement, as further amended,
supplemented or otherwise modified from time to time.
"Applicable Margin": for any day with respect to Eurodollar
Loans, the applicable per annum rate set forth below opposite the
Borrowing Base Usage in effect on such day:
<TABLE>
<CAPTION>
Eurodollar
Borrowing Base Usage Margin
-------------------- ----------
<S> <C>
Less than or equal to 50% .50%
Greater than 50% and less .625%
than or equal to 80%
Greater than 80% .875%
</TABLE>
As used herein, "Borrowing Base Usage" on any day means the percentage
equivalent of the ratio of (i) the sum of the aggregate principal
amount of the Loans then outstanding and Letter of Credit Outstandings
on such day to (ii) the Borrowing Base in effect on such day.
<PAGE> 8
3
"Assignee": as defined in subsection 11.6(c).
"Assignment and Acceptance": as defined in subsection
11.6(c).
"Available Commitment": as to any Lender at any time, an
amount equal to the excess, if any, of (a) the amount of such Lender's
Revolving Credit Commitment over (b) such Lender's Aggregate Revolving
Credit Exposure.
"Borrower": as defined in the recitals to this Agreement.
"Borrower Redetermination Notice": a notice from the Borrower
to the Administrative Agent requesting that the Administrative Agent
redetermine the Borrowing Base, which notice may be sent by the
Borrower at any time, provided no more than two such notices may be
delivered by the Borrower during any consecutive 12 month period.
"Borrowing Base": at any time of determination, the amount
then in effect as determined in accordance with subsection 4.9;
provided, however, that from the date hereof until such time as the
Borrowing Base is so redetermined in accordance with subsection 4.9,
the Borrowing Base shall be $50,000,000.
"Borrowing Base Availability": as to any Lender at any time,
an amount equal to the excess, if any, of (a) such Lender's Commitment
Percentage of the Borrowing Base in effect at such time over (b) such
Lender's Aggregate Revolving Credit Exposure.
"Borrowing Base Deficiency": as defined in subsection 4.10.
"Borrowing Base Period": (a) initially, the period commencing
on the Closing Date and ending on the date the Borrowing Base is next
redetermined pursuant to subsection 4.9 and (b) thereafter, each
period commencing on the last day of the immediately preceding
Borrowing Base Period and ending on the earlier of (i) the immediately
succeeding January 1; (ii) the immediately succeeding July 1; and
(iii) the date of the first Reserve Report, if any, issued since the
commencement of such Borrowing Base Period in connection with a
Borrower Redetermination Notice or a Lender Redetermination Notice.
"Borrowing Base Usage": as defined under the definition of
Applicable Margin.
"Borrowing Date": any Business Day specified in a notice
pursuant to subsection 2.2 or 3.2 as a date on which the Borrower
requests the Lenders to make Loans or the Issuing Lender to issue a
Letter of Credit hereunder.
"Business Day": any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or
required by law to remain closed; provided that, when used in
connection with a Eurodollar Loan, the term "Business Day" shall also
exclude any day on which banks are not open for dealings in dollar
deposits in the London interbank market.
"Capital Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in
accordance with GAAP to be capitalized on a balance sheet of the
lessee.
<PAGE> 9
4
"Capital Stock": any and all shares, interests,
participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent ownership interests in
a Person (other than a corporation) and any and all warrants or
options to purchase any of the foregoing.
"Cash Equivalents": (a) securities with maturities of one
year or less from the date of acquisition issued or fully guaranteed
or insured by the United States Government or any agency thereof, (b)
certificates of deposit and eurodollar time deposits with maturities
of one year or less from the date of acquisition and overnight bank
deposits of any Lender or of any commercial bank (i) having capital
and surplus in excess of $500,000,000 or (ii) which has a short-term
commercial paper rating which satisfies the requirements set forth in
clause (d) below, (c) repurchase obligations of any Lender or of any
commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than 30 days with respect to
securities issued, fully guaranteed or insured by the United States
Government or any agency thereof, (d) commercial paper of a domestic
issuer rated at least A-2 by Standard and Poor's Ratings Group ("S&P")
or P-2 by Moody's Investors Service, Inc. ("Moody's"), (e) securities
with maturities of one year or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of
the United States, by any political subdivision or taxing authority of
any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory,
political subdivision, taxing authority or foreign government (as the
case may be) are rated at least A by S&P or A by Moody's, (f)
securities with maturities of one year or less from the date of
acquisition backed by standby letters of credit issued by any Lender
or any commercial bank satisfying the requirements of clause (b) of
this definition or (g) shares of money market mutual or similar funds
which invest exclusively in assets satisfying the requirements of
clauses (a) through (f) of this definition.
"C/D Assessment Rate": for any day as applied to any ABR
Loan, the annual assessment rate in effect on such day which is
payable by a member of the Bank Insurance Fund maintained by the
Federal Deposit Insurance Corporation (the "FDIC") classified as
well-capitalized and within supervisory subgroup "B" (or a comparable
successor assessment risk classification) within the meaning of 12
C.F.R. Section 327.4 (or any successor provision) to the FDIC (or any
successor) for the FDIC's (or such successor's) insuring time deposits
at offices of such institution in the United States.
"C/D Reserve Percentage": for any day as applied to any ABR
Loan, that percentage (expressed as a decimal) which is in effect on
such day, as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) (the "Board"), for determining the
maximum reserve requirement for a Depositary Institution (as defined
in Regulation D of the Board) in respect of new non-personal time
deposits in Dollars having a maturity of 30 days or more.
"Change of Control": the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or
a series of related transactions, of all or substantially all of the
assets of the Borrower and its Subsidiaries taken as a whole to any
"Person" or group of related Persons (a "Group") (as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the"Exchange Act"));
<PAGE> 10
5
(ii) the consummation of any transaction (including,
without limitation, any purchase, sale, acquisition, disposition,
merger or consolidation) the result of which is that any "person" (as
defined above) or Group, other than one or more Designated Persons,
becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act) of (a) more than 40% of the
aggregate voting power of all classes of Capital Stock of the Borrower
having the right to elect directors under ordinary circumstances at a
time when the Designated Persons in the aggregate do not beneficially
own more than 50% of the aggregate voting power of all classes of
Capital Stock of the Borrower, or (b) 50% or more of the aggregate
voting power of all classes of Capital Stock of the Borrower having
the right to elect directors under ordinary circumstances, at any
time;
(iii) the Designated Persons shall cease to be the
beneficial owners of an aggregate of at least 20% of the aggregate
voting power of all classes of Capital Stock of the Borrower having
the right to elect directors under ordinary circumstances;
(iv) the adoption of a plan relating to the liquidation or
dissolution of the Borrower; and
(v) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board
of Directors (together with any new directors whose election by such
Board of Directors or whose nomination for election by the
shareholders of the Borrower was approved by a vote of a majority of
the directors of the Borrower then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors then in
office.
"Chase": The Chase Manhattan Bank.
"Closing Date": the date on which the conditions precedent
set forth in subsection 6.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended from
time to time.
"Commitments": the collective reference to the Revolving
Credit Commitments and the L/C Commitment.
"Commitment Fee Rate": for any day, a rate per annum equal to
(a) .20% if the Borrowing Base Usage in effect on such day is less
than or equal to 50%, (b) .25% if the Borrowing Base Usage in effect
on such day is greater than 50% and less than or equal to 80% and (c)
.30% if the Borrowing Base Usage in effect on such day is greater than
80%.
"Commitment Percentage": as to any Lender at any time, the
percentage which such Lender's Revolving Credit Commitment then
constitutes of the aggregate Revolving Credit Commitments (or, at any
time after the Revolving Credit Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of
such Lender's Revolving Credit Loans then outstanding constitutes of
the aggregate principal amount of the Revolving Credit Loans then
outstanding).
<PAGE> 11
6
"Commitment Period": the period from and including the
Closing Date to but not including the Termination Date or such earlier
date on which the Commitments shall terminate as provided herein.
"Commodity Price Risk Management Agreement": a commodity
price risk management or purchase agreement or similar arrangement
entered into in the ordinary course of business with the intent of
achieving more predictable revenues and cash flows and reducing the
exposure to fluctuations in oil and gas prices.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which is treated as a single employer under
Section 414 of the Code.
"Consolidated Interest Expense": with respect to the Borrower
and its Restricted Subsidiaries on a consolidated basis for any
period, the sum of (i) gross interest expense (including all cash and
accrued interest expense) of the Borrower and its Restricted
Subsidiaries for such period on a consolidated basis, including to the
extent included in interest expense in accordance with GAAP (x) the
amortization of debt discounts and (y) the portion of any payments or
accruals with respect to Capital Leases allocable to interest expense
and (ii) capitalized interest of the Borrower and its Restricted
Subsidiaries on a consolidated basis.
"Consolidated Net Income": for any period, net income of the
Borrower and its Restricted Subsidiaries determined on a consolidated
basis in accordance with GAAP, minus non-cash gains resulting from the
net change in value of the Borrower's mark-to-market portfolio of
price risk management activities for that period to the extent such
gains are included in the net income of the Borrower for such period.
"Contractual Obligation": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or
any of its property is bound.
"Control": 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 ability to exercise voting power, by
contract or otherwise.
"Default": any of the events specified in Section 9, whether
or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Designated Persons": (1) Robert A. Belfer, Renee E. Belfer,
Laurence D. Belfer and Jack Saltz (2) the spouses or descendants of
such individuals, (3) the estates or legal representatives of the
individuals named in clauses (1) and (2) and (4) trusts created for
the benefit of Persons named in clauses (1) and (2).
"Disqualified Stock": means any Capital Stock that, 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 for any consideration other than
Capital Stock, pursuant to a sinking fund obligation or otherwise, is
convertible or is exchangeable for Indebtedness or Disqualified Stock
or redeemable for any consideration other than Capital Stock at the
option of the holder thereof, in whole or in part on or prior to the
<PAGE> 12
7
date that is one year after the earlier of (x) the Termination Date or
(y) the date on which there are no Loans, Reimbursement Obligations or
other obligations hereunder outstanding and the Commitments are
terminated.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
"Domestic Subsidiary": any Restricted Subsidiary organized
under the laws of any jurisdiction within the United States of America
(including territories thereof).
"EBITDA": with respect to the Borrower, for any period,
Consolidated Net Income for that period, plus, to the extent deducted
from revenues in determining Consolidated Net Income for that period,
(a) the aggregate amount of Consolidated Interest Expense for that
period, (b) the aggregate amount of letter of credit fees paid during
that period, (c) the aggregate amount of income tax expense for that
period, (d) all amounts attributable to depreciation, depletion and
amortization for that period, (e) all non-cash extraordinary expenses
during that period and (f) non-cash losses or charges to net income
resulting from the net change in value of the Borrower's
mark-to-market portfolio of price risk management activities for that
period, and minus, to the extent included in revenues in determining
Consolidated Net Income for that period, all non-cash extraordinary
income during that period, in each case determined in accordance with
GAAP and without duplication of amounts.
"Environmental Laws": with respect to any Person, any and all
laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, or other legally enforceable requirement (including, without
limitation, common law) of any foreign government, the United States,
or any state, local, municipal or other governmental authority, having
jurisdiction over such Person or its Properties and regulating,
relating to or imposing liability or standards of conduct concerning
protection of the environment or of human health, as has been, is now,
or may at any time hereafter be, in effect.
"Environmental Permits": any and all permits, licenses,
registrations, notifications, approvals, exemptions and any other
authorization required under any Environmental Law.
"Equity Interests": Capital Stock and all warrants, options
or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital
Stock).
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied
to a Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal) of reserve requirements in effect on such day
(including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of
the Federal Reserve System or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained
by a member bank of such System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum
equal to the rate per annum for Dollar
<PAGE> 13
8
deposits with a maturity comparable to such Interest Period which
appears on the Telerate British Bankers Assoc. Interest Settlement
Rates Page at approximately 10:00 a.m., London time, two Business Days
prior to the commencement of such Interest Period; provided that if
there shall no longer exist a Telerate British Bankers Assoc. Interest
Settlement Rates Page (or such page is not available on the relevant
Business Day), the Eurodollar Base Rate shall mean an interest rate
per annum equal to the average (rounded upward, if necessary, to the
next 1/16th of 1%) of the respective rates per annum notified to the
Administrative Agent by each of the Reference Banks as the average of
the rates at which Dollar deposits (in an amount comparable to the
amount of Chase's Eurodollar Loan to be outstanding during such
Interest Period and for a maturity comparable to such Interest Period)
are offered to such Reference Bank in immediately available funds by
prime banks in the London interbank market at approximately 11:00
a.m., London time, two Business Days prior to the commencement of such
Interest Period. "Telerate British Bankers Assoc. Interest Settlement
Rates Page" shall mean the display designated as Page 3750 on
Teleratesystem Incorporated (or such other replacement page thereof
used to display London interbank offered rates of major banks).
"Eurodollar Loans": Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum
determined for such day in accordance with the following formula
(rounded upward to the nearest 1/100th of 1%):
Eurodollar Base Rate
________________________________________
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 9,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Extension of Credit": as to any Lender, the making of, or
the issuance of, or participation in, a Loan by such Lender or the
issuance of, or participation in, a Letter of Credit by such Lender.
"Foreign Subsidiary": any Restricted Subsidiary which is
organized and existing under the laws of any jurisdiction outside of
the United States of America.
"GAAP": generally accepted accounting principles in the
United States of America in effect from time to time; provided that
for purposes of determining compliance with the covenants contained in
Section 8, "GAAP" shall mean generally accepted accounting principles
in the United States of America as in effect on the date hereof and
applied on a basis consistent with the application used in the
financial statements referred to in subsection 5.1; provided further
that if changes are made to or required by GAAP which materially alter
the calculations required under subsection 8.1 hereof, the Borrower
may request that the Administrative Agent and the Required Lenders
amend such subsection to reflect such changes in GAAP and to apply
such new accounting principles in the preparation of its subsequent
financial statements.
<PAGE> 14
9
"Governmental Authority": any nation or government, any state
or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has
issued a reimbursement, counterindemnity or similar obligation, in
either case guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends or other obligations (the "primary obligations") of
any other third Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation
of the guaranteeing person, whether or not contingent, (i) to purchase
any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (1) for
the purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary
obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the owner of
any such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the lower of (a) an amount
equal to the stated or determinable amount of the primary obligation
in respect of which such Guarantee Obligation is made and (b) the
maximum amount for which such guaranteeing person may be liable
pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for
which such guaranteeing person may be liable are not stated or
determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated
liability in respect thereof as determined by the Borrower in good
faith. Obligations of the Borrower or any Subsidiary pursuant to
indemnities which (a) are granted in the ordinary course of business,
including, without limitation, such obligations in connection with
stock purchase agreements or asset purchase and sale agreements and
(b) do not cover Indebtedness of the types described in clauses (a)
through (f) of the definition of Indebtedness, shall not constitute
"Guarantee Obligations" for purposes of this Agreement.
"Hedging Agreement": any Interest Rate Protection Agreement,
Commodity Price Risk Management Agreement, foreign currency exchange
agreement, commodity price protection agreement or other interest or
currency exchange rate or commodity price hedging arrangement.
"Hydrocarbon Interests": all rights, titles, interests and
estates now owned or hereafter acquired in and to oil and gas leases,
oil, gas and mineral leases, or other liquid or gaseous hydrocarbon
leases, mineral fee or lease interests, farm-outs overriding royalty
and royalty interests, net profit interests, oil payments, production
payment interests and similar mineral interests, including any
reserved or residual interest of whatever nature.
"Hydrocarbons": oil, gas, casinghead gas, condensate,
distillate, liquid hydrocarbons, gaseous hydrocarbons, all products
refined, separated, settled and dehydrated therefrom and all products
refined therefrom, including, without limitation, kerosene, liquefied
petroleum gas,
<PAGE> 15
10
refined lubricating oils, diesel fuel, drip gasoline, natural
gasoline, helium, sulfur and all other minerals.
"Indebtedness": of any Person at any date (a) all indebtedness
of such Person for borrowed money or for the deferred purchase price
of property or services (other than current trade liabilities incurred
in the ordinary course of business and payable in accordance with
customary practices and accrued current liabilities incurred in the
ordinary course of business), (b) any other indebtedness of such
Person which is evidenced by a note, bond, debenture or similar
instrument, (c) all obligations of such Person under Capital Leases,
(d) all obligations of such Person in respect of letters of credit and
acceptances issued or created for the account of such Person, (e) all
obligations of such Person under Commodity Price Risk Management
Agreements and Interest Rate Protection Agreements, (f) all
obligations of others of the type referred to in clauses (a) through
(e) above and which are secured by any Lien on any property owned by
such Person even though such Person has not assumed or otherwise
become liable for the payment thereof, except that the amount of any
nonrecourse obligation shall be deemed to be the lesser of the value
of the property securing such obligation and the amount of such
obligation so secured and (g) all Guarantee Obligations with respect
to the items described in clauses (a) through (e) above; provided
that, for purposes of calculating the covenants set forth in
subsection 8.1, "Indebtedness" shall exclude obligations of the type
referred to in clause (e) above.
"Initial Reserve Report": as defined in subsection 6.1(l).
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Payment Date": (a) as to any ABR Loan, the last day
of each March, June, September and December, commencing September 30,
1997, (b) as to any Eurodollar Loan having an Interest Period of three
months or less, the last day of such Interest Period, and (c) as to
any Eurodollar Loan having an Interest Period longer than three
months, each day which is three months, or a whole multiple thereof,
after the first day of such Interest Period and the last day of such
Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
(i) initially, the period commencing on the
borrowing or conversion date, as the case may be, with respect
to such Eurodollar Loan and ending one, two, three or six (or,
to the extent available to all Lenders, nine or twelve) months
thereafter, as selected by the Borrower in its notice of
borrowing or notice of conversion, as the case may be, given
with respect thereto; and
(ii) thereafter, each period commencing on the
last day of the next preceding Interest Period applicable to
such Eurodollar Loan and ending one, two, three or six (or, to
the extent available to all Lenders, nine or twelve) months
thereafter, as selected by the Borrower by irrevocable notice
to the Administrative Agent not less than three Business Days
prior to the last day of the then current Interest Period with
respect thereto;
<PAGE> 16
11
provided that, all of the foregoing provisions relating to Interest
Periods are subject to the following:
(1) if any Interest Period pertaining to a
Eurodollar Loan would otherwise end on a day that is not a
Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless the result of such
extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end
on the immediately preceding Business Day;
(2) any Interest Period pertaining to a Eurodollar
Loan that begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month; and
(3) the Borrower shall select Interest Periods so as
not to require a payment or prepayment of any Eurodollar Loan
during an Interest Period for such Loan.
"Interest Rate Protection Agreement": an interest rate swap,
cap or collar agreement or similar arrangement entered into with the
intent of protecting against fluctuations in interest rates or the
exchange of notional interest obligations, either generally or under
specific contingencies.
"Investments": as defined in subsection 8.8.
"Issuing Lender": Chase or any of its respective Affiliates,
in its capacity as issuer of a Letter of Credit, and any other Lender
to whom Chase or any of its respective Affiliates assigns its
obligations to issue Letters of Credit hereunder.
"L/C Application": as defined in subsection 3.2.
"L/C Commitment": the Issuing Lender's obligation to issue
Letters of Credit pursuant to Section 3 of this Agreement.
"L/C Participating Interest": with respect to any Letter of
Credit (a) in the case of the Issuing Lender with respect thereto, its
interest in such Letter of Credit and any L/C Application relating
thereto after giving effect to the granting of participating interests
therein, if any, pursuant hereto and (b) in the case of each
Participating Lender, its undivided participating interest in such
Letter of Credit and any L/C Application relating thereto.
"Lender Redetermination Notice": a notice from the
Supermajority Lenders to the Borrower giving notice of their election
to redetermine the Borrowing Base, which notice may be sent by the
Supermajority Lenders at any time they so elect, provided that such an
election can be made by the Supermajority Lenders no more than once
during any consecutive 12 month period.
"Letters of Credit": as defined in subsection 3.1(a).
"Letter of Credit Outstandings": at any time, the sum of (a)
the aggregate amount available for drawing under Letters of Credit
then outstanding and (b) the aggregate amount of
<PAGE> 17
12
drawings under Letters of Credit which have not then been reimbursed
pursuant to subsection 3.5.
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or
other security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement and any Capital Lease having substantially the
same economic effect as any of the foregoing).
"Loan": as defined in subsection 2.1(a).
"Loan Documents": this Agreement, any Notes, the Pledge
Agreement, and the L/C Applications.
"Loan Parties": the Borrower and the Pledgors.
"Material Adverse Effect": a material adverse effect on (a)
the business, assets, property, condition (financial or otherwise) or
prospects of the Borrower and its Restricted Subsidiaries taken as a
whole, (b) the ability of the Borrower or the Pledgors to perform
their respective obligations under the Loan Documents or (c) the
validity or enforceability of this or any of the other Loan Documents
or the rights and remedies of the Administrative Agent and the Lenders
hereunder or thereunder.
"Materials of Environmental Concern": any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials, or wastes,
defined or regulated as such in or under any Environmental Law,
including, without limitation, asbestos or asbestos containing
material, polychlorinated biphenyls, urea-formaldehyde insulation, and
any other substance that is regulated pursuant to or could give rise
to liability under any Environmental Law.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Non-Excluded Taxes": as defined in subsection 4.13(a).
"Non-Recourse Debt": Indebtedness (i) as to which neither the
Borrower nor any of its Restricted Subsidiaries (a) provides any
guarantee or credit support of any kind (including any undertaking,
guarantee, indemnity, agreement or instrument that would constitute
Indebtedness), or (b) is directly or indirectly liable (as guarantor
or otherwise); and (ii) no default with respect to which (including
any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice,
lapse of time, or both) any holder of any other Indebtedness of the
Borrower or any of its Restricted Subsidiaries to declare a default on
such other indebtedness or cause the payment thereof to be accelerated
or payable prior to its stated maturity; and (iii) the explicit terms
of which provide that there is no recourse against any of the assets
of the Borrower or its Restricted Subsidiaries (other than the Capital
Stock of an Unrestricted Subsidiary).
"Non-U.S. Lender": as defined in subsection 4.13(b).
<PAGE> 18
13
"Notes": as defined in subsection 2.3(e).
"Oil and Gas Business": (a) the acquisition, exploration,
exploitation, development, operation and disposition of interests in
Oil and Gas Properties and Hydrocarbons, including the acquisition,
ownership and disposition of interests in Persons engaged in the Oil
and Gas Business; (b) the gathering, marketing, treating, processing,
storage, selling and transporting of any production from such
interests or Properties, including, without limitation, the marketing
of Hydrocarbons obtained from unrelated Persons; (c) any business
relating to or arising from exploration for or development,
production, treatment, processing, storage, transportation or
marketing of Hydrocarbons; (d) any business relating to oilfield sales
and service, and (e) any activity that is ancillary or necessary or
desirable to facilitate the activities described in clauses (a)
through (d) of this definition.
"Oil and Gas Properties": 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 having
jurisdiction) which may affect all or any portion of the Hydrocarbon
Interests; all pipelines, gathering lines, compression facilities,
tanks and processing plants; all interests held in royalty trusts
whether presently existing or hereafter created; all Hydrocarbons in
and under and which may be produced, saved, processed or attributable
to the Hydrocarbon Interests, the lands covered thereby and all
Hydrocarbons in pipelines, gathering lines, tanks and processing
plants 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 way
appertaining, belonging, affixed or incidental to the Hydrocarbon
Interests, and all rights, titles, interests and estates described or
referred to above, including any and all real property, now owned or
hereafter acquired, used or held for use in connection with the
operating, working or development of any of such Hydrocarbon Interests
or Property and including any and all surface leases, rights-of-way,
easements and servitude together with all additions, substitutions,
replacements, accessions and attachments to any and all of the
foregoing; all oil, gas and mineral leasehold and fee interests, all
overriding royalty interests, mineral interests, royalty interests,
net profits interests, net revenue interests, oil payments, production
payments, carried interests and any and all other interests in
Hydrocarbons; in each case whether now owned or hereafter acquired
directly or indirectly.
"Participants": as defined in subsection 11.6(b).
