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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 2000
REGISTRATION NO. 333-38252
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO 1. TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TRANSTEXAS GAS CORPORATION
(Exact name of co-registrant as specified in its charter)
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DELAWARE 1311 76-0401023
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation organization) or Classification Code No.)
</TABLE>
GALVESTON BAY PROCESSING CORPORATION
(Exact name of co-registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 1389 76-0570422
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation organization) or Classification Code No.)
</TABLE>
GALVESTON BAY PIPELINE COMPANY
(Exact name of co-registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 4922 76-0595703
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation organization) or Classification Code No.)
</TABLE>
1300 NORTH SAM HOUSTON PARKWAY EAST, SUITE 310 HOUSTON, TEXAS 77032-2949,
(281) 987-8600
(Address, including zip code, and telephone number, including area code, of
co-registrants' principal executive offices)
ED DONAHUE, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
1300 NORTH SAM HOUSTON PARKWAY EAST, SUITE 310, HOUSTON, TEXAS 77032-2949,
(281) 987-8600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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copy to:
C. ROBERT BUTTERFIELD
GARDERE & WYNNE, L.L.P.
3000 THANKSGIVING TOWER DALLAS, TEXAS 75201
(214) 999-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
------------------- ------------------ ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Senior Secured Notes due 2005 $ 200,000,000 80%(1) $ 160,000,000 $ 42,240
Guarantees of Senior Secured
Notes due 2005 $ 200,000,000 (2) (2) -0-
Senior Preferred Stock 328,667,820 shs. $0.20(1) $ 65,733,565 $ 17,354
Junior Preferred Stock 37,469,711 shs. $0.10(1) $ 3,746,971 $ 989
Common Stock Purchase Warrants
(class A Common Stock) 515,625 $ 120(3) $ 61,875,000 $ 16,335
Class A Common Stock 62,963,376 shs. $4.25(6) $ 267,593,281 $ 1,067(7)
(4)(5)
Class B Common Stock 247,500 shs. $4.25(8) $ 1,113,750 $ 294
TOTAL $ 78,279
</TABLE>
(1) Based on the estimated maximum offering price. There is no established
trading market for securities of these classes.
(2) No additional consideration will be received for the Guarantees.
(3) Based on the price at which the warrants may be exercised, pursuant to
Rule 457(g).
(4) Includes 515,625 shares issuable upon exercise of the warrants,
56,875,000 shares issuable upon conversion of the senior preferred
stock, 4,375,000 shares issuable upon conversion of the junior
preferred stock and 247,500 shares issuable upon conversion of the
class B common stock.
(5) Pursuant to Rule 416, this Registration Statement also covers such
additional shares of class A common stock as may be issued as a result
of the anti-dilution provisions of the warrants, the senior preferred
stock and the junior preferred stock.
(6) Based on the average ($4.25) of the high and low sales prices reported
by the NASD Over the Counter Bulletin Board on May 25, 2000 with
respect to the 62,963,125 shares covered by this registration statement
as originally filed and the average ($15.50) of the high and low sales
prices reported by the NASD Over the Counter Bulletin Board on
September 22, 2000 with respect to the 251 shares added by this
Amendment No. 1.
(7) Pursuant to Rule 457(g), no additional registration fee is required for
the 515,625 shares of class A common stock issuable upon exercise of
the warrants being offered pursuant hereto. Pursuant to Rule 457(i), no
additional registration fee is required for: (i) the 4,375,000 shares
of class A common stock issuable upon conversion of the senior
preferred stock, (ii) the 56,875,000 shares of class A common stock
issuable upon conversion of the junior preferred stock or (iii) the
247,500 shares of class A common stock issuable upon conversion of the
class B common stock.
(8) Based on the average of the high and low sales prices reported by the
NASD Over the Counter Bulletin Board as of May 25, 2000 for the class A
common stock, into which the class B common stock will be automatically
converted upon a transfer to persons other than John R. Stanley and
certain related persons or upon the termination, for certain reasons,
of John R. Stanley as the chief executive officer and a director of the
Registrant.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THE SELLING SECURITY HOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OF
SALE IS NOT PERMITTED.
TRANSTEXAS GAS CORPORATION
$200,000,000 15% SENIOR SECURED NOTES DUE 2005
328,667,820 SHARES OF SERIES A SENIOR PREFERRED STOCK
37,469,711 SHARES OF SERIES A JUNIOR PREFERRED STOCK
515,625 CLASS A COMMON STOCK PURCHASE WARRANTS
62,963,376 SHARES OF CLASS A COMMON STOCK
247,500 SHARES OF CLASS B COMMON STOCK
This prospectus relates to the offer and sale from time to time of the
securities identified in this prospectus by the selling security holders
identified in this prospectus. We initially issued the securities to the selling
security holders on March 17, 2000, under our plan of reorganization under
Chapter 11 of the U.S. Bankruptcy Code. We will not receive any of the proceeds
from the sale of the securities. We will, however, receive the exercise price of
the warrants upon exercise of such warrants.
We will pay interest on the notes at the rate of 15% per annum on
March 15 and September 15 of each year that the notes are outstanding,
beginning on September 15, 2000. The notes will mature on March 15, 2005,
subject to prior redemption. The notes are secured by a lien on substantially
all of our assets, other than our inventory and receivables. The notes are also
guaranteed by our subsidiaries Galveston Bay Processing Corporation and
Galveston Bay Pipeline Company. The guaranties are unsecured; however, the
collateral securing the notes includes our pledge of all of the capital stock
of these subsidiaries.
We will pay quarterly dividends on the senior preferred stock. Through
March 15, 2002, we will pay cash dividends at the rate of $0.10 per share per
annum, or, at our option, dividends in additional shares of senior preferred
stock at the rate of $0.20 per share per annum. Beginning June 15, 2002, we
will pay dividends in cash only at the rate of $0.0775 per share per annum. We
will repurchase the senior preferred stock on March 15, 2006, subject to prior
redemption or conversion.
We will pay quarterly dividends on the junior preferred stock at the
rate of $0.10 per share per annum through March 15, 2006 and $0.20 per share
per annum thereafter. We will pay these dividends only in additional shares of
junior preferred stock through March 15, 2006, and beginning June 15, 2006 we
will pay dividends both (i) in cash at the rate of $0.10 per share per annum
and (ii) in additional shares of junior preferred stock at the rate of $0.10
per share per annum. We will repurchase the junior preferred stock on March 15,
2010, subject to prior redemption or conversion.
Each warrant covered by this prospectus may be exercised to purchase
one share of class A common stock at a price of $120 per share. This purchase
price may be adjusted by customary anti-dilution provisions. The warrants
expire on June 30, 2002. This prospectus also relates to the 515,625 shares of
class A common stock that we will issue upon exercise of the warrants offered
hereby.
The class B common stock will automatically convert, on a share for
share basis, into shares of class A common stock upon their transfer to any
person other than John R. Stanley, his affiliates and members of his family or
upon the termination, for certain reasons, of John R. Stanley as our chief
executive officer and as one of our directors.
The class A common stock is quoted on the NASD Over the Counter
Bulletin Board under the symbol "TTXG." On September 22, 2000, the last
reported sale price of the class A common stock was $15.50 per share. There is
currently no public market for any of the other securities.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR
DETERMINED IF THIS PROSPECTUS IS ACCURATE AND COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 20 OF THIS
PROSPECTUS.
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THE DATE OF THIS PROSPECTUS IS SEPTEMBER __, 2000
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TABLE OF CONTENTS
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WHERE TO OBTAIN ADDITIONAL INFORMATION................................................................. 5
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS................................................... 5
PROSPECTUS SUMMARY..................................................................................... 6
The Company....................................................................................... 6
Reorganization of the Company Pursuant to our Bankruptcy Filing................................... 6
Recent Events and Transactions.................................................................... 7
Summary of the Offering........................................................................... 8
Summary of the Securities......................................................................... 9
Summary Balance Sheet Data........................................................................ 16
RATIO OF EARNINGS TO FIXED CHARGES..................................................................... 17
PRO FORMA RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS;
YEAR ENDED JANUARY 31, 2000............................................................................ 18
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS; SIX
MONTHS ENDED JULY 31, 2000............................................................................. 19
RISK FACTORS........................................................................................... 20
Risks Related to the Offering..................................................................... 20
We Cannot Assure You That an Active Market Will Develop For The
Notes, The Preferred Stock, the Warrants or The Common
Stock........................................................................................ 20
Conversion of the Preferred Stock into Common Stock Could Materially
Adversely Affect the Value of the Preferred Stock, the Common Stock
and the Warrants............................................................................. 20
Certain Provisions of Our Certificate of Incorporation and Bylaws
Could Make it Difficult for a Third Party to Gain Control of Us And,
in Certain Cases, Adversely Affect the Value of Our Common Stock............................. 21
Our Level of Debt Could Prevent Us from Fulfilling Our Obligations
under the Notes and the Preferred Stock...................................................... 22
We May Not Be Able to Pay Cash to the Holders of the Preferred Stock......................... 23
We Do Not Expect to Be Able to Pay Cash Dividends on Our Common Stock........................ 23
We May Not Be Able to Raise the Funds Necessary to Purchase Notes If
a Change of Control Offer Is Required........................................................ 23
The Collateral Securing Our Notes Is Subject to Certain Superior
Liens and May Not Be Sufficient to Satisfy Our Note Obligations in
the Event of a Foreclosure................................................................... 23
The Guaranties of Our Subsidiaries May Not Be Enforceable in
Bankruptcy .................................................................................. 24
Under Certain Circumstances a Bankruptcy Court Could Order the
Holders of the Notes to Repay Any Interest Payments Received on the
Notes or Any Proceeds of Collateral Securing the
Notes........................................................................................ 24
Risks Related to our Business..................................................................... 25
We May Not Be Able to Obtain Funds We Need for Capital Expenditures,
Debt Service, Cash Dividends and Redemption Payments......................................... 25
Our Debt Agreements and Preferred Stock Impose Substantial
Restrictions on Us........................................................................... 25
Natural Gas Price Fluctuations and Markets May Adversely Affect our
Operating Results............................................................................ 26
We Potentially Have Substantial Federal Tax Liability........................................ 26
Risks Related to Our Industry..................................................................... 27
Our Operations Are Subject to Numerous Risks of Drilling and
Production Activities........................................................................ 27
Certain Hazards and Risks of Our Operations Could Result in Liabilities
That Are Either Uninsured or in Excess of Our Insurance Coverage............................. 27
We Operate in a Highly Competitive Industry Which May Adversely
Affect Our Operations........................................................................ 27
Estimates of Our Proved Reserves and Future Net Revenue Are Uncertain
and Inherently Imprecise..................................................................... 27
Environmental Matters May Require Us to Make Significant Capital
Expenditures or Result in Liabilities That Adversely Affect Our
Financial Position........................................................................... 28
We Depend on the Skills of Key Personnel..................................................... 28
</TABLE>
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<TABLE>
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USE OF PROCEEDS........................................................................................ 28
CAPITALIZATION......................................................................................... 29
PRICE RANGE OF COMMON STOCK............................................................................ 30
DIVIDEND POLICY........................................................................................ 30
SELECTED FINANCIAL DATA................................................................................ 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 33
BUSINESS............................................................................................... 43
MANAGEMENT............................................................................................. 51
EXECUTIVE COMPENSATION................................................................................. 52
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................... 54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................... 57
DESCRIPTION OF THE SECURITIES.......................................................................... 59
THE NOTES....................................................................................... 59
THE SENIOR PREFERRED STOCK...................................................................... 87
THE JUNIOR PREFERRED STOCK...................................................................... 90
THE CLASS A COMMON STOCK AND CLASS B COMMON STOCK............................................... 94
THE WARRANTS.................................................................................... 96
REGISTRATION RIGHTS RELATING TO CERTAIN SECURITIES.............................................. 98
CERTAIN FEDERAL INCOME TAX MATTERS..................................................................... 99
DETERMINATION OF OFFERING PRICE........................................................................ 107
SELLING SECURITY HOLDERS............................................................................... 108
PLAN OF DISTRIBUTION................................................................................... 110
LEGAL MATTERS.......................................................................................... 111
EXPERTS................................................................................................ 111
INDEX TO FINANCIAL STATEMENTS.......................................................................... F-1
REPORT OF INDEPENDENT ACCOUNTANTS...................................................................... F-2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION....................................... PF-1
INFORMATION NOT REQUIRED IN THE PROSPECTUS............................................................. II-1
EXHIBIT INDEX.......................................................................................... E-1
</TABLE>
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You should not construe the contents of this prospectus as investment,
legal or tax advice. You should consult your own counsel, accountants and other
advisors as to legal, tax, business, financial and related aspects of an
investment in any of the Securities. The Securities may not be a legal
investment for you under appropriate legal investment or similar laws. In
making an investment decision regarding the Securities, you must rely on your
own examination of the Company and the terms of the offering, including the
merits and risks of an investment in the Securities.
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Any statement contained in a document referred to in this prospectus
or any supplement is to be considered modified or replaced to the extent that a
statement contained herein or in any supplement or any subsequently filed
document modifies or replaces such statement. Any statement so modified or
replaced is not to be considered, except as so modified or replaced, to be a
part of this prospectus.
This prospectus and any prospectus supplement do not constitute an
offer to sell or a solicitation of an offer to buy the securities in any
jurisdiction where, or to any person to whom, such offer or solicitation is not
permitted. The information contained in this prospectus is accurate only as of
the date printed on the cover. You should not assume that the information is
accurate as of any other date.
NOTICE TO NEW HAMPSHIRE RESIDENTS: Neither the fact that a
registration statement or an application for a license has been filed under RSA
421-B with the state of New Hampshire nor the fact that a security is
effectively registered or a person is licensed in the state of New Hampshire
constitutes a finding by the secretary of state that any document filed under
RSA 421-B is true, complete and not misleading. Neither any such fact nor the
fact that an exemption or exception is available for a security or a
transaction means that the Secretary of State of New Hampshire has passed in
any way upon the merits or qualifications of, or recommended or given approval
to, any person, security or transaction. It is unlawful to make, or cause to be
made, to any prospective purchaser, customer or client any representation
inconsistent with the provisions of this paragraph.
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WHERE TO OBTAIN ADDITIONAL INFORMATION
We file periodic reports, proxy statements and other information with
the SEC. You can read and copy any document we file at the SEC's public
reference room located at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, or at the SEC's regional offices located at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300,
New York, New York 10048. You can call the SEC at 1-800-SEC-0330 for more
information about the public reference rooms. Our SEC filings are also
available on the Internet at http://www.sec.gov.
This prospectus is part of a Form S-1 registration statement that we
have filed with the SEC. The registration statement includes information that
is not included in this prospectus. You can review the entire registration
statement, including its exhibits and schedules, at the SEC's offices at the
addresses listed in the paragraph above.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. Whenever you read
a statement that is not simply a statement of historical fact (such as when we
describe what we "believe," "expect," "estimate" or "anticipate" will occur,
and other similar statements), you must remember that our expectations may not
be correct, even though we believe they are reasonable. We do not guarantee
that the transactions and events described in this prospectus will happen as
described (or that they will happen at all). The forward-looking information
contained in this prospectus is generally located in the material set forth
under the headings "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" but may be found in other locations as well. These forward-looking
statements generally relate to our plans and objectives for future operations
and are based upon our management's reasonable estimates of future results or
trends. The factors that may affect our expectations of our operations include,
among others, the following:
o Our level of liquidity
o Our high debt level
o General economic and business conditions
o Our competition
o Our success in discovering, developing and producing reserves
o Prices for crude oil, natural gas, condensate and natural gas
liquids
o Conditions in the equity and capital markets
o The outcome of litigation filed against us; and
o Other factors discussed under the section below entitled
"Risk Factors" beginning at page 20 or elsewhere in this
prospectus.
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PROSPECTUS SUMMARY
The following summary highlights selected information from this
prospectus and may not contain all of the information that is important to you.
This prospectus includes specific terms of the securities as well as
information regarding our business and detailed financial data. We encourage
you to read this prospectus carefully, including the "Risk Factors" and the
financial statements included herein. References in this prospectus to "us,"
"our" and "we" refer to TransTexas Gas Corporation and its predecessors and
subsidiaries unless the context requires otherwise. "TEC" refers to
TransAmerican Energy Corporation, our former parent, and "TARC" refers to
TransAmerican Refining Corporation, another subsidiary of TEC. For purposes of
this prospectus when we describe information on a pro forma basis, unless
otherwise indicated, we are giving effect to our bankruptcy plan of
reorganization described further down on this page.
THE COMPANY
We were organized in May 1993 as a Delaware corporation. Our principal
executive office is located at 1300 North Sam Houston Parkway East, Suite 310,
Houston, Texas 77032, and our telephone number at that address is (281)
987-8600.
We are engaged in the exploration for and development and production
of natural gas and condensate, primarily in South Texas and along the Upper
Gulf Coast. Our business strategy is to use our experience in drilling and
operating wells in South Texas to find, develop and produce reserves at a low
cost.
Our long-term goal is to convert unproven acreage to proved reserves
by drilling in under-exploited areas. In order to meet these long-term goals,
our strategy is to drill wells in areas of the Upper Texas Gulf Coast where 3-D
seismic data indicates productive potential and to drill development wells in
our proven producing areas such as the Eagle Bay field and Wharton County.
During the year ended January 31, 2000, our drilling program was restricted by
reduced capital available from operations and by our debtor-in-possession
financing.
As of February 1, 2000, we had net proved reserves, as estimated by
Netherland, Sewell & Associates, Inc., an independent firm of petroleum
engineers, of 118 billion cubic feet equivalent ("Bcfe"). As of January 31,
2000, we owned approximately 333,400 gross (210,000 net) acres of mineral
interests. Our average net daily natural gas production for the year ended
January 31, 2000 was approximately 77 million cubic feet per day ("MMcfd"), for
a total net production of 27.8 billion cubic feet ("Bcf") of natural gas. Our
average net daily condensate and oil production for the year ended January 31,
2000 was approximately 5,005 barrels of oil per day ("Bpd"), for a total net
production of 1.8 million barrels of condensate and oil. Our average net daily
production of natural gas liquids ("NGLs") for the year ended January 31, 2000
was approximately 120,519 gallons per day, for a total net production of 44
million gallons of natural gas liquids.
REORGANIZATION OF THE COMPANY PURSUANT TO OUR BANKRUPTCY FILING
On April 19, 1999, we filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware. On April 20, 1999, our then parent company, TEC,
and TARC also filed voluntary petitions for relief under Chapter 11. On May 20,
1999, the bankruptcy cases were transferred to the Southern District of Texas,
Corpus Christi Division. Our Second Amended, Modified and Restated Plan of
Reorganization dated January 25, 2000 was confirmed by the bankruptcy court on
February 7, 2000. The effective date of our bankruptcy plan was March 17, 2000.
Under our bankruptcy plan, we executed several transactions, most of which were
dated as of March 15, 2000. Among other things, we:
o filed an amended and restated certificate of incorporation
(as amended through the date of this prospectus, our
"certificate of incorporation");
o canceled all of our old common stock, our $450 million
intercompany loan payable to TEC, and all of our 13 3/4%
Senior Subordinated Notes;
o issued 1,002,751 shares of class A common stock and 247,500
shares of class B common stock;
o issued 625,000 warrants;
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<PAGE> 9
o filed a certificate of designation relating to 328,667,820
shares of senior preferred stock, and issued 222,455,320 of
those shares;
o filed a certificate of designation relating to 37,469,711
shares of junior preferred stock, and issued 20,716,080 of
those shares;
o entered into an Indenture relating to, and issued, $200
million of notes;
o entered into a $52.5 million oil and gas credit facility;
o entered into a $15 million accounts receivable credit
facility; and
o sold a production payment with a primary sum outstanding as
of March 15, 2000 of $35 million.
We describe these transactions more fully in the section "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" located at page 37 of this prospectus.
As a result of the effectiveness of our bankruptcy plan, we
adopted "fresh-start" reporting as of January 31, 2000, and a new entity was
created for the purposes of our financial reporting (sometimes referred to as
the "Successor"). Information prior to January 31, 2000 is that of the
predecessor entity. Pursuant to fresh-start reporting, we estimated our
reorganization value as of January 31, 2000, which value was allocated to
identified assets based on the assets' relative fair values. Liabilities
surviving our bankruptcy plan were valued at the present value of amounts to be
paid. We adjusted the present value of our liabilities to reflect an assumed
interest rate of 15% for the period from February 1, 2000 to the effective date
of our bankruptcy plan. The accretion of the discount was recorded as
interest expense, which totalled $4.8 million for the six months ended
July 31, 2000.
RECENT EVENTS AND TRANSACTIONS
On the effective date of our bankruptcy plan, we entered into an Oil
and Gas Revolving Credit and Term Loan Agreement with GMAC Commercial Credit
LLC, or GMACC, as a lender and as the agent for other lenders, under which we
were provided certain loans to implement our bankruptcy plan and ongoing
operations. The oil and gas credit facility consists of a term loan in the
principal amount of $22.5 million and a revolving credit facility in a maximum
amount of $30 million (all of which we borrowed on the effective date of our
bankruptcy plan). The term loan bears interest at a rate of 14% per annum and
the revolving loan bears interest at a rate of 13 1/2% per annum. Interest on
the term loan and the revolving loan is payable monthly in arrears. The
principal amount of the term loan is due in 20 quarterly installments of
$56,250 each, with the balance due March 14, 2005. The principal amount of the
revolving loan is due on March 14, 2005; however, we may, and in certain
circumstances must, make prepayments of the revolving loan. If we make
prepayments of the revolving loan and we demonstrate sufficient collateral
value to satisfy certain requirements of the oil and gas credit facility
provisions, we may be entitled to reborrow money under the revolving loan. The
oil and gas credit facility is secured by substantially all of our assets. The
security interest in our accounts receivable and inventory that secures the oil
and gas credit facility is subordinated to the security interest of GMACC under
the accounts receivable facility (described in the second paragraph following
this paragraph). The repayment of the oil and gas credit facility is guaranteed
by our subsidiaries, Galveston Bay Processing Corporation and Galveston Bay
Pipeline Company.
On the effective date of our bankruptcy plan, we entered into an
Indenture with Firstar Bank, N.A., as Trustee, pursuant to which we issued the
notes. Our subsidiaries Galveston Bay Processing Corporation and Galveston Bay
Pipeline Company also entered into the indenture as guarantors of our
obligations under the Indenture and the notes. Interest on the notes is due
semi-annually on March 15 and September 15, beginning September 15, 2000. The
stated maturity date of the notes is March 15, 2005. The Indenture contains
certain covenants that restrict our ability to incur indebtedness, engage in
transactions with our affiliates and related parties, dispose of assets or
engage in sale/leaseback transactions, issue dividends on common stock, redeem
our preferred stock, change our line of business, consolidate or merge with or
into another entity or convey, transfer or lease all or substantially all of
our assets, and suffer a change of control. The notes are secured by
substantially all of our assets other than our accounts receivable and
inventory. However, the security interest in favor of the Trustee (for the
benefit of the holders of the notes) and securing repayment of the notes is
subordinated to the security interest in favor of the agent under the oil and
gas credit facility described in the immediately preceding paragraph.
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On the effective date of our bankruptcy plan, we entered into a Third
Amended and Restated Accounts Receivable Management and Security Agreement with
GMACC. This accounts receivable facility is a revolving credit facility secured
by our accounts receivable and inventory. The maximum loan amount under this
facility is $15 million, against which we may from time to time borrow, repay
and reborrow, subject to the terms and conditions of the accounts receivable
facility. As of July 31, 2000, $12.2 million was outstanding under this
facility and there was availability to borrow an additional $1.2 million. Money
borrowed under the accounts receivable facility bears interest at a rate per
annum equal to the higher of (i) the prime commercial lending rate of The Bank
of New York plus 1/2 of 1%, and (ii) the federal funds rate plus 1 1/2%, payable
monthly in arrears. The outstanding principal balance under the accounts
receivable facility will be due on March 14, 2005.
In March 2000, we entered into a production payment agreement with
certain parties unrelated to us whereby the third parties, or counterparties,
advanced us money to finance drilling (a "primary sum") in exchange for the
right to receive a portion of the proceeds resulting from the production of
certain wells owned and/or operated by us ("production payments"). The
production payment agreement requires us to pay the counterparties the primary
sum plus an amount equivalent to a 15% interest rate on the unpaid portion of
the primary sum. As of July 31, 2000 and September 15, 2000, the primary sum
outstanding under the production payment agreement was $30.9 million and $32.4
million, respectively. We have the right to sell further production payments to
the counterparties in return for additional sums up to a maximum aggregate
primary sum of $52 million. The provisions of the oil and gas credit facility
place certain restrictions on the amount of the aggregate primary sum that may
be outstanding under the production payment agreement.
SUMMARY OF THE OFFERING
<TABLE>
<S> <C> <C>
Securities Offered by Selling
Security Holders: $200,000,000 aggregate principal amount of
notes
328,667,820 shares of senior preferred
stock
37,469,711 shares of junior preferred
stock
515,625 warrants
62,963,376 shares of class A common stock
247,500 shares of class B common stock
</TABLE>
Use of Proceeds: We will use the proceeds, if any, received upon
exercise of the warrants for general corporate
purposes. We will not receive any proceeds from
the sale of any other of the securities.
Registration Rights: We entered into various registration rights
agreements with or for the benefit of each of the
selling security holders relating to the notes,
the senior preferred stock, the junior preferred
stock and the class A common stock. Under the
terms of these various registration rights
agreements, we have agreed to register the
securities under a registration statement filed
with the SEC and, among other things, do the
following:
o keep the registration statement effective for five years (or
a shorter time if all of the securities covered thereby have
been sold pursuant to the registration statement);
o cause the registration statement to be kept sufficiently
accurate to comply with the requirements of the Securities
Act of 1933 and the rules and regulations of the SEC;
8
<PAGE> 11
o give written notice to the holders of any of the securities
covered thereby of any amendment to the registration
statement;
o give written notice to the holders of any of the securities
covered thereby of a suspension of the effectiveness of the
registration statement or any event that we believe could
lead to such a suspension;
o make reasonable efforts to have the registration statement
made effective as soon as possible after any suspension of
its effectiveness; and
o provide each holder of any security covered by the
registration statement with as many copies of this prospectus
(and any amendments or supplements hereto) that are
reasonably requested.
SUMMARY OF THE SECURITIES
The following descriptions of the securities offered by this prospectus are
summaries only and are not complete. You should also carefully read the
descriptions of the securities set forth in the section entitled "Description
of the Securities" beginning on page 59 of this prospectus.
NOTES
The 15% Senior Secured Notes due 2005 covered by this prospectus are referred
to in this prospectus as the "notes."
Interest: We will pay you interest on the notes in
cash at a rate of 15% per annum, paid twice
a year on March 15 and September 15.
Maturity: March 15, 2005.
Optional
Redemption: Before March 15, 2005, at our option, we can
buy back all or a portion of the notes, in
cash, at the redemption prices (expressed as
a percentage of the outstanding principal
amount) set forth below, together with
accrued and unpaid interest, if any, to the
redemption date:
<TABLE>
<CAPTION>
IF REDEEMED DURING THE REDEMPTION
12-MONTH PERIOD BEGINNING PRICE
--------------------------------- ----------
<S> <C>
March 15, 2000 115%
March 15, 2001 112%
March 15, 2002 109%
March 15, 2003 106%
March 15, 2004 103%
</TABLE>
Guaranty: Our material subsidiaries, whether existing
now or created in the future, are required
to unconditionally guarantee our payment of
the notes. If we cannot make payments on the
notes when due, our guarantor subsidiaries
must make them instead. Galveston Bay
Processing Corporation and Galveston Bay
Pipeline Company, each a wholly owned
subsidiary of ours, are currently the
guarantor subsidiaries of the notes.
9
<PAGE> 12
Our Obligation to
Purchase the notes: If control of our Board of Directors changes
in certain respects, we must offer to
purchase your notes at 101% of the unpaid
principal amount, plus accrued interest.
Security: Our repayment of the notes is secured by
substantially all of our assets other than
our accounts receivable and inventory;
however, this collateral for repayment of
the notes is subject to a prior lien
securing the payment of our oil and gas
credit facility. Therefore, in the event
that we default on both the notes and our
oil and gas credit facility, our pledged
assets will be used to pay our obligations
under our oil and gas credit facility before
they are used to pay our obligations to you
under the notes.
Ranking: The notes rank senior to all of our junior
debt, but rank equally with our other senior
debt, if any. Therefore, if we default, your
right to payment under the notes will be
shared, on a dollar for dollar basis, by any
other person who holds any of our other
senior debt, even if the other senior debt
is incurred in the future. Currently the
notes are our only outstanding senior
indebtedness other than the following:
o our oil and gas credit facility;
o our accounts receivable facility; and
o a promissory note in favor of Jefferies
Analytical Trading Group, Inc. in the
principal amount of $6,676,288, due
March 17, 2003.
Restrictive Covenants: We issued the notes under an Indenture with
Firstar Bank, N.A. The Indenture, among
other things, restricts our ability and the
ability of our subsidiaries to:
o borrow money;
o pay dividends on common stock or
preferred stock or make other asset
transfers;
o transact business with affiliates and
related parties;
o sell stock in subsidiaries;
o engage in any new line of business;
o further impair the security interests
in any collateral for the notes;
o use assets as security in other
transactions; and
o sell certain assets or merge with or
into other companies.
For additional information concerning the notes, see "Description of the
Securities -- The Notes" beginning at page 59 of this prospectus.
SENIOR PREFERRED STOCK
The shares of Series A Senior Preferred Stock covered by this prospectus are
referred to in this prospectus as the "senior preferred stock."
Dividends: As a holder of shares of senior preferred
stock, you have the right to receive
quarterly cash dividends at the rate of
$0.10 per share of senior preferred stock
per annum, except that during the first two
years after March 15, 2000, in lieu of
paying cash dividends, we have the option to
pay you dividends in kind (i.e., in
additional shares of senior preferred stock
with an aggregate liquidation preference
equal to the amount of the dividend to be
paid) at a rate of $0.20 per share per annum.
After March 15, 2002, we will pay you
dividends only in cash at the rate of $0.0775
per share per annum. We cannot pay you
dividends if we do not have sufficient
surplus (or, in certain cases, sufficient net
profits) to legally make such dividend
payments.
10
<PAGE> 13
Par Value: $0.001 per share.
Liquidation Preference: $1.00 per share, plus an amount equal to
accrued and unpaid dividends.
Mandatory Redemption: We are required to redeem your shares of
senior preferred stock on March 15, 2006 at
100% of the liquidation preference per
share.
Optional Redemption: We may redeem your shares of senior preferred
stock at any time at an initial price equal
to $0.88 per share plus all accrued but
unpaid dividends, increasing by $0.005 per
share per month to a maximum of 100% of the
liquidation preference per share. However,
we are not permitted to redeem the senior
preferred stock prior to the time the notes
have been retired.
Mandatory Conversion: If either (i) more than 75 million shares of
the senior preferred stock are outstanding
after March 15, 2006 or (ii) any two
dividend payments have not been paid on the
senior preferred stock, then, on a pro rata
basis, one-half of the outstanding shares of
the senior preferred stock will
automatically convert into shares of our
common stock on the basis of 0.3461 shares
of class A common stock for each $1.00 of
liquidation preference of the shares of
senior preferred stock converted. The
conversion ratio is subject to adjustment
pursuant to customary anti-dilution
provisions. The remaining shares of senior
preferred stock will remain outstanding.
Voting Rights: Holders of senior preferred stock have the
right, voting separately as a class, to
elect four (4) of the five (5) directors to
our Board of Directors; provided, that if we
have not paid dividends with respect to the
payments due commencing March 15, 2002, such
holders will have the right, voting
separately as a class, to elect all five (5)
directors to our Board of Directors. Holders
of senior preferred stock have one vote per
share, voting together with the class A
common stock, the junior preferred stock and
any other series or classes of our stock
entitled to vote with the class A common
stock, on all matters on which the holders
of the class A common stock are entitled to
vote generally. Voting rights of the senior
preferred stock may not be changed without
the consent of the holders of 75% of the
shares of senior preferred stock, voting as
a class.
Ranking: The senior preferred stock ranks senior to
all of our other capital stock with respect
to the payment of dividends and amounts upon
our liquidation, dissolution or winding up,
unless additional preferred stock is issued
that ranks senior or equal to the senior
preferred stock in these respects. We are
not entitled to issue any such senior or
equal ranking stock without the approval of
the holders of a majority of the senior
preferred stock.
Restrictive Covenants: The certificate of designation governing the
senior preferred stock contains restrictive
covenants that, among other things, restrict
our ability and the ability of our
subsidiaries to:
o borrow money;
o pay dividends on capital stock or make
other asset transfers;
o transact business with affiliates and
related parties;
o sell stock in subsidiaries;
11
<PAGE> 14
o engage in any new line of business;
o use assets as security in other
transactions; and
o sell certain assets or merge with or into
other companies.
Additional Issuances: We may not issue additional shares of senior
preferred stock other than shares that we issue
to pay dividends in kind.
For additional information concerning the senior preferred stock, see
the section entitled "Description of the Securities -- The Senior Preferred
Stock" beginning at page 87 of this prospectus.
JUNIOR PREFERRED STOCK
The shares of Series A Junior Preferred Stock covered by this prospectus are
referred to in this prospectus as the shares of "junior preferred stock." The
senior preferred stock and the junior preferred stock, when referred to
collectively, are sometimes referred to as the "preferred stock."
Dividends: As a holder of shares of junior preferred
stock, you have the right to receive quarterly
dividends at the rate of $0.10 per share per
annum through March 15, 2006, and at a rate of
$0.20 per share per annum thereafter. We will
pay you dividends only in additional shares of
junior preferred stock through March 15, 2006.
Beginning June 15, 2006, we will pay you
dividends both (i) in cash at the rate of $0.10
per share per annum and (ii) in additional
shares of junior preferred stock at the rate of
$0.10 per share per annum. We cannot pay you
dividends if we do not have sufficient surplus
(or, in certain cases, sufficient net profits)
to legally make such dividend payments.
Par Value: $0.001 per share.
Liquidation Preference: $1.00 per share, plus an amount equal to
accrued and unpaid dividends.
Mandatory Redemption: We are required to redeem your shares of junior
preferred stock on March 15, 2010 at 100% of
the liquidation preference per share.
Optional Redemption: We may redeem your shares of junior preferred
stock, in whole or in part, at our option for
cash in an amount equal to 100% of the
liquidation preference per share at any time
after the notes and the senior preferred stock
have been retired and all accrued and unpaid
dividends on the junior preferred stock have
been paid in full.
Mandatory Conversion: If either (i) more than 75 million shares of
the senior preferred stock are outstanding
after March 15, 2006 or (ii) any two dividend
payments have not been paid on the senior
preferred stock, then all of the outstanding
shares of the junior preferred stock will
automatically convert into shares of our common
stock on the basis of 0.1168 shares of class A
common stock for each $1.00 of liquidation
preference of the junior preferred stock. The
conversion ratio is subject to adjustment
pursuant to customary anti-dilution provisions.
Voting Rights: Holders of junior preferred stock have one vote
per share, voting together with holders of the
class A common stock, the senior preferred
stock and any other series or classes of our
stock entitled to vote with the class A common
stock, on all matters on which holders of the
class A common stock are entitled to vote. If
no shares of the senior preferred stock are
outstanding, holders of the shares of junior
preferred stock will have the right, voting
separately as a class, to elect two directors
to our Board of Directors. Voting rights of the
junior preferred stock may not be changed
without the consent of the holders of 75% of
the shares of the junior preferred stock,
voting as a class.
12
<PAGE> 15
Ranking: The junior preferred stock ranks junior to
the senior preferred stock and to all of our
hereafter issued preferred stock that is
expressly stated to be senior to the junior
preferred stock, and senior to our common
stock and to all of our hereafter issued
preferred stock, if any, that is expressly
stated to be junior to the junior preferred
stock with respect to the payment of
dividends and amounts upon our liquidation,
dissolution or winding up.
Restrictive Covenants: The certificate of designation governing the
junior preferred stock contains restrictive
covenants that, among other things, restrict
our ability and the ability of our
subsidiaries to:
o borrow money;
o pay dividends on common stock or the
preferred stock or make other asset
transfers;
o transact business with affiliates and
related parties;
o sell stock in subsidiaries;
o engage in any new line of business;
o use assets as security in other
transactions; and
o sell certain assets or merge with or
into other companies.
These covenants will become effective when
all of the notes (and any refinancings
thereof) have been repaid and all of the
senior preferred stock has been redeemed.
Additional Issuances: We may not issue additional shares of junior
preferred stock other than shares that we
issue to pay dividends in kind.
For additional information concerning the junior preferred stock, see
the section entitled "Description of the Securities -- The Junior Preferred
Stock" beginning at page 90 of this prospectus.
WARRANTS
We have issued a total of 625,000 Class A Common Stock Purchase Warrants, of
which 515,625 are covered by this prospectus. The Class A Common Stock Purchase
Warrants are referred to in this prospectus as the "warrants." The shares of
class A common stock issuable upon exercise of the warrants are referred to as
the "warrant shares."
Warrants Issued: 625,000 warrants. The shares of our class A
common stock to be issued upon exercise of
the warrants and our other outstanding
warrants will represent approximately 33% of
our common stock on a fully-diluted basis
(after giving effect to the exercise of all
of our outstanding warrants and the
conversion of the class B common stock but
before any conversion of the senior
preferred stock or the junior preferred
stock).
Exercise: Each warrant is immediately exercisable to
purchase one share of class A common stock
at the exercise price.
Expiration Date: June 30, 2002.
Exercise Price: $120 per share.
13
<PAGE> 16
Anti-Dilution Provisions: We issued the warrants pursuant to a Warrant
Agreement with ChaseMellon Shareholder
Services, L.L.C., as warrant agent. The
warrant agreement contains customary
anti-dilution provisions. However, the
anti-dilution provisions will not provide for
any adjustments relating to shares that we
issue upon the exercise of warrants covered
by the warrant agreement or upon conversion,
if any, of the senior preferred stock or the
junior preferred stock.
For additional information concerning the warrants, see "Description
of the Securities -- The Warrants" beginning at page 94 of this prospectus.
CLASS A COMMON STOCK
The shares of class A common stock covered by this prospectus are sometimes
referred to in this prospectus as the "common stock."
Par Value: $0.01 per share.
Voting Rights: Subject to the rights of the preferred stock
and the class B common stock to elect
certain directors, holders of shares of
class A common stock are entitled to one
vote per share on any matter submitted to a
vote of stockholders, including the election
of directors to fill vacancies which are not
otherwise designated to be filled by the
holders of the preferred stock or class B
common stock. Cumulative voting is
prohibited. The holders of the class B
common stock will have the right, voting
separately as a class, to elect one of our
directors during periods in which the
holders of the senior preferred stock are
not entitled to elect all five of our
directors.
Rights Regarding
Dividends and
Liquidation: Shares of class A common stock are not
redeemable, do not have any conversion
rights and are not subject to any obligation
of ours to repurchase the class A common
stock. As a holder of class A common stock,
you have no preemptive rights to maintain
your percentage ownership of us in future
offerings or sales of stock by us. We do not
pay a dividend on the common stock and may
not do so as long as the preferred stock is
outstanding. Upon liquidation, dissolution
or winding-up of our affairs, you will be
entitled to participate equally and ratably,
in proportion to the number of shares you
hold, in our net assets available for
distribution to holders of class A common
stock. The shares of class A common stock
currently outstanding are validly issued,
fully paid and nonassessable.
14
<PAGE> 17
CLASS B COMMON STOCK
The shares of class B common stock offered by this prospectus will
automatically convert, on a share for share basis, into shares of class A
common stock upon their transfer to any person other than John R. Stanley, his
affiliates and members of his family or upon the termination, for certain
reasons, of John R. Stanley as our chief executive officer and as one of our
directors.
Par Value: $0.01 per share.
Voting Rights: Subject to the rights of the preferred stock
to elect certain directors, the holders of
class B common stock will have the right,
voting separately as a class, to elect one
director of the Company and to one vote per
share on any other matter submitted to a
vote of stockholders, including the election
of directors to fill vacancies which are not
otherwise designated to be filled by the
holders of the preferred stock. Cumulative
voting is prohibited.
Rights Regarding
Dividends and
Liquidation: Shares of class B common stock are not
redeemable, do not have any conversion
rights (other than the automatic conversion
into class A common stock in the instances
described above) and are not subject to any
obligation of the Company to repurchase the
class B common stock. As a holder of class B
common stock, you have no preemptive rights
to maintain your percentage ownership of us
in future offerings or sales of stock by us.
We do not pay a dividend on the class B
common stock and may not do so as long as
the preferred stock is outstanding. Upon
liquidation, dissolution or winding-up of
our affairs, you will be entitled to
participate equally and ratably, in
proportion to the number of shares you hold,
in our net assets available for distribution
to holders of class B common stock. The
shares of class B common stock currently
outstanding are validly issued, fully paid
and nonassessable.
15
<PAGE> 18
SUMMARY BALANCE SHEET DATA
The following table presents our summary balance sheet data as of
July 31, 2000. The summary balance sheet data should be read in conjunction
with our historical financial statements included herein.
<TABLE>
<CAPTION>
JULY 31, 2000
----------------
(IN THOUSANDS OF
DOLLARS)
<S> <C>
Working capital............... $ 3,362
Net property and equipment.... $335,718
Total assets.................. $388,136
Total debt.................... $313,824
Stockholders' deficit......... $ 13,436
</TABLE>
16
<PAGE> 19
RATIO OF EARNINGS TO FIXED CHARGES
The following table presents historical information regarding our
ability (or inability) to pay (i) principal of and interest on our indebtedness
and (ii) dividends on our preferred stock as of and for the periods presented.
We adopted fresh-start reporting as of January 31, 2000; therefore, we
do not believe that the consolidated balance sheet data as of January 31, 2000
is comparable to that of previous years in certain material respects. The data
for the years ended January 31, 2000, 1999, 1998 and 1997, the six months ended
January 31, 1996 and the year ended July 31, 1995 are derived from our audited
consolidated financial statements. The data for the six months ended July 31,
2000 is derived from our unaudited consolidated financial statements. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX SIX
MONTHS MONTHS YEAR
ENDED YEAR ENDED JANUARY 31, ENDED ENDED
----------------------------------------------------
JULY 31, JANUARY 31, JULY 31,
2000 2000 1999 1998 1997 1996 1995
--------- --------- ---------- --------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings.......... $ 20,963 $ 42,397 $(404,671) $ 543,500 $ 193,509 $ 42,519 $ 54,731
Fixed charges..... $ 25,305 $ 42,291 $ 90,498 $ 98,289 $ 113,581 $ 51,088 $ 69,921
Ratio of
earnings to
fixed charges..... -- 1.0 -- 5.5 1.7 -- --
Earnings
inadequate
to cover fixed
charges........... $ 4,342 -- $ 495,169 -- -- $ 8,569 $ 15,190
</TABLE>
In calculating the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges minus capitalized
interest. Fixed charges consist of interest incurred on debt, the interest
factor deemed to be included in rental expense and certain amortization. See
Exhibit 12.1 for further details concerning the calculation of the ratios of
earnings to fixed charges.
17
<PAGE> 20
PRO FORMA RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
YEAR ENDED JANUARY 31, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<S> <C>
Earnings................................... $ (8,114)
Combined fixed charges and preferred
stock dividend requirements............. $ 102,270
Ratio of earnings to combined fixed
charges and preferred stock dividend
requirements............................ --
Earnings inadequate to cover combined
fixed charges and preferred stock
dividend requirements................... $ 110,384
</TABLE>
The pro forma ratio of earnings to combined fixed charges and
preferred stock dividends was computed by dividing pro forma earnings (income
before income taxes plus pro forma fixed charges minus capitalized interest) by
pro forma fixed charges combined with the assumed preferred stock dividends for
the period indicated. Pro forma fixed charges include interest incurred on
debt, the interest factor deemed to be included in rental expense and certain
amortization. Preferred stock dividends assume that the shares of senior
preferred stock and junior preferred stock issued on the effective date of our
bankruptcy plan were outstanding during the period. See Exhibit 12.2 for
further details concerning the calculation of the pro forma ratio of earnings
to combined fixed charges and preferred stock dividends.
18
<PAGE> 21
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
SIX MONTHS ENDED JULY 31, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<S> <C>
Earnings................................... $20,963
Combined fixed charges and preferred
stock dividend requirements............. $48,568
Ratio of earnings to combined fixed
charges and preferred stock dividend
requirements............................ --
Earnings inadequate to cover combined
fixed charges and preferred stock
dividend requirements................... $27,605
</TABLE>
In calculating the ratio of earnings to combined fixed charges and preferred
stock dividends, earnings consist of income before taxes plus fixed charges
minus capitalized interest. Combined fixed charges and preferred stock
dividends consist of interest incurred on debt, the interest factor deemed to
be included in rental expense and certain amortization (fixed charges) plus
preferred stock dividends for the period indicated. See Exhibit 12.3 for
further details concerning the calculation of the ratio of earnings to combined
fixed charges and preferred stock dividends.
19
<PAGE> 22
RISK FACTORS
Your investment in the Securities involves a high degree of risk. You
should carefully consider the risk factors described below, together with the
other information included in this prospectus, before you decide to buy any
Securities described in this prospectus.
Risks Related to the Offering
WE CANNOT ASSURE YOU THAT AN ACTIVE MARKET WILL DEVELOP FOR THE NOTES, THE
PREFERRED STOCK, THE WARRANTS OR THE COMMON STOCK.
There is no existing trading market for the notes, the senior
preferred stock, the junior preferred stock or the warrants and we cannot
assure you that an active market will develop for any of these securities, or,
if a market develops, that such market will be liquid. We do not expect that
any of these securities will be listed on any national securities exchange.
Accordingly, we cannot assure you that a holder of any of these securities will
be able to sell them in the future or as to the price that may be offered if a
sale is possible. The liquidity of the market for these securities and the
prices at which they trade will depend upon the amount outstanding, the number
of holders thereof, the interest of securities dealers in maintaining a market
in these securities and other factors beyond our control.
The liquidity of, and trading market for, the notes also may be
adversely affected by general declines in the market for high yield securities.
Such declines may adversely affect the liquidity and trading markets for the
notes.
Our common stock is quoted on the NASD Over the Counter Bulletin Board
under the symbol "TTXG." While there are currently several market makers in the
common stock, none of these market makers is obligated to continue to make a
market in the common stock. The liquidity of the common stock could be adversely
impacted if these market makers ceased making a market in the common stock, and
a holder of the common stock could have difficulty obtaining accurate stock
quotes. A significant portion of our common stock is held by a small number of
stockholders. As a result, our common stock is not actively traded, and a
stockholder may not be able to sell his or her stock when he or she wants to
sell. On many days our common stock is not traded at all. In addition, the
trading price of our common stock has been, and can be, volatile. Sale of the
outstanding shares of common stock offered hereby, which represent approximately
95% of our currently outstanding shares of common stock, may depress the market
price of our common stock.
CONVERSION OF THE PREFERRED STOCK INTO COMMON STOCK COULD MATERIALLY ADVERSELY
AFFECT THE VALUE OF THE PREFERRED STOCK, THE COMMON STOCK AND THE WARRANTS.
The certificates of designation governing the senior preferred stock,
as amended, and the junior preferred stock, as amended, provide that if either
(i) more than 75 million shares of the senior preferred stock are outstanding
after March 15, 2006 or (ii) two dividend payments have not been paid on the
senior preferred stock, the following conversions will automatically take
place:
o one-half of the outstanding shares of the senior preferred
stock will convert into shares of common stock at a rate of
0.3461 shares of common stock for each $1.00 of liquidation
preference of the shares of senior preferred stock converted;
and
o all of the outstanding shares of the junior preferred stock
will convert into shares of common stock at the rate of
0.1168 shares of class A common stock for each $1.00 of
liquidation preference of the shares of junior preferred
stock converted.
For a more detailed description of these conversions, see "Description of the
Securities -- The Senior Preferred Stock" and "Description of the Securities -
the Junior Preferred Stock."
If these conversions occur, the number of shares of common stock
outstanding would be increased dramatically, which might have a material
adverse effect on the market price of the common stock. Based on the currently
outstanding shares of preferred stock, we would issue between approximately 43
million and approximately 62 million additional shares of common stock as a
result of these conversions, and the currently outstanding shares of common
stock would then represent only approximately 2% of the total common stock
outstanding (including the outstanding shares of class B common stock). If
these conversions occur, the holders of preferred stock would, to the extent
indicated, receive common stock for their preferred stock and would no longer
20
<PAGE> 23
be entitled to the benefits provided by the preferred stock, including, among
other things, the right to receive dividends, the right to have their stock
redeemed and preferential distribution rights upon our liquidation. The value,
if any, of the common stock received upon conversion of the preferred stock may
be substantially less than the value of the preferred stock converted.
The Warrant Agreement's anti-dilution provisions do not provide any
protective adjustment for the issuance of additional shares of common stock
upon the conversion of the senior preferred stock or the junior preferred
stock.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD MAKE IT
DIFFICULT FOR A THIRD PARTY TO GAIN CONTROL OF US AND, IN CERTAIN CASES,
ADVERSELY AFFECT THE VALUE OF OUR COMMON STOCK.
Our certificate of incorporation and bylaws include provisions that
may discourage or prevent a third party from taking control of our board of
directors. These provisions include, among others, the following:
o we have a staggered board of directors (i.e., we have
different classes of directors whose terms of directorship
terminate at different times) so that not all of the
directors can be replaced at the same time;
o no action required or permitted to be taken by our
stockholders may be taken by written consent without a
meeting, unless the unanimous consent of our stockholders is
obtained;
o significant corporate transactions with related persons
(generally, owners of more than 10% of our voting power, with
certain exceptions, and our affiliates), such as any large
transfer of property to or from us, our dissolution or
liquidation, or our merger or consolidation with or into
another entity, require approval of both (i) 66-2/3% of our
voting stock and (ii) a majority of our voting stock owned by
persons who are not related persons; and
o prior to February 15, 2001, we may not consolidate or merge
with or into, or transfer substantially all of our assets to,
another entity, without the unanimous approval of our board
of directors (other than in the event that we have filed for
bankruptcy protection).
These anti-takeover provisions could delay or prevent a takeover
attempt that a majority of our stockholders might consider to be in their best
interests.
In addition, our board of directors is authorized to issue, without
obtaining stockholder approval (other than the majority approval of the holders
of senior preferred stock of the issuance of preferred stock senior in right of
dividends or liquidation preference to the senior preferred stock, and the
majority approval of the holders of junior preferred stock of the issuance of
preferred stock senior in right of dividends or liquidation preference to the
junior preferred stock) up to an additional 133,862,469 shares of preferred
stock and to determine the price, rights, preferences and privileges of those
shares without further stockholder action (other than approval of any rights or
preferences senior to the senior preferred stock or junior to the junior
preferred stock).
The existence of this "blank check" preferred stock could discourage or
make more difficult an attempt to obtain control of us by means of a tender
offer, merger, proxy contest or otherwise. Also, depending upon the dividend
and liquidation preference rights accorded such additional preferred stock, the
dividend and liquidation preference rights of our common stock could be
adversely affected.
In the future, we may adopt other measures that may have the effect of
delaying, deferring or preventing an unsolicited takeover, even if such a
change in control were at a premium price or otherwise favored by a majority of
our stockholders. Certain of these measures may be adopted without any further
vote or action by our common stockholders.
21
<PAGE> 24
OUR LEVEL OF DEBT COULD PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE
NOTES AND THE PREFERRED STOCK.
As of July 31, 2000 we had approximately $314 million of debt (including
approximately $114 million of debt in addition to the notes). See the section
of the prospectus entitled "Capitalization." Our level of debt may have
important consequences to our security holders. For example, it could
o limit our ability to make interest and principal payments on the notes
and dividend and redemption payments on the preferred stock;
o limit our ability to make the capital expenditures necessary to
replenish or increase our production and maintain our cash flow from
operations;
o place us at a competitive disadvantage compared to other companies in
the gas exploration and production business;
o limit our ability to obtain additional financing for capital
expenditures, working capital or other purposes;
o require us to dedicate a substantial portion of our cash flow to pay
interest expense and debt amortization, and dividend and redemption
payments, which will reduce the funds that would otherwise be
available to us for our operations; and
o increase our vulnerability to general adverse economic and industry
conditions, including increases in interest rates.
Our ability to pay interest on the notes, to satisfy our other debt
obligations, and to pay cash dividends on, or redeem, the preferred stock, will
depend in part on our ability to significantly increase our production and cash
flow from operations. Although we may have available sources of liquidity other
than cash flow from operations, including asset sales, equity offerings or debt
financings, we can give no assurance that such sources will be available to us
if and when needed, or on terms acceptable to us if at all.
22
<PAGE> 25
WE MAY NOT BE ABLE TO PAY CASH TO THE HOLDERS OF THE PREFERRED STOCK
Dividends on the senior preferred stock are payable in cash after
March 15, 2002. Dividends on the junior preferred stock are payable partially
in cash after March 15, 2006. Under the indenture governing the notes and under
the agreements governing our oil and gas facility and our accounts receivable
facility, we are permitted to pay scheduled cash dividends on our preferred
stock. We cannot assure you that any of our future financing arrangements will
permit us to make cash distributions on the preferred stock. In addition, we
have substantial outstanding indebtedness, which will require substantial debt
service payments in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." These substantial debt service payment requirements may make it
difficult for us to make cash distributions on the preferred stock in the
future even if permitted by the covenants in our debt documents. Any future
refinancings of our indebtedness likely will contain similar covenants. For the
same reasons, we cannot assure you that any preferred stock will ever be
redeemed for cash or that we will pay any cash dividends thereon.
WE DO NOT EXPECT TO BE ABLE TO PAY CASH DIVIDENDS ON OUR COMMON STOCK.
The terms of the notes, our oil and gas credit facility, our accounts
receivable facility and the preferred stock prohibit the payment of cash
dividends on our common stock. Because of these prohibitions and restrictions,
we do not anticipate paying any cash dividends on our common stock in the
foreseeable future.
WE MAY NOT BE ABLE TO RAISE THE FUNDS NECESSARY TO PURCHASE NOTES IF A CHANGE
OF CONTROL OFFER IS REQUIRED.
Upon the occurrence of a change of control of us, we will be required
to make an offer to purchase the notes for cash at a price equal to 101% of
their principal amount, plus accrued and unpaid interest, to the date of
purchase. A change of control also may result in an event of default under our
oil and gas credit facility and our accounts receivable facility and other debt
that we may incur in the future. This could result in an acceleration of the
payment of that debt. We can give no assurance that we would have sufficient
resources to repurchase the notes or pay our other debt obligations if any of
our debt were accelerated upon the occurrence of a change of control. If we
were not able to satisfy our obligations upon a change of control, the value of
our preferred stock and our common stock could be materially adversely
affected.
THE COLLATERAL SECURING OUR NOTES IS SUBJECT TO CERTAIN SUPERIOR LIENS AND MAY
NOT BE SUFFICIENT TO SATISFY OUR NOTE OBLIGATIONS IN THE EVENT OF A
FORECLOSURE.
We granted a security interest in substantially all of our assets,
other than accounts receivable and inventory, to the indenture trustee to
secure repayment of the notes. The Trustee's lien on our assets is subordinated
to the lien of the agent under our oil and gas credit facility and, with
respect to certain of our assets, liens of mechanics and materialmen, and the
provisions of the indenture permit us to suffer certain other liens against our
assets that are or will be superior to the lien of the Trustee. Under certain
circumstances, the shares of our subsidiaries, Galveston Bay Processing
Corporation and Galveston Bay Pipeline Company, may be released from this
security interest. See "Description of the Securities -- The Notes --
Collateral and Security; Subordination of the Trustee's Liens on Collateral."
Also, under certain circumstances, the indenture permits us to sell certain of
the collateral without using the resulting proceeds to repay our obligations
under the notes. See "Description of the Securities -- The Notes -- Collateral
and Security; Subordination of the Trustee's Liens on Collateral."
In the event that we fail to make payments on the notes, we cannot
assure you that the Trustee will be able to sell any of the collateral pledged
to secure the notes without substantial delays and other risks or that the
proceeds obtained from the collateral and any other assets that may be
available will be sufficient to pay all amounts owed to holders of the notes.
Further, to the extent that we have liabilities under applicable environmental
laws, if the indenture Trustee forecloses on the collateral, it could incur
liability in certain circumstances for our environmental liabilities.
23
<PAGE> 26
THE GUARANTIES OF OUR SUBSIDIARIES MAY NOT BE ENFORCEABLE IN BANKRUPTCY.
Our obligations under the indenture and the notes are guaranteed by
our wholly owned subsidiaries Galveston Bay Processing Corporation and
Galveston Bay Pipeline Company. Various fraudulent conveyance laws have been
enacted for the protection of creditors and may be used by courts to
subordinate or void guaranties such as these. It is also possible that under
certain circumstances a court could hold that the obligations of our guarantors
to their own direct creditors are superior to any obligations of the guarantors
to the holders of the notes.
If a court determines that either of our guarantors, at the time it
entered its guaranty, either:
(1) intended to hinder, delay or defraud any of its present or
future creditors or that it contemplated insolvency with a
design to favor one or more of its creditors to the exclusion
in whole or in part of others, or
(2) did not receive fair consideration or reasonably equivalent
value for the guaranty and, either:
o was insolvent or rendered insolvent by reason of the
guaranty,
o was engaged or about to engage in a business or transaction
for which its remaining assets constituted unreasonably small
capital, or
o intended to incur, or believed that it would incur, debts
beyond its ability to pay as they matured, the court could
void or subordinate the subject guaranty in favor of the
guarantor's other creditors. Among other things, a legal
challenge of one or both of the guaranties on grounds of
fraudulent conveyance may focus on the benefits, if any,
realized by the guarantor as a result of our issuance of the
notes. A court might find that the guarantor did not benefit
from our incurrence of the indebtedness represented by the
notes.
To the extent that a guaranty is voided as a fraudulent conveyance or
found unenforceable for any other reason, the claims of the holders of the
notes against the applicable guarantor would be subject to the prior payment of
all direct liabilities of such guarantor. We cannot assure you that, after
providing for all claims of a guarantor, there would be sufficient assets
remaining to satisfy your claims as a holder of the notes relating to any
voided portion of such guaranty.
UNDER CERTAIN CIRCUMSTANCES A BANKRUPTCY COURT COULD ORDER THE HOLDERS OF THE
NOTES TO REPAY ANY INTEREST PAYMENTS RECEIVED ON THE NOTES OR ANY PROCEEDS OF
COLLATERAL SECURING THE NOTES.
The Bankruptcy Code allows the bankruptcy trustee (or us, acting as
debtor-in-possession) to avoid certain transfers of a debtor's property as a
"preference." Under the Bankruptcy Code a preference is:
o a transfer of the debtor's property,
o to or for the benefit of a creditor on account of an existing
debt,
o made while the debtor was insolvent (presumed in the 90 days
before any bankruptcy filing),
o if the creditor receives more than it would have received in
a bankruptcy liquidation if the transfer had not been made,
and
24
<PAGE> 27
o if the transfer/payment was made in the 90 days before the
bankruptcy filing, or, if the creditor was an "insider"
within one year before the bankruptcy filing (a creditor that
is also a director, officer or controlling stockholder of a
debtor may be deemed to be an insider).
Our payment of principal and/or accrued interest, or our grant of a
lien or security interest, including payments made or liens or security
interests granted pursuant to the issuance of the notes, may be deemed to be a
preference if all of the factors discussed above are present. If such transfers
were deemed to be preferential transfers, the payments could be recovered from
the holders of the notes and the lien or security interest in favor of the
Trustee for the benefit of such holders could be avoided.
