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FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-45773
LOUIS DREYFUS NATURAL GAS CORP.
OFFER TO EXCHANGE 6 7/8% SENIOR NOTES DUE 2007 WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR
6 7/8% SENIOR NOTES DUE 2007 WHICH HAVE NOT BEEN SO REGISTERED
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON MARCH 23, 1998, UNLESS EXTENDED.
------------------------
Louis Dreyfus Natural Gas Corp., an Oklahoma corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus (as defined) and the accompanying Letter of Transmittal (the "Letter
of Transmittal"), to exchange (the "Exchange Offer") its 6 7/8% Senior Notes due
2007 (the "Exchange Notes") which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), for an equal principal amount of its
outstanding 6 7/8% Senior Notes due 2007 which have not been so registered (the
"Existing Notes"), of which an aggregate principal amount of $200,000,000 is
outstanding as of the date hereof. The form and terms of each of the Exchange
Notes will be the same in all material respects as the form and terms of each of
the Existing Notes, except that (i) the Exchange Notes will be registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof and (ii) holders of the Exchange Notes will not be entitled to certain
rights of holders of Existing Notes under the Registration Agreement dated as of
December 11, 1997 (the "Registration Agreement"), which will terminate upon
consummation of the Exchange Offer. See "The Exchange Offer--Purpose and Effect
of the Exchange Offer." Except as discussed below, the Exchange Notes will be
available only in book-entry form. The Company expects that the Exchange Notes
issued pursuant to the Exchange Offer will be issued in the form of one or more
fully registered global notes that will be deposited with, or on behalf of, The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
its nominee. Beneficial interests in the global notes representing the Exchange
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by DTC and its participants. After the initial issuance of
such global notes, Exchange Notes in certificated form will be issued in
exchange for the global notes only in accordance with the terms and conditions
set forth in the Indenture (as defined). See "Description of Exchange
Notes--Book-Entry; Delivery and Form" and "--Certificated Notes."
The Existing Notes were issued and sold in a transaction exempt from the
registration requirements of the Securities Act and may not be offered or sold
in the United States unless so registered or pursuant to an applicable exemption
under the Securities Act. The Exchange Notes are being offered herewith in order
to satisfy certain obligations of the Company contained in the Registration
Agreement. Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
that the Exchange Notes to be issued pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by holders thereof (other
than (i) a broker-dealer who purchases such Exchange Notes from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act, or (ii) a person that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holder's
business and such holders are not participating and have no arrangement with any
person to participate in the distribution of such Exchange Notes. However, the
Company has not sought a no-action letter with respect to the Exchange Offer and
there can be no assurance the staff of the Commission would make a similar
determination with respect to the Exchange Offer. Eligible holders wishing to
accept the Exchange Offer must represent to the Company that such conditions
have been met. Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. A broker-dealer may nonetheless be deemed to be
an "underwriter" under the Securities Act notwithstanding such disclaimer. This
Prospectus (as it may be amended or supplemented from time to time) may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days (exclusive of
any period during which any stop order shall be in effect suspending the
effectiveness of the Registration Statement (as defined)) after the Expiration
Date (as defined), it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
The date of this Prospectus is February 13, 1998.
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Holders of Existing Notes whose Existing Notes are not tendered and accepted
in the Exchange Offer will continue to hold such Existing Notes and will be
entitled to all the rights and preferences and will be subject to the
limitations applicable thereto under the Indenture (as defined) governing the
Existing Notes and the Exchange Notes (the Existing Notes and the Exchange Notes
are sometimes referred to herein collectively as the "Notes"). Following
consummation of the Exchange Offer, the holders of Existing Notes will continue
to be subject to the existing restrictions upon transfer thereof and the Company
will have no further obligation to such holders to provide for the registration
under the Securities Act of the Existing Notes held by them. The Exchange Notes
will evidence the same debt as the Existing Notes and will be entitled to the
benefits of the indenture dated December 11, 1997 (the "Indenture") governing
the Notes. The Notes will bear interest at the rate of 6 7/8% per annum, payable
semi-annually on June 1 and December 1, commencing June 1, 1998. The Notes will
mature on December 1, 2007. The Company may redeem the Notes, in whole or in
part, at any time, at the redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of redemption. The Notes will
not be subject to any sinking fund requirement. See "Description of Exchange
Notes--Optional Redemption." Other than restrictive covenants, including
limitations on liens and sale and leaseback transactions, the Indenture does not
contain any provisions that afford holders of the Notes protection in the event
of a highly leveraged or other transaction that may adversely affect such
holders. See "Description of Exchange Notes."
The Existing Notes are and the Exchange Notes will be senior unsecured
obligations of the Company. The Existing Notes rank and the Exchange Notes will
rank PARI PASSU in right of payment with all existing and future senior
indebtedness of the Company and rank or will rank senior in right of payment to
any existing or future subordinated indebtedness of the Company. The Company
currently has outstanding $100 million principal amount of 9 1/4% Senior
Subordinated Notes due 2004, which are subordinate to the Notes. The Company's
borrowings under its $450 million unsecured revolving bank credit facility (the
"Bank Credit Facility") rank PARI PASSU with the Notes. As of December 31, 1997,
the Company had $261 million principal amount of borrowings outstanding under
the Bank Credit Facility. See "Capitalization." The Notes will be effectively
subordinated to any secured debt of the Company to the extent of the assets
serving as security therefor.