"Participating Lender": with respect to any Letter of Credit,
any Lender (other than the Issuing Lender with respect to such Letter
of Credit) with respect to its L/C Participating Interest in such
Letter of Credit.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Business Acquisition": the formation of a new
Subsidiary or any acquisition of all or substantially all the assets
of, or shares of capital stock, partnership interests, joint venture
interests, limited liability company interests or other similar equity
interests in, a Person or division or line of business of a Person (or
any subsequent investment made in a Person previously acquired in a
Permitted Business Acquisition), if immediately after giving effect
thereto: (a) no Default or Event of Default shall have occurred and be
<PAGE> 19
14
continuing or would result therefrom, (b) all transactions related
thereto shall be consummated in accordance with applicable laws, (c)
such acquired or newly formed corporation, partnership, association or
other business entity shall be a Restricted Subsidiary and all of the
Capital Stock of such acquired or newly formed corporation,
partnership, association or other business entity are owned directly
by the Borrower or a domestic Wholly-Owned Restricted Subsidiary and
all actions required to be taken, if any, with respect to such
acquired or newly formed Subsidiary under subsection 7.9 shall have
been taken, (d)(i) the Borrower shall be in compliance, on a pro forma
basis after giving effect to such acquisition or formation, with the
covenants contained in subsection 8.1 recomputed as at the last day of
the most recently ended fiscal quarter of the Borrower as if such
acquisition had occurred on the first day of each relevant period for
testing such compliance, and the Borrower shall have delivered to the
Administrative Agent an officers' certificate to such effect, together
with all relevant financial information for such Person or assets and
(ii) any acquired or newly formed Subsidiary shall not be liable for
any Indebtedness or Guarantee Obligations (except for Indebtedness and
Guarantee Obligations permitted by subsections 8.2 and 8.4) and (e)
any acquired or newly formed Subsidiary shall not have (except for
Indebtedness and Guarantee Obligations permitted by subsections 8.2
and 8.4) any material liabilities (contingent or otherwise),
including, without limitation, liabilities under Environmental Laws
and liabilities with respect to any Plan, and the Borrower shall have
delivered to the Administrative Agent a certificate, signed by a
Responsible Officer, that to the best of such officer's knowledge, no
such material liabilities exist.
"Permitted Business Investments": investments made in the
ordinary course of, and of a nature that is or shall have become
customary in, the Oil and Gas Business as a means of actively
exploiting, exploring for, acquiring, developing, processing,
gathering, marketing, storing, treating, selling or transporting oil
and gas through agreements, transactions, interests or arrangements
which permit one to share risks or costs, comply with regulatory
requirements regarding local ownership or satisfy other objectives
customarily achieved through the conduct of Oil and Gas Business
jointly with third parties, including, without limitation, the entry
into operating agreements, working interests, royalty interests,
mineral leases, processing agreements, farm-out and farm-in
agreements, division orders, contracts for the sale, transportation or
exchange of oil or natural gas, unitization and pooling declarations
and agreements and area of mutual interest agreements, production
sharing agreements or other similar or customary agreements,
transactions, properties, interests, and investments and expenditures
in connection therewith; provided that an investment in capital stock,
partnership interests, joint venture interests, limited liability
company interests or other similar equity interests in a Person shall
not constitute a Permitted Business Investment.
"Permitted Subordinated Refinancing Debt": Indebtedness of
the Borrower issued in exchange for, or the net proceeds of which are
used to refinance, replace, defease or refund, any Subordinated
Indebtedness; provided that (a) the principal amount of such Permitted
Subordinated Refinancing Debt does not exceed the principal amount (or
accreted value, if applicable) of the Subordinated Indebtedness so
refinanced, replaced, defeased or refunded, plus the amount of
premiums, prepayments, penalties and other amounts required to be paid
in connection therewith and the reasonable and customary fees and
expenses incurred in connection therewith, (b) the subordination
provisions in such Permitted Subordinated Refinancing Debt are no less
favorable to the Lenders than the subordination provisions contained
in the Subordinated Indebtedness being refinanced, (c) the interest
rate on such Permitted Subordinated Refinancing Debt is no higher than
the interest rate on the Subordinated Indebtedness being refinanced
and the interest periods are no shorter than the
<PAGE> 20
15
interest periods with respect to the Subordinated Indebtedness being
refinanced and (d) the timing and amounts of principal repayments
(including any sinking fund therefor) on such Permitted Subordinated
Refinancing Debt are no sooner and greater, respectively, than the
timing and amounts of principal repayments under the Subordinated
Indebtedness being refinanced.
"Person": an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which
is subject to Title IV of ERISA and in respect of which the Borrower
or a Commonly Controlled Entity is (or, if such plan were terminated
at such time, would under Section 4069 of ERISA be deemed to be) an
"employer" as defined in Section 3(5) of ERISA.
"Pledge Agreement": the Pledge Agreement, executed and
delivered by each of the Pledgors, dated as of September 23, 1997,
substantially in the form of Exhibit B, as amended, modified or
supplemented from time to time.
"Pledged Securities": the Capital Stock of each direct and
indirect Restricted Subsidiary of the Borrower and each other
Subsidiary of the Borrower (whether now formed or hereafter acquired)
whose Capital Stock is pledged to the Lenders pursuant to the Pledge
Agreement or subsection 7.9.
"Pledgors": the Borrower and each of its Subsidiaries which is
a party to the Pledge Agreement on the Closing Date or which becomes a
party to a pledge agreement pursuant to subsection 7.9.
"Properties": any kind of facility, fixture, property or
asset, whether real, personal or mixed, or tangible or intangible
owned, leased or operated by the Borrower or any Restricted
Subsidiary.
"Proved Reserves": the estimated quantities of crude oil,
condensate, natural gas and natural gas liquids that adequate
geological and engineering data demonstrate with reasonable certainty
to be recoverable in future years from proved reservoirs under
existing economic and operating conditions (i.e., prices and costs as
of the date the estimate is made).
"Re-determination Date": each date that the redetermined
Borrowing Base becomes effective subject to the notice requirements
specified in subsection 4.9.
"Reference Banks": four major banks in the London interbank
market selected by the Administrative Agent.
"Register": as defined in subsection 11.6(d).
"Regulation U": Regulation U of the Board of Governors of the
Federal Reserve System as in effect from time to time.
"Reimbursement Obligations": the obligation of the Borrower
to reimburse the Issuing Lender pursuant to subsection 3.5 for amounts
drawn under Letters of Credit issued by the
<PAGE> 21
16
Issuing Lender in accordance with the terms of this Agreement and the
related L/C Applications.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the thirty day
notice period is waived under regulations issued by the PBGC.
"Required Lenders": at any time, Lenders the Commitment
Percentages of which aggregate at least 51%.
"Requirement of Law": as to any Person, the certificate or
articles of incorporation and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule or
regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon
such Person or any of its Property or to which such Person or any of
its Property is subject.
"Reserve Report": a report in form and with attachments
consistent with the Initial Reserve Report with respect to the Oil and
Gas Properties of the Borrower and its Restricted Subsidiaries
prepared (a) for all reserve reports as of December 31, by Miller &
Lents, Ltd. or another independent engineering firm selected by the
Borrower and reasonably acceptable to the Administrative Agent and (b)
for all other reports, by engineers employed by the Borrower and
certified by a Responsible Officer of the Borrower.
"Responsible Officer": of any Loan Party, the chief executive
officer, the president or any vice president of such Loan Party or,
with respect to financial matters, the chief financial officer or
treasurer of such Loan Party and, in either case, any other officer
having substantially similar authority.
"Restricted Subsidiaries": the collective reference to any
direct or indirect Subsidiary of the Borrower that is not an
Unrestricted Subsidiary under this Agreement.
"Revolving Credit Commitment": as to any Lender, the
obligation of such Lender to make Loans to the Borrower hereunder in
an aggregate principal amount at any one time outstanding not to
exceed the amount set forth opposite such Lender's name on Schedule
1.1(a) (which amount, with respect to the Lenders, initially shall
equal $150,000,000 in the aggregate), as such amount may be reduced
from time to time in accordance with the provisions of this Agreement.
"Revolving Credit Loans": as defined in subsection 2.1(a).
"Revolving Credit Note": as defined in subsection 2.3(e).
"Senior Subordinated Indenture": the Indenture, to be dated
as of the Closing Date, between the Borrower and The Bank of New York,
as trustee, pursuant to which the Senior Subordinated Notes, if any,
are to be issued with terms substantially similar to those contained
in the draft distributed to the Administrative Agent on September 11,
1997.
<PAGE> 22
17
"Senior Subordinated Notes": as defined in the recitals to
this Agreement.
"Senior Subordinated Note Offering": as defined in the
recitals to this Agreement.
"Single Employer Plan": any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Subordinated Debt Offering Memorandum": the Offering
Memorandum, dated September 17, 1997, related to the issuance of the
Senior Subordinated Notes, as such Offering Memorandum shall be
further amended, supplemented or otherwise modified from time to time.
"Subordinated Indebtedness": the Senior Subordinated Notes,
Permitted Subordinated Refinancing Debt and any other Indebtedness of
the Borrower contractually subordinated to the prior payment in full
of the Loans, Reimbursement Obligations and any other obligations
hereunder in a manner reasonably acceptable to the Required Lenders as
evidenced by their written approval.
"Subordinated Note Documents": the collective reference to
the Senior Subordinated Notes, the Senior Subordinated Indenture, the
Subordinated Debt Offering Memorandum and each agreement, instrument
and document delivered in connection therewith or relating thereto.
"Subsidiary": as to any Person, a corporation, partnership or
other entity of which more than 50% of the total voting power of
shares of stock or other equity ownership interests having ordinary
voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
vote in the election of directors, a managing general partner, or
majority of general partners or other managers or trustees thereof, is
at the time owned or controlled, directly or indirectly by such Person
or one or more of the other Subsidiaries of such Person (or a
combination thereof). Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to any
direct or indirect Subsidiary or Subsidiaries of the Borrower.
"Supermajority Lenders": at any time, Lenders the Commitment
Percentages of which aggregate at least 75%.
"Termination Date": September 30, 2002.
"Tranche": the collective reference to Eurodollar Loans the
then current Interest Periods with respect to all of which begin on
the same date and end on the same later date (whether or not such
Loans shall originally have been made on the same day); Tranches may
be identified as "Eurodollar Tranches".
"Transferee": as defined in subsection 11.6(f).
"Type": as to any Loan, its nature as an ABR Loan or a
Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
<PAGE> 23
18
"Unrestricted Subsidiary": (i) each Subsidiary listed on
Schedule 5.15 hereof and designated an "Unrestricted Subsidiary", so
long as such Subsidiary satisfies the requirements of an Unrestricted
Subsidiary set forth in the proviso below, (ii) any Subsidiary of the
Borrower which at the time of determination shall be an Unrestricted
Subsidiary (as designated by the Board of Directors of the Borrower,
as provided below) and (iii) any Subsidiary of an Unrestricted
Subsidiary; provided, that the Board of Directors of the Borrower may
designate any Subsidiary of the Borrower (including any newly acquired
or newly formed Subsidiary or a Person becoming a Subsidiary through
merger or consolidation or Investment therein) to be an Unrestricted
Subsidiary or the Borrower may designate a Subsidiary as an
Unrestricted Subsidiary on Schedule 5.15 hereof only if (a) such
Subsidiary does not own any Capital Stock of, or own or hold any Lien
on any Property of, any other Subsidiary of the Borrower which is not
a Subsidiary of the Subsidiary to be so designated an "Unrestricted
Subsidiary"; (b) all the Indebtedness of such Subsidiary shall, at the
date of designation, and will at all times thereafter, consist of
Non-Recourse Debt; (c) the Borrower certifies that such designation
complies with the limitations of the covenants contained in subsection
8.8 and subsection 8.17; (d) such Subsidiary, either alone or in the
aggregate with all other Unrestricted Subsidiaries, does not operate,
directly or indirectly, all or substantially all of the business of
the Borrower and its Subsidiaries; (e) such Subsidiary does not,
directly or indirectly, own any Indebtedness of or Equity Interests
in, and has no investments in, the Borrower or any Restricted
Subsidiary; (f) such Subsidiary is a Person with respect to which
neither the Borrower nor any of its Restricted Subsidiaries has any
direct or indirect obligation to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified
levels of operating results; and (g) on the date such Subsidiary is
designated an Unrestricted Subsidiary, such Subsidiary is not a party
to any agreement, contract, arrangement or understanding with the
Borrower or any Restricted Subsidiary with terms substantially less
favorable to the Borrower or such Restricted Subsidiary than those
that might have been obtained from Persons who are not Affiliates of
the Borrower. Any such designation by the Board of Directors of the
Borrower shall be evidenced to the Administrative Agent by filing with
the Administrative Agent a resolution of the Board of Directors of the
Borrower giving effect to such designation and an officers'
certificate certifying that such designation complied with the
foregoing conditions. If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary
for purposes of this Agreement and any Indebtedness of such Subsidiary
shall be deemed to be incurred as of such date.
"Wholly-Owned Restricted Subsidiary": a Restricted Subsidiary
of the Borrower, all of the outstanding Capital Stock of which (other
than directors' qualifying shares) is owned, directly or indirectly,
by the Borrower or one or more other Wholly-Owned Restricted
Subsidiaries of the Borrower.
1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in any Loan Document or any certificate or other document
made or delivered pursuant hereto or thereto.
(b) As used herein and in any Loan Document, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Borrower or any Subsidiary of the Borrower not
defined in subsection 1.1 and accounting terms partly defined in subsection
1.1, to the extent not defined, shall have the respective meanings given to
them under GAAP. References in this Agreement or any other Loan Document to
financial statements shall be deemed to include all related schedules and notes
thereto.
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19
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
(e) References in this Agreement or any other Loan Document
to knowledge of any Loan Party of events or circumstances shall be deemed to
refer to events or circumstances of which a Responsible Officer has actual
knowledge or through the use of reasonable and customary diligence should have
had knowledge.
SECTION 2. AMOUNT AND TERMS OF REVOLVING COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the terms
and conditions hereof, each Lender severally agrees to make revolving credit
loans ("Revolving Credit Loans" or "Loans") to the Borrower from time to time
during the Commitment Period in an aggregate principal amount at any one time
outstanding not to exceed the amount of such Lender's Revolving Credit
Commitment, provided that no Lender shall make any Revolving Credit Loans if,
after giving effect thereto, the sum of such Lender's Revolving Credit Loans
and Commitment Percentage of Letter of Credit Outstandings (in each case, after
giving effect to the Loans requested to be made and the Letters of Credit
requested to be issued on such date) exceeds the lesser of (i) such Lender's
Revolving Credit Commitment and (ii) such Lender's Commitment Percentage of the
Borrowing Base then in effect. During the Commitment Period the Borrower may
use the Revolving Credit Commitments by borrowing, prepaying the Revolving
Credit Loans in whole or in part, and reborrowing, all in accordance with the
terms and conditions hereof.
(b) The Revolving Credit Loans may from time to time be (i)
Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined
by the Borrower and notified to the Administrative Agent in accordance with
subsections 2.2 and 4.3, provided that no Revolving Credit Loan shall be made
as a Eurodollar Loan after the day that is one month prior to the Termination
Date.
2.2 Procedure for Revolving Credit Borrowing. The Borrower
may borrow under the Revolving Credit Commitments during the Commitment Period
on any Business Day, provided that the Borrower shall give the Administrative
Agent irrevocable notice (which notice must be received by the Administrative
Agent prior to 10:00 a.m., New York City time, (a) three Business Days prior to
the requested Borrowing Date, if all or any part of the requested Revolving
Credit Loans initially are to be Eurodollar Loans or (b) one Business Day prior
to the requested Borrowing Date, otherwise), specifying (i) the amount to be
borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to
be of Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the
borrowing is to be entirely or partly of Eurodollar Loans, the respective
amounts of each such Type of Loan and the respective lengths of the initial
Interest Periods therefor. Each borrowing under the Revolving Credit
Commitments shall be in an amount equal to (x) in the case of ABR Loans,
$1,000,000 or a whole multiple of $500,000 in excess thereof (or, if the then
Available Commitments are less than $1,000,000, such lesser amount) and (y) in
the case of Eurodollar Loans, $1,000,000 or a whole multiple of $500,000 in
excess thereof. Upon receipt of any such notice from the Borrower, the
Administrative Agent shall promptly notify each Lender thereof. Each Lender
will make the amount
<PAGE> 25
20
of its pro rata share of each borrowing available to the Administrative Agent
for the account of the Borrower at the office of the Administrative Agent
specified in subsection 11.2 prior to 11:00 a.m., New York City time, on the
Borrowing Date requested by the Borrower in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the
Borrower no later than 1:00 p.m. by the Administrative Agent crediting the
account of the Borrower on the books of such office with the aggregate of the
amounts made available to the Administrative Agent by the Lenders and in like
funds as received by the Administrative Agent.
2.3 Repayment of Loans; Evidence of Debt. (a) The Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Loan of such
Lender on the Termination Date (or such earlier date on which the Loans become
due and payable pursuant to Section 9). The Borrower hereby further agrees to
pay interest on the unpaid principal amount of the Loans from time to time
outstanding from the Closing Date to but not including the date the Loans are
paid in full at the rates per annum, and on the dates, set forth in subsection
4.1.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing Indebtedness of the Borrower to such
Lender resulting from each Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
(c) The Administrative Agent shall maintain the Register
pursuant to subsection 11.6(d), and a subaccount therein for each Lender, in
which shall be recorded (i) the amount of each Loan made hereunder, the Type
thereof and each Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) both the amount of any sum received
by the Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to subsection 2.3(b) shall, to the extent permitted
by applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of the Administrative Agent or any Lender to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made
to such Borrower by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and deliver to
such Lender a promissory note of the Borrower evidencing the Revolving Credit
Loans of such Lender, substantially in the form of Exhibit A with appropriate
insertions as to date and principal amount (a "Revolving Credit Note" or
"Note").
SECTION 3. LETTERS OF CREDIT
3.1 The L/C Commitment. (a) Subject to the terms and
conditions hereof, the Issuing Lender, in reliance on the agreements of the
other Lenders set forth in subsection 3.4(a), agrees to issue letters of credit
("Letters of Credit") for the account of the Borrower on any Business Day
during the Commitment Period in such form as may be approved from time to time
by the Issuing Lender; provided that the Issuing Lender shall not issue any
Letter of Credit if, after giving effect to such issuance and after giving
effect to any Loans requested to be made or Letters of Credit
<PAGE> 26
21
requested to be issued on such date, (i) the Letter of Credit Outstandings
would exceed $25,000,000 or (ii) the sum of the Revolving Credit Loans and
Letter of Credit Outstandings would exceed the lesser of (x) the Revolving
Credit Commitments and (y) the Borrowing Base then in effect. Each Letter of
Credit shall (i) be issued to support obligations of the Borrower or any of its
Restricted Subsidiaries, contingent or otherwise, which finance the working
capital and business needs of the Borrower and its Restricted Subsidiaries, and
(ii) shall expire no later than the earlier of (x) one year (or such later date
agreed to by the Issuing Lender) after the date of issuance and (y) five
Business Days prior to the Termination Date, provided that any Letter of Credit
with a one-year tenor may provide for the extension thereof for additional
one-year periods (which shall in no event extend beyond the date referred to in
clause (y) above). Each Letter of Credit shall be denominated in Dollars.
(b) Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
(c) The Issuing Lender shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Lender or any Participating Lender to exceed any limits
imposed by, any applicable Requirement of Law.
3.2 Procedure for Issuance of Letters of Credit. The
Borrower may from time to time request that the Issuing Lender issue a Letter
of Credit by delivering to the Issuing Lender and the Administrative Agent at
their respective addresses for notices specified herein a letter of credit
application in the Issuing Lender's then customary form (an "L/C Application")
completed to the satisfaction of the Issuing Lender, and such other
certificates, documents and other papers and information as may be customary
and as the Issuing Lender may reasonably request. Upon receipt of any L/C
Application, the Issuing Lender will process such L/C Application and the
certificates, documents and other papers and information delivered to it in
connection therewith in accordance with its customary procedures and, upon
receipt by the Issuing Lender of confirmation from the Administrative Agent
that issuance of such Letter of Credit will not contravene subsection 3.1, the
Issuing Lender shall promptly issue the Letter of Credit requested thereby (but
in no event shall the Issuing Lender be required to issue any Letter of Credit
earlier than three Business Days after its receipt of the L/C Application
therefor and all such other certificates, documents and other papers and
information relating thereto) by issuing the original of such Letter of Credit
to the beneficiary thereof or as otherwise may be agreed by the Issuing Lender
and the Borrower. The Issuing Lender shall furnish a copy of such Letter of
Credit to the Borrower and the Administrative Agent promptly following the
issuance thereof, and, thereafter, the Administrative Agent shall promptly
furnish a copy thereof to the Lenders.
3.3 Fees, Commissions and Other Charges. (a) The Borrower
shall pay to the Administrative Agent, for the account of (i) the Issuing
Lender and the Participating Lenders, a letter of credit commission with
respect to each Letter of Credit, computed for the period from the date such
Letter of Credit is issued to the date upon which the next payment is due under
this subsection (and, thereafter, from the date of payment under this
subsection to the date upon which the next payment is due under this
subsection) at the rate per annum equal to the Applicable Margin in effect from
time to time for Eurodollar Loans of the daily aggregate amount available to be
drawn under such Letter of Credit for the period covered by clause (i) above
during such period, and (ii) the Issuing Lender, a letter of credit commission
with respect to each Letter of Credit in an amount equal to .125% per annum of
the stated amount of such Letter of Credit (and an additional .125% of the
stated amount of such Letter of Credit on each anniversary of its issuance
date). The letter of credit commissions payable pursuant to clause (i) and
(ii) above shall be payable quarterly in arrears on the last day of
<PAGE> 27
22
each March, June, September and December, commencing September 30, 1997, and on
the Termination Date.
(b) In addition to the foregoing fees and commissions, the
Borrower shall pay or reimburse the Issuing Lender for such normal and
customary costs and expenses as are incurred or charged by the Issuing Lender
in issuing, effecting payment under, amending, negotiating or otherwise
administering any Letter of Credit.
(c) The Administrative Agent shall, promptly following its
receipt thereof, distribute to the Issuing Lender and the Participating Lenders
all fees and commissions received by the Administrative Agent for their
respective accounts pursuant to this subsection.
3.4 L/C Participations. (a) Effective on the date of
issuance of each Letter of Credit, the Issuing Lender irrevocably agrees to
grant and hereby grants to each Participating Lender, and each Participating
Lender irrevocably agrees to accept and purchase and hereby accepts and
purchases from the Issuing Lender, on the terms and conditions hereinafter
stated, for such Participating Lender's own account and risk an undivided
interest equal to such Participating Lender's Commitment Percentage in the
Issuing Lender's obligations and rights under each Letter of Credit issued by
the Issuing Lender and the amount of each draft paid by the Issuing Lender
thereunder. Each Participating Lender unconditionally and irrevocably agrees
with the Issuing Lender that, if a draft is paid under any Letter of Credit for
which such Issuing Lender is not reimbursed in full by the Borrower in
accordance with the terms of this Agreement, such Participating Lender shall
pay to the Administrative Agent, for the account of the Issuing Lender, upon
demand at the Administrative Agent's address specified in subsection 11.2, an
amount equal to such Participating Lender's Commitment Percentage of the amount
of such draft, or any part thereof, which is not so reimbursed. On the date
that any Assignee becomes a Lender party to this Agreement in accordance with
subsection 11.6, participating interests in any outstanding Letters of Credit
held by the transferor Lender from which such Assignee acquired its interest
hereunder shall be proportionately reallotted between such Assignee and such
transferor Lender. Each Participating Lender hereby agrees that its obligation
to participate in each Letter of Credit, and to pay or to reimburse the Issuing
Lender for its participating share of the drafts drawn or amounts otherwise
paid thereunder, is absolute, irrevocable and unconditional and shall not be
affected by any circumstances whatsoever (including, without limitation, the
occurrence or continuance of any Default or Event of Default), and that each
such payment shall be made without offset, abatement, withholding or other
reduction whatsoever.
(b) If any amount required to be paid by any Participating
Lender to the Issuing Lender pursuant to subsection 3.4(a) in respect of any
unreimbursed portion of any draft paid by the Issuing Lender under any Letter
of Credit is paid to the Issuing Lender within three Business Days after the
date such payment is due, such Participating Lender shall pay to the
Administrative Agent, for the account of the Issuing Lender, on demand, an
amount equal to the product of (i) such amount, times (ii) the daily average
Federal Funds Effective Rate during the period from and including the date such
draft is paid to the date on which such payment is immediately available to the
Issuing Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If
any such amount required to be paid by any Participating Lender pursuant to
subsection 3.4(a) is not in fact made available to the Administrative Agent,
for the account of the Issuing Lender, by such Participating Lender within
three Business Days after the date such payment is due, the Issuing Lender
shall be entitled to recover from such Participating Lender, on demand, such
amount with interest thereon calculated from such due date at the rate per
annum applicable to ABR Loans hereunder. A certificate of the Issuing Lender
submitted to any Participating
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Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has paid a
draft under any Letter of Credit and has received from any Participating Lender
its pro rata share of such payment in accordance with subsection 3.4(a), the
Issuing Lender receives any reimbursement on account of such unreimbursed
portion, or any payment of interest on account thereof, the Issuing Lender will
pay to the Administrative Agent, for the account of such Participating Lender,
its pro rata share thereof; provided, however, that in the event that any such
payment received by the Issuing Lender shall be required to be returned by the
Issuing Lender, such Participating Lender shall return to the Administrative
Agent for the account of the Issuing Lender, the portion thereof previously
distributed to it.