If the notes are fully secured (i.e., the value of collateral exceeds
the amount it secures), payments on the notes would not constitute preferential
transfers. However, if, or to the extent, the notes are undersecured (i.e., the
value of the collateral is less than the amount which it secures), payments
would be deemed to have been applied, first, to the unsecured portion of the
notes and, second, to the secured portion of the notes, and the payments
attributable to the unsecured portion could be considered preferential
transfers. Therefore, if we are involved in a bankruptcy proceeding, holders of
the notes may be required to disgorge payments made on the notes to the extent
the notes are undersecured.
Risks Related to Our Business
WE MAY NOT BE ABLE TO OBTAIN FUNDS WE NEED FOR CAPITAL EXPENDITURES, DEBT
SERVICE, CASH DIVIDENDS AND REDEMPTION PAYMENTS.
In order to maintain or increase our proved oil and gas reserves, we
are required to make substantial capital expenditures for the exploration and
development of natural gas and oil reserves in the normal course of business.
For the fiscal year ended January 31, 2000, we incurred total capital
expenditures of $54 million. We anticipate that our capital expenditures for
fiscal 2001 will be $91 million, which amount is in excess of the cash flow we
expect to generate from our operating activities.
We plan to fund our 2001 debt service requirements and planned capital
expenditures with cash flows from our existing producing properties and certain
identified relatively low risk exploratory prospects that we plan to drill and
complete during fiscal 2001. The reserves that we expect from these prospects
will be used to obtain additional production payment financing which, together
with excess cash flow from these prospects and other operations, will be used
to pay interest on our indebtedness as that interest becomes due as well as to
pay for our capital expenditures. Should these prospects not be productive or
should prices decline for a prolonged period, absent other sources of capital,
we would be forced to substantially reduce our capital expenditures, which
would limit our ability to maintain or increase production and in turn
adversely affect our ability to pay interest or principal on our indebtedness
or cash payments on our preferred stock as these obligations become due.
Because asset sales and financings are restricted under the terms of the
indenture, our oil and gas credit facility, our accounts receivable facility
and the preferred stock, our access to alternate sources of capital is limited.
If our revenues decrease, certain of our contingent obligations become
fixed, or the level of our capital expenditures is limited by the Indenture,
the oil and gas credit facility, the accounts receivable facility, the
certificates of designation for the senior preferred stock or the junior
preferred stock, or any other agreement, we may not have sufficient funds for,
or may be restricted in maintaining the level of, capital expenditures
necessary to replace our reserves or to maintain production at current levels
and, as a result, production may decrease over time. We cannot assure you that
our cash flow from operating activities will be sufficient to meet planned
capital expenditures, contingent liabilities and debt service and cash dividend
and redemption requirements in the future.
OUR DEBT AGREEMENTS AND PREFERRED STOCK IMPOSE SUBSTANTIAL RESTRICTIONS ON US.
The indenture governing the notes limits our ability to:
o incur additional indebtedness,
25
<PAGE> 28
o transfer or sell assets,
o transfer assets to subsidiaries or create new subsidiaries,
o pay dividends or make other restricted payments,
o create liens,
o enter into certain transactions with affiliates, or
o consummate a merger, consolidation or sale of all or
substantially all of our assets.
Similar restrictions are contained in certain of our other debt
documents and in the certificates of designation governing the senior preferred
stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation." We cannot give any assurance that these limitations will
not adversely affect our results of operations or financial condition.
NATURAL GAS PRICE FLUCTUATIONS AND MARKETS MAY ADVERSELY AFFECT OUR OPERATING
RESULTS.
Our profitability and the value of our gas properties are highly
dependent upon the prices we receive for natural gas, condensate and oil.
Substantially all of our sales of natural gas, condensate and oil are made
pursuant to long-term contracts at market prices. Accordingly, the prices we
receive for our natural gas production are dependent upon numerous factors
beyond our control, including the level of consumer demand, the North American
supply of natural gas, government regulations and taxes, the price and
availability of alternative fuels, the level of foreign imports of oil and
natural gas and the overall economic environment.
WE POTENTIALLY HAVE SUBSTANTIAL FEDERAL TAX LIABILITY.
We may have substantial liability for federal income taxes as a result
of the sale of our subsidiary, TransTexas Transmission Corporation, in fiscal
1998. We did not report any significant tax liability as a result of this sale
and, although we received a legal opinion supporting our position, there are
significant uncertainties regarding this matter. The Internal Revenue Service
(the "IRS") may claim that we and certain of our then affiliated companies are
liable for taxes in the estimated amount of up to $270 million plus penalties
and interest, and its claim could be successful. The potential tax might be
reduced to approximately $10 million if we and our affiliated companies used
available tax attributes (primarily the carryback of net operating loss
carryovers).
We may have additional liability for federal income taxes related to
the cancellation of debt of our former parent, TransAmerican Natural Gas
Corporation ("TransAmerican"), in 1993. TransAmerican claimed it had no tax
liability as a result of this transaction. If the IRS successfully challenged
TransAmerican's position, we would be liable (pursuant to an agreement between
TransAmerican and us) for the taxes resulting from this transaction, which are
estimated at approximately $25.4 million.
We may also have liability for federal income taxes resulting from audits
by the IRS of the tax returns filed by our affiliated group of companies
relating to maters other than those described above. The IRS is currently
auditing our group's tax returns for our fiscal years ended in 1994 and 1995.
Each member of our group, including us, will be severally liable for any tax
liability of the group.
26
<PAGE> 29
Risks Related to Our Industry
OUR OPERATIONS ARE SUBJECT TO NUMEROUS RISKS OF DRILLING AND PRODUCTION
ACTIVITIES.
Natural gas and crude oil drilling and production activities are
subject to numerous risks, many of which are beyond our control. These risks
include the following:
o that no commercially productive natural gas or crude oil
reservoirs will be found;
o that drilling and production activities may be shortened,
delayed or canceled; and
o that our ability to develop, produce and market our reserves
may be limited by:
- mechanical difficulties or shortages or delays in
the delivery of drilling rigs, work boats and other
equipment,
- title problems,
- weather conditions, and
- compliance with governmental requirements.
CERTAIN HAZARDS AND RISKS OF OUR OPERATIONS COULD RESULT IN LIABILITIES THAT
ARE EITHER UNINSURED OR IN EXCESS OF OUR INSURANCE COVERAGE.
Our operations are subject to hazards and risks inherent in drilling
for, and the production, processing and transportation of, natural gas, such as
fires, explosions, encountering formations with abnormal pressures, blowouts,
cratering, pipeline ruptures and spills, any of which can result in loss of
hydrocarbons, environmental pollution, personal injury claims and other damage
to our properties and the property of others. Although we maintain insurance
coverage that we believe is typical for similar companies, losses can occur for
uninsurable or uninsured risks or in amounts in excess of existing insurance
coverage.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY WHICH MAY ADVERSELY AFFECT OUR
OPERATIONS.
We operate in a highly competitive environment. Competition is
particularly intense with respect to the acquisition of desirable undeveloped
natural gas properties. The principal competitive factors in the acquisition of
such undeveloped natural gas properties include the staff and data necessary to
identify, investigate and purchase such properties, and the financial resources
necessary to acquire and develop such properties. We compete with major and
independent natural gas and crude oil companies for properties and the
equipment and labor required to develop and operate such properties. Many of
these competitors have financial and other resources substantially greater than
ours.
The principal resources necessary for the exploration and production
of natural gas are leasehold prospects under which natural gas reserves may be
discovered, drilling rigs and related equipment to explore for such reserves
and knowledgeable personnel to conduct all phases of natural gas operations. We
must compete for such resources with both major natural gas and crude oil
companies and independent operators. Although we believe our current operating
and financial resources are adequate to preclude any significant disruption of
our operations in the immediate future, we cannot assure you that such
materials and resources will be available to us.
ESTIMATES OF OUR PROVED RESERVES AND FUTURE NET REVENUE ARE UNCERTAIN AND
INHERENTLY IMPRECISE.
The reserve data set forth in this prospectus are only estimates, even
when referred to as "proved." Petroleum engineers consider many factors and
make assumptions in estimating our gas and oil reserves and future net cash
27
<PAGE> 30
flows. These estimates utilize assumptions the Securities and Exchange
Commission requires for all public companies, including us. Estimates by
definition are imprecise. Reservoir engineering is a subjective process of
estimating underground accumulations of oil and gas that cannot be measured
exactly and of making assumptions based on the process. Inherent uncertainties
exist in the projection of future rates of production and the timing of
development expenditures. The timing of production may be considerably
different from the periods estimated. Assumptions are based on factors such as
historical production from the area as compared with production from other
areas, assumed effects of governmental regulation and assumptions regarding
future gas and oil prices, costs, taxes and capital expenditures. Although we
believe that our reserve estimates are reasonable, you should expect that
actual production, revenues and expenditures relating to our reserves will vary
from any estimates, and these variations may be material.
We base the estimates of future net revenues from our proved reserves
and the present value of those revenues upon assumptions about future
production levels. These assumptions may be wrong. The SEC PV-10 values used in
our estimates are based on a calculated present value of assumed future
revenues. Those calculations do not provide for changes in natural gas prices
or for escalation of expenses and capital costs. "SEC PV-10" refers to present
value calculated using a 10% discount rate and other conditions required by the
Securities and Exchange Commission. The meaningfulness of such estimates is
highly dependent upon the accuracy of the assumptions and discount rate upon
which they are based.
ENVIRONMENTAL MATTERS MAY REQUIRE US TO MAKE SIGNIFICANT CAPITAL EXPENDITURES
OR RESULT IN LIABILITIES THAT ADVERSELY AFFECT OUR FINANCIAL POSITION.
We are subject to numerous federal, state and local laws, regulations
and ordinances relating to adverse environmental effects that might result from
our activities in natural gas exploration, development, production and
transportation ("environmental laws"). Although we believe that we are in
substantial compliance with applicable environmental laws, we cannot assure you
that we will not have to make capital expenditures to remain in compliance.
Certain environmental laws could impose significant liability on us
for damages, clean-up costs and penalties if we spill natural gas liquids or
other pollutants in the course of our operations, regardless of any negligence
or fault on our part. We cannot assure you that we will not incur liabilities
of this kind or other liabilities for violations of environmental laws, or that
such liabilities will not have a substantial adverse effect on our financial
position.
WE DEPEND ON THE SKILLS OF KEY PERSONNEL.
We depend on the continued service of our key personnel. Our key
personnel are critical to our success, and many of them would be difficult to
replace. Many of them are not bound by employment agreements, and competitors
in our industry may attempt to recruit them. We currently have agreements to
retain the services of certain members of our management team. These agreements
do not, however, as a practical matters, guarantee our retention of these
persons.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the
securities. We will, however, receive the exercise price of the warrants upon
any exercise of the warrants. The proceeds from the exercise of the warrants
will be used for general corporate purposes.
28
<PAGE> 31
CAPITALIZATION
The following table sets forth our capitalization as of July 31, 2000
and January 31, 2000 as adjusted to reflect the issuance of the securities
under our bankruptcy plan. You should read this table along with "Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Company" and our consolidated financial statements and the related notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JULY 31, 2000 JANUARY 31, 2000
-------------- ------------------------
SUCCESSOR PRO FORMA
--------------------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents ................... $ 7,771 $ 18,288 $ 16,364
========= ========= =========
Long-term debt .............................. $ 282,940 $ 251,570 $ 276,274
Production payments ......................... 30,884 35,107 39,607
Stockholders' deficit:
Common stock, par value $.01 per share .... 12 740 12
Additional paid-in capital ................ (12) (740) (12)
Accumulated deficit ....................... (13,436) -- (1,348)
--------- --------- ---------
Total stockholders' deficit ............... (13,436) -- (1,348)
--------- --------- ---------
Total capitalization .................... $ 300,388 $ 286,677 $ 314,533
========= ========= =========
</TABLE>
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<PAGE> 32
PRICE RANGE OF COMMON STOCK
Since April 20, 2000, prices for our class A common stock have been
quoted on the NASD Over The Counter Bulletin Board, or OTCBB, under the symbol
"TTXG." Prior to the effective date of our bankruptcy plan (from May 4, 1999
through March 21, 2000), prices for our old common stock were quoted on the
OTCBB under the symbol "TTGGQ." Our old common stock traded on the New York
Stock Exchange under the symbol "TTG" from October 30, 1997 until trading was
suspended on April 19, 1999 due to our bankruptcy filing. As of August 30, 2000,
there were 115 record holders of the class A common stock. The following table
sets forth, on a per-share basis for the periods indicated, the high and low bid
prices for our class A common stock or our old common stock, as applicable, as
reported by the OTCBB (for periods beginning May 4, 1999) and the high and low
sales prices for our old common stock on the New York Stock Exchange (for the
period from February 1, 1998 through April 19, 1999). Over the counter
quotations reflect inter-dealer prices without retail mark-up, mark-down or
commission and may not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
----------- ----------
<S> <C> <C>
Fiscal year ended January 31, 2001:
Third Quarter (through September 19, 2000) $ 10.50 $ 5.75
Second Quarter(1) .......................... $ 7.25 $ 5.875
First Quarter -- class A common stock(2).. $ NA NA
-- old common stock .......... 0.875 0.312
Fiscal year ended January 31, 2000:
Fourth Quarter ............................. $ 1.500 $ 0.130
Third Quarter .............................. 0.625 0.188
Second Quarter(3) .......................... 0.563 0.250
First Quarter(3) ........................... 1.688 0.375
Fiscal year ended January 31, 1999:
Fourth Quarter ............................. $ 4.688 $ 1.938
Third Quarter .............................. 6.938 1.000
Second Quarter ............................. 12.625 7.000
First Quarter .............................. 17.125 11.875
</TABLE>
----------
(1) High and low bid prices are available for the month of July 2000, but
are unavailable for the months of April and May 2000. Reported high and
low sale prices for the second quarter (including May, June, and July 2000)
were $8.00 and $4.00, respectively.
(2) High and low bid prices are not available for the first quarter. Reported
high and low sale prices for the first quarter were $4.00 and $1.50,
respectively.
(3) Price information is not available from April 20, 1999 through May 12, 1999.
The last sale price of the class A common stock on September 22, 2000 was
$15.50.
We are authorized to issue 100,000,000 shares of class A common stock,
par value $0.01 per share, and 247,500 shares of class B common stock, par value
$0.01 per share. As of the date of this prospectus, 1,002,751 shares of class A
common stock and 247,500 shares of class B common stock were issued and
outstanding. We have reserved 62,013,125 shares of class A common stock for
issuance upon exercise of the warrants and conversion of the senior preferred
stock, the junior preferred stock and the class B common stock. For a
description of our securities that are subject to conversion into, or that may
be exercised for issuance of, class A common stock, see the sections of the
prospectus entitled "Description of the Securities -- The Senior Preferred
Stock," "Description of the Securities -- The Junior Preferred Stock,"
"Description of the Securities -- The Class A Common Stock and Class B Common
Stock," and "Description of the Securities -- The Warrants." For information
regarding outstanding warrants to purchase our class A common stock, see the
sections entitled "Prospectus Summary -- Reorganization of the Company Pursuant
to Our Bankruptcy Filing" and "Description of the Securities -- The Warrants"
beginning on page 6 and page 96 of this prospectus, respectively. For
information regarding our obligations to register our class A common stock, see
the section entitled "Description of the Securities -- Registration Rights
Relating to Certain Securities" beginning on page 98 of this prospectus. For a
discussion of certain events that could have an adverse effect upon the value of
the class A common stock, see the section of the prospectus entitled "Risk
Factors -- Risks Related to the Offering -- Conversion of the Preferred Stock
Into Common Stock Could Materially Adversely Affect the Value of the Preferred
Stock, the Common Stock and the Warrants."
DIVIDEND POLICY
We have not paid any cash dividends on our common stock since
inception, except a dividend of approximately $33 million to our then parent
TransAmerican Natural Gas Corporation from the proceeds of our initial public
offering in March 1994. The terms of the notes, our oil and gas credit
facility, our accounts receivable facility and the preferred stock prohibit the
payment of dividends. Because of these prohibitions, we do not anticipate
paying any dividends on our common stock in the foreseeable future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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<PAGE> 33
SELECTED FINANCIAL DATA
The following table sets forth our selected historical financial data
as of and for each of the periods presented. From April 19, 1999 through March
17, 2000, we operated under Chapter 11 of the United States Bankruptcy Code. We
adopted fresh-start reporting as of January 31, 2000; therefore, we do not
believe that the consolidated balance sheet data as of January 31, 2000 is
comparable to that of previous years in certain material respects. The data for
the years ended January 31, 2000, 1999, 1998 and 1997, the six months ended
January 31, 1996 and the year ended July 31, 1995 are derived from our audited
consolidated financial statements. The data for the six months ended July
31, 2000 and 1999 and the six months ended January 31, 1995 is derived from our
unaudited consolidated financial statements. The following data should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------- ---------------------------------------------------------------------------
SIX MONTHS ENDED
JULY 31, YEAR ENDED JANUARY 31,
------------------------ -----------------------------------------------------------
2000 1999 2000 1999 1998 1997
| (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> | <C> <C> <C> <C> <C>
STATEMENT OF |
OPERATIONS DATA: |
Gas, condensate and |
NGLs revenue .................. $ 80,674 | $ 46,489 $ 111,400 $ 91,319 $ 164,538 $ 363,459
Transportation revenues ......... -- | -- -- -- 12,055 34,423
Gain (loss) on the |
sale of assets ................ -- | (531) (438) 61,247 543,365 7,865
Other revenues .................. 1,192 | 1,680 2,770 4,200 3,313 600
--------- | --------- --------- --------- --------- ---------
81,866 | 47,638 113,732 156,766 723,271 406,347
Operating costs |
and expenses .................. 11,806 | 15,652 28,437 29,482 62,356 137,019
Depreciation, depletion |
and amortization .............. 39,928 | 37,513 75,044 86,137 82,659 132,453
General and |
administrative |
expenses ...................... 9,977 | 11,806 19,883 21,938 48,156 45,596
Litigation settlements .......... -- | -- -- -- -- (96,000)
Loss on asset impairment ........ -- | -- -- 425,966 -- --
--------- | --------- --------- --------- --------- ---------
Operating income (loss) ....... 20,155 | (17,333) (9,632) (406,757) 530,100 187,279
Net interest expense(1) ......... 17,563 | 24,583 38,054 78,716 68,187 91,463
Reorganization items ............ -- | 919 (50,511) -- -- --
Income taxes and other .......... 907 | -- 10,000 (38,882) 161,669 12,491
Extraordinary (gain) loss, |
net of taxes .................. -- | -- (436,490) 1,142 72,043 --
--------- | --------- --------- --------- --------- ---------
Net income (loss) ............ $ 1,685 | $ (42,835) $ 429,315 $(447,733) $ 228,201 $ 83,325
========= | ========= ========= ========= ========= =========
Accretion of preferred |
stock ......................... $ 15,121 | $ -- $ -- $ -- $ -- $ --
========= | ========= ========= ========= ========= =========
Net income (loss) available
to common stockholders......... $ (13,436) | $ (42,835) $ 429,315 $(447,733) $ 228,201 $ --
========= | ========= ========= ========= ========= =========
Net income (loss) per share: |
Income (loss) before |
extraordinary item ........... $ (10.75) | $ (0.74) $ (0.13) $ (7.76) $ 4.49 $ 1.13
Extraordinary item ........... -- | -- 7.59 (.02) (1.08) --
--------- | --------- --------- --------- --------- ---------
Net income (loss) ............ $ (10.75) | $ (0.74) $ 7.46 $ (7.78) $ 3.41 $ 1.13
========= | ========= ========= ========= ========= =========
Dividends declared per |
common share (2) .............. -- | -- -- -- -- --
<CAPTION>
PREDECESSOR
---------------------------------------
YEAR
SIX MONTHS ENDED ENDED
JANUARY 31, JULY 31,
------------------------ ---------
1996 1995 1995
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Gas, condensate and
NGLs revenue .................. $ 124,663 $ 143,304 $ 275,627
Transportation revenues ......... 15,892 19,161 36,787
Gain (loss) on the
sale of assets ................ 474 -- --
Other revenues .................. 127 52 285
--------- --------- ---------
141,156 162,517 312,699
Operating costs
and expenses .................. 45,629 50,893 99,310
Depreciation, depletion
and amortization .............. 60,894 70,345 129,964
General and
administrative
expenses ...................... 13,685 12,595 31,935
Litigation settlements .......... (18,300) -- --
Loss on asset impairment ........ -- -- --
--------- --------- ---------
Operating income (loss) ....... 39,248 28,684 51,490
Net interest expense(1) ......... 40,436 29,059 65,797
Reorganization items ............ -- -- --
Income taxes and other .......... (416) (131) (2,415)
Extraordinary loss,
net of taxes .................. -- -- 56,637
--------- --------- ---------
Net income (loss) ............ $ (772) $ (244) $ (68,529)
========= ========= =========
Accretion of preferred
stock ......................... $ -- $ -- $ --
========= ========= =========
Net income (loss) available
to common stockholders......... $ (772) $ (244) $ (68,529)
========= ========= =========
Net income (loss) per share:
Income (loss) before
extraordinary item ........... $ (0.01) $ -- $ (0.16)
Extraordinary item ........... -- -- (0.77)
--------- --------- ---------
Net income (loss) ............ $ (0.01) $ -- $ (0.93)
========= ========= =========
Dividends declared per
common share (2) .............. -- -- --
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------- -------------------------------------------------------------
JULY 31, JANUARY 31,
----------- ----------------------------------------------------------------------------
2000 2000 1999 1998 1997 1996
----------- ---------- | ----------- ----------- ----------- -----------
<S> <C> <C> <C> | <C> <C> <C> <C>
BALANCE SHEET DATA: |
Working capital (deficit)(3) ....... $ 3,362 $ 8,900 | $ 27,072 $ (22,122) $ 71,586 $ 43,602
|
Net property and equipment ......... 335,718 327,087 | 292,143 701,598 846,393 715,340
|
Total assets ....................... 388,136 369,254 | 345,367 816,635 1,053,152 938,827
|
Liabilities subject to |
compromise ......................... -- -- | 718,139 -- -- --
|
Total debt(4) ...................... 313,824 286,677 | 56,260 630,103 941,922 824,241
|
Redeemable preferred stock ......... 15,121 -- | -- -- -- --
|
Stockholders' equity (deficit) ..... (13,436) -- | (430,015) 24,637 (150,795) (154,440)
</TABLE>
(1) Interest expense for the year ended January 31, 2000 excludes $55.5
million in interest stayed as a result of our bankruptcy filing.
(2) Our existing debt instruments contain certain restrictions with
respect to the payment of dividends on our common stock.
(3) Working capital as of January 31, 1997 and 1996 includes $46.0 million
of cash restricted for the payment of interest.
(4) Excludes long-term debt included in liabilities subject to compromise
of $583.1 million as of January 31, 1999.
32
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
condensed consolidated financial statements and notes thereto and our unaudited
pro forma condensed consolidated financial information included in this
prospectus beginning on page F-1.
RESULTS OF OPERATIONS
Our results of operations are dependent upon natural gas and
condensate production volumes and unit prices from sales of natural gas,
condensate and natural gas liquids ("NGLs"). Our profitability also depends on
our ability to minimize finding and lifting costs and maintain our reserve base
while maximizing production.
From April 19, 1999 through March 17, 2000, we operated as a
debtor-in-possession under Chapter 11 of the United States Bankruptcy Code.
Effective January 31, 2000, we adopted fresh-start reporting in accordance with
AICPA Statement of Position 90-7. Pursuant to fresh start reporting, a new
reporting entity is created. The new reporting entity's assets are recorded at
the reorganization value based on the confirmed plan of reorganization, and
postpetition liabilities are recorded at the present value of amounts to be
paid. Our reorganization value as of January 31, 2000, was estimated by
management to be $369 million based primarily on an analysis of discounted cash
flows. The value of our liabilities postpetition as of January 31, 2000, was
estimated to be $369 million. The present value of our liabilities has been
adjusted for imputed interest at a rate of 15% for the period from February 1,
2000 to the effective date of our bankruptcy plan. The imputed interest was
charged to interest expense during the three months ended April 30, 2000.
In fiscal 1998, we sold the stock of TransTexas Transmission
Corporation ("TTC"), our subsidiary that owned substantially all of our Lobo
Trend producing properties and related pipeline transmission system, for an
adjusted sales price of approximately $1.1 billion (the "Lobo Sale").
Accordingly, our operating results for the fiscal year ended January 31, 1998
reflect the impact of the Lobo Sale. We recorded a gain of $543.4 million on
the Lobo Sale.
Our operating data for the six month periods ended July 31, 2000
and 1999, and the years ended January 31, 2000, 1999 and 1998, is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31, YEAR ENDED JANUARY 31,
---------------------- -------------------------------------
2000 1999 2000 1999 1998
--------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Sales volumes:
Gas (Bcf)(1) .................... 13.7 14.8 27.8 35.6 72.4
NGLs (MMgals) ................... 31.1 16.9 44.0 8.4 62.4
Condensate and oil (MBbls) ...... 840 913 1,827 1,120 619
Average prices:
Gas (dry) (per Mcf)(2) .......... $ 3.43 $ 2.07 $ 2.32 $ 2.10 $ 2.09
NGLs (per gallon) ............... .38 .25 .32 .21 .29
Condensate and oil (per Bbl) .... 28.89 15.82 19.88 11.91 19.20
Number of gross wells drilled ..... 9 5 14 38 107
Percentage of wells completed ..... 56% 20% 43% 61% 56%
</TABLE>
(1) Sales volumes for the year ended January 31, 1998 include 7.3 Bcf
delivered pursuant to volumetric production payments.
(2) Average prices for the year ended January 31, 1998 include amounts
delivered pursuant to volumetric production payments. The average gas
price for our undedicated production for this period was $2.10 per
Mcf.
33
<PAGE> 36
We use the full-cost method of accounting for exploration and
development costs. Under the full-cost method, the cost for successful, as well
as unsuccessful, exploration and development activities is capitalized and
amortized on a unit-of-production basis over the life of the remaining proved
reserves. Net capitalized costs of gas and oil properties are limited to the
lower of unamortized cost or the cost center ceiling, defined as the sum of the
present value (10% discount rate) of estimated unescalated future net revenues
from proved reserves; plus the cost of properties not being amortized, if any;
plus the lower of cost or estimated fair value of unproved properties included
in the costs being amortized, if any; less related income tax effects. For the
year ended January 31, 1999, we recorded pre-tax impairments of our gas and oil
properties aggregating $426 million primarily as a result of the limitations on
net capitalized costs of gas and oil properties. Due to higher gas and oil
prices we realized subsequent to January 31, 1999, the impairment was less than
would have been recorded using January 31, 1999 prices.
A summary of our operating expenses is set forth below (in millions of
dollars):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------- -------------------------------------
SIX MONTHS
ENDED
JULY 31, JANUARY 31,
---------------- ---------------------------
2000 1999 2000 1999 1998
------ | ------- ------- ------- -------
<S> <C> | <C> <C> <C> <C>
Operating costs and expenses: |
Lease ............................. $ 4.3 | $ 6.0 $ 9.4 $ 10.4 $ 15.2
Pipeline and gathering ............ 3.9 | 5.5 9.2 8.7 32.6
Other ............................. -- | -- -- 3.3 3.1
------ | ------- ------- ------- -------
8.2 | 11.5 18.6 22.4 50.9
|
Taxes other than income taxes .... 3.6 | 4.1 9.8 7.1 11.4
------ | ------- ------- ------- -------
(1) |
$ 11.8 | $ 15.6 $ 28.4 $ 29.5 $ 62.3
====== | ======= ======= ======= =======
</TABLE>
----------
(1) Taxes other than income taxes include severance, property and other taxes.
Our average depletion rates have been as follows:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------- -----------------------------------
SIX MONTHS ENDED
JULY 31, YEAR ENDED JANUARY 31,
------------------ -------------------------
2000 1999 2000 1999 1998
----- | ----- ----- ----- -----
|
<S> <C> | <C> <C> <C> <C>
Depletion rates (per Mcfe) ....... $2.12 | $1.82 $1.89 $1.96 $1.11
===== | ===== ===== ===== =====
</TABLE>
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
In July 1999, the FASB issued SFAS 137, "Deferral of the Effective date of FASB
Statement No 133," which delays the effective date for one year, to fiscal
years beginning after June 15, 2000. We are evaluating the impact of the
provisions of SFAS 133.
SIX MONTHS ENDED JULY 31, 2000 COMPARED WITH THE SIX MONTHS ENDED JULY 31, 1999
Gas, condensate and NGL revenues for the six months ended July 31, 2000
increased $34.2 million from the prior period, due primarily to higher prices
for all products and an increase in NGLs sales volumes. The average monthly
prices received per Mcf of gas ranged from $2.64 to $4.54 in the six months
ended July 31, 2000, compared to a range of $1.74 to $2.32 in the prior period.
For the six months ended July 31, 1999, we recognized a pre-tax loss of $0.5
million on the sale of certain vehicles and other equipment.
Lease operating expenses for the six months ended July 31, 2000
decreased $1.7 million from the prior period due primarily to decreases in salt
water disposal and maintenance costs. Pipeline and gathering expenses decreased
$1.7 million from the prior period due primarily to the termination of certain
natural gas from transportation contracts in connection with our bankruptcy
proceedings. Depreciation, depletion and amortization expense for the six months
ended July 31, 2000 increased $2.4 million due to an increase in the depletion
rate resulting from higher cost properties and unsuccessful drilling results in
prior periods. General and administrative expenses decreased $1.8 million
primarily as a result of decreases in personnel and related costs and
professional fees. Taxes other than income tax decreased by $0.5 million over
the prior period due primarily to decreases in property taxes.
Interest income for the six months ended July 31, 2000 increased by
$0.2 million as compared to the prior period due to higher cash balances
available for investment. We do not expect to earn significant interest income
during fiscal 2001. Interest expense for the six months ended July 31, 2000
decreased by $6.8 million due primarily to our reorganization as of January 31,
2000 which resulted in an overall decrease in the amount of outstanding debt.
YEAR ENDED JANUARY 31, 2000, COMPARED WITH THE YEAR ENDED JANUARY 31, 1999.
Gas, condensate and NGL revenues for the year ended January 31, 2000
increased by $20.1 million from the prior period due primarily to increases in
condensate and NGL sales volumes and higher prices for all products offset in
part by a decrease in natural gas sales volumes. The average monthly prices
received per Mcf of gas ranged from $1.74 to $2.90 in the year ended January 31,
2000, compared to a range of $1.90 to $2.36 in the prior period. Other revenues
decreased by $1.4 million for the year ended January 31, 2000 due to the sale of
certain drilling services division assets in the prior period. For the year
ended January 31, 1999, we recognized a pretax gain of $63.6 million from the
sale of certain drilling services division assets and a pretax loss of $2.4
million due to postclosing adjustments to the Lobo Sale purchase price.
34
<PAGE> 37
Lease operating expenses for the year ended January 31, 2000 decreased
$1.0 million from the prior period due primarily to decreases in maintenance
costs. Pipeline and gathering expenses increased $0.5 million primarily due to
operations at Galveston Bay Processing Corporation's natural gas treating
facility at Winnie, Texas. Other expenses for the year ended January 31, 2000
decreased $3.3 million due to the sale of certain drilling assets in the prior
period. Depreciation, depletion and amortization expense for the year ended
January 31, 2000 decreased $11.1 million due to a decrease in natural gas
volumes and a $0.07 decrease in the depletion rate. General and administrative
expenses decreased by $2.1 million primarily as a result of a decrease in
personnel and related costs. Taxes other than income taxes increased by $2.7
million over the prior period due primarily to increases in property taxes. The
impairment loss of $426.0 million for the year ended January 31, 1999 related to
a write-down of $420.5 million of our net capitalized costs of gas and oil
properties to the cost center ceiling and a $5.5 million write-down of an
underutilized pipeline system that was exchanged as part of a settlement of
certain natural gas delivery commitments.
Interest income for the year ended January 31, 2000 decreased by $0.7
million as compared to the prior period due to lower cash balances available for
investment. Interest expense decreased $41.4 million primarily as a result of
discontinuing interest accruals on prepetition unsecured debt obligations.
Reorganization items of $8.3 million for the year ended January 31, 2000
included legal and other professional fees and expenses directly related to our
Chapter 11 bankruptcy proceedings and an adjustment to record assets at
reorganization value. The extraordinary item for the year ended January 31, 2000
represents the discharge of certain liabilities subject to compromise pursuant
to our bankruptcy plan.
Based on our reorganization value, the fair value of our preferred
stock and common stock was estimated to be zero. The senior preferred stock and
junior preferred stock are mandatorily redeemable in 2006 and 2010,
respectively. As a result, we will accrete, in the form of a non-cash dividend
deducted from net income available to common stockholders and charged to
retained earnings, an amount equal to the combined redemption amount totaling
$243.2 million (initial liquidation value) over the period prior to redemption.
In addition, earnings available to common stockholders will be reduced by
dividends paid on the preferred stock.
YEAR ENDED JANUARY 31, 1999, COMPARED WITH THE YEAR ENDED JANUARY 31, 1998.
Gas, condensate and NGL revenues for the year ended January 31, 1999
decreased by $73.2 million from the prior year, due primarily to decreases in
gas and NGLs sales volumes attributable to the divestiture of producing
properties as a result of the Lobo Sale and normal production declines on other
properties. These declines were partially offset by increased production from
Eagle Bay. The average monthly prices received per Mcf of gas ranged from $1.90
to $2.36 in the year ended January 31, 1999, compared to a range of $1.49 to
$3.01 in the prior year. As of January 31, 1999, we had a total of 127 producing
wells compared to 157 producing wells at January 31, 1998. Transportation
revenues decreased $12.1 million over the prior year due primarily to the
divestiture of the pipeline system in connection with the Lobo Sale. Other
revenues decreased by $0.4 million for the year ended January 31, 1999 due to a
decrease in services provided to third parties prior to the sale of the drilling
services division. Our net gain on the sale of assets includes a pre-tax gain of
$63.6 million for the sale of certain drilling services division assets and a
pre-tax loss of $2.4 million due to post-closing adjustments to the Lobo Sale
purchase price.
Lease operating expenses for the year ended January 31, 1999 decreased
by $4.8 million from the prior year due primarily to the Lobo Sale offset by
increased operating expenses for the Eagle Bay field. Pipeline and gathering
expenses decreased by $9.4 million from the prior year due primarily to the
divestiture of the pipeline system. NGL costs decreased by $14.5 million from
the prior year due to the Lobo Sale and the resulting decrease in the volumes of
natural gas processed. Other expenses for the year ended January 31, 1999
increased $0.2 million primarily due to increased costs related to providing
services to the new operator of the Lobo Trend properties prior to divestiture
of our drilling services assets. Depreciation, depletion and amortization
expense for the year ended January 31, 1999 increased $3.5 million due to a
$0.85 per Mcfe increase in the depletion rate due to higher acquisition cost of
properties and increased drilling and development costs, partially offset by the
Lobo Sale and the resulting decrease in our undedicated natural gas production.
General and administrative expenses decreased by $26.3 million primarily as a
result of a decrease in litigation expense. Taxes other than income taxes
decreased by
35
<PAGE> 38
$4.3 million over the prior year due primarily to decreases in ad valorem,
severance and excise taxes as a result of the decrease in the number of
producing wells, partially offset by an increase in franchise taxes. The
impairment loss of $426.0 million for the year ended January 31, 1999 relates to
an aggregate write-down of $420.5 million of our net capitalized costs of gas
and oil properties as a result of the limitation on net capitalized costs of gas
and oil properties and a $5.5 million write-down of an underutilized pipeline
system.
Interest income for the year ended January 31, 1999 decreased by $11.2
million as compared to the prior period due to lower cash balances available for
investment. Interest expense decreased by $0.7 million primarily as a result of
the retirement in June 1997 of our 11 1/2% senior secured notes due 2002,
offset in part by an increase in interest attributable to the issuance of
dollar-denominated production payments and a decrease in the amount of interest
capitalized in connection with unevaluated leasehold acreage.
36
<PAGE> 39
LIQUIDITY AND CAPITAL RESOURCES
On April 19, 1999, we filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code. As a result of the Chapter 11 filing, we
were prohibited from paying, and creditors were prohibited from attempting to
collect, claims or debts arising prior to the bankruptcy. The United States
Bankruptcy Court for the Southern
37
<PAGE> 40
District of Texas, Corpus Christi Division confirmed our bankruptcy
plan on February 7, 2000. The effective date of our bankruptcy plan was March
17, 2000. In connection with the effective date of our bankruptcy plan, we
(1) paid approximately $2.6 million in cash to settle certain
accounts payable and royalty claims;
(2) agreed to pay approximately $28.3 million to settle certain
accounts payable, severance, property and franchise taxes. The
$28.3 million is payable in quarterly installments generally
over a five year period with stated interest ranging from 8%
to 10%. We agreed to pay approximately $8.0 million of this
amount in fiscal 2001.
(3) paid approximately $21.9 million in cash, issued $200 million
principal amount of notes, 222,455,320 shares of senior
preferred stock, 20,716,080 shares of junior preferred stock,
1,002,751 shares of class A common stock, 247,500 shares of
class B common stock and 625,000 warrants to settle our senior
secured notes claims. A portion of this distribution was
reallocated pursuant to our bankruptcy plan as follows:
(a) $20 million in cash and five million shares of senior
preferred stock to settle on a pro rata basis all general
prepetition unsecured claims;
(b) $1.8 million in cash, 2,455,320 shares of senior preferred
stock and all of the junior preferred stock to the holders of
our 13 3/4% Senior Subordinated Notes;
(c) 52,500 shares of class A common stock and 109,375 warrants to
the holders of our old common stock who are not our Affiliates
(as defined in our bankruptcy plan); and
(d) all of the class B common stock and 515,625 warrants to John
R. Stanley.
(4) issued $6.7 million in secured notes in exchange for old
secured notes and related accrued interest; and
(5) canceled all of our old common stock, a $450 million
intercompany loan payable to TEC, and our 13 3/4% Senior
Subordinated Notes.
On the effective date of our bankruptcy plan, we, as Borrower, and
Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as
Guarantors, entered into an Oil and Gas Revolving Credit and Term Loan
Agreement, dated as of March 15, 2000 with GMAC Commercial Credit LLC ("GMACC"),
as a Lender and as Agent. The oil and gas credit facility consists of a term
loan (the "term loan") in the amount of $22.5 million and a revolving facility
(the "revolving loan") in a maximum amount of $30 million (all of which was
funded on the effective date). The term loan bears interest at a rate of 14% per
annum and the revolving loan bears interest at a rate of 13 1/2% per annum.
Interest on the term loan and the revolving loan is payable monthly in arrears.
Principal amortization of the term loan is due in 20 quarterly installments of
$56,250 each, with the balance due March 14, 2005. The principal amount of the
revolving loan is due on March 14, 2005; however we may, and in certain
circumstances must, make prepayments of such amount. If, subsequent to such
prepayments, we demonstrate sufficient collateral value meeting the requirements
of the oil and gas credit facility provisions, we may be entitled to borrow
additional advances under the revolving loan. The oil and gas credit facility is
secured by substantially all of our assets. The security interest in accounts
receivable and inventory securing the oil and gas credit facility is
subordinated to the security interest of GMACC under the accounts receivable
facility.
On the effective date, we, as Issuer, Galveston Bay Pipeline Company
and Galveston Bay Processing Corporation, as Guarantors, and Firstar Bank, N.A.,
as Trustee, entered into an indenture dated as of March 15, 2000, pursuant to
which the Company issued the notes. Interest on the notes is due semi-annually
on March 15 and September 15. The notes are secured by substantially all of our
assets other than accounts receivable and inventory. The indenture contains
certain covenants that restrict our ability to incur indebtedness, engage in
related party transactions, dispose of assets or engage in sale/leaseback
transactions, issue dividends on common stock, change
38
<PAGE> 41
our line of business, consolidate or merge with or into another entity or
convey, transfer or lease all or substantially all of our assets, and suffer a
change of control. The security interest in favor of the Trustee is subordinated
to the security interest in favor of the agent under the oil and gas credit
facility.
On the effective date of our bankruptcy plan, we and GMACC entered into
a Third Amended and Restated Accounts Receivable Management and Security
Agreement, dated as of March 15, 2000 (the "accounts receivable facility"). The
accounts receivable facility is a revolving credit facility secured by accounts
receivable and inventory. The maximum loan amount under the facility is $15
million, against which we may from time to time, subject to the conditions of
the accounts receivable facility, borrow, repay and reborrow. As of July 31,
2000, $12.2 million was outstanding under this facility and there was
availability to borrow an additional $1.2 million. Advances under the facility
bear interest at a rate per annum equal to the higher of (i) the prime
commercial lending rate of The Bank of New York plus 1/2 of 1%, and (ii) the
Federal Funds Rate plus 1%, payable monthly in arrears. The outstanding
principal balance under the Accounts Receivable Facility will be due on March
14, 2005.
As of the effective date of our bankruptcy plan, we have outstanding
222,455,320 shares of senior preferred stock with a liquidation preference of
$1.00 per share plus accrued and unpaid dividends. The terms of the senior
preferred stock include a cumulative dividend preference, payable quarterly out
of funds legally available therefor, if any. During the first two years
following the effective date, we will be required to pay cash dividends at a
rate of $0.10 per share per annum, or, at our option, in-kind dividends of
additional shares of senior preferred stock at a rate of $0.20 per share per
annum. The senior preferred stock is mandatorily redeemable on March 15, 2006 at
a rate of $1.00 per share plus accrued and unpaid dividends. One-half of the
then-outstanding shares of senior preferred stock is mandatorily convertible, on
a pro rata basis, into shares of class A common stock at the rate of 0.3461
shares of class A common stock per $1.00 of liquidation preference if either (i)
more than 75 million shares of senior preferred stock remain outstanding after
March 15, 2006 or (ii) we fail to pay dividends on the senior preferred stock on
any two dividend payment dates. The certificate of designation for the senior
preferred stock includes restrictive covenants comparable to those included in
the indenture relating to the notes.
As of the effective date, we had outstanding 20,716,080 shares of
junior preferred stock with a liquidation preference of $1.00 per share plus
accrued and unpaid dividends. The terms of the junior preferred stock include a
cumulative dividend preference, payable quarterly out of funds legally available
therefor, if any. During the first six years following the effective date, we
will be required to pay in-kind dividends of additional shares of junior
preferred stock at a rate of $0.10 per share per annum. Thereafter, dividends
will be payable both in cash at a rate of $0.10 per share per annum and in kind
at a rate of $0.10 per share per annum. The junior preferred stock is
mandatorily redeemable on March 15, 2010 at a rate of $1.00 per share plus
accrued and unpaid dividends. Each share of junior preferred stock is
mandatorily convertible into shares of class A common stock at the rate of
0.1168 shares of class A common stock per $1.00 of liquidation preference if
either (i) more than 75 million shares of senior preferred stock remain
outstanding after March 15, 2006 or (ii) we fail to pay dividends on the senior
preferred stock on any two dividend payment dates. The certificate of
designation for the junior preferred stock includes restrictive covenants
comparable to those included in the indenture relating to the notes. Such
covenants will become effective when all of the notes (and any refinancings
thereof) have been repaid and all of the senior preferred stock has been
redeemed.
There can be no assurance that we will have sufficient funds or funds
legally available for the payment of either cash or in kind dividends.
In February and September 1998, we entered into two production payment
agreements with an unaffiliated third party pursuant to which we conveyed
certain properties (the "Original Subject Interests") in the form of a term
overriding royalty interest. As of January 31, 2000, the outstanding balance of
these production payments was $35.1 million.
In March 2000, the Original Subject Interests were reconveyed to us and
a new production payment drilling program agreement was entered into between us
and two unaffiliated third parties in the form of a term overriding royalty
interest carved out of and burdening certain properties including the Original
Subject Interests
39
<PAGE> 42
(collectively, the "New Subject Interests"). We have the right to offer
additional properties ("Offered Wells") to the production payment parties at a
negotiated purchase price, up to an aggregate maximum for all such wells, of up
to $52 million. Upon acceptance of the Offered Wells, one of the third parties
would be committed to pay to us either the drilling costs of the Offered Wells
or, at the third party's discretion, a higher, mutually agreed upon amount. The
production payment agreement calls for the repayment of the primary sum plus an
amount equivalent to a 15% annual interest rate on the unpaid portion of such
primary sum. As of July 31, 2000 and September 15, 2000, the outstanding balance
of the production payment was $30.9 million and $32.4 million, respectively. We
have the right to sell further production payments to either of these
unaffiliated third parties in return for additional sums up to a maximum
aggregate primary sum of $52 million. The oil and gas credit facility places
certain restrictions on the amount that may be outstanding under the production
payment.
In connection with the new production payment, we entered into various
marketing and processing agreements with one of the third parties. Pursuant to
these agreements, we will pay a nominal marketing fee with respect to our
production associated with the New Subject Interests. In addition, the third
party will pay a fee for certain processing services to be provided by Galveston
Bay Processing Corporation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quantitative and Qualitative
Disclosures About Market Risk" for information about certain hedging provisions
in the new production payment agreements.
After the effective date, we remain highly leveraged and will have
significant cash requirements for debt service and significant charges for
preferred stock dividends to net income available for common stockholders.
In order to maintain or increase proved oil and gas reserves, we are
required to make substantial capital expenditures for the exploration and
development of natural gas and oil reserves in the normal course of business.
For the fiscal year ended January 31, 2000, total capital expenditures incurred
were $54 million, including $6 million for lease acquisitions, $42 million for
drilling and development and $6 million for gas gathering, other equipment and
seismic acquisitions. Capital expenditures for fiscal 2001 are estimated to be
approximately $91 million which amount is in excess of anticipated cash flows
from operating activities.
Management's plans are to fund our 2001 debt service requirements and
planned capital expenditures with cash flows from existing producing properties
and certain identified relatively low risk exploratory prospects to be drilled
and completed during fiscal 2001. Expected reserves from these prospects will be
used to obtain additional production payment financing which, together with
excess cash flow from these prospects, is necessary to continue to fund debt
service and capital expenditure requirements. Should these prospects not be
productive or should prices decline for a prolonged period, absent other sources
of capital, we would substantially reduce our capital expenditures, which would
limit our ability to maintain or increase production and in turn adversely
affect our ability to pay interest on our indebtedness as that interest became
due and payable. Asset sales and financings are restricted under the terms of
our debt documents and senior preferred stock. In August 2000, we sold certain
of our producing properties in Jim Hogg County, Texas for a sales price of $6.5
million.
POTENTIAL TAX LIABILITIES
Based upon independent legal advice, including an opinion from a
nationally recognized law firm, we did not report any significant federal income
tax liability as a result of the Lobo Sale. There are, however, significant
uncertainties regarding our tax position and no assurance can be given that our
position will be sustained if challenged by the Internal Revenue Service (the
"IRS"). Prior to the bankruptcy, we were part of an affiliated group for tax
purposes (the "TNGC Consolidated Group"), which included TNGC Holdings
Corporation ("TNGC"), the sole stockholder of TransAmerican Natural Gas
Corporation ("TransAmerican"), and TransAmerican's direct and indirect
subsidiaries, TEC, TARC and us. If the IRS were to successfully challenge our
position, each member of the TNGC Consolidated Group would be severally liable
under the consolidated tax return regulations for the resulting taxes, in the
estimated amount of up to $270 million (assuming the use of none of the
available tax attributes of the TNGC Consolidated Group), possible penalties
equal to 20% of the amount of the tax, and interest at the statutory rate
(currently 9%) on the tax and penalties (if any). Assuming the use of available
tax attributes of the TNGC Consolidated Group, primarily the carryback of net
operating loss carryovers ("NOLs"), this estimated tax would be reduced to
approximately $10 million (with the NOL carrybacks reducing interest as of the
end of the tax year in which the carryback arose and not reducing penalties). In
this event, a substantial portion of our NOLs would be utilized and thus not
available to us in future fiscal years. Pursuant to the tax allocation agreement
among
40
<PAGE> 43
the members of the TNGC Consolidated Group, TransAmerican is obligated to fund
the entire tax deficiency (if any) resulting from the Lobo Sale. There can be no
assurance that TransAmerican would be able to make any such payment and the
other members of the TNGC Consolidated Group, including us as a former member,
may be required to pay the tax, penalties and interest. There can be no
assurance that we could pay this contingency.
Part of the refinancing of TransAmerican's debt in 1993 involved the
cancellation of approximately $65.9 million of accrued interest and of a
contingent liability for interest of $102 million owed by TransAmerican.
TransAmerican has taken the federal tax position that the entire amount of this
debt cancellation is excluded from its income under the cancellation of
indebtedness provision (the "COD Exclusion") of the Internal Revenue Code of
1986, as amended (the "Tax Code"), and has reduced its tax attributes (including
its net operating loss and credit carryforwards) as a consequence of the COD
Exclusion. No federal tax opinion was rendered with respect to this transaction,
however, and TransAmerican has not obtained a ruling from the IRS regarding this
transaction. We believe that there is substantial legal authority to support the
position that the COD Exclusion applies to the cancellation of TransAmerican's
indebtedness. However, due to factual and legal uncertainties, there can be no
assurance that the IRS will not challenge this position, or that any such
challenge would not be upheld. Under the Tax Allocation Agreement, we have
agreed to pay an amount equal to any federal tax liability (which would be
approximately $25.4 million) attributable to the inapplicability of the COD
Exclusion. Any such tax would be offset in future years by alternative minimum
tax credits and retained loss and credit carryforwards to the extent recoverable
from TransAmerican.
As a former member of the TNGC Consolidated Group, we will be severally
liable for any tax liability resulting from any transaction of the TNGC
Consolidated Group that occurred during any taxable year of the TNGC
Consolidated Group during which we were a member, including the above-described
transactions. The IRS has commenced an audit of the consolidated federal income
tax returns of the TNGC Consolidated Group for its taxable years ended July 31,
1994 and July 31, 1995. We have not been advised by the IRS as to whether any
tax deficiencies will be proposed by the IRS as a result of its review.
We expect that substantially all of our NOLs will be eliminated as a
consequence of our bankruptcy plan and, to the extent not entirely eliminated,
the benefit of the use of those NOLs that are not eliminated will be minimal. In
addition, certain other tax attributes may under certain circumstances be
eliminated or reduced as a consequence of our bankruptcy plan. The elimination
or reduction of NOLs and such other tax attributes may substantially increase
the amount of tax payable by us following the consummation of our bankruptcy
plan as compared with the amount of tax payable had no such attribute reduction
or restriction been required.
INFLATION AND CHANGES IN PRICES
Our results of operations and the value of our gas properties are
highly dependent upon the prices we receive for our natural gas, condensate and
oil. Substantially all of our sales of natural gas, condensate and oil are made
pursuant to long-term contracts at market prices. Accordingly, the prices we
receive for our natural gas production are dependent upon numerous factors
beyond our control, including the level of consumer product demand, the North
American supply of natural gas, government regulations and taxes, the price and
availability of alternative fuels, the level of foreign imports of oil and
natural gas and the overall economic environment. Demand for natural gas is
seasonal, with demand typically higher during the summer and winter, and lower
during the spring and fall, with concomitant changes in price. As a result of
high demand for drilling services in 1998 and 1999, we experienced increases in
the cost of oilfield services and equipment used in exploration and development
drilling, and to a lesser extent well completion and production costs.
Any significant decline in current prices for natural gas could have a
material adverse effect on our financial condition, results of operations and
quantities of reserves recoverable on an economic basis. Based on an assumed
average net daily production level of approximately 97 MMcfd, we estimate that a
$0.10 per MMBtu change in average gas prices received would change annual
operating income by approximately $3.6 million.
41
<PAGE> 44
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from adverse changes in prices for
natural gas, condensate and oil and interest rates as discussed below.
Our revenues, profitability, access to capital and future rate of
growth are substantially dependent upon the prevailing prices of natural gas,
condensate and oil. These prices are subject to wide fluctuations in response to
relatively minor changes in supply and demand and a variety of additional
factors beyond our control. From time to time, we have utilized hedging
transactions with respect to a portion of our gas and oil production to achieve
a more predictable cash flow, as well as to reduce exposure to price
fluctuations. While hedging limits the downside risk of adverse price movements,
it may also limit future revenues from favorable price movements. Because gains
or losses associated with hedging transactions are included in gas and oil
revenues when the hedged volumes are delivered, such gains and losses are
generally offset by similar changes in the realized prices of commodities. We
had no open hedging transactions at July 31, 2000 or September 15, 2000.
Pursuant to the terms of our production payment agreement entered into
in March 2000, the production payment purchasers entered into the following
hedge arrangements with respect to a portion of the natural gas and condensate
production associated therewith and which effectively hedge a portion of our
production:
<TABLE>
<CAPTION>
CONTRACT PRICE
VOLUMES IN COLLAR
PERIOD MMBtus/Bbls FLOOR CEILING
------ ----------- ----- -------
<S> <C> <C> <C> <C>
Natural Gas:
April 2000 - October 2000 ................... 3,745,000 $ 2.10 $ 3.40
November 2000 - March 2001 .................. 1,887,500 2.35 3.95
Condensate:
April 2000 - September 2000 ................. 228,750 18.50 32.50
October 2000 - March 2001 ................... 182,000 18.50 29.95
</TABLE>
Under these contracts, the counterparty is required to make payment to
the production payment purchaser if the settlement price for the period is below
the floor and the production payment purchaser is required to make payment to
the counterparty if the settlement price for any period is above the ceiling
price. As of July 31, 2000, the Company had recognized a loss of $1.1 million
and had a deferred loss of $0.7 million under these contracts.
Because substantially all of our long-term obligations at July 31, 2000
are at fixed rates, we consider our interest rate exposure to be minimal. Our
borrowings under our credit facility are subject to a rate of interest that
fluctuates based on short-term interest rates ($12.2 million outstanding at July
31, 2000). We had no open interest rate hedge positions at July 31, 2000.
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<PAGE> 45
BUSINESS
GENERAL
We were organized in May 1993 as a Delaware corporation. Our principal
executive office is located at 1300 North Sam Houston Parkway East, Suite 310,
Houston, Texas 77032, and our telephone number at that address is (281)
987-8600.
We are engaged in the exploration for and development and production of
natural gas and condensate, primarily in South Texas and along the upper Gulf
Coast. Our business strategy is to utilize our experience in drilling and
operating wells in South Texas to find, develop and produce reserves at a low
cost.
Our long-term goal is to convert unproven acreage to proved reserves
through drilling in underexploited areas. In order to meet our long-term goals,
our strategy is to drill wells in areas of the Upper Texas Gulf Coast where 3-D
seismic data indicates productive potential and to drill development wells in
our proven producing areas such as the Eagle Bay field and Wharton County.
During fiscal 2000, our drilling program was restricted by capital available
from operations and debtor-in-possession financing.
As of February 1, 2000, our net proved reserves, as estimated by
Netherland, Sewell & Associates, Inc., were 118 Bcfe. As of January 31, 2000, we
owned approximately 333,400 gross (210,000 net) acres of mineral interests. Our
average net daily natural gas production for the year ended January 31, 2000 was
approximately 77 MMcfd, for a total net production of 27.8 Bcf of natural gas.
Our average net daily condensate and oil production for the year ended January
31, 2000 was approximately 5,005 Bpd, for a total net production of 1,827 MBbls
of condensate and oil. Our average net daily production of natural gas liquids
for the year ended January 31, 2000 was approximately 120,519 gallons per day,
for a total net production of 44 million gallons of natural gas liquids.
REORGANIZATION
On April 19, 1999, we filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware. On April 20,1999, TEC and TARC also filed voluntary
petitions under Chapter 11. On May 20, 1999, the cases were transferred to the
United States Bankruptcy Court for the Southern District of Texas, Corpus
Christi Division. Our Second Amended, Modified and Restated Plan of
Reorganization dated January 25, 2000 was confirmed by the bankruptcy court on
February 7, 2000.
On March 17, 2000, the effective date of our bankruptcy plan, we
consummated several transactions. We:
o filed an amended and restated certificate of incorporation;
o issued 1,002,751 shares of class A common stock and 247,500
shares of class B common stock;
o issued 625,000 warrants;
o filed a certificate of designation relating to 328,667,820
shares of senior preferred stock, and issued 222,455,320 of
those shares;
o filed a certificate of designation relating to 37,469,711
shares of junior preferred stock, and issued 20,716,080 of
those shares;
o entered into an indenture relating to, and issued $200 million
of, notes;
o entered into a $52.5 million oil and gas credit facility;
o entered into a $15 million accounts receivable credit
facility; and
43
<PAGE> 46
o sold a production payment with a primary sum outstanding as of
March 15, 2000 of $35 million.
These transactions are more fully described in "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
EXPLORATION AND PRODUCTION OPERATIONS
Our exploration and production activities consist of geological
evaluation of current and prospective properties, the acquisition of mineral
interests in prospects and the development and operation of leased properties
for the production and sale of natural gas, condensate and crude oil. Our
technical staff consists of geologists, geophysicists and engineers. Our
technical staff selects drilling locations based on the interpretation of
available well data, enhanced by 3-D and 2-D seismic data. We operate
substantially all of our producing properties. We believe that this experience
is especially important in south and upper coastal Texas, which are geologically
complex.
During fiscal 1998, we sold the stock of TransTexas Transmission
Corporation ("TTC"), our subsidiary that owned substantially all of our Lobo
Trend producing properties and related pipeline transmission system, for an
adjusted sales price of approximately $1.1 billion (the "Lobo Sale"). Our
operating data for fiscal 1998 reflect the impact of the Lobo Sale.
Primary Operating Areas
Eagle Bay. In January 1998, we announced that we had successfully
drilled and completed the State Tract 331 #1 discovery well in Eagle Bay,
Galveston County, Texas. The well is located approximately one mile off the
coast of the City of San Leon, in a water depth of less than 10 feet. This
discovery well tested at a rate of 76.4 MMcfd of natural gas and 11,002 Bpd of
condensate. We have successfully drilled, completed and produced three
additional wells, drilled one dry hole and, as of April 30, 2000, were
completing the sidetrack of the sixth well in the Eagle Bay field.
In order to facilitate commercial production of natural gas and oil
from the Eagle Bay field and other contemplated production in the Galveston Bay
area, in July 1998, Galveston Bay Processing Corporation, our wholly owned
subsidiary, completed construction of onshore production facilities at Winnie,
Texas, approximately 60 miles east of Houston. These facilities are designed to
separate produced natural gas and condensate streams, dehydrate and treat
natural gas and stabilize condensate produced from the Eagle Bay field.
Production from Eagle Bay is currently transported to Winnie through a
third-party pipeline that crosses Galveston Bay.
We intend to drill additional development wells in Eagle Bay as a part
of our strategy to further increase reserves and production and have identified
additional drilling locations from 3-D seismic data. For the quarter ended April
30, 2000, we produced 6.5 Bcf (3.7 Bcf net) of natural gas, 0.4 million barrels
of condensate and 13 million gallons of natural gas liquids from the Eagle Bay
field at average net daily rates of 41 MMcfd, 4,281 Bpd and 142,308 gallons per
day, respectively. Production from the Eagle Bay field represents a significant
percentage of our total production. See "Drilling and Production Data." As of
April 30, 2000, we owned a 75% working interest on approximately 5,636 gross
(5,592 net) acres in the Eagle Bay area.
Bob West North. In late 1994, we made a natural gas discovery in the
Bob West North area of southern Zapata County, Texas. As of April 30, 2000, we
had drilled 56 wells and completed 53 wells in the area. As of April 30, 2000,
our mineral interests in the Bob West North area consisted of a 100% working
interest in 11,594 gross (9,308 net) acres. For the quarter ended April 30,
2000, we produced 1.7 Bcf (1.2 Bcf net) of natural gas from the Bob West North
area at an average net daily rate of 13 MMcfd. 3-D seismic data indicates the
potential for additional drilling locations to further develop productive
reservoirs in the area.