The Exchange Offer is not conditioned on any minimum aggregate principal
amount of Existing Notes being tendered for exchange. The Company will accept
for exchange any and all validly tendered Existing Notes not withdrawn prior to
5:00 p.m., New York City time, on March 23, 1998 unless extended by the Company
(the "Expiration Date"). Tenders of Existing Notes may be withdrawn at any time
prior to the Expiration Date. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer--Conditions." The Company has agreed to pay
all expenses incident to the Exchange Offer. The Company will not receive any
proceeds from the Exchange Offer.
The Existing Notes constitute securities for which there is no established
trading market. Any Existing Notes not tendered and accepted in the Exchange
Offer will remain outstanding. The Company does not currently intend to list the
Exchange Notes on any securities exchange. To the extent that any Existing Notes
are tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Existing Notes could be adversely affected. No assurances can be
given as to the liquidity of the trading market for either the Existing Notes or
the Exchange Notes.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF EXISTING NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington
D.C. 20549, and at the Commission's regional offices in Chicago, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and in New York, Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Commission maintains a site on the
World Wide Web at http:// www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The Company's Common Stock is listed on the
New York Stock Exchange, and such materials also can be inspected at the offices
of The New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-4
(the "Registration Statement"), filed by the Company with the Commission under
the Securities Act. This Prospectus omits certain of the information contained
in the Registration Statement in accordance with the rules and regulations of
the Commission. Reference is hereby made to the Registration Statement and
related exhibits for further information with respect to the Company and the
Notes. Statements contained herein concerning the provisions of any documents
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are incorporated herein by reference
and made a part of this Prospectus: (a) the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, as amended; (b) the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997, as amended; (c) the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997; (d)
the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997; and (e) the Company's Current Reports on Form 8-K dated June 24, 1997,
October 14, 1997, February 3, 1998 and February 6, 1998.
On October 14, 1997, American Exploration Company was acquired by the
Company. The following documents, which have been filed by American (as defined)
pursuant to the Exchange Act, are incorporated herein by reference and made a
part of this Prospectus: (a) American's Annual Report on Form 10-K for the year
ended December 31, 1996; (b) American's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997; and (c) American's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
The Company's Registration Statement on Form S-4, Registration No.
333-34849, and related Joint Proxy Statement/Prospectus dated September 11, 1997
filed with the Commission under the Securities Act are also incorporated herein
by reference and made a part of this Prospectus.
Each document filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of any offering of securities made by this Prospectus shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such document. Any statement herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for the purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes
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such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document.
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY
PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF
SUCH PERSON, A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED BY
REFERENCE HEREIN (OTHER THAN EXHIBITS NOT SPECIFICALLY INCORPORATED BY REFERENCE
INTO THE TEXTS OF SUCH DOCUMENTS). REQUESTS FOR SUCH DOCUMENTS SHOULD BE
DIRECTED TO: LOUIS DREYFUS NATURAL GAS CORP., 14000 QUAIL SPRINGS PARKWAY, SUITE
600, OKLAHOMA CITY, OKLAHOMA 73134, ATTN: SECRETARY, TELEPHONE NUMBER (405)
749-1300. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY MARCH 16, 1998.
IMPORTANT INFORMATION CONCERNING EXCHANGE OF NOTES
To properly tender Existing Notes, the following procedures must be
followed:
- Each beneficial owner owning interests in Existing Notes ("Beneficial
Owner") through a DTC Participant (as defined) must instruct such DTC
Participant to cause Existing Notes to be tendered in accordance with the
procedures set forth in this Prospectus and in the Letter of Transmittal.
- Each participant (a "DTC Participant") in the Depository Trust Company
("DTC") holding Existing Notes through DTC must (i) electronically
transmit its acceptance to DTC through the DTC Automated Tender Offer
Program ("ATOP"), for which the transaction will be eligible, and DTC will
then edit and verify the acceptance, execute a book-entry delivery to the
account of LaSalle National Bank (the "Exchange Agent") at DTC and send an
Agent's Message (as defined) to the Exchange Agent for its acceptance, or
(ii) comply with the guaranteed delivery procedures set forth under
"Exchange Offer--Guaranteed Delivery Procedures." By tendering through
ATOP, DTC Participants will expressly acknowledge receipt of the
accompanying Letter of Transmittal and agree to be bound by its terms and
the Company will be able to enforce such agreement against such DTC
participants.
- Each registered owner of certificated Existing Notes (a "Holder") must (i)
complete and sign the accompanying Letter of Transmittal, and mail or
deliver such Letter of Transmittal, and all other documents required by
the Letter of Transmittal, together with certificate(s) representing all
tendered Existing Notes, to the Exchange Agent at its address set forth
under "The Exchange Offer--Exchange Agent," or (ii) comply with the
guaranteed delivery procedures set forth under "The Exchange
Offer--Guaranteed Delivery Procedures."
For purposes of this Prospectus, "Tendering Holder" shall mean (i) each DTC
Participant that has properly transmitted (and not properly withdrawn) its
acceptance through ATOP and in respect of which DTC has sent an Agent's Message,
(ii) each Holder that has timely delivered to the Exchange Agent (and not
properly withdrawn) a properly completed and duly executed Letter of
Transmittal, and any other documents required by the Letter of Transmittal,
together with certificate(s) representing all tendered Existing Notes, or (iii)
each DTC Participant or Holder that has complied with the guaranteed delivery
procedures set forth herein.
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The information in this Prospectus concerning DTC and its book-entry systems
has been obtained by the Company from sources that the Company believes to be
reliable, and the Company takes no responsibility for the accuracy thereof.