3.5 Reimbursement Obligation of the Borrower. If any draft
shall be presented for payment under any Letter of Credit, the Issuing Lender
shall notify the Borrower and the Administrative Agent of the date and the
amount thereof. The Borrower agrees to reimburse the Issuing Lender (whether
with its own funds or, subject to the limitations on amounts set forth in
subsection 2.2, with proceeds of the Revolving Credit Loans) on each date on
which the Issuing Lender pays a draft so presented under any Letter of Credit
for the amount of (i) such draft so paid and (ii) any taxes, fees, charges or
other costs or expenses incurred by the Issuing Lender in connection with such
payment. Each such payment shall be made to the Issuing Lender at its address
for notices specified herein in lawful money of the United States of America
and in immediately available funds. Interest shall be payable on any and all
amounts remaining unpaid by the Borrower under this subsection from the date of
payment of the applicable draft until payment in full thereof, (x) for the
period commencing on the date of payment of the applicable draft to the date
which is 3 days thereafter, at the rate which would be payable on ABR Loans at
such time and (y) thereafter, at the rate which would be payable on ABR Loans
at such time plus 2%.
3.6 Obligations Absolute. (a) The Borrower's obligations
under this Section 3 shall be absolute and unconditional under any and all
circumstances and irrespective of any set-off, counterclaim or defense to
payment which the Borrower or any other Person may have or have had against the
Issuing Lender or any other Lender or any beneficiary of a Letter of Credit.
The Borrower also agrees with the Issuing Lender that the Issuing Lender shall
not be responsible for, and the Borrower's obligations under subsection 3.5
shall not be affected by, among other things, the validity or genuineness of
documents or of any endorsements thereon, even though such documents shall in
fact prove to be invalid, fraudulent or forged, or any dispute between or among
the Borrower and any beneficiary of any Letter of Credit or any other party to
which such Letter of Credit may be transferred or any claims whatsoever of the
Borrower against any beneficiary of such Letter of Credit or any such
transferee. The Issuing Lender shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except
for errors or omissions caused by the Issuing Lender's gross negligence or
willful misconduct. The Borrower agrees that any action taken or omitted by
the Issuing Lender under or in connection with any Letter of Credit or the
related drafts or documents, if done in the absence of gross negligence or
willful misconduct and in accordance with the standards of care specified in
the Uniform Commercial Code of the State of New York, including, without
limitation, Article V thereof, shall be binding on the Borrower and shall not
result in any liability of such Issuing Lender to the Borrower.
(b) Without limiting the generality of the foregoing, it is
expressly agreed that the absolute and unconditional nature of the Borrower's
obligations under this Section 3 to reimburse the
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24
Issuing Lender for each drawing under a Letter of Credit will not be excused by
the gross negligence or wilful misconduct of the Issuing Lender. However, the
foregoing shall not be construed to excuse the Issuing Lender from liability to
the Borrower to the extent of any direct damages (as opposed to consequential
damages, claims in respect of which are hereby waived by the Borrower to the
extent permitted by applicable law) suffered by the Borrower that are caused by
the Issuing Lender's gross negligence or wilful misconduct in determining
whether drafts and other documents presented under a Letter of Credit comply
with the terms thereof.
3.7 Letter of Credit Payments. Without limitation of
subsection 3.6, the responsibility of the Issuing Lender to the Borrower in
connection with any draft presented for payment under any Letter of Credit
shall, in addition to any payment obligation expressly provided for in such
Letter of Credit, be limited to determining that the documents (including each
draft) delivered under such Letter of Credit in connection with such
presentment are in conformity with such Letter of Credit.
3.8 L/C Applications. To the extent that any provision of
any L/C Application, including any reimbursement provisions contained therein,
related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall prevail.
SECTION 4. GENERAL PROVISIONS
4.1 Interest Rates and Payment Dates. (a) Each Eurodollar
Loan shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such
Interest Period plus the Applicable Margin in effect on such day.
(b) Each ABR Loan shall bear interest for each day at a rate
per annum equal to the ABR in effect on such day.
(c) If all or a portion of (i) any principal of any Loan,
(ii) any interest payable thereon, (iii) any commitment fee or (iv) any other
amount payable hereunder shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), the principal of the Loans and any
such overdue interest, commitment fee or other amount shall bear interest at a
rate per annum which is (x) in the case of principal, the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
subsection plus 2% or (y) in the case of any such overdue interest, commitment
fee or other amount, the ABR plus 2%, in each case from the date of such
non-payment until such overdue principal, interest, commitment fee or other
amount is paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest
Payment Date, provided that interest accruing pursuant to subsection 4.1(c)
shall be payable from time to time on demand.
4.2 Computation of Interest and Fees. (a) Whenever, in the
case of ABR Loans, it is calculated on the basis of the Prime Rate, interest
shall be calculated on the basis of a 365- (or 366-, as the case may be) day
year for the actual days elapsed; and, otherwise, interest and fees shall be
calculated on the basis of a 360-day year for the actual days elapsed. The
Administrative Agent shall as soon as practicable notify the Borrower and the
Lenders of each determination of a Eurodollar Rate. Any change in the interest
rate on a Loan resulting from a change in the ABR, the Eurocurrency Reserve
Requirements, the C/D Assessment Rate or the C/D Reserve Percentage shall
become effective as of the opening of business on the day on which such change
becomes effective. The
<PAGE> 30
25
Administrative Agent shall as soon as practicable notify the Borrower and the
Lenders of the effective date and the amount of each such change in interest
rate.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error. The Administrative Agent shall, at the request of the
Borrower, deliver to the Borrower a statement showing the quotations and
calculations used by the Administrative Agent in determining any interest rate
pursuant to subsection 4.1(a).
4.3 Conversion and Continuation Options. (a) The Borrower
may elect from time to time to convert Eurodollar Loans to ABR Loans by giving
the Administrative Agent at least one Business Day's prior irrevocable notice
of such election, provided that any such conversion of Eurodollar Loans is
subject to the terms of subsection 4.14. The Borrower may elect from time to
time to convert ABR Loans to Eurodollar Loans by giving the Administrative
Agent at least three Business Days' prior irrevocable notice of such election.
Any such notice of conversion to Eurodollar Loans shall specify the length of
the initial Interest Period or Interest Periods therefor. Upon receipt of any
such notice the Administrative Agent shall promptly notify each Lender thereof.
All or any part of outstanding Eurodollar Loans and ABR Loans may be converted
as provided herein, provided that (i) no Loan may be converted into a
Eurodollar Loan when any Event of Default has occurred and is continuing and
the Administrative Agent has or the Required Lenders have determined that such
a conversion is not appropriate and (ii) no Loan may be converted into a
Eurodollar Loan after the date that is one month prior to the Termination Date.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Administrative Agent, in accordance with clause
(ii) of the term "Interest Period" set forth in subsection 1.1, of the length
of the next Interest Period to be applicable to such Loans, provided that no
Eurodollar Loan may be continued as such (i) when any Event of Default has
occurred and is continuing and the Administrative Agent has or the Required
Lenders have determined that such a continuation is not appropriate or (ii)
after the date that is one month prior to the Termination Date and provided,
further, that if the Borrower shall fail to give such notice or if such
continuation is not permitted, such Loans shall be automatically converted to
ABR Loans on the last day of such then expiring Interest Period.
4.4 Minimum Amounts Maximum Number of Tranches. All
borrowings, conversions and continuations of Loans hereunder and all selections
of Interest Periods hereunder shall be in such amounts and be made pursuant to
such elections so that, after giving effect thereto, the aggregate principal
amount of the Loans comprising each Eurodollar Tranche shall be equal to
$1,000,000 or a whole multiple of $500,000 in excess thereof. In no event
shall there be more than six Eurodollar Tranches outstanding at any time.
4.5 Optional Prepayments and Commitment Reductions. (a) The
Borrower may, at any time and from time to time, prepay the Loans, in whole or
in part, without premium or penalty, upon at least one Business Day's
irrevocable notice to the Administrative Agent in the case of ABR Loans, and
upon at least three Business Day's irrevocable notice to the Administrative
Agent in the case of Eurodollar Loans, in each case specifying the date and
amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR
Loans or a combination thereof, and, in each case if of a combination thereof,
the amount allocable to each; provided that any prepayment of a Eurodollar Loan
is subject to the terms of subsection 4.14 hereof. Upon receipt of any such
notice the Administrative Agent shall promptly notify each Lender thereof. If
any such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with any amounts payable
<PAGE> 31
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pursuant to subsection 4.14. Partial prepayments shall be in an aggregate
principal amount of $1,000,000 or a whole multiple of $500,000 in excess
thereof; provided that if outstanding principal amount of a Loan is less than
$500,000, the Borrower may prepay the full amount of such Loan.
(b) Subject to subsection 4.5(c), the Borrower shall have the
right, upon not less than three Business Days' notice to the Administrative
Agent, to terminate the Revolving Credit Commitments or, from time to time, to
reduce the amount of the Revolving Credit Commitments. Any such reduction
shall be in an amount equal to $1,000,000 or a whole multiple of $500,000 in
excess thereof and shall reduce permanently the Revolving Credit Commitments
then in effect. Termination of the Revolving Credit Commitments shall also
terminate the obligation of the Issuing Lender to issue Letters of Credit.
(c) In the event of any termination of the Revolving Credit
Commitments, the Borrower shall on the date of such termination repay or prepay
all of its outstanding Revolving Credit Loans (together with accrued and unpaid
interest on the Revolving Credit Loans), reduce the Letter of Credit
Outstandings to zero and cause all Letters of Credit to be canceled and
returned to the Issuing Lender (or shall cash collateralize the Letter of
Credit Outstandings on terms and pursuant to documentation reasonably
satisfactory to the Issuing Lender and the Administrative Agent). In the event
of any partial reduction of the Revolving Credit Commitments, then (i) at or
prior to the effective date of such reduction, the Administrative Agent shall
notify the Borrower and the Lenders of the Aggregate Revolving Credit Exposure
of all the Lenders and (ii) if the Aggregate Revolving Credit Exposure of all
the Lenders would exceed the aggregate Revolving Credit Commitments after
giving effect to such reduction, then, prior to giving effect to such
reduction, the Borrower shall, on the date of such reduction, first, repay or
prepay Revolving Credit Loans (together with accrued and unpaid interest on the
Revolving Credit Loans) and, second, reduce the Letter of Credit Outstandings
(or cash collateralize the Letter of Credit Outstandings on terms and pursuant
to documentation reasonably satisfactory to the Issuing Lender and the
Administrative Agent), in an aggregate amount sufficient to eliminate such
excess.
(d) The Loans shall be repaid, and the Letter of Credit
Outstandings shall be reduced or cash collateralized, to the extent required by
subsection 4.10. All such repayments and cash collateralization shall be made
in accordance with subsection 4.5.
(e) (i) In the event the amount of any prepayment of the
Loans required to be made above shall exceed the aggregate principal amount of
the outstanding ABR Loans (the amount of any such excess being called the
"Excess Amount"), the Borrower shall have the right, in lieu of making such
prepayment in full, to prepay all the outstanding applicable ABR Loans and to
deposit an amount equal to the Excess Amount with, and (ii) in the event that
Letter of Credit Outstandings are required to be cash collateralized, the
Borrower shall deposit an amount equal to the aggregate amount of Letter of
Credit Outstandings to be cash collateralized with, the Administrative Agent in
a cash collateral account maintained (pursuant to documentation reasonably
satisfactory to the Administrative Agent) by and in the sole dominion and
control of the Administrative Agent. Any amounts so deposited shall be held by
the Administrative Agent as collateral for the obligations of the Borrower
under this Agreement and applied to the prepayment of the applicable Eurodollar
Loans at the end of the current Interest Periods applicable thereto or Letter
of Credit Outstandings, as the case may be, or, during an Event of Default, to
payment of any obligations under this Agreement (including obligations in
respect of the Letters of Credit). On any Business Day on which (i) collected
amounts remain on deposit in or to the credit of such cash collateral account
after giving effect to the payments made on such day pursuant to this
subsection 4.5(e) and (ii) the Borrower shall have delivered to the
Administrative Agent a written request or a telephonic request (which shall be
promptly confirmed in writing) that
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such remaining collected amounts be invested in the Cash Equivalent specified
in such request, the Administrative Agent shall use its reasonable efforts to
invest such remaining collected amounts in such Cash Equivalent, provided,
however, that the Administrative Agent shall have continuous dominion and full
control over any such investments (and over any interest that accrues thereon)
to the same extent that it has dominion and control over such cash collateral
account and no Cash Equivalent shall mature after the end of the Interest
Period for which it is to be applied. The Borrower shall not have the right to
withdraw any amount from such cash collateral account until the applicable
Eurodollar Loans and accrued interest thereon and Letter of Credit Outstandings
are paid in full or if a Default or Event of Default then exists or would
result. Any prepayment or collateralization pursuant to this subsection 4.5(e)
shall be applied in the order set forth in clause (ii) of the second sentence
of subsection 4.5(c).
4.6 Commitment Fee; Administrative Agent's Fee; Other Fees.
(a) The Borrower agrees to pay to the Administrative Agent for the account of
each Lender a commitment fee for the period from and including, for each
Lender, the Closing Date to but not including the Termination Date, computed at
the Commitment Fee Rate on the average daily amount of the lesser of (i) the
Available Commitment of such Lender and (ii) the Borrowing Base Availability
with respect to such Lender, during the period for which payment is made,
payable quarterly in arrears on the last day of each March, June, September and
December (commencing on September 30, 1997) and on the Termination Date or such
earlier date as the Revolving Credit Commitments shall terminate as provided
herein. Commitment fees shall be nonrefundable when paid.
(b) The Borrower shall pay to the Administrative Agent the
fees set forth in the fee letter agreement, dated August 20, 1997, among the
Borrower, Chase and Chase Securities Inc., on the dates specified therein.
Upon the receipt of such fees, the Administrative Agent shall pay to the
Lenders the fees set forth in the letter, dated September 10, 1997, from the
Administrative Agent to the Lenders.
(c) The Borrower shall pay to the Administrative Agent the
fees set forth in the agency fee letter, dated September 23, 1997, among the
Borrower, Chase and Chase Securities Inc., on the dates specified therein.
4.7 Inability to Determine Interest Rate. If prior to the
first day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that,
by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period, or
(b) the Administrative Agent shall have received notice from
the Required Lenders that the Eurodollar Rate determined or to be
determined for such Interest Period will not adequately and fairly
reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such
Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to
the Borrower and the Lenders as soon as practicable thereafter. If such notice
is given (x) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as ABR Loans, (y) any Loans that were to have
been converted on the first day of such Interest Period to Eurodollar Loans
shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans shall
be converted, on the first day
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of such Interest Period, to ABR Loans. Until such notice has been withdrawn by
the Administrative Agent, no further Eurodollar Loans shall be made or
continued as such, nor shall the Borrower have the right to convert Loans to
Eurodollar Loans.
4.8 Pro Rata Treatment and Payments. (a) Each borrowing by
the Borrower from the Lenders hereunder, each payment by the Borrower on
account of any commitment fee hereunder and any reduction of the Revolving
Credit Commitments of the Lenders shall be made pro rata according to the
respective Commitment Percentages of the Lenders. Each payment (including each
prepayment) by the Borrower on account of principal of and interest on the
Loans shall be made pro rata according to the respective outstanding principal
amounts of the Loans then held by the Lenders. All payments (including
prepayments) to be made by the Borrower hereunder, whether on account of
principal, interest, fees or otherwise, shall be made without set off or
counterclaim and shall be made prior to 12:00 Noon, New York City time, on the
due date thereof to the Administrative Agent, for the account of the Lenders,
at the Administrative Agent's office specified in subsection 11.2, in Dollars
and in immediately available funds. The Administrative Agent shall distribute
such payments to the Lenders promptly upon receipt in like funds as received.
Subject to the proviso in clause (1) of the definition of "Interest Period", if
any payment hereunder becomes due and payable on a day other than a Business
Day, such payment shall be extended to the next succeeding Business Day, and,
with respect to payments of principal, interest thereon shall be payable at the
then applicable rate during such extension.
(b) Unless the Administrative Agent shall have been notified
in writing by any Lender prior to a borrowing that such Lender will not make
the amount that would constitute its Commitment Percentage of such borrowing
available to the Administrative Agent, the Administrative Agent may assume that
such Lender is making such amount available to the Administrative Agent, and
the Administrative Agent may, in reliance upon such assumption, make available
to the Borrower a corresponding amount. If such amount is not made available
to the Administrative Agent by the required time on the Borrowing Date
therefor, such Lender shall pay to the Administrative Agent, on demand, such
amount with interest thereon at a rate equal to the daily average Federal Funds
Effective Rate for the period until such Lender makes such amount immediately
available to the Administrative Agent. A certificate of the Administrative
Agent submitted to any Lender with respect to any amounts owing under this
subsection shall be conclusive in the absence of manifest error. If such
Lender's Commitment Percentage of such borrowing is not made available to the
Administrative Agent by such Lender within three Business Days after such
Borrowing Date, the Administrative Agent shall also be entitled to recover such
amount with interest thereon at the rate per annum applicable to ABR Loans
hereunder, on demand, from the Borrower.
4.9 Computation of Borrowing Base. (a) The Borrowing Base
in effect from time to time shall represent the maximum principal amount
(subject to the aggregate amount of the Revolving Credit Commitments) of Loans
and Letter of Credit Outstandings that the Lenders will allow to remain
outstanding during the Commitment Period. The Borrowing Base shall be
determined in accordance with this subsection 4.9. The Borrowing Base will be
based upon the value of certain Proved Reserves attributable to the Oil and Gas
Properties of the Borrower and its Restricted Subsidiaries and other assets of
the Borrower and its Restricted Subsidiaries acceptable to the Administrative
Agent in its sole discretion, and will be determined by the Administrative
Agent in accordance with paragraph (d) of this subsection 4.9, subject to
approval by the Supermajority Lenders. Until the Commitments are no longer in
effect, all Letters of Credit have terminated and all of the Loans and all
other obligations under this Agreement are paid in full, this Agreement shall
be subject to the then effective Borrowing Base. During the period from and
after the Closing Date until the first Re-determination Date, the amount of the
Borrowing Base shall be $50,000,000;
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(b) Prior to March 1 and September 1 of each year (commencing
March 1, 1998), the Borrower shall furnish to the Administrative Agent and to
each Lender Reserve Reports, which Reserve Reports shall be dated as of the
immediately preceding December 31 (in the case of Reserve Reports due on March
1) and June 30 (in the case of Reserve Reports due on September 1), and shall
set forth, among other things, (i) the Oil and Gas Properties, then owned by
the Borrower and its Restricted Subsidiaries, (ii) the Proved Reserves
attributable to such Oil and Gas Properties and (iii) a projection of the rate
of production and net income of the Proved Reserves as of the date of such
Reserve Report, all in accordance with the guidelines published by the
Securities and Exchange Commission and such assumptions as the Administrative
Agent shall provide. Concurrently with the delivery of the Reserve Reports,
the Borrower shall furnish to the Administrative Agent and to each Lender a
certificate of a Responsible Officer showing any additions to or deletions from
the Oil and Gas Properties listed in the Reserve Report, which additions or
deletions were made by the Borrower and its Restricted Subsidiaries since the
date of the previous Reserve Report.
(c) The Borrowing Base shall be re-determined (i) after
receipt by the Administrative Agent of each scheduled Reserve Report, (ii) upon
the delivery of a Lender Redetermination Notice to the Borrower and (iii) upon
the delivery of a Borrower Redetermination Notice to the Administrative Agent,
all as provided in this subsection 4.9. Within 15 days after the delivery of a
Borrower Redetermination Notice or a Lender Redetermination Notice, the
Borrower shall furnish to the Administrative Agent and to each Lender a Reserve
Report as of the most recent practicable date. If the Borrower fails to
deliver a Reserve Report within the time period provided for in the preceding
sentence, then the Administrative Agent shall have the right to rely on the
last Reserve Report previously delivered by the Borrower with any such
adjustments and taking into account any additional information as the
Administrative Agent may deem appropriate, in its sole discretion. On or
before the date which is 30 days after receipt (i) of a scheduled semi-annual
Reserve Report or (ii) of a Reserve Report in connection with a Lender
Redetermination Notice or a Borrower Redetermination Notice, the Administrative
Agent shall re-determine the Borrowing Base in its sole discretion, and the
Administrative Agent shall notify the Borrower and the Lenders of its
re-determination of the Borrowing Base. Within 10 days after receipt from the
Administrative Agent of the amount of the its re-determination of the Borrowing
Base, each Lender shall notify the Administrative Agent stating whether or not
such Lender agrees with that re-determination. Failure of any Lender to give
such notice within such period of time shall be deemed to constitute an
acceptance of such re-determination. If the Supermajority Lenders agree with
that re-determination, then the Administrative Agent promptly shall notify the
Borrower of the Borrowing Base as so re-determined, whereupon that
re-determined value shall automatically become effective (and shall remain
effective until the Borrowing Base is again re-determined as provided in this
subsection 4.9(c)). If the Supermajority Lenders have not approved or are not
deemed to have approved the Borrowing Base within the 10 day period following
their receipt of the proposed amount from the Administrative Agent, the
Borrowing Base shall be set at the amount of the then current Borrowing Base
and the Borrowing Base shall remain at such level until the Supermajority
Lenders, utilizing the procedure outlined herein, agree on a new Borrowing
Base. Each re-determination provided for by this subsection 4.9(c) shall be
made in accordance with the provisions of subsection 4.9(d). It is the
intention of the Borrower and the Lenders that the Borrowing Base be
redetermined within 45 days after the furnishing of each Reserve Report,
subject to the provisions of this paragraph (c).
(d) (i) All determinations and re-determinations by the
Administrative Agent provided for in this subsection 4.9 (and any
determinations and decisions by either or both of the Administrative Agent and
the Supermajority Lenders in connection therewith, including effecting any
re-determination of the value of any component contained in a Reserve Report)
shall be made by the Administrative Agent and the Lenders in their sole
discretion and shall be made on a reasonable basis
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and in good faith based upon the application by the Administrative Agent and
the Lenders of their respective normal oil and gas lending criteria as they
exist at the time of determination.
(ii) All re-determinations in the Borrowing Base referred to
in this subsection 4.9 shall become effective immediately upon the delivery of
notice by the Administrative Agent to the Borrower of the re-determination.
4.10 Borrowing Base Compliance. If, upon any redetermination
of the Borrowing Base pursuant to subsection 4.9, the Aggregate Revolving
Credit Exposure of the Lenders exceeds the Borrowing Base then in effect (any
such excess, the "Borrowing Base Deficiency"), the Borrower shall prepay the
Revolving Credit Loans and then cash collateralize the Letter of Credit
Outstandings in an amount equal to 50% of the Borrowing Base Deficiency within
90 days after the effective date of the redetermination resulting in such
Borrowing Base Deficiency, and within the next 90 days prepay the Revolving
Credit Loans and then cash collateralize the Letter of Credit Outstandings in
an amount equal to the balance of such Borrowing Base Deficiency in each case
together with interest accrued to the date of such payment or prepayment and
any amounts payable under subsection 4.14. If at any other time there exists a
Borrowing Base Deficiency, the Borrower shall immediately prepay the Revolving
Credit Loans and then cash collateralize the Letter of Credit Outstandings in
an amount equal to 100% of such Borrowing Base Deficiency together with
interest accrued to the date of such payment or prepayment and any amounts
payable under subsection 4.14. Prepayments and collateralization pursuant to
this subsection 4.10 shall be made as set forth in subsection 4.5(c).
4.11 Illegality. Notwithstanding any other provision herein,
if the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof after the date hereof shall make it
unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by
this Agreement (a) the commitment of such Lender hereunder to make Eurodollar
Loans, continue Eurodollar Loans as such and convert ABR Loans to Eurodollar
Loans shall forthwith be canceled and (b) such Lender's Loans then outstanding
as Eurodollar Loans, if any, shall be converted automatically to ABR Loans on
the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of
the then current Interest Period with respect thereto, the Borrower shall pay
to such Lender such amounts, if any, as may be required pursuant to subsection
4.14.
4.12 Requirements of Law. (a) If the adoption of or any
change in any Requirement of Law or in the interpretation or application
thereof after the date hereof or compliance by any Lender with any request or
directive (whether or not having the force of law) from any central bank or
other Governmental Authority made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note, any Letter of
Credit, any L/C Application or any Eurodollar Loan made by it, or
change the basis of taxation of payments to such Lender in respect
thereof (except for Non-Excluded Taxes covered by subsection 4.13,
changes in the rate or computation of tax on the overall net income of
such Lender, franchise taxes imposed in lieu of net income taxes and
doing business taxes);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement
against assets held by, deposits or other liabilities in or for the
account of, advances, loans or other extensions of credit by, or any
other acquisition of
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funds by, any office of such Lender which is not otherwise included in
the determination of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting
into, continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly, following receipt
of the certificate required in subsection 4.12(c), pay such Lender such
additional amount or amounts as will compensate such Lender for such increased
cost or reduced amount receivable.