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<PAGE> 47
Southwest Bonus. In 1998, we completed the Obenhaus #2 discovery well
in the Southwest Bonus field of Wharton County, Texas. Restrictions on our
availability of capital prevented additional drilling until late 1999. In 1999,
a development drilling program commenced with the drilling and completion of the
Schweinle #1. As of April 30, 2000, we had drilled and completed one additional
well, were in the process of completing one well and were drilling a fifth well
in the Southwest Bonus field. We intend to drill additional wells to develop the
field as a part of our strategy to further increase reserves and production, and
have identified potential drilling locations from 3-D seismic data. As of April
30, 2000, we held a 100% working interest covering approximately 8,441 gross
(4,048 net) acres in the Southwest Bonus area. For the quarter ended April 30,
2000, our Southwest Bonus properties produced 2.0 Bcf (1.6 Bcf net) of natural
gas, at an average net daily rate of 18 MMcfd.
Dinero. In June 1998, we announced the successful drilling of the
McNeil #1 well in Live Oak County, Texas. This discovery well tested at a rate
of 19.2 MMcfd of natural gas with production commencing in August 1998. As of
April 30, 2000, we had drilled three wells, completed two wells and was in the
process of completing one well in the Dinero field. We intend to drill
additional wells to develop the field as a part of our strategy to further
increase reserves and production, and have identified potential drilling
locations from 3-D seismic data. For the quarter ended April 30, 2000, our Live
Oak County properties produced 0.1 Bcf (0.1 Bcf net) of natural gas, at an
average net daily rate of 1 MMcfd. As of April 30, 2000, we owned an 78% working
interest in approximately 7,770 gross (7,703 net) acres in Live Oak County.
Trout Point. In 1998, we commenced drilling an exploratory well in the
Trout Point prospect in Galveston Bay. We drilled the Trout Point sub-salt
prospect to a depth of 21,442 feet. The well encountered gas-bearing zones
beneath the salt when drilling problems resulted in the loss of the hole. Two
sidetrack holes were drilled to establish production in the sub-salt zones.
During completion of the second sidetrack, a gas flow from a lower zone caused
an underground blowout and failure of the 9 5/8" casing. Cement was pumped into
the well to control the underground gas flow. The replacement Sheldon 1-R well
was drilled to a total depth of 22,298 feet. During completion of the well
casing collapsed in the salt section and the well bore was lost. Currently, we
are sidetracking the Sheldon 1-R to test the sub- salt zones in the prospect.
Including Trout Point, we own a 97% working interest in 20,607 gross
(19,726 net) acres in Chambers County, Texas. As of April 30, 2000, we had
drilled 11 wells, completed four wells and were in the process of completing two
wells in Chambers County. For the quarter ended April 30, 2000, our Chambers
County properties produced 0.3 Bcf (0.2 Bcf net) of natural gas, at an average
daily net rate of 2 MMcfd.
Drilling and Production Data
During the five years ended January 31, 2000, we completed
approximately 65% of 413 wells. As of April 30, 2000, we were drilling two gross
(two net) wells. As of April 30, 2000, we had a total of 115 productive wells.
We had a working interest in the following numbers of wells that were drilled
during the periods indicated:
45
<PAGE> 48
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------------------------
2000 1999 1998(3)
----------------- -------------- --------------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells(1):
Productive(2) 1 1 9 9 13 11
Non-Productive 6 5 6 5 16 14
% Productive 14% 17% 60% 63% 45% 44%
Development Wells(1):
Productive(2) 5 5 14 12 47 43
Non-Productive 2 2 9 9 31 27
% Productive 71% 71% 61% 58% 60% 62%
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
-------------------------------------
2000 1999
----------------- --------------
GROSS NET GROSS NET
----- --- ----- ---
<S> <C> <C> <C> <C>
Exploratory Wells(1):
Productive(2) 0 0 0 0
Non-Productive 0 0 3 2
% Productive 0% 0% 0% 0%
Development Wells(1):
Productive(2) 2 2 0 0
Non-Productive 0 0 0 0
% Productive 100% 100% 0% 0%
</TABLE>
----------
(1) The number of net wells is the sum of the fractional working interests
owned in gross wells.
(2) Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connection. Wells
that are completed in more than one producing zone are counted as one
well.
(3) Includes wells in the Lobo Trend properties sold in fiscal 1998.
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<PAGE> 49
The following table sets forth information with respect to net production
and average unit prices and costs for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31, YEAR ENDED JANUARY 31,
--------------------- -------------------------------------
2000 1999 2000 1999 1998(4)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Production:
Gas (Bcf)(1) 13.7 14.8 27.8 35.6 72.4
NGLs (MMgals) 31.1 16.9 44.0 8.4 62.4
Condensate and oil (MBbls) 840 913 1,827 1,120 619
Average sales prices:
Gas (dry) (per Mcf)(2) $ 3.43 $ 2.07 $ 2.32 $ 2.10 $ 2.09
NGLs (per gallon) .38 .25 .32 .21 .29
Condensate and oil (per Bbl) 28.89 15.82 19.88 11.91 19.20
Average lifting cost per Mcfe(3) .40 .49 .41 .37 .34
</TABLE>
(1) Net gas production volumes for the year ended January 31, 1998 include
7.3 Bcf delivered pursuant to volumetric production payments.
(2) Average prices for the year ended January 31, 1998 include 7.3 Bcf
delivered pursuant to volumetric production payments. The average gas
price for our undedicated production for this period was $2.10 per Mcf.
(3) Condensate and oil are converted to a common unit of measure on the
basis of six Mcf of natural gas to one barrel of condensate or oil. The
components of production costs may vary substantially among wells
depending on the methods of recovery employed and other factors. The
calculation of average lifting cost per Mcfe for the year ended January
31, 1998 includes volumes delivered to third parties under volumetric
production payments.
(4) Includes production from the Lobo Trend properties sold in fiscal 1998.
TRANSPORTATION, PROCESSING AND MARKETING
We believe that there is currently adequate pipeline transportation
capacity for our hydrocarbon production in all of our operating areas.
We have entered into various agreements for the gathering,
transportation, processing and sale of substantially all of our natural gas and
natural gas liquids produced from our Eagle Bay prospects. Unless otherwise
stated, these agreements, described below, expire on June 30, 2003. We are
continuing to negotiate additional agreements in order to meet future production
increases.
Galveston Bay Processing Corporation operates onshore facilities to
separate produced natural gas and condensate, dehydrate and treat natural gas
for the removal of CO(2) and stabilize condensate from our Eagle Bay field.
These facilities are located approximately 60 miles east of Houston at Winnie,
Texas. Galveston Bay Pipeline Company owns a portion of the pipeline that is
used the transport natural gas and condensate from our Eagle Bay field to the
Galveston Bay Processing Corporation facility located in Winnie, Texas.
We entered into firm and interruptible contracts with Tejas Ship
Channel LLC for transportation of our production from the Eagle Bay field to the
Winnie facilities at a fixed negotiated rate. Under the firm agreement, we are
committed to deliver a minimum of 75,000 MMBtu per day of natural gas and
condensate.
We entered into a contract with Centana Intrastate Pipeline Company for
transportation of natural gas on a firm and interruptible basis from the Winnie
facility to natural gas liquids recovery facilities located in the Beaumont/Port
Arthur, Texas area, and residue gas from these facilities to various
distribution points. Under the agreement, we are committed to deliver up to a
maximum of 56,250 Mcf of natural gas and 19,500 MMBtu of
47
<PAGE> 50
residue gas. Transportation fees for residue gas are based on a fixed negotiated
rate. Transportation fees for residue gas are based on a published industry
index.
A connection was established with Sun Pipeline at the Winnie facilities
for the transportation or sale of the stabilized condensate. Enron Reserve
Acquisition Corp. purchases 3,000 Bpd of condensate at a price based on a
published industry index pursuant to a six-month contract expiring April 30,
2000.
We and Duke Energy Field Services, Inc. entered into a contract to
extract natural gas liquids from the high-Btu natural gas stream leaving the
Winnie facilities. We can elect, at our discretion on a monthly basis, whether
to process the natural gas to recover natural gas liquids. Our decision whether
to process the natural gas is based on prevailing market prices.
We entered into gas purchase agreements with Tejas Gas Marketing, LLC
and PanEnergy Marketing Company, covering our sale of substantially all of our
gas production from the Eagle Bay field. The agreements provide for deliveries
in excess of 50,000 MMBtu per day of residue gas at a price based on a published
industry index.
For the year ended January 31, 2000, three purchasers accounted for a
total of 55% of our consolidated natural gas, condensate and NGLs revenues. We
believe that the loss of any single purchaser would not have a material adverse
effect on us due to the availability of other purchasers for our production at
comparable prices.
COMPETITION
We encounter significant competition from major oil and gas companies
and independent operators in the acquisition of desirable undeveloped natural
gas leases and in the sale of natural gas. Many of our competitors are large,
well-established companies with substantially greater capital and human
resources than ours and which, in many instances, have been engaged in the
energy business for a much longer time than us.
The primary bases for competition in the natural gas and oil
exploration and production businesses are available capital and the costs
involved in finding and developing gas and oil resources combined with commodity
sales prices and market access.
EMPLOYEES
As of July 31, 2000, we had approximately 200 employees. We may engage
the services of independent geological, engineering, land and other consultants
from time to time. None of our employees are parties to a collective bargaining
agreement.
GOVERNMENTAL REGULATION
Our gas exploration, production and related operations are subject to
extensive rules and regulations promulgated by federal and state agencies.
Failure to comply with such rules and regulations can result in substantial
penalties. The regulatory burden on the gas industry increases our cost of doing
business and affects our profitability. Because such rules and regulations are
frequently amended or reinterpreted, we are unable to predict the future cost or
impact of complying with such laws.
The State of Texas (through the Texas Railroad Commission) and many
other states require permits for drilling operations, drilling bonds and reports
concerning operations, and impose other requirements related to the exploration
and production of natural gas. Such states also have statutes or regulations
addressing conservation matters, including provisions for the unitization or
pooling of gas properties, the establishment of maximum rates of production from
gas wells and the regulation of spacing, plugging and abandonment of such wells.
The statutes and regulations of the State of Texas limit the rate at which
natural gas can be produced from our properties. Management believes that these
statutes and regulations have not materially impacted our results of operations;
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<PAGE> 51
however, there can be no assurance that such statutes and regulations will not
affect our operating results in the future.
Several major regulatory changes have been implemented by the Federal
Energy Regulatory Commission ("FERC") since 1985 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, that remain subject to the FERC's
jurisdiction. These initiatives may also affect the intrastate transportation of
gas under certain circumstances. The stated purpose of many of these regulatory
changes is to promote competition among the various sectors of the gas industry.
The ultimate impact on us of these complex and overlapping rules and
regulations, many of which are repeatedly subjected to judicial challenge and
interpretation, cannot be predicted.
ENVIRONMENTAL MATTERS
Our operations and properties are subject to extensive federal, state,
and local laws and regulations relating to the generation, storage, handling,
emission, transportation, and discharge of materials into the environment.
Permits are required for various of our operations, and these permits are
subject to revocation, modification, and renewal by issuing authorities. We also
are subject to federal, state, and local laws and regulations that impose
liability for the cleanup or remediation of property which has been contaminated
by the discharge or release of hazardous materials or wastes into the
environment. Governmental authorities have the power to enforce compliance with
their regulations, and violations are subject to fines or injunctions, or both.
Certain aspects of our operations may not be in compliance with
applicable environmental laws and regulations, and such noncompliance may give
rise to compliance costs and administrative penalties. We do not anticipate that
we will be required in the near future to expend amounts that are material to
our financial condition or operations by reason of environmental laws and
regulations, but because such laws and regulations are frequently changed and,
as a result, may impose increasingly strict requirements, we are unable to
predict the ultimate cost of complying with such laws and regulations.
PROPERTIES
Acreage and Productive Wells
The following table sets forth our total developed and undeveloped
acreage and productive wells as of April 30, 2000:
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED PRODUCTIVE
ACREAGE ACREAGE WELLS(1)
--------- ----------- ----------
<S> <C> <C> <C>
Gross................ 17,840 205,387 115
Net(2)............... 15,206 125,521 101
</TABLE>
(1) Of the total productive wells, 107 gross (97 net) were gas wells and 8
gross (4 net) were oil wells. As of April 30, 2000, we had interests in
2 productive wells which had multiple completions.
(2) The number of net acres and net wells is the sum of the fractional
working interests owned in gross acres and gross wells, respectively.
Reserves
As of February 1, 2000, we had total proved reserves of 95.6 Bcf of
natural gas and 3,686 MBbls of condensate and oil. See Note 18 of Notes to
Consolidated Financial Statements, which contains supplemental information
regarding our proved reserves.
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<PAGE> 52
Proved reserves are the estimated quantities of natural gas, condensate
and oil that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed reserves are proved reserves
that can be expected to be recovered through existing wells with existing
equipment and operating methods.
The estimation of reserves requires substantial judgment on the part of
petroleum engineers, resulting in imprecise determinations, particularly with
respect to recent discoveries. The accuracy of any reserve estimate depends on
the quality of available data and engineering and geological interpretation and
judgment. Results of drilling, testing and production after the date of the
estimate may result in revisions of the estimate. Accordingly, estimates of
reserves are often materially different from the quantities of natural gas,
condensate and oil that are ultimately recovered, and these estimates will
change as future production and development information becomes available. The
reserve data represent estimates only and should not be construed as being
exact.
Title to Properties/Liens
As is customary in the oil and gas industry, we perform only a
preliminary title investigation before leasing undeveloped properties.
Accordingly, working interest percentages and gross and net acreage amounts for
undeveloped properties are preliminary. However, a title opinion is typically
obtained before the commencement of drilling operations and any material defects
in title are remedied prior to the time actual drilling of a well on the lease
is commenced. We have not obtained title opinions on all of our properties. We
are uncertain as to the impact that failure to obtain a title opinion has on our
title to developed properties. Our properties are subject to customary royalty
interests, liens incident to operating agreements, liens for current taxes,
liens of vendors and lenders and other burdens.
Legal Proceedings
On April 19, 1999, we filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware. On April 20, 1999, TEC and TARC also filed voluntary
petitions under Chapter 11. On May 20, 1999, the cases were transferred to the
United States Bankruptcy Court for the Southern District of Texas, Corpus
Christi Division. The bankruptcy cases are being jointly administered under the
caption "In re: TransTexas Gas Corporation, et al., Debtors," Case No.
99-21550-C-11. Our Second Amended, Modified and Restated Plan of Reorganization
dated January 25, 2000 was confirmed by an order (the "Confirmation Order") of
the Bankruptcy Court on February 7, 2000. The effective date of our bankruptcy
plan was March 17, 2000.
Palmyra Minerals. Palmyra Minerals Ltd., et al. v. TransTexas, TEC,
TARC, et al.; Adversary Proceeding No. 99-2228-C; pending in the Bankruptcy
Court (in connection with our bankruptcy proceeding). The suit concerns the
claims of several royalty owners under several oil and gas leases held by
TransTexas. Plaintiffs allege that TransTexas underpaid royalties due the
plaintiffs under the leases back to the date of first production from the
involved wells. Plaintiffs claim $1.1 million, including alleged underpayments
and interest thereon. Plaintiffs assert entitlement to recovery under various
theories including breach of contract, violation of Section 91.401, et seq, of
the Texas Natural Resources Code, breach of the implied and express duty to
market, negligence per se, and constructive trust. The plaintiffs asserted
identical claims in our bankruptcy proceeding. The claims have been consolidated
with the adversary proceeding. This matter is in the discovery phase and
TransTexas intends to vigorously defend the claims. An adverse judgment in this
consolidated action could result in termination of these leasehold interests
should TransTexas fail to pay the amount of the judgment. The discharge afforded
by the confirmation of TransTexas' plan of reorganization would not preclude
termination of such leases.
We are a party to various claims and routine litigation arising in the
normal course of our business. Any of our obligations in respect of such claims
and litigation arising out of activities prior to our bankruptcy filing will be
discharged pursuant to our bankruptcy plan. Recovery of these obligations, if
any, will be limited to any collateral held by the claimant and/or such
claimant's pro rata share of amounts available to pay general unsecured claims.
50
<PAGE> 53
MANAGEMENT
The following persons were serving as our directors and executive officers
as of September 15, 2000:
<TABLE>
<CAPTION>
NAME OFFICE AGE
---- ------ ---
<S> <C> <C>
John R. Stanley Director and Chief Executive Officer 61
Ronald P. Nowak President and Chief Operating Officer 47
Edwin B. Donahue Vice President, Chief Financial Officer and 49
Secretary
Simon J. Ward Vice President and Treasurer 44
George C. Wright Vice President of Accounting 57
R. Gerald Bennett Director 58
Ronald H. Benson Director 54
Walter S. Piontek Director 63
John L. Whitmire Director 59
</TABLE>
Mr. Piontek's and Mr. Whitmire's terms as directors end at our annual
stockholders meeting in 2001; Mr. Bennett's and Mr. Benson's terms as directors
end at our annual stockholders meeting in 2002; and Mr. Stanley's term as a
director ends at our annual stockholders meeting in 2003. Each of our officers
holds his office until his successor is duly elected or appointed and qualified
or until his earlier resignation or removal.
Mr. Stanley also is the sole director, president and chief executive of each of
our subsidiaries, Galveston Bay Processing Corporation and Galveston Bay
Pipeline Company. Mr. Nowak also is vice president of Galveston Bay Processing
Corporation and Galveston Bay Pipeline Company. Mr. Donahue also is vice
president, chief financial officer and secretary of each of Galveston Bay
Processing Corporation and Galveston Bay Pipeline Company. Mr. Stanley, Mr.
Nowak and Mr. Donahue are the only executive officers of Galveston Bay
Processing Corporation and Galveston Bay Pipeline Company.
Set forth below is a description of the business experience of each of
our directors and executive officers.
John R. Stanley has been a director and our Chief Executive Officer
since May 1993. He has been Chairman of the Board since March 2000. Mr. Stanley
is also the founder, Chairman of the Board, Chief Executive Officer and sole
stockholder of TNGC Holdings Corporation, which is the sole stockholder of
TransAmerican. Mr. Stanley has operated TransAmerican since 1958.
Ronald P. Nowak has served as our President and Chief Operating Officer
since November 1999. Prior to joining us, Mr. Nowak was with 3DX Technologies
Inc. where he served as President, Chief Executive Officer and Director from
June 1998 until September 1999. Mr. Nowak also served as Vice President of
Exploration from February 1998 through May 1998. From August 1993 to January
1998, Mr. Nowak was with YPF/Maxus Energy Corporation where he served as U.S.
Exploration Manager and U.S. Manager from 1996. Mr. Nowak was with Arco Oil &
Gas from 1987 to 1993. Prior to joining Arco, Mr. Nowak was employed by Exxon
Company, USA as an independent geologist working in the onshore U.S. Gulf Coast
region.
Edwin B. Donahue has been our Vice President, Chief Financial Officer
and Secretary since May 1993. Mr. Donahue has been employed in various positions
with TransAmerican for over 20 years.
Simon J. Ward has been our Vice President and Treasurer since June
1999. He served as Manager of Investor Relations from 1994 until June 1999. From
1976 until 1994, he held various positions with ICO, Inc., Baker Hughes Vetco
Services, Inc. and Vetco Services, Inc.
George C. Wright has been our Vice President of Accounting since March
1999. He has been employed by us and our affiliates since June 1982.
R. Gerald Bennett has been one of our directors since March 17, 2000.
He is serving in the office of Chairman of the Board of FLASHFIND Corporation.
From June 1996 to December 1998, Mr. Bennett was a Senior Vice President of
Equitable Gas Company. Prior thereto, Mr. Bennett served as President and Chief
Executive Officer of Fuel Resources, Inc., a wholly owned subsidiary of The
Brooklyn Union Gas Company. Mr. Bennett has over 35 years experience in the oil
and gas industry.
Ronald H. Benson has been one of our directors since March 17, 2000. He
is an independent consultant and a private investor. From 1994 to 1998, he was
Vice President of TPC Gathering and Transmission Company. From 1991 to 1993, he
was President of Phibro Energy Productions, Inc. Prior thereto, he was vice
president of natural gas trading for Phibro Energy, Inc. He also worked for
Marathon Oil Company in various capacities from 1968 to 1980.
Walter S. Piontek has been one of our directors since March 17, 2000.
He is retired from Mobil Oil Corporation where he was employed for 39 years in
various capacities including as executive vice president of Mobil's North
American exploration and production operations.
John L. Whitmire has been one of our directors since March 17, 2000. He
is Chairman of the Board of CONSOL Energy Inc. Form January 1996 to September
1998, Mr. Whitmire was Chairman of the Board and Chief Executive Officer of
Union Texas Petroleum Holdings, Inc. Prior thereto, he worked for Phillips
Petroleum for over 30 years in various capacities including as Executive Vice
President of exploration and production and director. He is also a director of
Global Marine, Inc.
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<PAGE> 54
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid during the fiscal years
ended January 31, 2000, 1999 and 1998 to our chief executive officer and each of
our other executive officers whose total annual salary and bonus exceeded
$100,000 in the fiscal year ended January 31, 2000 ("Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
YEAR --------------------------------------------------
NAME AND PRINCIPAL POSITION ENDED OTHER ANNUAL
IN THE COMPANY JANUARY 31, SALARY BONUS COMPENSATION(1)
--------------------------- ----------- ------ ----- -------------------
<S> <C> <C> <C> <C>
John R. Stanley ............................... 2000 $ 396,815 $ -- $ 5,808
Chief Executive Officer 1999 367,309 -- 4,800
1998 400,483 -- 4,346
Ronald P. Nowak(2) ............................ 2000 $ 69,231 $ -- $ --
President and Chief Operating Officer 1999 -- -- --
1998 -- -- --
Edwin B. Donahue .............................. 2000 $ 317,730 $ 208,333 $ 1,467
Vice President, Chief Financial 1999 271,923 111,111 7,701
Officer and Secretary 1998 200,000 213,885 4,519
Simon J. Ward ................................. 2000 $ 195,656 $ -- $ --
Vice President and Treasurer 1999 172,000 -- --
1998 144,308 15,000 --
George C. Wright .............................. 2000 $ 188,909 $ -- $ 4,800
Vice President of Accounting 1999 170,394 -- 5,019
1998 165,000 7,500 4,560
</TABLE>
(1) Reflects amounts we contributed under the Savings Plan. Certain of our
executive officers receive personal benefits in addition to salary and
cash bonuses. The aggregate amount of such personal benefits, however,
does not exceed the lesser of $50,000 or 10% of the total of the annual
salary and bonus reported for the named executive officer and
accordingly, such amounts have been excluded from the table.
(2) Mr. Nowak joined us in November 1999.
Neither Mr. Stanley, Mr. Nowak nor Mr. Donahue receive any compensation for
their duties as the sole executive officers of our subsidiaries Galveston Bay
Processing Corporation and Galveston Bay Pipeline Company.
EMPLOYMENT AGREEMENTS
On March 17, 2000, we entered into a three-year management agreement
with Mr. Stanley. The management agreement may be renewed for two additional
one-year terms, if approved by our Board of Directors. Pursuant to the
management agreement, Mr. Stanley will receive an annual salary of $300,000.
Each year he will also receive warrants to purchase 37,500 shares of class A
common stock exercisable at a price of $120 per share. If the management
agreement is terminated for cause, Mr. Stanley will be entitled to receive a
severance payment of $1.5 million. If the management agreement is terminated
other than for cause, the severance payment will be $3 million. "Cause"
includes, among other things, our failure to meet any two payment obligations on
the notes or on the senior preferred stock and a bankruptcy filing by us.
In December 1998, we entered into a two-year employment agreement with
Mr. Donahue which provides for an annual salary of $300,000. The employment
agreement also provides that Mr. Donahue shall be entitled to a
52
<PAGE> 55
bonus of $500,000 payable in two equal installments on January 31, 1999 and July
31, 1999. If we terminate Mr. Donahue's employment other than for cause, or Mr.
Donahue terminates his employment for cause, prior to the end of the term of the
agreement, we will pay Mr. Donahue his salary for the remaining term of the
agreement plus an additional six months' salary. "Cause" includes a sale,
reorganization or merger of the Company that results in a change of control of
the Company.
In May 2000, we entered into a one-year employment agreement with Mr.
Nowak which provides for an annual salary of $330,000. The employment agreement
also provides that Mr. Nowak shall be entitled to a bonus of $50,000 upon the
Company's achievement of certain production and cost-efficiency goals. If we
terminate Mr. Nowak's employment other than for cause, or Mr. Nowak terminates
his employment for cause, prior to the end of the term of the agreement, we will
pay Mr. Nowak his salary for the remaining term of the agreement.
In May 1998, we entered into a Severance Agreement with Mr. Ward which
provides that if we terminate Mr. Ward's employment other than for cause, we
will pay Mr. Ward his salary for 12 months past the date of termination.
DIRECTOR COMPENSATION
All directors, other than Mr. Stanley, are paid an annual fee of
$60,000. The Board meets regularly each quarter. Directors also receive $2,000
for each meeting attended in addition to the four regular quarterly meetings.
Mr. Stanley does not receive any compensation as the sole director of our
subsidiaries Galveston Bay Processing Corporation and Galveston Bay Pipeline
Company.
SAVINGS PLAN
We maintain a long-term savings plan (the "Savings Plan") in which
eligible employees may elect to participate. Each employee becomes eligible to
participate in the Savings Plan on January 1 or July 1 following the completion
of one year of service with us or our participating affiliates and attainment of
age 21. The Savings Plan is intended to constitute a qualified plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") and
contains a salary reduction arrangement described in Section 401(k) of the Code.
Each participant may elect to reduce his compensation by a percentage
equal to 2% to 15% and we will contribute that amount to the Savings Plan on a
pre-tax basis on behalf of the participant. The Code limits the annual amount
that a participant may elect to have contributed on his behalf on a pre-tax
basis to the Savings Plan. For 2000, this limit is $10,500. We presently make a
matching contribution in an amount equal to 10%, 20% or 50% of the amount
elected to be contributed by each participant on a pre-tax basis, up to a
maximum of 3% of each participant's compensation, depending on whether the
employee has been a participant in the Savings Plan for one year, two years, or
three years. Each participant also may elect to contribute up to 10% of his
compensation to the Savings Plan on an after- tax basis. The Code imposes
nondiscrimination tests on contributions made to the Savings Plan pursuant to
participant elections and on our matching contributions, and limits amounts that
may be allocated to a participant's Savings Plan account each year. In order to
satisfy the nondiscrimination tests, contributions made on behalf of certain
highly compensated employees (as defined in the Code) may be limited.
Contributions made to the Savings Plan pursuant to participant elections and
matching contributions are at all times 100% vested. Contributions to the
Savings Plan are invested, according to specified investment options selected by
the participants, in investment funds maintained by the trustee of the Savings
Plan. Generally, a participant's vested benefits will be distributed from the
Savings Plan as soon as administratively practicable following a participant's
retirement, death, disability, or other termination of employment. In addition,
a participant may elect to withdraw his after-tax contributions from the Savings
Plan prior to his termination of employment, and subject to strict limitations
and exceptions, the Savings Plan provides for withdrawals of a participant's
pre-tax contributions prior to a participant's termination of employment, in the
event of the participant's severe financial hardship or attainment of age 59
1/2. The Savings Plan may be amended or terminated by our Board of Directors. As
of January 31, 2000, approximately 170 of our employees were eligible to
participate in the Savings Plan, including the Named Executive Officers.
EXECUTIVE REIMBURSEMENT PLAN
We also maintain an executive reimbursement plan in which certain of
our officers are entitled to participate. Pursuant to this plan, participants
are entitled to reimbursement for medical expenses not otherwise covered by our
medical insurance. During the year ended January 31, 2000, John R. Stanley
received approximately $1,200 in reimbursements under this plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee for our fiscal year ended January 31, 2000
was composed of two or our then directors, Thomas B. McDade and James V.
Langston. During the year ended January 31, 2000, neither Mr. McDade nor Mr.
Langston was an officer or employee of ours or any of our subsidiaries, and
neither Mr. McDade nor Mr. Langston have any relationship with us requiring
disclosure under Item 404 of Regulation S-K. Both Mr. McDade and Mr. Langston
were replaced as directors pursuant to our bankruptcy plan.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our certificate of incorporation and bylaws require us to indemnify our
officers and directors to the fullest extent permitted by Delaware law. In
addition, we have customary directors' and officers' liability insurance
policies for our directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, 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 Act and is therefore unenforceable.
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<PAGE> 56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of each class of our voting securities, as of September 15,
2000, by (i) each director and director nominee, (ii) each named executive
officer, (iii) each person known to us to beneficially own more than five
percent of each class of voting securities, and (iv) all of our directors and
executive officers as a group. Except as otherwise indicated, each stockholder
identified in the table has sole voting and investment power with respect to its
or his shares.
Senior Preferred Stock:
<TABLE>
<CAPTION>
SHARES OWNED
------------------------
NAME AND ADDRESS NUMBER PERCENTAGE
---------------- ------ ----------
<S> <C> <C>
John R. Stanley(1) -- --
Ronald P. Nowak -- --
Edwin B. Donahue -- --
Simon J. Ward -- --
George C. Wright -- --
R. Gerald Bennett -- --
Ronald H. Benson -- --
Walter S. Piontek -- --
John L. Whitmire -- --
All directors and executive officers
as a group (9 persons) -- --
Carl C. Icahn(5)(6) 84,135,598 34.3%
Riverdale LLC(5)(7) 84,135,598 34.3%
High River Limited Partnership(5)(8) 84,135,598 34.3%
Credit Suisse First Boston Corporation(11) 73,724,654 30.1%
Oaktree Capital Management, LLC(11) 25,822,905(9) 10.5%
Angelo, Gordon & Co., L.P.(11) 18,327,536(10) 7.5%
</TABLE>
Junior Preferred Stock:
<TABLE>
<CAPTION>
SHARES OWNED
------------------------
NAME AND ADDRESS NUMBER PERCENTAGE
---------------- ------ ----------
<S> <C> <C>
John R. Stanley(1) -- --
Ronald P. Nowak -- --
Edwin B. Donahue -- --
Simon J. Ward -- --
George C. Wright -- --
R. Gerald Bennett -- --
Ronald H. Benson -- --
Walter S. Piontek -- --
John L. Whitmire -- --
All directors and executive officers
as a group (9 persons) -- --
Credit Suisse First Boston Corporation(11) 11,693,988 53.7%
Oaktree Capital Management, LLC(11) 2,647,575(9) 12.2%
</TABLE>
54
<PAGE> 57
Class A Common Stock:
<TABLE>
<CAPTION>
SHARES OWNED
------------------------
NAME AND ADDRESS NUMBER PERCENTAGE
---------------- ------ ----------
<S> <C> <C>
John R. Stanley(1)(2) 628,010 41.4%
Ronald J. Nowak -- --
Edwin B. Donahue(3)(4) 75 *
Simon J. Ward -- --
George C. Wright -- --
R. Gerald Bennett -- --
Ronald H. Benson -- --
Walter S. Piontek -- --
John L. Whitmire -- --
Carl C. Icahn(5)(6) 337,198 33.6%
Riverdale LLC(5)(7) 337,198 33.6%
High River Limited Partnership(5)(8) 337,198 33.6%
Credit Suisse First Boston Corporation(11) 295,474 29.5%
Oaktree Capital Management, LLC(11) 103,493(9) 10.3%
All directors and executive officers
as a group (9 persons) 628,085 41.4%
</TABLE>
Class B Common Stock:
<TABLE>
<CAPTION>
SHARES OWNED
------------------------
NAME AND ADDRESS NUMBER PERCENTAGE
---------------- ------ ----------
<S> <C> <C>
John R. Stanley(1) 247,500 100%
Ronald P. Nowak -- --
Edwin B. Donahue -- --
Simon J. Ward -- --
George C. Wright -- --
R. Gerald Bennett -- --
Ronald H. Benson -- --
Walter S. Piontek -- --
John L. Whitmire -- --
All directors and executive officers
as a group (9 persons) 247,500 100%
</TABLE>
----------
* Less than 1% of the shares outstanding in the class.
(1) The address for John R. Stanley is 1300 North Sam Houston Parkway East,
Houston, Texas 77032.
(2) Mr. Stanley is deemed to beneficially own 5,010 shares of class A
common stock held by his wife and 107,375 shares of class A common
stock held by a corporation controlled by him. Includes 515,625 shares
of class A common stock underlying currently exercisable common stock
purchase warrants. Mr. Stanley is also deemed to beneficially own 20
shares of class A common stock underlying currently exercisable common
stock purchase warrants held by his wife, and 2,032 shares of class A
common stock underlying currently exercisable common stock purchase
warrants held by a corporation controlled by him.
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<PAGE> 58
(3) Includes 51 shares of class A common stock underlying currently
exercisable common stock purchase warrants.
(4) The address for Edwin B. Donahue is 1300 North Sam Houston Parkway
East, Houston, Texas 77032.
(5) Information contained herein concerning securities held by Carl C.
Icahn, Riverdale LLC and High River Limited Partnership is based upon
information received from Icahn Associates Corp., as the representative
of each of Carl C. Icahn, Riverdale LLC and High River Limited
Partnership, adjusted to reflect dividends paid on the preferred stock
in August 2000 and September 2000.
(6) Carl C. Icahn is the sole member of Riverdale LLC and owns 100% of the
interests therein. Riverdale LLC is the general partner of High River
Limited Partnership, the direct beneficial owner of the 337,198 shares
of class A common stock and the 84,135,598 shares of senior preferred
stock. As the sole member and owner of Riverdale LLC, Mr. Icahn may be
deemed to beneficially own all of the shares of class A common stock
and senior preferred stock which High River Limited Partnership
directly beneficially owns. Mr. Icahn has shared voting power and
shared dispositive power with regard to the 337,198 shares of class A
common stock and the 84,135,598 shares of senior preferred stock,
however, he is in a position directly and indirectly to determine the
investment and voting decisions made by Riverdale LLC and High River
Limited Partnership. Mr. Icahn's principal business address is c/o
Icahn Associates Corp., 767 Fifth Avenue, 47th Floor, New York, New
York 10153.
(7) Riverdale LLC is a New York limited liability company and the general
partner of High River Limited Partnership. As such, Riverdale LLC may
be deemed to beneficially own all of the shares of class A common stock
and senior preferred stock which High River Limited Partnership
directly beneficially owns. Riverdale LLC has shared voting power and
shared dispositive power with regard to the 337,198 shares of class A
common stock and the 84,135,598 shares of senior preferred stock.
Riverdale LLC's principal business address is 100 South Bedford Road,
Mount Kisco, New York 10549.
(8) High River Limited Partnership is a Delaware limited partnership and
has sole voting power and sole dispositive power with regard to the
337,198 shares of class A common stock and the 84,135,598 shares of
senior preferred stock. High River Limited Partnership's principal
business address is 100 South Bedford Road, Mount Kisco, New York
10549.
(9) This number represents the number of securities held by OCM
Opportunities Fund II, L.P. for which Oaktree Capital Management, LLC
is the general partner and Oaktree Capital Management, LLC as
investment manager of Columbia/HCA Master Retirement Trust (Separate
Account II). Thus, under certain circumstances, Oaktree Capital
Management, LLC may be deemed to beneficially own the securities held
by the above referenced fund and account.
(10) This number represents the number of securities owned by Angelo, Gordon
& Co., L.P. and held for the accounts of 19 private investment funds
for which Angelo, Gordon & Co., L.P. acts as general partner and/or
discretionary investment advisor. Angelo, Gordon & Co., L.P. is a
Delaware limited partnership. AG Partners, L.P., a Delaware limited
partnership, is the sole general partner of Angelo, Gordon & Co., L.P.
John M. Angelo is a general partner of AG Partners, L.P. and the chief
executive officer of Angelo, Gordon & Co., L.P. Michael L. Gordon is
the other general partner of AG Partners, L.P. and the chief operating
officer of Angelo, Gordon & Co., L.P. Thus, under certain
circumstances, Mr. Angelo and Mr. Gordon may also be deemed to be
beneficial owners of the securities held by Angelo, Gordon & Co., L.P.
(11) Information contained herein concerning Angelo, Gordon & Co., L.P.,
Oaktree Capital Management, LLC and Credit Suisse First Boston
Corporation is based upon information received from Cadwalader,
Wickersham & Taft, as the representative of each of Angelo, Gordon &
Co., L.P., Oaktree Capital Management, LLC and Credit Suisse First
Boston Corporation, adjusted to reflect dividends paid on the preferred
stock in August 2000 and September 2000.
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<PAGE> 59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From August 1993 to June 1997, we provided accounting and legal
services to TARC and TEC and drilling and workover, administrative and
procurement, accounting, legal, lease operating, and gas marketing services to
TransAmerican pursuant to a services agreement. The fee to TARC and TEC for
general commercial legal services and certain accounting services (including
payroll, tax, and treasury services) was $26,000 per month. At TransAmerican's
request, we, at our election, provided drilling and workover services. In June
1997, the receivable from TransAmerican under this services agreement was paid
and the services agreement was terminated.
On June 13, 1997, we entered into a services agreement with
TransAmerican, TEC, and TARC. Under the services agreement, we provided
accounting, legal, administrative and other services to TARC, TEC and
TransAmerican and its affiliates. TransAmerican provided advisory services to
TARC, TEC and us. As of January 31, 1999, receivables of $4.6 million for other
services provided to TransAmerican and certain of its affiliates were recorded
as a reduction of additional paid-in capital.
In connection with a December 15, 1998 transaction pursuant to which
TARC transferred its refinery assets to a minority-owned subsidiary, TCR Holding
Corporation ("TCR Holding"), and TCR Holding transferred such assets to its
majority-owned subsidiary, Orion Refining Corporation ("Orion"; together with
TCR Holding, the "TCR Group"), we entered into an Amended and Restated Services
Agreement with TCR Holding and Orion. The TCR Group Services Agreement called
for us to provide certain accounting, legal, administrative and other services
to the TCR Group through December 15, 2000 and receive payment for such
services, through February 28, 1999, in the amount of $200,000 per month.
Subsequent to February 28, 1999, the monthly fee was adjusted based on an
assessment of the cost to us of providing such services. As of January 31, 2000,
the receivable from Orion for such services was $0.1 million.
In March 2000, we entered into a services agreement with TNGC. Pursuant
to the agreement, we will provide certain accounting, legal, administrative and
other services to TNGC and its affiliates in exchange for a monthly fee of
$2,000.
In December 1994, we entered into an interruptible gas sales agreement
with TransAmerican, revenues from which totaled approximately $11.7 million for
the year ended January 31, 1997. TransAmerican did not purchase any gas from us
during the years ended January 31, 1999 and 1998. All amounts owed under the
agreement were paid on June 13, 1997.
In September 1996, we entered into an agreement with TransAmerican
pursuant to which we obtained an $11.5 million dollar-denominated production
payment, subsequently increased to $19 million, bearing interest at 17% per
annum, burdening certain oil and gas interests owned by TransAmerican as a
source of repayment for certain of the receivables from TransAmerican discussed
above. At January 31, 1997, $59 million of remaining related-party receivables
was recorded as a contra equity account due to uncertainties regarding the
repayment terms for such receivables. We agreed to defer any interest payments
due from TransAmerican until 1998. As of January 31, 1997, TransAmerican
conveyed at historical cost certain oil and gas properties to us for a purchase
price of $31.6 million. A portion of the purchase price was used to offset
obligations under the September 1996 production payment.
During the fiscal year ended January 31, 1998, we sold natural gas to
TARC under an interruptible long-term sales contract. Revenues from TARC under
this contract totaled approximately $1.1 million. There were no such sales to
TARC during 1999.
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In July 1996, TransAmerican executed a note payable to TransTexas
Exploration Corporation ("TTEX"), a subsidiary of ours, in the original
principal amount of $25 million maturing on July 31, 1998. Advances by TTEX to
TransAmerican under the note bore interest at a rate of 15% per annum, payable
quarterly. This note was repaid on June 13, 1997.
In order to facilitate the settlement of certain litigation in May
1996, we advanced to TransAmerican $16.4 million of the settlement amount in
exchange for a note receivable. All amounts outstanding under this note were
repaid on June 13, 1997.
We have made various advances to TransAmerican in an aggregate amount
of approximately $7 million for lease purchases and other corporate expenses.
This amount was repaid on June 13, 1997.
During the year ended January 31, 1999, TEC made advances to us
pursuant to a $50 million promissory note which was scheduled to mature on June
14, 2002. The note accrued interest at a rate of 11.375% per annum. As of
January 31, 2000, the outstanding balance of the note was $6.5 million, and the
accrued interest was $0.3 million. This note was canceled on March 17, 2000
pursuant to our bankruptcy plan.
In December 1998, we executed a note payable to TransAmerican in the
original principal amount of $1.4 million plus interest at a rate of 15% per
annum. On December 31, 1998, we used the proceeds from this loan to pay a
portion of our interest payment obligations on our public debt securities. This
note was secured by a lien on the assets of Galveston Bay Processing. During the
fiscal year ended January 31, 2000, Galveston Bay Processing made payments of
principal and interest under this note to TransAmerican of approximately $1.6
million. As of January 31, 2000 and 1999, the balance due on the note was $0 and
$1.4 million, respectively.
In October 1997, Mr. Stanley guaranteed our $40 million line of credit
with BNY Financial Corporation.
During the fiscal year ended January 31, 1998, TEC allocated $12.6
million of debt issuance costs relating to TEC's senior secured notes to
TransTexas. We recorded these costs as a contribution of capital.
During the fiscal year ended January 31, 1998, we recorded a
contribution to paid-in capital of approximately $129.5 million in connection
with TransAmerican's assumption of the Lobo Sale tax contingency.
During the fiscal year ended January 31, 1998, we contributed $13.3
million to TransAmerican to retire debt related to certain oil and gas
properties. Those properties, which had a net book value of $21.5 million were
contributed to us.
During the fiscal year ended January 31, 1999, we paid approximately
$5.6 million of Texas franchise taxes on behalf of certain affiliates pursuant
to the Tax Allocation Agreement. Approximately $2.3 million of the franchise
taxes paid exceeded the payable to affiliates for such taxes and was recorded as
a reduction of additional paid-in capital.
In April 1999, TEC made a cash contribution of $0.7 million to us.
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DESCRIPTION OF THE SECURITIES
THE NOTES
The notes were issued under an Indenture among us, our subsidiaries,
Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as
guarantors, and Firstar Bank, N.A., as trustee (the "Trustee"). Copies of the
Indenture and certain of the security documents relating to the Indenture have
been filed as exhibits to the registration statement of which this prospectus is
a part. This summary of the notes is subject to and qualified in its entirety by
reference to all the provisions of the Indenture, including definitions of
certain terms used in the Indenture. For example, in this prospectus we use
capitalized words to signify defined terms that have been given special meaning
in the Indenture. We describe the meaning for only the more important terms. We
also include references in parenthesis to certain Indenture sections. Whenever
we refer to particular sections or defined terms, those sections or defined
terms are incorporated herein by reference. In this section, references to "we"
or "us" refer solely to TransTexas Gas Corporation and not its subsidiaries.
GENERAL
The notes are limited in the aggregate principal amount of $200 million
and payment of the full principal amount of the notes will be due on March 15,
2005. The notes are our senior secured obligations, which means that the notes:
o are secured by certain of our assets as described below;
o rank senior in right of payment to any of our junior debt or
to any of our debt that is expressly stated to be subordinate
to senior debt or specifically to the notes;
o rank equally in right of payment to our other existing senior
debt; and
o will rank equally in right of payment to any senior debt that
we incur in the future as permitted under the terms of the
Indenture.
Currently, our other senior debt that ranks equally in right of payment
with the notes consists of the following:
o $52.5 million under our oil and gas credit facility;
o up to $15 million under our accounts receivable facility; and
o a promissory note in favor of Jefferies Analytical Trading
Group, Inc. dated March 17, 2000 in the principal amount of
$6,676,288.41, due March 17, 2003.
Our repayment of the notes is secured by substantially all of our
assets. However, the Trustee's liens do not cover any of our inventory (except
our inventory of oil and gas) or receivables. Additionally, the Trustee's
security interest in the collateral is subordinated to the following security
interests:
o the lien of any person accorded lien priority pursuant to our
bankruptcy plan or a plan order (the confirmation order or any
other order entered in our bankruptcy proceedings under the
terms of our bankruptcy plan);
o the holders of First Lien Debt (as defined below in the
section entitled "Collateral and Security; Subordination of
the Trustee's Liens on Collateral"), pursuant to the terms of
the Indenture; and
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o the security interests securing repayment of our oil and gas
credit facility, pursuant to the terms and conditions of the
Intercreditor Agreement executed among us, the Trustee, the
agent for our creditors under our oil and gas credit facility
and our creditors under our accounts receivable facility (the
"Intercreditor Agreement").
For further description of the subordination of the Trustee's liens, see the
section below entitled "Collateral and Security; Subordination of the Trustee's
Liens on Collateral."
The notes will bear interest at the annual rate shown on the front
cover of this prospectus from March 15, 2000. We will pay interest twice a year,
on each March 15 and September 15, until the principal is paid or made available
for payment. Interest will be paid to the person in whose name the note is
registered at the appropriate record date specified in the notes.
We may redeem the notes at our option at any time, in whole or in part,
at the redemption prices set forth below under the heading "Optional
Redemptions," plus accrued and unpaid interest to the redemption date. Also,
based upon the amount of proceeds received from certain asset sales, we may be
required to offer you the option to sell us your notes, or portions of your
notes, as described below under the section entitled "Certain Covenants - -
Limitation on Asset Sales." If there is a Change of Control, you will have the
right to request us to repurchase your notes as described below under the
heading "Purchase of Notes at the Option of the Holder Upon a Change of
Control."
GOVERNING LAW
The Indenture and the notes are governed by New York law.
FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES
The notes are issued:
o only in registered form; and
o without interest coupons.
The notes are represented by one or more global notes in which you may
purchase a beneficial interest but may not hold (collectively, the "global
note") and definitive (physical) notes. The global note is on deposit with the
Trustee as custodian for DTC and is registered in the name of Cede & Co.
("Cede"), as nominee of DTC. The global note and any notes issued in exchange
for the global note are subject to restrictions on transfer and bear a legend
regarding those restrictions. Except as set forth below, record ownership of the
global note may be transferred, in whole or part, only to DTC or a nominee of
DTC or to a successor of DTC or its nominee (a "Depository").
DTC is a limited-purpose trust company created to hold securities for
its participating organizations (participants) and to facilitate the clearance
and settlement of transactions in those securities between participants through
electronic book-entry changes in accounts of its participants. The participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly. Persons who are not participants may beneficially
own securities held by or on behalf of DTC only through participants (either
directly, or indirectly through entities that clear through or maintain a
custodial relationship with a participant). The only place where the ownership
of beneficial interests in the global note will appear and the only way the
transfer of those interests can be made will be on the records kept by DTC (for
its participants' interests) and the records kept by those participants (for
persons who have a beneficial interest through a participant).
Secondary trading in bonds and notes of corporate issuers like the
Company is generally settled in clearing- house (that is, next-day) funds. In
contrast, beneficial interests in global notes usually trade in DTC's same-day
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funds settlement system, and settle in immediately available funds. We make no
representations as to the effect that settlement in immediately available funds
will have on the trading activity in the beneficial interests in the global
note.
Except as described below, you will not have definitive (physical)
notes registered in your name, will not receive physical delivery of definitive
notes and will not be considered a registered owner of the global note under the
Indenture for any purpose.
The global note will not be registered in the name of any person, or
exchanged for notes that are registered in the name of any person, other than
the Depository, unless either of the following occurs:
o the Depository notifies us that it is unwilling or unable to
continue as Depository and a successor Depository is not
appointed by us within 90 days after delivery of such notice;
or
o we notify the Trustee in writing that we elect to cause the
issuance of definitive notes.
In those cases, we will execute and the Trustee will authenticate and make
available for delivery, definitive notes in an aggregate principal amount equal
to the aggregate principal amount of the global note. When all beneficial
interests in the global note have either been exchanged for definitive notes,
redeemed, repurchased or canceled, the global note will be returned to or
retained and canceled by the Trustee.
A definitive note may be exchanged for a beneficial interest in the
global note only upon receipt by the Trustee of a definitive note, duly endorsed
or accompanied by appropriate instruments of transfer, in which case the Trustee
shall cancel the submitted definitive note and cause the aggregate principal
amount of notes represented by the global note to be increased accordingly. Upon
receipt by the Trustee of written transfer instructions from the Depository on
behalf of any person having a beneficial interest in the global note, the
Trustee will cause the aggregate principal amount of the global note to be
reduced accordingly and, following such reduction, we will execute and the
Trustee will authenticate and make available for delivery to the transferee a
definitive note in the appropriate principal amount.
The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, your
ability to transfer beneficial interests in the global note will be limited to
that extent. Also, because DTC can only act on behalf of participants, who in
turn act on behalf of indirect participants, your ability to pledge your
beneficial interest in the principal amount represented by the global note to
persons or entities that do not participate in the DTC book entry system, or
otherwise take actions in respect of such beneficial interest, may be affected
by the lack of a physical certificate evidencing your interest.
All definitive notes and global notes issued upon any registration of
transfer or exchange of definitive notes or the global note will be our legal,
valid and binding obligations, just as in the case of the originally issued
definitive notes and the global note.
Payments in respect of the principal of, premium, if any, and interest
on any notes registered in the name of the Depository on any relevant Record
Date will be paid by the Trustee to the Depository in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, we and
the Trustee will treat the persons in whose names the notes, including the
global note, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither we nor the Trustee, nor any of our agents has or will have any
responsibility or liability for the payment of such amounts to persons who hold
beneficial interests through a participant in the DTC book-entry system, either
directly or indirectly, or for any other matter relating to actions or practices
of DTC or any participants or indirect participants in the DTC book-entry
system.
We will make cash payments of interest on, and principal or, and the
redemption or repurchase price of, the global note to Cede, as the registered
owner of the global note. We will send any redemption notices to Cede. We
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understand that if less than all of the notes are being redeemed, DTC's practice
is to determine by lot the amount of the holdings of each participant to be
redeemed.
We understand that DTC's current practice, upon receipt of any payment
in respect of securities such as the global notes(including principal and
interest), is to credit the accounts of the relevant participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interests in the relevant
security as shown on the records of DTC (unless DTC has reason to believe it
will not receive payment on such payment date). Payments by the DTC's
participants and indirect participants to the beneficial owners of global notes
will be governed by standing instructions and customary practices and will not
be the responsibility of DTC (or any Depository), the Trustee or us. Neither we
nor the Trustee will be liable for any delay by DTC (or any Depository) or any
participants or indirect participants in identifying the beneficial owners of
any of the notes, and we and the Trustee may conclusively rely on and will be
protected in relying on instructions from the Depository for all purposes.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interest in the Global Note among Participants of DTC, neither DTC
nor any subsequent Depository is under any obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither we, nor the Trustee, nor any of our agents will have any
responsibility or liability for:
o any aspect of DTC's (or any subsequent Depository's) records
or any participant's or indirect participant's records
relating to or payments made on account of beneficial
ownership interests in the global note;
o the performance by DTC (or any subsequent Depository) or any
participants or indirect participants of their respective
obligations under the rules and procedures governing their
operations; or
o any other matter relating to the actions and practices of DTC
or any of its participants or indirect participants.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that we believe to be reliable, but we
take no responsibility for the accuracy thereof.
OPTIONAL REDEMPTION
We may redeem the notes at our option, in whole at any time or in part
from time to time, in cash at the redemption prices (expressed as a percentage
of the outstanding principal amount) set forth below for the year 2000 and
thereafter:
<TABLE>
<CAPTION>
IF REDEEMED DURING THE 12-MONTH REDEMPTION
PERIOD BEGINNING MARCH 15, PRICE
------------------------------- ----------
<S> <C>
2000............................. 115%
2001............................. 112%
2002............................. 109%
2003............................. 106%
2004............................. 103%
</TABLE>
In each case, we will also pay accrued interest, if any, to the redemption date.
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In the case of a partial redemption, the Trustee shall select the notes
to be redeemed pro rata, by lot or in such other manner as in its sole
discretion it deems appropriate and fair, and in such manner as complies with
any applicable legal and stock exchange requirements.
Notice of any redemption will be sent to the holder of each note to be
redeemed by first class mail at least 30 days and not more than 60 days prior to
the redemption date. The date fixed for redemption contained in any notice of
redemption and our obligation to redeem any notes on such date may be subject to
the satisfaction or waiver of conditions determined by us in our sole
discretion. Unless we default on our payment obligations or any conditions
contained in the notice of redemption are not satisfied or waived, interest will
cease to accrue on the notes, or portions thereof called for redemption, on the
redemption date.
No "sinking fund" is provided for the notes, which means that the
Indenture does not require us to redeem or retire the notes periodically.
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
If a Change of Control, as defined below, occurs, you will have the
right, at your option, subject to the terms and conditions of the Indenture, to
require us to repurchase all your notes not called for redemption, or any
portion of the principal amount of your notes that is equal to $1,000 or an
integral multiple thereof. The price we are required to pay is 101% of the
principal amount of the notes to be repurchased, together with interest accrued
to the repurchase date.
Within 20 business days after the occurrence of a Change of Control, we
are obligated to give you notice of the Change of Control and of your repurchase
right arising as a result thereof. We must also deliver give a copy of this
notice to the Trustee. The notice a Change of Control will contain all
instructions and materials required by applicable law and will contain or make
available to you other information material to your decision to tender your
notes for repurchase. We are required to send you the notice of Change of
Control at least 23 business days before the Change of Control Payment Date. To
exercise your repurchase right, you must surrender your note, together with the
completed form entitled "Option of Holder to Elect Purchase" on the reverse of
the note, to the addressee specified in the notice at least three business days
prior to the Change of Control Payment Date. We are required to make the
repurchase on a date that is no later than 60 days after the occurrence of a
Change of Control.
If you elect to tender less than the full amount of your notes, the
Trustee is required to authenticate and deliver to you a new note equal in
principal amount to any unpurchased portion of the note surrendered. We will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
A "Change of Control" will be deemed to have occurred during any period
of three consecutive years or less beginning on the original issuance date of
the notes, the following occurs:
Any combination of the following individuals cease to comprise a
majority of our board of directors:
o individuals who were directors at the beginning of such
period;
o subsequent directors whose election by our board of directors,
or nomination by our board of directors for election by our
stockholders, was made or approved by a vote of not less than
60% of the directors who were directors at the beginning of
such period;
o subsequent directors whose election by our board of directors,
or nomination by our board of directors for election by our
stockholders, was made or approved by a vote of not less than
60% of the directors meeting one of the two preceding
descriptions; or
o any subsequent director elected by the holders of the class B
common stock voting separately as a class in such election.
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COLLATERAL AND SECURITY; SUBORDINATION OF THE TRUSTEE'S LIENS ON COLLATERAL
Our repayment of the notes is secured by security agreements and
mortgages, which, collectively, create or grant in favor of the Trustee (for the
benefit of holders of the notes) a lien on substantially all of our assets,
including substantially all of the mineral properties described in greater
detail in the section of this prospectus entitled "Business -- Exploration and
Production Operations." However, the Trustee's lien does not cover any of our
inventory (except our inventory of oil and gas) or receivables, which have been
specifically excluded from the collateral securing the notes under the terms of
the security documents and the Intercreditor Agreement. The collateral securing
the notes represents substantially all of our assets other than our inventory
and receivables, and includes substantially all of our mineral properties
described in greater detail in the section of this prospectus entitled "Business
-- Exploration and Production Operations."
The notes are guaranteed by our subsidiaries. Although the
subsidiaries' guaranties are not secured, the collateral securing the notes
includes our pledge of all of the capital stock of the subsidiaries. The
guaranties are discussed in greater detail below under the heading "Guarantee by
Subsidiaries."
As set forth below, the Trustee's lien on the collateral is
subordinated to certain other security interests, or, in certain circumstances,
is subject to release.
Subordination of Liens on Collateral Under Our Bankruptcy Plan and to Liens
Securing First Lien Debt
The terms of the Indenture obligate the Trustee to subordinate its
security interests in the collateral to the security interests of both (a) any
person accorded lien priority pursuant to our bankruptcy plan or a plan order
(the confirmation order or any other order entered in our bankruptcy proceedings
under the terms of our bankruptcy plan) and (b) certain of our indebtedness and
obligations ("First Lien Debt") secured by one of the following categories of
liens:
o pledges of assets or deposits of cash or cash equivalents to
secure the performance of bids, trade contracts (other than
borrowed money), leases, statutory obligations, surety bonds,
performance bonds and other obligations of a like nature
incurred in the ordinary course of our business (or to secure
reimbursement obligations or letters of credit in support of
such bonds) in an aggregate amount not in excess of 5% of the
SEC PV10 (discounted estimated future cash flows from our
proved reserves) as reported in our most recent reserve
report;
o pledges of assets or deposits of cash or cash equivalents to
secure appeal or supercedeas bonds (or to secure reimbursement
obligations or letters of credit in support of such bonds) in
an amount not to exceed $10 million at any one time
outstanding;
o pledges of assets or deposits of cash or cash equivalents to
secure pledges or deposits made in the ordinary course of our
business in connection with worker's compensation,
unemployment insurance, and other types of social security
legislation, property insurance and liability insurance;
o liens encumbering customary initial deposits and margin
deposits securing interest rate and currency swaps, hedge
agreements, forward contracts or similar agreements or
arrangements permitted under the terms of the Indenture;
o pledges of assets to secure margin obligations, settlement
obligations, reimbursement obligations or letters of credit in
connection with hedging transactions permitted under the
Indenture; provided, however, that, at the time such pledge is
made (or, if such pledge secures future permitted hedging
transactions, at the time any such permitted hedging
transaction is entered into), the maximum aggregate exposure
under such permitted hedging transaction does not exceed the
greater of (i) $10 million or (ii) 5% of the SEC PV10
indicated on our most recent reserve report;
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o easements, rights-of-way, zoning, similar restrictions and
other similar encumbrances or title defects incurred in the
ordinary course of our business which, in the aggregate, are
not material in amount, and which do not in any case
materially detract from the value of the subject property (as
such property is used by us or any of our subsidiaries) or
materially interfere with the ordinary conduct of our business
or the business of our subsidiaries;
o liens (including extensions and renewals thereof) encumbering
assets owned by Galveston Bay Processing Corporation or by
Galveston Bay Pipeline Company that existed on the date of the
Indenture or that are created or granted, or, as to liens that
existed on the date of the Indenture, that are extended or
renewed, after the date of the Indenture in connection with
any mortgage or a sale-leaseback transaction, as contemplated
by the Indenture;
o liens securing Allowed Priority Tax Claims, liens securing
Allowed Claims of prepetition secured creditors in class 2
under our bankruptcy plan, and Liens securing Allowed Claims
of prepetition secured creditors in class 6B under our
bankruptcy plan;
o liens granted on (i) equipment to the extent granted to secure
debt incurred in accordance with the terms of the Indenture,
(ii) inventory (other than hydrocarbons), and (iii)
receivables (which are not included in the collateral securing
repayment of the notes);
o liens constituting or granted in connection with a presale of
gas, provided, however, that all of the proceeds from such
presale of gas shall be applied to a note repurchase or to a
note redemption in accordance with the terms of the Indenture;
o liens created under Drilling Programs (agreements whereby the
lien holder has agreed to provide financing or services to
implement or enhance production), subject to limitations
contained in the Indenture with respect to the number of wells
and percentage of production that may be included in such
Drilling Programs;
o any extension, renewal, or replacement of liens created or
existing pursuant to First Lien Debt, provided, however, that
such liens would have otherwise been permitted under the
definition of First Lien Debt in the Indenture, and provided
further, that such liens do not secure any additional debt or
encumber any additional property;
o liens constituting or securing certain royalty payment
obligations incurred in the ordinary course of our business
and drilling production payment obligations incurred in
accordance with the terms of the Indenture;
o liens on the proceeds of any property that collateralizes the
First Lien Debt or is the subject of a lien permitted by the
Indenture;
o liens on the proceeds of any property that is not collateral
for repayment of the notes;
o liens on real or personal property, acquired after the
issuance of the notes that were created solely for the purpose
of securing debt incurred to finance the cost of such
property; and
o liens securing the oil and gas credit facility.