FORWARD-LOOKING STATEMENTS
ALL STATEMENTS IN THIS PROSPECTUS CONCERNING THE COMPANY OTHER THAN PURELY
HISTORICAL INFORMATION (COLLECTIVELY "FORWARD-LOOKING STATEMENTS") REFLECT THE
CURRENT EXPECTATIONS OF MANAGEMENT AND ARE BASED ON THE COMPANY'S HISTORICAL
OPERATING TRENDS, ITS PROVED RESERVE AND FIXED-PRICE CONTRACT (AS DEFINED
HEREIN) POSITIONS AND OTHER INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. THESE
STATEMENTS ASSUME, AMONG OTHER THINGS, THAT NO SIGNIFICANT CHANGES WILL OCCUR IN
THE OPERATING ENVIRONMENT FOR THE COMPANY'S OIL AND GAS PROPERTIES AND THAT
THERE WILL BE NO MATERIAL ACQUISITIONS OR DIVESTITURES EXCEPT AS DISCLOSED
HEREIN. THE COMPANY CAUTIONS THAT THE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
ALL THE RISKS AND UNCERTAINTIES INCIDENT TO THE ACQUISITION, DEVELOPMENT AND
MARKETING OF, AND EXPLORATION FOR, OIL AND GAS RESERVES. THESE RISKS INCLUDE,
BUT ARE NOT LIMITED TO, COMMODITY PRICE RISKS, COUNTER PARTY RISKS, DRILLING
RISKS, RESERVE, OPERATIONS AND PRODUCTION RISKS, AND RISKS ATTRIBUTABLE TO THE
AMERICAN ACQUISITION (AS DEFINED). CERTAIN OF THESE RISKS ARE DESCRIBED IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN. MOREOVER, THE COMPANY MAY MAKE
MATERIAL ACQUISITIONS, MODIFY ITS FIXED-PRICE CONTRACT POSITIONS BY ENTERING
INTO NEW CONTRACTS OR TERMINATING EXISTING CONTRACTS, OR ENTER INTO FINANCING
TRANSACTIONS. NONE OF THESE CAN BE PREDICTED WITH CERTAINTY AND, ACCORDINGLY,
ARE NOT TAKEN INTO CONSIDERATION IN THE FORWARD-LOOKING STATEMENTS MADE HEREIN.
FOR ALL OF THE FOREGOING REASONS, ACTUAL RESULTS MAY VARY MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS AND THERE IS NO ASSURANCE THAT THE ASSUMPTIONS USED
ARE NECESSARILY THE MOST LIKELY. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION
OR UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES REGARDING ANY CHANGES IN THE
COMPANY'S EXPECTATIONS WITH REGARD TO THE SUBJECT MATTER OF ANY FORWARD-LOOKING
STATEMENTS OR ANY CHANGES IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY
FORWARD-LOOKING STATEMENTS ARE BASED.
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. AS
USED HEREIN AND UNLESS THE CONTEXT REQUIRES OTHERWISE, "LOUIS DREYFUS NATURAL
GAS" OR THE "COMPANY" MEANS LOUIS DREYFUS NATURAL GAS CORP. AND ITS CONSOLIDATED
SUBSIDIARIES.
THE COMPANY
Louis Dreyfus Natural Gas is a large independent energy company engaged in
the acquisition, development and exploration of natural gas and oil properties,
primarily in Texas, Oklahoma and New Mexico, and in the production and marketing
of natural gas and crude oil.
The address of the Company's principal executive offices is 14000 Quail
Springs Parkway, Suite 600, Oklahoma City, OK 73134, and its telephone number is
(405) 749-1300.
RECENT DEVELOPMENTS
AMERICAN ACQUISITION. On October 14, 1997, the Company completed the
acquisition (the "American Acquisition") of American Exploration Company
("American"), a publicly-held independent energy company with exploration and
development activities focused primarily in South Texas, Texas State Waters, the
Cotton Valley Reef Trend in East Texas and the Smackover Trend in Arkansas. The
acquisition consideration paid to the shareholders of American consisted of 11.3
million shares of Company common stock and $47 million of cash. In addition,
$116 million of long-term debt and preferred stock having a liquidation value of
$20 million were assumed by the Company in the transaction. Based on the $23.06
closing price of Company common stock on October 14, 1997, the total
consideration paid plus long-term debt and preferred stock assumed was $444
million.
Over the past two years, the Company and American worked together closely on
certain projects. Through this association, each company gained an appreciation
for their complementary strengths. The Company's strengths include a
substantial, long-lived reserve base, a large inventory of low-risk development
drilling locations and strong oil and gas operating and product marketing
capabilities. American's strengths included a high quality, although
shorter-lived, reserve base, a substantial inventory of high potential
exploratory prospects and strong prospect generating and technical skills.
The American Acquisition combines the complementary strengths of each
organization and creates a larger and more balanced independent exploration and
production company with pro forma proved reserves as of December 31, 1996
totaling approximately 1.2 Tcfe, of which 82% was natural gas and 82% was
developed. The estimated future net revenues of these reserves as of December
31, 1996 was $3.0 billion with a Present Value of $1.5 billion. Pro forma daily
production for the first nine months of 1997 was 304 MMcfe per day resulting in
a Reserve Life Index of 11.2 years. The addition of American's proved reserves,
which increased the Company's proved reserves by 26%, improves the Company's
property mix and operating cash flows available for reinvestment and debt
service.