(b) If any Lender shall have determined that the adoption of
or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under any Letter of Credit to a
level below that which such Lender or such corporation could have achieved but
for such adoption, change or compliance (taking into consideration such
Lender's or such corporation's policies with respect to capital adequacy) by an
amount deemed by such Lender to be material, then from time to time, the
Borrower shall promptly, following receipt of the certificate required in
subsection 4.12(c), pay to such Lender such additional amount or amounts as
will compensate such Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional
amounts pursuant to this subsection, it shall promptly notify the Borrower
(with a copy to the Administrative Agent) of the event by reason of which it
has become so entitled, such notice to include a description, in reasonable
detail, of the event giving rise to its claim for such additional amounts;
provided that the Borrower shall not be required to compensate a Lender
pursuant to this subsection for any additional costs incurred more than six
months prior to the date on which such Lender notifies the Borrower of such
event giving rise to such additional costs and of such Lender's intention to
claim compensation therefor; and provided, further, that, if any adoption or
change of any Requirement of Law or other event giving rise to such claim for
additional compensation is retroactive, then the six-month period referred to
above shall be extended to include the period of retroactive effect thereof. A
certificate as to any additional amounts payable pursuant to this subsection
submitted by such Lender to the Borrower (with a copy to the Administrative
Agent) shall be conclusive in the absence of manifest error. The agreements in
this subsection shall survive the termination of this Agreement and the payment
of the Loans and all other amounts payable hereunder.
4.13 Taxes. (a) All payments made by the Borrower under
this Agreement and any Notes shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any Governmental Authority, excluding net income taxes, franchise taxes
(imposed in lieu of net income taxes) and doing business taxes imposed on the
Administrative Agent or any Lender as a result of a present or former
connection between the Administrative Agent or such Lender and the jurisdiction
of the Governmental Authority imposing such tax or any political subdivision or
taxing authority thereof or therein (other than any such connection arising
solely from the Administrative Agent or such Lender having executed, delivered
or performed its obligations or received a payment under, or enforced, this
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Agreement or any Note). If any such non-excluded taxes, levies, imposts,
duties, charges, fees deductions or withholdings ("Non-Excluded Taxes") are
required to be withheld from any amounts payable to the Administrative Agent or
any Lender hereunder or under any Note, the amounts so payable to the
Administrative Agent or such Lender shall be increased to the extent necessary
to yield to the Administrative Agent or such Lender (after payment of all
Non-Excluded Taxes) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in this Agreement, provided, however, that
the Borrower shall not be required to increase any such amounts payable to any
Non-U.S. Lender if such Non-U.S. Lender fails to comply with the requirements
of paragraph (b) of this subsection. Whenever any Non-Excluded Taxes are
payable by the Borrower, as promptly as possible thereafter the Borrower shall
send to the Administrative Agent for its own account or for the account of such
Lender, as the case may be, a certified copy of an original official receipt
received by the Borrower showing payment thereof. If, when the Borrower is
required by this subsection 4.14(a) to pay any Non-Excluded Taxes, the Borrower
fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts
or other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as
a result of any such failure. The agreements in this subsection shall survive
the termination of this Agreement and the payment of the Loans and all other
amounts payable hereunder.
(b) Each Lender (or Transferee) that is not a citizen or
resident of the United States of America, a corporation, partnership or other
entity created or organized in or under the laws of the United States of
America, or any estate or trust that is subject to federal income taxation
regardless of the source of its income (a "Non-U.S. Lender") shall deliver to
the Borrower and the Administrative Agent (or, in the case of a Participant, to
the Lender from which the related participation shall have been purchased) two
copies of either U.S. Internal Revenue Service form 1001 or Form 4224, or, in
the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding
tax under Section 871(h) or 881(c) of the Code with respect to payments of
"portfolio interest," a Form W-8, or any subsequent versions thereof or
successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, an annual
certificate representing that such Non-U.S. Lender (i) is not a "bank" for
purposes of Section 881(c) of the Code (and is not subject to regulatory or
other legal requirements as a bank in any jurisdiction, and has not been
treated as a bank in any filing with or submission made to any Governmental
Authority or rating agency), (ii) is not a 10% shareholder (within the meaning
of Section 871(h)(3)(B) of the Code) of the Borrower and (iii) is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from U.S. federal withholding tax
on all payments by the Borrower under this Agreement and the other Loan
Documents, along with such other additional forms as the Borrower, the
Administrative Agent (or, in the case of a Participant, the Lender from which
the related participation shall have been purchased) may reasonably request to
establish the availability of such exemption. Such forms shall be delivered by
each Non-U.S. Lender on or before the date it becomes a party to this Agreement
(or, in the case of any Participant, on or before the date such Participant
purchases the related participation).
4.14 Indemnity. The Borrower agrees to indemnify each Lender
and to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur (other than through such Lender's gross negligence or willful
misconduct) as a consequence of (a) default by the Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment of a Eurodollar Loan after the Borrower has given a notice thereof
in accordance with the provisions of this Agreement or (c) the making of a
prepayment of or
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33
conversion of Eurodollar Loans on a day which is not the last day of an
Interest Period with respect thereto. To be entitled to such indemnity, such
Lender shall provide the Borrower with a certificate showing in reasonable
detail calculations utilized to ascertain the amount of such Lender's losses
(which calculations shall be conclusive, absent manifest error) and the
Borrower shall, promptly following receipt of such certificate, pay the Lender
the amounts calculated therein; provided that the Borrower shall not be
required to compensate a Lender pursuant to this subsection for any loss
incurred more than six months prior to the date on which such Lender notifies
the Borrower of such event giving rise to such additional costs and of such
Lender's intention to claim compensation therefor. Such indemnification may
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the amount so prepaid, or converted, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or conversion or of such failure to borrow, convert or continue to
the last day of the applicable Interest Period (or, in the case of a failure to
borrow, convert or continue, the Interest Period that would have commenced on
the date of such failure) in each case at the applicable rate of interest for
such Eurodollar Loans provided for herein (excluding, however, the percentage
added to the Eurodollar Rate pursuant to subsection 4.1(a) to the extent
included therein) over (ii) the amount of interest (as reasonably determined by
such Lender) which would have accrued to such Lender on such amount by placing
such amount on deposit for a comparable period with leading banks in the
interbank eurodollar market. This covenant shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder.
4.15 Change of Lending Office. (a) Each Lender agrees that
if it makes any demand for payment under subsection 4.12 or 4.13(a), or if any
adoption or change of the type described in subsection 4.11 shall occur with
respect to it, it will use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions and so long as such efforts would
not be disadvantageous to it, as determined in its sole discretion) to
designate a different lending office if the making of such a designation would
reduce or obviate the need for the Borrower to make payments under subsection
4.12 or 4.13(a), or would eliminate or reduce the effect of any adoption or
change described in subsection 4.11.
(b) If any Lender shall assert that any adoption or change of
the type described in subsection 4.11 hereof has occurred with respect to it,
or if any Lender requests compensation under subsection 4.12, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to subsection
4.13, or if any Lender defaults in its obligation to fund Loans hereunder, then
the Borrower may, at its expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to, and such Lender promptly shall,
assign and delegate, without recourse (in accordance with and subject to the
restrictions contained in subsection 11.6), all its interests, rights and
obligations under this Agreement to an assignee that shall assume such
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); provided that (i) if such assignee is not a Lender or an Affiliate
thereof, the Borrower shall have received the prior written consent of the
Administrative Agent and Issuing Lender which consents shall not unreasonably
be withheld or delayed, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans and participations in
Letters of Credit, accrued interest thereon, accrued fees and all other amounts
payable to it hereunder, from the assignee (at least to the extent of such
outstanding principal) and the Borrower (in the case of all other amounts) and
(iii) in the case of any such assignment resulting from a claim for
compensation under subsection 4.12 or payments required to be made pursuant to
subsection 4.13, such assignment will result in a reduction in such
compensation or payments compared to the compensation or payments payable to
the assigning Lender. A Lender shall not be required to make any such
assignment and
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delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Borrower to require such assignment
and delegation no longer exist or cease to apply.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter
into this Agreement and to make the Loans and issue or participate in the
Letters of Credit, the Borrower hereby represents and warrants to the
Administrative Agent and each Lender that:
5.1 Financial Condition. (a) The consolidated balance
sheets of the Borrower and its consolidated Subsidiaries at December 31, 1995
and December 31, 1996 and the related consolidated statements of operations, of
stockholders' equity and of cash flows for the respective fiscal years ended on
such dates, together with the related notes and schedules thereto, reported on
by Arthur Andersen LLP, copies of which have heretofore been furnished to each
Lender, present fairly in all material respects the consolidated financial
condition of the Borrower and its consolidated Subsidiaries as at such dates,
and the consolidated results of their operations and their consolidated cash
flows for the respective fiscal years then ended.
(b) The unaudited condensed consolidated balance sheet of the
Borrower and its consolidated Subsidiaries at June 30, 1997 and the related
unaudited condensed consolidated statements of operations, of stockholders'
equity and of cash flows for the 6-month period ended on such dates, together
with the related notes and schedules thereto, certified by a Responsible
Officer, copies of which have heretofore been furnished to each Lender, present
fairly in all material respects the consolidated financial condition of each of
the Borrower and its consolidated Subsidiaries as at such dates, and the
consolidated results of their respective operations and their consolidated cash
flows for the 6-month period then ended (subject to normal year-end audit
adjustments).
(c) All such financial statements referred to in subsections
5.1(a) and (b), including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the periods
involved (except as approved by such accountants or Responsible Officer, as the
case may be, and as disclosed therein). On the Closing Date, except for this
Agreement, the other Loan Documents, the Subordinated Note Documents and the
matters disclosed in Schedule 5.1 and 5.20, neither the Borrower nor any of its
consolidated Subsidiaries have, at the date of the most recent balance sheet
referred to above, any material Guarantee Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any Hedging Agreements, which is not
reflected in the financial statements referred to in subsection 5.1(a) or
5.1(b) or in the notes thereto to the extent required by GAAP. During the
period from January 1, 1997 to and including the date hereof, there has been no
sale, transfer or other disposition by the Borrower or any of its consolidated
Subsidiaries of any material part of its business or Property and no purchase
or other acquisition of any business or Property (including any capital stock
of any other Person) material in relation to the consolidated financial
condition of the Borrower and its consolidated Subsidiaries at December 31,
1996, other than as set forth on Schedule 5.1.
5.2 No Change. (a) Since December 31, 1996, there has been
no development, circumstance or event which has had or could reasonably be
expected to have a Material Adverse Effect, and (b) during the period from
January 1, 1997 to and including the date hereof no dividends or other
distributions have been declared, paid or made upon the Capital Stock of the
Borrower nor
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35
has any of the Capital Stock of the Borrower been redeemed, retired, purchased
or otherwise acquired for value by the Borrower or any of its Subsidiaries.
5.3 Existence; Compliance with Law. Each of the Borrower and
its Restricted Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has the
corporate, partnership or limited liability company (as the case may be) power
and authority, and the legal right, to own and operate its Property, to lease
the property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of Property or the
conduct of its business requires such qualification and (d) is in compliance
with all applicable Requirements of Law except to the extent that the failure
to be so qualified or to comply with such Requirements of Law could not
reasonably be expected to have, in the aggregate, a Material Adverse Effect.
5.4 Power; Authorization; Enforceable Obligations. The
Borrower and each of the other Loan Parties has the corporate, partnership or
limited liability company (as the case may be) power and authority, and the
legal right, to make, deliver and perform the Loan Documents to which it is a
party and, in the case of the Borrower, to borrow hereunder and has taken all
necessary corporate, partnership or limited liability company (as the case may
be) action to authorize the execution, delivery and performance of the Loan
Documents to which it is a party. No consent or authorization of, filing with,
notice to or other act by or in respect of, any Governmental Authority or any
other Person is required in connection with the borrowings hereunder or the
delivery, performance, validity or enforceability of the Loan Documents to
which each Loan Party is a party other than those which have been obtained and
are in full force and effect. This Agreement has been, and each other Loan
Document to which any Loan Party is a party will be, duly executed and
delivered on behalf of such Loan Party. This Agreement constitutes, and each
other Loan Document to which any Loan Party is a party when executed and
delivered will constitute, a legal, valid and binding obligation of such Loan
Party enforceable against such Loan Party in accordance with its terms, subject
to the effects of bankruptcy, insolvency, fraudulent transfer or conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered
in a proceeding in equity or at law) and an implied covenant of good faith and
fair dealing.
5.5 No Legal Bar. The execution, delivery and performance of
the Loan Documents, the borrowings hereunder and the use of the proceeds
thereof will not violate any applicable Requirement of Law or Contractual
Obligation of the Borrower or of any of its Restricted Subsidiaries, to the
extent such violation could reasonably be expected to have a Material Adverse
Effect and will not result in, or require, the creation or imposition of any
Lien on any of its or their respective Properties or revenues pursuant to any
such Requirement of Law or Contractual Obligation, other than the Liens created
pursuant to the Pledge Agreement.
5.6 No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
of its Restricted Subsidiaries or against any of its or their respective
Properties or revenues (a) with respect to any of the Loan Documents or any of
the transactions contemplated hereby or thereby, or (b) which could reasonably
be expected to have a Material Adverse Effect.
5.7 No Default. Neither the Borrower nor any of its
Restricted Subsidiaries is in default under or with respect to any of its
Contractual Obligations in any respect which could
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36
reasonably be expected to have a Material Adverse Effect. No Default or Event
of Default has occurred and is continuing.
5.8 Ownership of Property; Liens. (a) Except for the Oil
and Gas Properties, the Borrower and its Restricted Subsidiaries each have good
title in fee simple to, or a valid leasehold interest in, all its material real
Property and material interests in real Property, and good title to, or a valid
leasehold interest in, all its other material Property, and none of such
Property is subject to any Lien except as permitted by subsection 8.3.
(b) The Borrower and its Restricted Subsidiaries each have
good and defensible title to all of its Oil and Gas Properties included in the
most recent Reserve Report which are not personal property and good title to
all such Oil and Gas Properties which are personal property and material to the
Borrower and its Restricted Subsidiaries taken as a whole, except for (i) such
imperfections of title as do not in the aggregate materially detract from the
value thereof to, or the use thereof in, the business of the Borrower or any of
its Restricted Subsidiaries, (ii) Oil and Gas Properties disposed of since the
date of the most recent Reserve Report as permitted by subsection 8.6 hereof,
and (iii) Liens permitted by subsection 8.3 hereof. The quantum and nature of
the interest of the Borrower and its Restricted Subsidiaries in and to the Oil
and Gas Properties as set forth in each Reserve Report (including the Initial
Reserve Report) includes the entire interest of the Borrower and its Restricted
Subsidiaries in such Oil and Gas Properties as of the date of such Reserve
Report and are complete and accurate in all material respects as of the date of
such Reserve Report; and there are no "back-in" or "reversionary" interests
held by third parties which could materially reduce the interest of the
Borrower and its Restricted Subsidiaries in such Oil and Gas Properties except
as expressly set forth in such Reserve Report. The ownership of the Oil and
Gas Properties by the Borrower and its Restricted Subsidiaries shall not in any
material respect obligate any such Person to bear the costs and expenses
relating to the maintenance, development or operations of each such Oil and Gas
Property in an amount in excess of the working interest of such Person in each
Oil and Gas Property set forth in the most recent Reserve Report.
5.9 Intellectual Property. Each of the Borrower and its
Restricted Subsidiaries owns, or is licensed to use, all trademarks,
tradenames, copyrights, technology, know-how and processes necessary for the
conduct of its business as currently conducted except for those the failure to
own or license which could not reasonably be expected to have a Material
Adverse Effect (the "Intellectual Property"). No claim has been asserted and
is pending by any Person challenging or questioning the use of any such
Intellectual Property or the validity or effectiveness of any such Intellectual
Property, nor does the Borrower know of any valid basis for any such claim
which could reasonably be expected to have a Material Adverse Effect. The use
of such Intellectual Property by the Borrower and its Restricted Subsidiaries
does not infringe on the rights of any Person, except for such claims and
infringements that, in the aggregate, could not be reasonably expected to have
a Material Adverse Effect.
5.10 No Burdensome Restrictions. No applicable Requirement
of Law or Contractual Obligation of the Borrower or any of its Restricted
Subsidiaries could reasonably be expected to have a Material Adverse Effect.
5.11 Taxes. Each of the Borrower and its Restricted
Subsidiaries has filed all material tax returns which, to the knowledge of such
Person, are required to be filed by it and has paid or caused to be paid all
taxes shown on said returns and all material assessments, fees and other
governmental charges levied upon it or upon any of its Property or income which
are due and payable, other than such taxes, assessments, fees and other
governmental charges, if any, as are being diligently
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37
contested in good faith and by appropriate proceedings and with respect to
which there have been established adequate reserves on the books of the
Borrower or its Restricted Subsidiaries, as the case may be, in accordance with
GAAP. No tax Lien has been filed and, to the knowledge of the Borrower, no
claim is being asserted, with respect to any such taxes or material
assessments, fees or other governmental charges, other than claims which are
being contested in good faith by appropriate proceedings, provided that
adequate reserves with respect thereto are being maintained on the books of the
Borrower or the applicable Restricted Subsidiary, as the case may be, in
conformity with GAAP.
5.12 Federal Reserve Regulations. No part of the proceeds of
any Extensions of Credit will be used for any purpose which violates the
provisions of the Regulations of the Board, including, without limitation,
Regulation G, Regulation U, Regulation T or Regulation X of the Board. If
requested by any Lender or the Administrative Agent, the Borrower will furnish
to the Administrative Agent and each Lender a statement to the foregoing effect
in conformity with the requirements of FR Form G-1, FR Form U-1 or such other
similar form referred to in Regulation G, Regulation U, Regulation T or
Regulation X of the Board, as the case may be.
5.13 ERISA. Except where the liability could not reasonably
be expected to have a Material Adverse Effect: (a) neither a Reportable Event
nor an "accumulated funding deficiency" (within the meaning of Section 412 of
the Code or Section 302 of ERISA) has occurred during the five-year period
prior to the date on which this representation is made or deemed made with
respect to any Plan, and each Plan has complied with the applicable provisions
of ERISA and the Code; (b) no termination of a Single Employer Plan has
occurred, and no Lien on property of the Borrower or any Commonly Controlled
Entity in favor of the PBGC or a Plan has arisen, during such five-year period;
(c) the present value of all accrued benefits under each Single Employer Plan
(based on those assumptions used to fund such Plans) did not, as of the last
annual valuation date prior to the date on which this representation is made or
deemed made, exceed the value of the assets of such Plan allocable to such
accrued benefits; (d) neither the Borrower nor any Commonly Controlled Entity
has had a complete or partial withdrawal from any Multiemployer Plan, and
neither the Borrower nor any Commonly Controlled Entity would become subject to
any liability under ERISA if the Borrower or any such Commonly Controlled
Entity were to withdraw completely from all Multiemployer Plans as of the
valuation date most closely preceding the date on which this representation is
made or deemed made; and (e) no such Multiemployer Plan is in Reorganization or
Insolvent.
5.14 Investment Company Act; Other Regulations. Neither the
Borrower nor any of its Restricted Subsidiaries is (a) an "investment company",
or a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended or (b) a "holding company" as
defined in, or subject to regulation under, the Public Utility Holding Company
Act of 1935. Neither the Borrower nor any of its Restricted Subsidiaries is
subject to regulation under any Federal or State statute or regulation (other
than Regulation X of the Board of Governors of the Federal Reserve System)
which limits its ability to incur Indebtedness under this Agreement or the
other Loan Documents.
5.15 Subsidiaries. The Persons listed on Schedule 5.15
constitute all the Subsidiaries of the Borrower at the date hereof. Such
Schedule sets forth the status of such Subsidiaries, as of the date hereof, as
Restricted Subsidiaries or Unrestricted Subsidiaries and sets forth the net
book value of the assets owned by each of the Unrestricted Subsidiaries listed
on such Schedule.
5.16 Purpose of Loans. The proceeds of the Loans and the
Letters of Credit will be used for working capital and for the general
corporate purposes of the Borrower and its Subsidiaries in the ordinary course
of business.
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5.17 Environmental Matters. Other than exceptions to any of
the following that could not, individually or in the aggregate, reasonably be
expected to give rise to a Material Adverse Effect:
(a) each of the Borrower and its Restricted Subsidiaries:
(i) is, and within the period of all applicable statutes of limitation
has been, in compliance with all applicable Environmental Laws; (ii)
holds or is entitled to the benefits of all Environmental Permits
(each of which is in full force and effect) required for any of its
current or planned operations or for any Property owned, leased, or
otherwise operated by it; (iii) is, and within the period of all
applicable statutes of limitation has been, in compliance with all of
its Environmental Permits; and (iv) reasonably believes that (A) each
of its Environmental Permits will be timely renewed without expense,
(B) any additional Environmental Permits which it has reason to
believe will be required will be timely obtained without expense, and
(C) the costs of complying with such renewed or additional
Environmental Permits and any other Environmental Laws applicable to
or reasonably expected to apply to the Borrower and its Restricted
Subsidiaries will not exceed the Borrower's and its Subsidiaries'
existing costs of complying with Environmental Permits and
Environmental Laws.
(b) Materials of Environmental Concern have not been
transported, disposed of, emitted, discharged, or otherwise released
or threatened to be released, to or at any real property presently or
formerly owned, leased or operated by the Borrower or any Restricted
Subsidiary or at any other location, which could reasonably be
expected to (i) give rise to liability of the Borrower or any
Restricted Subsidiary under any applicable Environmental Law, (ii)
interfere with the Borrower's continued operations, or (iii) impair
the fair saleable value of any material real property owned or leased
by the Borrower or any Restricted Subsidiary.
(c) no judicial, administrative, or arbitral proceeding
(including any notice of violation or alleged violation) under or
relating to any Environmental Law to which the Borrower or any
Restricted Subsidiary is, or to the knowledge of the Borrower will be,
named as a party is pending or, to the knowledge of the Borrower,
threatened.
(d) the Borrower has not received any written request for
information, or been notified that it or any Restricted Subsidiary is
a potentially responsible party under the federal Comprehensive
Environmental Response, Compensation, and Liability Act or any similar
Environmental Law, or with respect to any Materials of Environmental
Concern.
(e) neither the Borrower nor any Restricted Subsidiary has
entered into or agreed to any consent decree, order, or settlement or
other agreement, nor is subject to any judgment, decree, or order or
other agreement, in any judicial, administrative, arbitral, or other
forum, relating to compliance with or liability under any
Environmental Law.
(f) neither the Borrower nor any Restricted Subsidiary has
assumed or retained, by contract or operation of law, any liabilities
of any kind, fixed, contingent or otherwise, under any Environmental
Law.
5.18 No Material Misstatements. (a) All written
information, reports, financial statements, exhibits and schedules furnished to
the Administrative Agent or any Lender by or on behalf of the Borrower or any
of its Subsidiaries in connection with the negotiation of any Loan Document or
included therein or delivered pursuant thereto, when taken as a whole, did not
contain,
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39
and as they may be amended, supplemented or modified from time to time, will
not contain, as of the date such statements were made, any untrue statements of
a material fact and did not omit, and as they may be amended, supplemented or
modified from time to time, will not omit, to state as of the date such
statements were made, any material fact necessary in order to make the
statements contained therein, in the light of the circumstances under which
they were, are or will be made, not materially misleading.
(b) All projections and estimates concerning the Borrower and
its Subsidiaries that are or have been made available to the Administrative
Agent or any Lender by or on behalf of the Borrower or any of its Subsidiaries,
have been or will be prepared based on good faith estimates and based upon
assumptions either provided by the Administrative Agent and the Lenders,
required by applicable Requirements of Law or believed by the Borrower to be
reasonable at the time of such preparation.
5.19 Insurance. Each of the Borrower and its Restricted
Subsidiaries carries and maintains with respect to its insurable properties
insurance (including, to the extent consistent with past practices,
self-insurance) with financially sound and reputable insurers of the types, to
such extent and against such risks as is customary with companies in the same
or similar businesses.
5.20 Future Commitments. As of the date hereof and as of the
Closing Date, except as set forth on Schedule 5.20, on a net basis there are no
gas imbalances, take-or-pay or other prepayments with respect to any Oil and
Gas Property of the Borrower or any Restricted Subsidiary which would require
the Borrower or any Restricted Subsidiary to deliver Hydrocarbons produced from
Oil and Gas Properties at some future time without then or thereafter receiving
full payment therefor.