Requests for Subordination of Collateral
Upon our request and if the appropriate provisions of the Indenture
have been complied with, the Trustee, at our expense, must execute and deliver
any instruments that are required to:
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o subordinate the Trustee's lien to any lien accorded priority
under our bankruptcy plan or by a plan order; and
o subordinate the Trustee's lien to any lien that is permitted
by the terms of the indenture ("permitted lien") and comprises
First Lien Debt.
The Trustee is required to comply with our subordination request only to the
extent that we certify to the Trustee that either (a) the lien to which the
Trustee's lien is to be subordinated is a lien accorded priority under our
bankruptcy plan or by a plan order, (b) the lien to which the Trustee's lien is
to be subordinated is a lien securing First Lien Debt, or (c) holders
representing at least 66 2/3% of principal amount of the then outstanding notes
have consented in writing to the subordination.
Release of Collateral Pursuant to a Release Request
Under certain circumstances set forth in the Indenture, the Trustee is
required to release certain of the collateral securing repayment of the notes.
Among other conditions set forth in the Indenture, the Trustee is obligated to
release collateral if:
o the collateral requested to be released will be disposed of in
compliance with the express provisions of the covenant
restricting asset sales set forth in the Indenture (described
under the section below entitled "Limitation on Asset Sales");
o the collateral requested to be released will be used within
five business days either to make redemptions or purchases of
notes which shall be delivered to the Trustee for
cancellation;
o all of the conditions precedent to the termination of the
security document under which the lien in the collateral to be
released was created, or to the release of such collateral
from the lien created by such security document, as set forth
in such security document, have been satisfied;
o holders of not less than 66 2/3% in principal amount of the
then outstanding notes have consented in writing to such
release of collateral from the Trustee's lien;
o the collateral to be released secures debt or other
obligations that constitute First Lien Debt and we have
satisfied or caused to be satisfied all requirements for
obtaining subordination of the Trustee's liens on such
collateral under the terms of the Indenture and such
collateral is (or will be, upon obtaining such release)
encumbered by a lien permitted under the indenture with
respect to either equipment, inventory, receivables, a
Drilling Program, royalty payment obligations, or drilling
production payments; or
o the release of the collateral to be released is required
pursuant to, or is required in order to effect compliance
with, our bankruptcy plan or a plan order.
The Trustee is not obligated to comply with any such release request if any
event of default under the Indenture or any security document relating to the
subject collateral has occurred and is continuing.
Disposition of Certain Collateral Without Requesting Release
Notwithstanding the foregoing provisions of this section entitled
"Collateral and Security; Subordination of the Trustee's Liens on Collateral",
we may (or with respect to the security documents, the grantor of the applicable
security interest may), without requesting or receiving the consent of the
Trustee (and any lender, trustee or collateral agent under any such security
documents) do either of the following:
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o make cash payments (including repayments of debt) that are not
otherwise prohibited by the Indenture; and
o dispose of collateral securing the repayment of the notes,
free from applicable security interests;
pursuant to either:
(1) an asset sale not otherwise expressly permitted under the
section below entitled "Limitation on Asset Sales", if the aggregate
proceeds resulting therefrom, and the aggregate fair market value of
all assets sold thereunder, when combined with all such other asset
sales not otherwise expressly permitted, do not exceed $1 million in
any twelve-month period;
(2) any sale, lease, license, abandonment or other disposal of
(a) damaged, worn out, unserviceable or other obsolete property in the
ordinary course of our business, or (b) other property no longer
necessary for the proper conduct of our business, provided that any
collateral to be so disposed has a fair value less than 5% of the
aggregate fair value of all collateral securing repayment of the notes;
or
(3) the conveyance, sale, transfer or other disposal of
hydrocarbons or other mineral products in the ordinary course of our
business.
Subordination of the Liens Securing Notes to Liens Securing Repayment of the Oil
and Gas Credit Facility
The Intercreditor Agreement subordinates the Trustee's lien on certain
of the collateral securing repayment of the notes to the security interests of
the agent for creditors under our oil and gas credit facility. Under the terms
of the Intercreditor Agreement, any collateral that secures the repayment of
both the notes and our oil and gas credit facility, or any proceeds therefrom,
must be applied to repayment of our indebtedness and other obligations under our
oil and gas credit facility until those obligations are paid in full. The
Intercreditor Agreement also obligates the Trustee to execute all instruments
and to take all actions necessary to ensure that its security interests in the
collateral are junior to the security interests of the agent for creditors under
our oil and gas credit facility.
Under the terms of the Indenture and the Intercreditor Agreement, the
following restrictions and obligations are imposed upon the Trustee with respect
to the collateral securing the repayment of the notes:
o the Trustee is required, at our expense, to do all acts and
other things that are reasonably necessary to ensure that the
lien of the Trustee is junior to the lien securing the
indebtedness under the oil and gas credit facility;
o the Trustee is prohibited from exercising any secured lender
remedies (such as sale of, foreclosure on, or liquidation of
assets) against any collateral that secures payment of
indebtedness under the oil and gas credit facility;
o all determinations regarding the exercise of any remedies
against the collateral (for instance, a decision to foreclose)
are to be made by the agent for the creditors under the oil
and gas credit facility; and
o any of our cash or assets, or any proceeds thereof, received
by the Trustee as the result of any secured lender remedies
are to be turned over for payment of indebtedness under the
oil and gas credit facility until such indebtedness and all of
our other obligations under the oil and gas credit facility
have been fully satisfied.
The Intercreditor Agreement provides that the maximum principal amount
of indebtedness that is allowed under the oil and gas credit facility is $52.5
million, unless the Trustee consents to an increase in that amount.
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Release of Collateral Upon Legal Defeasance
In the event that the we elect to implement a Legal Defeasance, as
described in the section below entitled "Covenant Defeasance and Legal
Defeasance", and all requirements therefore have been satisfied, the Trustee
will disclaim and give up any and all rights it has in or to the collateral
securing the notes and any rights it has under the security documents, subject
only to certain exception set forth in the section below entitled "Covenant
Defeasance and Legal Defeasance."
GUARANTEE BY SUBSIDIARIES
If at any time either we or any of our subsidiaries invest or transfer
assets in excess of $100,000 in or to any of our subsidiaries that is not a
guarantor of the notes, we are required to cause such subsidiary to become a
guarantor of the notes. Currently, our repayment of the notes is guaranteed by
our subsidiaries Galveston Bay Producing Corporation and Galveston Bay Pipeline
Company. However, provided that no event of default has occurred and is
continuing, each of these guarantor subsidiaries may be released from such
guarantee if, in accordance with the applicable provisions of the Indenture,
either:
o the book value of the subsidiary is reduced to an amount less
than $100,000 as the result of an asset sale permitted under
the Indenture (for example, where the proceeds of such sale
are used for our capital expenditures or applied toward
redemption of the notes);
o we sell all of the subsidiary's capital stock in a stock sale
permitted under the Indenture;
o the subsidiary enters into a financing arrangement secured by
a mortgage or deed of trust that is permitted under the
Indenture (for example, where the mortgagee has executed an
attornment agreement in favor of the Trustee); or
o the subsidiary enters into a sale-leaseback arrangement
permitted under the Indenture.
The liability of each guarantor under its guarantee is limited to the
amount of its adjusted net assets. This limitation is intended to protect the
guarantees from avoidance as fraudulent transfers, although there can be no
assurance that the limitation will successfully do so. See the section of this
prospectus entitled "Risk Factors -- Risk Relating to the Offering -- The
guaranties of our subsidiaries may not be enforceable in bankruptcy."
Certain of our operations are, or are expected to be, conducted through
our guarantor subsidiaries. Our ability to pay principal of and interest on the
notes is dependent in part upon the earnings of our guarantor subsidiaries and
the distribution of those earnings to us, loans or advances made by any of our
subsidiaries to us, or by our sale of the stock or assets of tour subsidiaries.
Any right we have to receive assets of these subsidiaries upon their liquidation
or recapitalization (and the consequent right of holders of the notes to
participate in those assets) is subordinate to the claims of creditors of these
subsidiaries or any of their subsidiaries, if any, except to the extent that we
are recognized as a direct creditor of such subsidiary. See the section of this
prospectus entitled "Risk Factors -- Risk Relating to the Offering -- The
guaranties of our subsidiaries may not be enforceable in bankruptcy."
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Additional Indebtedness and Issuances of Disqualified Capital
Stock
We will not, and will not permit any of our subsidiaries to, directly
or indirectly, incur or otherwise become liable for, any debt or issue any
Disqualified Capital Stock (as defined), except for the following:
o debt evidenced by the notes or our subsidiaries' guarantee of
the notes;
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o Subordinated Debt (debt due and owing only after the notes are
paid in full and junior in right of payment to the notes in
the event of a liquidation) to any of our wholly owned
subsidiaries, or debt of any of our wholly owned subsidiaries
to us or any of our other wholly owned subsidiaries;
o debt outstanding under our accounts receivable facility or any
other revolving credit facility other than the oil and gas
credit facility (a "Revolving Credit Facility") in an
aggregate principal amount at any one time not to exceed the
Borrowing Base in effect under such Revolving Credit Facility,
plus any amount outstanding under such Revolving Credit
Facility to the extent incurred with respect to repayment of
certain Allowed Priority Tax Claims or Allowed Claims under
our bankruptcy plan;
o debt in an aggregate principal amount outstanding not to
exceed at any one time $120 million, provided, however, that
the aggregate principal amount outstanding under the oil and
gas credit facility shall not exceed $52.5 million;
o debt secured by a Permitted Lien under the Indenture relating
to any pledges of assets or cash to secure contract
performance, leases, bonds and other similar obligations,
pledges of assets relating to permitted hedging transactions,
or pledges of assets to secure obligations under interest rate
and currency swaps and similar agreements, in each case
subject to limitations of amounts set forth in the Indenture;
o any guaranty of debt relating to a Revolving Credit Facility,
the oil and gas credit facility or certain Allowed Priority
Tax Claims or Allowed Claims under our bankruptcy plan;
o debt incurred as an extension, renewal, replacement, or
refunding of debt permitted to be incurred related to certain
Allowed Priority Tax Claims or Allowed Claims under our
bankruptcy plan, debt existing on the issuance date of the
notes and secured by assets of Galveston Bay Pipeline Company,
up to a maximum principal amount not to exceed $2,000,000, and
debt existing on the issuance date of the notes and secured by
assets of Galveston Bay Processing Corporation up to a maximum
principal amount not to exceed $10,000,000;
o debt represented by trade payables or accrued expenses, in
each case incurred on normal, customary terms in the ordinary
course of our business (other than money borrowed from
financial institutions), not overdue for a period of more than
45 days;
o obligations under interest rate and currency swaps, hedge
agreements, forward contracts or similar agreements or
arrangements permitted under the terms of the Indenture;
o debt relating to certain Allowed Priority Tax Claims and
Allowed Claims under our bankruptcy plan;
o we may enter into an agreement for the Presale of Gas for cash
if the net proceeds from such sale are applied toward
redemption of the notes under the terms of the Indenture; and
o letters of credit and reimbursement obligations relating
thereto to the extent collateralized by cash or cash
equivalents.
"Disqualified Capital Stock" means, any of our capital stock or the
capital stock of our subsidiaries that, by its terms or by the terms of any
security into which it may be converted or for which it may be exchanged, can or
could be subject to redemption or repurchase by us or our subsidiaries, on or
prior to the maturity date of the notes.
If either we or either of our subsidiaries incur any debt or become
liable for any Disqualified Capital Stock that meets the criteria of more than
one of these types of debt, we will have the right to determine in our
discretion
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the category to which such debt applies, and may elect to apportion such item of
debt between or among any two or more of these categories that are applicable.
The amount of any debt that is not subject to payment of cash interest
or is issued at a discount to face value will be deemed to be equal to the
amount of the liability in respect thereof determined in accordance with GAAP.
Under a production payment purchase agreement among us, Southern
Producer Services ("Southern"), L.P., TCW Portfolio No. 1555 DR V Sub-Custody
Partnership, L.P., and TCW DR VI Investment Partnership, L.P. (collectively,
"TCW"), we are obligated under certain circumstances to offer production from
certain of our wells ("TCW/Southern Mandatory Offered Wells") to Southern and
TCW as supplements and additions to our existing production payment obligations
under the production payment agreement. Neither the foregoing restrictions nor
any other covenants under the Indenture prevent us from offering any
TCW/Southern Mandatory Offered Wells. Additionally, we may make additional wells
and acreage, other than TCW/Southern Mandatory Offered Wells, subject to the
production payment purchase agreement or any other drilling production payment
if the incurrence of such debt is otherwise permitted under this covenant and no
event of default then exists under the Indenture.
Nothing contained in this covenant shall effect the ability of our
subsidiaries to enter into the financing arrangements set forth in the above
section entitled "Guarantee by Subsidiaries" if the proceeds from such financing
are applied in accordance with the terms of the Indenture (for example, used for
our capital expenditures or applied to redemption of the notes).
Limitation on Restricted Payments
The Indenture provides that we may not, and may not permit any of our
subsidiaries to, directly or indirectly, make any Restricted Payments.
"Restricted Payments" include, among other things, the following:
o any direct or indirect investment other than:
- trade credit in the ordinary course of business; - purchases of cash
equivalents; - investments in our wholly owned subsidiaries; - interest
rate or currency swap obligations; - the receipt of capital stock in
lieu of cash in connection with the settlement of litigation; - certain
limited advances to officers and employees in the ordinary course of
business; - margin deposits in connection with permitted hedging
transactions; - investments and expenditures made in the ordinary
course of business that are customary in the business of oil and gas
exploration and development; - the guarantees of the notes by our
subsidiaries; - the guaranty of any debt that is permitted with respect
to a Revolving Credit Facility; - deposits permitted by the definition
of "Permitted Liens" (as defined under the section entitled "Limitation
on Liens" below; - an investment in capital stock resulting from a
permitted asset sale; and - other investments that do not exceed $1
million in the aggregate at any time;
o any dividend or other distribution on shares of our capital
stock;
o any payment on account of the purchase, redemption, or other
acquisition or retirement for value of any shares of capital
stock; and
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o any defeasance, redemption, repurchase, or other acquisition
or retirement for value, or any payment in respect of any
amendment in connection with any such retirement, acquisition,
or defeasance, in whole or in part, of any Subordinated Debt
(debt that requires no payment of principal until after the
notes are paid in full, and is junior in right of payment to
the notes in the event of a liquidation).
However, "Restricted Payments" do not include the following:
o any dividend, distribution, or other payment on shares of
capital stock solely in shares of capital stock that is
Qualified Capital Stock (i.e., not subject to redemption or
repurchase by us or our subsidiaries until after the maturity
date of the notes) and that is at least as junior in ranking
as the capital stock on which such dividend, distribution, or
other payment is to be made;
o any defeasance, redemption, repurchase or other acquisition or
retirement for value of capital stock payable in or from any
combination of (A) shares of Qualified Capital Stock and (B)
the net proceeds of a concurrent sale of Qualified Capital
Stock, in each case to the extent such Qualified Capital Stock
is at least as junior in ranking as the capital stock retired;
o any dividends made pursuant to the certificates of designation
of the senior preferred stock and the junior preferred stock;
o any dividend, distribution, or other payment to us from any of
our subsidiaries;
o any defeasance, redemption, repurchase, or other acquisition
or retirement for value, in whole or in part, of any
Subordinated Debt payable in or from any combination of (A)
shares of Qualified Capital Stock and (B) the net proceeds of
a concurrent sale of Qualified Capital Stock;
o any deposits, payments or distributions made pursuant to and
in accordance with our bankruptcy plan or a plan order; or
o the redemption, purchase, retirement or other acquisition of
any debt, including any premium paid on such debt, with the
proceeds of any debt refinancing that is permitted as
described under the above section entitled "Limitation on
Additional Indebtedness and Issuances of Disqualified Capital
Stock."
Limitation on Restricting Subsidiary Dividends
We will not, and will not permit any of our subsidiaries to, directly
or indirectly, create, assume, or suffer to exist any consensual encumbrance or
restriction on the ability of any of our subsidiaries to pay dividends or make
other distributions on their capital stock, except encumbrances and restrictions
existing under the following:
o the Indenture;
o our oil and gas credit facility;
o any Revolving Credit Facility;
o any refinancing of these debt facilities incurred in
accordance with the Indenture's terms; and
o any agreement that restricts an entity that we acquire or that
is acquired by any of our subsidiaries, the restrictions of
which existed at the time of acquisition, were not put in
place in anticipation of such acquisition and are not
applicable to any entity or property, other than the entity of
property so acquired.
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Limitation on Transactions with Affiliates
We will not, and will not permit any of our subsidiaries to enter
directly or indirectly into, or permit to exist, any transaction or series of
related transactions with any of their affiliates (as defined), including any
sale, lease, transfer or other disposition of properties, assets or securities
to or from such affiliate, an investment in such affiliate and contracts or
agreements with or for the benefit of any such affiliate.
An "affiliate" is, with respect to us or any of our subsidiaries, any
person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, us or any of our subsidiaries, or any director,
controlling shareholder, or officer of us or any of our subsidiaries.
Notwithstanding this limitation, however, the following specified
transactions are permitted under the Indenture:
o any transaction with an officer affiliate relating to advances
to such officer in connection with the performance of his
duties in the ordinary course of business (not to exceed in
the aggregate for all officers $500,000 outstanding at any
time);
o any transaction with an officer affiliate relating to employee
compensation arrangements relating to that officer's full-time
employment;
o the Services Agreement among TNGC Holdings Corporation, one of
our former parent corporations, and its subsidiaries, and any
transactions related thereto and in accordance with the terms
of such Service Agreement;
o any transaction with a non-officer affiliate made in good
faith, and on terms that are (1) fair and reasonable, (2) at
least as favorable as the terms which we or our subsidiary
could obtain in a comparable transaction with a non-affiliate,
and (3) unanimously approved by our board of directors or the
board of directors of our subsidiary, as the case may be;
o transactions pursuant to the notes and related security
documents, the Services Agreement and the Registration Rights
Agreements;
o transactions between us and any of our wholly owned
subsidiaries and transactions between any of our wholly owned
subsidiaries;
o transactions effected pursuant to and in accordance with the
terms and provisions of certain court orders entered pursuant
to our bankruptcy plan; and
o any employee compensation arrangement or ordinary course
expense advance.
Depending upon the dollar amount involved, the Indenture requires certain
affiliate transactions with an aggregate value in excess of $5 million to be
reviewed and favorably approved by a nationally recognized investment banking or
"big 5" accounting firm.
Limitation on Asset Sales
We will not, and will not permit any of our subsidiaries to, consummate
any direct or indirect conveyance, sale, transfer or other disposition
(including through damage or destruction for which insurance proceeds are paid
or by condemnation) any of our or our subsidiaries' properties, businesses or
assets (an "asset sale"), except for the following:
o any disposition of inventory or receivables;
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o any pledge or disposition of assets (if such pledge or
disposition would otherwise constitute an asset sale), but
only to the extent that it results in the creation of a lien
permitted under the terms of the indenture (liens in
connection with drilling production payments or Drilling
Programs will be treated as asset sales under this covenant);
o any issuance or disposition of securities that is made
pursuant to and in accordance with our bankruptcy plan or a
plan order; or
o the transfer and conveyance of certain of our properties to
Davis Petroleum Corporation, and any related transactions,
pursuant to the order of the bankruptcy court dated November
30, 1999, in case No. 99-21550-C-11, in the United States
bankruptcy Court for the Southern District of Texas, Corpus
Christi Division, as amended;
o an asset sale that is not specifically described above, but
that is consummated in accordance with the provisions set
forth immediately below in the paragraphs numbered (1) through
(6).
(1) We are permitted to make an asset sale if an amount equal to the
resulting net cash proceeds therefrom is (A) applied to a Note Redemption, (B)
used to make cash payments in the ordinary course of our business that are not
otherwise prohibited by the Indenture up to $3 million, (C) used for capital
expenditures in a related business within 180 days after the date of such asset
sale; or (D) with respect to any asset sale related to damage to or destruction
of assets (and collection of insurance proceeds), or any condemnation, eminent
domain or similar type proceedings, in each case, used for capital expenditures
in a related business within 360 days after the date of such asset sale. In the
case of any asset sale or series of related asset sales for total proceeds in
excess of $1 million, the asset sale will not be permitted under this covenant
unless at least 85% of the value of the consideration for such asset sale
consists of cash, cash equivalents or proved reserves. Notwithstanding anything
to the contrary contained in this covenant, we may not permit either of
Galveston Bay Pipeline Company or Galveston Bay Processing Corporation to sell
substantially all of their assets unless an amount equal to the resulting net
proceeds of such asset sale is applied either in accordance with clause (C) of
this paragraph or in accordance with the terms of the following paragraph (2) of
this covenant.
(2) Any net cash proceeds remaining after application in accordance
with the above paragraph (1) of this covenant, shall be used by us to fund an
offer to the holders of the notes to sell their notes to us for a purchase price
of 100% of their outstanding principal amount (without premium) plus accrued but
unpaid interest (a "Repurchase Offer"), subject to the conditions and in
accordance with the procedures (including prorating in the event of an
oversubscription) contained in the Indenture. Notwithstanding the foregoing
provision of this paragraph (2), we are not required to apply any net cash
proceeds toward a Repurchase Offer unless the aggregate net cash proceeds
remaining from all asset sales (net of the uses and applications described in
the above paragraph (1)) exceeds $5 million. Any remaining net cash proceeds in
an aggregate amount less than $5 million will be carried forward for purposes of
determining whether a Repurchase Offer is required as the result of any
subsequent asset sale). We are not required to make a Repurchase Offer if the
remaining net cash proceeds available is less than $5 million. Pending
application of remaining net cash proceeds pursuant to this paragraph (2), we
may invest such net cash proceeds in accordance with the terms of the Indenture.
(3) In the event of an asset sale that requires a Repurchase Offer
pursuant to the above paragraph (2) of this covenant, the following terms and
conditions, among others contained in the Indenture, shall apply:
o Within 20 days after we become obligated to make a Repurchase
Offer, we must deliver a written notice to you stating the
terms of the offer, such other information concerning our
business that we believe will enable you to make an informed
decision, and specifying a purchase date not less than 30 days
nor more than 60 days after the date of such notice (the
"Repurchase Date");
o Upon the expiration of the period for which the Repurchase
Offer remains open, we will deliver to the Trustee for
cancellation all notes or portions thereof which have been
properly tendered to and accepted by us, and the Trustee
shall, on the Repurchase Date, mail or deliver payment to each
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tendering holder of the notes the amount of the purchase
price. In the event that the aggregate purchase price of the
notes tendered is less than the Repurchase Offer Amount
applicable to the notes tendered, the Trustee will deliver the
excess to us after the expiration of the Repurchase Offer
Period for application in accordance with paragraphs (1) and
(2) of this covenant.
o To sell your notes, or a portion thereof (the Repurchase Offer
is subject to prorating in the event the offer is
oversubscribed), under the Repurchase Offer, you must
surrender the note, with an appropriate form duly completed,
to us at the address specified in the notice at least three
business days prior to the Repurchase Date. You will to
withdraw your election if we or the Trustee receive not later
than one business day prior to the Repurchase Date, a telex,
facsimile transmission or letter setting forth your name, the
principal amount of the note delivered for purchase and a
statement that you are withdrawing your election to have your
note purchased. If at the expiration of the Repurchase Offer
Period the aggregate outstanding principal amount of notes
surrendered exceeds the Repurchase Offer Amount, we shall
select the notes to be purchased on a pro rata basis (with
such adjustments as we deem appropriate so that only notes in
denominations of $1,000, or integral multiples thereof, shall
be purchased). If your notes are purchased only in part, you
shall be issued a new note equal in principal amount to the
unpurchased portion of the notes you surrendered.
(4) We shall comply, to the extent applicable, with the requirements of
Section 14 (e) of the Securities and Exchange Act ("Exchange Act") and any other
securities laws or regulations in connection with the purchase of notes pursuant
to this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, we shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached our obligations under this covenant by virtue of such compliance.
(5) Notwithstanding the foregoing limitations on asset sales and
restrictions on and requirements for the use of the resulting net cash proceeds,
we and our subsidiaries may at any time and from time to time effect any of the
following transactions, and the net cash proceeds, if any, realized from any of
the following transactions shall not be subject to the application requirements
of paragraph (1) of this covenant or paragraph (2) of this covenant:
o we or any of our subsidiaries may convey, sell, lease,
transfer, or otherwise dispose of any or all of our assets
(upon voluntary liquidation or otherwise) to us or one of our
wholly owned subsidiaries;
o we and our subsidiaries may engage in asset sales not
otherwise permitted by the Indenture to the extent that the
aggregate proceeds from all such asset sales and the fair
market value of all assets sold pursuant to such asset sales
does not exceed $1 million in any twelve-month period;
o we and our subsidiaries may engage in asset sales incident to
and resulting from a transaction expressly permitted under the
section set forth below entitled "Limitation on Merger, Sale
or Consolidation";
o we and our subsidiaries may sell, assign, lease, license,
transfer, abandon or otherwise dispose of (A) damaged, worn
out, unserviceable or other obsolete property in the ordinary
course of business, or (B) other property no longer necessary
for the proper conduct of our business;
o we and our subsidiaries may engage in asset sales (A) in
connection with the settlement of litigation or the payment of
judgments, or (B) the net cash proceeds of which are used in
connection with the settlement of litigation or for the
payment of judgments; provided, however, that the aggregate
value of assets transferred pursuant to such asset sales may
not exceed $10 million;
o we and our subsidiaries may convey, sell, transfer or
otherwise dispose of hydrocarbons or other mineral products in
the ordinary course of business; and
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o we and our subsidiaries may convey, sell, transfer or
otherwise dispose of drilling production payments and
interests related to Drilling Programs; provided, however,
that an amount equal to the net cash proceeds of each such
conveyance, sale, transfer or other disposition shall be used
for capital expenditures (including reimbursement for capital
expenditures already made) or to make a Repurchase Offer.
For the purpose of determining compliance with this covenant with respect to the
application or use of the net cash proceeds of any asset sale, if such net cash
proceeds would be eligible for application or use under more than one of the
categories of application or use under this covenant, we have the right to
determine in our sole discretion the eligible category or categories of
application or use to which all or any portion of the applicable net cash
proceeds shall be applied or used, and may elect either (x) to apply or use the
full amount of such net cash proceeds under any single eligible category
(subject to any limitation regarding the amount or aggregate amount that may be
applied or used under such eligible category), or (y) to apply or use such net
cash proceeds by apportioning the full amount of such net cash proceeds among
any two or more eligible categories (subject to any limitation regarding the
amount or aggregate amount that may be applied or used under such eligible
category).
Limitation on Liens
We will not, and will not permit any of our subsidiaries to, directly
or indirectly, incur, or suffer to exist any lien upon any of our or its
properties or assets, whether now owned or hereafter acquired, which properties
or assets constitute collateral securing repayment of the notes, other than
"Permitted Liens", which include the following:
o liens imposed by governmental authorities for taxes,
assessments, or other charges not yet due or which are being
contested in good faith and by appropriate proceedings, if
adequate reserves are maintained on our books in accordance
with GAAP;
o statutory liens of landlords, carriers, warehousemen,
mechanics, materialmen, repairmen, mineral interest owners, or
other like liens arising by operation of law in the ordinary
course of business, unless such liens arise from obligations
that are more than 45 days overdue, are not being contested in
good faith, and are not subject to the maintenance of adequate
reserves in our books in accordance with GAAP;
o liens securing repayment of any items included within the
meaning of First Lien Debt (as described above in the section
entitled "Collateral and Security; Subordination of the
Trustee's Liens on Collateral");
o liens on the assets of any entity existing at the time such
assets are acquired by us or one of our subsidiaries, whether
by merger, consolidation, purchase of assets or otherwise so
long as such liens (i) are not created, incurred or assumed in
contemplation of such assets being acquired by either us or
any of our subsidiaries and (ii) do not extend to any other of
our asset or our subsidiaries' assets;
o any extension, renewal, or replacement of liens created or
existing pursuant to this covenant, provided, however, that
such liens would have otherwise been permitted under such
clauses, and provided further, that the liens permitted by
this clause do not secure any additional debt or encumber any
additional property;
o any lien of ours or any of our subsidiaries in favor of us of
our subsidiaries;
o liens arising by operation of law in connection with
judgements, only to the extent that such lien does not result
in an event of default under the Indenture;
o liens securing Allowed Claims in classes 5 and 6A under our
bankruptcy plan.
o liens on the proceeds of any property that is subject to a
lien permitted by this covenant (other than proceeds from any
financing arrangement of Galveston Bay Pipeline Company or
Galveston Bay Processing Corporation involving either a
mortgage or a sale-leaseback transaction that are
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received directly by us or that are distributed to the us by
such subsidiary) or on deposit accounts containing any such
proceeds;
o liens required in accordance with the provisions of the
Indenture;
o liens securing the oil and gas credit facility; and
o liens (including extensions and renewals thereof) on the our
headquarters facility located at 1300 North Sam Houston
Parkway East, Houston, Texas (including real property, any
improvements, the fixtures other than trade fixtures, and the
personal property used in connection with the operation
thereof), provided, however, that (i) such liens are created
solely for the purpose of securing debt incurred by us
concurrently with the creation of such liens, (ii) the
principal amount of the debt secured by such liens at the time
of incurrence does not exceed 100% of the appraised value of
the headquarters facility as determined by an appraisal dated
within six (6) months prior to the date on which such liens
are created, and (iii) any such lien shall not extend to or
cover any property or assets other than the headquarters
facility and any leases and rents derived from the ownership
and operation of the headquarters facility.
For the purpose of determining compliance with this covenant, if a lien meets
the criteria of more than one of the types of the liens described above, we have
the right to determine in our sole discretion the category of lien to which such
lien applies, shall not be required to include such Lien in more than one of
such categories, and may elect to apportion such Lien between or among any two
or more categories otherwise applicable.
Limitation on Line of Business
We will not, and will not permit our subsidiaries to, directly or
indirectly engage to any substantial extent in any line or lines of business
activity other than the exploration for, acquisition of, development of,
production, transportation, gathering, and processing (in connection with
natural gas and natural gas liquids only) of, crude oil, natural gas,
condensate, and natural gas liquids (a "related business"); provided, however,
that "related business" shall not include (i) any refining or distilling of
hydrocarbons other than processing and fractionating natural gas and natural gas
liquids, (ii) the drilling and energy services business and pipeline services
business, (iii) owning and operating a hedging subsidiary, or (iv) owning or
operating facilities designed for separation, dehydration, treatment,
stabilization, processing or storage of hydrocarbons and related operations are
not permitted.
Limitation on Status as Investment Company or Public Utility Company
We will not, and will not permit any of our subsidiaries to, become an
"investment company" (as that term is defined in the Investment Company Act of
1940, as amended), or a "holding company," or "public utility company" (as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended)
or otherwise become subject to regulation under the Investment Company Act or
the Public Utility Holding Company Act.
Limitation on Assets Held by Nominees
Within 270 days of the acquisition of oil and gas property by any
person who is acting as a nominee for either us or any of our subsidiaries (to
the extent the aggregate expenditures for all then existing such property does
not exceed $500,000), we shall cause such nominee to assign and transfer to us,
or our subsidiary, as the case may be, all of such nominee's right, title and
interest in and to such oil and gas property.
Maintenance of Properties and Insurance
We are obligated to cause the properties used or useful to the conduct
of our business and the conduct of our subsidiaries' businesses to be maintained
and kept in good condition, repair, and working order (reasonable wear and tear
excepted) and supplied with all necessary equipment and ensure that all
necessary repairs, renewals, replacements, betterments, and improvements thereof
are made, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times. We are obligated to ensure
that we and each
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of our subsidiaries are appropriately insured (including appropriate
self-insurance) against loss or damage, and that such insurance coverage is of
the kind that, in our reasonable, good faith opinion, is adequate and
appropriate for the conduct of our business and the business of our
subsidiaries.
Maintenance of Office or Agency
We are required to maintain in the Borough of Manhattan in the City of
New York, New York, an office or agency where notes may be presented or
surrendered for payment, where notes may be surrendered for registration of
transfer or exchange and where notices and demands to or upon us in respect of
the notes and the Indenture may be served. We will give prior written notice to
the Trustee of the location, and any change in the location, of such office or
agency. If at any time we fail to maintain any such required office or agency or
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in the Indenture.
Corporate Existence
The Indenture provides that, subject to the provisions set forth herein
under the heading "Limitation on Merger, Sale or Consolidation", we shall do or
cause to be done all things necessary to preserve and keep in full force and
effect our corporate existence and the corporate or other existence of each of
our subsidiaries in accordance with the respective organizational documents of
each of them and our and our subsidiaries' rights (charter and statutory) and
corporate franchises; provided, however, that we shall not be required to
preserve, with respect to itself, any right or franchise, and with respect to
any of its subsidiaries, any such existence, right or franchise, if (i) our
board of directors shall determine that the preservation thereof is no longer
desirable in the conduct of our business and (b) the loss thereof is not
disadvantageous in any material respect to the holders of the notes.
Payment of Taxes and Other Claims
The Indenture provides that the we shall, and shall cause each of our
subsidiaries to, pay or discharge or cause to be paid or discharged, before the
same shall become delinquent all taxes, assessments and governmental charges
(including withholding taxes and any penalties, interest and additions to taxes)
levied or imposed upon us or any of our subsidiaries or any of our or their
properties and assets; provided, however, that we are not required to pay or
discharge or cause to be paid or discharged any tax, assessment or charge that
either we or any of our subsidiaries are contesting in good faith by appropriate
proceedings and for which we are maintaining adequate reserves in accordance
with GAAP.
Certain Reporting Requirements Regarding Compliance; Notice of Default
Among other reporting requirements under the Indenture, we are required
to furnish to the Trustee, within 60 days after the end of each fiscal quarter
or 105 days after the end of a fiscal quarter that is also the end of our fiscal
year, an officers' certificate to the effect that such officers have conducted
or supervised a review of our activities and the activities of our subsidiaries
and of our performance under the Indenture, and that, to the best of such
officers' knowledge, based on their review, we and our subsidiaries have
fulfilled all of our obligations under the Indenture or, if there has been any
default, specifying each default known to them, its nature and its status.
We are also required to deliver to the Trustee within 105 days after
the end of each of our fiscal years a written report of a firm of independent
certified public accountants with an established national reputation stating
that in conducting their audit for such fiscal year, nothing has come to their
attention that caused them to believe that we or any of our subsidiaries was not
in compliance with the provisions set forth in any covenants contained herein
under the headings "Limitation on Restricted Payments", "Limitation on
Incurrences of Additional Debt and Issuance of Disqualified Stock", "Limitation
on Asset Sales", and "Guarantee by Subsidiaries".
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So long as any of the notes are outstanding, we are required to deliver
to the Trustee, immediately upon becoming aware of any default or event of
default under the Indenture, an officers' certificate specifying such default or
event of default and what action we are taking or propose to take with respect
thereto. The Trustee will not be deemed to have knowledge of a default or an
event of default unless one of its trust officers receives notice of the default
giving rise thereto from either us any holder of the notes.
We are also required to notify the Trustee of any changes in the
composition of our board of directors or any change in any of our subsidiaries'
board of directors or of any amendment to our charter or bylaws or the charter
or bylaws of any of our subsidiaries.
Waiver of Stay, Extension or Usury Laws
The Indenture provides that neither we nor any of our subsidiary
guarantors shall (to the extent that each may lawfully covenant to refrain from
doing so) at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law which would prohibit or forgive us or any subsidiary guarantor from
paying all or any portion of the principal of or interest on the notes as
contemplated in the Indenture, or which may affect the covenants or the
performance of the Indenture. We expressly waive (to the extent that it may
lawfully do so) all benefit or advantage of any such law, and we covenant that
we will not hinder, delay or impede the execution of any power granted to the
Trustee under the provisions of the Indenture.
The Indenture further provides that the parties to the Indenture shall
comply strictly with applicable usury laws; and that notwithstanding any
provision to the contrary in the Indenture or in any of the documents securing
the payment of the notes or otherwise relating thereto, in no event shall the
Indenture or such documents require or permit the payment, charging, taking,
reserving, or receiving of any sums constituting interest under applicable laws
which exceed the maximum amount permitted by such laws. If any such excess
interest is contracted for, charged, taken, reserved, or received in connection
with the notes or in any of the documents securing the payment thereof or
otherwise relating to the notes, or in any communication by any holders of the
notes or any other person to us or any other person, or in the event all or part
of the principal or interest on the notes shall be prepaid or accelerated, so
that under any of such circumstances or under any other circumstance whatsoever
the amount of interest contracted for, charged, taken, reserved, or received on
the amount of principal actually outstanding from time to time under the notes
exceeds the maximum amount of interest permitted by applicable usury laws, then
in any such event the Indenture provides as follows: (i) the counterpart to this
paragraph contained in the Indenture will govern and control, (ii) any such
excess shall be deemed an accidental and bona fide error and canceled
automatically to the extent of such excess, and shall not be collected or
collectible, (iii) any such excess which is or has been paid or received shall
be credited against the then unpaid principal balance on the notes or refunded
to us, at the holders' option, and (iv) the effective rate of interest shall be
automatically reduced to the maximum lawful rate allowed under applicable laws
as construed by courts having proper jurisdiction. Without limiting the
foregoing, all calculations of the rate of interest contracted for, charged,
taken, reserved, or received in connection with the Indenture which are made for
the purpose of determining whether such rate exceeds the maximum lawful rate
shall be made to the extent permitted by applicable laws by amortizing,
prorating, allocating and spreading during the period of the full term of the
notes, including all prior and subsequent renewals and extensions, all interest
at any time contracted for, charged, taken, reserved, or received. The terms of
the Indenture with respect to any usury charge, claim or circumstance shall be
deemed to be incorporated in every document, security instrument, and
communication relating to the Indenture and the notes.
Separate Existence and Formalities
The Indenture provides that we shall:
o maintain procedures designed to prevent commingling of our
funds and the funds of our subsidiaries;
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o ensure that all actions taken by us and our subsidiaries are
taken pursuant to authority granted by the applicable board of
directors, to the extent required by law or by our or our
subsidiaries' certificate of incorporation or bylaws;
o maintain, and cause all of our subsidiaries to maintain,
separate records and books of account and such records and
books of account shall be separate from those of any other
person in each case in accordance with GAAP;
o maintain, and cause all of our subsidiaries to maintain,
correct minutes of the meetings and other corporate
proceedings of the owners of our capital stock and the board
of directors and otherwise comply with requisite corporate
formalities required by law;
o not knowingly, and shall cause all of our subsidiaries to not
knowingly, mislead any other person as to our and our
subsidiaries' identity or authority; and
o maintain procedures designed to assure that all of our and our
subsidiaries' written communications, including, without
limitation, letters, invoices, purchase orders, contracts,
statements and applications, appropriately identify the entity
on whose behalf such communication is made.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
We will not, and will not permit any of our subsidiaries to,
consolidate with, merge with or into any other person, or, directly or
indirectly, sell, lease, assign, transfer or convey or otherwise dispose of all
or substantially all of our and our subsidiaries' assets (computed on a
consolidated basis) to any person unless:
(1) we or such subsidiary, as the case may be, shall be the continuing
person, or the person (if other than us) formed by such consolidation or into
which we or such subsidiary, as the case may be, is merged or to which all or
substantially all of our or such subsidiaries', as the case may be, properties
and assets are transferred as an entirety or substantially as an entirety (the
"Surviving Person") shall be a corporation or partnership organized and validly
existing under the laws of the United States, any State thereof or the District
of Columbia, and shall expressly assume, by an indenture supplemental to the
Indenture and any supplements to any security documents as the Trustee may
require, executed and delivered to the Trustee on or prior to the consummation
of such transaction, in form satisfactory to the Trustee, all our or such
subsidiaries', as the case may be, obligations under the notes, the security
documents, and the Indenture;
(2) immediately before and immediately after giving effect to such
transaction, no default or event of default shall have occurred and be
continuing;
(3) immediately after giving effect to such transaction, on a pro forma
basis, the net worth of the Surviving Person is at least equal to the net worth
of such predecessor or transferring entity immediately prior to such
transaction;
(4) immediately after giving effect on a pro forma basis to the
consolidated fixed charges of the Surviving Person, (A) the consolidated fixed
charge coverage ratio of the Surviving Person for the applicable reference
period is greater than 2.5 to 1, and (B) the Surviving Person's adjusted
consolidated tangible assets are equal to or greater than 150% of the total
consolidated principal amount or accreted value, as the case may be, of debt of
the Surviving Person;
(5) we have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that such consolidation, merger, assignment, or
transfer and such supplemental indenture comply with the provisions of the
Indenture and that all conditions precedent therein provided relating to such
transaction have been satisfied; and
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(6) at the time of or within 120 days after the occurrence of the event
specified above, the notes have not been or are not downgraded by S&P, Moody's,
or any successor rating agencies to either entity to a rating below that which
existed immediately prior to the time the event specified above is first
publicly announced.
For purposes of this covenant, the consolidated fixed charge coverage ratio
shall be determined on a pro forma consolidated basis (giving effect to such
transaction) for the four fiscal quarters immediately preceding such
transaction.
For purposes of this covenant, the sale, lease, conveyance, assignment,
transfer, or other disposition of all or substantially all of the properties and
assets of one or more of our subsidiaries, which properties and assets, if held
by us instead of such subsidiaries, would constitute all or substantially all of
our properties and assets, on a consolidated basis, shall be deemed to be the
transfer of all or substantially all of our properties and assets.
Notwithstanding the foregoing, any of our subsidiaries with a net worth
greater than zero may merge into us (or one of our wholly owned subsidiaries) at
any time, provided, however, that we shall have delivered to the Trustee an
officers' certificate stating that such subsidiary has a net worth greater than
zero and such merger does not result in a default or an event of default under
the terms of the Indenture.
Upon any consolidation or merger, or any transfer of assets in
accordance with this covenant, the Surviving Person formed by such consolidation
or into which we are merged or to which such transfer is made shall succeed to
and be substituted for us, and may exercise every right and power of ours, under
the Indenture and under the related security documents with the same effect as
if such Surviving Person had been named as us under the Indenture. When a
Surviving Person duly assumes all of our obligations pursuant to that Indenture
and pursuant to the notes, the predecessor shall be released from such
obligations.
EVENTS OF DEFAULT AND REMEDIES
Events of default under the Indenture include:
(1) our failure to pay installments of interest on the notes as and
when they become due and payable and the continuance of any such failure for 30
days;
(2) our failure to pay all or any part of the principal or premium, if
any, on the notes when and as the same become due and payable at maturity,
redemption, by acceleration, or otherwise, including any payment due by reason
of the occurrence of a Change of Control Offer;
(3) our failure or the failure of any of our subsidiaries to observe or
perform any other covenant, agreement, or warranty contained in the security
documents relating to the Indenture, the notes or the Indenture and, subject to
certain exceptions, the continuance of such failure for a period of 30 days
after written notice is given to us by the Trustee or given to us and the
Trustee by the holders of at least 25% in aggregate principal amount of then
outstanding notes;
(4) a default which extends beyond any stated period of grace
applicable thereto (including any extension thereof) under any mortgage,
indenture, or instrument under which there is outstanding any of our or any of
our subsidiaries' debt aggregating in excess of $5 million or a failure to pay
such debt at its stated maturity, provided that a waiver by all of the lenders
of such debt of such default shall constitute a waiver hereunder for the same
period;
(5) certain events of bankruptcy, insolvency, or reorganization in
respect of us or any of our subsidiaries;
(6) final judgments not covered by insurance aggregating at least $5
million at any one time rendered against us or any of our subsidiaries and not
stayed or discharged within 60 days;
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(7) any of the security documents required to be executed under the
Indenture not being in full force and effect (except where no material adverse
effect to the holders of the notes would result) or ceasing to give the Trustee
a perfected security interest in, and lien on, the collateral securing repayment
of the notes.
If an event of default occurs and is continuing (other than an event of
default specified in clause (5), above, relating to us or any of our
subsidiaries), then in every such case, unless the principal of all of the notes
has already become due and payable, either the Trustee or the holders of 25% in
aggregate principal amount of then outstanding notes, by notice in writing to us
(and to the Trustee, if notice is given by holders of the notes) (an
"Acceleration Notice"), may declare all principal of the notes, determined as
set forth below, and accrued interest thereon or, as appropriate, the Change of
Control Purchase Price, to be due and payable immediately. If an event of
default specified in clause (5), above, relating to us or any of our
subsidiaries occurs, all principal and accrued interest thereon shall be
immediately due and payable on all outstanding notes without any declaration or
other act on the part of the Trustee or the holders of the notes. The holders of
no less than a majority of the aggregate outstanding principal amount of the
notes generally are authorized to rescind such acceleration if all existing
events of default, other than the non-payment of the principal of, premium, if
any, and interest on the notes which have become due solely by such
acceleration, have been cured or waived.
Prior to the declaration of acceleration of the notes, the holders of a
majority of the aggregate outstanding principal amount of the notes may waive on
behalf of all the holders of the notes any default or potential default, except
a default or potential default in the payment of principal of, premium, if any,
or interest on any note not yet cured, or a default or potential default with
respect to any covenant or provision which cannot be modified or amended without
the consent of
(a) the holders of at least 66 2/3% in aggregate principal amount
of the notes, or (b) the affected holder of each of the
outstanding notes,
unless
(x) 66 2/3% in aggregate principal amount of the Notes, or (y) all
such affected holders of the notes, respectively,
agree, in writing, to waive such event of default or event.
No such waiver shall cure or waive any subsequent default or impair any right
consequent thereon.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request, order, or direction of any of the
holders of the notes, unless such holders of the notes have offered to the
Trustee reasonable security or indemnity. Subject to all provisions of the
Indenture and applicable law, the holders of a majority in principal amount of
the notes at the time outstanding have the right to direct the time, method, and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee.
Subject to the provisions of the Intercreditor Agreement, any money
collected by the Trustee pursuant to the exercise of remedies upon an event of
default shall be applied as follows:
first to pay the expenses of any foreclosure and other amounts then
payable to the Trustee;
second to the Holders in payment of the amounts then due and unpaid for
principal, premium, if any, and interest on, the notes; and
third, to whomsoever may be lawfully entitled thereto.
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COVENANT DEFEASANCE AND LEGAL DEFEASANCE
(1) We may, at our option, elect either:
(a) to defease or be discharged from any and all of our and any of
our guarantor's obligations with respect to the notes (except for
certain obligations such as to register the transfer of exchange of
such notes, to replace temporary or mutilated, destroyed, lost, or
stolen notes, to maintain an office or agency in respect of the notes
and to hold monies for payment in trust)(Legal Defeasance); or
(b) to be released from our obligations under certain covenants
contained in the Indenture (Covenant Defeasance),
upon our compliance with the conditions set forth below in the below paragraph
(4) this section.
(2) Legal Defeasance and Discharge. Upon our election in accordance
with the above paragraph (1)(a) of this section, and on the date the conditions
set forth in the below paragraph (4) of this section are satisfied, we will be
deemed have paid and discharged the entire indebtedness represented by the
outstanding notes, and to have satisfied all our other obligations, as well as
the obligations of any of our guarantors, under the notes and the Indenture,
except that pursuant to such Legal Defeasance, the notes shall thereafter be
deemed to be "outstanding" only for the purposes of the below paragraph (5) of
this section and the following rights and obligations under the Indenture:
(a) the rights of holders of outstanding notes to receive solely
from the trust fund described in the below paragraph (4) of
this section payments in respect of the principal of, premium,
if any, and interest on such notes when such payments are due;
and
(b) our obligations with respect to:
(i) each paying agent's agreement in writing to hold in trust, for
the benefit of holders of notes or the Trustee, all assets
held by it for the payment of principal of, or interest on,
the notes;
(ii) issuance, transfer and exchange of the Notes, or of any
replacement or temporary notes;
(iii) in the event of a permitted merger, ensuring that our
obligations are assumed by the appropriate Surviving Person
(as described in the above section entitled "Limitation on
Merger, Sale or Consolidation"; and
(iv) this section.
We may exercise a "Legal Defeasance" notwithstanding any prior exercise of a
"Covenant Defeasance" under the following paragraph (3) of this section.
(3) Covenant Defeasance. Upon our election in accordance with the above
paragraph (1)(b) of this section, and on the date the conditions set forth in
the below paragraph (4) of this section are satisfied, we shall be released from
our obligations under the security documents with respect to the outstanding
notes, and from our obligations under the covenants contained herein under the
headings:
o "Limitation on Restricted Payments";
o "Maintenance of Properties and Insurance";
o "Certain Reporting Requirements Regarding Compliance; Notice
of Default";
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o "Limitation on Transactions with Affiliates";
o "Limitation on Incurrences of Additional Debt and Issuance of
Disqualified Stock";
o "Limitation on Restricting Subsidiary Dividends";
o "Limitation on Liens";
o "Limitation on Asset Sales";
o "Guarantee by Subsidiaries";
o "Limitation on Line of Business";
o "Corporate Existence";
o "Limitation on Assets Held by Nominees"; and
o "Limitation on Merger, Sale or Consolidation";
and the notes shall thereafter be deemed not "outstanding" for the purposes of
any direction, waiver, consent or declaration or act of holders of the notes in
connection with such covenants; provided, however, that pursuant to such a
Covenant Defeasance, any outstanding notes shall continue to be deemed
"outstanding" for all other purposes under the Indenture. No event of default
shall be deemed to have occurred as the result of our failure to observe any
obligation under any covenant from which we have been released pursuant to an
appropriately declared "Covenant Defeasance."
(4) Conditions to Legal or Covenant Defeasance. Among other conditions
set forth in the Indenture, the applicability of either a Legal Defeasance or a
Covenant Defeasance to the outstanding notes shall be conditioned upon our
delivery to the Trustee of an opinion of our outside counsel acceptable to the
Trustee to the effect that:
(a) We have irrevocably deposited with the Trustee, as trust funds
for the benefit of the holders of the notes, U.S. legal
tender, U.S. government obligations, or a combination thereof,
in amounts sufficient to provide (as confirmed in writing by a
nationally recognized firm of independent public accountants)
for the payment and discharge of 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, of such principal or installment of principal, premium, if
any, or interest.
(b) The defeasance we have elected will not be deemed, or result
in, a taxable event for federal income tax purposes, with
respect to the holders of the notes;
(c) No default or event of default with respect to the notes has
occurred and is continuing on the date of such deposit nor,
after the passage of 90 days following such deposit, shall
such trust funds be subject to set aside or avoidance under
any bankruptcy, insolvency or other similar laws affecting
creditors' rights generally; and
(d) Our election will not result in a breach or violation of, or
constitute a default under, the Indenture or any other
material agreement or instrument to which we or any of our
subsidiaries is a party or by which it or its properties is
bound.
(5) Deposits to be Held in Trust; Other Miscellaneous Provisions. All
U.S. legal tender and U.S. government obligations (including the proceeds
thereof) deposited with the Trustee under this section in respect of the
outstanding notes will be held in trust and applied by the Trustee, in
accordance with the provisions of such notes and the Indenture, to the payment
to the holders of such notes of all sums due and to become due thereon in
respect of principal and interest. Any money deposited with the Trustee or any
paying agent in trust for the payment of principal and interest on any notes,
and remaining unclaimed for two years after such principal and interest has
become due and payable, shall be paid to us on request. Thereafter, the holder
of such notes may look only to us for payment thereof, and all liability of the
Trustee or any paying agent with respect to such trust money shall thereupon
cease; provided, however, that the Trustee or such paying agent before being
required to
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make any such repayment, may at our expense 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, not less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to us.
REPORTS TO HOLDERS OF NOTES
We are required, regardless whether or not we are subject to the
reporting requirements of Section 13 or Section 15(d) of the Exchange Act, to
deliver to the Trustee and each holder of the notes, within 15 days after it is
or would have been (if we were subject to such reporting requirements) required
to file such with the Securities and Exchange Commission ("SEC"), annual and
quarterly financial statements substantially equivalent to financial statements
that would have been included in the reports filed with the SEC if we were
subject to the reporting requirements of Section 13 or Section 15(d) of the
Exchange Act, including, with respect to annual information only, a report by
our independent certified public accountants as such would be required in such
reports to the SEC, and, in each case, together with a management's discussion
and analysis of financial condition and results of operations which would be so
required and, unless the SEC will not accept such reports, file with the SEC the
annual, quarterly and other reports which we are or would have (if we were
subject to such reporting obligations) been required to file with the SEC. These
annual and quarterly financial statements will be accompanied by comparable
consolidating balance sheets and consolidating income statements for each of our
subsidiaries that is or becomes (or is required to become pursuant to the
provisions of the Indenture or any security document) a guarantor, whether or
not such subsidiary is thereafter released from the guarantee. The Indenture
further requires the Company to comply with the other provisions of Section
314(a) of the Trust Indenture Act of 1939.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting us and the Trustee to
enter into a supplemental indenture or to amend the security documents relating
to the notes for certain limited purposes without the consent of the holders of
the notes. With the consent of the holders of not less than a majority in
aggregate value of the notes at the time outstanding, we and the Trustee are
permitted to amend or supplement the Indenture or any supplemental indenture or
modify the rights of the holders of the notes; provided, that no such
modification may, without the consent of the holders of not less than 66 2/3% in
aggregate principal amount of the notes at the time outstanding
o amend, waive or modify the provisions (including the
definitions of the defined terms used therein) of either of
the covenants contained herein under the headings
"Limitation on Restricted Payments",
"Limitation on Incurrences of Additional Debt and Issuance of
Disqualified Stock",
"Limitation on Liens",
"Limitation on Asset Sales", or
"Guarantee by Subsidiaries";
o amend, waive or modify any express provision (including the
definitions of the defined terms used therein) of the
Indenture relating to either (a) events of default or remedies
upon any event of default, (b) the rights and duties of the
Trustee, or (c) the defeasance, discharge or release of our
obligations under the Indenture or the notes, and/or the
security documents in a manner adverse to the holders; or
o amend or supplement any of the security documents in a manner
adverse to the holders, provided, further, that
no such modification may, without the consent of each holder of the
notes affected thereby
o change the stated maturity of the principal or the interest of
a note;
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o reduce the principal amount, any premium or interest on a
note;
o reduce the amount payable upon a redemption at our option;
o change the place or currency of payment on a note;
o impair the right to institute suit for the enforcement of any
payment on any note;
o amend or modify our obligation to make or consummate a
Repurchase Offer upon a Change of Control after the date upon
which a Change of Control Offer is required to be made;
o modify certain of the waiver provisions, except to increase
any required percentage or to provide that certain other
provisions of the Indenture cannot be modified or waived
without the consent of the holder of each note affected
thereby;
o modify the subordination provisions in a manner that is
adverse to the holders of the notes; or
o impair the right to institute suit for the enforcement of any
payment on any note.
NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS, DIRECTORS
No stockholder, officer, or director, as such, past, present, or future
of ours or any of our subsidiaries or any successor corporation or any of them
shall have any personal liability in respect of our or such subsidiaries' the
obligations under the Indenture or the notes by reason of his or its status as
such stockholder, officer, or director.
REGISTRATION RIGHTS
For information concerning registration rights granted to the initial
holders of the notes, see the section entitled "Description of the Securities --
Registration Rights Relating to Certain Securities" beginning at page 98 of this
prospectus.
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REPLACEMENT OF NOTES
We will replace, at the expense of the holder, notes that become
mutilated, destroyed, stolen or lost, upon delivery to the Trustee of the
mutilated notes or evidence of the loss, theft or destruction thereof
satisfactory to us and the Trustee. In the case of a lost, stolen or destroyed
note, indemnity satisfactory to the Trustee and us may be required at the
expense of the older of the note before a replacement will be issued.
THE TRUSTEE
The Trustee for the holders of the notes issued under the indenture is
Firstar Bank, N.A. If an event of default occurs and is not cured, the Trustee
will be required to use the degree of care of a prudent person in the conduct of
his own affairs in the exercise of its powers. Subject to these provisions, the
Trustee will be under obligation to exercise any of its rights or powers under
the indenture at the request of any holders of the notes, unless they have
offered the Trustee reasonable security or indemnity.
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THE SENIOR PREFERRED STOCK
General
We are authorized to issue 328,667,820 shares of senior preferred
stock, par value $0.001 per share. As of the date of this prospectus,
245,256,988 shares of our senior preferred stock were issued and outstanding. We
are prohibited from issuing any additional shares of senior preferred stock
other than shares issued to pay dividends in kind on the senior preferred stock.
Dividends
As a holder of shares of senior preferred stock you are entitled to
receive, when, as and if declared by our board of directors out of funds at the
time legally available therefor, dividends, as follows:
o Subject to our option to pay dividends in kind as described
below, quarterly cash dividends, in preference to holders of
any other shares of our capital stock, at an annual rate of
$0.10 per share, payable quarterly on March 15, June 15,
September 15 and December 15 of each year, except that if any
such date is a Saturday, Sunday or legal holiday, then such
dividend shall be payable on the next day that is not a
Saturday, Sunday or legal holiday.
o During the period ending March 15, 2002, in lieu of paying
cash dividends, we are entitled, at our option, to pay
dividends in kind (i.e., in additional shares of senior
preferred stock with an aggregate liquidation preference equal
to the dividend amount), at an annual rate of $0.20 per share.
o After March 15, 2002, we will pay dividends in cash only at an
annual rate of $0.0775 per share.
o Dividends accrue and are cumulative from the date of the
immediately preceding dividend payment date, except with
respect to the first dividend which accrues from the date of
issuance of the senior preferred stock. We will pay dividends
to holders of record as they appear on our stock books on
record dates that are determined by our board of directors.
The senior preferred stock is junior as to dividends to any series or
class of our stock hereafter issued that ranks senior as to dividends to the
senior preferred stock ("senior dividend stock"). If at any time we fail to pay
or declare and set apart for payment accrued and unpaid dividends on any senior
dividend stock, we may not pay any dividend on the senior preferred stock.
The senior preferred stock has priority as to dividends over the junior
preferred stock, the common stock and any series or class of our stock hereafter
issued that ranks junior as to dividends to the senior preferred stock ("junior
dividend stock"). We may not declare, pay or set apart for payment any dividend
(other than dividends payable solely in junior preferred stock, common stock or
any other series or class of our stock hereafter issued that ranks junior as to
dividends and as to liquidation rights to the senior preferred stock), and may
not purchase, redeem or acquire, any junior dividend stock unless we first pay
or declare and set apart for payment all accrued and unpaid dividends on the
senior preferred stock.
We may not pay dividends on any class or series of our stock that ranks
equally with the senior preferred stock as to dividends ("parity dividend
stock") unless we first pay or declare and set apart for payment, or
contemporaneously pay or declare and set apart for payment, all accrued and
unpaid dividends for all prior periods on the senior preferred stock. We may not
pay dividends on the senior preferred stock unless we first pay or declare and
set apart for payment, or contemporaneously pay or declare and set apart for
payment, all accrued and unpaid dividends for all prior periods on the parity
dividend stock. Whenever all accrued dividends are not paid in full on the
senior preferred stock or any parity dividend stock, all dividends declared on
the senior preferred stock and such parity dividend stock will be declared or
made pro rata so that the amount of dividends declared per share on the senior
preferred stock and such parity dividend stock will bear the same ratio that
accrued and unpaid dividends per share on the senior preferred stock and such
parity dividend stock bear to each other.