As a result of the American Acquisition, the Company has a stronger balance
sheet, higher operating cash flows and a more diversified property base, as well
as significant growth potential through a balance of low-risk development (an
estimated 1,350 potential development locations) and higher-risk exploration
drilling.
1997 FINANCIAL RESULTS. On February 3, 1998, the Company announced its
results of operations for the fourth quarter and year ended December 31, 1997.
Excluding the effects of a fourth-quarter impairment charge, the Company
reported net income of $31.1 million, or $1.03 per share, on total revenue of
$232.9 million for the year ended December 31, 1997. This compares with net
income of $21.1 million, or $.76 per share, on total revenue of $189.5 million
for
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1996. The Company reported cash flows from operating activities (before working
capital changes) for the year ended December 31, 1997 of $127.1 million, which
compares to $101.0 million for 1996, an increase of 26%. Cash flows from
operating activities after consideration of working capital changes were $129.8
million for the year ended December 31, 1997 compared to $101.8 million for
1996. The 1997 increase in revenues and operating cash flows was achieved
primarily through growth in oil and gas production and higher oil and gas
prices. The Company reported a net loss of $16.1 million, or $.53 per share,
after the effects of a $75.2 million non-cash impairment charge ($47.1 million
after tax), substantially all of which was recognized as anticipated in
connection with the American Acquisition.
Excluding the non-cash impairment charge, the Company reported net income of
$8.4 million, or $.23 per share, on total revenue of $80.1 million for the
quarter ended December 31, 1997. This compares to net income of $7.8 million, or
$.28 per share, on total revenue of $54.9 million for the fourth quarter of
1996. Cash flows from operating activities (before changes in working capital)
for the fourth quarter of 1997 were sharply higher, increasing 43% to $46.8
million compared to $32.6 million for the fourth quarter of 1996. Cash flows
from operating activities after consideration of working capital changes were
$49.4 million for the fourth quarter of 1997 compared to $32.7 million for the
fourth quarter of 1996. This improvement was primarily attributable to higher
oil and gas production as a result of the American Acquisition. The Company
reported a net loss of $38.7 million, or $1.03 per share, after the effects of
the acquisition impairment charge.
GENERAL
The Company has grown its production and reserves through both acquisitions
and drilling operations. Since 1991, in addition to the American Acquisition,
the Company has completed a significant number of reserve acquisitions including
three acquisitions ranging in size from $87 million to $180 million. Through its
acquisition and leasing programs, the Company has accumulated, as of September
30, 1997 on a pro forma basis, interests in approximately 4.5 million gross (1.3
million net) acres on which to conduct future drilling operations. During the
three years ended December 31, 1996, the Company drilled 745 gross (450 net)
wells with only 34 gross (14 net) dry holes.
For the five-year period ended December 31, 1996 giving pro forma effect to
the American Acquisition, the Company's strategy of growth through acquisitions
and drilling has enabled the Company to realize compound annual growth rates in
production, proved reserves and cash flows provided by operating activities of
39%, 35% and 62%, respectively.
BUSINESS STRATEGY
The Company's business strategy is to achieve consistent growth in
production, reserves and operating cash flows. The Company implements this
strategy through the following:
GROWTH THROUGH DRILLING. In 1994, 1995 and 1996, the Company replaced 116%,
120% and 153%, respectively, of its production, adding 251 Bcfe of proved
reserves through the drill bit (including revisions of previous estimates).
During this three year period, finding and development costs of reserves added
through drilling averaged $.95 per Mcfe. The drilling program is the source of
the Company's internally generated growth and is designed to provide a balance
between lower risk development drilling in areas where multiple productive oil
and gas bearing formations are likely to be encountered, thus reducing dry hole
risk, and higher risk exploration drilling which provides the potential for
greater production and reserve growth. On a pro forma basis, approximately $132
million, or 61%, of the Company's 1997 drilling budget has been allocated to
development activities and the balance of $83 million, or 39%, has been
allocated to exploration activities. Subsequent to the American Acquisition, the
Company has a combined staff of 50 geologists, geophysicists and reservoir and
operations engineers with extensive experience in the areas where its reserves
and acreage are located. The staff also has extensive experience in the use of
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advanced technologies, including 3-D seismic analysis, computer aided mapping
and reservoir simulation modeling.
STRATEGIC ACQUISITIONS. Since January 1, 1990, the Company has completed
proved reserve acquisitions, including the American Acquisition, aggregating
approximately $1 billion and 1.3 Tcfe. The acquisitions have been geographically
concentrated in core areas where the Company possesses considerable expertise
and realizes economies of scale. The Company principally targets acquisitions
which have further development and exploration potential, have a high degree of
operatorship in order to better control the future exploitation of the
properties and can be integrated with minimal incremental administrative cost.
The Company currently operates 70% of its production.
LARGE PROPERTY BASE. The Company owns interests in approximately 10,000
wells primarily located in Texas, Oklahoma and New Mexico. Due to the Company's
large property base, the loss of production due to unexpected well problems is
minimized while the opportunities to generate positive results through the
application of improved production technologies is enhanced. The Company has
five district offices located central to its principal areas and employs 174
pumpers and other field personnel to provide onsite management of its
properties.