5.21 Pledge Agreement. (a) The provisions of the Pledge
Agreement and the initial transaction statements, where applicable, delivered
to the Administrative Agent pursuant to the forms attached to the Pledge
Agreement are effective to create in favor of the Administrative Agent, for the
ratable benefit of the Lenders, a legal, valid and enforceable security
interest in the Pledged Securities and proceeds thereof and, (i) when
certificates representing or constituting any of the Pledged Securities are
delivered to the Administrative Agent, (ii) when the Pledged LLC Interests (as
defined in the Pledge Agreement) and the Pledged Partnership Interests (as
defined in the Pledge Agreement) are registered pursuant to the forms attached
as Exhibits to the Pledge Agreement and (iii) when UCC-1 financing statements
are filed in the offices set forth in Schedule 5.21, the Pledge Agreement shall
constitute a fully perfected first priority lien on, and security interest in,
all right, title and interest of the pledgor party therein in such Pledged
Securities and the proceeds thereof, in each case prior and superior in right
to any other Person.
(b) On the Closing Date, the shares of Capital Stock listed
on Schedule I to the Pledge Agreement will constitute all the issued and
outstanding shares of Capital Stock of the issuers thereof listed on said
Schedule owned by the Loan Parties; all such shares have been duly and validly
issued and are fully paid and nonassessable; and the relevant Pledgor of said
shares is the record and beneficial owner of said shares.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions to Initial Extensions of Credit. The
agreement of each Lender to make the initial Loan requested to be made by it
and of the Issuing Lender to issue the initial Letter of
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40
Credit to be issued by it is subject to the satisfaction, immediately prior to
or concurrently with the making of such Loan and the issuance of such Letter of
Credit on the Closing Date, of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have
received (with the number of original counterparts requested by the
Administrative Agent) (i) this Agreement, executed and delivered by a
duly authorized officer of the Borrower and (ii) the Pledge Agreement,
executed and delivered by a duly authorized officer of each Loan Party
thereto.
(b) Related Agreements. The Administrative Agent shall have
received true and correct copies, certified as to authenticity by the
Borrower, of such documents or instruments as may be reasonably
requested by the Administrative Agent, including, without limitation,
a copy of any debt instrument or security agreement to which the
Borrower and its Subsidiaries will be a party after the Closing Date.
(c) Borrowing Certificate. The Administrative Agent shall
have received (with the number of original counterparts requested by
the Administrative Agent), a certificate of the Borrower, dated the
Closing Date, substantially in the form of Exhibit D, with appropriate
insertions and attachments, satisfactory in form and substance to the
Administrative Agent, executed by a Responsible Officer of the
Borrower.
(d) Proceedings of the Loan Parties. The Administrative
Agent shall have received (with the number of original counterparts
requested by the Administrative Agent), a copy of the resolutions or
other equivalent authorization, in form and substance satisfactory to
the Administrative Agent, of the Board of Directors (or partners or
members, as appropriate) of each Loan Party authorizing (i) the
execution, delivery and performance of this Agreement and the Loan
Documents to which it is a party and (ii) in the case of the Borrower,
the borrowings contemplated hereunder, certified by the Secretary or
an Assistant Secretary of such Loan Party (or of its general partner
or managing member, as appropriate) as of the Closing Date, which
certificate shall be in form and substance reasonably satisfactory to
the Administrative Agent and shall state that the resolutions (or
other equivalent authorization) thereby certified have not been
amended, modified, revoked or rescinded.
(e) Loan Party Incumbency Certificates. The Administrative
Agent shall have received (with the number of original counterparts
requested by the Administrative Agent), a certificate of each Loan
Party, dated the Closing Date, as to the incumbency and signature of
the officers of such Loan Party (or of its general partner or managing
member, as appropriate), executing any Loan Document reasonably
satisfactory in form and substance to the Administrative Agent,
executed by the President or any Vice President and the Secretary or
any Assistant Secretary (or by its general partner or managing member,
as appropriate) of such Loan Party.
(f) Constitutional Documents. The Administrative Agent shall
have received (with the number of original counterparts requested by
the Administrative Agent), true and complete copies of the
constitutional documents of each Loan Party, certified as of the
Closing Date as complete and correct copies thereof by the Secretary
or an Assistant Secretary (or by its general partner or managing
member, as appropriate) of such Loan Party.
(g) Consents, Licenses and Approvals. All governmental and
third party approvals (including consents) necessary or, in the
discretion of the Administrative Agent, advisable in
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41
connection with the continuing operations of the Borrower and its
Restricted Subsidiaries and the execution, delivery and performance of
the Loan Documents shall have been obtained and be in full force and
effect, and all applicable waiting periods shall have expired without
any action being taken or threatened by any competent authority which
would restrain, prevent or otherwise impose material and adverse
conditions on this Agreement and the other Loan Documents and the
transactions contemplated hereby and thereby. The Administrative
Agent shall have received, with a counterpart for each Lender, a
certificate of the Borrower as to the foregoing.
(h) Fees. The Lenders and the Administrative Agent shall
have received all fees and expenses required to be paid on or before
the Closing Date for which invoices have been presented.
(i) Legal Opinions. The Administrative Agent shall have
received the following legal opinions:
(i) the executed legal opinion of Vinson & Elkins L.L.P.,
counsel to the Borrower and each Pledgor, substantially in the form of
Exhibit C-1;
(ii) the executed legal opinion of Woodburn and Wedge,
Nevada counsel to the Loan Parties, substantially in the form of
Exhibit C-2; and
(iii) the executed legal opinion of Brown Drew Massey &
Sullivan, Wyoming counsel to the Loan Parties, substantially in the
form of Exhibit C-3.
Such legal opinions shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative
Agent may reasonably require.
(j) Lien Searches. The Administrative Agent shall have
received the results of recent lien searches by Persons reasonably
satisfactory to the Administrative Agent, in such jurisdictions and
offices as it shall request and such searches shall reveal no Liens on
any assets of the Borrower and each of its Restricted Subsidiaries,
except for (i) Liens permitted by subsection 8.3 and (ii) Liens to be
released on the Closing Date.
(k) Insurance. The Administrative Agent shall have received
copies of, or an insurance broker's or agent's certificate as to
coverage under, the insurance policies required by subsection 7.5.
(l) Reserve Report. The Administrative Agent shall have
received a Reserve Report from a firm satisfactory to the
Administrative Agent and other reserve information with respect to the
Oil and Gas Properties of the Borrower and its Restricted
Subsidiaries, all of which shall be satisfactory in form and substance
to the Administrative Agent (collectively, the "Initial Reserve
Report").
(m) Title to Oil and Gas Properties. The Administrative
Agent shall be reasonably satisfied as to the title to the Oil and Gas
Properties representing all of the Oil and Gas Properties included in
the Initial Reserve Report.
(n) Environmental Matters. The Administrative Agent shall be
reasonably satisfied with the potential environmental liabilities to
which the Borrower and its Subsidiaries may be
<PAGE> 47
42
subject based on such reports and other information as the
Administrative Agent may reasonably request.
(o) Pledged Securities. The Administrative Agent shall have
received the certificates representing the certificated Pledged
Securities pledged pursuant to the Pledge Agreement, together with an
undated stock power for each such certificate executed in blank by a
duly authorized officer of the Pledgor thereof, endorsed in blank by a
duly authorized officer of the Pledgor thereof.
(p) Actions to Perfect Liens. The Administrative Agent shall
have received evidence in form and substance satisfactory to it that
all filings, recordings, registrations and other actions, including,
without limitation, the filing of duly executed financing statements
on form UCC-1, necessary or, in the opinion of the Administrative
Agent, desirable to perfect the Liens created by the Pledge Agreement
shall have been completed.
(q) Additional Matters. All corporate and other proceedings,
and all documents, instruments and other legal matters in connection
with the transactions contemplated by this Agreement and the other
Loan Documents shall be reasonably satisfactory in form and substance
to the Administrative Agent, and the Administrative Agent shall have
received such other documents in respect of any aspect or consequence
of the transactions contemplated hereby or thereby as it shall
reasonably request.
6.2 Conditions to Each Extension of Credit. The agreement of
each Lender to make any Extension of Credit requested to be made by it on any
date (including, without limitation, its initial Extension of Credit and any
renewal or extension of a Letter of Credit) is subject to the satisfaction of
the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by each Loan Party in or pursuant
to the Loan Documents shall be true and correct on and as of such date
as if made on and as of such date (unless such representations and
warranties are stated to relate to a specific earlier date, in which
case such representations and warranties shall be true and correct as
of such earlier date).
(b) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
Extensions of Credit requested to be made on such date.
Each borrowing by, and Letter of Credit issued on behalf of, the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date thereof that the conditions contained in (a) and (b) of this
subsection have been satisfied.
SECTION 7. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect, any Loan, Note or Letter of Credit remains outstanding and
unpaid or any amount is owing to any Lender or the Administrative Agent
hereunder or under any other Loan Document, the Borrower shall and (except in
the case of delivery of financial information, reports and notices) shall cause
each of its Restricted Subsidiaries to:
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43
7.1 Financial Statements. Furnish to the Administrative
Agent and to each of the Lenders:
(a) as soon as available, but in any event within 90 days
after the end of each fiscal year of the Borrower, (i) a copy of the
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such year and the related consolidated
statements of operations, stockholders' equity and cash flows for such
year, setting forth in each case in comparative form the figures for
the previous year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope
of the audit, by Arthur Andersen LLP or other independent certified
public accountants of nationally recognized standing reasonably
acceptable to the Required Lenders and (ii) a copy of the consolidated
balance sheet of the Borrower and its Restricted Subsidiaries as at
the end of such year and the related consolidated statements of
operations, stockholders' equity and cash flows for such year, setting
forth in each case in comparative form the figures for the previous
year, certified by a Responsible Officer as being fairly stated in all
material respects; and
(b) as soon as available, but in any event not later than 45
days after the end of each of the first three quarterly fiscal periods
of each fiscal year of the Borrower and its consolidated Subsidiaries,
(i) the unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such quarter and the
related unaudited consolidated statements of operations, stockholders'
equity and cash flows of the Borrower and its consolidated
Subsidiaries for such quarter and the portion of the fiscal year
through the end of such quarter and (ii) the unaudited consolidated
balance sheet of the Borrower and its Restricted Subsidiaries as at
the end of such quarter and the related unaudited consolidated
statements of operations, stockholders' equity and cash flows of the
Borrower and its Restricted Subsidiaries for such quarter and the
portion of the fiscal year through the end of such quarter, setting
forth in each case in comparative form the figures for the previous
year, certified by a Responsible Officer as being fairly stated in all
material respects (subject to normal year-end and audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and disclosed
therein).
7.2 Certificates; Other Information. Furnish to the
Administrative Agent and to each of the Lenders:
(a) concurrently with the delivery of the financial
statements referred to in subsections 7.1(a) and (b), a certificate of
a Responsible Officer stating that, to the best of such officer's
knowledge, during such period (i) no Subsidiary has been formed or
acquired (or, if any Restricted Subsidiary has been formed or
acquired, the Borrower and such Restricted Subsidiary complied with
the requirements of subsection 7.9 with respect thereto) and (ii) the
Borrower has observed or performed all of its covenants (and setting
forth the calculations used to determine compliance with the
covenants set forth in subsection 8.1) and other agreements, and
satisfied every condition, contained in this Agreement and the other
Loan Documents to be observed, performed or satisfied by it, and that
such officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate;
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(b) within five days after the same are sent, copies of all
financial statements and reports which the Borrower sends to its
stockholders, and within five days after the same are filed, copies of
all financial statements and reports, if any, which the Borrower may
make to, or file with, the Securities and Exchange Commission or any
successor or analogous Governmental Authority;
(c) promptly upon receipt thereof, copies of all reports and
management letters submitted to the Borrower or any Restricted
Subsidiary by independent public accountants in connection with any
interim or special audit of the books or operations of the Borrower or
such Restricted Subsidiary made by such accountants;
(d) together with any Reserve Report delivered pursuant to
subsection 4.9, a schedule identifying the pricing and notional
volumes on the open Commodity Price Risk Management Agreements of the
Borrower and its Restricted Subsidiaries as of the fiscal quarter
ending on the date of such Reserve Report;
(e) deliver to the Administrative Agent within 30 days of
obtaining any renewal or replacement insurance policies as and when
required by subsection 7.5, certificates of insurance evidencing the
Borrower's compliance with subsection 7.5; and
(f) promptly, such additional financial and other information
concerning the Borrower and its Subsidiaries as any Lender (acting
through the Administrative Agent) may from time to time reasonably
request.
7.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all of its material obligations of whatever nature, except where the amount
or validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Borrower or the applicable Restricted Subsidiary,
as the case may be.
7.4 Conduct of Business and Maintenance of Existence;
Compliance with Law and Contractual Obligations. Continue to engage in
business of the same general type as now conducted by it and preserve, renew
and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises necessary
or desirable in the normal conduct of its business, except as otherwise
permitted by subsection 8.5; comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply therewith could
not reasonably be expected to have, in the aggregate, a Material Adverse
Effect.
7.5 Maintenance of Property; Insurance. Keep all material
property owned or leased by it that is useful and necessary in its business in
good working order and condition, ordinary wear and tear excepted; maintain
with financially sound and reputable insurance companies insurance of such
types, in such amounts and against such risks as is customary to be maintained
by companies engaged in the same or a similar business in the same general
area; and furnish to the Administrative Agent, upon written request, full
information as to the insurance carried.
7.6 Inspection of Property; Books and Records; Discussions.
Keep proper books of records and account in which full, true and correct
entries in conformity with GAAP and all Requirements of Law shall be made of
all dealings and transactions in relation to its business and activities; and
permit, upon reasonable prior notice, representatives of any Lender to visit,
subject to compliance with the terms of any applicable Requirements of Law or
corporate policy, and inspect any
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of its properties and examine and make abstracts from any of its books and
records during normal business hours and as often as may reasonably be
requested through the Administrative Agent and to discuss the business,
operations, properties and financial and other condition of the Borrower and
its Subsidiaries with officers and employees of the Borrower and its
Subsidiaries and with its independent certified public accountants.
7.7 Notices. Promptly give notice to the Administrative
Agent of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Restricted Subsidiaries or
(ii) litigation, investigation or proceeding which may exist at any
time between the Borrower or any of its Restricted Subsidiaries and
any Governmental Authority, which could reasonably be expected to
have, in the opinion of a Responsible Officer, a Material Adverse
Effect;
(c) any litigation or proceeding affecting the Borrower or
any of its Restricted Subsidiaries which could reasonably be expected,
in the opinion of a Responsible Officer, to result in an adverse
judgment of $1,000,000 or more not covered by insurance or in which
injunctive or similar relief is sought;
(d) the following events, as soon as possible and in any
event within 30 days after the Borrower knows or has reason to know
thereof to the extent any such event could reasonably be expected to
have a Material Adverse Effect: (i) the occurrence or expected
occurrence of any Reportable Event with respect to any Single Employer
Plan, a failure by the Borrower or any Commonly Controlled Entity to
make any required contribution to a Plan, the creation of any Lien on
the property of the Borrower or any Commonly Controlled Entity in
favor of the PBGC or a Plan or any withdrawal by the Borrower or any
Commonly Controlled Entity from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (ii) the institution of
proceedings or the taking of any other action by the PBGC or the
Borrower or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal by the Borrower or any Commonly
Controlled Entity from, or the terminating, Reorganization or
Insolvency of, any Plan; and
(e) any other event which could reasonably be expected to
have or has had, in the opinion of a Responsible Officer, a Material
Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what the Borrower and its Restricted Subsidiaries have
taken or propose to take with respect thereto.
7.8 Environmental Laws. (a) (i) Comply with all
Environmental Laws, and obtain, comply with and maintain any and all
Environmental Permits necessary for its operations as conducted and as planned;
and (ii) take all reasonable efforts to ensure that all of its tenants,
subtenants, contractors, subcontractors, and invitees comply with all
Environmental Laws, and obtain, comply with and maintain any and all
Environmental Permits, applicable to any of them insofar as any failure to so
comply, obtain or maintain reasonably could be expected to have a Material
Adverse Effect. For purposes of this subsection 7.8(a), noncompliance by the
Borrower or any of its Restricted Subsidiaries with any applicable
Environmental Law or Environmental Permit shall be deemed not to constitute a
breach of this covenant provided that, upon learning of any actual or suspected
noncompliance, the
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Borrower and its Restricted Subsidiaries shall promptly undertake all
reasonable efforts to achieve compliance, and provided further that, in any
case, such non-compliance, and any other noncompliance with Environmental Law,
individually or in the aggregate, could not reasonably be expected to give rise
to a Material Adverse Effect or materially and adversely affect the value of
any material Property considered for calculation of the Borrowing Base.
(b) Comply with all orders and directives of all Governmental
Authorities regarding Environmental Laws, other than such orders and directives
as to which an appeal or other appropriate action to contest such order or
directive has been timely and properly taken in good faith, or where
non-compliance could not reasonably be expected to give rise to a Material
Adverse Effect.
(c) Prior to acquiring any ownership or leasehold interest in
real property or other interest in any real property that could give rise to
the Borrower being subject to potential significant liability under or
violations of any Environmental Law which potential liability or violations, if
incurred, could reasonably be expected to have a Material Adverse Effect: (i)
notify the Administrative Agent; and (ii) if requested by the Administrative
Agent, provide to the Administrative Agent a written report by an environmental
consultant reasonably acceptable to the Administrative Agent assessing the
presence or potential presence of significant levels of any Materials of
Environmental Concern on, under, in, or about the property, or of other
conditions that could give rise to potentially significant liability or
violations of any Environmental Law.
7.9 Additional Collateral. (a) With respect to any Person
that, subsequent to the Closing Date, becomes a Restricted Subsidiary (other
than a Foreign Subsidiary), promptly: (i) cause the Capital Stock of such
Person owned by the Borrower and any Restricted Subsidiary to be pledged to the
Administrative Agent, for the ratable benefit of the Lenders, pursuant to
documentation reasonably satisfactory to the Administrative Agent, and take all
actions reasonably necessary or advisable to cause the Lien thereon to be duly
perfected in accordance with all applicable Requirements of Law, and deliver
any certificates representing such Capital Stock to the Administrative Agent,
together with undated stock powers executed and delivered in blank by a duly
authorized officer of the Borrower or such Restricted Subsidiary, as the case
may be, and (ii) if requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the matters described in clause
(i) immediately preceding, which opinions shall be in form and substance, and
from counsel, reasonably satisfactory to the Administrative Agent.
(b) With respect to any Person that, subsequent to the Closing Date,
becomes a Restricted Subsidiary and is a Foreign Subsidiary, promptly: (i)
execute and deliver to the Administrative Agent a new pledge agreement as the
Administrative Agent shall deem reasonably necessary or advisable to grant to
the Administrative Agent, for the benefit of the Lenders, a Lien on the Capital
Stock of such Subsidiary which is owned by the Borrower or any Restricted
Subsidiary (provided that in no event shall more than 65% of the Capital Stock
of any such Subsidiary be required to be so pledged), (ii) deliver to the
Administrative Agent any certificates representing such Capital Stock, together
with undated stock powers executed and delivered in blank by a duly authorized
officer of the Borrower or such Restricted Subsidiary, as the case may be, and
take or cause to be taken all such other actions under the law of the
jurisdiction of organization of such Foreign Subsidiary as may be reasonably
necessary or advisable to perfect such Lien on such Capital Stock and (iii) if
requested by the Administrative Agent, deliver to the Administrative Agent
legal opinions relating to the matters described in clauses (i) and (ii)
immediately preceding, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent.
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7.10 Maintenance and Operation of Property. To the extent
that the failure to comply could reasonably be expected to have a Material
Adverse Effect and consistent with the standards of a reasonably prudent
operator:
(a) Maintain, develop, and operate Borrower's Oil
and Gas Properties, and oil and gas gathering assets in a good and
workmanlike manner, and observe and comply with all of the terms and
provisions, express or implied, of all oil and gas leases relating to
the Properties so long as the oil and gas leases are capable of
producing Hydrocarbons in quantities and at prices providing for
continued efficient and profitable operation of business;
(b) Comply in all material respects with all
contracts and agreements applicable to or relating to Borrower's Oil
and Gas Properties or the production and sale of Hydrocarbons
therefrom;
(c) At all times, maintain, preserve, and keep all
operating equipment used with respect to Borrower's Oil and Gas
Properties, and oil and gas gathering assets in proper repair, working
order and condition, and make all necessary or appropriate repairs,
renewals, replacements, additions and improvements thereto so that the
efficiency of the operating equipment shall at all times be properly
preserved and maintained, provided that no item of operating equipment
need be so repaired, renewed, replaced, added to or improved, if
Borrower or its Subsidiaries shall in good faith determine that the
action is not necessary or desirable for its continued efficient and
profitable operation of business.
(d) With respect to Borrower's Oil and Gas
Properties, and oil and gas gathering assets which are operated by
operators other than Borrower or a Restricted Subsidiary, use
reasonable efforts to enforce in a manner consistent with the industry
practice the operators' contractual obligations to maintain, develop,
and operate such Properties subject to the applicable operating
agreements.
7.11 Further Assurances. Upon the request of the
Administrative Agent, promptly perform or cause to be performed any and all
acts and execute or cause to be executed any and all documents (including,
without limitation, financing statements and continuation statements) for
filing under the provisions of the Uniform Commercial Code or any other
Requirement of Law which are necessary or advisable to maintain in favor of the
Administrative Agent, for the benefit of the Lenders, Liens on the Collateral
(as defined in the Pledge Agreement) that are duly perfected in accordance with
all applicable Requirements of Law.
SECTION 8. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect, any Loan, Note or any Letter of Credit remains outstanding
and unpaid or any amount is owing to any Lender or the Administrative Agent
hereunder or under any other Loan Document, the Borrower shall not, and shall
not (except with respect to subsection 8.1) permit any Restricted Subsidiary
to, directly or indirectly:
8.1 Financial Covenant Conditions. (a) Total Debt Interest
Coverage Ratio. Permit, for any period of four consecutive fiscal quarters
ending after the date hereof, the ratio of EBITDA to Consolidated Interest
Expense of the Borrower and its Restricted Subsidiaries for such four
consecutive fiscal quarters to be less than 3.0 to 1.0.
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(b) Total Debt Leverage Ratio. Permit the ratio of
Indebtedness of the Borrower and its Restricted Subsidiaries as of the last day
of any fiscal quarter to EBITDA for the period of four consecutive fiscal
quarters then ended to be greater than 3.5 to 1.0.
(c) Current Ratio. Permit the ratio of current assets to
current liabilities at any time to be less than 1.0 to 1.0 (for purposes of
this calculation, current assets will include an amount equal to the Borrowing
Base Availability).
8.2 Limitation on Indebtedness. Create, incur, assume or
suffer to exist any Indebtedness, except:
(a) Indebtedness of the Borrower under the Loan Documents;
(b) Indebtedness of the Borrower issued to any Wholly-Owned
Restricted Subsidiary and Indebtedness of any Wholly-Owned Restricted
Subsidiary issued to the Borrower or any other Wholly-Owned Restricted
Subsidiary;
(c) (i) Indebtedness of the Borrower evidenced by the Senior
Subordinated Notes and (ii) Permitted Subordinated Refinancing Debt
related thereto, if any;
(d) Guarantee Obligations permitted by subsection 8.4;
(e) Indebtedness of the Borrower and its Wholly-Owned
Restricted Subsidiaries existing on the Closing Date and listed on
Schedule 8.2(e), but not any extensions, renewals or replacements of
such Indebtedness;
(f) Indebtedness of the Borrower under Interest Rate
Protection Agreements entered into for the purpose of limiting
interest rate risks, provided that the obligations under such
agreements are related to payment obligations on Indebtedness
otherwise permitted by the terms of this covenant;
(g) Indebtedness of the Borrower under Commodity Price Risk
Management Agreements provided that such contracts were entered into
in the ordinary course of business for the purpose of limiting risks
that arise in the ordinary course of business of the Borrower and its
Restricted Subsidiaries; provided that the aggregate amount of such
Commodity Price Risk Management Agreements may not exceed the
following: (i) for oil, the total volumes to be hedged for any year
shall not exceed 80% of expected oil production of the Borrower or the
Restricted Subsidiary for such year, whichever is the party to the
Commodity Price Risk Management Agreement and (ii) for gas, the total
volumes to be hedged for any year shall not exceed 80% of expected gas
production of the Borrower or the Restricted Subsidiary for such year,
whichever is the party to the Commodity Price Risk Management
Agreement;
(h) other Subordinated Indebtedness that is issued on terms
reasonably satisfactory to the Administrative Agent and the Required
Lenders with respect to provisions regarding maturity, interest rate,
covenants, events of default and subordination language (which
provisions shall be consistent with those applicable to
similarly-rated issuers engaging in similar transactions) and any
Permitted Subordinated Refinancing Debt related thereto, provided that
after giving effect to the issuance of such Subordinated Indebtedness
or
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49
Permitted Subordinated Refinancing Debt related thereto, the Borrower
is in compliance with the covenants contained in subsection 8.1 and
subsection 8.7 hereof;
(i) additional Indebtedness of the Borrower not to exceed
$25,000,000 in aggregate principal amount at any one time outstanding;
and
(j) additional Indebtedness of Wholly-Owned Restricted
Subsidiaries not to exceed $5,000,000 in aggregate principal amount at
any one time outstanding.