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We compute the amount of dividends payable per share of senior
preferred stock for each quarterly dividend period by dividing the annual
dividend amount by four. We compute the amount of dividends payable for the
initial dividend period and any period shorter than a full quarterly dividend
period on the basis of a 360-day year of twelve 30-day months. We will not pay
interest in respect of any dividend payment on the senior preferred stock which
may be in arrears.
Under Delaware law, we may declare and pay dividends on our shares of
capital stock only out of our surplus, or in certain cases, out of our net
profits.
Liquidation Rights
In the event of our liquidation, dissolution or winding up, holders of
shares of senior preferred stock are entitled to receive the liquidation
preference of $1.00 per share, plus an amount equal to any accrued and unpaid
dividends to the payment date, before any payment or distribution is made to the
holders of junior preferred stock, common stock or any series or class of our
stock hereafter issued that ranks junior as to liquidation rights to the senior
preferred stock. However, the holders of the shares of the senior preferred
stock are not entitled to receive the liquidation preference of such shares
until after we have fully paid the liquidation preference of any other series or
class of our stock hereafter issued that ranks senior as to liquidation rights
to the senior preferred stock ("senior liquidation stock").
The holders of senior preferred stock and all series or classes of our
stock hereafter issued that rank on a parity as to liquidation rights with the
senior preferred stock are entitled to share ratably, in accordance with the
respective preferential amounts payable on such stock, in any distribution
(after payment of the liquidation preference of the senior liquidation stock)
that is not sufficient to pay in full the aggregate of the amounts payable
thereon. After payment in full of the liquidation preference of the shares of
the senior preferred stock, the holders of such shares are not entitled to any
further participation in any distribution of our assets. The voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of our property or assets and our
consolidation or merger with or into one or more other corporations or other
entities shall be deemed to be a liquidation, dissolution, or winding up,
voluntarily or involuntarily, except in the case of a merger where we are the
surviving entity and our shareholders immediately prior to such merger
collectively own at least a majority of the voting stock of the surviving
corporation in such merger.
Voting Rights
The holders of the senior preferred stock have the right, voting
separately as a class, to elect four of the five directors to our board of
directors; provided, that if we have not paid dividends with respect to the
payments due on the senior preferred stock commencing March 15, 2002, such
holders will have the right, voting separately as a class, to elect all five
directors to our board of directors. The right to elect all five directors will
terminate when all such dividends accrued and in default have been paid in full
or set apart for payment. The term of the fifth director so elected will
terminate immediately upon such payment or setting apart of funds for such
payment. Holders of the senior preferred stock have one vote per share, voting
together with the class A common stock (and the junior preferred stock and any
other series or classes of our stock entitled to vote with the class A common
stock), on all matters on which holders of the class A common stock are entitled
to vote generally.
In addition, so long as any senior preferred stock is outstanding, the
affirmative vote or consent of the holders of at least a majority of all
outstanding shares of senior preferred stock, voting separately as a class, is
required to
o amend, alter or repeal any provision of our certificate of
incorporation or our bylaws;
o authorize or issue, or increase the authorized amount of, any
additional class or series of stock, or any security
convertible into stock of such class or series, ranking senior
to the senior preferred stock as to dividends or upon our
liquidation, dissolution or winding up;
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o waive any covenant contained in the certificate of designation
for the senior preferred stock;
o subject to Article VI of our certificate of incorporation,
consummate any merger, consolidation or sale of substantially
all of our assets; or
o effect any reclassification of the senior preferred stock.
Also, so long as any senior preferred stock is outstanding, the
affirmative vote or consent of the holders of at least 75% of all outstanding
shares of senior preferred stock, voting separately as a class, is required to
amend the voting rights of the senior preferred stock.
Mandatory Redemption
We are required to redeem the senior preferred stock on March 15, 2006,
at 100% of the liquidation preference per share.
Redemption at Our Option
We may redeem the senior preferred stock for cash, in whole or in part,
at any time at our option, at an initial price equal to $0.88 per share plus all
accrued but unpaid dividends, increasing by $0.005 per share per month to a
maximum of 100% of the liquidation preference per share. However, we are not
permitted to redeem any of our senior preferred stock prior to the time that we
retire our 15% Senior Secured Notes due 2005.
If fewer than all of the outstanding shares of senior preferred stock
are to be redeemed, we will select those to be redeemed pro rata or by lot as
our board of directors may determine. In the event that we fail to pay accrued
and unpaid dividends on the senior preferred stock, we are not permitted to
redeem any of the then outstanding shares of the senior preferred stock until we
have fully paid all such accrued and unpaid dividends and (except with respect
to shares to be redeemed) the then current quarterly dividend.
We will mail the notice of redemption at least 20 days but not more
than 60 days before the redemption date to each holder of record of shares of
senior preferred stock to be redeemed at the address shown on our stock transfer
books. After the redemption date, dividends will cease to accrue on the shares
of senior preferred stock called for redemption and all rights of the holders of
such shares will terminate, except the right to receive the redemption price
without interest.
Mandatory Conversion
If either (i) more than 75 million shares of the senior preferred stock
are outstanding after March 15, 2006 or (ii) two dividend payments have not been
paid on the senior preferred stock, one-half of the outstanding shares of the
senior preferred stock, on a pro rata basis, will automatically convert into
shares of class A common stock at a rate of 0.3461 shares of class A common
stock for each $1.00 of liquidation preference of the shares of senior preferred
stock converted.
Upon the occurrence of such a conversion event, we are not obligated to
issue certificates evidencing the shares of the class A common stock issuable
upon such conversion until either (i) the certificates evidencing such shares of
senior preferred stock are either delivered to us or to our transfer agent, or
(ii) the holder of the senior preferred stock notifies either us or our transfer
agent that such certificates have been lost, stolen or destroyed and executes
appropriate agreements satisfactory to us to indemnify us from any loss in
connection with such certificates.
The certificate of designation governing the senior preferred stock
contains customary anti-dilution provisions with respect to the senior preferred
stock substantially similar to the provisions set forth in the section below
entitled "Warrants -- Adjustments," other than those provisions addressing
adjustments to exercise price.
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Restrictive Covenants
The certificate of designation governing the senior preferred stock
contains restrictive covenants comparable to the restrictive covenants contained
in the Indenture, which, among other things, restrict our ability and the
ability of our subsidiaries to:
o borrow money;
o pay dividends on common stock or the preferred stock or make
other asset transfers;
o transact business with affiliates and related parties;
o sell stock in subsidiaries;
o engage in any new line of business;
o use assets as security in other transactions; and
o sell certain assets or merge with or into other companies.
Registration Rights
For information concerning registration rights granted to the initial
holders of the senior preferred stock, see the section entitled "Description of
the Securities--Registration Rights Relating to Certain Securities" beginning at
page 98 of this prospectus.
Other Provisions
The outstanding shares of senior preferred stock are duly and validly
issued, fully paid and nonassessable. The holders of the shares of senior
preferred stock have no preemptive rights with respect to any of our securities.
Transfer Agent
The transfer agent, conversion agent and registrar for the senior
preferred stock is ChaseMellon Shareholder Services, L.L.C.
THE JUNIOR PREFERRED STOCK
General
We are authorized to issue 37,469,711 shares of junior preferred stock,
par value $0.001 per share. As of the date of this prospectus, 21,764,831 shares
of junior preferred stock were issued and outstanding. We are prohibited from
issuing any additional shares of junior preferred stock other than shares issued
to pay dividends in kind on the junior preferred stock.
Dividends
As a holder of shares of junior preferred stock, you are entitled to
receive, when, as and if declared by our board of directors out of funds at the
time legally available therefor, dividends, as follows:
o During the period ending March 15, 2006 (the "first dividend
period"), at a rate equal to $0.10 per share per annum, and at
any time thereafter (the "second dividend period"), at a rate
equal to $0.20 per share per annum, payable quarterly on March
15, June 15, September 15 and December 15 of each year, except
that if any such date is a Saturday, Sunday or legal holiday,
then such dividend shall be payable on the next day that is
not a Saturday, Sunday or legal holiday.
o Dividends shall only be payable in kind (i.e. in additional
shares of junior preferred stock with an aggregate liquidation
preference equal to the dividend amount) during the first
dividend period.
o During the second dividend period, dividends shall be paid
both (i) in cash at a rate of $0.10 per share per annum and
(ii) in kind at a rate of $0.10 per share per annum.
o Dividends accrue and are cumulative from the date of the
immediately preceding dividend payment date, except with
respect to the first dividend, which shall accrue from the
date of issuance of the junior preferred stock. We pay
dividends to holders of record as they appear on our stock
books on such record dates as are fixed by our board of
directors.
The junior preferred stock is junior as to dividends to any series or
class of our stock hereafter issued that ranks senior as to dividends to the
junior preferred stock. The junior preferred stock has priority as to dividends
over the common stock and any series or class of our stock hereafter issued that
ranks junior as to dividends to the junior preferred stock.
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We compute the amount of dividends payable per share of junior
preferred stock for each quarterly dividend period by dividing the annual
dividend amount by four. We compute the amount of dividends payable for the
initial dividend period and any period shorter than a full quarterly dividend
period on the basis of a 360-day year of twelve 30-day months. We will not pay
interest in respect of any dividend payment on the junior preferred stock which
may be in arrears.
Under Delaware law, we may declare and pay dividends on our shares of
capital stock only out of our surplus, or in certain cases, out of our net
profits.
Liquidation Rights
In the event of our liquidation, dissolution or winding up, holders of
shares of junior preferred stock are entitled to receive the liquidation
preference of $1.00 per share, plus an amount equal to any accrued and unpaid
dividends to the payment date, before any payment or distribution is made to the
holders of common stock or any series or class of our stock hereafter issued
that ranks junior as to liquidation rights to the junior preferred stock.
However, the holders of the shares of the junior preferred stock are not
entitled to receive the liquidation preference of such shares until after we
have fully paid the liquidation preference of the senior preferred stock and any
other series or class of our stock hereafter issued that ranks senior as to
liquidation rights to the junior preferred stock ("senior liquidation stock").
The holders of junior preferred stock and all series or classes of our
stock hereafter issued that rank on a parity as to liquidation rights with the
junior preferred stock are entitled to share ratably, in accordance with the
respective preferential amounts payable on such stock, in any distribution
(after payment of the liquidation preference of the senior liquidation stock)
that is not sufficient to pay in full the aggregate of the amounts payable
thereon. After payment in full of the liquidation preference of the shares of
the junior preferred stock, the holders of such shares are not entitled to any
further participation in any distribution of our assets. The voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of our property or assets and our
consolidation or merger with or into one or more other corporations or other
entities shall be deemed to be a liquidation, dissolution, or winding up,
voluntarily or involuntarily, except in the case of a merger where we are the
surviving entity and our shareholders immediately prior to such merger
collectively own at least a majority of the voting stock of the surviving
corporation in such merger.
Voting Rights
Holders of the junior preferred stock have one vote per share (voting
together with the class A common stock, the senior preferred stock and any other
series or classes of our stock entitled to vote with the class A common stock),
on all matters on which holders of the class A common stock are entitled to vote
generally. If no shares of senior preferred stock are outstanding, the holders
of the junior preferred stock have the right, voting separately as a class, to
elect two directors to our board of directors. In exercising such voting rights,
each outstanding share of junior preferred stock is entitled to one vote,
excluding shares held by us or any entity controlled by us, which shares shall
have no voting rights.
In addition, so long as any junior preferred stock is outstanding, the
affirmative vote or consent of the holders of at least a majority of all
outstanding shares of junior preferred stock, voting separately as a class, is
required to
o amend, alter or repeal any provision of our certificate of
incorporation or our bylaws;
o authorize or issue, or increase the authorized amount of, any
additional class or series of stock ranking senior to the
junior preferred stock as to dividends, or upon our
liquidation, dissolution or winding up;
o waive any covenant contained in the certificate of designation
for the junior preferred stock;
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o subject to Article VI of our certificate of incorporation,
consummate any merger, consolidation or sale of substantially
all of our assets; or
o effect any reclassification of the junior preferred stock.
Also, so long as any junior preferred stock is outstanding, the affirmative vote
or consent of the holders of at least 75% of all outstanding shares of junior
preferred stock, voting separately as a class, is required to amend the voting
rights of the junior preferred stock.
Mandatory Redemption
We are required to redeem the junior preferred stock on March 15, 2010
at 100% of the liquidation preference per share.
Redemption at Our Option
We may redeem the junior preferred stock for cash, in whole or in part,
at any time at our option, for an amount equal to 100% of the liquidation
preference per share. However, we are not permitted to redeem any of the junior
preferred stock prior to the time that we retire all of our 15% Senior Secured
Notes due 2005 and our senior preferred stock.
If fewer than all of the outstanding shares of junior preferred stock
are to be redeemed, we will select those to be redeemed pro rata or by lot as
our board of directors may determine. In the event that we fail to pay accrued
and unpaid dividends on the junior preferred stock, we may not redeem any of the
then outstanding shares of the junior preferred stock until we have fully paid
all such accrued and unpaid dividends and (except with respect to shares to be
redeemed) the then current quarterly dividend.
We will mail the notice of redemption at least 20 days but not more
than 60 days before the redemption date to each holder of record of shares of
junior preferred stock to be redeemed at the address shown on our stock transfer
books. After the redemption date, dividends will cease to accrue on the shares
of junior preferred stock called for redemption and all rights of the holders of
such shares will terminate, except the right to receive the redemption price
without interest.
Mandatory Conversion
If either (i) more than 75 million shares of the senior preferred stock
are outstanding after March 15, 2006 or (ii) two dividend payments have not been
paid on the senior preferred stock, all of the outstanding shares of the junior
preferred stock will automatically convert into shares of class A common stock
at the rate of 0.1168 shares of class A common stock for each $1.00 of
liquidation preference of the shares of junior preferred stock converted.
Upon the occurrence of such a conversion event, we are not obligated to
issue certificates evidencing the shares of the class A common stock issuable
upon such conversion until either (i) the certificates evidencing such shares of
junior preferred stock are either delivered to us or to our transfer agent, or
(ii) the holder of the junior preferred stock notifies either us or our transfer
agent that such certificates have been lost, stolen or destroyed and executes
appropriate agreements satisfactory to us to indemnify us from any loss in
connection with such certificates.
The certificate of designation governing the junior preferred stock
contains appropriate anti-dilution provisions with respect to the junior
preferred stock substantially similar to the provisions set forth in the section
below entitled "Warrants -- Adjustments," other than those provisions addressing
adjustments to exercise price.
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Restrictive Covenants
The certificate of designation governing the junior preferred stock contains
restrictive covenants comparable to the restrictive covenants contained in the
Indenture, which, among other things, restrict our ability and the ability of
our subsidiaries to:
o borrow money;
o pay dividends on common stock or the preferred stock or make
other asset transfers;
o transact business with affiliates and related parties;
o sell stock in subsidiaries;
o engage in any new line of business;
o use assets as security in other transactions; and
o sell certain assets or merge with or into other companies.
Registration Rights
For information concerning registration rights granted to the initial
holders of the junior preferred stock, see the section entitled "Description of
the Securities--Registration Rights Relating to Certain Securities" beginning
at page 98 of this prospectus.
Other Provisions
The outstanding shares of junior preferred stock are duly and validly
issued, fully paid and nonassessable. The holders of the shares of junior
preferred stock have no preemptive rights with respect to any of our securities.
Transfer Agent
The transfer agent, conversion agent and registrar for the junior
preferred stock is ChaseMellon Shareholder Services, L.L.C.
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THE CLASS A COMMON STOCK AND CLASS B COMMON STOCK
General
We are authorized to issue 100,000,000 shares of class A common stock,
par value $0.01 per share, and 247,500 shares of class B common stock, par value
$0.01 per share. As of the date of this prospectus, 1,002,751 shares of class A
common stock and 247,500 shares of class B common stock were issued and
outstanding. We have reserved 62,013,125 shares of class A common stock for
issuance upon exercise of the warrants and conversion of the senior preferred
stock, the junior preferred stock and the class B common stock.
The class A common stock and the class B common stock are identical in
all respects except that the holders of the class B common stock have the right,
voting separately as a class, to elect one of our directors during periods in
which the holders of the senior preferred stock are not entitled to elect all
five of our directors. The class B common stock will automatically convert into
class A common stock upon the transfer thereof from the initial holder thereof
to any person other than John R. Stanley, his affiliates or upon the
termination, for certain reasons, of John R. Stanley as our chief executive
officer and as one of our directors.
Dividend Policy
The Indenture, our oil and gas credit facility, our accounts receivable
facility and the provisions of our certificate of incorporation relating to the
preferred stock prohibit the payment of cash dividends on our class A common
stock and our class B common stock. Because of these prohibitions, we do not
anticipate paying any cash dividends on the class A common stock or the class B
common stock in the foreseeable future.
Voting Rights
Subject to the rights of holders of the preferred stock (described
under the above section entitled "The Senior Preferred Stock -- Voting Rights")
and the class B common stock (described in the last sentence of this paragraph)
to elect certain directors, holders of shares of class A common stock and class
B common stock are entitled to one vote per share on any matter submitted to a
vote of stockholders, including the election of directors to fill vacancies
which are not otherwise designated to be filled by the holders of the preferred
stock or class B common stock. Cumulative voting is prohibited. The holders of
the class B common stock have the right, voting separately as a class, to elect
one of our directors during periods in which the holders of the senior preferred
stock are not entitled to elect all five of our directors.
Other Rights
The class A common stock and the class B common stock are not
redeemable, do not have any conversion rights (other than the automatic
conversion of the class B common stock in the instances described under
"General" above) and are not subject to call. Holders of shares of class A
common stock and class B common stock have no preemptive rights to maintain
their respective percentage ownership in future offerings or sales of our stock.
The Indenture, our oil and gas credit facility and our accounts receivable
facility, and the terms of the preferred stock prohibit the payment of cash
dividends on the class A common stock and class B common stock. Subject to these
prohibitions, the holders of class A common stock and the class B common stock
are entitled to receive ratably such dividends, if any, as and when declared
from time to time by our board of directors out of funds legally available
therefor. Upon our liquidation, dissolution or winding-up, the holders of class
A common stock and class B common stock are entitled to participate equally and
ratably, in proportion to the number of shares held, in our net assets available
for distribution to holders of class A common stock and class B common stock.
The shares of class A common stock and class B common stock currently
outstanding are validly issued, fully paid and nonassessable.
Limitations on Liability of Directors
Our certificate of incorporation contains a provision that is designed
to limit our directors' liability to the extent permitted by the Delaware
General Corporation Law and any amendments thereto. Under current law, our
directors will not be held liable to us or our stockholders for monetary damages
for any breach of fiduciary duty except for liability as a result of: (i) a
breach of the duty of loyalty to us or our stockholders, (ii) actions
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or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) payment of an improper dividend, improper stock
repurchases, or improper stock redemptions, or (iv) actions or omissions
pursuant to which the director receives an improper personal benefit.
The principal effect of the limitation of liability provision is that a
stockholder is unable to prosecute an action for monetary damages against any of
our directors unless the stockholder can demonstrate one of the specified bases
for liability. This provision, however, may not eliminate or limit director
liability arising in connection with causes of action brought under federal
securities laws.
Our certificate of incorporation does not eliminate our directors' duty
of care. The inclusion of this provision in our certificate of incorporation
may, however, discourage or deter stockholders or management from bringing a
lawsuit against our directors for a breach of their fiduciary duties, even
though such an action, if successful, might otherwise have benefitted us and our
stockholders. This provision should not affect the availability of equitable
remedies such as injunction or rescission based upon a director's breach of the
duty of care.
Indemnification of Officers and Directors
Our certificate of incorporation and bylaws require us to indemnify our
officers and directors to the fullest extent permitted by Delaware law. In
addition, we have customary directors' and officers' liability insurance
policies for our directors and officers.
Registration Rights
For information concerning registration rights granted to the initial
holders of the class A common stock, see the section entitled "Description of
the Securities--Registration Rights Relating to Certain Securities" beginning at
page 98 of this prospectus.
Transfer Agents
The Transfer Agent for the class A common stock is ChaseMellon
Shareholder Services, L.L.C. The Company acts as transfer agent for the class B
common stock.
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THE WARRANTS
We issued the warrants under a warrant agreement dated as of March 15,
2000 (the "warrant agreement") between us and ChaseMellon Shareholder Services,
L.L.C. (the "warrant agent"). The following summary of certain provisions of the
warrant agreement and the warrants does not purport to be complete and is
qualified in its entirety by reference to the warrant agreement and the
warrants, including the definitions therein of certain terms. The warrant agent
may resign at any time, in which case a successor to the warrant agent is to be
appointed pursuant to the terms of the warrant agreement.
General
Each warrant, when exercised, will entitle the holder thereof to
receive one share of our class A common stock (each, a "warrant share") at an
exercise price of $120.00 per share. The exercise price and the number of
warrant shares issuable upon exercise of a warrant are both subject to
adjustment in certain cases. See "Adjustments" below. The warrants are
exercisable at any time on or after the date of issuance thereof. Unless
exercised, the warrants will automatically expire on June 30, 2002 (the
"expiration date").
The warrants entitle the holders thereof to purchase in the aggregate
approximately 33% of our outstanding common stock on a fully diluted basis
(including our common stock issuable upon exercise of the warrants, but without
giving effect to the issuance of any common stock (whether or not upon exercise
of any warrant) for consideration at or above current market value (as defined)
after the effective date or to the conversion of the senior preferred stock or
the junior preferred stock into shares of common stock, which would have a
substantial dilutive effect upon the warrants) as of the date of issuance of the
warrants.
The warrants may be exercised at any time by surrendering to us the
warrant certificates evidencing the warrants, with the accompanying form of
election to purchase, properly completed and executed, together with payment of
the exercise price. Payment of the exercise price may be made in the form of
cash or a certified or official bank check payable to our order. Upon surrender
of the warrant certificate and payment of the exercise price, the warrant agent
will deliver or cause to be delivered, to or upon the written order of such
holder, stock certificates representing the number of whole warrant shares or
other securities or property to which such holder is entitled under the warrants
and warrant agreement, including, without limitation, any cash payable to adjust
for fractional interests in warrant shares issuable upon such exercise. If fewer
than all of the warrants evidenced by a warrant certificate are to be exercised,
a new warrant certificate will be issued for the remaining number of warrants.
No fractional warrant shares will be issued upon exercise of the
warrants. If any fraction of a warrant share would, except for the foregoing
provision, be issuable upon the exercise of any warrants (or specified portion
thereof), we will, in lieu of issuing a fraction of a warrant share, pay to the
holder of the warrant at the time of exercise an amount in cash equal to the
same fraction of the current market value (as defined) of a share of class A
common stock less the portion of the exercise price attributable thereto.
Certificates for warrants will be issued in global form or registered
form as definitive warrant certificates and no service charge will be made for
registration of transfer or exchange upon surrender of any warrant certificate
at the office of the warrant agent maintained for that purpose. We may require
payment of a sum sufficient to cover any tax or other governmental charges that
may be imposed in connection with any registration of transfer or exchange of
warrant certificates.
As a holder of the warrants, you
o have no right to vote on matters submitted to our
stockholders;
o have no right to receive cash dividends; and
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o are not entitled to share in any of our assets in the event of
our liquidation, dissolution or winding up.
Adjustments
The number of warrant shares purchasable upon the exercise of the
warrants will be subject to adjustment in certain events, including the
following:
o our payment of dividends (or other distributions) on our class
A common stock in shares of such class A common stock or other
shares of our capital stock;
o subdivisions, combinations and reclassification of the class A
common stock;
o distribution to all holders of the class A common stock of any
of our assets, debt securities or any rights or warrants to
purchase securities (excluding cash dividends or other cash
distributions from current or retained earnings); and
o if we issue either (x) shares of class A common stock for a
consideration per share less than the current market value per
share net of commissions and fees (other than shares of class
A common stock that we issue upon conversion or exchange of
other securities convertible into or exchangeable for class A
common stock or upon exercise of warrants) or (y) any
securities convertible into or exchangeable for class A common
stock (other than the warrants and any shares of senior
preferred stock and junior preferred stock issued in payment
of dividends on such stock) for a consideration per share of
class A common stock initially deliverable upon conversion or
exchange of such securities that is less than the current
market value per share net of commissions and fees on the date
of issuance of such securities.
Upon each adjustment in accordance with the above paragraph to the
number of warrant shares purchasable, the exercise price will be adjusted so
that the aggregate exercise price for all warrant shares purchasable upon
exercise of the warrants immediately prior to such adjustment is equal to the
aggregate exercise price for all warrant shares purchasable upon exercise of the
warrants immediately after such adjustment; provided, that the exercise price
may not be adjusted below the lesser of $0.01 per share of common stock and the
then par value per share of common stock.
Notwithstanding the foregoing, we are not required to make any
adjustment for or take any other action in respect of the following:
o a change solely in the par value or no par value of the class
A common stock, provided that we may not increase the par
value to exceed the exercise price;
o the conversion or exchange list as bullet items (other than
pursuant to a reclassification), in any case on a
share-for-share basis, of common stock for non-voting common
stock that has rights (other than voting rights) identical to
the class A common stock, or of such non-voting stock for
class A common stock;
o our issuance to our employees or any of our subsidiaries of
stock or stock options in an amount which, upon purchase or
exercise, as the case may be, would represent in the
aggregate, less than 10% of our common stock on a fully
diluted basis; or
o any exercise of the warrants.
As used herein, the term "current market value" per share of class A
common stock or any other security at any date means, on any date of
determination (a) the average of the daily closing sale prices for each of 15
trading days immediately preceding such date (or such shorter number of days
during which such security has been listed or traded), if the security has been
listed on the New York Stock Exchange, the American Stock Exchange or other
national securities' exchange or the NASDAQ National Market for at least 10
trading days prior to such date, (b) if such security is not so listed or
traded, the average of the daily closing bid prices for each of the 15 trading
days immediately preceding such date (or such shorter number of days during
which such security had been quoted), if the security has been quoted on a
national over-the-counter market for at least 10 trading days, and (c)
otherwise, the value of the security most recently determined as of a date
within the six months preceding such day by our board of directors.
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In case of certain reclassifications, redesignations, reorganizations
or changes in the number of outstanding shares of the class A common stock, or
consolidations or mergers, or the sale of all or substantially all of our
assets, each warrant shall thereafter be exercisable for the right to receive
the kind and amount of shares of stock or other securities or property to which
such holder would have been entitled as a result of such consolidation, merger
or sale had the warrants been exercised immediately prior thereto.
The holders of unexercised warrants are not entitled, as such, to
receive dividends or other distributions with respect to the class A common
stock, receive notice of any meeting of our stockholders, consent to any action
of our stockholders, receive notice of any other stockholder proceedings, or to
any other rights as stockholders.
Reservation of Shares
We have authorized and reserved for issuance such number of shares of
class A common stock as shall be issuable upon the exercise of outstanding
warrants. Such shares of class A common stock, when paid for and issued, will be
duly and validly issued, fully paid and non-assessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
Amendment
From time to time, we and the warrant agent, without the consent of the
holders of the warrants, may amend or supplement the warrant agreement for
certain purposes, including, without limitation, curing defects or
inconsistencies or making any change that does not materially adversely affect
the rights of any holder. Any amendment or supplement to the warrant agreement
that has a material adverse effect on the interests of the holders of the
warrants shall require the written consent of the holders of a majority of the
then outstanding warrants. The consent of each holder of the warrants affected
shall be required for any amendment pursuant to which the exercise price would
be increased or the number of shares purchasable upon exercise of warrants would
be decreased (other than pursuant to adjustments provided in the warrant
agreement).
REGISTRATION RIGHTS RELATING TO CERTAIN SECURITIES
We entered into registration rights agreements (the "Registration
Rights Agreements") with the initial holders of the notes, the senior preferred
stock, the junior preferred stock and the class A common stock (the "registrable
securities") under which we agreed, among other things, to do the following:
o file a shelf registration statement with the SEC relating to
resale of the registrable securities held by them under the
Securities Act of 1933, and use our best efforts to have the
shelf registration statement declared effective as soon as
practicable after filing;
o to keep the shelf registration statement effective for five
years from the date of issuance of the registrable securities
or, if earlier, until all registrable securities covered by
the shelf registration statement have been sold pursuant
thereto; and
o cause the shelf registration statement, as amended or
supplemented, to materially comply with applicable
requirements of the Securities Act and regulations of the SEC,
including the filing of any amendment or supplement necessary
to prevent the shelf registration statement from containing
any untrue statement of material fact or from omitting any
statement of material fact required to prevent the statements
contained therein from being misleading.
We will provide to each holder of the registrable securities copies of
the prospectus which is a part of the shelf registration statement, notify each
holder when the shelf registration statement has become effective and take
certain other actions required to permit public resales of the registrable
securities.
Upon written notice to the holders of the registrable securities, we
will be permitted to suspend the use of the prospectus that is a part of the
shelf registration statement upon the occurrence of any of the following:
o any request by the SEC for amendments or supplements to the
shelf registration statement or the prospectus that is a part
of the shelf registration statement;
o the issuance by the SEC of any stop order suspending the
effectiveness of the shelf registration statement or the
initiation of any proceedings for that purpose;
o our receipt or our counsel's receipt of any notification with
respect to the suspension of the qualification of any of the
registrable securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for that purpose;
or
o any event that requires us to make changes to the shelf
registration statement in order that neither one contains
false or misleading statements of material information.
Upon receipt of such notice, the holders of the registrable securities
are required to cease disposing of the registrable securities under the
prospectus. We have agreed to make every reasonable effort to obtain the
withdrawal at the earliest possible time of any order suspending the
effectiveness of the shelf registration statement.
Any holder of the registrable securities who elects to sell the
registrable securities pursuant to the shelf registration statement is required
to deliver certain information to us (as described in the Registration Rights
Agreements) in order to have its registrable securities covered by the shelf
registration statement. A holder of the registrable securities that sells the
registrable securities pursuant to the shelf registration statement generally is
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, is subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
shall be bound by the provisions of the Registration Rights Agreement which are
applicable to such holder (including certain indemnification obligations).
The summary of certain provisions of the Registration Rights Agreements
is not complete and is subject to, and qualified in its entirety by reference
to, all the provisions of the Registration Rights Agreements, a copy of each of
which we will make available to beneficial owners of the registrable securities
upon request to us.
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CERTAIN FEDERAL INCOME TAX MATTERS
The following is our summary of certain material U.S. federal income
taxation considerations relevant to the purchase, ownership, and disposition of
certain of our securities by a holder that is a citizen or resident of the
United States or a U.S. domestic corporation or that otherwise is subject to
U.S. federal income taxation or reporting. Our summary is based on the U.S.
federal income tax law now in effect, which is subject to change, possibly
retroactively. Our summary does not discuss all aspects of federal income
taxation that may be relevant to particular investors in light of their
individual investment circumstances or to certain types of investors subject to
special tax rules, such as financial institutions, insurance companies,
tax-exempt organizations, foreign taxpayers and persons that will hold the
securities as a position in a "straddle" or as part of a "hedging" or
"conversion" transaction for federal income tax purposes or that have a
functional currency other than the U.S. dollar. In addition, our summary does
not discuss any state, local, or foreign tax considerations. Our summary assumes
that investors will hold the securities, including the warrant shares received
upon exercise of the warrants, as "capital assets" (generally, property held for
investment) as defined for federal income tax purposes. Prospective purchasers
of any of the securities are urged to consult their own tax advisors as to the
tax consequences of the purchase, ownership, and disposition of any of the
securities in light of their own particular circumstances, including the effect
of any state, local or other national laws.
TAXATION OF THE NOTES
Original Issue Discount
We intend to take the position that the notes have not been issued with
original issue discount ("OID") and the stated interest on a note will be
includible in a holder's gross income as ordinary income at the time it is paid
or accrued in accordance with the holder's method of tax accounting. For federal
income tax purposes, the notes will be treated as issued with OID however if,
when issued, their stated principal amount exceeded their issue price by more
than a de minimis amount. The notes, along with various other securities of
TransTexas, were issued pursuant to our bankruptcy plan to settle the TransTexas
senior secured notes claims. If neither the notes nor the TransTexas senior
secured notes claims exchanged therefor were treated as traded on an established
market within the 60-day period ending 30 days after the issue date of the notes
(the "issue period"), then, the issue price of the notes should be equal to
their stated principal amount, resulting in the notes having no OID. Conversely,
if the notes or the debt underlying the claims exchanged therefore were properly
treated as traded on an established securities market during the issue period,
then the issue price of the notes would generally equal the trading price on the
issue date of the notes. Based on the information available to us, we believe
and this summary assumes that (i) the notes are not traded on an established
securities market for federal income tax purposes and (ii) the notes thus have
not been issued with OID. If the notes were issued with OID, a holder will be
required to include a portion of this OID in income periodically over the term
he held the note before receipt of the cash attributable to this income.
Regardless of whether the notes were issued with OID, a holder of a note will
include in income the stated interest on his note in accordance with his method
of tax accounting.
Disposition of Notes
Generally, any sale or redemption or other disposition of notes will
result in taxable gain or loss equal to the difference between (i) the amount of
cash and the fair market value of other property received and (ii) the holder's
adjusted tax basis in the note (generally the price paid for the note). Except
to the extent that the market discount rules apply as described below, any gain
or loss upon a sale or other disposition of a note will generally be capital
gain or loss, which will be long-term if the note has been held by the holder
for more than one year.
Market Discount
Generally, market discount will exist to the extent that, at the time
of purchase, the purchase price paid by a holder for a note is less than the
stated principal amount of the note (presumably determined after reducing the
principal for any prior principal payments on the note), subject to a statutory
de minimis exception. Generally, a holder who acquires a note with market
discount will be required to treat any gain realized upon the disposition
(including redemption) of the note as ordinary income to the extent of the
market discount that has accrued (but was not previously included in income)
during the period the holder held the note. For federal income tax purposes,
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partial principal payments on a market discount bond are included in gross
income to the extent that the payments do not exceed the accrued market discount
on the bond. A holder of a note who has acquired the note with market discount
will also be required to defer the deduction of a portion of any interest on
debt incurred or continued to purchase or carry the note until disposition of
the note in a taxable transaction.
A holder may elect to include market discount in income as this
discount accrues with a corresponding increase in the holder's adjusted tax
basis in the note. If a holder so elects, the rules in the preceding paragraph
regarding the treatment of income or gain upon the disposition of a note and
upon receipt of certain cash payments as ordinary income or gain, and regarding
the deferral of interest deductions on indebtedness related to a note, would not
apply. Once made, this an election applies to all debt obligations that are
purchased by a holder at a market discount during the taxable year for which the
election is made, and all subsequent taxable years of the holder, unless the IRS
consents to a revocation of the election.
TAXATION OF THE PREFERRED STOCK
Distributions on the Preferred Stock
If a distribution is made with respect to the preferred stock,
including a distribution on the preferred stock that is paid in kind, the amount
of the distribution generally will be subject to tax to the holder as a dividend
for federal income tax purposes to the extent of our current and accumulated
earnings and profits, as calculated for tax purposes. These distributions
received by corporate holders may be eligible for the dividends-received
deduction. In the case of a distribution of preferred stock that is paid in
kind, a holder would recognize current ordinary income to the extent that the
distribution is characterized as a dividend, even though no cash is received
with respect to this distribution. The amount of the distribution, and the
recipient's tax basis, of an in kind distribution on the preferred stock will
equal the fair market value of the shares distributed as determined on the
distribution date. The amount of any distribution on the preferred stock in
excess of current and accumulated earnings and profits will first be a tax-free
recovery of basis to the extent of (and reduce) the holder's adjusted basis in
the stock, and any remaining amount of the distribution will generally be
subject to tax to the holder of the stock as capital gain. Corporate holders may
be subject to limitations on their ability to claim the dividends received
deduction.
Redemption Premium
We have both a mandatory and an optional right to redeem the preferred
stock. For federal income tax purposes, if the redemption price of the senior
preferred stock or junior preferred stock exceeds their respective issue price
by more than a de minimis amount, this excess (the "redemption premium") is
includible in ordinary income as a constructive dividend distribution over the
period that the stock cannot be called for redemption, to the extent that the
distribution is paid from our current or accumulated earnings and profits. The
amount of each constructive distribution would be based on an economic accrual
method, with a proportionately smaller amount of the redemption premium taken
into income in the early years and higher amounts in the later years. To the
extent a constructive distribution is treated as dividend, it will increase the
holder's adjusted basis in the preferred stock. A holder should not recognize
taxable income or gain, however, from a constructive distribution (and the
holder's basis in his preferred stock should not be adjusted) to the extent it
is not paid from our current or accumulated earnings and profits. The issue
price generally will equal the fair market value of the preferred stock as of
the date the stock is issued. We believe, and intend to take the position, that
when issued, the fair market value and thus the issue price of both the senior
preferred stock and the junior preferred stock was zero when this stock was
issued. Based on this valuation, the redemption premium would equal the
liquidation preference amount of each share of preferred stock. The federal
income tax regulations provide that the issuer's determination that stock has a
redemption premium that is includible in a holder's income is binding on the
holder unless the holder discloses a different treatment on a statement attached
to a timely filed federal income tax return for the year that the holder first
acquires the stock. We currently are unable to predict with any certainty (i)
when, if at all, we will first generate positive current or accumulated earnings
and profits for tax purposes and (ii) the amount of any such earnings and
profits. PURCHASERS OF PREFERRED STOCK ARE URGED TO CONSULT WITH THEIR TAX
ADVISORS CONCERNING THE
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APPLICATION OF REDEMPTION PREMIUM PROVISIONS UNDER THE FEDERAL INCOME TAX RULES
WITH RESPECT TO THE PREFERRED STOCK.
If additional shares of preferred stock are distributed on either the
senior preferred stock or the junior preferred stock having a fair market value
at the time of distribution that is less than its respective redemption price,
the additional preferred stock will have a redemption premium that may be
taxable as a constructive distribution of additional stock to a holder that is
taxed as a dividend to the extent of our current and accumulated earnings and
profits. This amount of redemption premium on the additional shares of preferred
stock may differ from that attributable to the preferred stock on which the in
kind distribution is made, resulting in the additional in kind shares of senior
or junior preferred stock not being fungible with the preferred stock of the
same respective class that is issued before the in kind distribution.
Optional Redemption
With respect to each of the senior preferred stock and the junior
preferred stock, for purposes of determining the amount of their respective
redemption premium and the period during which the redemption premium accrues,
redemption of each class of preferred stock will be deemed to occur on the
mandatory redemption date and at their mandatory redemption prices unless, based
on all of the facts and circumstances surrounding each class on the issue date,
exercise of the optional redemption of the class in question is more likely than
not to occur. If on the issue date an optional redemption is more likely than
not to occur, and the stock may be redeemed at more than one date, then the
redemption date is deemed to be the first date on which the stock redemption is
most likely to occur based on the applicable facts and circumstances on the
issue date. Because the senior preferred stock cannot be redeemed before the
notes are fully repaid, we believe that it is not more likely than not that we
will exercise our right to optionally redeem the senior preferred stock. Based
specifically on the facts and circumstances in existence on March 17, 2000 when
the junior preferred stock was issued, we believe that as of such date it is not
more likely than not that we will redeem the junior preferred stock before the
mandatory redemption date of March 15, 2010. Based on this position, we believe
any redemption premium of the junior preferred stock should be includible in a
holder's income over the period ending on the mandatory redemption date to the
extent of our current or accumulated earnings and profits. No assurance can be
provided however that (i) the IRS will not successfully assert the position that
it is more likely than not that the junior preferred stock will be redeemed
prior to March 15, 2010 or (ii) based on future developments and market
conditions, we will not consider redeeming the junior preferred stock prior to
2010.
Treatment of Dividends as Redemption Premium
We intend to calculate the redemption price and thus the redemption
premium of the preferred stock based on the liquidation preference amount. The
preferred stock provides for mandatory redemption (and the junior preferred
stock provides for an optional redemption price) at a redemption price equal to
the liquidation preference amount per share of the preferred stock in question,
plus accrued and unpaid dividends. If at the time of issuance of the preferred
stock, there were no intention for dividends to be paid currently, the IRS might
successfully treat these dividends as disguised additional redemption premiums
that are taxed on a current basis to the holder an economic accrual method under
the redemption premium rules discussed above. We intend to pay significantly all
dividends currently on the preferred stock, either in cash or, in additional
shares of preferred stock. Thus, while the appropriate treatment of unpaid
cumulative dividends as part of the redemption premium has not yet been
addressed by relevant tax authority and no assurance can be given as to the
outcome of this guidance, we intend to take the position that the redemption
premium of the preferred stock should not include any stated dividends nor
should any accrued and unpaid dividends be treated as a constructive
distribution to holders prior to actually paid. Further, the IRS might assert
that the excess of the aggregate amount of the stated dividends on the junior
preferred stock over $0.10 per share should be treated as additional premium
that must be included in income by holders in accordance with the rules
discussed above regarding redemption premiums, resulting in these excess
dividends possibly included in income by a holder before their schedule payment
dates.
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Conversion of Stock
The terms of the preferred stock provide that one-half of the shares of
the senior preferred stock and all of the shares of the junior preferred stock
will automatically convert to shares of common stock based on the conversion
ratios set forth under their terms if either (i) more than 75 million shares of
senior preferred stock are outstanding after March 15, 2006 or (ii) any two
dividend payments are in arrears on the senior preferred stock. Except to the
extent attributable to unpaid accrued dividends, a holder of the preferred stock
generally will not recognize gain or loss upon conversion of the stock into
common stock. The tax basis of shares of the common stock acquired upon
conversion of the preferred stock (exclusive of any shares the receipt of which
is taxable because of dividend arrearages) will be equal to the holder's
adjusted tax basis in the preferred stock immediately before the conversion and
the holding period of the common stock received will include the period during
which the preferred stock was held by the holder. A holder's initial tax basis
in the preferred stock generally will equal the price paid therefor. If
dividends are in arrears on the preferred stock at the time of the conversion
into common stock, a portion of the common stock so received the value of which
is less than or equal to the amount of the arrearage may be includible in income
as a dividend (to the extent of our current or accumulated earnings and
profits).
Sale or Other Disposition of Preferred Stock
Upon a sale, exchange or other taxable disposition of preferred stock,
excluding a mandatory conversion into common stock, a holder will generally
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the sum of any amount of cash and the fair market value
of any property received upon the sale, exchange or other disposition and (ii)
the holders' adjusted tax basis in the preferred stock disposed of. Any gain or
loss recognized upon a sale, exchange or disposition of the stock generally
would be long-term capital gain or loss if the holder's holding period for the
preferred stock exceeds twelve months at the time of the sale or exchange. If
the preferred stock is redeemed by the issuer, the redeemed shareholder
generally will recognize capital gain or loss if the holder has no other
interest in the issuer, directly or constructively through the attribution rules
of section 318 of the Internal Revenue Code. If the holder of the redeemed
preferred stock has such an interest, the redemption could be treated as a
dividend under the federal income tax rules.
Adjustment
The conversion ratio of the preferred stock is subject to adjustments
under certain circumstances. For federal income tax purposes, holders of the
preferred stock will be treated as having received a constructive distribution,
resulting in ordinary income (subject to a possible dividends-received deduction
in the case of corporate holders) to the extent of our current or accumulated
earnings and profits, if and to the extent that certain adjustments in the
conversion ratio that may occur in limited circumstances (particularly an
adjustment to reflect a taxable dividend to holders of common stock) increase
the proportionate interest of a holder of preferred stock in the fully diluted
common stock. This consequence results whether or not the preferred stock is
ever converted.
Treatment of Senior Preferred Stock as "Fast-Pay" Stock
Under recently issued federal income tax regulations, if certain conditions
are met, the issuance of stock that has a dividend rate that is reasonably
expected to decline (so called "fast-pay" stock) is recharacterized for federal
income tax purposes and treated as occurring between the holders of fast-pay
stock (the "fast-pay shareholders") and the holders of all other stock of the
issuer of the fast-pay stock (the "benefitted shareholders"). Under the federal
income tax regulations, the determination of whether stock is fast-pay is based
on all the facts and circumstances and, unless clearly demonstrated otherwise,
stock is presumed to be "fast-pay" stock if it is structured to have a dividend
rate that is reasonably expected to decline. The senior preferred stock has a
dividend rate that will decline after June 15, 2002 and, thus, would be presumed
to constitute fast-pay stock under the federal income tax regulations unless
clearly demonstrated to the contrary.
In general, if the Commissioner of the IRS determines in his discretion that
a principal purpose for the structure of the fast-pay stock arrangement is the
avoidance of any federal tax, then the fast-pay stock arrangement
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is recharacterized as an arrangement directly between the fast-pay shareholders
and benefitted shareholders. As recharacterized, the benefitted shareholders are
deemed to have issued financial instruments, having terms identical to the
fast-pay stock, directly to the fast-pay shareholders in exchange for cash equal
to the value of the fast-pay stock and the benefitted shareholders are then
deemed to have contributed the cash proceeds from the issuance of the financial
instruments to the fast-pay issuer for stock of the fast-pay issuer ("benefitted
stock"). Actual distributions made with respect to the fast-pay stock are
treated as constructively paid by the fast-pay issuer to the benefitted
shareholders with respect to the benefitted stock and then remitted by the
benefitted shareholders to the fast-pay shareholders with respect to the
financial instruments. Issuers of fast-pay stock are required to furnish the IRS
with various information regarding the fast-pay stock. We believe under the
current facts that a principal purpose for the structure of the senior preferred
stock was not the avoidance of any tax and that the senior preferred stock
should not be subject to recharacterization as discussed above. It is unclear,
however, what standard the IRS will apply to determine if the proscribed tax
purpose exists with respect to the senior preferred stock and what facts are
necessary to clearly rebut the presumption that stock having a declining
dividend rate is not fast-pay stock. Thus, we can not determine with certainty
whether the IRS would successfully determine that the senior preferred stock is
fast-pay stock that is subject to the recharacterization rules of the federal
income tax regulations. PURCHASERS OF SENIOR PREFERRED STOCK, JUNIOR PREFERRED
STOCK, COMMON STOCK AND WARRANTS ARE URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE FEDERAL INCOME TAX REGULATIONS
TO FAST-PAY STOCK ARRANGEMENTS.
TAXATION OF THE COMMON STOCK AND WARRANTS
Exercise or Lapse of Warrants
No gain or loss will be recognized by a holder upon the exercise of
warrants for warrant shares. A holder's tax basis in the shares of warrant
shares received upon the exchange will equal the sum of the adjusted tax basis
in the warrants plus the price paid on the exercise thereof. The holding period
of the warrant shares received on the exercise of the warrants will not include
the period during which the warrants were held by the holder. If the warrants
lapse without exercise, the holder will recognize a capital loss (assuming the
sale or exchange of the warrants by the holder would have given rise to capital
gain or loss) equal to the holder's tax basis in the warrants. Any capital loss
should be long-term if the holder held his warrants for more than one year.
Dividends on Common Stock
Distributions, if any, paid on the common stock (including warrant
shares), to the extent made from our current or accumulated earnings and
profits, as calculated for federal income tax purposes, will be included in
income as ordinary dividend income by a holder when paid. The amount of any
distribution on the common stock in excess of current and accumulated earnings
and profits will first be a tax-free recovery of basis to the extent of (and
reduce) the holder's adjusted basis in the stock, and any remaining amount of
the distribution will generally be subject to tax to the holder of the stock as
capital gain. Corporate holders may be subject to limitations on their ability
to claim the dividends-received deduction.
Sale or Other Disposition of Common Stock or Warrants
The sale of warrants ordinarily will result in the recognition of gain
or loss to the holder for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of the
property received and (ii) the holder's tax basis in the warrants. This gain or
loss should constitute capital gain or loss, assuming that the warrant shares
would have been a capital asset in the hands of the holder had the warrants been
exercised, and the capital gain or loss should qualify as long-term capital gain
or loss if the holder held his warrants for more than one year. Similarly, upon
the sale or exchange of common stock (including warrant shares), a holder will
recognize gain or loss in an amount equal to the difference between (i) the
amount of cash and the fair market value of the property received and (ii) the
adjusted tax basis of the common stock in the hands of the holder. This gain or
loss generally will be treated as capital gain or loss, if the common stock is a
capital asset in the hands of the holder. Receipt of cash by a holder of a
warrant in lieu of fractional warrant shares on the exercise of a
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warrant should be treated as a redemption of the fractional shares for cash. If
shares of common stock (including warrant shares) are redeemed by the Company, a
holder of the common stock will generally recognize capital gain or loss if the
holder has no other interest in the Company, directly or constructively through
the attribution tax rules of section 318 of the Internal Revenue Code. If the
holder of the common stock has such an interest, the redemption could be treated
as a dividend for federal income tax purposes.
Adjustment
The conversion ratio and exercise price of the warrants are subject to
adjustments under certain circumstances. For federal income tax purposes,
holders of the warrants will be treated as having received a constructive
distribution, resulting in ordinary income (subject to a possible
dividends-received deduction in the case of corporate holders) to the extent of
our current or accumulated earnings and profits, if and to the extent that
certain adjustments in the conversion ratio or exercise price that may occur in
limited circumstances (particularly an adjustment to reflect a taxable dividend
to holders of common stock) increase the proportionate interest of a holder of a
warrant in the fully diluted common stock. This consequence results whether or
not the holder ever exercises the warrant.
Treatment of Senior Preferred Stock as "Fast-Pay" Stock
If the senior preferred stock was treated as "fast-pay" stock and
subject to recharacterization under the federal income tax regulations, the
holders of the common stock would be treated as constructively issuing financial
instruments, having terms identical to the senior preferred stock, directly to
the holders of the senior preferred stock, with possible tax consequences to the
holders of common stock. See Taxation of the Preferred Stock -- Treatment of
Senior Preferred Stock as "Fast-Pay" Stock.
SPECIAL TAX RULES APPLICABLE TO NON-UNITED STATES HOLDERS
Foreign Persons
The following discussion is a summary of certain United States federal
income tax consequences to a foreign person that holds a security. The term
"foreign person" means a beneficial owner of a security that is not (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof or the District of Columbia (unless, in the
case of a partnership, the tax regulations provide otherwise), (iii) an estate
the income of which is subject to United States federal income taxation without
regard to source of its income or (iv) a trust whose administration is subject
to the primary supervision of a United States court and which has one or more
fiduciaries who have authority to control substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in federal income
tax regulations, certain trusts in existence on August 20, 1996, and treated as
a United States person prior to that date, that elects to continue to be treated
as a United States person also will be a United States person. The rules
governing the U.S. federal income taxation of securities beneficially owned by a
foreign person are complex and no attempt will be made herein to provide more
than a general summary of some of the significant rules. FOREIGN PERSONS SHOULD
CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE EFFECT OF FEDERAL, STATE,
LOCAL AND FOREIGN TAX LAWS, AS WELL AS TREATIES, WITH REGARD TO OWNING A
SECURITY, INCLUDING ANY REPORTING REQUIREMENTS.
Notes
If the income or gain on a note owned by a foreign person is "effectively
connected with the conduct of a trade or business within the United States,"
then the foreign person will be subject to tax on such income or gain in
essentially the same manner as a United States citizen or resident or a domestic
corporation, as discussed above, and in the case of a foreign corporation, may
also be subject to the branch profits tax.
If the income on the note owned by a foreign person is not "effectively
connected with the conduct of a trade or business within the United States,"
then the following federal income tax consequences result. Under the
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<PAGE> 107
"portfolio interest" exception to the general rules for the withholding of tax
on interest and original issue discount paid to a foreign person, a foreign
person will not be subject to United States tax (or to withholding) on interest
or original issue discount on a note, provided that (i) the foreign person does
not actually or constructively own 10% or more of the total combined voting
power of all classes of our stock that is entitled to vote and is not a
controlled foreign corporation with respect to the United States that is related
to us through stock ownership, and (ii) we, our paying agent or the person who
would otherwise be required to withhold tax receives either (A) a statement (an
"owner's statement") signed under penalties of perjury on Form W-8 or W-8BEN or
a substantially similar form by the beneficial owner of the note in which the
owner certifies that the owner is not a United States person and which provides
the owner's name and address, or (B) a statement signed under penalties of
perjury by the Financial Institution holding the note on behalf of the
beneficial owner, together with a copy of the owner's statement. The term
"Financial Institution" means a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business and that holds a note on behalf of the owner of the note.
A foreign person who does not qualify for the "portfolio interest" exception
would, under current law, generally be subject to United States withholding tax
at a flat rate of 30% (or a lower applicable treaty rate) on interest payments
on the notes.
In general, gain recognized by a foreign person upon the redemption,
sale or exchange of a note (including any gain representing accrued market
discount) will not be subject to United States tax. However, a foreign person
may be subject to United States tax at a flat rate of 30% (unless exempt by
applicable treaty) on any such gain if the foreign person is an individual
present in the United States for 183 days or more during the taxable year in
which the note is redeemed, sold or exchanged, and certain other requirements
are met.
Preferred Stock, Common Stock and Warrants
In general, gain (to the extent it is not "effectively connected with
the conduct of a trade or business within the United States") recognized by a
foreign person upon a sale, exchange or other taxable disposition of a warrant
or of shares of common stock (including warrant shares) or preferred stock will
not be subject to United States federal income tax unless such foreign person is
an individual present in the United States for 183 days or more during the
taxable year in which the disposition occurs, and certain other requirements are
met. We do not believe that we are or have been a United States real property
holding corporation as of the date hereof, and we do not expect to become a
United States real property holding corporation in the future (although there
can be no assurance that this future expectation will be accurate. However, if
we are currently a United States real property holding company for United States
federal income tax purposes (or have been during the prior five-year period),
then unless an exception applied or an exemption is provided under an applicable
treaty, a foreign person who holds a warrant or common stock (including warrant
shares) or preferred stock generally would be subject to United States federal
income tax on any gain recognized from sale or other disposition of these equity
securities. If subject to United States federal income tax, the gain would be
treated effectively connected with the conduct of a trade or business within the
United States and the sale or other disposition generally would be subject to
withholding tax equal to 10% of the amount realized therefrom.
Dividends on the common stock (including the warrant shares) or
preferred stock received by a foreign person (other than dividends that
constitute U.S. trade or business income), including constructive dividends on
the preferred stock attributable to redemption premium, will be subject to
United States federal income tax withholding at a rate of 30% of the amount of
the dividend (unless the rate is reduced by an applicable tax treaty). Except to
the extent that an applicable tax treaty otherwise provides, a foreign person
will be taxed in the same manner as a United States holder on dividends received
(or deemed received) that are effectively connected with the conduct of a United
States trade or business. In this event, a corporate foreign person may also be
subject to the United States branch profits tax on this effectively connected
income at a 30% rate (or a lower applicable treaty rate).
Any foreign person that recognized gain upon the sale, exchange or
other taxable disposition of a warrant or shares of common stock (including
warrant shares) or preferred stock or receives a dividend on the common stock or
preferred stock that is "effectively connected with the conduct of a trade or
business within the United States" will be subject to tax in essentially the
same manner as a U.S. person, as discussed above. A foreign person
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<PAGE> 108
that is a foreign corporation engaged in a U.S. trade or business also may be
subject to the branch profits tax with respect to such gain or dividend.
Federal Estate Tax
A warrant or a share of common stock (including warrant shares) or
preferred stock held by an individual who at the time of death is not a citizen
or resident of the United States will be includible in the individual's gross
estate for United States federal estate tax purposes as a result of such
individual's death.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of dividends, principal, interest, and premium and to the proceeds of
sales of preferred stock, common sock, notes, warrants and warrant shares made
to U.S. holders other than certain exempt recipients (such as corporations). A
31% backup withholding tax will apply to such payments if the U.S. holder fails
to provide a taxpayer identification number or certification of foreign or other
exempt status or fails to report in full dividend and interest income. If we pay
a dividend on the preferred stock by issuing additional shares of preferred
stock (or otherwise is deemed to pay a distribution for United States federal
income tax purposes) to any person with respect to which we determine, after
request for such information from such holder as we deem appropriate, that it is
obligated to withhold United States federal tax, then prior to any such
distribution we shall be entitled to liquidate the additional shares of
preferred stock to the extent necessary in order to fully fund our withholding
obligation. We will promptly distribute to such person the balance of the
additional shares of preferred stock not used to fund such withholding
obligation. Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against the U.S. holder's U.S. federal income
tax liability provided the required information is timely furnished to the IRS.
New federal income tax regulations have been released governing the
backup withholding and information reporting requirements described above. The
new regulations, which are generally effective for payments made after December
31, 2000, subject to certain transition rules, would not generally alter the
treatment of foreign persons who furnish an owners statement to the payor but
provide alternative certification requirements and means by which a holder of a
note could claim the exemption from United States federal income, backup
withholding and withholding tax. It is possible that we and other withholding
agents may request a new withholding exemption form from holders to qualify for
continued exemption when the regulations become effective.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF THE PREFERRED
STOCK, COMMON STOCK, NOTES, WARRANTS AND WARRANT SHARES IN LIGHT OF ITS
PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. HOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISOR, AS TO THE SPECIFIC TAX CONSEQUENCES THAT WOULD RESULT FROM
THEIR PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED STOCK, COMMON STOCK,
NOTES, WARRANTS AND WARRANT SHARES INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
FEDERAL AND OTHER TAX LAWS.
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<PAGE> 109
DETERMINATION OF OFFERING PRICE
The securities (other than those received as in-kind dividends) were
issued to the selling securities holders on March 17, 2000, pursuant to our
bankruptcy plan and in reliance on the exemption from the registration
requirements of the Securities Act of 1933, as amended, included in Section
1145(a)(1) of the Bankruptcy Reform Act of 1978, as amended, Title 11, United
States code.
Each selling securities holder may from time to time sell all or a
portion of the securities it holds and any shares of common stock it acquires
upon exercise of warrants in the over-the-counter market, on any national
securities exchange on which the warrants and warrant shares are traded, in
negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. The price at which each
selling securities holder will sell the securities will depend on market
conditions such as yields on alternative investments, general economic
conditions, our financial condition and other factors. There is only a limited
secondary market for the securities and we cannot determine whether an actual
public market will develop for the securities.
The exercise price of the warrants is $120. Our bankruptcy plan set the
exercise price well above the anticipated near-term trading price of our common
stock to discourage significant changes in voting rights allocations until such
time as our management has established a record of positive financial
performance.