PRICE RISK MANAGEMENT. The Company manages a portion of the risks
associated with decreases in prices of natural gas and, to a lesser extent,
crude oil through long-term fixed-price physical delivery contracts and
financial contracts ("Fixed-Price Contracts"). These Fixed-Price Contracts
provide a base of predictable cash flows for a portion of the Company's natural
gas and oil sales. Since 1990 through September 30, 1997, the Company has
generated $40 million in additional operating profits through its price risk
management strategies. At September 30, 1997, the pre-tax present value
(discounted at 10%) of the future net revenues for the Company's Fixed-Price
Contracts, based on the differences between contract prices and forward market
prices, was approximately $153 million. Since April 1996, the Company has not
entered into Fixed-Price Contracts with a term in excess of 12 months due to a
reluctance to sell into the prevailing forward market in which prices trend down
or are essentially flat over the next several years. For the first nine months
of 1997, 56% of the Company's production was hedged by Fixed-Price Contracts.
THE EXCHANGE OFFER
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<S> <C>
EXISTING NOTES...................... The Existing Notes were sold by the Company on
December 11, 1997, to Salomon Brothers Inc, Chase
Securities, Inc., Morgan Stanley & Co. Incorporated,
NationsBanc Montgomery Securities, Inc. and Nesbitt
Burns Securities Inc. (collectively, the "Initial
Purchasers") pursuant to a Purchase Agreement, dated
December 4, 1997 (the "Purchase Agreement"). The
Initial Purchasers subsequently resold the Notes to
qualified institutional buyers pursuant to Rule 144A
under the Securities Act or outside the United States
in compliance with Regulation S under the Securities
Act.
REGISTRATION AGREEMENT.............. Pursuant to the Purchase Agreement, the Company and
the Initial Purchasers entered into the Registration
Agreement, which grants the holders of the Existing
Notes certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
and registration rights which terminate upon the
consummation of the Exchange Offer.
</TABLE>
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SECURITIES OFFERED.................. $200,000,000 aggregate principal amount of 6 7/8%
Senior Notes due 2007, which have been registered
under the Securities Act (the "Exchange Notes").
THE EXCHANGE OFFER.................. The Company is offering to exchange $1,000 principal
amount of Exchange Notes for each $1,000 principal
amount of Existing Notes that are properly tendered
and accepted. The Company will issue Exchange Notes
on or promptly after the Expiration Date. As of the
date hereof, there is $200,000,000 aggregate
principal amount of Existing Notes outstanding. The
terms of the Exchange Notes are identical in all
material respects to the terms of the Existing Notes
for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes are
freely transferable by holders thereof (other than as
provided herein), and are not subject to any covenant
restricting transfer absent registration under the
Securities Act. See "The Exchange Offer." The
Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Existing Notes being
tendered for exchange.
Based on no-action letters issued by the staff of the
Commission to third parties with respect to similar
transactions, including "Exxon Capital Holdings
Corporation" (available May 13, 1988) and "Morgan
Stanley & Co. Incorporated" (available June 5, 1991)
and similar no-action letters, the Company believes
that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Existing Notes may be
offered for resale, resold and otherwise transferred
by holders thereof (other than (i) a broker-dealer
who purchases such Exchange Notes from the Company to
resell pursuant to Rule 144A or any other available
exemption under the Securities Act, or (ii) a person
that is an "affiliate" of the Company within the
meaning of Rule 405 of the Securities Act) without
compliance with the registration and prospectus
delivery requirements of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holders are
not engaged in, have no arrangement or understanding
with any person to participate in, and do not intend
to engage in, any distribution of the Exchange Notes.
However, the Company has not sought a no-action
letter with respect to the Exchange Offer and there
can be no assurance that the staff of the Commission
would make a similar determination with respect to
the Exchange Offer. Each holder of Exchange Notes,
other than a broker-dealer, must represent that such
conditions have been met. In addition, each
broker-dealer that receives Exchange Notes for its
own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Letter of Transmittal accompanying this
Prospectus states that by so acknowledging
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. A
broker-dealer may nevertheless be deemed to be an
"underwriter" under the Securities Act
notwithstanding such disclaimer. This Prospectus, as
it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with
resales of Exchange Notes received in exchange for
Existing Notes where such Existing Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading activities.
Pursuant to the Registration Agreement, the Company
has agreed that, for a period of 180 days (exclusive
of any period during which a stop order shall be in
effect suspending the effectiveness of the
Registration Statement) after the Expiration Date, it
will make this Prospectus available to any
broker-dealer for use in connection with any such
resale. See "The Exchange Offer-- Purpose and Effect
of the Exchange Offer" and "Plan of Distribution."
Any holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes will not be able to rely on the position of the
staff of the Commission enunciated in no-action
letters and, in the absence of an applicable
exemption, must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with any resale transaction.
Failure to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which the
holder is not indemnified by the Company.
EXPIRATION DATE..................... 5:00 p.m., New York City time, on March 23, 1998
unless the Exchange Offer is extended, in which case
the term "Expiration Date" means the latest date and
time to which the Exchange Offer is extended. See
"The Exchange Offer-- Expiration Date; Extensions;
Amendments."
ACCRUED INTEREST OR ACCUMULATED
DIVIDENDS ON THE EXCHANGE NOTES... Each Exchange Note will bear interest from the most
recent date to which interest has been paid on the
Existing Notes or, if no interest has been paid on
such Existing Notes, from December 11, 1997.
EXCHANGE DATE....................... As soon as practicable after the close of the
Exchange Offer, the Company will accept for exchange
all Existing Notes properly tendered and not validly
withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders."
CONDITIONS TO THE EXCHANGE OFFER.... The Exchange Offer is subject to customary
conditions, certain of which may be waived by the
Company. The Company reserves the right to terminate
or amend the Exchange Offer at any time prior to the
Expiration Date
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
upon the occurrence of any such condition. The
Exchange Offer is not conditioned on any minimum
aggregate principal amount of Existing Notes being
tendered for exchange. See "The Exchange
Offer--Conditions."