8.3 Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except for:
(a) Liens for taxes, assessments, fees and other governmental
charges and claims that are not yet due or which are being contested
in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the
Borrower or the applicable Restricted Subsidiary, as the case may be,
in conformity with GAAP;
(b) carriers', warehousemen's, suppliers' mechanics',
materialmen's, vendors', repairmen's, landlords' and other like Liens
arising in the ordinary course of business securing obligations which
are not overdue for a period of more than 120 days or which are being
contested in good faith by appropriate proceedings;
(c) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance or other kinds of social security, or to secure the payment
or performance of tenders, statutory or regulatory obligations, surety
or appeal bonds, performance bonds or other obligations of a like
nature incurred in the ordinary course of business (including lessee
or operator obligations under statutes, governmental regulations or
instruments related to the ownership, exploration and production of
oil, gas and minerals on state or federal lands or waters);
(d) Liens constituting survey exceptions, encumbrances,
easements and reservations of, or rights of others for, rights-of-way,
zoning and other restrictions as to the use of real properties and
other similar encumbrances incurred in the ordinary course of business
which, with respect to all of the foregoing, do not secure the payment
of Indebtedness of the type described in clauses (a)-(d) of the
definition thereof and which, in the aggregate, are not substantial in
amount and which do not in any case materially detract from the value
and use of the Property subject thereto or materially interfere with
the ordinary conduct of the business of the Borrower or any Restricted
Subsidiary;
(e) Liens existing on the date of this Agreement and listed
on Schedule 8.3, provided that no such Lien is amended after the date
of this Agreement to cover any additional Property or to secure
additional Indebtedness;
(f) Liens arising under operating agreements, joint venture
agreements, partnership agreements, oil and gas leases, farm-out and
farm-in agreements, division orders, contracts for the sale,
transportation or exchange of oil or natural gas, unitization and
pooling declarations and agreements, area of mutual interest
agreements that are customary in the Oil and Gas Business; provided
that the amount of any obligations secured thereby that are
delinquent, that are not diligently contested in good faith and for
which adequate reserves are not maintained
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50
by the Borrower or the applicable Restricted Subsidiary, as the case
may be, do not exceed, at any time outstanding, the amount owing by
the Borrower or any Restricted Subsidiary, as applicable, for one
month's billed operating expenses or other expenditures attributable
to such entity's interest in the Property covered thereby;
(g) Liens reserved in oil and gas mineral leases for bonus or
rental payments and for compliance with the terms of such leases,
provided that the amount of any obligations secured thereby that are
delinquent, that are not diligently contested in good faith and for
which adequate reserves are not maintained by the Borrower or the
applicable Restricted Subsidiary, as the case may be, do not exceed,
at any time outstanding, the amount owing by the Borrower or any
Restricted Subsidiary, as applicable, for one month's payments as due
thereunder;
(h) Liens on pipeline or pipeline facilities that arise under
operation of law;
(i) Liens on the Capital Stock of Unrestricted Subsidiaries;
(j) Liens created pursuant to any Loan Document; and
(k) Liens securing Indebtedness otherwise permitted by
subsection 8.2 not to exceed $5,000,000 in aggregate amount at any
time outstanding.
8.4 Limitation on Guarantee Obligations. Create, incur,
assume or suffer to exist any Guarantee Obligation except:
(a) Guarantee Obligations of any Restricted Subsidiary with
respect to the Senior Subordinated Notes and Permitted Subordinated
Refinancing Debt, (x) which Guarantee Obligations shall contain
subordination provisions which are not materially less favorable to
the Lenders than the subordination provisions with respect to the
Senior Subordinated Notes and (y) so long as, prior to or concurrently
with incurring such Guarantee Obligation, (i) such Restricted
Subsidiary guarantees the obligations of the Borrower under this
Agreement pursuant to documentation and terms reasonably satisfactory
to the Administrative Agent and (ii) if requested by the
Administrative Agent, such Restricted Subsidiary shall also deliver to
the Administrative Agent an opinion of counsel, regarding such legal
matters as the Administrative Agent shall reasonably request;
(b) Guarantee Obligations in existence on the date hereof and
listed on Schedule 8.4;
(c) other Guarantee Obligations of the Borrower or any
Restricted Subsidiary of Indebtedness of the Borrower or any
Wholly-Owned Restricted Subsidiary permitted by subsection 8.2,
provided that prior to or concurrently with any Restricted Subsidiary
incurring such Guarantee Obligation, (x) such Guarantee Obligations
shall contain subordination provisions which are reasonably
satisfactory to the Required Lenders and (y) (i) such Restricted
Subsidiary guarantees the obligations of the Borrower under this
Agreement pursuant to documentation and terms reasonably satisfactory
to the Administrative Agent and (ii) if requested by the
Administrative Agent, such Restricted Subsidiary shall also deliver to
the Administrative Agent an opinion of counsel, regarding such legal
matters as the Administrative Agent shall reasonably request; and
(d) Guarantee Obligations arising under the Loan Documents.
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8.5 Limitation on Fundamental Changes. Enter into any
merger, consolidation or amalgamation as a constituent party, or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution), or
convey, sell, lease, assign, transfer or otherwise dispose of, all or
substantially all of its Property, business or assets, or make any material
change in its present method of conducting business except:
(a) (i) any Restricted Subsidiary of the Borrower (including
a Foreign Subsidiary) may be merged or consolidated with or into the
Borrower (provided that the Borrower shall be the continuing or
surviving corporation) or with or into any one or more Wholly-Owned
Restricted Subsidiaries which are Domestic Subsidiaries (provided that
such Wholly-Owned Restricted Subsidiary or Subsidiaries shall be the
continuing or surviving Person) and (ii) any Foreign Subsidiary of the
Borrower may be merged or consolidated with or into any one or more
Wholly-Owned Restricted Subsidiaries which are Foreign Subsidiaries
(provided that such Wholly-Owned Restricted Subsidiary or
Subsidiaries shall be the continuing or surviving Person);
(b) (i) any Wholly-Owned Restricted Subsidiary (including a
Wholly-Owned Restricted Subsidiary which is a Foreign Subsidiary) of
the Borrower may sell, lease, transfer or otherwise dispose of any or
all of its assets (upon voluntary liquidation or otherwise) to the
Borrower or any Wholly-Owned Restricted Subsidiary which is a Domestic
Subsidiary and (ii) any Wholly-Owned Restricted Subsidiary of the
Borrower which is a Foreign Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to any Wholly-Owned Restricted Subsidiary
which is a Foreign Subsidiary; and
(c) any Wholly-Owned Restricted Subsidiary may be merged or
consolidated with any Person acquired in connection with a Permitted
Business Acquisition made in the ordinary course of the Oil and Gas
Business, provided such Wholly-Owned Restricted Subsidiary shall be
the continuing or surviving Person.
8.6 Limitation on Sale of Assets. Convey, sell, lease,
assign, transfer or otherwise dispose of any of its property, business or
assets (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, or issue or sell any shares of the
Borrower's Disqualified Stock or such Restricted Subsidiary's Capital Stock to
any Person other than the Borrower or any domestic Wholly-Owned Restricted
Subsidiary, except:
(a) the sale or discount without recourse of any accounts
receivable arising in the ordinary course of business in connection
with the compromise or collection thereof;
(b) the sale of Hydrocarbons in the ordinary course of
business as and when produced or after the production thereof;
(c) as permitted by subsection 8.5(b);
(d) the abandonment, farm-out, lease or sublease of Oil and
Gas Properties not containing Proved Reserves in the ordinary course
of business;
(e) the sale of Oil and Gas Properties in connection with tax
credit transactions complying with Section 29 of the Code or any
other analogous provision whether now existing or hereafter enacted,
which sale does not result in a reduction in the Borrower's or its
Restricted
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52
Subsidiaries', as the case may be, right to receive the cash flow from
such Oil and Gas Properties and which sale is on terms reasonably
acceptable to the Administrative Agent;
(f) sales or other dispositions of Proved Reserves, provided
that the amount of all sales or other dispositions of Proved Reserves
made during any Borrowing Base Period may not exceed $10,000,000,
unless, simultaneously with any such sale or disposition which
(together with prior sales or other dispositions made during such
Borrowing Base Period) exceeds the foregoing limit, the Borrowing Base
is reduced by an amount agreed to at the time by the Supermajority
Lenders pursuant to the procedures set forth in subsection 4.9;
provided further that any conversion of a Restricted Subsidiary, which
owns, directly or indirectly, Proved Reserves, to an Unrestricted
Subsidiary in conformity with subsection 8.17 shall be deemed to be a
sale of such Proved Reserves for purposes of this subsection 8.6.
(g) sales or other dispositions of Property not constituting
Oil and Gas Properties (other than the Capital Stock of any Restricted
Subsidiaries of the Borrower); and
(h) dispositions occurring as the result of a casualty event,
event of loss or condemnation or expropriation.
8.7 Limitation on Restricted Payments. Declare or pay any
dividend on (other than dividends payable solely in common stock of the
Borrower), or make any payment on account of, or set apart assets for a sinking
or other analogous fund for, the purchase, redemption, defeasance, retirement
or other acquisition of, any shares of any class of Capital Stock of the
Borrower or any Restricted Subsidiary or any warrants or options to purchase
any such Capital Stock, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in cash
or Property or in obligations of the Borrower or any Restricted Subsidiary
(such declarations, payments, setting apart, purchases, redemptions,
defeasance, retirements, acquisitions and distributions being herein called
"Restricted Payments"), except that:
(a) any Restricted Subsidiary may declare and pay dividends to
or make other distributions to the Borrower or to any other
Wholly-Owned Restricted Subsidiary; and
(b) so long as no Default or Event of Default has occurred and
is continuing or would result therefrom, the Borrower may make a
Restricted Payment if such Restricted Payment, together with the
aggregate of all other Restricted Payments made by the Borrower and
its Restricted Subsidiaries after the Closing Date, is less than the
sum of (i) 50% of the Consolidated Net Income of the Borrower for the
period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the Closing Date to the end of
the Borrower's most recently ended fiscal quarter for which financial
statements have been delivered to the Administrative Agent and the
Lenders pursuant to subsection 7.1 at or prior to the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (ii) 50% of the
aggregate net cash proceeds received from the issue or sale after the
Closing Date of Capital Stock of the Borrower (other than Capital
Stock sold to a Subsidiary of the Borrower and other than Disqualified
Stock), minus (iii) the amount of Subordinated Indebtedness previously
redeemed or repurchased pursuant to subsection 8.9(a)(ii) and minus
(iv) the amount by which the sum of all Investments previously made in
Unrestricted Subsidiaries pursuant to subsection 8.8(g) exceeds
$10,000,000; provided, however, that the foregoing provisions of this
paragraph shall not prohibit Restricted Payments, which, together with
the aggregate of all other Restricted Payments made by the Borrower
and its Restricted Subsidiaries after the Closing Date (in addition to
all amounts
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which are included in clauses (iii) and (iv) immediately preceding),
do not exceed $25,000,000. The amount of all Restricted Payments
(other than cash) shall be the fair market value (as determined in
good faith by the Board of Directors of the Company or certified to
the Administrative Agent by a Responsible Officer of the Company) on
the date of the proposed Restricted Payment.
8.8 Limitation on Investments, Loans and Advances. Make any
advance, loan, extension of credit or capital contribution to, or incur any
Guarantee Obligation on behalf or for the benefit of, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment (including by the issuance of
letters of credit) in (collectively, "Investments"), any Person except:
(a) extensions of trade credit in the ordinary course of
business;
(b) Investments in Cash Equivalents;
(c) loans and advances to officers and employees of the
Borrower or any Restricted Subsidiary for travel, entertainment and
relocation expenses in the ordinary course of business in an aggregate
amount for the Borrower and its Restricted Subsidiaries not to exceed
$1,000,000 at any one time outstanding;
(d) Investments constituting Permitted Business Investments
made or entered into in the ordinary course of the Oil and Gas
Business;
(e) Investments constituting Permitted Business Acquisitions
made or entered into in the ordinary course of the Oil and Gas
Business;
(f) Investments by the Borrower in any Wholly-Owned
Restricted Subsidiary and Investments by any Wholly-Owned Restricted
Subsidiary in the Borrower or in other Wholly-Owned Restricted
Subsidiaries, provided that the net book value of Investments made
after the Closing Date in any Restricted Subsidiaries which are
Foreign Subsidiaries shall not exceed 25% of the net book value of the
assets of the Borrower and its Restricted Subsidiaries in the
aggregate at any time outstanding after taking into account any return
after the Closing Date from dividends, distributions and repayments in
respect of such Investment;
(g) Investments by the Borrower or any Restricted Subsidiary
in Unrestricted Subsidiaries; provided that the aggregate amount of
such Investments (net of any cash received as dividends or
distributions on such Investments or from the sale of such
Investments) does not exceed, at any one time outstanding,
$10,000,000, unless (after deducting that excess, pursuant to
subsection 8.7(b)(iv), from the amount of Restricted Payments
permitted by subsection 8.7(b)) the Borrower would be able to make, at
such time, an additional Restricted Payment pursuant to subsection
8.7(b); provided further that the cumulative outstanding investment in
any Restricted Subsidiary on the date that such Restricted Subsidiary
is converted to an Unrestricted Subsidiary in conformity with
subsection 8.17 shall be deemed an investment made on such conversion
date in an Unrestricted Subsidiary for purposes of determining
compliance with this subsection 8.8(g); and
(h) Investments by the Borrower or any Restricted Subsidiary
in securities which trade on the New York Stock Exchange, the American
Stock Exchange or the NASDAQ Stock Market (including Investments
existing on the Closing Date and listed on Schedule 8.8 hereof,
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54
but excluding Investments in Unrestricted Subsidiaries) in an
aggregate amount (valued at cost) not to exceed $50,000,000 at any one
time outstanding.
8.9 Limitation on Optional Payments and Modifications of Debt
Instruments, Other Material Agreements. (a) Make any payments, optional
payment or prepayment on or redemption, defeasance or purchase of any
Indebtedness (other than Indebtedness under this Agreement) or amend, modify or
change, or consent or agree to any amendment, modification or change to any of
the terms (including the subordination provisions) of the Senior Subordinated
Notes or any Permitted Subordinated Refinancing Debt; provided that as long as
no Default or Event of Default has occurred or is continuing or would exist
after giving effect thereto, the Borrower may redeem or repurchase Subordinated
Indebtedness otherwise permitted by this Agreement (i) with the net cash
proceeds from an incurrence of Permitted Subordinated Refinancing Debt and (ii)
to the extent that, after deducting the amount of the proposed redemption or
repurchase, pursuant to subsection 8.7(b)(iii), from the amount of Restricted
Payments permitted by subsection 8.7(b), the Borrower would be able to make an
additional Restricted Payment at such time pursuant to subsection 8.7(b).
(b) Designate any Indebtedness as "Designated Senior Debt"
under the Senior Subordinated Indenture without the consent of the Required
Lenders.
8.10 Limitation on Transactions with Affiliates. Except as
described in Schedule 8.10, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate (other than transactions between or among
the Borrower and its Wholly-Owned Restricted Subsidiaries) unless such
transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of the Borrower's or the applicable Restricted Subsidiary's
business and (c) upon fair and reasonable terms no less favorable to the
Borrower or the applicable Restricted Subsidiary, as the case may be, than it
would obtain in a comparable arm's length transaction with a Person which is
not an Affiliate or, in the event no comparable transaction with an
unaffiliated Person is available, on terms that are fair from a financial point
of view to the Borrower or the applicable Restricted Subsidiary. For purposes
of this subsection 8.10, "Affiliate" shall include any Unrestricted Subsidiary.
8.11 Limitation on Sales and Leasebacks. Enter into any
arrangement (a "Sale and Leaseback Transaction") with any Person providing for
the leasing by the Borrower or any Restricted Subsidiary of real or personal
Property which has been or is to be sold or transferred by the Borrower or such
Restricted Subsidiary to such Person or to any other Person to whom funds have
been or are to be advanced by such Person on the security of such property or
rental obligations of the Borrower or any Restricted Subsidiary.
8.12 Limitation on Changes in Fiscal Year. Permit the fiscal
year of the Borrower and its Restricted Subsidiaries to end on a day other than
December 31.
8.13 Limitation on Negative Pledge Clauses. Enter into with
any Person any agreement which prohibits or limits the ability of the Borrower
or any Restricted Subsidiary to create, incur, assume or suffer to exist any
Lien in favor of any of the Administrative Agent, the Lenders under the Loan
Documents and their respective assignees under the Loan Documents or any Person
refinancing all or a portion of the Commitments hereunder (each, a "Negative
Pledge Clause"), upon any of its Property, assets or revenues, whether now
owned or hereafter acquired; provided that the foregoing shall not apply to a
Negative Pledge Clause to the extent such Negative Pledge Clause (i) is
contained in an agreement which creates a Lien permitted by subsections 8.3(c),
(f), (i) or (k) and (ii) only applies to the Property encumbered by such Lien.
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8.14 Limitation on Lines of Business. Enter into any
business, either directly or through any Restricted Subsidiary, except for the
Oil and Gas Business and those businesses in which the Borrower and its
Restricted Subsidiaries are engaged on the date of this Agreement or which are
directly related thereto.
8.15 Forward Sales. Except in accordance with usual and
customary practice in the Oil and Gas Business and except for gas imbalances
not in excess of 2,500,000 mcf, enter into or permit to exist any advance
payment agreement or other arrangement pursuant to which the Borrower or any of
its Subsidiaries, having received full or substantial payment of the purchase
price for a specified quantity of Hydrocarbons upon entering such agreement or
arrangement, is required to deliver, in one or more installments subsequent to
the date of such agreement or arrangement, such quantity of Hydrocarbons
pursuant to and during the terms of such agreement or arrangement.
8.16 Hedging Agreements. Enter into any Hedging Agreement,
other than Hedging Agreements entered into in the ordinary course of business
to achieve more predictable revenues and cash flows and reduce exposure to
fluctuations in interest rates and oil and gas prices to which the Borrower or
any of its Restricted Subsidiaries is exposed in the conduct of its business or
the management of its liabilities, provided that the aggregate amount of
Hedging Agreements which are Commodity Price Risk Management Agreements may not
exceed the following: (i) for oil, the total volumes to be hedged for any year
shall not exceed 80% of expected oil production of the Borrower or the
Restricted Subsidiary for such year, whichever is the party to the Hedging
Agreement and (ii) for gas, the total volumes to be hedged for any year shall
not exceed 80% of expected gas production of the Borrower or the Restricted
subsidiary for such year, whichever is the party to the Hedging Agreement.
8.17 Unrestricted Subsidiaries. (a) Create or otherwise
designate any Subsidiary as an Unrestricted Subsidiary unless the terms set
forth in the definition of Unrestricted Subsidiary are complied with respect to
such Subsidiary and no Default would result from the designation, creation and
operation of such Unrestricted Subsidiary.
(b) Without the prior written consent of the Supermajority
Lenders, change the characterization of a Subsidiary from a Restricted
Subsidiary to an Unrestricted Subsidiary or an Unrestricted Subsidiary to a
Restricted Subsidiary; provided however, the prior written consent of the
Supermajority Lenders shall not be required to (i) change the characterization
of an Unrestricted Subsidiary to a Restricted Subsidiary if (A) no Default or
Event of Default shall have occurred and be continuing at such time or would
result therefrom, (B) after giving effect to such re-characterization, each of
the representations and warranties made by each Loan Party in or pursuant to
the Loan Documents shall be true and correct in all material respects as of the
date of such re-characterization, (C) such Subsidiary shall have complied with
the provisions of subsection 7.9 and (D) the Borrower provides the
Administrative Agent five days advance written notice of its intent to
re-characterize such Subsidiary or (ii) change the characterization of a
Restricted Subsidiary to an Unrestricted Subsidiary if (A) no Default or Event
of Default shall have occurred and be continuing or would result therefrom, and
assuming that all investments made by the Borrower or any other Subsidiary in
such Restricted Subsidiary prior to the date of such re-characterization were
investments in an Unrestricted Subsidiary and (B) the Borrower provides the
Administrative Agent five days advance written notice of its intent to
re-characterize such Subsidiary. If any Restricted Subsidiary is designated as
an Unrestricted Subsidiary in accordance with the terms of this Agreement, the
Administrative Agent shall, and the Lenders hereby instruct the Administrative
Agent to, release, upon the written request of the Borrower, such Subsidiary
from any Guarantee Obligations arising under the Loan Documents and the Capital
Stock of such Subsidiary from the Liens created under the Pledge Agreement;
provided that such
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Subsidiary shall not have any Guarantee Obligations with respect to, or Liens
in favor of, any Subordinated Indebtedness that are not so released. The
Administrative Agent, at the Borrower's request and expense, shall execute such
releases, termination statements or agreements as may be reasonably necessary
to effect the release of Guarantee Obligations under the Loan Documents or
Liens created under the Pledge Agreement.
(c) Permit any Unrestricted Subsidiary to fail to comply with
the requirements set forth in the definition of "Unrestricted Subsidiary."
SECTION 9. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan
or any Reimbursement Obligation when due in accordance with the terms
thereof or hereof; or the Borrower shall fail to pay any interest on
any Loan, or any other amount payable hereunder, within five days
after any such interest or other amount becomes due in accordance with
the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by any
Loan Party herein or in any other Loan Document or which is contained
in any certificate, document or financial or other statement furnished
by it at any time under or in connection with this Agreement or any
such other Loan Document shall prove to have been incorrect in any
material respect on or as of the date made or deemed made; or
(c) The Borrower or any of its Restricted Subsidiaries shall
default in the observance or performance of any agreement applicable
to it contained in subsection 4.10, subsection 7.9 or Section 8 of
this Agreement; or
(d) The Borrower or any of its Restricted Subsidiaries shall
default in the observance or performance of any other agreement
applicable to it contained in this Agreement or any other Loan
Document (other than as provided in paragraphs (a) through (c) of this
Section), and such default shall continue unremedied for a period of
30 consecutive days after the earlier of (i) the Borrower's obtaining
knowledge of such default or (ii) the receipt by the Borrower of
notice thereof from the Administrative Agent or any Lender; or
(e) The Borrower or any of its Restricted Subsidiaries shall
(i) default in any payment of principal of or interest of any
Indebtedness (other than the Loans), or in the payment of any
Guarantee Obligation, in excess, in the aggregate, of $5,000,000,
beyond the period of grace (not to exceed 30 days), if any, provided
in the instrument or agreement under which such Indebtedness or
Guarantee Obligation was created; or (ii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of
such Indebtedness or beneficiary or beneficiaries of such Guarantee
Obligation (or a trustee or agent on behalf of such holder or holders
or beneficiary or beneficiaries) to cause, with the giving of notice
if required, such Indebtedness to become due prior to its stated
maturity or such Guarantee Obligation to become payable, provided that
the aggregate principal amount of all such
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Indebtedness and Guarantee Obligations which would then become due and
payable would equal or exceed $5,000,000; or
(f) (i) The Borrower or any of its Restricted Subsidiaries
shall commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any
substantial part of its assets, or the Borrower or any of its
Restricted Subsidiaries shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against the
Borrower or any of its Restricted Subsidiaries any case, proceeding or
other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication
or appointment or (B) remains undismissed, undischarged or unbonded
for a period of 90 days; or (iii) there shall be commenced against the
Borrower or any of its Restricted Subsidiaries any case, proceeding or
other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 90 days from the entry thereof; or (iv) the
Borrower or any of its Restricted Subsidiaries shall take any action
in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or
(iii) above; or (v) the Borrower or any of its Restricted Subsidiaries
shall generally not, or shall be unable to, or shall admit in writing
its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan, (ii) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not
waived, shall exist with respect to any Single Employer Plan or any
Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event
shall occur with respect to, or proceedings shall commence to have a
trustee appointed, or a trustee shall be appointed, to administer or
to terminate, any Single Employer Plan, which Reportable Event or
commencement of proceedings or appointment of a trustee is, in the
reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of
ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in
the reasonable opinion of the Required Lenders is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist with respect to a Plan; and in each
case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could have
a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against
the Borrower or any Restricted Subsidiary involving in the aggregate a
liability (to the extent not paid or covered by insurance) of
$1,000,000 or more, and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within 60
days after the entry thereof; or
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(i) (i) The Pledge Agreement shall cease, for any reason, to
be in full force and effect or any Pledgor shall so assert in writing
or (ii) the Lien created by the Pledge Agreement shall cease to be
enforceable and of the same effect and priority purported to be
created thereby; or
(j) The subordination provisions contained in any
Subordinated Note Document or any other Subordinated Indebtedness
shall cease, for any reason, to be in full force and effect, or any
Person that is a party thereto or holders of at least 25% of the
aggregate principal amount of such Subordinated Indebtedness shall so
assert in writing; or
(k) A Change of Control shall occur;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section, automatically the
Commitments shall immediately terminate and the Loans hereunder (with accrued
and unpaid interest thereon) and all other amounts owing under this Agreement
(including, without limitation, all Letter of Credit Outstandings, whether or
not the beneficiaries of the then outstanding Letters of Credit shall have
presented the documents required thereunder) and the other Loan Documents shall
immediately become due and payable, and (B) if such event is any other Event of
Default, either or both of the following actions may be taken: (i) with the
consent of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by written
notice to the Borrower, declare the Commitments to be terminated forthwith,
whereupon the Commitments shall immediately terminate; and (ii) with the
consent of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by written
notice to the Borrower, declare the Loans hereunder (with accrued and unpaid
interest thereon) and all other amounts owing under this Agreement (including,
without limitation, all amounts of Letter of Credit Outstandings, whether or
not the beneficiaries of the then outstanding Letters of Credit shall have
presented the documents required thereunder) and the other Loan Documents to be
due and payable forthwith, whereupon the same shall immediately become due and
payable.