107
<PAGE> 110
SELLING SECURITY HOLDERS
The following table shows certain information about the selling
security holders
Class A common stock:
<TABLE>
<CAPTION>
NUMBER AND
PERCENTAGE OF SHARES
NUMBER OF SHARES OWNED BY THE SELLING
NAME OF NUMBER OF SHARES OFFERED FOR THE SHAREHOLDER AFTER
SELLING SECURITY BENEFICIALLY OWNED SELLING SECURITY COMPLETION OF THE
HOLDER PRIOR TO THE OFFERING HOLDER'S ACCOUNT OFFERING
--------------------- -------------------- ----------------- ---------------------
<S> <C> <C> <C>
Oaktree Capital
Management, LLC(7) 103,493(2) 103,493(2) 0
Credit Suisse First
Boston Corporation(7) 295,474 295,474 0
Carl C. Icahn(3)(4) 337,198 337,198 0
Riverdale LLC(3)(5) 337,198 337,198 0
High River Limited 337,198 337,198 0
Partnership(3)(6)
</TABLE>
Series A senior preferred stock:
<TABLE>
<CAPTION>
NUMBER AND
PERCENTAGE OF SHARES
NUMBER OF SHARES OWNED BY THE SELLING
NAME OF NUMBER OF SHARES OFFERED FOR THE SHAREHOLDER AFTER
SELLING SECURITY BENEFICIALLY OWNED SELLING SECURITY COMPLETION OF THE
HOLDER PRIOR TO THE OFFERING HOLDER'S ACCOUNT OFFERING
--------------------- -------------------- ----------------- ---------------------
<S> <C> <C> <C>
Angelo, Gordon &
Co., L.P.(7) 17,454,797(1) 18,327,536(1) 0
Oaktree Capital
Management, LLC(7) 24,593,243(2) 25,822,905(2) 0
Credit Suisse First
Boston Corporation(7) 70,213,957 73,724,654 0
Carl C. Icahn(3)(4) 80,129,141 84,135,598 0
Riverdale LLC(3)(5) 80,129,141 84,135,598 0
High River Limited 80,129,141 84,135,598 0
Partnership(3)(6)
</TABLE>
Series A junior preferred stock:
<TABLE>
<CAPTION>
NUMBER AND
PERCENTAGE OF SHARES
NUMBER OF SHARES OWNED BY THE SELLING
NAME OF NUMBER OF SHARES OFFERED FOR THE SHAREHOLDER AFTER
SELLING SECURITY BENEFICIALLY OWNED SELLING SECURITY COMPLETION OF THE
HOLDER PRIOR TO THE OFFERING HOLDER'S ACCOUNT OFFERING
---------------- --------------------- ---------------- ---------------------
<S> <C> <C> <C>
Oaktree Capital
Management, LLC(7) 2,583,000(2) 2,647,575(2) 0
Credit Suisse First
Boston Corporation(7) 11,408,250 11,693,456 0
</TABLE>
Senior secured notes, 15%, due 3/15/2005:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
NOTES AND
PERCENTAGE OF
AGGREGATE PRINCIPAL
PRINCIPAL AMOUNT OF NOTES
PRINCIPAL AMOUNT OF NOTES OWNED BY THE
NAME OF AMOUNT OF NOTES OFFERED FOR THE SELLING SHAREHOLDER
SELLING SECURITY BENEFICIALLY OWNED SELLING SECURITY AFTER COMPLETION
HOLDER PRIOR TO THE OFFERING HOLDER'S ACCOUNT OF THE OFFERING
---------------- --------------------- ----------------- ---------------------
<S> <C> <C> <C>
Angelo, Gordon &
Co., L.P.(7) 15,463,636(1) 15,463,636(1) 0
Oaktree Capital
Management, LLC(7) 23,012,513(2) 23,012,513(2) 0
Credit Suisse First
Boston Corporation(7) 62,205,066 62,205,066 0
Carl C. Icahn(3)(4) 70,989,284 70,989,284 0
Riverdale LLC(3)(5) 70,989,284 70,989,284 0
High River Limited 70,989,284 70,989,284 0
Partnership(3)(6)
</TABLE>
108
<PAGE> 111
(1) This number represents the aggregate number of shares or the aggregate
principal amount of senior secured notes, as applicable, owned by Angelo, Gordon
& Co., L.P. and held for the accounts of 19 private investment funds for which
Angelo, Gordon & Co., L.P. acts as general partner and/or discretionary
investment advisor. Angelo, Gordon & Co., L.P. is a Delaware limited
partnership. AG Partners, L.P., a Delaware limited partnership, is the sole
general partner of Angelo, Gordon & Co., L.P. John M. Angelo is a general
partner of AG Partners, L.P. and the chief executive officer of Angelo, Gordon &
Co., L.P. Michael L. Gordon is the other general partner of AG Partners, L.P.
and the chief operating officer of Angelo, Gordon & Co., L.P. Thus, under
certain circumstances, Mr. Angelo and Mr. Gordon may also be deemed to be
beneficial owners of the securities held by Angelo, Gordon & Co., L.P.
(2) This number represents the aggregate number of shares or the aggregate
principal amount of senior secured notes, as applicable, held by OCM
Opportunities Fund II, L.P. for which Oaktree Capital Management, LLC is the
general partner and Oaktree Capital Management, LLC as investment manager of
Columbia/HCA Master Retirement Trust (Separate Account II). Thus, under certain
circumstances, Oaktree Capital Management, LLC may be deemed to beneficially own
the securities held by the above referenced fund and account.
(3) Information contained herein concerning securities held by Carl C. Icahn,
Riverdale LLC and High River Limited Partnership is based upon information
received from Icahn Associates Corp., as the representative of each of Carl C.
Icahn, Riverdale LLC and High River Limited Partnership, adjusted to reflect
dividends paid on the preferred stock in August 2000 and September 2000.
(4) Carl C. Icahn is the sole member of Riverdale LLC and owns 100% of the
interests therein. Riverdale LLC is the general partner of High River Limited
Partnership. As the sole member and owner of Riverdale LLC, Mr. Icahn may be
deemed to beneficially own all of the principal amount of senior secured notes
which High River Limited Partnership directly beneficially owns. Mr. Icahn's
principal business address is c/o Icahn Associates Corp., 767 Fifth Avenue, 47th
Floor, New York, New York 10153.
(5) Riverdale LLC is a New York limited liability company and the general
partner of High River Limited Partnership. As such, Riverdale LLC may be deemed
to beneficially own all of the principal amount of senior secured notes which
High River Limited Partnership directly beneficially owns. Riverdale LLC's
principal business address is 100 South Bedford Road, Mount Kisco, New York
10549.
(6) High River Limited Partnership is a Delaware limited partnership and
directly beneficially owns $70,989,284 aggregate principal amount of the Senior
Secured Notes. High River Limited Partnership's principal business address is
100 South Bedford Road, Mount Kisco, New York 10549.
(7) Information contained herein concerning Angelo, Gordon & Co., L.P., Oaktree
Capital Management, LLC and Credit Suisse First Boston Corporation is based upon
information received from Cadwalader, Wickersham & Taft, as the representative
of each of Angelo, Gordon & Co., L.P., Oaktree Capital Management, LLC and
Credit Suisse First Boston Corporation, adjusted to reflect dividends paid on
the preferred stock in August 2000 and September 2000.
Because the selling security holders may offer some or all of the
securities, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the securities, no estimate
can be given as to the amount of securities that will be held by the selling
security holders upon completion of this offering.
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<PAGE> 112
PLAN OF DISTRIBUTION
We will not receive any of the proceeds from the offering of the
securities by the selling security holders. The securities may be sold from time
to time:
o directly by any selling security holder to one or more
purchasers;
o to or through underwriters, brokers or dealers;
o through agents on a best-efforts basis or otherwise; or
o through a combination of such methods of sale.
If the securities are sold through underwriters, brokers or dealers,
the selling security holder will be responsible for underwriting discounts or
commissions or agents' commission.
The securities may be sold:
o in one or more transactions at a fixed price or prices, which
may be changed;
o at prevailing market prices at the time of sale or at prices
related to such prevailing prices;
o at varying prices determined at the time of sale; or
o at negotiated prices.
Such sales may be effected in transactions (which may involve crosses
or block transactions):
o on any national securities exchange or quotation service on
which the notes or shares of stock may be listed or quoted at
the time of sale;
o in the over-the-counter market;
o in transactions otherwise than on such exchanges or services
or in the over-the-counter market; or
o through the writing of options.
In connection with sales of the securities or otherwise, any selling
security holder may:
o enter into hedging transactions with brokers, dealers or
others, which may in turn engage in short sales of the
securities in the course of hedging the positions they assume;
A selling security holder may pledge or grant a security interest in
some or all of the securities owned by it, and if it defaults in the performance
of its secured obligations, the pledgees or secured parties may offer and sell
the securities from time to tome pursuant to this prospectus. The selling
security holders may also transfer and donate securities in other circumstances
in which case the transferees, donees, pledgees or other successors in interest
will be the selling security holders for purposes of this prospectus.
Upon any sale of the securities offered hereby, the selling security
holders, any underwriter and any participating broker-dealers or selling agents
may be deemed to be "underwriters" as that term is defined in the Securities
Act, in which event any discount, concession or commissions received by them,
which are not expected to exceed those customary in the types of transactions
involved, or any profit on resales of the securities by them, may be deemed to
be underwriting commissions or discounts under the Securities Act. The Company
will not receive any of the proceeds from the sale by the selling security
holder of the securities offered hereby. See the above section of this
prospectus entitled "Use of Proceeds." The Company has agreed to pay all
expenses in connection with the registration and sale of the securities.
Underwriters, broker-dealers and agents may be entitled, under agreements
entered into with the Company or the selling security holders, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the securities Act.
In addition, any securities covered by this prospectus which qualify
for sale pursuant to Rule 144, Rule 144A or any other available exemption from
registration under the securities Act may be sold under Rule 144, Rule 144A or
such other available exemption rather than pursuant to this prospectus. There is
no assurance that any
110
<PAGE> 113
selling security holder will sell any or all of the securities herein, and any
selling security holder may transfer, devise or gift such securities by other
means not described herein.
At the time a particular offer of securities is made, to the extent
required, a prospectus supplement will be distributed which will set forth the
aggregate amount of securities being offered and the terms of the offering,
including securities being offered and the terms of the offering, including the
name or names of any underwriters, broker-dealers or selling agents, any
discounts, commissions and other items constituting compensation from the
selling security holders and any discounts, commissions or concessions allowed
or reallowed or paid to underwriters, broker-dealers or selling agents.
The Company has agreed to pay all expenses in connection with the
issuance and distribution of the securities being registered pursuant to this
Registration Statement.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for
us by Gardere & Wynne, L.L.P., 3000 Thanksgiving Tower, Dallas, Texas 75201.
EXPERTS
The financial statements as of January 31, 2000 and 1999 and for each
of the three years in the period ended January 31, 2000 included in this
prospectus have been so included in reliance on the report (which contains an
explanatory paragraph relating to the Company's emergence from bankruptcy as of
March 17, 2000 as described in Note 2 to the financial statements) of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
Our reserve estimates in this prospectus and the registration statement
relating to the securities filed by us with the SEC are included in reliance
upon reserve reports and summary letters prepared by Netherland, Sewell &
Associates, Inc., upon the authority of such firm as experts in estimating
proved oil and gas reserves.
111
<PAGE> 114
INDEX TO FINANCIAL STATEMENTS
<TABLE>
PAGE
----
<S> <C> <C>
(1) REPORT OF INDEPENDENT ACCOUNTANTS................................................................. F-2
CONSOLIDATED BALANCE SHEET........................................................................ F-3
CONSOLIDATED STATEMENT OF OPERATIONS.............................................................. F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT).......................................... F-5
CONSOLIDATED STATEMENT OF CASH FLOWS.............................................................. F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................................................ F-7
</TABLE>
F-1
<PAGE> 115
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
TransTexas Gas Corporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statement of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
TransTexas Gas Corporation (successor) at January 31, 2000 and TransTexas Gas
Corporation (predecessor) at January 31, 1999 (successor and predecessor are
collectively referred to as the "Company"), and the results of the predecessor's
operations and its cash flows for each of the three years in the period ended
January 31, 2000, in conformity with accounting principles generally accepted in
the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, on April
19, 1999, the Company filed a voluntary petition for relief under Chapter 11 of
the U.S. Bankruptcy Code. The Company's Plan of Reorganization, as amended,
became effective on March 17, 2000 and the Company emerged from Chapter 11. In
connection with its emergence from Chapter 11, the Company adopted fresh-start
reporting as of January 31, 2000.
PricewaterhouseCoopers LLP
Houston, Texas
May 1, 2000
F-2
<PAGE> 116
TRANSTEXAS GAS CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
-------------------------- -----------
JULY 31, JANUARY 31,
----------- ---------------------------
2000 2000 1999
----------- ----------- | -----------
(Unaudited) |
<S> <C> <C> | <C>
ASSETS |
|
Current assets: |
Cash and cash equivalents ................................................... $ 7,771 $ 18,288 | $ 3,775
Accounts receivable ......................................................... 36,399 19,592 | 16,091
Receivable from affiliates .................................................. 1,116 1,107 | 1,286
Inventories ................................................................. 1,357 1,741 | 3,210
Other current assets ........................................................ 2,868 926 | 3,693
----------- ----------- | -----------
Total current assets ..................................................... 49,511 41,654 | 28,055
----------- ----------- | -----------
|
Property and equipment ......................................................... 375,630 327,087 | 1,459,630
Less accumulated depreciation, depletion and amortization ...................... 39,912 -- | 1,167,487
----------- ----------- | -----------
Net property and equipment -- based on the full cost method of accounting for |
gas and oil properties of which $96,966, $90,000 and $20,477 |
are excluded from amortization at July 31, 2000, January 31, 2000 and 1999, |
respectively ................................................................ 335,718 327,087 | 292,143
----------- ----------- | -----------
Other assets, net .............................................................. 2,907 513 | 25,169
----------- ----------- | -----------
$ 388,136 $ 369,254 | $ 345,367
=========== =========== | ===========
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
|
Current liabilities: |
Current maturities of long-term debt ........................................ $ 4,938 $ 6,934 | $ --
Accounts payable ............................................................ 12,416 15,759 | --
Accrued liabilities ......................................................... 28,795 10,061 | 983
----------- ----------- | -----------
Total current liabilities ................................................ 46,149 32,754 | 983
----------- ----------- | -----------
|
Production payments, less current portion ...................................... 27,011 32,460 | 56,260
Long-term debt, less current maturities ........................................ 278,002 48,290 | --
Note payable to affiliate ...................................................... -- 196,346 | --
Deferred income taxes .......................................................... 10,907 10,000 | --
Other liabilities .............................................................. 24,382 49,404 | --
Liabilities subject to compromise .............................................. -- -- | 718,139
|
Redeemable preferred stock ..................................................... 15,121 -- | --
|
Commitments and contingencies (Note 14) ........................................ -- -- | --
|
Stockholders' equity (deficit) (Note 2): |
Common stock, $0.01 par value, 100,247,500 shares authorized and 1,250,251 |
shares issued and outstanding at July 31, 2000; and 100,000,000 shares |
authorized and 57,515,566 shares issued and outstanding at January 31, |
2000 and 1999 ............................................................ 12 740 | 740
Additional paid-in capital .................................................. (12) (740) | 19,915
Accumulated deficit ......................................................... (13,436) -- | (188,265)
----------- ----------- | -----------
-- | (167,610)
Treasury stock, at cost, 16,484,434 shares .................................. -- -- | (262,405)
----------- ----------- | -----------
Total stockholders' equity (deficit) ..................................... (13,436) -- | (430,015)
----------- ----------- | -----------
$ 388,136 $ 369,254 | $ 345,367
=========== =========== | ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-3
<PAGE> 117
TRANSTEXAS GAS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------ -----------------------------------------------------------
SIX MONTHS ENDED JULY 31, YEAR ENDED JANUARY 31,
---------------------------- --------------------------------------------
2000 1999 2000 1999 1998
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues: |
Gas, condensate and natural gas liquids ...... $ 80,674 | $ 46,489 $ 111,400 $ 91,319 $ 164,538
Transportation ............................... -- | -- -- -- 12,055
Gain (loss) on the sale of assets ............ -- | (531) (438) 61,247 543,365
Other ........................................ 1,192 | 1,680 2,770 4,200 3,313
------------ | ------------ ------------ ------------ ------------
Total revenues ............................ 81,866 | 47,638 113,732 156,766 723,271
------------ | ------------ ------------ ------------ ------------
|
Costs and expenses: |
Operating .................................... 8,161 | 11,542 18,649 22,352 50,957
Depreciation, depletion and amortization ..... 39,928 | 37,513 75,044 86,137 82,659
General and administrative ................... 9,977 | 11,806 19,883 21,938 48,156
Taxes other than income taxes ................ 3,645 | 4,110 9,788 7,130 11,399
Impairment of gas and oil properties ......... -- | -- -- 425,966 --
------------ | ------------ ------------ ------------ ------------
Total costs and expenses .................. 61,711 | 64,971 123,364 563,523 193,171
------------ | ------------ ------------ ------------ ------------
|
Operating income (loss) ...................... 20,155 | (17,333) (9,632) (406,757) 530,100
------------ | ------------ ------------ ------------ ------------
|
Other income (expense): |
Interest income .............................. 320 | 136 472 1,205 12,393
Interest expense, net ........................ (17,883)| (24,719) (38,526) (79,921) (80,580)
------------ | ------------ ------------ ------------ ------------
Total other income (expense) .............. (17,563)| (24,583) (38,054) (78,716) (68,187)
------------ | ------------ ------------ ------------ ------------
|
Income (loss) before reorganization items, |
income taxes and extraordinary item ..... 2,592 | (41,916) (47,686) (485,473) 461,913
------------ | ------------ ------------ ------------ ------------
Reorganization items: |
Legal and professional fees .................. -- | (919) (8,325) -- --
Revaluation of assets to fair market value ... -- | -- 58,836 -- --
------------ | ------------ ------------ ------------ ------------
Total reorganization items ................ -- | (919) 50,511 -- --
------------ | ------------ ------------ ------------ ------------
Income tax expense (benefit) .................... 907 | -- 10,000 (38,882) 161,669
------------ | ------------ ------------ ------------ ------------
|
Income (loss) before extraordinary item ... 1,685 | (42,835) (7,175) (446,591) 300,244
Extraordinary item - gain (loss) on early |
extinguishment of debt, net of tax ............ -- | -- 436,490 (1,142) (72,043)
------------ | ------------ ------------ ------------ ------------
Net income (loss) ......................... $ 1,685 | $ (42,835) $ 429,315 $ (447,733) $ 228,201
============ | ============ ============ ============ ============
|
Accretion of preferred stock..................... $ 15,121 | $ -- $ -- $ -- $ --
============ | ============ ============ ============ ============
Net income (loss) available to common |
stockholders............................... $ (13,436)| $ (42,835) $ 429,315 $ (447,733) $ 228,201
============ | ============ ============ ============ ============
|
Basic and diluted net income (loss) per share: |
Income (loss) before extraordinary item ...... $ (10.75)| $ (0.74) $ (0.13) $ (7.76) $ 4.49
Extraordinary item ........................... -- | -- 7.59 (0.02) (1.08)
------------ | ------------ ------------ ------------ ------------
$ (10.75)| $ (0.74) $ 7.46 $ (7.78) $ 3.41
============ | ============ ============ ============ ============
|
Weighted average number of shares |
outstanding for basic and diluted net |
income (loss) per share ...................... 1,250,251 | 57,515,566 57,515,566 57,515,566 66,905,903
============ | ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-4
<PAGE> 118
TRANSTEXAS GAS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK ADDITIONAL EARNINGS STOCKHOLDERS'
---------------------- PAID-IN CAPITAL (ACCUMULATED TREASURY ADVANCES EQUITY
SHARES AMOUNT (CAPITAL DEFICIT) DEFICIT) STOCK TO AFFILIATES (DEFICIT)
---------- ---------- ---------------- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Predecessor:
Balance at January 31, 1997....... 74,000,000 $ 740 $ (123,524) $ 31,267 $ -- $ (59,278) $ (150,795)
Purchase of treasury stock,
at cost, 16,484,434 shares... -- -- -- -- (262,405) -- (262,405)
Advance to affiliate........... -- -- (13,304) -- -- -- (13,304)
Contribution from affiliate.... -- -- 21,513 -- -- -- 21,513
Assumption of tax liability
by TransAmerican............. -- -- 129,549 -- -- -- 129,549
Contribution of debt issue
costs by TEC................. -- -- 12,600 -- -- 12,600
Collection of advances to
affiliates................... -- -- -- -- -- 59,278 59,278
Net income..................... -- -- -- 228,201 -- -- 228,201
----------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at January 31, 1998....... 74,000,000 740 26,834 259,468 (262,405) -- 24,637
Advance to affiliate........... -- -- (6,919) -- -- -- (6,919)
Net loss....................... -- -- -- (447,733) -- -- (447,733)
----------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at January 31, 1999....... 74,000,000 740 19,915 (188,265) (262,405) -- (430,015)
Contribution from TEC.......... -- -- 700 -- -- -- 700
Adoption of fresh-start
reporting.................... -- -- (21,355) (241,050) 262,405 -- --
Net income..................... -- -- -- 429,315 -- -- 429,315
Successor:
----------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at January 31, 2000....... 74,000,000 740 (740) -- -- -- --
Cancellation of old
common stock................... (74,000,000) (740) 740 -- -- -- --
Issuance of new
common stock................... 1,250,251 12 (12) -- -- -- --
Accretion of preferred stock...... -- -- -- (15,121) -- -- (15,121)
Net income........................ -- -- -- 1,685 -- -- 1,685
----------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at July 31, 2000
(unaudited).................... 1,250,251 $ 12 $ (12) $ (13,436) $ -- $ -- $ (13,436)
=========== ========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-5
<PAGE> 119
TRANSTEXAS GAS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
----------- -----------
SIX MONTHS ENDED
JULY 31,
--------------------------
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Operating activities:
Net income (loss)..................................................... $ 1,685 | $ (42,835)
Adjustments to reconcile net income (loss) to |
net cash provided (used) by operating activities: |
Depreciation, depletion and amortization........................ 39,928 | 37,513
Amortization of debt issue costs................................ 111 | 1,656
Accretion of discount on long-term debt......................... 3,591 | --
Loss on the sale of assets...................................... -- | 531
Deferred income taxes........................................... 907 | --
Changes in assets and liabilities: |
Accounts receivable.......................................... (16,807) | (8,096)
Receivable from affiliates................................... (9) | 211
Inventories.................................................. 384 | 618
Other current assets......................................... (1,942) | (1,317)
Accounts payable............................................. (3,700) | 2,470
Accrued interest payable to affiliates....................... -- | 14,692
Accrued liabilities.......................................... 17,096 | (1,867)
Transactions with affiliates, net............................ -- | 700
Other assets................................................. (169) | 605
Other liabilities............................................ (25,264) | (1,796)
----------- | -----------
Net cash provided by operating activities.................. 15,811 | 3,085
----------- | -----------
|
Investing activities: |
Capital expenditures.................................................. (47,378) | (7,109)
Proceeds from the sale of assets...................................... 582 | 556
----------- | -----------
Net cash used by investing activities...................... (46,796) | (6,553)
----------- | -----------
|
Financing activities: |
Issuance of note payable.............................................. -- | 20,000
Issuance of long-term debt............................................ 32,500 | --
Principal payments on long-term debt.................................. (13,379) | --
Revolving credit agreement, net....................................... 7,949 | 1,470
Issuance of production payments....................................... 12,500 | --
Principal payments on production payments............................. (16,723) | (5,107)
Debt issue costs...................................................... (2,379) | --
----------- | -----------
Net cash provided by financing activities.................. 20,468 | 16,363
----------- | -----------
Increase (decrease) in cash and cash equivalents........... (10,517) | 12,895
Beginning cash and cash equivalents...................................... 18,288 | 3,775
----------- | -----------
Ending cash and cash equivalents......................................... $ 7,771 | $ 16,670
=========== | ===========
<CAPTION>
PREDECESSOR
-----------------------------------------
YEAR ENDED JANUARY 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income (loss)..................................................... $ 429,315 $ (447,733) $ 228,201
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Reorganization adjustments:
Extraordinary item........................................... (436,490) 1,142 72,043
Revaluation of assets........................................ (58,836) -- --
Depreciation, depletion and amortization........................ 75,044 86,137 82,659
Impairment of gas and oil properties............................ -- 425,966 --
Amortization of debt issue costs................................ 1,641 5,730 2,030
Accretion of discount on long-term debt......................... -- -- 4,941
(Gain) loss on the sale of assets............................... 438 (61,247) (543,365)
Deferred income taxes........................................... 10,000 (38,882) 161,670
Repayment of volumetric production payments..................... -- -- (45,134)
Amortization of deferred revenue................................ -- -- (9,420)
Changes in assets and liabilities:
Accounts receivable.......................................... (3,501) 965 61,604
Receivable from affiliates................................... 179 (1,286) 3,248
Inventories.................................................. 1,469 13,227 (3,953)
Other current assets......................................... 2,767 7,026 10,265
Accounts payable............................................. 5,430 7,981 18,451
Accrued interest payable to affiliates....................... 14,628 1,851 6,762
Accrued liabilities.......................................... (3,271) 9,177 (50,966)
Transactions with affiliates, net............................ 700 (6,166) 31,223
Other assets................................................. 378 126 65
Other liabilities............................................ 6,691 (5,384) (8,371)
----------- ----------- -----------
Net cash provided (used) by operating activities........... 46,582 (1,370) 21,953
----------- ----------- -----------
Investing activities:
Capital expenditures.................................................. (42,342) (190,601) (423,915)
Proceeds from the sale of assets...................................... 445 156,212 1,062,490
Withdrawals from cash restricted for interest......................... -- -- 46,000
Advances to affiliate................................................. -- (1,648) --
Payment of advances by affiliate...................................... -- -- 24,750
Contribution to affiliate............................................. -- -- (13,304)
----------- ----------- -----------
Net cash provided (used) by investing activities........... (41,897) (36,037) 696,021
----------- ----------- -----------
Financing activities:
Issuance of note payable.............................................. 30,000 -- --
Issuance of long-term debt............................................ -- 19,650 14,946
Principal payments on long-term debt.................................. (1,896) (62,235) (10,128)
Revolving credit agreement, net....................................... 3,860 (7,572) (18,351)
Issuance of production payments....................................... -- 69,824 20,977
Principal payments on production payments............................. (22,136) (17,355) (29,504)
Issuance of note payable to affiliate................................. -- 1,395 486,991
Retirement of senior secured notes.................................... -- -- (892,000)
Debt issue costs...................................................... -- (1,027) (13,559)
Increase in cash restricted for share repurchases..................... -- -- (399,284)
Withdrawals from cash restricted for share repurchases................ -- -- 399,284
Purchases of treasury stock........................................... -- -- (262,405)
----------- ----------- -----------
Net cash provided (used) by financing activities........... 9,828 2,680 (703,033)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents........... 14,513 (34,727) 14,941
Beginning cash and cash equivalents...................................... 3,775 38,502 23,561
----------- ----------- -----------
Ending cash and cash equivalents......................................... $ 18,288 $ 3,775 $ 38,502
=========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-6
<PAGE> 120
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
TransTexas Gas Corporation (together with its subsidiaries, the "Company"
or "TransTexas") was incorporated in Delaware in May 1993. Prior to March 17,
2000 (the "Effective Date"), TransTexas was a subsidiary of TransAmerican Energy
Corporation ("TEC"), which is wholly owned by TEC/TransAmerican LLC, which is
wholly owned by TransAmerican Natural Gas Corporation ("TransAmerican"). Unless
otherwise noted, the term "TransTexas" refers to TransTexas Gas Corporation and
its subsidiaries, including Galveston Bay Processing Corporation and Galveston
Bay Pipeline Company.
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(s) of the financial
statements and the reported amounts of revenues and expenses during the
reporting period(s). TransTexas' most significant financial estimates are based
on remaining proved gas and oil reserves. Actual results could differ from these
estimates.
Interim Financial Information
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) have been made which are necessary to fairly state
the financial position of the Company as of July 31, 2000 and the results of its
operations and cash flows for the six months ended July 31, 2000 and 1999. The
results of operations for interim periods should not be regarded as necessarily
indicative of the results that may be expected for the entire year.
Cash and Cash Equivalents
TransTexas considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash and cash
equivalents at July 31, 2000 and January 31, 2000 includes $1.3 million and $1.4
million, respectively, restricted for payments of future goods and services
provided by certain vendors.
Inventories
TransTexas' inventories, consisting primarily of tubular goods, are stated
at the lower of average cost (which, at January 31, 2000, was estimated fair
value) or market.
Gas and Oil Properties
TransTexas uses the full cost method of accounting for exploration and
development costs. Under this method of accounting, the cost for successful as
well as unsuccessful exploration and development activities are capitalized.
Such capitalized costs and estimated future development and reclamation costs
are amortized on a unit-of-production method. Net capitalized costs of gas and
oil properties are limited to the lower of unamortized cost or the cost center
ceiling, defined as the sum of the present value (10% discount rate) of
estimated unescalated future net revenues from proved reserves; plus the cost of
properties not being amortized, if any; plus the lower of cost or estimated fair
value of unproved properties included in the costs being amortized, if any; less
related income tax effects. As of January 31, 1999, TransTexas' net capitalized
costs of gas and oil properties exceeded the cost center ceiling. TransTexas
adjusted its net capitalized costs resulting in a non-cash pre-tax loss of
approximately $426 million for the year ended January 31, 1999. Due to higher
gas and oil prices realized by the Company subsequent to January 31, 1999, the
impairment was less than would have been recorded using January 31, 1999 prices.
Proceeds from the sale of gas and oil properties are applied to reduce the
costs in the cost center unless the sale involves a significant quantity of
reserves in relation to the cost center, in which case a gain or loss is
recognized.
Unevaluated properties and associated costs not currently being amortized
and included in gas and oil properties were $97 million, $90 million and $20
million at July 31, 2000, January 31, 2000 and 1999, respectively. The
properties represented by these costs were undergoing exploration activities at
such date, or are properties on which TransTexas intends to commence such
F-7
<PAGE> 121
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
activities in the future. TransTexas believes that the unevaluated properties at
January 31, 2000 will be substantially evaluated in 12 to 24 months and it will
begin to amortize these costs at such time.
Other Property and Equipment
Other property and equipment are stated at cost. The cost of repairs and
minor replacements is charged to operating expense while the cost of renewals
and betterments is capitalized. At the time depreciable assets are retired or
otherwise disposed of, the cost and related accumulated depreciation or
amortization are removed from the accounts. Gains or losses on dispositions in
the ordinary course of business are included in the consolidated statement of
operations. Impairment of other property and equipment is reviewed whenever
events or changes in circumstances indicate that the carrying value of assets
may not be recoverable.
Depreciation of oilfield services equipment and other buildings and
equipment is computed by the straight-line method at rates that will amortize
the unrecovered cost of depreciable property over their estimated useful lives
of 4 to 10 years.
Costs of improving leased property are amortized over the estimated useful
lives of the assets or the terms of the leases, whichever is shorter.
Environmental Remediation Costs
Environmental expenditures are expensed or capitalized as appropriate,
depending on their future economic benefit. Expenditures that relate to an
existing condition caused by past operations and that do not have future
economic benefits are expensed. Liabilities for these expenditures are provided
when the responsibility to remediate is probable and the amount of associated
costs is reasonably estimable.
Debt Issue Costs
Costs related to the issuance of long-term debt are classified as "Other
assets." Capitalized debt costs are amortized to interest expense over the
scheduled maturity of the debt utilizing the interest method. In the event of a
redemption of long-term debt, the related debt issue costs will be charged to
income in the period of presentation.
Defined Contribution Plan
TransTexas maintains a defined contribution plan, which incorporates a
"401(k) feature" as allowed under the Internal Revenue Code. All investments are
made through Massachusetts Mutual Life Insurance Company. Employees who are at
least 21 years of age and have completed one year of credited service are
eligible to participate on the next semiannual entry date. TransTexas matches
10%, 20% or 50% of employee contributions up to a maximum of 3% of the
participant's compensation, based on years of plan participation. TransTexas'
contributions with respect to this plan totaled $0.2 million, $0.3 million and
$0.5 million for years ended January 31, 2000, 1999 and 1998, respectively. All
Company contributions are currently funded.
Fair Value of Financial Instruments
TransTexas includes fair value information in the Notes to Consolidated
Financial Statements when the fair value of its financial instruments can be
determined and is different from the book value. TransTexas generally assumes
the book value of those financial instruments that are classified as current
approximate fair value because of the short maturity of these instruments. For
noncurrent financial instruments, TransTexas uses quoted market prices or, to
the extent that there are no available quoted market prices, market prices for
similar instruments. Due to the adoption of fresh-start reporting, all financial
instruments were recorded at estimated fair value, based on the present value of
amounts to be paid, at January 31, 2000.
F-8
<PAGE> 122
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
TransTexas recognizes revenues from the sales of natural gas, condensate
and natural gas liquids in the period of delivery. Revenues are recognized from
transportation of natural gas in the period the service is provided. The sales
method is used for natural gas imbalances that arise from jointly produced
properties. Volumetric production is monitored to minimize these natural gas
imbalances. A natural gas imbalance liability is recorded in other liabilities
if TransTexas' excess sales of natural gas exceed its estimated remaining
recoverable reserves for such properties.
Concentrations
Financial instruments that potentially expose TransTexas to credit risk
consist principally of cash and trade receivables. TransTexas selects depository
banks based upon management's review of the financial stability of the
institution. Balances generally exceed the $100,000 level covered by federal
deposit insurance. To date, TransTexas has not incurred any losses due to excess
deposits in any financial institution. Trade accounts receivable are generally
from companies with significant natural gas marketing activities, which would be
impacted by conditions or occurrences affecting that industry. TransTexas
performs ongoing credit evaluations and, generally, requires no collateral from
its customers. TransTexas is not aware of any significant credit risk relating
to its customers and has not experienced significant credit losses associated
with such receivables.
Approximately 65% of the Company's production was produced from four wells
in the Company's Eagle Bay field.
Hedging Agreements
From time to time, TransTexas enters into commodity price swap agreements
(the "Hedge Agreements") to reduce its exposure to price risk in the spot market
for natural gas. The Hedge Agreements are accounted for as hedges if the pricing
of the hedge agreement correlates with the pricing of the natural gas and oil
production hedged. Accordingly, gains or losses are deferred and recognized as
an increase or decrease in revenues in the respective month the physical volumes
are sold.
Pursuant to the terms of the Company's production payment agreement entered
into in March 2000, the production payment purchasers entered into the following
hedge arrangements with respect to a portion of the natural gas and condensate
production associated therewith and which effectively hedge a portion of the
Company's production:
<TABLE>
<CAPTION>
Contract Price
----------------
Collar
Volumes in ----------------
Period MMBtus/Bbls Floor Ceiling
------ ----------- ----- ------
<S> <C> <C> <C>
Natural Gas:
April 2000 - October 2000 3,745,000 $ 2.10 $ 3.40
November 2000 - March 2001 1,887,500 2.35 3.95
Condensate:
April 2000 - September 2000 228,750 18.50 32.50
October 2000 - March 2001 182,000 18.50 29.95
</TABLE>
Under these contracts, the counterparty is required to make payment to the
production payment purchaser if the settlement price for the period is below the
floor and the production payment purchaser is required to make payment to the
counterparty if the settlement price for any period is above the ceiling price.
As of July 31, 2000, the Company had recognized a loss of $1.1 million and had
deferred a loss of $0.7 million under these contracts.
F-9
<PAGE> 123
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Prior to the Effective Date, TransTexas filed a consolidated tax return
with TransAmerican. Income taxes were due from or payable to TransAmerican in
accordance with a tax allocation agreement, as amended, between TransTexas, TNGC
Holdings Corporation, TransAmerican and TransAmerican's other subsidiaries (the
"Tax Allocation Agreement"). It is TransTexas' policy to record income tax
expense as though TransTexas had filed separately. Subsequent to the Effective
Date, TransTexas is a stand alone taxpayer. Deferred income taxes are
recognized, at enacted tax rates, to reflect the future effects of temporary
differences arising between the financial reporting and tax bases of assets and
liabilities. Income taxes include federal and state income taxes.
Net Income (Loss) Per Share
Basic and diluted net income (loss) per share has been calculated based on
the weighted average number of shares of common stock outstanding during each
period, excluding treasury shares. After adoption of fresh-start reporting, the
number of common shares used to calculate basic earnings per share will be
1,250,251. Potential common shares to be included in diluted earnings per share,
if they are dilutive, will be 81,286,675, as follows:
<TABLE>
<S> <C>
Series A Senior Preferred Stock 76,991,786
Series A Junior Preferred Stock 2,419,638
Class A Common Stock 1,002,751
Class B Common Stock 247,500
Class A Common Stock Warrants 625,000
-------------
Total potential common shares 81,286,675
=============
</TABLE>
Recently Issued Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. In July
1999, the FASB issued SFAS 137, "Deferral of the Effective Date of FASB
Statement No 133," which delays the effective date for one year, to fiscal years
beginning after June 15, 2000. TransTexas is evaluating the impact of the
provisions of SFAS 133.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." Management of the Company believes that SAB No. 101 will not have a
material impact on the Company.
2. REORGANIZATION
On April 19, 1999, TransTexas filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware. On April 20, 1999, TEC and its wholly owned
subsidiary, TransAmerican Refining Corporation ("TARC"), also filed voluntary
petitions under Chapter 11. On May 20, 1999, the cases were transferred to the
United States Bankruptcy Court for the Southern District of Texas, Corpus
Christi Division (the "Bankruptcy Court"). The bankruptcy cases are being
jointly administered. TransTexas' Chapter 11 filing did not include its
subsidiaries, including Galveston Bay Processing and Galveston Bay Pipeline.
TransTexas filed its bankruptcy petition in order to preserve cash and to give
the Company the opportunity to restructure its debt. The Company's Second
Amended, Modified and Restated Plan of Reorganization dated January 25, 2000
(the "Plan") was confirmed by the Bankruptcy Court on February 7, 2000. The
Effective Date of the Plan is March 17, 2000.
The consolidated financial statements as of January 31, 2000 and for the
year then ended have been prepared in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). In
accordance with guidance provided by SOP 90-7, the consummation of the Plan (the
"Reorganization") has been reflected through the adoption of fresh-start
reporting as though effective on January 31, 2000.
F-10
<PAGE> 124
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of the bankruptcy filing, a significant amount of the Company's
liabilities, including secured debt, was subject to compromise. As of January
31, 2000 and 1999, liabilities subject to compromise included the following (in
thousands of dollars):
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------
JANUARY 31,
---------------------------
2000(*) 1999
----------- -----------
<S> <C> <C>
Long-term debt..............................$ 124,324 $ 125,170
Notes payable to affiliates................. 456,533 457,928
Accounts payable............................ 69,280 66,231
Accrued interest payable to affiliates...... 23,241 8,613
Accrued liabilities......................... 36,905 46,073
Other liabilities........................... 21,927 14,124
----------- -----------
$ 732,210 $ 718,139
=========== ===========
</TABLE>
----------------------------
(*) Immediately prior to adoption of fresh-start reporting.
As of the petition date, in accordance with SOP 90-7, TransTexas
discontinued the accrual of interest and amortization of deferred debt issue
costs related to liabilities subject to compromise. If such interest had
continued to be accrued, based on contractual terms without increase for default
provisions, and related deferred debt issue costs continued to be amortized,
interest expense for the fiscal year ended January 31, 2000 would have increased
approximately $55.5 million.
In connection with the Effective Date of the Plan, the Company
(1) paid approximately $2.6 million in cash to settle certain accounts
payable and royalty claims;
(2) agreed to pay approximately $28.3 million to settle certain accounts
payable, severance, property and franchise taxes. The $28.3 million is
payable in quarterly installments generally over a five year period
with stated interest ranging from 8% to 10%. The Company agreed to pay
approximately $8.0 million of this amount in fiscal 2001.
(3) paid approximately $21.9 million in cash, issued $200 million
principal amount of 15% Senior Secured Notes due 2005 (the "Notes"),
222,455,320 shares of Series A Senior Preferred Stock, 20,716,080
shares of Series A Junior Preferred Stock, 1,002,751 shares of Class A
Common Stock, 247,500 shares of Class B Common Stock and 625,000
warrants to purchase Class A Common Stock to settle the TransTexas
Senior Secured Notes Claims. A portion of this distribution was
reallocated pursuant to the Plan as follows:
(a) $20 million in cash and five million shares of Senior Preferred
Stock to settle on a pro rata basis all general prepetition
unsecured claims;
(b) $1.8 million in cash, 2,455,320 shares of Senior Preferred Stock
and all of the Junior Preferred Stock to the holders of
TransTexas 13 3/4% Senior Subordinated Notes;
(c) 52,500 shares of Class A Common Stock and warrants exercisable to
purchase 109,375 shares of Class A Common Stock at a price of
$120 per share to the holders of the old TransTexas common stock
who were not Affiliates of the Debtor (as defined in the Plan);
and
(d) all of the Class B Common Stock and warrants exercisable to
purchase 515,625 shares of Class A Common Stock at a price of
$120 per share to John R. Stanley.
(4) issued $6.7 million in secured notes in exchange for old secured notes
and related accrued interest; and
F-11
<PAGE> 125
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) canceled all of the old TransTexas common stock and 13 3/4% Senior
Subordinated Notes.
Under provisions of SOP 90-7, the January 31, 2000 consolidated balance
sheet is the opening balance sheet of reorganized TransTexas, the successor
company. The January 31, 2000 consolidated balance sheet includes all
adjustments necessary to reflect assets at the reorganization value and the
Plan's treatment of creditor claims and previous equity interests. Since the
January 31, 2000 consolidated balance sheet was affected by fresh-start
reporting, it is not comparable in certain material respects to the consolidated
balance sheets of any prior period. The consolidated statements of operations
and cash flows for the years ended January 31, 2000, 1999 and 1998 reflect the
activities of the predecessor reporting entity; however, the statements for
fiscal 2000 reflect certain reorganization items.
Pursuant to fresh-start reporting, the Company's reorganization value was
estimated by management and allocated to identified assets based on their
relative fair values. Postpetition liabilities were valued at the present value
of amounts to be paid. The present value of liabilities has been adjusted for
imputed interest at a rate of 15% for the period from February 1, 2000 to the
Effective Date of the Plan. The accretion of the discount was recorded as
interest expense, which totalled $4.8 million for the six months ended July 31,
2000.
Reorganization value was determined to be approximately $369 million
primarily based on discounted estimated future cash flows. Discounted cash flows
were based on projected cash flows over six years before interest and deducting
capital expenditures with a terminal value which was a multiple of year six cash
flows. The Company used a discount rate of 17%, and projected average prices of
$2.46 per Mcf for natural gas and $17.62 per Bbl for condensate and oil. Average
prices were based on a three-year trailing average.
Oil and gas prices are historically volatile and exploring for, developing
and producing oil and gas involves risk. A change in prices from estimated
amounts or higher than anticipated costs to find and develop additional gas and
oil reserves could result in a reduction in cash flows which could reduce cash
flows from operations available for capital expenditures which could impair the
Company's ability to maintain or increase its production. This in turn would
reduce the estimated fair value of the Company's assets.
F-12
<PAGE> 126
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effects of the fresh start reporting adjustments at January 31, 2000
are as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR PRO FORMA
JANUARY 31, JANUARY 31, PRO FORMA JANUARY 31,
2000(1) REORGANIZATION FRESH-START 2000 ADJUSTMENTS 2000
--------- -------------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...... $ 18,288 $ -- $ -- $ 18,288 $ 32,500 (g) $ 16,364
(10,000)(h)
4,500 (i)
(1,284)(g)
(27,640)(h)
Accounts receivable ............ 19,592 -- -- 19,592 -- 19,592
Receivable from affiliates ..... 1,107 -- -- 1,107 -- 1,107
Inventories .................... 1,741 -- -- 1,741 -- 1,741
Other current assets ........... 926 -- -- 926 -- 926
--------- --------- --------- --------- --------- ---------
Total current assets ........ 41,654 -- -- 41,654 (1,924) 39,730
--------- --------- --------- --------- --------- ---------
Property and equipment ............ 268,251 -- 58,836(b) 327,087 3,458 (k) 330,545
--------- --------- --------- --------- --------- ---------
Other assets ...................... 22,997 (22,484)(a) -- 513 1,284 (g) 1,797
--------- --------- --------- --------- --------- ---------
$ 332,902 $ (22,484) $ 58,836 $ 369,254 $ 2,818 $ 372,072
========= ========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of
long-term debt ............... $ -- $ -- $ 6,934(c) $ 6,934 $ (1,841)(h) $ 5,222
129 (j)
Accounts payable .............. 11,921 -- 3,838(c) 15,759 (3,561)(h) 12,269
71 (j)
Accrued liabilities ........... 7,432 -- 2,629(c) 10,061 4,500 (i) 14,610
49 (j)
--------- --------- --------- --------- --------- ---------
Total current liabilities... 19,353 -- 13,401 32,754 (653) 32,101
--------- --------- --------- --------- --------- ---------
Production payments, less
current portion ................ 32,460 -- -- 32,460 -- 32,460
Long-term debt, less current 196,346 (g)
maturities ..................... 34,205 -- 14,085(c) 48,290 32,500 (g) 271,052
(10,000)(h)
3,916 (j)
Note payable to affiliate ........ -- -- 196,346(c) 196,346 (196,346)(g) --
Deferred income taxes ............ 10,000 -- -- 10,000 -- 10,000
Other liabilities ................ -- -- 49,404(c) 49,404 (22,238)(h) 27,807
641 (j)
Redeemable preferred stock ....... -- -- -- -- -- (f) --
Liabilities subject to
compromise ..................... 732,210 (458,974)(a) (273,236)(c) -- -- --
</TABLE>
F-13
<PAGE> 127
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C>
Stockholders' equity (deficit):
Common stock ............. 740 -- 740 (728)(e) 12
Additional paid-in capital 20,615 -- (21,355)(d) (740) 728 (e) (12)
Accumulated deficit ...... (254,276) 436,490(a) 58,836 (b) -- (4,806)(j) (1,348)
(241,050)(d) 3,458 (k)
--------- --------- --------- --------- --------- ---------
(232,921) 436,490 (203,569) -- (1,348) (1,348)
Treasury stock .............. (262,405) -- 262,405 (d) -- -- --
--------- --------- --------- --------- --------- ---------
Total stockholders' equity
(deficit) .............. (495,326) 436,490 58,836 -- (1,348) (1,348)
--------- --------- --------- --------- --------- ---------
$ 332,902 $ (22,484) $ 58,836 $ 369,254 $ 2,818 $ 372,072
========= ========= ========= ========= ========= =========
</TABLE>
-----------------------
(1) Immediately prior to adopting fresh-start reporting.
(a) Discharge of indebtedness, net of related debt issue costs.
(b) Allocation of reorganization value to gas and oil properties.
(c) Establish new debt.
(d) Elimination of the accumulated deficit and treasury stock.
(e) Cancellation of old common stock and issuance of 1,002,751 shares of new
Class A Common Stock and 247,500 shares of new Class B Common Stock.
(f) Issuance of Redeemable Senior and Junior Preferred Stock.
(g) Issuance and assumption of long-term debt, net of debt issue costs.
(h) Payment of long-term debt and prepetition claims.
(i) Issuance of production payment.
(j) Accretion of discount on reorganization liabilities.
(k) Capitalization of interest on unevaluated properties.
Based on the reorganization value of the Company, the fair value of the
Preferred Stock and Common Stock was estimated to be zero. The Senior Preferred
Stock and Junior Preferred Stock are mandatorily redeemable in 2006 and 2010,
respectively. As a result, the Company will accrete, in the form of a non-cash
dividend deducted from net income available to common stockholders and charged
to retained earnings, an amount equal to the combined redemption amount totaling
$243.2 million (initial liquidation value) over the period prior to redemption.
For the six months ended July 31, 2000, accretion of preferred stock totaled
$15.1 million. In addition, earnings available to common stockholders will be
reduced by dividends accrued on the Preferred Stock. Accrued preferred stock
dividends will be recorded in fair value. Any difference between the initial
fair value and the redemption value will be accreted in the same manner as
described above.
On the Effective Date, the Company's capital consists of (i) 1,002,751
shares of Class A Common Stock, $0.01 par value, (ii) 247,500 shares of Class B
Common Stock, $0.01 par value, (iii) 222,455,320 shares of Series A Senior
Preferred Stock, $1.00 par value, (iv) 20,716,080 shares of Series A Junior
Preferred Stock, $1.00 par value, and (v) warrants exercisable to purchase
625,000 shares of Class A Common Stock at a price of $120 per share.
The Series A Senior Preferred Stock (the "Senior Preferred Stock") has a
liquidation preference of $1.00 per share plus accrued and unpaid dividends. The
terms of the Senior Preferred Stock include a cumulative dividend preference,
payable quarterly out of funds legally available therefor, if any. During the
first two years following the Effective Date, the Company will be required to
pay cash dividends at a rate of $0.10 per share per annum, or, at its option,
in-kind dividends of additional shares of Senior Preferred Stock at a rate of
$0.20 per share per annum. The Senior Preferred Stock is mandatorily redeemable
on March 15, 2006 at a rate of $1.00 per share plus accrued and unpaid
dividends. One-half of the then-outstanding shares of Senior Preferred Stock is
mandatorily convertible into shares of Class A Common Stock at the rate of
0.3461 shares of Class A Common Stock per $1.00 of liquidation preference if
either (i) more than 75 million shares of Senior Preferred Stock remain
outstanding after March 15, 2006 or (ii) the Company fails to pay dividends on
the Senior Preferred Stock on any two dividend payment dates. The Certificate of
Designation for the Senior Preferred Stock includes restrictive covenants
comparable to those included in the Indenture.
F-14
<PAGE> 128
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Holders of Senior Preferred Stock have the right, voting separately as a
class, to elect four (4) of the five (5) directors to the Board of Directors;
provided, that if the Company has not paid dividends with respect to the
payments due commencing March 15, 2002, such holders will have the right,
voting separately as a class, to elect all five (5) directors to the Board of
Directors. Holders of Senior Preferred Stock have one vote per share, voting
together with the Class A Common Stock, the Junior Preferred Stock and any
other series or classes of stock entitled to vote with the Class A Common
Stock, on all matters on which the holders of the Class A Common Stock are
entitled to vote generally. Voting rights of the Senior Preferred Stock may not
be changed without the consent of the holders of 75% of the shares of Senior
Preferred Stock, voting as a class.
The Series A Junior Preferred Stock (the "Junior Preferred Stock" and,
together with the Senior Preferred Stock, the "Preferred Stock") has a
liquidation preference of $1.00 per share plus accrued and unpaid dividends. The
terms of the Junior Preferred Stock include a cumulative dividend preference,
payable quarterly out of funds legally available therefor, if any. During the
first six years following the Effective Date, the Company will be required to
pay in-kind dividends of additional shares of Junior Preferred Stock at a rate
of $0.10 per share per annum. Thereafter, dividends will be payable both in cash
at a rate of $0.10 per share per annum and in kind at a rate of $0.10 per share
per annum. The Junior Preferred Stock is mandatorily redeemable on March 15,
2010 at a rate of $1.00 per share plus accrued and unpaid dividends. Each share
of Junior Preferred Stock is mandatorily convertible into shares of Class A
Common Stock at the rate of 0.1168 shares of Class A Common Stock per $1.00 of
liquidation preference if either (i) more than 75 million shares of Senior
Preferred Stock remain outstanding after March 15, 2006 or (ii) the Company
fails to pay dividends on the Senior Preferred Stock on any two dividend payment
dates. The Certificate of Designation for the Junior Preferred Stock includes
restrictive covenants comparable to those included in the Indenture. Such
covenants will become effective when all of the Notes (and any refinancings
thereof) have been repaid and all of the Senior Preferred Stock has been
redeemed.
Holders of Junior Preferred Stock have one vote per share, voting together
with holders of the Class A Common Stock, the Senior Preferred Stock and any
other series or classes of stock entitled to vote with the Class A Common Stock,
on all matters on which holders of the Class A Common Stock are entitled to
vote. If no shares of the Senior Preferred Stock are outstanding, holders of the
shares of Junior Preferred Stock will have the right, voting separately as a
class, to elect two directors to the Board of Directors. Voting rights of the
Junior Preferred Stock may not be changed without the consent of the holders of
75% of the shares of the Junior Preferred Stock, voting as a class.
Under Delaware law, dividends (including dividends payable in stock) may
only be paid to the extent a corporation has surplus or, in certain cases, out
of net profits for the current fiscal year and the preceding fiscal year. On
July 25, 2000, at the annual stockholders meeting, the Company requested that
its stockholders approve amendments to the certificates of designation under
which the Preferred Stock is outstanding to reduce the par value of the
Preferred Stock, which would eliminate substantially all of the Company's
capital deficit, as defined by Delaware law. The affirmative vote of 466,774
shares of Class A Common Stock, 247,500 shares of Class B Common Stock,
122,449,000 shares of Series A Senior Preferred Stock and 20,716,090 shares of
Series A Junior Preferred Stock approved the amendments to the Certificate of
Designation for the Series A Senior Preferred Stock. The affirmative vote of
466,438 shares of Class A Common Stock, 247,500 shares of Class B Common Stock,
122,483,454 shares of Series A Senior Preferred Stock and 20,176,090 shares of
Series A Junior Preferred Stock approved the amendments to the Certificate of
Designation for the Series A Junior Preferred Stock.
On July 25, 2000, the Board of Directors of the Company authorized the
payment of quarterly dividends to the holders of the Company's Preferred Stock
of record on June 1, 2000. The quarterly dividends were paid in-kind on August
15, 2000 in additional shares of Preferred Stock of the same class at an annual
rate of $0.20 per share for each share of Series A Senior Preferred Stock and at
an annual rate of $0.10 per share for each share of Series A Senior Preferred
Stock in accordance with the Certificate of Designation for Series A Senior
Preferred Stock and the Certificate of Designation for Series A Junior Preferred
Stock, respectively. Fractional shares were not issued, but were settled in
cash.
3. LIQUIDITY
In order to maintain or increase proved oil and gas reserves, TransTexas is
required to make substantial capital expenditures for the exploration and
development of natural gas and oil reserves in the normal course of business.
TransTexas remains highly leveraged and a substantial portion of its cash
flow will be required for debt service. In addition, cash flow from operations
is dependent on the level of gas and oil prices which are historically volatile.
Management's plans are to fund its 2001 debt service requirements and planned
capital expenditures with cash flows from existing producing properties and
certain identified relatively low risk exploratory prospects to be drilled and
completed during fiscal 2001. Expected reserves from these prospects will be
used to obtain additional production payment financing which, together with
excess cash flow from these prospects, is necessary to continue to fund debt
service and capital expenditure requirements. Should these prospects not be
productive or should prices decline for a prolonged period, absent other sources
of capital, the Company would be required to substantially reduce its capital
expenditures which would limit its ability to maintain or increase production
and in turn meet its debt service requirements. Asset sales and financings are
restricted under the terms of TransTexas' debt documents and Senior Preferred
Stock.
4. OTHER CURRENT ASSETS
The major components of other current assets are as follows (in thousands
of dollars):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
---------------------------- ------------
JANUARY 31,
JULY 31, ---------------------------
2000 2000 1999
-------------- ------------ | ------------
(Unaudited) |
<S> <C> <C> | <C>
Prepayments: |
Trade................................................. $ 370 $ 478 | $ 676
Insurance............................................. 1,612 240 | 2,300
Deferred hedging losses................................. 694 -- | --
Other .................................................. 192 208 | 717
------------ ------------ | ------------
$ 2,868 $ 926 | $ 3,693
============ ============ | ============
</TABLE>
5. PROPERTY AND EQUIPMENT
The major components of property and equipment, at cost (estimated fair
value at January 31, 2000), are as follows (in thousands of dollars):
F-15
<PAGE> 129
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------------------------- -------------
JANUARY 31,
JULY 31, -----------------------------
2000 2000 1999
-------------- ------------- | -------------
(Unaudited) |
<S> <C> <C> | <C>
Gas and oil properties ................................................ $ 327,679 $ 279,844 | $ 1,394,325
Gas gathering and transportation ........................................ 42,255 40,920 | 53,761
Equipment and other ..................................................... 5,696 6,323 | 11,544
-------------- ------------- | -------------
$ 375,630 $ 327,087 | $ 1,459,630
============== ============= | =============
</TABLE>
In May 1997, TransTexas consummated a stock purchase agreement with an
unaffiliated buyer (the "Lobo Sale Agreement"), to effect the sale (the "Lobo
Sale") of the stock of TransTexas Transmission Corporation ("TTC"), its
subsidiary that owned substantially all of TransTexas' Lobo Trend producing
properties and related pipeline transmission system, for an adjusted sales price
of approximately $1.1 billion. TransTexas recorded a gain of $543.4 million on
the Lobo Sale. In accordance with the full cost method, the cost of the
properties sold was determined based on relative fair market value.
In January 1998, TransTexas sold a portion of its Lodgepole producing
properties for a sales price of $19.1 million. The proceeds from this sale were
credited to the full cost pool.
On April 30, 1998, TransTexas sold its oilfield stimulation, cementing and
coiled tubing equipment and related facilities to an unaffiliated third party
for a sales price of $30 million, subject to post-closing adjustments. For the
year ended January 31, 1999, TransTexas recorded a $10.5 million pre-tax gain as
a result of this sale.
On June 26, 1998, TransTexas sold its drilling rigs and related facilities
to an unaffiliated third party for a sales price of $75 million. On August 17,
1998, TransTexas sold its remaining drilling services assets to an unaffiliated
third party for a sales price of $20.5 million. TransTexas recorded pre-tax
gains of $51.2 million and $5.3 million, respectively, as a result of these
sales.
Additional purchase price adjustments related to the Lobo Sale resulted in
a pre-tax loss on the sale of assets of $2.4 million during the year ended
January 31, 1999.
In December 1998, TransTexas sold certain gas and oil properties for net
proceeds of approximately $16.7 million.
In August 2000, TransTexas sold certain producing properties in Jim Hogg
County, Texas for a sales price of $6.5 million.
6. OTHER ASSETS
The major components of other assets are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
----------------------------- -------------
JANUARY 31,
JULY 31, ----------------------------
2000 2000 1999
-------------- ------------ | -----------
(Unaudited) |
<S> <C> <C> | <C>
Debt issue costs, net of accumulated amortization |
($154 - July 31, 2000; $2,030 - January 31, 1999)...................... $ 2,225 $ -- | $ 24,278
Other ................................................................... 682 513 | 891
-------------- ------------ | -----------
$ 2,907 $ 513 | $ 25,169
============== ============ | ===========
</TABLE>
F-16
<PAGE> 130
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT AND PRODUCTION PAYMENTS
Long-Term Debt
Long-term debt consists of the following (in thousands of dollars):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------------------ -----------
JULY 31, JANUARY 31,
2000 2000 1999(*)
----------- ---------- | ----------
(Unaudited) |
<S> <C> <C> | <C>
15% Senior Secured Notes due 2005 ........ $ 200,000 $ -- | $ --
Revolving credit agreements .............. 42,154 4,205 | 345
Term Note ................................ 22,444 -- | --
Notes payable, ranging from 8% to 15%, due |
through 2005 ........................... 18,342 49,212 | 9,010
13 3/4% Senior Subordinated Notes due 2001 -- 1,807 | 115,815
---------- ---------- | ----------
Total long-term debt ................. 282,940 55,224 | 125,170
Current maturities ....................... 4,938 6,934 | --
---------- ---------- | ----------
$ 278,002 $ 48,290 | $ 125,170
========== ========== | ==========
</TABLE>
---------------
(*) Subject to compromise (see Note 2).
On the Effective Date, the Company, as Issuer, Galveston Bay Pipeline
Company and Galveston Bay Processing Corporation, as Guarantors, and Firstar
Bank, N.A., as Trustee, entered into an Indenture dated as of March 15, 2000,
pursuant to which the Company issued the Notes. Interest on the Notes is due
semi-annually on March 15 and September 15. The Notes are secured by
substantially all of the assets of the Company other than accounts receivable
and inventory. The security interest in favor of the Trustee is subordinated to
the Security Interest in favor of the Agent under the Oil and Gas Facility.
On the Effective Date, the Company and GMACC entered into a Third Amended
and Restated Accounts Receivable Management and Security Agreement, dated as of
March 15, 2000 (the "Accounts Receivable Facility"). The Accounts Receivable
Facility is a revolving credit facility secured by accounts receivable and
inventory. The maximum loan amount under the facility is $15 million, against
which the Company may from time to time, subject to the conditions of the
Accounts Receivable Facility, borrow, repay and reborrow. Advances under the
facility bear interest at a rate per annum equal to the higher of (i) the prime
commercial lending rate of The Bank of New York plus 1/2 of 1%, and (ii) the
Federal Funds Rate plus 1%, payable monthly in arrears. As of July 31, 2000, the
outstanding principal balance under the Accounts Receivable Facility was
$12.2 million with availability for additional advances of approximately $1.2
million and will be due on March 14, 2005.
On the Effective Date, the Company, as Borrower, and Galveston Bay
Processing Corporation and Galveston Bay Pipeline Company, as Guarantors,
entered into an Oil and Gas Revolving Credit and Term Loan Agreement, dated as
of March 15, 2000 (the "Oil and Gas Facility") with GMAC Commercial Credit LLC
("GMACC"), as a Lender and as Agent. The Oil and Gas Facility consists of a term
loan (the "Term Loan") in the amount of $22.5 million and a revolving facility
(the "Revolving Loan") in a maximum amount of $30 million (all of which was
funded on the Effective Date). The Term Loan bears interest at a rate of 14% per
annum and the Revolving Loan bears interest at a rate of 13 1/2% per annum.