CONSEQUENCES OF FAILURE TO
EXCHANGE.......................... Any Existing Notes not tendered pursuant to the
Exchange Offer will remain "restricted securities"
under the Securities Act, subject to the transfer
restrictions described herein. As a result, the
liquidity of the market for such Existing Notes could
be adversely affected upon completion of the Exchange
Offer. See "The Exchange Offer--Consequences of
Failure to Exchange."
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES...................... The exchange pursuant to the Exchange Offer should
not be a taxable event for U.S. federal income tax
purposes. See "Certain Federal Income Tax
Consequences."
USE OF PROCEEDS..................... There will be no cash proceeds to the Company from
the Exchange Offer. See "Use of Proceeds."
PROCEDURES FOR TENDERING............ Each beneficial owner owning interests in Existing
Notes through a DTC Participant must instruct such
DTC Participant to cause Existing Notes to be
tendered in accordance with the procedures set forth
in this Prospectus and in the Letter of Transmittal.
See "The Exchange Offer-- Procedures for
Tendering--Existing Notes held through DTC."
Each DTC Participant holding Existing Notes through
DTC must (i) electronically transmit its acceptance
to DTC through ATOP for which the transaction will be
eligible, and DTC will then edit and verify the
acceptance, execute a book-entry delivery to the
Exchange Agent's account at DTC and send an Agent's
Message (as defined herein) to the Exchange Agent for
its acceptance, or (ii) comply with the guaranteed
delivery procedures set forth in this Prospectus and
in the Letter of Transmittal. By tendering through
ATOP, DTC Participants will expressly acknowledge
receipt of the accompanying Letter of Transmittal and
agree to be bound by its terms and the Company will
be able to enforce such agreement against such DTC
participants. See "The Exchange Offer--Procedures for
Tendering--Existing Notes held through DTC" and
"--Guaranteed Delivery Procedures--Existing Notes
held through DTC."
Each Holder must (i) complete and sign a Letter of
Transmittal, and mail or deliver such Letter of
Transmittal, and all other documents required by the
Letter of Transmittal, together with certificate(s)
representing all tendered Existing Notes, to the
Exchange Agent at its address set forth in this
Prospectus and in the Letter of Transmittal, or (ii)
comply with the guaranteed delivery procedures set
forth in this Prospectus. See "The Exchange Offer--
Procedures for Tendering," "--Exchange Agent," and
"--
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Guaranteed Delivery Procedures--Existing Notes held
by Holders." By tendering, each holder will represent
to the Company that, among other things, (i) it is
not an affiliate of the Company, (ii) it is not a
broker-dealer tendering Existing Notes acquired
directly from the Company for its own account, (iii)
the Exchange Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of
business of such holder and (iv) it has no
arrangements or understandings with any person to
participate in the Exchange Offer for the purpose of
distributing the Exchange Notes. See "The Exchange
Offer--Procedures for Tendering."
GUARANTEED DELIVERY PROCEDURES...... DTC Participants holding Existing Notes through DTC
who wish to cause their Existing Notes to be
tendered, but who cannot transmit their acceptances
through ATOP prior to the Expiration Date, may effect
a tender in accordance with the procedures set forth
in this Prospectus and in the Letter of Transmittal.
See "Exchange Offer--Guaranteed Delivery Procedures."
Holders who wish to tender their Existing Notes but
(i) whose Existing Notes are not immediately
available and will not be available for tendering
prior to the Expiration Date, or (ii) who cannot
deliver their Existing Notes, the Letter of
Transmittal, or any other required documents to the
Exchange Agent prior to the Expiration Date, may
effect a tender in accordance with the procedures set
forth in this Prospectus. See "The Exchange
Offer--Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS................... The tender of Existing Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date, in
accordance with the procedures set forth in this
Prospectus. See "The Exchange Offer--Withdrawal of
Tenders."
EXCHANGE AGENT...................... LaSalle National Bank is serving as Exchange Agent in
connection with the Exchange Offer. See "The Exchange
Offer--Exchange Agent."
SHELF REGISTRATION STATEMENT........ Under circumstances described in the Registration
Agreement, certain Initial Purchasers of Existing
Notes may require the Company to file, and use its
best efforts to cause to become effective, a shelf
registration statement under the Securities Act,
which would cover resales of Existing Notes by such
holders. See "Exchange Offer--Purpose and Effect of
the Exchange Offer."
TERMS OF THE EXCHANGE NOTES
SECURITIES OFFERED.................. $200,000,000 principal amount of 6 7/8% Senior Notes
Due 2007, which have been registered under the
Securities Act.
MATURITY............................ The Exchange Notes will mature on December 1, 2007.
INTEREST PAYMENT DATES.............. Interest on the Exchange Notes is payable
semiannually on each June 1 and December 1,
commencing June 1, 1998.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
OPTIONAL REDEMPTION................. The Exchange Notes may be redeemed at any time at the
option of the Company, in whole or from time to time
in part, at a price equal to 100% of the principal
amount thereof plus accrued and unpaid interest to
the date of redemption plus a Make-Whole Premium
relating to the then prevailing Treasury Yield and
the remaining life of the Notes. See Description of
Exchange Notes--Optional Redemption.
CERTAIN COVENANTS................... The Indenture relating to the Exchange Notes will
contain limitations on the Company's ability to (i)
incur certain liens and (ii) engage in certain sale
and leaseback transactions. See Description of
Exchange Notes--Certain Covenants.