With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to the preceding paragraph, the Borrower shall at such time deposit in
a cash collateral account opened by the Administrative Agent an amount equal to
the aggregate then unexpired amount that is available to be drawn under such
Letters of Credit. The Borrower hereby grants to the Administrative Agent, for
the benefit of the Issuing Lender and the L/C Participants, a security interest
in such cash collateral to secure all obligations of the Borrower under this
Agreement and the other Loan Documents. Amounts held in such cash collateral
account shall be applied by the Administrative Agent to the payment of drafts
drawn under such Letters of Credit, and the unused portion thereof after all
such Letters of Credit shall have expired, been cancelled or been fully drawn
upon, if any, shall be applied to repay other obligations of the Borrower
hereunder and under the Notes. After all such Letters of Credit shall have
expired, been cancelled or been fully drawn upon, all Reimbursement Obligations
shall have been satisfied and all other obligations of the Borrower hereunder
and under the other Loan Documents shall have been paid in full, the
Administrative Agent is hereby authorized to, and shall, release the balance,
if any, in such cash collateral account to the Borrower. The Borrower shall
execute and deliver to the Administrative Agent, for the account of the Issuing
Lender and the L/C Participants, such further documents and instruments as the
Administrative Agent may reasonably request to evidence the creation and
perfection of the within security interest in such cash collateral account.
Except as expressly provided above in this Section, presentment, demand,
protest and all other notices of any kind are hereby expressly waived.
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SECTION 10. THE AGENT
10.1 Appointment. Each Lender hereby irrevocably designates
and appoints Chase as Administrative Agent of such Lender under this Agreement
and the other Loan Documents, and each such Lender irrevocably authorizes the
Administrative Agent, in such capacity, to take such action on its behalf under
the provisions of this Agreement and the other Loan Documents and to exercise
such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary contained elsewhere in
this Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the
Administrative Agent.
10.2 Delegation of Duties. The Administrative Agent may
execute any of its duties under this Agreement and the other Loan Documents by
or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents
or attorneys in-fact selected by it with reasonable care.
10.3 Exculpatory Provisions. Neither the Administrative
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or Affiliates shall be (i) liable for any action lawfully taken or omitted to
be taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by any Loan Party
or any officer thereof contained in this Agreement or any other Loan Document
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Administrative Agent under or in connection
with, this Agreement or any other Loan Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document or for any failure of any Loan Party to perform its
obligations hereunder or thereunder. The Administrative Agent shall not be
under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of any Loan Party.
10.4 Reliance by Administrative Agent. The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any Note, writing, resolution, notice, consent, certificate, affidavit, letter,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Loan Parties),
independent accountants and other experts selected by the Administrative Agent.
The Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment, negotiation or
transfer thereof shall have been filed with the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take
any action under this Agreement or any other Loan Document unless it shall
first receive such advice or concurrence of the Required Lenders (or, where
unanimous consent of the Lenders is expressly required hereunder, such Lenders)
as it deems appropriate or it shall first be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and
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60
the other Loan Documents in accordance with a request of the Required Lenders
(or, where unanimous consent of the Lenders is expressly required hereunder,
such Lenders), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Loans.
10.5 Notice of Default. The Administrative Agent shall not
be deemed to have knowledge or notice of the occurrence of any Default or Event
of Default hereunder unless the Administrative Agent has received notice from a
Lender or the Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders; 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 or Event of Default as it
shall deem advisable in the best interests of the Lenders.
10.6 Non-Reliance on Administrative Agent and Other Lenders.
Each Lender expressly acknowledges that neither the Administrative Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it and that no act by
the Administrative Agent hereafter taken, including any review of the affairs
of any Loan Party, shall be deemed to constitute any representation or warranty
by the Administrative Agent to any Lender. Each Lender represents to the
Administrative Agent that it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of each Loan Party and made its own decision to
make its Extensions of Credit hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon
the Administrative 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
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of each Loan Party. Except
for notices, reports and other documents expressly required to be furnished to
the Lenders by the Administrative Agent hereunder, the Administrative Agent
shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of any Loan Party which
may come into the possession of the Administrative Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
10.7 Indemnification. The Lenders agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation the Borrower to do so),
ratably according to their respective Commitment Percentages in effect on the
date on which indemnification is sought, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
obligations under this Agreement) be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of, the
Commitments, this Agreement, any of the other Loan Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the
Administrative Agent under or in connection with any of the foregoing; provided
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs,
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expenses or disbursements resulting solely from the Administrative Agent's
gross negligence or willful misconduct. The agreements in this subsection
shall survive the payment of all obligations under this Agreement and all other
amounts payable hereunder.
10.8 Administrative Agent in Its Individual Capacity. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with any Loan Party as though the
Administrative Agent were not the Administrative Agent hereunder and under the
other Loan Documents. With respect to the Extensions of Credit made by it, the
Administrative Agent shall have the same rights and powers under this Agreement
and the other Loan Documents as any Lender and may exercise the same as though
it were not the Administrative Agent, and the terms "Lender" and "Lenders"
shall include the Administrative Agent in its individual capacity.
10.9 Successor Administrative Agent. The Administrative
Agent may resign as Administrative Agent upon 30 days' notice to the Lenders.
If the Administrative Agent shall resign as Administrative Agent under this
Agreement and the other Loan Documents, then the Required Lenders shall appoint
from among the Lenders a successor agent for the Lenders, which successor
agent, with the consent of the Borrower (such consent not to be unreasonably
withheld or delayed), shall succeed to the rights, powers and duties of the
Administrative Agent hereunder. Effective upon such appointment and approval,
the term "Administrative Agent" shall mean such successor agent, and the former
Administrative Agent's rights, powers and duties as Administrative Agent shall
be terminated, without any other or further act or deed on the part of such
former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. After any retiring Administrative Agent's resignation as
Administrative Agent, the provisions of this Section 10 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement and the other Loan Documents.
10.10 Issuing Lender. The provisions of this Section 10
applicable to the Administrative Agent shall apply to the Issuing Lender in the
performance of its duties under the Loan Documents, mutatis mutandis.
SECTION 11. MISCELLANEOUS
11.1 Amendments and Waivers. Neither this Agreement nor any
other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection. The Required Lenders may, or, with the written consent of the
Required Lenders, the Administrative Agent may, from time to time, (a) enter
into with the applicable Loan Parties written amendments, supplements or
modifications hereto and to the other Loan Documents for the purpose of adding
any provisions to this Agreement or the other Loan Documents or changing in any
manner the rights of the Lenders or of the applicable Loan Parties hereunder or
thereunder or (b) waive, on such terms and conditions as the Required Lenders
or the Administrative Agent, as the case may be, may specify in such
instrument, any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its consequences; provided,
however, that no such waiver and no such amendment, supplement or modification
shall (i) reduce the principal amount of any Loan or extend the Termination
Date, or reduce the stated rate of any interest or fee payable hereunder or
extend the scheduled date of any payment thereof or increase the amount or
extend the expiration date of any Lender's Commitments, in each case without
the consent of each Lender affected thereby, or (ii) amend, modify or waive any
provision of this subsection or reduce the percentage specified in the
definition of Required Lenders or Supermajority Lenders (or modify any
provision of this Agreement or any other Loan Document to provide that an
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62
action currently requiring the approval of or consent by the Supermajority
Lenders may be taken with the consent or approval by a lower percentage of
Lenders), or consent to the assignment or transfer by any Loan Party of any of
its rights and obligations under this Agreement and the other Loan Documents or
release of all or substantially all of the Pledged Securities, other than in
accordance with the terms of the applicable Loan Documents, in each case
without the written consent of all the Lenders and the Borrower, or (iii)
change subsection 4.8(a) or subsection 11.7(a) in a manner that would alter the
pro rata sharing of payments required thereby, without the written consent of
each Lender, or (iv) amend, modify or waive any provision of Section 10 without
the written consent of the then Administrative Agent and Issuing Lender. Any
such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Loan Parties, the
Lenders, the Administrative Agent and all future holders of the Loans. In the
case of any waiver, the Loan Parties, the Lenders and the Administrative Agent
shall be restored to their former positions and rights hereunder and under the
other Loan Documents, and any Default or Event of Default waived shall be
deemed to be cured and not continuing; no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
11.2 Notices. All notices, requests and demands to or upon
the respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand
or by courier service, when delivered, (b) in the case of delivery by mail,
three Business Days after being deposited in the mails, postage prepaid, or (c)
in the case of delivery by facsimile transmission, when sent and receipt has
been confirmed, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth in Schedule 11.2 in the case of the
other parties hereto, or to such other address as may be hereafter notified by
the respective parties hereto in writing:
The Borrower: Belco Oil & Gas Corp.
767 Fifth Avenue
New York, New York 10153
Attention: Dominick J. Golio,
Chief Financial Officer
Fax: (212) 644-2230
The Administrative
Agent: The Chase Manhattan Bank
One Chase Manhattan Plaza, 3rd Floor
New York, New York 10081
Attention: Global Oil and Gas
Fax: (212) 552-1687
With a copy to:
Chase Manhattan Bank Agency Services
Corporation
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Joselin Fernandes
Tel: (212) 552-7414
Fax: (212) 552-5777
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provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsection 2.2, 4.3, 4.5 or 4.8 shall not be
effective until received.
11.3 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Administrative Agent, the
Issuing Lender or any Lender, any right, remedy, power or privilege hereunder
or under the other Loan Documents shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
11.4 Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other Loan Documents and
in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Extensions of Credit hereunder.
11.5 Payment of Expenses and Taxes. The Borrower agrees (a)
to pay or reimburse the Administrative Agent and its Affiliates for all their
reasonable and documented out-of-pocket costs and expenses incurred in
connection with the development, syndication, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation of the transactions contemplated hereby and thereby,
including, without limitation, the reasonable fees and disbursements of (i)
counsel to the Administrative Agent and (ii) the Administrative Agent
customarily charged by it in connection with syndicated credits, (b) to pay or
reimburse each Lender and the Administrative Agent for all its reasonable and
documented costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Loan Documents and
any such other documents, including, without limitation, the reasonable fees
and disbursements of counsel to the Administrative Agent and to the several
Lenders, (c) to pay, indemnify, and hold each Lender and the Administrative
Agent (and their respective Affiliates and their respective directors,
officers, employees and agents) harmless from, any and all recording and filing
fees and any and all liabilities with respect to, or resulting from any delay
in paying, stamp, excise and other taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the other Loan Documents and any such other
documents, and (d) to pay, indemnify, and hold each Lender and the
Administrative Agent (and their respective directors, officers, employees,
agents and affiliates) harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents or the use or the proposed use of proceeds
contemplated by this Agreement, including, without limitation, any of the
foregoing relating to the violation of, noncompliance with or liability under,
any Environmental Law applicable to any Loan Party or any of the Properties
(all the foregoing in this clause (d), collectively, the "indemnified
liabilities"); provided that the Borrower shall have no obligation under this
clause (d) to any Administrative Agent or any Lender (or any of their
respective directors, officers, employers, agents or Affiliates), with respect
to indemnified liabilities to the extent such liabilities are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Person;
provided further that the Borrower shall not be liable under this clause (d)
for the legal expenses of more than one primary firm or more than one local
counsel in each state or other jurisdiction in which an indemnifiable action is
brought unless the use of one primary firm or one
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local counsel by the indemnified parties would present such firm or counsel
with a conflict of interest. Without limiting the foregoing, and to the extent
permitted by applicable law, the Borrower agrees not to assert, and hereby
waives, and to cause each of its Restricted Subsidiaries not to assert and to
so waive, all rights for contribution or any other rights of recovery with
respect to all claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature, under or related to
Environmental Laws, that any of them might have by statute or otherwise against
any Indemnitee. The agreements in this subsection shall survive repayment of
the Loans and all other amounts payable hereunder and the termination of this
Agreement.
11.6 Successors and Assigns; Participations and Assignments.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lenders, the Administrative Agent, all future holders of the
Loans and any Notes hereunder and their respective successors and assigns,
except that the Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each
Lender.
(b) Any Lender may, in the ordinary course of its commercial
banking or lending business and in accordance with applicable law and at no
cost or expense to the Borrower, at any time sell to one or more banks or other
entities ("Participants") participating interests in any Loan owing to such
Lender, any Commitment of such Lender or any other interest of such Lender
hereunder and under the other Loan Documents. In the event of any such sale by
a Lender of a participating interest to a Participant, (i) such Lender's
obligations under this Agreement to the other parties to this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible for the
performance thereof, (iii) such Lender shall remain the holder of any such Loan
(and any Note evidencing such Loan) for all purposes under this Agreement and
the other Loan Documents, (iv) the Borrower and the Administrative Agent shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the other Loan
Documents, and (v) in any proceeding under the Bankruptcy Code, the Lender
shall be, to the extent permitted by law, the sole representative with respect
to the obligations held in the name of such Lender, whether for its own account
or for the account of any Participant. No Lender shall be entitled to create
in favor of any Participant, in the participation agreement pursuant to which
such Participant's participating interest shall be created or otherwise, any
right to vote on, consent to or approve any matter relating to this Agreement
or any other Loan Document except for those specified in clauses (i) and (ii)
of the proviso to subsection 11.1. The Borrower agrees that each Participant
shall be entitled to the benefits of subsections 4.13 and 4.14 with respect to
its participation in the Commitments and the Loans and Letters of Credit
outstanding from time to time as if it was a Lender; provided that, in the case
of subsection 4.13, such Participant shall have complied with the requirements
of said subsection and provided, further, that no Participant shall be entitled
to receive any greater amount pursuant to any such subsection than the
transferor Lender would have been entitled to receive in respect of the amount
of the participation transferred by such transferor Lender to such Participant
had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial
banking or lending business and in accordance with applicable law, at any time
and from time to time assign to any Lender or, with the prior written consent
of each Issuing Lender, any Affiliate thereof or, with the prior written
consent of the Administrative Agent, the Borrower and each Issuing Lender
(which in each case shall not be unreasonably withheld), to an additional bank
or financial institution or other entity (an "Assignee") all or any part of its
rights and obligations under this Agreement and the other Loan Documents
including, without limitation, its Revolving Credit Commitments, L/C
Commitments, Revolving Credit Loans and L/C Participating Interests, pursuant
to an Assignment and Acceptance, substantially in the form of Exhibit E,
executed by such Assignee, such assigning Lender (and, in the
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case of an Assignee that is not then a Lender, by the Borrower, the
Administrative Agent and each Issuing Lender) and delivered to the
Administrative Agent for its acceptance and recording in the Register, provided
that (i) (unless the Borrower and the Administrative Agent otherwise consent in
writing) no such transfer to an Assignee (other than a Lender or any Affiliate
thereof) shall be in an aggregate principal amount less than $5,000,000 in the
aggregate (or, if less, the full amount of such assigning Lender's Revolving
Credit Loans, L/C Participating Interests and Revolving Credit Commitments) and
(ii) if any Lender assigns all or any part of its rights and obligations under
this Agreement to one of its Affiliates in connection with or in contemplation
of the sale or other disposition of its interest in such Affiliate, the
Borrower's prior written consent shall be required for such assignment. Upon
such execution, delivery, acceptance and recording, from and after the
effective date determined pursuant to such Assignment and Acceptance, (x) the
Assignee thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with a Revolving Credit Commitment and L/C Commitment as set forth
therein, and (y) the assigning Lender thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
Notwithstanding any provision of this paragraph (c) and paragraph (e) of this
subsection, the consent of the Borrower shall not be required, and, unless
requested by the Assignee and/or the assigning Lender, new Notes shall not be
required to be executed and delivered by the Borrower, for any assignment which
occurs at any time when any of the events described in Section 9(f) shall have
occurred and be continuing.
(d) The Administrative Agent, on behalf of the Borrower,
shall maintain at the address of the Administrative Agent referred to in
subsection 11.2 a copy of each Assignment and Acceptance delivered to it and a
register (the "Register") for the recordation of the names, addresses and
banking offices of the Lenders and the Commitments of, and principal amounts of
the Loans owing to, each Lender from time to time. The entries in the Register
shall be conclusive, in the absence of manifest error, and the Borrower, the
Administrative Agent and the Lenders may (and, in the case of any Loan or other
obligation hereunder not evidenced by a Note, shall) treat each Person whose
name is recorded in the Register as the owner of a Loan or other obligation
hereunder as the owner thereof for all purposes of this Agreement and the other
Loan Documents, notwithstanding any notice to the contrary. Any assignment of
any Loan or other obligation hereunder not evidenced by a Note shall be
effective against third parties only upon appropriate entries with respect
thereto being made in the Register. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time
to time upon reasonable prior notice.
(e) Notwithstanding anything in this Agreement to the
contrary, no assignment under subsection 11.6(c) of any rights or obligations
under or in respect of the Loans, the Notes or the Letters of Credit shall be
effective unless and until the Administrative Agent shall have recorded the
assignment pursuant to subsection 11.6(d). Upon its receipt of an Assignment
and Acceptance executed by an assigning Lender and an Assignee (and, in the
case of an Assignee that is not then a Lender or an affiliate thereof, by the
Borrower and the Administrative Agent) together with payment to the
Administrative Agent of a registration and processing fee of $3,500 (other than
in the case of an assignment by a Lender to an affiliate of such Lender), the
Administrative Agent shall (i) promptly accept such Assignment and Acceptance
and (ii) on the effective date determined pursuant thereto record the
information contained therein in the Register and give notice of such
acceptance and recordation to the Lenders and the Borrower. On or prior to
such effective date, the assigning Lender shall surrender any outstanding Notes
held by it all or a portion of which are being assigned, and the Borrower, at
its own expense, shall, upon the request to the Administrative Agent by the
assigning
<PAGE> 71
66
Lender or the Assignee, as applicable, execute and deliver to the
Administrative Agent (in exchange for the outstanding Notes of the assigning
Lender) a new Revolving Credit Note to the order of such Assignee in an amount
equal to the lesser of (A) the amount of such Assignee's Revolving Credit
Commitment and (B) the aggregate principal amount of all Revolving Credit Loans
made by such Assignee, after giving effect to such Assignment and Acceptance
and, if the assigning Lender has retained a Revolving Credit Commitment
hereunder, a new Revolving Credit Note to the order of the assigning Lender in
an amount equal to the lesser of (A) the amount of such Lender's Revolving
Credit Commitment and (B) the aggregate principal amount of all Revolving
Credit Loans made by such Lender, after giving effect to such Assignment and
Acceptance. Any such new Notes shall be dated the Closing Date and shall
otherwise be in the form of the Note replaced thereby. The assigning Lender
shall promptly return its old Note to the Borrower marked "canceled".
(f) The Borrower authorizes each Lender to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee,
any and all financial information in such Lender's possession concerning the
Loan Parties and their Affiliates which has been delivered to such Lender by or
on behalf of the Borrower pursuant to this Agreement or which has been
delivered to such Lender by or on behalf of the Borrower in connection with
such Lender's credit evaluation of the Loan Parties and their Affiliates prior
to becoming a party to this Agreement; provided such Person agrees to maintain
the confidentiality of such information in accordance with subsection 11.15.
(g) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
11.7 Adjustments; Set-off. (a) If any Lender (a "Benefitted
Lender") shall at any time receive any payment of all or part of its Loans or
Reimbursement Obligations, or interest thereon, or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to
events or proceedings of the nature referred to in Section 9(f), or otherwise),
in a greater proportion than any such payment to or collateral received by any
other Lender, if any, in respect of such other Lender's Loans or Reimbursement
Obligations, or interest thereon, such Benefitted Lender shall purchase for
cash from the other Lenders a participating interest in such portion of each
such other Lender's Loans or Reimbursement Obligations, or shall provide such
other Lenders with the benefits of any such collateral, or the proceeds
thereof, as shall be necessary to cause such Benefitted Lender to share the
excess payment or benefits of such collateral or proceeds ratably with each of
the Lenders; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such Benefitted Lender, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, during the continuation of
an Event of Default, without prior notice to the Borrower, any such notice
being expressly waived by the Borrower to the extent permitted by applicable
law, upon any amount becoming due and payable by the Borrower hereunder
(whether at the stated maturity, by acceleration or otherwise) to set-off and
appropriate and apply against such amount any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct
or indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Lender or any branch or agency thereof to or for the credit or
the account of the Borrower, as the case may be. Each Lender agrees promptly
to notify the Borrower and the Administrative Agent after any such set-off and
<PAGE> 72
67
application made by such Lender, provided that, to the extent permitted by
applicable law, the failure to give such notice shall not affect the validity
of such set-off and application.
11.8 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by facsimile transmission), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A set of
the copies of this Agreement signed by all the parties shall be lodged with the
Borrower and the Administrative Agent.
11.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.10 Integration. This Agreement and the other Loan
Documents represent the agreement of the Borrower, the other Loan Parties, the
Administrative Agent and the Lenders with respect to the subject matter hereof,
and there are no promises, undertakings, representations or warranties by the
Administrative Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Loan Documents.
11.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICTS OF LAW.
11.12 Submission To Jurisdiction; Waivers. The Borrower
hereby irrevocably and unconditionally:
(a) submits for itself and its Property in any legal action
or proceeding relating to this Agreement and the other Loan Documents
to which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction
of the Courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate
courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower at its address set forth in subsection 11.2
or at such other address of which the Administrative Agent shall have
been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and
<PAGE> 73
68
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or
proceeding referred to in this subsection any special, exemplary,
punitive or consequential damages.
11.13 Acknowledgments; Designated Senior Debt. The Borrower
hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or
in connection with this Agreement or any of the other Loan Documents,
and the relationship between Administrative Agent and Lenders, on one
hand, and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor;
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Borrower and the
Lenders; and
(d) the Notes and the Indebtedness evidenced hereby and
thereby are "Designated Senior Debt" as such term is defined in the
Senior Subordinated Indenture:
11.14 WAIVERS OF JURY TRIAL. THE PARTIES HERETO HEREBY
KNOWINGLY AND INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
11.15 Confidentiality. Each of the Administrative Agent, the
Issuing Bank and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates' directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to this Agreement, (e) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or the enforcement of rights hereunder,
(f) subject to an agreement containing provisions substantially the same as
those of this Section, to any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement, (g) with the consent of the Borrower or (h) to the extent such
Information (i) becomes publicly available other than as a result of a breach
of this Section or (ii) becomes available to the Administrative Agent, the
Issuing Bank or any Lender on a nonconfidential basis from a source other than
the Borrower. For the purposes of this Section, "Information" means all
information received from the Borrower relating to the Borrower or its
business, other than any such information that is available to the
Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis
prior to disclosure by the Borrower; provided that, in the case of information
received from the Borrower after the date hereof, such information is clearly
identified at the time of delivery as confidential. Any Person required to
maintain the confidentiality of Information as provided in this Section shall
be considered to have complied with its obligation to
<PAGE> 74
69
do so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
[Remainder of page intentionally left blank]
<PAGE> 75
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.
BELCO OIL & GAS CORP.