Interest on the Term Loan and the Revolving Loan is payable monthly in arrears.
Principal amortization of the Term Loan is due in 20 quarterly installments of
$56,250 each, with the balance due March 14, 2005. The principal amount of the
Revolving Loan is due on March 14, 2005; however the Company may, and in certain
circumstances must, make prepayments of such amount. If, subsequent to such
prepayments, the Company demonstrates sufficient collateral value meeting the
requirements of the Oil and Gas Facility provisions, the Company may be entitled
to borrow additional advances under the Revolving Loan. The Oil and Gas Facility
is secured by substantially all of the assets of the Company. The security
interest in accounts receivable and inventory securing the Oil and Gas Facility
is subordinated to the security interest of GMACC under the Accounts Receivable
Facility.
In December 1998, TransTexas borrowed $5.65 million from an unaffiliated
third party in order to meet a portion of its December 31, 1998 interest payment
obligations. In accordance with the Plan, the principal amount of the note was
increased to $6.7 million, bears interest at 8% and is collateralized by a
pledge of the stock of Galveston Bay Processing Corporation and a mortgage on
the Winnie processing facility.
F-17
<PAGE> 131
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additional notes payable totaling $13.9 million consists of amount payable
pursuant to the Plan in settlement of the claims of certain creditors. Such
amounts are generally payable over a five year period with stated interest
ranging from 8% to 10%.
Prior to the Effective Date, the Company had outstanding $115.8 million
principal amount of 13 3/4% Senior Subordinated Notes due 2001 (the
"Subordinated Notes"). The fair value of the Subordinated Notes, based on quoted
market prices as of January 31, 1999, was $34.7 million. As described in Note 2,
in accordance with the Plan, the holders of the Subordinated Notes received $1.8
million cash, 2,455,320 shares of Senior Preferred Stock and 20,716,080 shares
of Junior Preferred Stock and the Subordinated Notes were canceled. The balance
of $1.8 million at January 31, 2000 represents the fair value of the
Subordinated Notes in accordance with fresh-start reporting.
Aggregate principal payments on the Company's (Successor) long-term debt as
of the effective date total $5.2 million, $3.1 million, $1.9 million, $3.6
million and $0.4 million for the fiscal years ended January 31, 2001, 2002,
2003, 2004 and 2005, respectively.
Production Payments
In February and September 1998, TransTexas entered into two production
payment agreements with an unaffiliated third party pursuant to which the
Company conveyed certain properties (the "Original Subject Interests") in the
form of a term overriding royalty interest. As of January 31, 2000, the
outstanding balance of these production payments was $35.1 million.
In March 2000, the Original Subject Interests were reconveyed to TransTexas
and a new production payment drilling program agreement was entered into between
TransTexas and two unaffiliated third parties in the form of a term overriding
royalty interest carved out of and burdening certain properties including the
Original Subject Interests (collectively, the "New Subject Interests"). As of
September 15, 2000 the Company had closed the Second Supplement to the new
production payment agreement and the aggregate sum outstanding under the new
production payment agreement was $32.4 million. The Company has the right to
offer additional properties ("Offered Wells") to the production payment parties
at a negotiated purchase price, up to an aggregate maximum for all such wells,
of up to $52 million. Upon acceptance of the Offered Wells, one of the third
parties would be committed to pay to the Company either the drilling costs of
the Offered Wells or, at the third party's discretion, a higher, mutually agreed
upon amount. The production payment calls for the repayment of the primary sum
plus an amount equivalent to a 15% annual interest rate on the unpaid portion of
such primary sum. The Oil and Gas Facility places certain restrictions on the
amount that may be outstanding under the production payment.
In connection with the new production payment, the Company entered into
various marketing and processing agreements with one of the third parties.
Pursuant to these agreements, the Company will pay a nominal marketing fee with
respect to the Company's production associated with the New Subject Interests.
In addition, the third party will pay a fee for certain processing services to
be provided by Galveston Bay Processing.
F-18
<PAGE> 132
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. NOTES PAYABLE TO AFFILIATES
Notes payable to affiliates consist of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
---------------------------- ------------
JANUARY 31,
JULY 31, -----------------------------
2000 2000 | 1999(*)
------------ ------------ | ------------
(Unaudited) |
<S> <C> <C> | <C>
TransTexas Intercompany Loan .............................................. $ -- $ 196,346 | $ 450,000
Notes payable to affiliates ............................................... -- -- | 7,928
------------ ------------ | ------------
$ -- $ 196,346 | $ 457,928
============ ============ | ============
</TABLE>
----------------
(*) Subject to compromise (see Note 2).
Prior to the Effective Date, the Company had outstanding a $450 million
note payable to TEC (the "TransTexas Intercompany Loan"). The TransTexas
Intercompany Loan accrued interest at a rate of 10 7/8% per annum and was
pledged to secure TEC's obligations on its 11 1/2% Senior Secured Notes and 13%
Senior Secured Discount Notes due 2002 (the "TEC Notes"). The fair value of the
TransTexas Intercompany Loan was $121.5 million at January 31, 1999. As
described in Note 2, the TransTexas Intercompany Loan was settled on the
Effective Date pursuant to the Plan.
During the year ended January 31, 1999, TEC made advances to TransTexas
pursuant to a $50 million promissory note which was scheduled to mature on June
14, 2002. The note accrued interest at a rate of 11.375% per annum. At January
31, 1999, the outstanding balance on the note was $6.5 million. This note was
canceled on the Effective Date pursuant to the Plan.
In December 1998, TransTexas executed a note payable to TransAmerican in
the original principal amount of $1.4 million plus interest at a rate of 15% per
annum. The proceeds from this loan were used to meet a portion of the Company's
interest payment obligations on December 31, 1998. This note was fully repaid in
December 1999.
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The following information reflects TransTexas' noncash investing and
financing activities (in thousands of dollars):
F-19
<PAGE> 133
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------ ------------------------------------------------------
SIX MONTHS ENDED
JULY 31, YEAR ENDED JANUARY 31,
-------------------------- ----------------------------------------
2000 1999 2000 1999 1998
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Investing activities:
Accounts payable and long-term
liabilities for property and
equipment ............................................. $ 7,375 | $ 44,610 $ 48,381 $ 38,841 $ 32,666
============ | ============ ============ ============ ============
|
Financing activities: |
|
Accretion of preferred stock............................. $ 15,121 | $ -- $ -- $ -- $ --
============ | ============ ============ ============ ============
|
Cancellation of old common stock......................... $ 740 | $ -- $ -- $ -- $ --
============ | ============ ============ ============ ============
|
Issuance of new common stock............................. $ 12 | $ -- $ -- $ -- $ --
============ | ============ ============ ============ ============
|
Assumption of tax liability by |
TransAmerican ......................................... $ -- | $ -- $ -- $ -- $ 129,549
============ | ============ ============ ============ ============
Contribution from affiliate ............................. $ -- | $ -- $ -- $ -- $ 21,513
============ | ============ ============ ============ ============
Exchange of Subordinated Notes .......................... $ -- | $ -- $ -- $ -- $ 115,815
============ | ============ ============ ============ ============
Contribution of debt issue |
costs from affiliate .................................. $ -- | $ -- $ -- $ -- $ 12,600
============ | ============ ============ ============ ============
</TABLE>
Cash paid for interest is as follows (in thousands of dollars) :
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------ ------------------------------------------------------
SIX MONTHS ENDED
JULY 31, YEAR ENDED JANUARY 31,
-------------------------- ----------------------------------------
2000 1999 2000 1999 1998
------------ ----------- ------------ ------------ ------------
(Unaudited)
<S> <C> | <C> <C> <C> <C>
Interest .............................................. $ 892 | $ 4,441 $ 9,616 $ 69,970 $ 52,563
============ | =========== ============ ============ ============
</TABLE>
Cash paid during the year ended January 31, 2000 for reorganization items
was $6.2 million.
TransTexas incurred approximately $24.8 million, $26.0 million, $41.2
million, $89.6 million and $96.4 million of interest charges of which
approximately $6.9 million, $1.2 million, $2.7 million, $9.7 million and $15.8
million were capitalized for the six months ended July 31, 2000 and 1999 and for
the years ended January 31, 2000, 1999 and 1998, respectively.
10. ACCRUED LIABILITIES
Accrued liabilities classified as current liabilities consist of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
----------------------------- ------------
JANUARY 31,
JULY 31, -----------------------------
2000 2000 1999
------------ ------------ | ------------
(Unaudited) |
<S> <C> <C> | <C>
Royalties ...................................... $ 3,048 $ 1,581 | $ --
Taxes other than income taxes .................. 1,900 899 | --
Accrued interest ............................... 12,901 44 | --
Payroll ........................................ 1,118 1,197 | --
Current portion of production payments ......... 3,873 2,647 | 983
Hedging losses ................................. 1,748 -- | --
Reorganization claims .......................... 2,376 2,629 | --
Other .......................................... 1,831 1,064 | --
------------ ------------ | ------------
$ 28,795 $ 10,061 | $ 983
============ ============ | ============
</TABLE>
F-20
<PAGE> 134
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. OTHER LIABILITIES
The major components of other liabilities are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
-------------------------- ------------
JANUARY 31,
JULY 31, ----------------------------
2000 2000 1999 (*)
------------ ------------ | ------------
(Unaudited) |
<S> <C> <C> | <C>
Reorganization claims ............................ $ 8,949 $ 34,404 | $ --
Litigation accrual ............................... -- -- | 527
Litigation settlements ........................... -- -- | 7,102
Long-term payables and other ..................... 15,433 15,000 | 6,495
------------ ------------ | ------------
$ 24,382 $ 49,404 | $ 14,124
============ ============ | ============
</TABLE>
(*) Subject to compromise (see Note 2).
12. INCOME TAXES
Income tax expense (benefit) includes the following (in thousands of
dollars):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------- --------------------------------------------------------------
SIX MONTHS ENDED JULY 31, YEAR ENDED JANUARY 31,
---------------------------- ----------------------------------------------
2000 1999 2000 1999 1998
------------- ------------- ------------ ------------ ------------
(Unaudited)
<S> <C> | <C> <C> <C> <C>
Federal: |
Current ............ $ -- | $ -- $ -- $ -- $ (21,380)
Deferred ........... 907 | -- 10,000 (39,497) 144,256
------------ | ------------- ------------ ------------ ------------
$ 907 | $ -- $ 10,000 $ (39,497) $ 122,876
============ | ============= ============ ============ ============
</TABLE>
Total income tax expense differs from amounts computed by applying the
statutory federal income tax rate to income before income taxes. The items
accounting for this difference are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------- -------------------------------------------------------------
SIX MONTHS ENDED JULY 31, YEAR ENDED JANUARY 31,
---------------------------- ----------------------------------------------
2000 1999 2000 1999 1998
------------- ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> | <C> <C> <C> <C>
Federal income tax expense |
(benefit) at the statutory rate ............ $ 907 | $ (14,992) $ 153,760 $ (170,530) $ 122,876
Increase (decrease) in tax resulting from: |
Debt discharged pursuant to Plan .......... -- | -- (160,641) -- --
Adjustment of tax assumption .............. -- | -- 10,000 (75,000) --
Valuation allowance ....................... -- | 14,992 6,881 206,033 --
------------ | ------------ ------------ ------------ ------------
$ 907 | $ -- $ 10,000 $ (39,497) $ 122,876
============ | ============ ============ ============ ============
</TABLE>
Significant components of TransTexas' tax attributes are as follows (in
thousand of dollars):
F-21
<PAGE> 135
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
-------------------------- ------------
JANUARY 31,
JULY 31, -----------------------------
2000 2000 1999
------------ ------------ ------------
(Unaudited) |
<S> <C> <C> | <C>
Deferred tax liabilities: |
Tax assumption .............................................. $ 10,000 $ 10,000 | $ --
Depreciation, depletion and amortization..................... 1,427 -- | --
------------ ------------ | ------------
Deferred tax liabilities..................................... 11,427 10,000 | --
------------ ------------ | ------------
Deferred tax assets: |
Depreciation, depletion and amortization .................... -- -- | 75,368
Net operating loss carryforwards ............................ 368 -- | 127,901
Contingent liabilities ...................................... 152 -- | 1,833
Other, net .................................................. -- -- | 931
------------ ------------ | ------------
520 -- | 206,033
Valuation allowance ........................................... -- -- | (206,033)
------------ ------------ | ------------
Net deferred tax assets ..................................... 520 -- | --
------------ ------------ | ------------
$ 10,907 $ 10,000 | $ --
============ ============ | ============
</TABLE>
Based upon independent legal advice, including an opinion from a nationally
recognized law firm, TransTexas did not report any significant federal income
tax liability as a result of the Lobo Sale. There are, however, significant
uncertainties regarding TransTexas' tax position and no assurance can be given
that TransTexas' position will be sustained if challenged by the Internal
Revenue Service (the "IRS"). Prior to the bankruptcy, TransTexas was part of an
affiliated group for tax purposes (the "TNGC Consolidated Group"), which
included TNGC Holdings Corporation, the sole stockholder of TransAmerican
("TNGC"), TransAmerican, TEC, TransTexas and TARC. If the IRS were to
successfully challenge TransTexas' position, each member of the TNGC
Consolidated Group would be severally liable under the consolidated tax return
regulations for the resulting taxes, in the estimated amount of up to $270
million (assuming the use of none of the available tax attributes of the TNGC
Consolidated Group), possible penalties equal to 20% of the amount of the tax,
and interest at the statutory rate (currently 9%) on the tax and penalties (if
any). Assuming the use of available tax attributes of the TNGC Consolidated
Group, primarily the carryback of net operating loss carryovers ("NOLs"), this
estimated tax would be reduced to approximately $10 million (with the NOL
carrybacks reducing interest as of the end of the tax year in which the
carryback arose and not reducing penalties). In this event, a substantial
portion of TransTexas' NOLs would be utilized and thus not available to
TransTexas after the bankruptcy. Pursuant to the tax allocation agreement among
the members of the TNGC Consolidated Group, TransAmerican is obligated to fund
the entire tax deficiency (if any) resulting from the Lobo Sale. There can be no
assurance that TransAmerican would be able to make any such payment and the
other members of the TNGC Consolidated Group, including TransTexas as a former
member, may be required to pay the tax, penalties and interest. There can be no
assurance that TransTexas could pay this contingency.
Part of the refinancing of TransAmerican's debt in 1993 involved the
cancellation of approximately $65.9 million of accrued interest and of a
contingent liability for interest of $102 million owed by TransAmerican.
TransAmerican has taken the federal tax position that the entire amount of this
debt cancellation is excluded from its income under the cancellation of
indebtedness provision (the "COD Exclusion") of the Internal Revenue Code of
1986, as amended (the "Tax Code"), and has reduced its tax attributes (including
its net operating loss and credit carryforwards) as a consequence of the COD
Exclusion. No federal tax opinion was rendered with respect to this transaction,
however, and TransAmerican has not obtained a ruling from the IRS regarding this
transaction. TransTexas believes that there is substantial legal authority to
support the position that the COD Exclusion applies to the cancellation of
TransAmerican's indebtedness. However, due to factual and legal uncertainties,
there can be no assurance that the IRS will not challenge this position, or that
any such challenge would not be upheld. Under the Tax Allocation Agreement,
TransTexas has agreed to pay an amount equal to any federal tax liability (which
would be approximately $25.4 million) attributable to the inapplicability of the
COD Exclusion. Any such tax would be offset in future years by alternative
minimum tax credits and retained loss and credit carryforwards to the extent
recoverable from TransAmerican.
As a former member of the TNGC Consolidated Group, TransTexas will be
severally liable for any tax liability resulting from any transaction of the
TNGC Consolidated Group that occurred during any taxable year of the TNGC
F-22
<PAGE> 136
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Consolidated Group during which TransTexas was a member, including the
above-described transactions. The IRS has commenced an audit of the consolidated
federal income tax returns of the TNGC Consolidated Group for its taxable years
ended July 31, 1994 and July 31, 1995. The Company has not been advised by the
IRS as to whether any tax deficiencies will be proposed by the IRS as a result
of its review.
TransTexas expects that a significant portion of its NOLs will be
eliminated and the use of those NOLs that are not eliminated will be severely
restricted as a consequence of the Plan. In addition, certain other tax
attributes of TransTexas may under certain circumstances be eliminated or
reduced as a consequence of the Plan. The elimination or reduction of NOLs and
such other tax attributes may substantially increase the amount of tax payable
by TransTexas following the consummation of the Plan as compared with the amount
of tax payable had no such attribute reduction or restriction been required.
13. TRANSACTIONS WITH AFFILIATES
On June 13, 1997, a services agreement was entered into among
TransAmerican, TEC, TARC and TransTexas. Under the services agreement,
TransTexas provided accounting, legal, administrative and other services to
TARC, TEC and TransAmerican and its affiliates. TransAmerican provided advisory
services to TransTexas, TARC and TEC. As of January 31, 1999, the receivable
from TARC and TransAmerican for service agreement fees was $0.2 million. As of
January 31, 1999, receivables of $4.6 million for other services provided to
TransAmerican and certain of its affiliates were recorded as a reduction of
additional paid-in capital.
In connection with a December 15, 1998 transaction pursuant to which TARC
transferred its refinery assets to a minority-owned subsidiary, TCR Holding
Corporation ("TCR Holding"), and TCR Holding transferred such assets to its
majority-owned subsidiary, Orion Refining Corporation ("Orion"), TransTexas
entered into an Amended and Restated Services Agreement (the "TCR Group Services
Agreement") with TCR Holding and Orion. The TCR Group Services Agreement called
for TransTexas to provide certain accounting, legal, administrative and other
services to the TCR Group through December 15, 2000 and receive payment for such
services, through February 28, 1999, in the amount of $200,000 per month.
Subsequent to February 28, 1999, the monthly fee was adjusted based on an
assessment of the cost to TransTexas of providing such services. As of January
31, 2000, the receivable from Orion for such services was $0.1 million.
In March 2000, a services agreement was entered into between TNGC and the
Company. Pursuant to the agreement, TransTexas will provide certain accounting,
legal, administrative and other services to TNGC and its affiliates in exchange
for a monthly fee of $2,000.
During the year ended January 31, 1999, TEC made advances to TransTexas
pursuant to a $50 million promissory note which was scheduled to mature on June
14, 2002. The note accrued interest at a rate of 11.375% per annum. As of
January 31, 2000, the outstanding balance of the note was $6.5 million, and the
accrued interest was $0.3 million. This note was canceled on March 17, 2000
pursuant to the Plan.
In December 1998, TransTexas executed a note payable to TransAmerican in
the original principal amount of $1.4 million plus interest at a rate of 15% per
annum. On December 31, 1998, TransTexas used the proceeds from this loan to pay
a portion of its interest payment obligations on its public debt securities.
This note was secured by a lien on the assets of Galveston Bay Processing.
During the fiscal year ended January 31, 2000, Galveston Bay Processing made
payments of principal and interest under this note to TransAmerican of
approximately $1.6 million. As of January 31, 2000 and 1999, the balance due on
the note was $0 and $1.4 million, respectively.
In April 1999, TEC made a cash contribution of $0.7 million to TransTexas.
During the fiscal year ended January 31, 1998, TransTexas sold natural gas
to TARC under an interruptible long-term sales contract. Revenues from TARC
under this contract totaled approximately $1.1 million.
F-23
<PAGE> 137
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the fiscal year ended January 31, 1998, TEC allocated $12.6 million
of debt issuance costs relating to the TEC Notes to TransTexas. TransTexas
recorded these costs as a contribution of capital.
During the fiscal year ended January 31, 1998, the Company recorded a
contribution to paid-in capital of approximately $129.5 million in connection
with TransAmerican's assumption of the Lobo Sale tax contingency.
During the fiscal year ended January 31, 1998, the Company contributed
$13.3 million to TransAmerican to retire debt related to certain oil and gas
properties. Those properties, which had a net book value of $21.5 million were
contributed to TransTexas.
During the fiscal year ended January 31, 1999, the Company paid
approximately $5.6 million of Texas franchise taxes on behalf of certain
affiliates pursuant to the Tax Allocation Agreement. Approximately $2.3 million
of the franchise taxes paid exceeded the payable to affiliates for such taxes
and was recorded as a reduction of additional paid-in capital.
14. COMMITMENTS AND CONTINGENCIES
Environmental Matters
TransTexas' operations and properties are subject to extensive federal,
state, and local laws and regulations relating to the generation, storage,
handling, emission, transportation, and discharge of materials into the
environment. Permits are required for various of TransTexas' operations, and
these permits are subject to revocation, modification, and renewal by issuing
authorities. TransTexas also is subject to federal, state, and local laws and
regulations that impose liability for the cleanup or remediation of property
which has been contaminated by the discharge or release of hazardous materials
or wastes into the environment. Governmental authorities have the power to
enforce compliance with their regulations, and violations are subject to fines
or injunctions, or both. Certain aspects of TransTexas' operations may not be in
compliance with applicable environmental laws and regulations, and such
noncompliance may give rise to compliance costs and administrative penalties. It
is not anticipated that TransTexas will be required in the near future to expend
amounts that are material to the financial condition or operations of TransTexas
by reason of environmental laws and regulations, but because such laws and
regulations are frequently changed and, as a result, may impose increasingly
strict requirements, TransTexas is unable to predict the ultimate cost of
complying with such laws and regulations.
Legal Proceedings
High River. As described in Note 2, the Company's Plan was confirmed by the
Bankruptcy Court ("Confirmation Order") on February 7, 2000. On February 14,
2000, High River Limited Partnership ("High River") appealed the Confirmation
Order to the U.S. District Court for the Southern District of Texas, Corpus
Christi Division (the "District Court") objecting to confirmation of the
Company's Plan on various grounds. The Company filed a motion to dismiss High
River's appeal asserting that the Company's Plan cannot be "unwound" since it
has been substantially consummated and, therefore, the appeal must be dismissed
as moot. The Company's motion to dismiss was granted by the District Court on
July 28, 2000. No appeal was taken from the District Court's order granting the
Company's motion to dismiss and that order has become final.
TransTexas is a party to various claims and routine litigation arising in
the normal course of its business. Any obligations of the Company in respect of
such claims and litigation arising out of activities prior to the Petition Date
will be discharged pursuant to the Plan. Recovery of these obligations, if any,
will be limited to any collateral held by the claimant and/or such claimant's
pro rata share of amounts available to pay general unsecured claims.
Operating Leases
As of January 31, 2000, TransTexas had long-term leases covering land and
other property and equipment. Rental expense was approximately $3 million, $3
million and $2 million for the years ended January 31, 2000, 1999 and 1998,
respectively. Future minimum rental payments required under operating leases
that have initial or remaining noncancellable lease terms in excess of one year
as of January 31, 2000, are as follows (in thousands of dollars):
F-24
<PAGE> 138
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
2001 ..... $ 234
2002 ..... 81
------
$ 315
======
</TABLE>
Gas Delivery Commitments
In March, 2000 TransTexas entered into firm and interruptible contracts
with Tejas Ship Channel LLC for transportation of its production from the Eagle
Bay field to the Winnie facilities at a fixed negotiated rate. Under the firm
agreement, the Company is committed to deliver a minimum of 75,000 MMBtu per day
of natural gas and condensate.
The Company also entered into a contract with Centana Intrastate Pipeline
Company for transportation of natural gas on a firm and interruptible basis from
the Winnie facility to natural gas liquids recovery facilities located in the
Beaumont/Port Arthur, Texas area, and residue gas from these facilities to
various distribution points. Under the agreement, the Company is committed to
deliver up to a maximum of 56,250 Mcf of natural gas and 19,500 MMBtu of residue
gas. Transportation fees for residue gas are based on a fixed negotiated rate.
Transportation fees for residue gas are based on a published industry index.
15. BUSINESS SEGMENTS
TransTexas currently conducts its operations in one industry segment:
exploration and production ("E&P"). Prior to the Lobo Sale, TransTexas also
operated a gas transportation segment. The E&P segment explores for, develops,
produces and markets natural gas, condensate and natural gas liquids. The
transportation segment was engaged in intrastate natural gas transportation and
marketing. All of TransTexas' significant gas and oil operations are located in
South Texas, Louisiana and along the Texas Gulf Coast. TransTexas' revenues are
derived principally from sales to interstate and intrastate gas pipelines,
direct end users, industrial companies, marketers and refiners located in the
United States.
For the year ended January 31, 2000, three customers provided approximately
$62 million in E&P revenues. For the year ended January 31, 1999, five customers
provided approximately $65 million in E&P revenues. For the year ended January
31, 1998, three customers provided approximately $79 million in E&P and
transportation revenues.
16. CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------------
YEAR ENDED JANUARY 31, 2000
------------------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER(4) QUARTER QUARTER(4) QUARTER
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues ................................. $ 19,065 $ 28,573 $ 29,405 $ 36,689
Operating income (loss) .................. (13,217) (4,116) 2,855 4,846
Net income (loss) ........................ (35,881) (6,954) (4,406) 476,556(1)
Net income (loss) per share -- basic
and diluted ............................ (0.62) (0.12) (0.08) 8.28
</TABLE>
F-25
<PAGE> 139
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------------
YEAR ENDED JANUARY 31, 1999
------------------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues ...................................... $ 33,467 $ 71,439 $ 32,793 $ 19,067
Operating income (loss) ....................... 8,488 21,059(2) (162,674) (273,630)
Net income (loss) ............................. (6,803) (806) (147,763) (292,361)
Net income (loss) per share -- basic
and diluted ................................. (0.12) (0.01) (2.57) (5.08)
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------------
YEAR ENDED JANUARY 31, 1998
------------------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues ...................................... $ 82,351 $ 575,420 $ 37,233 $ 28,267
Operating income (loss) ....................... 1,298 531,425(3) 9,586 (12,209)
Net income (loss) ............................. (14,538) 262,745 (1,249) (18,757)
Net income (loss) per share -- basic
and diluted ................................. (0.20) 3.61 (0.02) (0.33)
</TABLE>
-----------------------
(1) Net income for the fourth quarter of 2000 includes a $436.5 million
extraordinary gain on the extinguishment of debt and a $50.5 million credit
for reorganization items.
(2) Operating income for the second quarter of 1999 includes a $47.6 million
gain on the sale of assets.
(3) Operating income for the second quarter of 1998 includes a $532.9 million
gain on the sale of assets.
(4) Operating income (loss) and net income (loss) for the first and third
quarters have been restated to increase depletion for the first quarter by
$1,473 or $0.02 per share and decrease depletion for the third quarter by
$366 or $0.01 per share.
17. SUPPLEMENTAL GUARANTOR INFORMATION
Galveston Bay Pipeline Company and Galveston Bay Processing Corporation are
guarantors of the $200 million 15% Senior Secured Notes due 2005 ("Senior
Secured Notes") and the Oil and Gas Facility. Separate financial statements of
the Guarantors are not considered to be material to holders of the Senior
Secured Notes and GMACC. The following condensed consolidating financial
statements present supplemental information of the Guarantors as of and for the
six months ended July 31, 2000 and for the year ended January 31, 2000.
F-26
<PAGE> 140
TRANSTEXAS GAS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
JULY 31, 2000
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
GALVESTON GALVESTON
BAY BAY CONSOLIDATED
TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS
---------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 7,622 $ 41 $ 108 $ -- $ 7,771
Accounts receivable, net............... 35,951 -- 448 -- 36,399
Receivables from affiliates............ 9,146 -- -- (8,030) 1,116
Inventories............................ 1,357 -- -- -- 1,357
Other current assets................... 2,859 5 4 -- 2,868
-------- ------ ------- ------- --------
Total current assets........... 56,935 46 560 (8,030) 49,511
-------- ------ ------- ------- --------
Property and equipment................... 363,892 1,534 10,204 -- 375,630
Less accumulated depreciation, depletion
and amortization....................... 38,662 152 1,098 -- 39,912
-------- ------ ------- ------- --------
Net property and equipment..... 325,230 1,382 9,106 -- 335,718
-------- ------ ------- ------- --------
Other assets, net........................ 2,908 -- 1 (2) 2,907
-------- ------ ------- ------- --------
$385,073 $1,428 $ 9,667 $(8,032) $388,136
======== ====== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt... $ 3,621 $ 24 $ 1,293 $ -- $ 4,938
Accounts payable....................... 12,318 29 69 -- 12,416
Accrued liabilities.................... 28,667 16 112 -- 28,795
-------- ------ ------- ------- --------
Total current liabilities...... 44,606 69 1,474 -- 46,149
-------- ------ ------- ------- --------
Payable to affiliates.................... -- 378 7,652 (8,030) --
Long-term debt, less current
maturities............................. 276,631 1,142 229 -- 278,002
Production payments, less current
portion................................ 27,011 -- -- -- 27,011
Deferred income taxes.................... 10,907 -- -- -- 10,907
Other liabilities........................ 24,382 -- -- -- 24,382
Redeemable preferred stock............... 15,121 -- -- -- 15,121
Stockholders' equity (deficit):
Common stock........................... 12 -- -- -- 12
Additional paid-in capital............. (12) 1 1 (2) (12)
Retained earnings (accumulated
deficit)............................ (13,585) (162) 311 -- (13,436)
-------- ------ ------- ------- --------
Total stockholders' equity
(deficit).................... (13,585) (161) 312 (2) (13,436)
-------- ------ ------- ------- --------
$385,073 $1,428 $ 9,667 $(8,032) $388,136
======== ====== ======= ======= ========
</TABLE>
F-27
<PAGE> 141
TRANSTEXAS GAS CORPORATION (SUCCESSOR)
CONDENSED CONSOLIDATING BALANCE SHEET
JANUARY 31, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
GALVESTON GALVESTON
BAY BAY CONSOLIDATED
TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS
------------ ------------ ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents .................. $ 17,851 $ 44 $ 393 $ -- $ 18,288
Accounts receivable, net ................... 19,143 110 339 -- 19,592
Receivable from affiliates ................. 10,246 -- _ (9,139) 1,107
Inventories ................................ 1,741 -- _ -- 1,741
Other current assets ....................... 908 -- 18 -- 926
------------ ------------ ------------ ------------ ------------
Total current assets ..................... 49,889 154 750 (9,139) 41,654
------------ ------------ ------------ ------------ ------------
Property and equipment ...................... 315,367 1,771 9,949 -- 327,087
Less accumulated depreciation, depletion
and amortization.......................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net property and equipment ............... 315,367 1,771 9,949 -- 327,087
------------ ------------ ------------ ------------ ------------
Other assets, net ........................... 514 -- 1 (2) 513
------------ ------------ ------------ ------------ ------------
$ 365,770 $ 1,925 $ 10,700 $ (9,141) $ 369,254
============ ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ....... $ 4,938 $ 536 $ 1,460 $ -- $ 6,934
Accounts payable ........................... 15,652 3 104 -- 15,759
Accrued liabilities ........................ 9,995 11 55 -- 10,061
------------ ------------ ------------ ------------ ------------
Total current liabilities ................ 30,585 550 1,619 -- 32,754
------------ ------------ ------------ ------------ ------------
Payable to affiliates ....................... -- 637 8,502 (9,139) --
Production payments, less current portion ... 32,460 -- -- -- 32,460
Long-term debt, less current maturities ..... 46,975 737 578 -- 48,290
Note payable to affiliate ................... 196,346 -- -- -- 196,346
Deferred income taxes ....................... 10,000 -- -- -- 10,000
Other liabilities ........................... 49,404 -- -- -- 49,404
Stockholders' equity (deficit):
Common stock ............................... 740 -- -- -- 740
Additional paid-in capital ................. (740) 1 1 (2) (740)
Retained earnings .......................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total stockholders' equity................... -- 1 1 (2) --
------------ ------------ ------------ ------------ ------------
$ 365,770 $ 1,925 $ 10,700 $ (9,141) $ 369,254
============ ============ ============ ============ ============
</TABLE>
F-28
<PAGE> 142
TRANSTEXAS GAS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 31, 2000
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
GALVESTON GALVESTON
BAY BAY CONSOLIDATED
TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS
---------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Gas, condensate and natural gas
liquids.............................. $ 80,674 $ -- $ -- $ -- $ 80,674
Other................................... 198 368 3,886 (3,260) 1,192
-------- ----- ------ ------- --------
Total revenues.................. 80,872 368 3,886 (3,260) 81,866
-------- ----- ------ ------- --------
Costs and expenses:
Operating............................... 9,346 31 2,044 (3,260) 8,161
Depreciation, depletion and
amortization......................... 38,678 152 1,098 -- 39,928
General and administrative.............. 9,640 123 214 -- 9,977
Taxes other than income taxes........... 3,562 20 63 -- 3,645
-------- ----- ------ ------- --------
Total costs and expenses........ 61,226 326 3,419 (3,260) 61,711
-------- ----- ------ ------- --------
Operating income................ 19,646 42 467 -- 20,155
-------- ----- ------ ------- --------
Other income (expense):
Interest income......................... 320 -- -- -- 320
Interest expense, net................... (17,523) (204) (156) -- (17,883)
-------- ----- ------ ------- --------
Total other income (expense).... (17,203) (204) (156) -- (17,563)
-------- ----- ------ ------- --------
Income (loss) before income
taxes......................... 2,443 (162) 311 -- 2,592
Income taxes -- deferred.................. 907 -- -- -- 907
-------- ----- ------ ------- --------
Net income (loss)............... $ 1,536 $(162) $ 311 $ -- $ 1,685
======== ===== ====== ======= ========
</TABLE>
F-29
<PAGE> 143
TRANSTEXAS GAS CORPORATION (PREDECESSOR)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
GALVESTON GALVESTON
BAY BAY CONSOLIDATED
TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS
------------ ------------ ------------ ------------ ------------
Revenues:
<S> <C> <C> <C> <C> <C>
Gas, condensate and natural gas liquids ..... $ 111,400 $ -- $ -- $ -- $ 111,400
Gain (loss) on the sale of assets ........... (438) -- -- -- (438)
Other ....................................... 834 696 7,261 (6,021) 2,770
------------ ------------ ------------ ------------ ------------
Total revenues ........................... 111,796 696 7,261 (6,021) 113,732
------------ ------------ ------------ ------------ ------------
Cost and expenses:
Operating ................................... 21,106 6 3,558 (6,021) 18,649
Depreciation, depletion and amortization .... 72,833 337 1,874 -- 75,044
General and administrative .................. 19,598 2 283 -- 19,883
Taxes other than income taxes ............... 9,610 13 165 -- 9,788
------------ ------------ ------------ ------------ ------------
Total costs and expenses ................. 123,147 358 5,880 (6,021) 123,364
------------ ------------ ------------ ------------ ------------
Operating income (loss) .................. (11,351) 338 1,381 -- (9,632)
------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest income ............................. 467 -- 5 -- 472
Interest expense, net ....................... (38,481) -- (45) -- (38,526)
------------ ------------ ------------ ------------ ------------
Total other income (expense) ............. (38,014) -- (40) -- (38,054)
------------ ------------ ------------ ------------ ------------
Income (loss) before reorganization
items, income taxes and extraordinary
item ..................................... (49,365) 338 1,341 -- (47,686)
------------ ------------ ------------ ------------ ------------
Reorganization items:
Legal and professional fees .............. (8,325) -- -- -- (8,325)
Revaluation of assets to fair
market value............................ 58,836 -- -- -- 58,836
------------ ------------ ------------ ------------ ------------
Total reorganization items .............. 50,511 -- -- -- 50,511
------------ ------------ ------------ ------------ ------------
Income taxes .................................. 10,000 -- -- -- 10,000
------------ ------------ ------------ ------------ ------------
Income (loss) before extraordinary item.. (8,854) 338 1,341 -- (7,175)
Extraordinary item - gain on early
extinguishment of debt ................ 436,490 -- -- -- 436,490
------------ ------------ ------------ ------------ ------------
Net income (loss) ...................... $ 427,636 $ 338 $ 1,341 $ -- $ 429,315
============ ============ ============ ============ ============
</TABLE>
F-30
<PAGE> 144
TRANSTEXAS GAS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 2000
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
GALVESTON GALVESTON
BAY BAY CONSOLIDATED
TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS
---------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)........................ $ 1,536 $(162) $ 311 $ -- $ 1,685
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation, depletion and
amortization........................ 38,678 152 1,098 -- 39,928
Accretion of discount on long-term
debt................................ 3,455 38 98 -- 3,591
Amortization of debt issue costs...... 111 -- -- -- 111
Deferred income taxes................. 907 -- -- -- 907
Changes in assets and liabilities:
Accounts receivable................. (16,808) 110 (109) -- (16,807)
Receivable from affiliates.......... 1,100 -- -- (1,109) (9)
Inventories......................... 384 -- -- -- 384
Other current assets................ (1,956) -- 14 -- (1,942)
Accounts payable.................... (3,691) 26 (35) -- (3,700)
Accrued liabilities................. 17,034 5 57 -- 17,096
Transactions with affiliates, net... -- (259) (850) 1,109 --
Other assets........................ (164) (5) -- -- (169)
Other liabilities................... (25,264) -- -- -- (25,264)
-------- ----- ------ ------- --------
Net cash provided (used) by
operating activities........... 15,322 (95) 584 -- 15,811
-------- ----- ------ ------- --------
Investing activities:
Capital expenditures..................... (46,824) (299) (255) -- (47,378)
Proceeds from the sale of assets......... 46 536 -- -- 582
-------- ----- ------ ------- --------
Net cash provided (used) by
investing activities........... (46,778) 237 (255) -- (46,796)
-------- ----- ------ ------- --------
Financing activities:
Issuance of production payments.......... 12,500 -- -- -- 12,500
Principal payments on production
payments.............................. (16,723) -- -- -- (16,723)
Issuance of long-term debt............... 32,500 -- -- -- 32,500
Principal payments on long-term debt..... (12,620) (145) (614) -- (13,379)
Revolving credit agreement, net.......... 7,949 -- -- -- 7,949
Debt issue costs......................... (2,379) -- -- -- (2,379)
-------- ----- ------ ------- --------
Net cash provided (used) by
financing activities........... 21,227 (145) (614) -- 20,468
-------- ----- ------ ------- --------
Decrease in cash and cash
equivalents.................... (10,229) (3) (285) -- (10,517)
Beginning cash and cash equivalents........ 17,851 44 393 -- 18,288
-------- ----- ------ ------- --------
Ending cash and cash equivalents........... $ 7,622 $ 41 $ 108 $ -- $ 7,771
======== ===== ====== ======= ========
</TABLE>
F-31
<PAGE> 145
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUPPLEMENTAL GAS AND OIL DISCLOSURE (UNAUDITED)
The accompanying tables present information concerning TransTexas' gas and
oil producing activities and are prepared in accordance with Statement of
Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing
Activities."
Estimates of TransTexas' proved reserves and proved developed reserves were
prepared by Netherland, Sewell & Associates, Inc., an independent firm of
petroleum engineers, based on data supplied to them by TransTexas.
Such estimates are inherently imprecise and may be subject to substantial
revisions as additional information such as reservoir performance, additional
drilling, technological advancements and other factors become available.
F-32
<PAGE> 146
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capitalized costs relating to gas and oil producing activities are as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
----------- ------------
JANUARY 31,
---------------------------
2000 | 1999
----------- | ------------
<S> <C> | <C>
Proved properties...................................................... $ 230,764 | $ 1,427,608
Unproved properties.................................................... 90,000 | 20,477
------------ | ------------
Total................................................................ 320,764 | 1,448,085
Less accumulated depreciation, depletion and amortization.............. -- | 1,164,224
------------ | ------------
$ 320,764 | $ 283,861
============ | ============
</TABLE>
Costs incurred for gas and oil producing activities are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------------------
YEAR ENDED JANUARY 31,
-------------------------------------------
2000 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
Property acquisitions.................................... $ 6,175 $ 13,084 $ 56,205
Exploration.............................................. 43,238 98,294 196,728
Development.............................................. 4,350 77,322 123,273
------------ ----------- -----------
$ 53,763 $ 188,700 $ 376,206
============ =========== ===========
</TABLE>
Results of operations for gas and oil producing activities are as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------------------
YEAR ENDED JANUARY 31,
----------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues ............................................................. $ 111,400 $ 91,319 $ 164,538
------------ ------------ ------------
Expenses:
Production costs ................................................. 28,437 27,694 60,832
Depreciation, depletion and amortization ......................... 73,721 84,883 62,933
General and administrative ....................................... 10,572 9,767 9,635
Impairment of gas and oil properties ............................. -- 425,966 --
------------ ------------ ------------
Total operating expenses ........................................ 112,730 548,310 133,400
------------ ------------ ------------
Income before income taxes ...................................... (1,330) (456,991) 31,138
Income taxes (benefit) .............................................. (466) (159,947) 10,898
------------ ------------ ------------
$ (864) $ (297,044) $ 20,240
============ ============ ============
Depletion rate per net equivalent Mcf ............................... $ 1.89 $ 1.96 $ 1.11
============ ============ ============
</TABLE>
Reserve Quantity Information
Proved reserves are estimated quantities of natural gas, condensate and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed reserves are
those proved reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Natural gas quantities
represent gas volumes which include amounts that will be extracted as natural
gas liquids. TransTexas' estimated net proved reserves and proved developed
reserves of natural gas (billions of cubic feet) and condensate (millions of
barrels) are shown in the table below.
F-33
<PAGE> 147
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------------------------------------
YEAR ENDED JANUARY 31,
----------------------------------------------------------------
2000 1999 1998
----------------- -------------------- -----------------
GAS OIL GAS OIL GAS OIL
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves:
Beginning of year ....................................... 120.7 6.6 348.7 15.9 919.7 5.7
Increase (decrease) during
the year attributable to:
Revisions of previous estimates ......................... (4.1) (1.2) (127.1)(1) (9.7) (103.8) (1.0)
Extensions, discoveries and other
additions ............................................. 6.8 0.1 26.1 2.0 123.7 15.1
Sales of reserves ....................................... -- -- (91.4) (0.5) (525.8) (3.3)
Purchase of reserves .................................... -- -- -- -- -- --
Production .............................................. (27.8) (1.8) (35.6) (1.1) (65.1) (0.6)
------ ------ ------ ------ ------ ------
End of year (SUCCESSOR IN 2000) ............................ 95.6 3.7 120.7 6.6 348.7 15.9
====== ====== ====== ====== ====== ======
Proved developed reserves:
Beginning of year ....................................... 87.8 5.0 134.3 4.2 381.5 2.4
End of year (SUCCESSOR IN 2000) ......................... 82.3 3.5 87.8 5.0 134.3 4.2
</TABLE>
-------------------------
(1) Reserve estimates were revised downward principally as a result of
additional seismic information which indicated more highly faulted
structures in certain key properties causing reserves to be reclassified
from proved to probable.
Standardized Measure Information
The calculation of estimated future net cash flows in the following table
assumed the continuation of existing economic conditions and applied year-end
prices (except for future price changes as allowed by contract) of gas and
condensate to the expected future production of such reserves, less estimated
future expenditures (based on current costs) to be incurred in developing and
producing those proved reserves.
The standardized measure of discounted future net cash flows does not
purport, nor should it be interpreted, to present the fair market value of
TransTexas' gas and oil reserves. These estimates reflect proved reserves only
and ignore, among other things, changes in prices and costs, revenues that could
result from probable reserves which could become proved reserves in fiscal 2001
or later years and the risks inherent in reserve estimates. The standardized
measure of discounted future net cash flows relating to proved gas and oil
reserves is as follows (in thousands of dollars):
F-34
<PAGE> 148
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------- -------------------------------
YEAR ENDED JANUARY 31,
----------------------------------------------
2000 1999 1998
------------ | ------------ ------------
<S> <C> | <C> <C>
Future cash inflows ......................... $ 361,411 | $ 296,831 $ 898,257
Future production costs ..................... (61,810) | (57,453) (154,725)
Future development costs .................... (18,302) | (33,180) (198,180)
Future income taxes ......................... (18,611) | -- --
------------ | ------------ ------------
Future net cash flows ..................... 262,688 | 206,198 545,352
|
Annual discount (10%) for estimated |
timing of cash flows ...................... (49,085) | (44,668) (149,679)
------------ | ------------ ------------
|
Standardized measure of discounted |
future net cash flows ................... $ 213,603 | $ 161,530 $ 395,673
============ | ============ ============
</TABLE>
Principal sources of change in the standardized measure of discounted
future net cash flows are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------------------------
YEAR ENDED JANUARY 31,
-------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Beginning of year ........................... $ 161,530 $ 395,673 $ 1,057,256
Revisions:
Quantity estimates and production rates ... (18,829) (194,041)(1) (215,564)
Prices, net of lifting costs .............. 136,550 (76,157) (348,781)
Estimated future development costs ........ 14,534 58,455 (33,033)
Additions, extensions, discoveries and
improved recovery ........................ 10,467 42,184 238,403
Net sales of production ..................... (93,481) (73,819) (124,498)
Development costs incurred .................. 4,350 77,322 119,944
Accretion of discount ....................... 13,615 39,566 144,909
Net changes in income taxes ................. (15,133) -- 391,812
Purchases (sales) of reserves ............... -- (107,653) (834,775)
------------ ------------ ------------
End of year (Successor in 2000) ........... $ 213,603 $ 161,530 $ 395,673
============ ============ ============
</TABLE>
----------------------------------
(1) Reserve estimates were revised downward principally as a result of
additional seismic information which indicated more highly faulted
structures in certain key properties causing reserves to be reclassified
from proved to probable.
Year-end wellhead prices received by TransTexas from sales of natural gas,
including margins from natural gas liquids, were $2.74, $1.79 and $1.96 per Mcf
for 2000, 1999 and 1998, respectively. Year-end condensate prices were $26.89,
$12.12 and $13.54 per barrel for 2000, 1999 and 1998, respectively.
19. SUBSEQUENT EVENT (UNAUDITED)
Palmyra Minerals. Palmyra Minerals Ltd., et al. v. TransTexas, TEC, TARC,
et al.; Adversary Proceeding No. 99-2228-C; pending in the Bankruptcy Court (in
connection with our bankruptcy proceeding). The suit concerns the claims of
several royalty owners under several oil and gas leases held by TransTexas.
Plaintiffs allege that TransTexas underpaid royalties due the plaintiffs under
the leases back to the date of first production from the involved wells.
Plaintiffs claim $1.1 million, including alleged underpayments and interest
thereon. Plaintiffs assert entitlement to recovery under various theories
including breach of contract, violation of Section 91.401, et seq, of the Texas
Natural Resources Code, breach of the implied and express duty to market,
negligence per se, and constructive trust. The plaintiffs asserted identical
claims in our bankruptcy proceeding. The claims have been consolidated with the
adversary proceeding. This matter is in the discovery phase and TransTexas
intends to vigorously defend the claims. An adverse judgment in this
consolidated action could result in termination of these leasehold interests
should TransTexas fail to pay the amount of the judgment. The discharge afforded
by the confirmation of TransTexas' plan of reorganization would not preclude
termination of such leases.
F-35
<PAGE> 149
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF
TRANSTEXAS GAS CORPORATION
The following unaudited pro forma statement of operations has been
prepared from our historical financial statements to give effect to our
plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code. As
more fully described elsewhere in this registration statement, we emerged
from bankruptcy on March 17, 2000. In accordance with AICPA Statement of
Position 90-7, we adopted fresh-start reporting effective January 31, 2000.
Pursuant to fresh-start reporting, assets were valued based on reorganization
value and liabilities were valued at the present value of amounts to be paid.
The unaudited pro forma statement of operations reflects adjustments as if
the plan of reorganization and fresh-start reporting had occurred on
February 1, 1999. The pro forma balance sheet is included in Note 2 of our
accompanying financial statements.
The unaudited pro forma statement of operations does not purport to
present the results of operations of TransTexas Gas Corporation had the plan
of reorganization and adoption of fresh-start reporting occurred on the date
specified, nor are they necessarily indicative of the results of operations
that may be achieved in the future.
The unaudited pro forma statement of operations should be read in
conjunction with the historical financial statements, including the related
notes which are included in this prospectus.
TRANSTEXAS GAS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Gas, condensate and natural gas liquids................... $ 111,400 $ -- $ 111,400
Other..................................................... 2,332 -- 2,332
----------- ---------- ----------
Total revenues......................................... 113,732 -- 113,732
----------- ---------- ----------
Costs and expenses:
Operating................................................. 18,649 -- 18,649
Depreciation, depletion and amortization.................. 75,044 -- 75,044
General and administrative................................ 19,883 -- 19,883
Taxes other than income taxes............................. 9,788 -- 9,788
----------- ---------- ----------
Total costs and expenses............................... 123,364 -- 123,364
----------- ---------- ----------
Operating loss......................................... (9,632) -- (9,632)
----------- ---------- ----------
Other income (expense):
Interest income........................................... 472 -- 472
Interest expense, net..................................... (38,526) 894(a) (37,632)
----------- ---------- ----------
Total other income (expense)........................... (38,054) 894 (37,160)
----------- ---------- ----------
Loss before reorganization items and income taxes...... (47,686) 894 (46,792)
----------- ---------- ----------
Reorganization items:
Legal and professional fees............................... (8,325) 8,325(b) --
Revaluation of assets to fair market value................ 58,836 (58,836)(b) --
----------- ---------- ----------
Total reorganization items............................. 50,511 (50,511) --
----------- ---------- ----------
Loss before income taxes............................... 2,825 (49,617) (46,792)
Income taxes................................................ 10,000 -- 10,000
----------- ---------- ----------
Net loss............................................... (7,175) (49,617) (56,792)
Preferred stock dividends................................... -- (50,092)(c) (50,092)
Accretion of preferred stock................................ -- (39,148)(d) (39,148)
----------- ---------- ----------
Net loss available to common stockholders.............. $ (7,175) $ (138,857) $ (146,032)
=========== ========== ==========
Basic and diluted net loss per common share................. $ (0.12) $ (116.83)
=========== ==========
Weighted average number of shares outstanding for basic and
diluted loss per share.................................... 57,515,566(e) 1,250,000(e)
=========== ==========
</TABLE>
ADJUSTMENTS
(a) Adjust interest expense as follows:
Interest on the Senior Secured Notes at a rate of 15%........ $ 30,000
Interest on the Revolving Loan at a rate of 13 1/2%.......... 4,050
Interest on the Term Loan at a rate of 14%................... 3,150
Change in interest on production payments.................... 675
Change in interest on other notes payable.................... 2,105
Historical interest on the Intercompany Note................. (14,789)
Historical interest on the Subordinated Notes................ (3,450)
Historical interest on the debtor in possession note......... (2,741)
Change in interest on estimated federal income tax liability. (7,705)
Change in interest capitalized............................... (10,781)
Change in amortization of debt issue costs................... (1,408)
--------
$ (894)
========
(b) Eliminate reorganization items.
(c) Payment of dividends on the senior and junior preferred stock with the
issuance of additional shares of such stock at an annual rate of $0.20 per
share on the senior preferred stock and $0.10 per share on the junior
preferred stock, compounded quarterly.
(d) Accretion of the initial redemption value of the senior and junior
preferred stock.
PF-1
<PAGE> 150
You may rely on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. This prospectus is not an offer to sell or a solicitation of an
offer to buy these securities in any state where the offer or sale is not
permitted. This prospectus is not an offer to sell or a solicitation of an offer
to buy these securities in any circumstance under which the offer or
solicitation is not permitted. The information contained in this prospectus is
correct only as of the date of this prospectus, regardless of the time of the
delivery of this prospectus or any sale of these securities.
------------------------------
TRANSTEXAS GAS CORPORATION
$200,000,000 15% SENIOR SECURED NOTES DUE 2005
328,667,820 SHARES OF SERIES A SENIOR PREFERRED STOCK
37,469,711 SHARES OF SERIES A JUNIOR PREFERRED STOCK
515,625 CLASS A COMMON STOCK PURCHASE WARRANTS
62,963,376 SHARES OF CLASS A COMMON STOCK
247,500 SHARES OF CLASS B COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
SEPTEMBER ___, 2000
<PAGE> 151
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company has agreed to pay all expenses in connection with the
issuance and distribution of the securities being registered pursuant to this
Registration Statement. The following table sets forth an estimate of such
expenses:
<TABLE>
<CAPTION>
ITEM AMOUNT*
---- -------
<S> <C>
Securities and Exchange Commission fee ............................................................... $ 78,279
----------
Legal fees and expenses............................................................................... 190,000
----------
Accounting fees and expenses ......................................................................... 185,000
----------
Costs of printing and engraving...................................................................... 12,000
----------
Miscellaneous......................................................................................... 9,721
----------
Total ..................................................................................... $ 475,000
==========
</TABLE>
----------
* All expenses are estimated, except the Securities and Exchange Commission fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. Section 145 of the Delaware
General Corporation Law (the "DGCL") provides that any person may be indemnified
by a Delaware corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any threatened, pending or completed action, suit or
proceeding in which such person is made a party by reason of his being or having
been a director, officer, employee or agent of the Company. The statute provides
that indemnification pursuant to its provisions is not exclusive of other rights
of indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
Article IX of the Company's Certificate of Incorporation provides that
directors of the Company shall not, to the fullest extent permitted by the DGCL,
as amended from time to time, be liable to the Company or its stockholders for
monetary damages for breach of their fiduciary duty to the Company or the
Company's stockholders.
The Company has entered into indemnification agreements with its
executive officers and directors that will contractually provide for
indemnification and expense advancement and include related provisions meant to
facilitate the indemnitees' receipt of such benefits. In addition, the Company
has purchased customary directors' and officers' liability insurance policies
for its directors and officers. The Bylaws of the Company and agreements with
directors and officers also provide for indemnification for amounts (i) in
respect of the deductibles for such insurance policies and (ii) that exceed the
liability limits of such insurance policies. Such indemnification may be made
even though directors and officers would not otherwise be entitled to
indemnification under other provisions of the Bylaws or such agreements.
II-1
<PAGE> 152
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Certain of the Securities were issued to the Selling Security Holders on
March 17, 2000 pursuant to the exemption from registration provided in Section
1145(a)(1) of the Bankruptcy Reform Act of 1978, as amended, Title 11, United
States Code. These Securities were issued pursuant to the Company's Plan of
Reorganization. The Company did not receive any proceeds from the issuance of
these Securities. The following chart reflects all securities of the Company
issued pursuant to the Plan of Reorganization:
<TABLE>
<CAPTION>
Title of Security Date Sold/Issued Amount Sold/Issued
----------------- ---------------- ------------------
<S> <C> <C>
15% Senior Secured Notes March 17, 2000 Original principal amount of
Due 2005 $200 million
Series A Senior March 17, 2000 222,455,320
preferred stock shares
Series A Junior March 17, 2000 20,716,080
preferred stock shares
Class A common stock March 17, 2000 1,002,751
shares
Class B common stock March 17, 2000 247,500
shares
Class A common stock March 17, 2000 625,000
Purchase Warrants
</TABLE>
The class A common stock purchase warrants issued pursuant to our
bankruptcy plan may be exercised at any time at an exercise price of $120.00 per
share, subject to adjustment in accordance with customary antidilution
provisions.
Both the senior preferred stock and the junior preferred stock issued
pursuant to our bankruptcy plan are subject to certain conversion provisions in
the event that either (i) more than 75 million shares of the senior preferred
stock are outstanding after March 15, 2006 or (ii) any two dividend payments
have not been paid on the senior preferred stock. See the sections entitled
"Description of the Securities -- The Senior Preferred Stock" and "Description
of the Securities -- The Junior Preferred Stock" for a description of the
conversion terms (including conversion ratios) by which the senior preferred
stock and the junior preferred stock may be converted into shares of our class A
common stock.
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<PAGE> 153
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
2.1 - Second Amended, Modified and Restated Plan of Reorganization
dated January 25, 2000 (filed as an exhibit to the Company's
current report on Form 8-K dated February 7, 2000, and
incorporated herein by reference).
2.2 - Order Confirming Plan of Reorganization dated February 7, 2000
(filed as an exhibit to the Company's current report on Form 8-K
dated February 7, 2000, and incorporated herein by reference).
3.1 - Articles of Incorporation (filed as an exhibit to the Company's
Registration Statement on Form S-1 (No. 33-75050), and incorporated
herein by reference).
3.2 - By-laws of TransTexas (filed as an exhibit to the Company's
Registration Statement on Form S-1 (No. 33-75050), and incorporated
herein by reference).
3.3 - Amended and Restated Certificate of Incorporation (filed as an
exhibit to the Company's Registration Statement on Form 8-A (No.
0-30475), and incorporated herein by reference).
3.4 - Certificate of Designation, Series A Senior Preferred Stock
(filed as an exhibit to the Company's Registration Statement on
Form 8-A (No. 0-30475), and incorporated herein by reference).
3.5 - Certificate of Designation, Series A Junior Preferred Stock
(filed as an exhibit to the Company's Registration Statement on
Form 8-A (No. 0-30475), and incorporated herein by reference).
3.6 - Amended and Restated Bylaws (filed as an exhibit to the Company's
Registration Statement on Form 8-A (No. 0-30475), and incorporated
herein by reference).
**3.7 - Certificate of Amendment to Amended and Restated Certificate of
Incorporation.
**3.8 - Certificate of Amendment to Amended and Restated Certificate of
Incorporation (Regarding Amendments to Certificates of
Designation).
4.1 - Indenture dated as of June 15, 1995, among TransTexas, TTC and
American Bank National Association, as Trustee (the "Indenture
Trustee"), with respect to the Senior Secured Notes including the
forms of Senior Secured Note and Senior Secured Guarantee as
exhibits (filed as an exhibit to TransTexas' current report on Form
8-K dated June 20, 1995, and incorporated herein by reference).
4.2 - Mortgage, Deed of Trust, Assignment of Production, Security
Agreement and Financing Statement, effective as of June 23, 1995,
from TransTexas to James A. Taylor, as trustee for the benefit of
the Indenture Trustee (filed as an exhibit to TransTexas' current
report on Form 8-K dated June 20, 1995, and incorporated herein by
reference).
4.3 - Pipeline Mortgage, Deed of Trust, Assignment, Security Agreement
and Financing Statement, dated as of June 20, 1995, from TTC to
James A. Taylor, as trustee for the benefit of the Indenture
Trustee (filed as an exhibit to TransTexas' current report on Form
8-K dated on June 20, 1995, and incorporated herein by reference).
4.4 - Security Agreement, Pledge and Financing Statement, dated as of
June 20, 1995, by TransTexas in favor of the Indenture Trustee
(filed as an exhibit to TransTexas' current report on Form 8-K
dated June 20, 1995, and incorporated herein by reference).
4.5 - Security Agreement, Pledge and Financing Statement, dated as of
June 20, 1995, by TTC in favor of the Indenture Trustee (filed as
an exhibit to TransTexas' current report on Form 8-K dated June 20,
1995, and incorporated herein by reference).
4.6 - Cash Collateral and Disbursement Agreement, dated as of June 20,
1995, among TransTexas, the Indenture Trustee and the Disbursement
Agent (filed as an exhibit to TransTexas' current report on Form
8-K dated June 20, 1995, and incorporated herein by reference).
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<PAGE> 154
4.7 - Pledge and Security Agreement dated as of September 19, 1996,
between TransAmerican Exploration Corporation and Fleet National
Bank (previously filed as an exhibit to TransTexas' Form 10-Q for
the quarter ended October 31, 1996, and incorporated herein by
reference).
4.8 - Registration Rights Agreement dated as of September 19, 1996, by
and among TransTexas, TransAmerican, TransAmerican Exploration
Corporation and Fleet National Bank (filed as an exhibit to
TransTexas' Form 10-Q for the quarter ended October 31, 1996, and
incorporated herein by reference).