RANKING............................. The Exchange Notes will be senior securities of the
Company, ranking PARI PASSU with all other
unsubordinated and unsecured indebtedness of the
Company and senior in right of payment to any
existing or future subordinated indebtedness of the
Company. The Company currently has outstanding $100
million principal amount of 9 1/4% Senior
Subordinated Notes due 2004, which will be
subordinate to the Exchange Notes. The Company's
borrowings under the Bank Credit Facility will rank
PARI PASSU with the Exchange Notes. As of December
31, 1997, the Company had $261 million principal
amount of borrowings outstanding under the Bank
Credit Facility.
USE OF PROCEEDS..................... There will be no cash proceeds to the Company from
the exchanges pursuant to the Exchange Offer.
</TABLE>
13
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth selected historical and pro forma financial
data of the Company at the dates and for the periods indicated. The following
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the consolidated financial
statements and notes thereto and the pro forma financial statements and notes
thereto contained in the reports incorporated in this Prospectus by reference.
The historical financial data as of September 30, 1997 and for the nine months
ended September 30, 1996 and 1997 and the pro forma financial data are
unaudited.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------- ---------------------------------
PRO FORMA PRO FORMA
1992 1993 1994 1995 1996 1996(1) 1996 1997 1997(1)
-------- -------- -------- -------- -------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas sales............. $ 59,821 $ 92,912 $138,584 $163,366 $185,558 $261,786 $131,713 $142,193 $208,900
Other income (loss)(2)........ 630 2,269 1,953 (418) 3,947 4,917 2,941 10,602 10,776
-------- -------- -------- -------- -------- --------- -------- -------- ---------
Total revenues............ 60,451 95,181 140,537 162,948 189,505 266,703 134,654 152,795 219,676
-------- -------- -------- -------- -------- --------- -------- -------- ---------
Operating costs............... 16,217 26,715 33,713 35,352 44,615 67,414 32,705 32,489 49,494
General and administrative.... 6,448 11,822 15,309 16,631 16,325 26,412 12,346 11,899 22,527
Exploration costs............. -- -- -- -- 4,965 23,799 791 5,300 17,008
Provision for uninsured loss
from well blowout........... -- -- -- -- -- -- -- -- 2,770
Depreciation, depletion and
amortization................ 25,148 38,649 53,321 57,796 65,278 106,651 48,766 49,241 84,269
Impairment of oil and gas
properties(3)............... -- -- 5,300 15,694 -- -- -- -- --
Interest...................... 9,939 14,364 16,856 21,736 26,822 33,976 20,202 19,031 24,868
-------- -------- -------- -------- -------- --------- -------- -------- ---------
Total expenses............ 57,752 91,550 124,499 147,209 158,005 258,252 114,810 117,960 200,936
-------- -------- -------- -------- -------- --------- -------- -------- ---------
Income before income taxes.... 2,699 3,631 16,038 15,739 31,500 8,451 19,844 34,835 18,740
Income taxes.................. 820 1,371 5,292 4,722 10,398 3,211 6,548 12,193 7,121
-------- -------- -------- -------- -------- --------- -------- -------- ---------
Net income.................... 1,879 2,260 10,746 11,017 21,102 5,240 13,296 22,642 11,619
Preferred stock dividends..... -- -- -- -- -- 1,800 -- -- 1,350
-------- -------- -------- -------- -------- --------- -------- -------- ---------
Net income to common stock.... $ 1,879 $ 2,260 $ 10,746 $ 11,017 $ 21,102 $ 3,440 $ 13,296 $ 22,642 $ 10,269
-------- -------- -------- -------- -------- --------- -------- -------- ---------
-------- -------- -------- -------- -------- --------- -------- -------- ---------
Net income per common share... $ .09 $ .11 $ .39 $ .40 $ .76 $ .09 $ .48 $ .81 $ .26
Weighted average common shares
outstanding................. 20,000 21,042 27,800 27,800 27,800 39,103 27,800 27,805 39,112
STATEMENT OF CASH FLOWS DATA:
Net cash provided by operating
activities.................. $ 22,272 $ 52,666 $ 80,894 $ 89,515 $101,761 $134,217 $ 69,097 $ 80,459 $105,143
Net cash used in investing
activities.................. 126,666 180,038 102,969 171,540 150,857 250,003 101,691 83,868 168,861
Net cash provided by financing
activities.................. 98,450 138,559 13,701 80,629 55,261 119,898 38,356 6,211 55,749
OTHER FINANCIAL DATA:
EBITDAX(4).................... 40,311 59,169 94,040 111,572 128,565 172,877 89,603 108,407 144,885
Ratio of earnings to fixed
charges(5).................. 1.3x 1.2x 1.9x 1.7x 2.1x 1.1x 1.9x 2.7x 1.5x
Ratio of EBITDAX to interest
expense..................... 4.1x 4.1x 5.6x 5.1x 4.8x 5.1x 4.4x 5.7x 5.8x
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
AS OF DECEMBER 31, -----------------------
------------------------------------------------ PRO
1992 1993 1994 1995 1996 HISTORICAL FORMA(1)
-------- -------- -------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Oil and gas properties, net... $260,451 $432,842 $483,214 $584,900 $652,257 $691,982 $1,059,621
Total assets.................. 290,354 481,488 528,261 634,937 733,613 771,770 1,177,159
Long-term debt, including
current portion............. 191,631 203,955 215,010 314,760 343,907 356,017 521,752
Stockholders' equity.......... 74,166 213,818 224,564 242,581 263,693 286,814 466,231
</TABLE>
(SEE FOOTNOTES ON FOLLOWING PAGE)
14
<PAGE>
(1) The unaudited pro forma income statement data, statement of cash flows data
and other financial data for the year ended December 31, 1996 and for the
nine months ended September 30, 1997 give effect to the American Acquisition
as if it had occurred on January 1, 1996. The unaudited pro forma balance
sheet data as of September 30, 1997 gives effect to the American Acquisition
as if it had occurred on September 30, 1997. Such pro forma data has been
prepared pursuant to regulations prescribed by the Commission. The unaudited
pro forma income statement data, statement of cash flows data and other
financial data do not consider the effects of the cost reduction and
financing plans of management being implemented following the American
Acquisition, nor does such data include the effects of certain purchase
accounting adjustments. The estimated combined financial impact of such
plans and purchase accounting adjustments if included in the pro forma
income statements would be an increase in pro forma pretax earnings of $18.8
million and $12.1 million for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively.