By:
----------------------------
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent, Issuing
Lender and as a Lender
By:
------------------------------------
Title:
CHRISTIANIA BANK OG KREDITKASSE ASA
By:
------------------------------------
Title:
Name:
By:
------------------------------------
Title:
Name:
CREDIT LYONNAIS NEW YORK BRANCH
By:
------------------------------------
Title:
Name:
DEN NORSKE BANK ASA
By:
------------------------------------
Title:
Name:
By:
------------------------------------
Title:
Name:
THE FUJI BANK, LIMITED
By:
------------------------------------
Title:
Name:
ROYAL BANK OF CANADA
By:
------------------------------------
Title:
Name:
THE SANWA BANK LIMITED
By:
------------------------------------
Title:
Name:
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
------------------------------------
Title:
Name:
<PAGE> 1
EXHIBIT 11.1
BELCO OIL AND GAS CORP.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary Calculation:
Shares issued in connection with the combination and
assumed outstanding for all periods ................. 25,000 25,000 25,000 25,000
Weighted average shares and equivalent shares
outstanding:
Issued in connection with the public offering ..... 6,500 6,500 6,500 3,447
Restricted stock, treasury stock method ........... 13 14 15 8
Stock options, treasury stock method .............. 13 92 35 47
------- ------- ------- -------
Weighted average common and common equivalent
shares outstanding .................................. 31,526 31,606 31,550 28,502
======= ======= ======= =======
Net Income (Loss) .................................... $ 9,632 $12,354 $21,616 $(1,054)
======= ======= ======= =======
Primary Earnings (Loss)
Per Share ........................................... $ 0.31 $ 0.39 $ 0.69 $ (0.04)
======= ======= ======= =======
Pro forma Net Income ................................. $ 9,632 $12,354 $21,616 $23,420
======= ======= ======= =======
Pro forma Net Income
Per Share - Primary ................................. $ 0.31 $ 0.39 $ 0.69 $ 0.82
======= ======= ======= =======
</TABLE>
The difference between primary and fully diluted earnings per share is not
significant.
-16-
<PAGE> 1
EXHIBIT 23.1
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 or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
October 3, 1997
2
<PAGE> 1
EXHIBIT 23.2
MILLER AND LENTS, LTD.
The firm of Miller and Lents, Ltd., as independent oil and gas consultants,
prepared a report dated February 25 , 1997 for Belco Oil & Gas Corp. regarding
the proved reserves of Belco Oil & Gas Corp. as of December 31, 1996. We hereby
consent to (1) the filing of our report, as an exhibit to this Registration
Statement on Form S-4 to be filed by Belco Oil & Gas Corp., and (2) all
references to our firm included as a part of this Registration Statement on Form
S-4 to be filed on or about the date hereof.
Miller and Lents, Ltd. has no interests in Belco Oil & Gas Corp. or in any
of its affiliated companies or subsidiaries and is not to receive any such
interest as payment for such report and has no director, officer, or employee
employed or otherwise connected with Belco Oil & Gas Corp. We are not employed
by Belco Oil & Gas Corp. on a contingent basis.
MILLER AND LENTS, LTD.
By: /s/ P. G. VON TUNGELN
--------------------------------------
P. G. Von Tungeln
President
Houston, Texas
October 3, 1997
3
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2)
------------
-----------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(Jurisdiction of incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
48 Wall Street, New York, New York 10286
(Address of principal executive offices) (Zip code)
-----------------
BELCO OIL & GAS CORP.
(Exact name of obligor as specified in its charter)
Nevada 51-0340969
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
767 Fifth Avenue, 46th Floor
New York, New York 10153
(Address of principal executive offices) (Zip code)
-----------------
8 7/8% SENIOR SUBORDINATED NOTES DUE 2007
(Title of the indenture securities)
<PAGE> 2
ITEM 1. GENERAL INFORMATION.*
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
<TABLE>
<S> <C>
Superintendent of Banks of the 2 Rector Street, New York, N.Y. 10006
State of New York and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045
Federal Deposit Insurance Corporation 550 17th Street, N.W., Washington, D.C. 20429
New York Clearing House Association New York, N.Y.
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None. (See Note on page 2.)
ITEM 16. LIST OF EXHIBITS.
Exhibits identified in parentheses below, on file with the
Commission, are incorporated herein by reference as an exhibit hereto, pursuant
to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of
the Commission's Rules of Practice.
1. - A copy of the Organization Certificate of The Bank of New
York (formerly Irving Trust Company) as now in effect,
which contains the authority to commence business and a
grant of powers to exercise corporate trust powers.
(Exhibit 1 to Amendment No. 1 to Form T-1 filed with
Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33- 21672
and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. - A copy of the existing By-laws of the Trustee. (Exhibit
4 to Form T-1 filed with Registration Statement No.
33-31019.)
6. - The consent of the Trustee required by Section 321(b) of
the Act. (Exhibit 6 to Form T-1 filed with Registration
Statement No. 33-44051.)
7. - A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
- ---------------------------------
* Pursuant to General Instruction B, the Trustee has responded only to
Items 1, 2 and 16 of this form since to the best of the knowledge of the
Trustee the obligor is not in default under any indenture under which the
Trustee is a trustee.
<PAGE> 3
NOTE
Inasmuch as this Form T-1 is being filed prior to the
ascertainment by the Trustee of all facts on which to base a responsive answer
to Item 2, the answer to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended
by an amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank
of New York, a corporation organized and existing under the laws of the State
of New York, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in The City of New
York, and State of New York, on the 1st day of October, 1997.
THE BANK OF NEW YORK
By: /s/ LUCILLE FIRRINCIELI
--------------------------
Lucille Firrincieli
Vice President
- 2 -
<PAGE> 4
EXHIBIT 7
(Page 1 of 3)
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries, a member of the Federal Reserve
System, at the close of business June 30, 1997, published in accordance with a
call made by the Federal Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
- ------ --------------
<S> <C> <C>
Cash and balances due from
depository institutions:
Noninterest-bearing balances
and currency and coin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,769,502
Interest-bearing balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,472,524
Securities:
Held-to-maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,080,234
Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,046,199
Federal funds sold and Securities
purchased under agreements to resell: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,193,800
Loans and lease financing
receivables:
Loans and leases, net of unearned
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,352,045
LESS: Allowance for loan and
lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625,042
LESS: Allocated transfer risk
reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
Loans and leases, net of unearned
income, allowance, and reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,726,574
Assets held in trading accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,611,096
Premises and fixed assets (including
capitalized leases) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676,729
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,460
Investments in unconsolidated subsid-
iaries and associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209,959
Customers' liability to this bank on
acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,357,731
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720,883
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,627,267
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $57,514,958
===========
</TABLE>
<PAGE> 5
EXHIBIT 7
(Page 2 of 3)
<TABLE>
<S> <C> <C>
LIABILITIES
- -----------
Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,875,596
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,213,657
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,661,939
In foreign offices, Edge and
Agreement subsidiaries, and IBFs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,334,270
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 596,369
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,737,901
Federal funds purchased and Securities
sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,583,157
Demand notes issued to the U.S.
Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303,000
Trading liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,308,173
Other borrowed money:
With remaining maturity of one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,383,570
With remaining maturity of more than
one year through three years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
With remaining maturity of more than
three years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,679
Bank's liability on acceptances
executed and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,377,244
Subordinated notes and debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,018,940
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,732,792
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,937,421
-----------
EQUITY CAPITAL
- --------------
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,135,284
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 731,319
Undivided profits and capital
reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,721,258
Net unrealized holding gains (losses)
on available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,948
Cumulative foreign currency
translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,272)
------------
Total equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,577,537
-----------
Total liabilities and equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $57,514,958
===========
</TABLE>
<PAGE> 6
EXHIBIT 7
(Page 3 of 3)
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyi )
J. Carter Bacot ) Directors
Alan R. Griffith )
<PAGE> 1
EXHIBIT 99.1
BELCO OIL & GAS CORP.
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
8 7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
IN EXCHANGE FOR
8 7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON _____, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE")
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON THE BUSINESS DAY PRIOR TO THE EXPIRATION DATE
DELIVER TO THE EXCHANGE AGENT:
THE BANK OF NEW YORK
By Hand/Overnight Courier: By Registered or Certified Mail:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street, 7E
Corporate Trust Services Window New York, New York 10286
Ground Level Attention: Reorganization Section
New York, New York 10286
Attention: Reorganization Section
By Facsimile:
Confirm by Telephone:
----------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the Prospectus
dated ______, 1997 (the "Prospectus") of Belco Oil & Gas Corp., a Nevada
corporation (the "Company") and this Letter of Transmittal (the "Letter of
Transmittal"), which together describe the Company's offer (the "Exchange
Offer") to exchange its 8 7/8% Senior Subordinated Notes due 2007, Series B
(the "Exchange Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
of which the Prospectus is a part, for a like principal amount of its issued
and outstanding 8 7/8% Senior Subordinated Notes due 2007, Series A (the "Old
Notes"). Capitalized terms used but not defined herein have the respective
meaning given to them in the Prospectus.
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 date to which the Exchange Offer is extended. The
Company shall notify the holders of the Old Notes of any extension by oral or
written notice and will mail to the record holders of Old Notes an announcement
thereof, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by a holder of Old Notes if
original Old Notes, if available, are to be forwarded herewith or an Agent's
Message is to be used if delivery of Old Notes is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offer -- Procedures
for Tendering" and "Book-Entry Transfer." Holders of Old Notes whose Old Notes
are not immediately available, or who are unable to deliver their Old Notes and
all other documents required by this Letter of Transmittal to the Exchange
Agent on or prior to the Expiration Date, or who are unable to complete the
procedure for book-entry transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
<PAGE> 2
Procedures." See Instruction 1. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
The term "holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must
complete this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE
AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If
the space below is inadequate, list the registered numbers and principal
amounts on a separate signed schedule and affix the list to this Letter of
Transmittal.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
- ------------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered
Holder(s) Exactly as Name(s)
Appear(s) on Old Notes
(Please Fill In, If Blank) Old Note(s) Tendered
- ------------------------------------------------------------------------------------------------------------
Aggregate Principal Principal
Registered Amount Represented by Amount
Number(s)* Note(s) Tendered**
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, any tendering holder of Old Notes will be deemed to have tendered the
entire aggregate principal amount represented by such Old Notes. All tenders must be in integral
multiples of $1,000.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[ ] 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 (FOR USE BY ELIGIBLE
INSTITUTIONS ONLY):
Name of Tendering Institution:
------------------------------------------------
Account Number:
---------------------------------------------------------------
Transaction Code Number:
------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR
USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered holder(s) of Old Notes:
---------------------------------
Date of Execution of Notice of Guaranteed Delivery:
---------------------------
<PAGE> 3
Window Ticket Number (if available):
------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
------------------------
Account Number (if delivered by book-entry transfer):
-------------------------
[ ] 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:
----------------------------------------------------------------------
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the principal amount of Old Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned hereby exchanges, assigns and transfers to the
Company all right, title and interest in and to the Old Notes tendered for
exchange hereby. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent, the agent and attorney-in-fact of the undersigned (with
full knowledge that the Exchange Agent also acts as the agent of the Company in
connection with the Exchange Offer) with respect to the tendered Old Notes with
full power of substitution to (i) deliver such Old Notes, or transfer ownership
of such Old Notes on the account books maintained by the Book-Entry Transfer
Facility, to the Company and deliver all accompanying evidences of transfer and
authenticity, and (ii) present such Old Notes for transfer on the books of the
Company and receive all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms of the
Exchange Offer. The power of attorney granted in this paragraph shall be
deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and to acquire the Exchange Notes issuable upon the exchange of
such tendered Old Notes, 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 for exchange by the Company.
The undersigned acknowledge(s) that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the "SEC"),
including Exxon Capital Holdings Corporation, SEC No-Action Letter (available
April 13, 1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available
June 5, 1991) (the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC
No-Action Letter (available June 5, 1991), that the Exchange 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 (i) a
broker-dealer who purchased Old Notes exchanged for such Exchange Notes
directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders are not participating in, and have no arrangement
with any person to participate in, the distribution of such Exchange Notes.
The undersigned specifically represent(s) to the Company that (i) any Exchange
Notes acquired in exchange for Old Notes tendered hereby are being acquired in
the ordinary course of business of the person receiving such Exchange Notes,
whether or not the undersigned, (ii) the undersigned is not participating in,
and has no arrangement with any person to participate in, the distribution of
Exchange Notes, and (iii) neither the undersigned nor any such other person is
an "affiliate" (as defined in Rule 405 under the Securities Act) of the Company
or a broker-dealer tendering Old Notes acquired directly from the Company for
its own account.
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
Exchange Notes. If the undersigned is a broker-dealer that will receive
Exchange Securities for its own account in exchange for Securities 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 Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The undersigned
acknowledges that if the undersigned is participating in the Exchange Offer for
the purpose of distributing the Exchange Notes (i) the undersigned cannot rely
on the position of the staff of the SEC in the Morgan Stanley Letter and
similar SEC no-action letters, and, in the absence of an exemption therefrom,
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the
Exchange Notes, in which case the registration statement must contain the
selling security holder information required by Item 507
<PAGE> 4
or Item 508, as applicable, of Regulation S-K of the SEC, and (ii) a
broker-dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the Registration
Rights Agreement (including certain indemnification rights and obligations).
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered hereby, including the transfer of such Old Notes on the account books
maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Old Notes when, as and if the Company
gives oral or written notice thereof to the Exchange Agent. Any tendered Old
Notes that are not accepted for exchange pursuant to the Exchange Offer for any
reason will be returned, without expense, to the undersigned at the address
shown below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Company's acceptance of properly
tendered Old Notes pursuant to the procedures described under the caption "The
Exchange Offer -- Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the Exchange Notes issued in exchange for the Old Notes accepted for
exchange and return any Old Notes not tendered or not exchanged, in the name(s)
of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please mail or deliver the Exchange Notes issued in
exchange for the Old Notes accepted for exchange and any Old Notes not tendered
or not exchanged (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signature(s). In the
event that both "Special Issuance Instructions" and "Special Delivery
Instructions" are completed, please issue the Exchange Notes issued in exchange
for the Old Notes accepted for exchange in the name(s) of, and return any Old
Notes not tendered or not exchanged to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Old Notes from the name of the registered holder(s) thereof if the Company
does not accept for exchange any of the Old Notes so tendered for exchange.
<TABLE>
- -------------------------------------------------------- -----------------------------------------------------------------
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6) (SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if Old Notes in a To be completed ONLY if Old Notes in a principal
principal amount not tendered, or Exchange Notes amount not tendered, or Exchange Notes issued in
issued in exchange for Old Notes accepted for exchange for Old Notes accepted for exchange, are to be
exchange, are to be issued in the name of someone mailed or delivered to someone other than the
other than the undersigned, or (ii) if Old Notes undersigned, or to the undersigned at an address other
tendered by book-entry transfer which are not than that shown below the undersigned's signature.
exchanged are to be returned by credit to an account
maintained at the Book-Entry Transfer Facility other Mail or deliver Exchange Notes and/or Old Notes to:
than the account indicated above. Issue Exchange
Notes and/or Old Notes to:
Name: Name:
-------------------------------------------------- --------------------------------------------------
(Please Type or Print) (Please Type or Print)
------------------------------------------------------- -------------------------------------------------------
Address: Address:
----------------------------------------------- -----------------------------------------------
------------------------------------------------------- -------------------------------------------------------
(include Zip Code) (include Zip Code)
------------------------------------------------------- -------------------------------------------------------
(Tax Identification or Social Security Number) (Tax Identification or Social Security Number)
(Complete Substitute Form W-9)
- -------------------------------------------------------- -----------------------------------------------------------------
</TABLE>
<PAGE> 5
[ ] Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility set forth below:
Book-Entry Transfer Facility Account Number:
<TABLE>
-----------------------------------------------------------------------------------------------------------------------
<S> <C>
IMPORTANT
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(Complete Accompanying Substitute Form W-9 on Reverse Side)
X
---------------------------------------------------------------------------------------------
X
---------------------------------------------------------------------------------------------
(Signature(s) of Registered Holders or Old Notes)
Dated , 1997
---------------------------------------------
(The above lines must be signed by the registered holder(s) of Old Notes as name(s) appear(s)
on the Old Notes or on a security position listing, or by person(s) authorized to become
registered holder(s) by a properly completed bond power from the registered holder(s), a copy
of which must be transmitted with this Letter of Transmittal. If Old Notes to which this
Letter of Transmittal relate are held of record by two or more joint holders, then all such
holders must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in
a fiduciary or representative capacity, then such person must (i) set forth his or her full
title below and (ii) unless waived by the Company, submit evidence satisfactory to the
Company of such person's authority so to act. See Instruction 5 regarding the completion of
this Letter of Transmittal, printed below.)
Name(s):
--------------------------------------------------------------------------------------
(Please Type or Print)
Capacity:
-------------------------------------------------------------------------------------
Address:
--------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number:
---------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
<TABLE>
----------------------------------------------------------------------------------------------
<S> <C>
MEDALLION SIGNATURE GUARANTEE
(If Required by Instruction 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:
-------------------------------------------
(Authorized Signature)
----------------------------------------------------------------------------------------------
(Title)
----------------------------------------------------------------------------------------------
(Name of Firm)
----------------------------------------------------------------------------------------------
(Address, Include Zip Code)
----------------------------------------------------------------------------------------------
(Area Code and Telephone Number)
Dated: , 1997
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
</TABLE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes or Book-Entry
Confirmations. All physically delivered Old Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or Agent's Message or facsimile hereof, and any other
documents required by this Letter of Transmittal, 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. The method of delivery of the tendered Old
Notes, this Letter of Transmittal and all other required documents to the
Exchange Agent is at the election and risk of the holder and, except as
otherwise provided below, the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. Instead of delivery by mail, it
is recommended that the holder 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. No Letter of Transmittal or Old Notes should
be sent to the Company.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Old
Notes and whose Old Notes are not immediately available or who cannot deliver
their Old Notes, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent prior to the Expiration Date or who cannot
complete the procedure for book-entry transfer on a time basis and deliver an
Agent's Message, must tender their Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedures:
(1) such tender must be made by or through a firm which is a member of a
registered national securities exchange or of the National Association of
Securities Dealers Inc., a commercial bank or a trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution"); (ii) prior to the Expiration Date, the Exchange Agent must have
received from the Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder of the Old Notes,
the registration number(s) of such Old Notes and the total principal amount of
Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five business days after the Expiration Date, this
Letter of Transmittal (or facsimile hereof) together with the Old Notes in
proper form for transfer (or a Book-Entry Confirmation) and any other documents
required hereby, must be deposited by the Eligible Institution with the
Exchange Agent within five business days after the Expiration Date; and (iii)
the certificates for all physically tendered shares of Old Notes, in proper
form for transfer (or Book-Entry Confirmation, as the case may be) and all
other documents required hereby are received by the Exchange Agent within five
business days after the Expiration Date.
Any holder of Old Notes who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a
Notice of Guaranteed Delivery will be sent to holders who wish to tender their
Old Notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus.
<PAGE> 7
3. Tender by Holder. Only a holder of Old Notes may tender such Old
Notes in the Exchange Offer. Any beneficial holder of Old Notes who is not the
registered holder and who wishes to tender should arrange with the registered
holder to execute and deliver this Letter of Transmittal on his behalf or must,
prior to completing and executing this Letter of Transmittal and delivering his
Old Notes, either make appropriate arrangements to register ownership of the
Old Notes in such holder's name or obtain a properly completed bond power from
the registered holder.
4. Partial Tenders. Tenders of Old Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Old Notes is tendered, the tendering holder should fill in the principal amount
tendered in the third column of the box entitled "Description of Old Notes
Tendered" above. The entire principal amount of Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
If the entire principal amount of all Old Notes is not tendered, then Old Notes
for the principal amount of Old Notes not tendered and Exchange Notes issued in
exchange for any Old Notes accepted will be sent to the holder at his or her
registered address, unless a different address is provided in the appropriate
box on this Letter of Transmittal, promptly after the Old Notes are accepted
for exchange.
5. Signatures on this Letter of Transmittal; Bond Powers and
Endorsements; Medallion Guarantee of Signatures. If this Letter of Transmittal
(or facsimile hereof) is signed by the record holder(s) of the Old Notes
tendered hereby, the signature must correspond with the name(s) as written on
the face of the Old Notes without alteration, enlargement or any change
whatsoever. If this Letter of Transmittal (or facsimile hereof) is signed by a
participant in the Book-Entry Transfer Facility, the signature must correspond
with the name as it appears on the security position listing as the holder of
the Old Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Old Notes listed and tendered hereby and the
Exchange Notes issued in exchange therefor are to be issued (or any untendered
principal amount of Old Notes is to be reissued) to the registered holder, the
said holder need not and should not endorse any tendered Old Notes, nor provide
a separate bond power. In any other case, such holder must either properly
endorse the Old Notes tendered or transmit a properly completed separate bond
power with this Letter of Transmittal, with the signatures on the endorsement
or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered holder or holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by appropriate bond powers, in each case
signed as the name of the registered holder or holders appears on the Old
Notes.
If this Letter of Transmittal (or facsimile hereof) 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,
unless waived by the Company, evidence satisfactory to the Company of their
authority to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal (or
facsimile hereof) is signed by the registered holder(s) of the Old Notes
tendered herein (or by a participant in the Book-Entry Transfer Facility whose
name appears on a security position listing as the owner of the tendered Old
Notes) and the Exchange Notes are to be issued directly to such registered
holder(s) (or, if signed by a participant in the Book-Entry Transfer Facility,
deposited to such participant's account at such Book-Entry Transfer Facility)
and neither the box entitled "Special Delivery Instructions" nor the box
entitled "Special Registration Instructions" has been completed, or (ii) such
Old Notes are tendered for the account of an Eligible Institution. In all
other cases, all signatures on this Letter of Transmittal (or facsimile hereof)
must be guaranteed by an Eligible Institution.
6. Special Registration and Delivery Instructions. Tendering holders
should indicate, in the applicable box or boxes, the name and address (or
account at the Book-Entry Transfer Facility) to which Exchange Notes or
substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of
the person signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, Exchange notes or Old Notes for principal amounts not tendered or
accepted for exchange 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 of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then 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 with this Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering holder.
<PAGE> 8
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. Tax Identification Number. Federal income tax law requires that a
holder of any Old Notes which are accepted for exchange must provide the
Company (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual is his or her social
security number. If the Company is not provided with the correct TIN, the
holder may be subject to a $50 penalty imposed by Internal Revenue Service.
(If withholding results in an over-payment of taxes, a refund may be obtained).
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends or (ii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. If the Old Notes are registered in more than one name or are not
in the name of the actual owner, see the enclosed "Guidelines for Certification
of Taxpayer Identification Number of Substitute Form W-9" for information on
which TIN to report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligations regarding backup
withholding.
9. Validity of Tenders. 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 the Company or its
counsel, be unlawful. The Company also reserves the absolute right to waive
any conditions of the Exchange Offer or defects or irregularities in tenders as
to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (includes this Letter of Transmittal and the
instructions hereto) shall 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. Neither the Company,
the Exchange Agent nor any person shall be under any duty to give notification
of defects or irregularities with regard to tenders of Old Notes nor shall any
of them incur any liability for failure to give such notification.
10. Waiver of Conditions. The Company reserves the absolute right to
waive, in whole or part, any of the conditions to the Exchange Offer set forth
in the Prospectus.
11. No Conditional Tender. No alternative, conditional, irregular or
contingent tender of Old Notes on transmittal of this Letter of Transmittal
will be accepted.
12. 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.
13. Requests for Assistance or Additional Copies. Requests for assistance
or for additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
14. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE OLD NOTES DELIVERED BY BOOK-ENTRY TRANSFER OR IN ORIGINAL
HARD COPY FORM) MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE
EXPIRATION DATE.
<PAGE> 9
<TABLE>
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<S> <C> <C>
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security Number
BOX AT RIGHT AND CERTIFY BY SIGNING AND OR Employer Identification Number
FORM W-9 DATING BELOW
-------------------------------------
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE -----------------------------------------------------------------------------------
PART 2 -- Certification -- Under penalties of perjury, PART 3 --
I certify that:
(1) The number shown on this form is my correct Taxpayer Awaiting TIN [ ]
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 Please complete the
PAYER'S REQUEST FOR TAXPAYER I have not been notified by the Internal Revenue Certificate of Awaiting
IDENTIFICATION NUMBER (TIN) Service ("IRS") that I am subject to backup Taxpayer Identification
withholding as a result of failure to report all Number below.
interest or dividends, or the IRS has notified me
that I am no longer subject to backup withholding.
-----------------------------------------------------------------------------------
Certificate 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 , 1997
--------------------------------------------------- ----------
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</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered
an application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number to the
payor within 60 days, 31% of all reportable payments made to me thereafter
will be withheld until I provide a number.
, 1997
---------------------------------- --------------------------------
Signature Date
- --------------------------------------------------------------------------------
<PAGE> 10
- --------------------------------------------------------------------------------
CERTIFICATE FOR FOREIGN RECORD HOLDERS
Under penalties of perjury, I certify that I am not a United States
citizen or resident (or I am signing for a foreign corporation, partnership,
estate or trust).
, 1997
---------------------------------- --------------------------------
Signature Date
- --------------------------------------------------------------------------------