4.9 - Pledge Agreement dated as of February 23, 1995, between TEC and
First Fidelity Bank, National Association, as Trustee (filed as an
exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated
herein by reference).
4.10 - Pledge Agreement dated as of February 23, 1995, between TARC and
First Fidelity Bank, National Association, as Trustee (filed as an
exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated
herein by reference).
4.11 - Registration Rights Agreement dated as of February 23, 1995, among
TransTexas, TARC and TEC (filed as an exhibit to Post-Effective
Amendment No. 5 to the Company's Registration Statement on Form S-3
(33-91494), and incorporated herein by reference).
4.12 - Pledge Agreement dated as of February 23, 1995, among
TransAmerican, TransTexas and Halliburton Company (filed as an
exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated
herein by reference).
4.13 - Pledge Agreement dated as of February 23, 1995, among
TransAmerican, TransTexas and RECO Industries, Inc. (filed as an
exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated
herein by reference).
4.14 - Pledge Agreement dated as of February 23, 1995, among
TransAmerican, TransTexas and Frito-Lay, Inc. (filed as an exhibit
to Post-Effective Amendment No. 5 to TransTexas' Registration
Statement on Form S-3 (33-91494), and incorporated herein by
reference).
4.15 - Pledge Agreement dated as of February 23, 1995, among
TransAmerican, TransTexas and EM Sector Holdings, Inc. (filed as an
exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated
herein by reference).
4.16 - Stock Pledge Agreement dated January 27, 1995, between
TransAmerican and ITT Commercial Corp. (filed as an exhibit to
Post-Effective Amendment No. 5 to TransTexas' Registration
Statement on Form S-3 (33-91494), and incorporated herein by
reference).
4.17 - Registration Rights Agreement dated January 27, 1995, among
TransAmerican, TransTexas and ITT Commercial Finance Corp. (filed
as an exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated
herein by reference).
4.18 - Note Purchase Agreement dated December 13, 1996 between TransTexas
and the Purchasers of 13 1/4% Series A Senior Subordinated Notes
due 2003 (filed as an exhibit to Post-Effective Amendment No. 5 to
TransTexas' Registration Statement on Form S-3 (33-91494), and
incorporated herein by reference).
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<PAGE> 155
4.19 - Indenture dated December 13, 1996 between TransTexas and Bank One,
Columbus, NA, as Trustee (filed as an exhibit to Post-Effective
Amendment No. 5 to TransTexas' Registration Statement on Form S-3
(33-91494), and incorporated herein by reference).
4.20 - Registration Rights Agreement dated December 13, 1996 between
TransTexas and each of the Purchasers of the Subordinated Notes
(filed as an exhibit to Post-Effective Amendment No. 5 to
TransTexas' Registration Statement on Form S-3 (33-91494), and
incorporated herein by reference).
4.21 - First Supplemental Indenture dated May 29, 1997 by and among
TransTexas, TTC and Firstar Bank of Minnesota, N.A., as trustee
(filed as an exhibit to TransTexas' current report on Form 8-K
dated May 29, 1997, and incorporated herein by reference).
4.22 - Second Supplemental Indenture dated June 13, 1997 between
TransTexas, as issuer, and Firstar Bank of Minnesota, N.A., as
trustee (filed as an exhibit to TransTexas' current report on Form
8-K dated June 13, 1997, and incorporated herein by reference).
4.23 - Indenture dated June 13, 1997 governing TransTexas' Senior
Subordinated Notes due 2001 between TransTexas, as issuer, and Bank
One, N.A., as trustee (filed as an exhibit to TransTexas'
Registration Statement on Form S-4 (333-33803), and incorporated
herein by reference).
4.24 - Registration Rights Agreement dated June 13, 1997 between
TransTexas and the holders of TransTexas' Senior Subordinated Notes
due 2001 (filed as an exhibit TransTexas' Registration Statement on
Form S-4 (333-33803), and incorporated herein by reference).
4.25 - Loan Agreement dated June 13, 1997 between TransTexas and TEC
(filed as an exhibit to TransTexas' current report on Form 8-K
dated June 13, 1997, and incorporated herein by reference).
4.26 - Security and Pledge Agreement dated June 13, 1997 by TransTexas in
favor of TEC (filed as an exhibit to TransTexas' current report on
Form 8-K dated June 13, 1997, and incorporated herein by
reference).
4.27 - Disbursement Agreement dated June 13, 1997 among TransTexas, TEC
and Firstar Bank of Minnesota, as disbursement agent and Trustee
(filed as an exhibit to TransTexas' current report on Form 8-K
dated June 13, 1997, and incorporated herein by reference).
4.28 - Forms of Mortgage dated June 13, 1997 between TransTexas and
TransAmerican Energy Corporation, (filed as an exhibit to
TransTexas' Registration Statement on Form S-4 (333-33803), and
incorporated herein by reference).
4.29 - Intercreditor and Collateral Agency Agreement dated June 13, 1997
among Firstar Bank of Minnesota, TEC and TransTexas (filed as an
exhibit to TEC's Form 10-Q for the quarter ended July 31, 1997, and
incorporated herein by reference).
4.30 - Registration Rights Agreement dated August 12, 1997, by and among
TransTexas, Firstar Bank of Minnesota, N.A., TEC and TARC (filed as
an exhibit to Post-Effective Amendment No. 6 to TransTexas'
Registration Statement on Form S-4 (33-91494) and incorporated
herein by reference).
4.31 - First Supplemental Indenture dated as of September 2, 1997, between
TransTexas, as issuer, and Bank One, N.A., as trustee (filed as an
exhibit to TransTexas' Registration Statement on Form S-4
(333-33803), and incorporated herein by reference).
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<PAGE> 156
4.32 - First Amendment to Loan Agreement dated December 30, 1997 between
TransTexas and TEC (filed as an exhibit to TransTexas' annual
report on Form 10-K for the year ended January 31, 1998, and
incorporated herein by reference).
4.33 - First Amendment to Disbursement Agreement dated December 30, 1997
between TransTexas, TEC and Firstar Bank of Minnesota, as
disbursement agent and Trustee (filed as an exhibit to TransTexas'
annual report on Form 10-K for the year ended January 31, 1998, and
incorporated herein by reference).
4.34 - Second Amendment dated December 15, 1998 to Loan Agreement
between TransTexas and TEC (filed as an exhibit to TEC's current
report on Form 8-K dated February 23, 1999, and incorporated herein
by reference).
4.35 - Indenture dated March 15, 2000 between the Company and Firstar
Bank, N.A., Indenture Trustee, governing the Company's 15% Senior
Secured Notes due 2005 (filed as an exhibit to the Company's annual
report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
4.36 - Form of Mortgage dated March 15, 2000 between the Company and
Firstar Bank, N.A. (filed as an exhibit to the Company's annual
report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
4.37 - Security and Pledge Agreement dated March 15, 2000 between the
Company and Firstar Bank, N.A. (filed as an exhibit to the
Company's annual report on Form 10-K for the year ended January 31,
2000, and incorporated herein by reference).
4.38 - Oil and Gas Revolving Credit and Term Loan Agreement dated March
15, 2000 among GMAC Commercial Credit LLC, as Lender and Agent, the
Company, as Borrower, and Galveston Bay Processing Corporation and
Galveston Bay Pipeline Company, as Guarantors (filed as an exhibit
to the Company's annual report on Form 10-K for the year ended
January 31, 2000, and incorporated herein by reference).
4.39 - Form of Mortgage dated March 15, 2000 between the Company and GMAC
Commercial Credit LLC. (filed as an exhibit to the Company's annual
report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
4.40 - Security and Pledge Agreement dated March 15, 2000 between the
Company and GMAC Commercial Credit LLC (filed as an exhibit to the
Company's annual report on Form 10-K for the year ended January 31,
2000, and incorporated herein by reference).
4.41 - Intercreditor Agreement dated March 15, 2000 between Firstar Bank,
N.A. and GMAC Commercial Credit LLC. (filed as an exhibit to the
Company's annual report on Form 10-K for the year ended January 31,
2000, and incorporated herein by reference).
4.42 - Warrant Agreement, including form of Warrant Certificate, dated
March 15, 2000 between the Company and ChaseMellon Shareholder
Services, LLC, Warrant Agent (filed as an exhibit to the Company's
annual report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
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<PAGE> 157
4.43 - Registration Rights Agreement dated March 15, 2000 between the
Company and the holders of the Notes named therein (filed as an
exhibit to the Company's annual report on Form 10-K for the year
ended January 31, 2000, and incorporated herein by reference).
4.44 - Registration Rights Agreement dated March 15, 2000 between the
Company and the holders of the common stock named therein (filed as
an exhibit to the Company's annual report on Form 10-K for the year
ended January 31, 2000, and incorporated herein by reference).
4.45 - Registration Rights Agreement dated March 15, 2000 between the
Company and the holders of the Senior Preferred Stock named therein
(filed as an exhibit to the Company's annual report on Form 10-K
for the year ended January 31, 2000, and incorporated herein by
reference).
4.46 - Registration Rights Agreement dated March 15, 2000 between the
Company and the holders of the Junior Preferred Stock named therein
(filed as an exhibit to the Company's annual report on Form 10-K
for the year ended January 31, 2000, and incorporated herein by
reference).
**4.47 - First Supplemental Indenture dated as of June 28, 2000 by and among
the Company, Galveston Bay Processing Corporation, Galveston Bay
Pipeline Company and Firstar Bank, N.A., Indenture Trustee,
governing the Company's 15% Senior Secured Notes due 2005.
**5.1 - Opinion of Gardere & Wynne, L.L.P.
10.1 - Services Agreement dated August 24, 1993, by and among TransTexas
and TransAmerican (filed as an exhibit to TransTexas' current
report on Form 8-K dated August 24, 1993, and incorporated herein
by reference).
10.2 - Tax Allocation Agreement dated August 24, 1993, by and among
TransAmerican, TransTexas, and the other subsidiaries of
TransAmerican, as amended (filed as an exhibit to TransTexas'
Registration Statement on Form S-1 (No. 33-75050), and incorporated
herein by reference).
10.3 - Interruptible Gas Sales Terms and Conditions, between TransTexas
and TARC, as amended (filed as an exhibit to TARC's Registration
Statement on Form S-1 (No. 33-82200), and incorporated herein by
reference).
10.4 - Bank Group Agreement dated August 24, 1993, by and among
TransAmerican, TransTexas, and the Bank Group (filed as an exhibit
to TransTexas' current report on Form 8-K dated August 24, 1993,
and incorporated herein by reference).
10.5 - Gas Purchase Agreement dated June 8, 1987, by and between
TransAmerican and The Coastal Corporation, as amended by the
Amendment to Gas Purchase Agreement dated February 13, 1990, by and
between TransAmerican and Texcol Gas Services, Inc., as successor
to The Coastal Corporation (filed as an exhibit to TransTexas'
Registration Statement on Form S-1 (No. 33-62740), and incorporated
herein by reference).
10.6 - Gas Purchase Agreement dated October 29, 1987, by and between
TransAmerican and The Coastal Corporation as amended by the
Amendment to Gas Purchase Agreement dated February 13, 1990, by and
between TransAmerican and Texcol Gas Services, Inc., successor to
The Coastal Corporation (filed as an exhibit to TransTexas'
Registration Statement on Form S-1 (No. 33-62740), and incorporated
herein by reference).
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<PAGE> 158
10.7 - Gas Transportation Agreement dated the effective date (as therein
defined), by and between TransAmerican and The Coastal Corporation,
as amended by the Amendment to Gas Transportation Agreement dated
February 13, 1990, by and between TransAmerican and Texcol Gas
Services, Inc., successor to The Coastal Corporation (filed as an
exhibit to TransTexas' Registration Statement on Form S-1 (No.
33-62740), and incorporated herein by reference).
10.8 - Firm Natural Gas Sales Agreement dated September 30, 1993, by and
between TransTexas and Associated Natural Gas, Inc. (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended October 31,
1993, and incorporated herein by reference).
10.9 - Form of Indemnification Agreement by and between TransTexas and
each of its directors (filed as an exhibit to TransTexas' current
report on Form 8-K dated August 24, 1993 and incorporated herein by
reference).
10.10 - Gas Purchase Agreement dated November 1, 1985, between
TransAmerican and Washington Gas and Light Company, Frederick Gas
Company, Inc., and Shenandoah Gas Company (filed as an exhibit to
TransTexas' Registration Statement on Form S-1 (No. 33-75050), and
incorporated herein by reference).
10.11 - Natural Gas Sales Agreement between TransTexas and Associated
Natural Gas, Inc. dated September 30, 1993 (filed as an exhibit to
TransTexas' Form 10-Q for the quarter ended October 31, 1993, and
incorporated herein by reference).
10.12 - Amendment Extending Gas Purchase Agreement between TransTexas and
Washington Gas Light Company, Inc., and Shenandoah Gas Company, as
amended, dated November 1, 1993 (filed as an exhibit to TransTexas'
Form 10-Q for the quarter ended January 31, 1994, and incorporated
herein by reference).
10.13 - Agreement for Purchase of Production Payment between TransTexas and
Southern States Exploration, Inc. dated April 1, 1994 (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended April 30,
1994, and incorporated herein by reference).
10.14 - Assignment of Proceeds Production Payment between TransTexas and
Southern States Exploration, Inc. dated April 1, 1994 (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended April 30,
1994, and incorporated herein by reference).
10.15 - Transfer Agreement dated August 24, 1993, by and among
TransAmerican, TransTexas, TTC, and John R. Stanley (filed as an
exhibit to TransTexas' current report on Form 8-K dated August 24,
1993, and incorporated herein by reference).
10.16 - Amended and Restated Accounts Receivable Management and Security
Agreement between TransTexas and BNY Financial Corporation (filed
as an exhibit to TransTexas' Form 10-Q for the quarter ended
October 31, 1995, and incorporated herein by reference).
10.17 - Note Purchase Agreement, dated as of May 10, 1996, among
TransTexas, TCW Shared Opportunity Fund II, L.P. and Jefferies &
Company, Inc. (filed as an exhibit to the Company's Form 10-Q for
the quarter ended April 30, 1996, and incorporated herein by
reference).
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<PAGE> 159
10.18 - Master Swap Agreement, dated June 6, 1996, between TransTexas and
AIG Trading Corporation (filed as an exhibit to TransTexas' Form
10-Q for the quarter ended April 30, 1996, and incorporated herein
by reference).
10.19 - Purchase Agreement, dated January 30, 1996, between TransTexas and
Sunflower Energy Finance Company (filed as an exhibit to
TransTexas' Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.20 - Production Payment Conveyance, executed on January 30, 1996, from
TransTexas to Sunflower Energy Finance Company (filed as an exhibit
to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.21 - First Supplement to Purchase Agreement, dated as of February 12,
1996, among TransTexas, Sunflower Energy Finance Company and TCW
Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended April 30,
1996, and incorporated herein by reference).
10.22 - First Supplement to Production Payment Conveyance, executed
February 12, 1996, among TransTexas, Sunflower Energy Finance
Company and TCW Portfolio No. 1555 DR V Sub-Custody Partnership,
L.P. (filed as an exhibit to TransTexas' Form 10-Q for the quarter
ended April 30, 1996, and incorporated herein by reference).
10.23 - Purchase Agreement, dated May 14, 1996, among TransTexas, TCW
Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. and Sunflower
Energy Finance Company (filed as an exhibit to TransTexas' Form
10-Q for the quarter ended April 30, 1996, and incorporated herein
by reference).
10.24 - Production Payment Conveyance, executed May 14, 1996, from
TransTexas to TCW Portfolio No. 1555 Dr V Sub-Custody Partnership,
L.P. and Sunflower Energy Finance Company (filed as an exhibit to
TransTexas' Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.25 - Employment Agreement between TransTexas and Richard Bianchi dated
August 12, 1996 (filed as an exhibit to TransTexas' Form 10-Q for
the quarter ended October 31, 1996, and incorporated herein by
reference).
10.26 - Employment Agreement between TransTexas and Arnold Brackenridge
dated August 12, 1996 (filed as an exhibit to TransTexas' Form 10-Q
for the quarter ended October 31, 1996, and incorporated herein by
reference).
10.27 - Stock Purchase Agreement dated as of May 29, 1997 by and between
TransTexas and First Union Bank of Connecticut, as trustee (filed
as an exhibit to TransTexas' current report on Form 8-K dated May
29, 1997, and incorporated herein by reference).
10.28 - Interruptible Gas Transportation Agreement dated Effective March 1,
1997 between TransTexas, as shipper, and Lobo Pipeline Company, as
transporter (filed as an exhibit to TransTexas' Form 10-Q for the
quarter ended July 31, 1997, and incorporated herein by reference).
10.29 - Intrastate Firm Gas Transportation Agreement dated effective March
1, 1997 between TransTexas, as shipper, and Lobo Pipeline Company,
as transporter (filed as an exhibit to TransTexas' Form 10-Q for
the quarter ended July 31, 1997, and incorporated herein by
reference).
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<PAGE> 160
10.30 - Master Services Contract dated May 30, 1997 between Conoco Inc. and
TransTexas (filed as an exhibit to TransTexas' Form 10-Q for the
quarter ended July 31, 1997, and incorporated herein by reference).
10.31 - Agreement for Services dated effective March 1, 1997 between Conoco
Inc. and TransTexas (filed as an exhibit to TransTexas' Form 10-Q
for the quarter ended July 31, 1997, and incorporated herein by
reference).
10.32 - Services Agreement dated June 13, 1997 among TNGC Holdings
Corporation, TransAmerican, TEC, TARC, TransTexas and TTXD (filed
as an exhibit to TransTexas' Form 10-Q for the quarter ended July
31, 1997, and incorporated herein by reference).
10.33 - Amendment No. 3 to Tax Allocation Agreement dated May 29, 1997
(filed as an exhibit to TransTexas' Form 10-Q for the quarter ended
July 31, 1997, and incorporated herein by reference).
10.34 - Amendment No. 4 to Tax Allocation Agreement dated June 13, 1997
(filed as an exhibit to TransTexas' Form 10-Q for the quarter ended
July 31, 1997, and incorporated herein by reference).
10.35 - Amendment No. 2 to Transfer Agreement dated May 29, 1997 (filed as
an exhibit to TransTexas' Form 10-Q for the quarter ended July 31,
1997, and incorporated herein by reference).
10.36 - Amendment No. 3 to Transfer Agreement dated June 13, 1997 (filed as
an exhibit to TransTexas' Form 10-Q for the quarter ended July 31,
1997, and incorporated herein by reference).
10.37 - Second Amended and Restated Accounts Receivable Management
Agreement dated October 14, 1997 between TransTexas and BNY
Financial Corporation (filed as an exhibit to TransTexas' Form 10-Q
for the quarter ended October 31, 1997, and incorporated herein by
reference).
10.38 - Employment Agreement dated December 1, 1997 between TransTexas and
Arnold Brackenridge (filed as an exhibit to TransTexas' annual
report on Form 10-K for the year ended January 31, 1998, and
incorporated herein by reference).
10.39 - Employment Agreement Settlement dated April 28, 1998 between
TransTexas and Richard Bianchi (filed as an exhibit to TransTexas'
annual report on Form 10-K for the year ended January 31, 1998, and
incorporated herein by reference).
10.40 - Severance Agreement dated November 21, 1997 between TransTexas and
Lee Muncy (filed as an exhibit to TransTexas' annual report on Form
10-K for the year ended January 31, 1998, and incorporated herein
by reference).
10.41 - Purchase Agreement dated February 23, 1998 between TransTexas and
TCW (filed as an exhibit to TransTexas' annual report on Form 10-K
for the year ended January 31, 1998, and incorporated herein by
reference).
10.42 - Production Payment Conveyance dated February 23, 1998 between
TransTexas and TCW (filed as an exhibit to TransTexas' annual
report on Form 10-K for the year ended January 31, 1998, and
incorporated herein by reference).
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<PAGE> 161
10.43 - Asset Purchase Agreement dated May 26, 1998 by and among
TransTexas, Bayard Drilling, L.P. and Bayard Drilling Technologies,
Inc. (filed as an exhibit to TransTexas' current report on Form 8-K
dated June 26, 1998, and incorporated herein by reference).
10.44 - Employment Agreement between the Company and John R. Stanley dated
November 1, 1998 (filed as an exhibit to the Company's annual
report on Form 10-K for the year ended January 31, 1999, and
incorporated herein by reference).
10.45 - Employment Agreement between the Company and Ed Donahue dated
December 1, 1998 (filed as an exhibit to the Company's annual
report on Form 10-K for the year ended January 31, 1999, and
incorporated herein by reference).
10.46 - Credit Agreement dated April 27, 1999 among TransTexas, Credit
Suisse First Boston Management Corporation, the Lenders named
therein and TEC and TARC, as guarantors (filed as an exhibit to the
Company's annual report on Form 10-K for the year ended January 31,
1999, and incorporated herein by reference).
10.47 - Post-Petition Amendment No. 1 to Financing Agreement dated as of
April 19, 1999 between the Company and GMAC Commercial Credit LLC
(filed as an exhibit to the Company's quarterly report on Form 10-Q
for the quarter ended April 30, 1999, and incorporated herein by
reference).
10.48 - Amendment No. 1 dated June 28, 1999 to Credit Agreement dated
April 27, 1999 among TransTexas, Credit Suisse First Boston
Management Corporation, the Lenders named therein, and TEC and
TARC, as guarantors (filed as an exhibit to the Company's quarterly
report on Form 10-Q for the quarter ended July 31, 1999, and
incorporated herein by reference).
10.49 - Employment Agreement dated November 8, 1999 between the Company and
Ronald P. Nowak (filed as an exhibit to the Company's quarterly
report on Form 10-Q for the quarter ended October 31, 1999, and
incorporated herein by reference).
10.50 - Employment Agreement dated March 17, 2000 between the Company and
John R. Stanley (filed as an exhibit to the Company's annual report
on Form 10-K for the year ended January 31, 2000, and incorporated
herein by reference).
10.51 - Severance Agreement dated May 27, 1998 between the Company and
Simon J. Ward (filed as an exhibit to the Company's annual report
on Form 10-K for the year ended January 31, 2000, and incorporated
herein by reference).
10.52 - Purchase Agreement dated March 14, 2000 ("2000 Production Payment
Agreement") between the Company, Southern Producer Services,
L.P.("SPS"), and TCW Portfolio No. 1555 DR V Sub-Custody
Partnership, L.P., TCW DR VI Investment Partnership, L.P. and TCW
Asset Management Company ("TCW") (filed as an exhibit to the
Company's annual report on Form 10-K for the year ended January 31,
2000, and incorporated herein by reference).
10.53 - Production Payment Conveyance dated March 14, 2000 ("2000
Production Payment Conveyance") between the Company, SPS and TCW
(filed as an exhibit to the Company's annual report on Form 10-K
for the year ended January 31, 2000, and incorporated herein by
reference).
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<PAGE> 162
10.54 - Gas and Natural Gas Liquids Purchase Agreement dated March 14, 2000
between SPS and TTG (filed as an exhibit to the Company's annual
report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
10.55 - Crude Oil Purchase Agreement dated March 14, 2000 between SPS and
TTG (filed as an exhibit to the Company's annual report on Form
10-K for the year ended January 31, 2000, and incorporated herein
by reference).
10.56 - Natural Gas Treating and Condensate Handling Agreement dated March
14, 2000 between Galveston Bay Processing Corporation and SPS
(filed as an exhibit to the Company's annual report on Form 10-K
for the year ended January 31, 2000, and incorporated herein by
reference).
10.57 - Third Amended and Restated Accounts Receivable Management and
Security Agreement dated March 15, 2000 between the Company and
GMAC Commercial Credit LLC (filed as an exhibit to the Company's
annual report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
10.58 - Services Agreement dated March 17, 2000 between TNGC Holdings
Corporation and the Company (filed as an exhibit to the Company's
annual report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
**10.59 - First Supplement to 2000 Production Payment Agreement, dated as of
June 7, 2000.
**10.60 - First Supplement to 2000 Production Payment Conveyance, dated as of
June 7, 2000.
**10.61 - Second Supplement to 2000 Production Payment Agreement, dated as of
September 8, 2000.
**10.62 - Second Supplement to 2000 Production Payment Conveyance, dated as
of September 8, 2000.
**10.63 - Subordination Agreement, dated as of September 7, 2000 between the
Company and Firstar Bank of Minnesota, relating to the Second
Supplement to 2000 Production Payment Conveyance.
**10.64 - Subordination Agreement, dated as of September 7, 2000 between the
Company and GMAC Commercial Credit, LLC, relating to the Second
Supplement to 2000 Production Payment Conveyance.
**12.1 - Statement Regarding Computation of Ratio of Earnings to Fixed
Charges (restates previously filed Exhibit 12.1).
**12.2 - Statement Regarding Computation of Pro Forma Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends; Year Ended
January 31, 2000 (restates previously filed Exhibit 12.2).
**12.3 - Statement Regarding Computation of Ratio of Earnings to Combined
Fixed Changes and Preferred Stock Dividends; Six Months Ended
July 31, 2000.
21.1 - Schedule of Subsidiaries of TransTexas (filed as an exhibit to the
Company's annual report on Form 10-K for the year ended January 31,
1999, and incorporated herein by reference).
*23.1 - Consent of Netherland, Sewell & Associates, Inc.
**23.2 - Consent of PricewaterhouseCoopers L.L.P.
**23.3 - Consent of Counsel (included in Exhibit 5.1 hereto).
*24.1 - Power of attorney - TransTexas Gas Corporation (set forth on the
signature page of the registration statement filed on May 31,
2000).
**24.2 - Power of attorney - Galveston Bay Processing Corporation set forth
on the signature page of this amendment no. 1.
**24.3 - Power of attorney - Galveston Bay Pipeline Company set forth
on the signature page of this amendment no. 1.
**25.1 - Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Firstar Bank, N.A., as Trustee under the
Indenture included as Exhibit 4.35.
II-12
<PAGE> 163
----------
* Previously filed as an exhibit to the original Registration Statement on
Form S-1 (SEC File No. 333-38252) filed with the Securities and Exchange
Commission on May 31, 2000.
** Filed herewith.
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information required to
be set forth therein is not applicable or is not shown in the Financial
Statements or notes thereto.
(c) Reports, Opinions, Appraisals.
On February 18, 2000, the Company filed a current report on Form 8-K to report
the confirmation of its Second Amended, Modified and Restated Plan of
Reorganization.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended
("Act");
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent
no more than 20%change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the Registration Statement or any
material change to such information in the
Registration Statement;
provided, however, that paragraphs (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by these
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended, that are incorporated by reference
in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Act, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-13
<PAGE> 164
(4) That, for purposes of determining any liability under the
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) 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.
(5) That, insofar as indemnification for liabilities arising
under the Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, 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 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.
(6) That, for purposes of determining any liability under the
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(7) That, for the purpose of determining any liability under
the Act, each post-effective amendment that contains a form of prospectus 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.
II-14
<PAGE> 165
SIGNATURES
(TRANSTEXAS GAS CORPORATION)
Pursuant to the requirements of the Securities Act of 1933, as amended,
TransTexas Gas Corporation has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on the 25th day of
September, 2000.
TRANSTEXAS GAS CORPORATION
By: /s/ ED DONAHUE
--------------------------------------
Ed Donahue, Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on September 25, 2000.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
*
-----------------
John R. Stanley Director and Chief Executive Officer
*
-----------------
R. Gerald Bennett Director
*
-----------------
Ronald H. Benson Director
*
-----------------
Walter S. Piontek Director
*
-----------------
John L. Whitmire Director
</TABLE>
*By: /s/ ED DONAHUE
------------------------------
Ed Donahue, Attorney-in-Fact
<PAGE> 166
SIGNATURES
(GALVESTON BAY PIPELINE COMPANY)
Pursuant to the requirements of the Securities Act of 1933, as amended,
Galveston Bay Pipeline Company has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on the 25th day of
September, 2000.
GALVESTON BAY PIPELINE COMPANY
By: /s/ ED DONAHUE
-------------------------------------------
Ed Donahue, Vice President, Chief Financial
Officer and Secretary
POWER OF ATTORNEY
Each of the undersigned hereby appoints John R. Stanley and Ed Donahue,
and each of them, as attorney and agent for the undersigned, with full power of
substitution, for and in the name, place and stead of the undersigned, to sign
and file with the Securities and Exchange Commission under the Securities Act
any and all amendments (including post-effective amendments) and exhibits to
this Registration Statement and any and all applications, instruments, and other
documents to be filed with the Securities and Exchange Commission pertaining to
the registration of the securities covered hereby, with full power and authority
to do and perform any and all acts and things whatsoever requisite or desirable.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities indicated on September 25, 2000.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ JOHN R. STANLEY
-------------------
John R. Stanley Sole Director, President and Chief Executive
Officer
/s/ ED DONAHUE
-------------------
Ed Donahue Vice President, Chief Financial Officer and
Secretary
</TABLE>
<PAGE> 167
SIGNATURES
(GALVESTON BAY PROCESSING CORPORATION)
Pursuant to the requirements of the Securities Act of 1933, as amended,
Galveston Bay Processing Corporation has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on the 25th day of
September, 2000.
GALVESTON BAY PROCESSING CORPORATION
By: /s/ ED DONAHUE
-------------------------------------------
Ed Donahue, Vice President, Chief Financial
Officer and Secretary
POWER OF ATTORNEY
Each of the undersigned hereby appoints John R. Stanley and Ed Donahue,
and each of them, as attorney and agent for the undersigned, with full power of
substitution, for and in the name, place and stead of the undersigned, to sign
and file with the Securities and Exchange Commission under the Securities Act
any and all amendments (including post-effective amendments) and exhibits to
this Registration Statement and any and all applications, instruments, and other
documents to be filed with the Securities and Exchange Commission pertaining to
the registration of the securities covered hereby, with full power and authority
to do and perform any and all acts and things whatsoever requisite or desirable.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities indicated on September 25, 2000.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ JOHN R. STANLEY
----------------------
John R. Stanley Sole Director, President and Chief Executive Officer
/s/ ED DONAHUE
----------------------
Ed Donahue Vice President, Chief Financial Officer and
Secretary
</TABLE>
<PAGE> 168
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 - Second Amended, Modified and Restated Plan of Reorganization
dated January 25, 2000 (filed as an exhibit to the Company's
current report on Form 8-K dated February 7, 2000, and incorporated
herein by reference).
2.2 - Order Confirming Plan of Reorganization dated February 7, 2000
(filed as an exhibit to the Company's current report on Form 8-K
dated February 7, 2000, and incorporated herein by reference).
3.1 - Articles of Incorporation (filed as an exhibit to the Company's
Registration Statement on Form S-1 (No. 33-75050), and incorporated
herein by reference).
3.2 - By-laws of TransTexas (filed as an exhibit to the Company's
Registration Statement on Form S-1 (No. 33-75050), and incorporated
herein by reference).
3.3 - Amended and Restated Certificate of Incorporation (filed as an
exhibit to the Company's Registration Statement on Form 8-A (No.
0-30475), and incorporated herein by reference).
3.4 - Certificate of Designation, Series A Senior Preferred Stock (filed
as an exhibit to the Company's Registration Statement on Form 8-A
(No. 0-30475), and incorporated herein by reference).
3.5 - Certificate of Designation, Series A Junior Preferred Stock (filed
as an exhibit to the Company's Registration Statement on Form 8-A
(No. 0-30475), and incorporated herein by reference).
3.6 - Amended and Restated Bylaws (filed as an exhibit to the Company's
Registration Statement on Form 8-A (No. 0-30475), and incorporated
herein by reference).
** 3.7 - Certificate of Amendment to Amended and Restated Certificate of
Incorporation.
** 3.8 - Certificate of Amendment to Amended and Restated Certificate of
Incorporation (Regarding Amendments to Certificates of
Designation).
4.1 - Indenture dated as of June 15, 1995, among TransTexas, TTC and
American Bank National Association, as Trustee (the "Indenture
Trustee"), with respect to the Senior Secured Notes including the
forms of Senior Secured Note and Senior Secured Guarantee as
exhibits (filed as an exhibit to TransTexas' current report on Form
8-K dated June 20, 1995, and incorporated herein by reference).
4.2 - Mortgage, Deed of Trust, Assignment of Production, Security
Agreement and Financing Statement, effective as of June 23, 1995,
from TransTexas to James A. Taylor, as trustee for the benefit of
the Indenture Trustee (filed as an exhibit to TransTexas' current
report on Form 8-K dated June 20, 1995, and incorporated herein by
reference).
4.3 - Pipeline Mortgage, Deed of Trust, Assignment, Security Agreement
and Financing Statement, dated as of June 20, 1995, from TTC to
James A. Taylor, as trustee for the benefit of the Indenture
Trustee (filed as an exhibit to TransTexas' current report on Form
8-K dated on June 20, 1995, and incorporated herein by reference).
4.4 - Security Agreement, Pledge and Financing Statement, dated as of
June 20, 1995, by TransTexas in favor of the Indenture Trustee
(filed as an exhibit to TransTexas' current report on Form 8-K
dated June 20, 1995, and incorporated herein by reference).
4.5 - Security Agreement, Pledge and Financing Statement, dated as of
June 20, 1995, by TTC in favor of the Indenture Trustee (filed as
an exhibit to TransTexas' current report on Form 8-K dated June 20,
1995, and incorporated herein by reference).
</TABLE>
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<PAGE> 169
<TABLE>
<S> <C>
4.6 - Cash Collateral and Disbursement Agreement, dated as of June 20,
1995, among TransTexas, the Indenture Trustee and the Disbursement
Agent (filed as an exhibit to TransTexas' current report on Form
8-K dated June 20, 1995, and incorporated herein by reference).
4.7 - Pledge and Security Agreement dated as of September 19, 1996,
between TransAmerican Exploration Corporation and Fleet National
Bank (previously filed as an exhibit to TransTexas' Form 10-Q for
the quarter ended October 31, 1996, and incorporated herein by
reference).
4.8 - Registration Rights Agreement dated as of September 19, 1996, by
and among TransTexas, TransAmerican, TransAmerican Exploration
Corporation and Fleet National Bank (filed as an exhibit to
TransTexas' Form 10-Q for the quarter ended October 31, 1996, and
incorporated herein by reference).
4.9 - Pledge Agreement dated as of February 23, 1995, between TEC and
First Fidelity Bank, National Association, as Trustee (filed as an
exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated
herein by reference).
4.10 - Pledge Agreement dated as of February 23, 1995, between TARC and
First Fidelity Bank, National Association, as Trustee (filed as an
exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated
herein by reference).
4.11 - Registration Rights Agreement dated as of February 23, 1995, among
TransTexas, TARC and TEC (filed as an exhibit to Post-Effective
Amendment No. 5 to the Company's Registration Statement on Form S-3
(33-91494), and incorporated herein by reference).
4.12 - Pledge Agreement dated as of February 23, 1995, among
TransAmerican, TransTexas and Halliburton Company (filed as an
exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated
herein by reference).
4.13 - Pledge Agreement dated as of February 23, 1995, among
TransAmerican, TransTexas and RECO Industries, Inc. (filed as an
exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated
herein by reference).
4.14 - Pledge Agreement dated as of February 23, 1995, among
TransAmerican, TransTexas and Frito-Lay, Inc. (filed as an exhibit
to Post-Effective Amendment No. 5 to TransTexas' Registration
Statement on Form S-3 (33-91494), and incorporated herein by
reference).
4.15 - Pledge Agreement dated as of February 23, 1995, among
TransAmerican, TransTexas and EM Sector Holdings, Inc. (filed as an
exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated
herein by reference).
4.16 - Stock Pledge Agreement dated January 27, 1995, between
TransAmerican and ITT Commercial Corp. (filed as an exhibit to
Post-Effective Amendment No. 5 to TransTexas' Registration
Statement on Form S-3 (33-91494), and incorporated herein by
reference).
4.17 - Registration Rights Agreement dated January 27, 1995, among
TransAmerican, TransTexas and ITT Commercial Finance Corp. (filed
as an exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated
herein by reference).
4.18 - Note Purchase Agreement dated December 13, 1996 between TransTexas
and the Purchasers of 13 1/4% Series A Senior Subordinated Notes
due 2003 (filed as an exhibit to Post-Effective Amendment No. 5 to
TransTexas' Registration Statement on Form S-3 (33-91494), and
incorporated herein by reference).
</TABLE>
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<PAGE> 170
<TABLE>
<S> <C>
4.19 - Indenture dated December 13, 1996 between TransTexas and Bank One,
Columbus, NA, as Trustee (filed as an exhibit to Post-Effective
Amendment No. 5 to TransTexas' Registration Statement on Form S-3
(33-91494), and incorporated herein by reference).
4.20 - Registration Rights Agreement dated December 13, 1996 between
TransTexas and each of the Purchasers of the Subordinated Notes
(filed as an exhibit to Post-Effective Amendment No. 5 to
TransTexas' Registration Statement on Form S-3 (33-91494), and
incorporated herein by reference).
4.21 - First Supplemental Indenture dated May 29, 1997 by and among
TransTexas, TTC and Firstar Bank of Minnesota, N.A., as trustee
(filed as an exhibit to TransTexas' current report on Form 8-K
dated May 29, 1997, and incorporated herein by reference).
4.22 - Second Supplemental Indenture dated June 13, 1997 between
TransTexas, as issuer, and Firstar Bank of Minnesota, N.A., as
trustee (filed as an exhibit to TransTexas' current report on Form
8-K dated June 13, 1997, and incorporated herein by reference).
4.23 - Indenture dated June 13, 1997 governing TransTexas' Senior
Subordinated Notes due 2001 between TransTexas, as issuer, and Bank
One, N.A., as trustee (filed as an exhibit to TransTexas'
Registration Statement on Form S-4 (333-33803), and incorporated
herein by reference).
4.24 - Registration Rights Agreement dated June 13, 1997 between
TransTexas and the holders of TransTexas' Senior Subordinated Notes
due 2001 (filed as an exhibit TransTexas' Registration Statement on
Form S-4 (333-33803), and incorporated herein by reference).
4.25 - Loan Agreement dated June 13, 1997 between TransTexas and TEC
(filed as an exhibit to TransTexas' current report on Form 8-K
dated June 13, 1997, and incorporated herein by reference).
4.26 - Security and Pledge Agreement dated June 13, 1997 by TransTexas in
favor of TEC (filed as an exhibit to TransTexas' current report on
Form 8-K dated June 13, 1997, and incorporated herein by
reference).
4.27 - Disbursement Agreement dated June 13, 1997 among TransTexas, TEC
and Firstar Bank of Minnesota, as disbursement agent and Trustee
(filed as an exhibit to TransTexas' current report on Form 8-K
dated June 13, 1997, and incorporated herein by reference).
4.28 - Forms of Mortgage dated June 13, 1997 between TransTexas and
TransAmerican Energy Corporation, (filed as an exhibit to
TransTexas' Registration Statement on Form S-4 (333-33803), and
incorporated herein by reference).
4.29 - Intercreditor and Collateral Agency Agreement dated June 13, 1997
among Firstar Bank of Minnesota, TEC and TransTexas (filed as an
exhibit to TEC's Form 10-Q for the quarter ended July 31, 1997, and
incorporated herein by reference).
4.30 - Registration Rights Agreement dated August 12, 1997, by and among
TransTexas, Firstar Bank of Minnesota, N.A., TEC and TARC (filed as
an exhibit to Post-Effective Amendment No. 6 to TransTexas'
Registration Statement on Form S-4 (33-91494) and incorporated
herein by reference).
4.31 - First Supplemental Indenture dated as of September 2, 1997, between
TransTexas, as issuer, and Bank One, N.A., as trustee (filed as an
exhibit to TransTexas' Registration Statement on Form S-4
(333-33803), and incorporated herein by reference).
4.32 - First Amendment to Loan Agreement dated December 30, 1997 between
TransTexas and TEC (filed as an exhibit to TransTexas' annual
report on Form 10-K for the year ended January 31, 1998, and
incorporated herein by reference).
</TABLE>
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<PAGE> 171
<TABLE>
<S> <C>
4.33 - First Amendment to Disbursement Agreement dated December 30, 1997
between TransTexas, TEC and Firstar Bank of Minnesota, as
disbursement agent and Trustee (filed as an exhibit to TransTexas'
annual report on Form 10-K for the year ended January 31, 1998, and
incorporated herein by reference).
4.34 - Second Amendment dated December 15, 1998 to Loan Agreement between
TransTexas and TEC (filed as an exhibit to TEC's current report on
Form 8-K dated February 23, 1999, and incorporated herein by
reference).
4.35 - Indenture dated March 15, 2000 between the Company and Firstar
Bank, N.A., Indenture Trustee, governing the Company's 15% Senior
Secured Notes due 2005 (filed as an exhibit to the Company's annual
report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
4.36 - Form of Mortgage dated March 15, 2000 between the Company and
Firstar Bank, N.A. (filed as an exhibit to the Company's annual
report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
4.37 - Security and Pledge Agreement dated March 15, 2000 between the
Company and Firstar Bank, N.A. (filed as an exhibit to the
Company's annual report on Form 10-K for the year ended January 31,
2000, and incorporated herein by reference).
4.38 - Oil and Gas Revolving Credit and Term Loan Agreement dated March
15, 2000 among GMAC Commercial Credit LLC, as Lender and Agent, the
Company, as Borrower, and Galveston Bay Processing Corporation and
Galveston Bay Pipeline Company, as Guarantors (filed as an exhibit
to the Company's annual report on Form 10-K for the year ended
January 31, 2000, and incorporated herein by reference).
4.39 - Form of Mortgage dated March 15, 2000 between the Company and GMAC
Commercial Credit LLC. (filed as an exhibit to the Company's annual
report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
4.40 - Security and Pledge Agreement dated March 15, 2000 between the
Company and GMAC Commercial Credit LLC (filed as an exhibit to the
Company's annual report on Form 10-K for the year ended January 31,
2000, and incorporated herein by reference).
4.41 - Intercreditor Agreement dated March 15, 2000 between Firstar Bank,
N.A. and GMAC Commercial Credit LLC. (filed as an exhibit to the
Company's annual report on Form 10-K for the year ended January 31,
2000, and incorporated herein by reference).
4.42 - Warrant Agreement, including form of Warrant Certificate, dated
March 15, 2000 between the Company and ChaseMellon Shareholder
Services, LLC, Warrant Agent (filed as an exhibit to the Company's
annual report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
4.43 - Registration Rights Agreement dated March 15, 2000 between the
Company and the holders of the Notes named therein (filed as an
exhibit to the Company's annual report on Form 10-K for the year
ended January 31, 2000, and incorporated herein by reference).
4.44 - Registration Rights Agreement dated March 15, 2000 between the
Company and the holders of the common stock named therein (filed as
an exhibit to the Company's annual report on Form 10-K for the year
ended January 31, 2000, and incorporated herein by reference).
4.45 - Registration Rights Agreement dated March 15, 2000 between the
Company and the holders of the Senior Preferred Stock named therein
(filed as an exhibit to the Company's annual report on Form 10-K
for the year ended January 31, 2000, and incorporated herein by
reference).
</TABLE>
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<PAGE> 172
<TABLE>
<S> <C>
4.46 - Registration Rights Agreement dated March 15, 2000 between the
Company and the holders of the Junior Preferred Stock named therein
(filed as an exhibit to the Company's annual report on Form 10-K
for the year ended January 31, 2000, and incorporated herein by
reference).
**4.47 - First Supplemental Indenture dated as of June 28, 2000 by and among
the Company, Galveston Bay Processing Corporation, Galveston Bay
Pipeline Company and Firstar Bank, N.A., Indenture Trustee,
governing the Company's 15% Senior Secured Notes due 2005.
**5.1 - Opinion of Gardere & Wynne, L.L.P.
10.1 - Services Agreement dated August 24, 1993, by and among TransTexas
and TransAmerican (filed as an exhibit to TransTexas' current
report on Form 8-K dated August 24, 1993, and incorporated herein
by reference).
10.2 - Tax Allocation Agreement dated August 24, 1993, by and among
TransAmerican, TransTexas, and the other subsidiaries of
TransAmerican, as amended (filed as an exhibit to TransTexas'
Registration Statement on Form S-1 (No. 33-75050), and incorporated
herein by reference).
10.3 - Interruptible Gas Sales Terms and Conditions, between TransTexas
and TARC, as amended (filed as an exhibit to TARC's Registration
Statement on Form S-1 (No. 33-82200), and incorporated herein by
reference).
10.4 - Bank Group Agreement dated August 24, 1993, by and among
TransAmerican, TransTexas, and the Bank Group (filed as an exhibit
to TransTexas' current report on Form 8-K dated August 24, 1993,
and incorporated herein by reference).
10.5 - Gas Purchase Agreement dated June 8, 1987, by and between
TransAmerican and The Coastal Corporation, as amended by the
Amendment to Gas Purchase Agreement dated February 13, 1990, by and
between TransAmerican and Texcol Gas Services, Inc., as successor
to The Coastal Corporation (filed as an exhibit to TransTexas'
Registration Statement on Form S-1 (No. 33-62740), and incorporated
herein by reference).
10.6 - Gas Purchase Agreement dated October 29, 1987, by and between
TransAmerican and The Coastal Corporation as amended by the
Amendment to Gas Purchase Agreement dated February 13, 1990, by and
between TransAmerican and Texcol Gas Services, Inc., successor to
The Coastal Corporation (filed as an exhibit to TransTexas'
Registration Statement on Form S-1 (No. 33-62740), and incorporated
herein by reference).
10.7 - Gas Transportation Agreement dated the effective date (as therein
defined), by and between TransAmerican and The Coastal Corporation,
as amended by the Amendment to Gas Transportation Agreement dated
February 13, 1990, by and between TransAmerican and Texcol Gas
Services, Inc., successor to The Coastal Corporation (filed as an
exhibit to TransTexas' Registration Statement on Form S-1 (No.
33-62740), and incorporated herein by reference).
10.8 - Firm Natural Gas Sales Agreement dated September 30, 1993, by and
between TransTexas and Associated Natural Gas, Inc. (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended October 31,
1993, and incorporated herein by reference).
10.9 - Form of Indemnification Agreement by and between TransTexas and
each of its directors (filed as an exhibit to TransTexas' current
report on Form 8-K dated August 24, 1993 and incorporated herein by
reference).
10.10 - Gas Purchase Agreement dated November 1, 1985, between
TransAmerican and Washington Gas and Light Company, Frederick Gas
Company, Inc., and Shenandoah Gas Company (filed as an exhibit to
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TransTexas' Registration Statement on Form S-1 (No. 33-75050), and
incorporated herein by reference).
10.11 - Natural Gas Sales Agreement between TransTexas and Associated
Natural Gas, Inc. dated September 30, 1993 (filed as an exhibit to
TransTexas' Form 10-Q for the quarter ended October 31, 1993, and
incorporated herein by reference).
10.12 - Amendment Extending Gas Purchase Agreement between TransTexas and
Washington Gas Light Company, Inc., and Shenandoah Gas Company, as
amended, dated November 1, 1993 (filed as an exhibit to TransTexas'
Form 10-Q for the quarter ended January 31, 1994, and incorporated
herein by reference).
10.13 - Agreement for Purchase of Production Payment between TransTexas and
Southern States Exploration, Inc. dated April 1, 1994 (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended April 30,
1994, and incorporated herein by reference).
10.14 - Assignment of Proceeds Production Payment between TransTexas and
Southern States Exploration, Inc. dated April 1, 1994 (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended April 30,
1994, and incorporated herein by reference).
10.15 - Transfer Agreement dated August 24, 1993, by and among
TransAmerican, TransTexas, TTC, and John R. Stanley (filed as an
exhibit to TransTexas' current report on Form 8-K dated August 24,
1993, and incorporated herein by reference).
10.16 - Amended and Restated Accounts Receivable Management and Security
Agreement between TransTexas and BNY Financial Corporation (filed
as an exhibit to TransTexas' Form 10-Q for the quarter ended
October 31, 1995, and incorporated herein by reference).
10.17 - Note Purchase Agreement, dated as of May 10, 1996, among
TransTexas, TCW Shared Opportunity Fund II, L.P. and Jefferies &
Company, Inc. (filed as an exhibit to the Company's Form 10-Q for
the quarter ended April 30, 1996, and incorporated herein by
reference).
10.18 - Master Swap Agreement, dated June 6, 1996, between TransTexas and
AIG Trading Corporation (filed as an exhibit to TransTexas' Form
10-Q for the quarter ended April 30, 1996, and incorporated herein
by reference).
10.19 - Purchase Agreement, dated January 30, 1996, between TransTexas and
Sunflower Energy Finance Company (filed as an exhibit to
TransTexas' Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.20 - Production Payment Conveyance, executed on January 30, 1996, from
TransTexas to Sunflower Energy Finance Company (filed as an exhibit
to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.21 - First Supplement to Purchase Agreement, dated as of February 12,
1996, among TransTexas, Sunflower Energy Finance Company and TCW
Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended April 30,
1996, and incorporated herein by reference).
10.22 - First Supplement to Production Payment Conveyance, executed
February 12, 1996, among TransTexas, Sunflower Energy Finance
Company and TCW Portfolio No. 1555 DR V Sub-Custody Partnership,
L.P. (filed as an exhibit to TransTexas' Form 10-Q for the quarter
ended April 30, 1996, and incorporated herein by reference).
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10.23 - Purchase Agreement, dated May 14, 1996, among TransTexas, TCW
Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. and Sunflower
Energy Finance Company (filed as an exhibit to TransTexas' Form
10-Q for the quarter ended April 30, 1996, and incorporated herein
by reference).
10.24 - Production Payment Conveyance, executed May 14, 1996, from
TransTexas to TCW Portfolio No. 1555 Dr V Sub-Custody Partnership,
L.P. and Sunflower Energy Finance Company (filed as an exhibit to
TransTexas' Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.25 - Employment Agreement between TransTexas and Richard Bianchi dated
August 12, 1996 (filed as an exhibit to TransTexas' Form 10-Q for
the quarter ended October 31, 1996, and incorporated herein by
reference).
10.26 - Employment Agreement between TransTexas and Arnold Brackenridge
dated August 12, 1996 (filed as an exhibit to TransTexas' Form 10-Q
for the quarter ended October 31, 1996, and incorporated herein by
reference).
10.27 - Stock Purchase Agreement dated as of May 29, 1997 by and between
TransTexas and First Union Bank of Connecticut, as trustee (filed
as an exhibit to TransTexas' current report on Form 8-K dated May
29, 1997, and incorporated herein by reference).
10.28 - Interruptible Gas Transportation Agreement dated Effective March 1,
1997 between TransTexas, as shipper, and Lobo Pipeline Company, as
transporter (filed as an exhibit to TransTexas' Form 10-Q for the
quarter ended July 31, 1997, and incorporated herein by reference).
10.29 - Intrastate Firm Gas Transportation Agreement dated effective March
1, 1997 between TransTexas, as shipper, and Lobo Pipeline Company,
as transporter (filed as an exhibit to TransTexas' Form 10-Q for
the quarter ended July 31, 1997, and incorporated herein by
reference).
10.30 - Master Services Contract dated May 30, 1997 between Conoco Inc. and
TransTexas (filed as an exhibit to TransTexas' Form 10-Q for the
quarter ended July 31, 1997, and incorporated herein by reference).
10.31 - Agreement for Services dated effective March 1, 1997 between Conoco
Inc. and TransTexas (filed as an exhibit to TransTexas' Form 10-Q
for the quarter ended July 31, 1997, and incorporated herein by
reference).
10.32 - Services Agreement dated June 13, 1997 among TNGC Holdings
Corporation, TransAmerican, TEC, TARC, TransTexas and TTXD (filed
as an exhibit to TransTexas' Form 10-Q for the quarter ended July
31, 1997, and incorporated herein by reference).
10.33 - Amendment No. 3 to Tax Allocation Agreement dated May 29, 1997
(filed as an exhibit to TransTexas' Form 10-Q for the quarter ended
July 31, 1997, and incorporated herein by reference).
10.34 - Amendment No. 4 to Tax Allocation Agreement dated June 13, 1997
(filed as an exhibit to TransTexas' Form 10-Q for the quarter ended
July 31, 1997, and incorporated herein by reference).
10.35 - Amendment No. 2 to Transfer Agreement dated May 29, 1997 (filed as
an exhibit to TransTexas' Form 10-Q for the quarter ended July 31,
1997, and incorporated herein by reference).
10.36 - Amendment No. 3 to Transfer Agreement dated June 13, 1997 (filed as
an exhibit to TransTexas' Form 10-Q for the quarter ended July 31,
1997, and incorporated herein by reference).
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10.37 - Second Amended and Restated Accounts Receivable Management
Agreement dated October 14, 1997 between TransTexas and BNY
Financial Corporation (filed as an exhibit to TransTexas' Form 10-Q
for the quarter ended October 31, 1997, and incorporated herein by
reference).
10.38 - Employment Agreement dated December 1, 1997 between TransTexas and
Arnold Brackenridge (filed as an exhibit to TransTexas' annual
report on Form 10-K for the year ended January 31, 1998, and
incorporated herein by reference).
10.39 - Employment Agreement Settlement dated April 28, 1998 between
TransTexas and Richard Bianchi (filed as an exhibit to TransTexas'
annual report on Form 10-K for the year ended January 31, 1998, and
incorporated herein by reference).
10.40 - Severance Agreement dated November 21, 1997 between TransTexas and
Lee Muncy (filed as an exhibit to TransTexas' annual report on Form
10-K for the year ended January 31, 1998, and incorporated herein
by reference).
10.41 - Purchase Agreement dated February 23, 1998 between TransTexas and
TCW (filed as an exhibit to TransTexas' annual report on Form 10-K
for the year ended January 31, 1998, and incorporated herein by
reference).
10.42 - Production Payment Conveyance dated February 23, 1998 between
TransTexas and TCW (filed as an exhibit to TransTexas' annual
report on Form 10-K for the year ended January 31, 1998, and
incorporated herein by reference).
10.43 - Asset Purchase Agreement dated May 26, 1998 by and among
TransTexas, Bayard Drilling, L.P. and Bayard Drilling Technologies,
Inc. (filed as an exhibit to TransTexas' current report on Form 8-K
dated June 26, 1998, and incorporated herein by reference).
10.44 - Employment Agreement between the Company and John R. Stanley dated
November 1, 1998 (filed as an exhibit to the Company's annual
report on Form 10-K for the year ended January 31, 1999, and
incorporated herein by reference).
10.45 - Employment Agreement between the Company and Ed Donahue dated
December 1, 1998 (filed as an exhibit to the Company's annual
report on Form 10-K for the year ended January 31, 1999, and
incorporated herein by reference).
10.46 - Credit Agreement dated April 27, 1999 among TransTexas, Credit
Suisse First Boston Management Corporation, the Lenders named
therein and TEC and TARC, as guarantors (filed as an exhibit to the
Company's annual report on Form 10-K for the year ended January 31,
1999, and incorporated herein by reference).
10.47 - Post-Petition Amendment No. 1 to Financing Agreement dated as of
April 19, 1999 between the Company and GMAC Commercial Credit LLC
(filed as an exhibit to the Company's quarterly report on Form 10-Q
for the quarter ended April 30, 1999, and incorporated herein by
reference).
10.48 - Amendment No. 1 dated June 28, 1999 to Credit Agreement dated April
27, 1999 among TransTexas, Credit Suisse First Boston Management
Corporation, the Lenders named therein, and TEC and TARC, as
guarantors (filed as an exhibit to the Company's quarterly report
on Form 10-Q for the quarter ended July 31, 1999, and incorporated
herein by reference).
10.49 - Employment Agreement dated November 8, 1999 between the Company and
Ronald P. Nowak (filed as an exhibit to the Company's quarterly
report on Form 10-Q for the quarter ended October 31, 1999, and
incorporated herein by reference).
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10.50 - Employment Agreement dated March 17, 2000 between the Company and
John R. Stanley (filed as an exhibit to the Company's annual report
on Form 10-K for the year ended January 31, 2000, and incorporated
herein by reference).
10.51 - Severance Agreement dated May 27, 1998 between the Company and
Simon J. Ward (filed as an exhibit to the Company's annual report
on Form 10-K for the year ended January 31, 2000, and incorporated
herein by reference).
10.52 - Purchase Agreement dated March 14, 2000 between the Company,
Southern Producer Services, L.P.("SPS"), and TCW Portfolio No. 1555
DR V Sub-Custody Partnership, L.P., TCW DR VI Investment
Partnership, L.P. and TCW Asset Management Company ("TCW") (filed
as an exhibit to the Company's annual report on Form 10-K for the
year ended January 31, 2000, and incorporated herein by reference).
10.53 - Production Payment Conveyance dated March 14, 2000 between the
Company, SPS and TCW (filed as an exhibit to the Company's annual
report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
10.54 - Gas and Natural Gas Liquids Purchase Agreement dated March 14, 2000
between SPS and TTG (filed as an exhibit to the Company's annual
report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
10.55 - Crude Oil Purchase Agreement dated March 14, 2000 between SPS and
TTG (filed as an exhibit to the Company's annual report on Form
10-K for the year ended January 31, 2000, and incorporated herein
by reference).
10.56 - Natural Gas Treating and Condensate Handling Agreement dated March
14, 2000 between Galveston Bay Processing Corporation and SPS
(filed as an exhibit to the Company's annual report on Form 10-K
for the year ended January 31, 2000, and incorporated herein by
reference).
10.57 - Third Amended and Restated Accounts Receivable Management and
Security Agreement dated March 15, 2000 between the Company and
GMAC Commercial Credit LLC (filed as an exhibit to the Company's
annual report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
10.58 - Services Agreement dated March 17, 2000 between TNGC Holdings
Corporation and the Company (filed as an exhibit to the Company's
annual report on Form 10-K for the year ended January 31, 2000, and
incorporated herein by reference).
** 10.59 - First Supplement to 2000 Production Payment Agreement, dated as of
June 7, 2000.
** 10.60 - First Supplement to 2000 Production Payment Conveyance, dated as of
June 7, 2000.
** 10.61 - Second Supplement to 2000 Production Payment Agreement, dated as
of September 8, 2000.
** 10.62 - Second Supplement to 2000 Production Payment Conveyance, dated as
of September 8, 2000.
** 10.63 - Subordination Agreement, dated as of September 7, 2000 between the
Company and Firstar Bank of Minnesota, relating to the Second
Supplement to 2000 Production Payment Conveyance.
** 10.64 - Subordination Agreement, dated as of September 7, 2000 between the
Company and GMAC Commercial Credit, LLC, relating to the Second
Supplement to 2000 Production Payment Conveyance.
** 12.1 - Statement Regarding Computation of Ratio of Earnings to Fixed
Charges (restates previously filed Exhibit 12.1).
** 12.2 - Statement Regarding Computation of Pro Forma Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends (restates
previously filed Exhibit 12.2).
** 12.3 - Statement Regarding Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends; Six Months Ended
July 31, 2000.
21.1 - Schedule of Subsidiaries of TransTexas (filed as an exhibit to the
Company's annual report on Form 10-K for the year ended January 31,
1999, and incorporated herein by reference).
* 23.1 - Consent of Netherland, Sewell & Associates, Inc.
** 23.2 - Consent of PricewaterhouseCoopers L.L.P.
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** 23.3 - Consent of Counsel (included in Exhibit 5.1 hereto).
* 24.1 - Power of attorney - TransTexas Gas Corporation (set forth on the
signature page of the registration statement filed on May 31,
2000).
** 24.2 - Power of attorney - Galveston Bay Processing Corporation (set forth
on the signature page of this amendment no. 1).
** 24.3 - Power of attorney - Galveston Bay Pipeline Company (set forth
on the signature page of this amendment no. 1).
** 25.1 - Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Firstar Bank, N.A., as Trustee under the
Indenture included as Exhibit 4.35.
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* Previously filed as an exhibit to the original Registration Statement on
Form S-1 (SEC File No. 333-38252) filed with the Securities and Exchange
Commission on May 31, 2000.
** Filed herewith.
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