(2) Other income (loss) for the nine months ended September 30, 1997 includes an
$8.5 million gain recognized upon the sale of a non-core West Texas
waterflood property in January 1997.
(3) The 1994 impairment was recorded in connection with the sale of
approximately one-half of the Company's ownership in an offshore property.
The 1995 impairment was recorded in connection with the adoption of SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of." Pro forma amounts do not include a one time
impairment charge to be recorded in connection with the American Acquisition
estimated as of September 30, 1997 to be $72.9 million.
(4) EBITDAX is defined herein as income before interest, income taxes,
depreciation, depletion and amortization, impairments and exploration costs.
The Company believes that EBITDAX is a financial measure commonly used in
the oil and gas industry as an indicator of a company's ability to service
and incur debt. However, EBITDAX should not be considered in isolation or as
a substitute for net income, cash flows provided by operating activities or
other data prepared in accordance with generally accepted accounting
principles, or as a measure of a company's profitability or liquidity.
EBITDAX as presented herein may not be comparable to other similarly titled
measures of other companies.
(5) For purposes of calculating the ratio of earnings to fixed charges, earnings
represents net income before income taxes plus fixed charges, less
capitalized interest. Fixed charges consist of interest expense, including
amortization of debt discount and financing costs, capitalized interest and
the portion of rental expense which the Company believes is representative
of the interest component of rental expense.
15
<PAGE>
SELECTED HISTORICAL AND PRO FORMA OPERATING DATA
The following table sets forth selected historical and pro forma operating
data of the Company at the dates and for the periods indicated. The following
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the consolidated financial
statements and notes thereto and the pro forma financial statements and notes
thereto contained in the reports incorporated in this Prospectus by reference.
The historical operating data for the nine months ended September 30, 1996 and
1997 and the pro forma operating data are unaudited.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------ ---------------------------------
PRO FORMA PRO FORMA
1992 1993 1994 1995 1996 1996(1) 1996 1997 1997(1)
--------- --------- --------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OIL AND GAS SALES (M$):
Oil sales................... $ 20,321 $ 36,058 $ 34,271 $ 30,050 $ 36,174 $ 66,963 $ 25,940 $ 25,237 $ 47,243
Natural gas sales........... 39,500 56,854 104,313 133,316 149,384 194,823 105,773 116,956 161,657
PRODUCTION:
Oil production (MBbls)...... 1,082 2,106 1,873 1,695 1,849 3,638 1,369 1,240 2,439
Natural gas production
(MMcf)..................... 22,158 30,540 43,082 51,264 63,910 86,279 47,576 48,379 68,352
Equivalent production
(MMcfe).................... 28,650 43,179 54,321 61,434 75,004 108,107 55,792 55,819 82,985
Oil production hedged by
Fixed-Price Contracts
(MBbls).................... -- 650 1,698 1,464 1,241 2,449 949 362 1,217
Gas production hedged by
Fixed-Price Contracts
(MMcf)..................... 22,158 28,775 32,308 31,579 32,508 42,931 24,185 29,241 39,131
AVERAGE SALES PRICE:
Oil price (per Bbl)......... $ 18.78 $ 17.12 $ 18.30 $ 17.73 $ 19.56 $ 18.41 $ 18.94 $ 20.35 $ 19.37
Natural gas price (per
Mcf)....................... 1.78 1.86 2.42 2.60 2.34 2.26 2.22 2.42 2.37
Natural gas equivalent price
(per Mcfe)................. 2.09 2.15 2.55 2.66 2.47 2.42 2.36 2.55 2.52
EXPENSES AND COSTS INCURRED
(PER MCFE):
Lease operating expenses.... $ .45 $ .50 $ .51 $ .47 $ .47 $ .49 $ .47 $ .45 $ .46
Production taxes............ .12 .12 .11 .11 .12 .13 .12 .13 .14
General and administrative.. .23 .27 .28 .27 .22 .24 .22 .21 .27
Depreciation, depletion and
amortization--oil and gas
properties................. .85 .85 .92 .88 .82 .93 .82 .82 .96
</TABLE>
- ------------------------------
(1) The unaudited pro forma operating data for the year ended December 31, 1996
and for the nine months ended September 30, 1997 give effect to the American
Acquisition as if it had occurred on January 1, 1996.
16
<PAGE>
SELECTED HISTORICAL AND PRO FORMA RESERVES DATA
The following table sets forth information regarding estimated proved
reserves of the Company as of the dates indicated and the estimated pro forma
proved reserves of the Company as of December 31, 1996 giving effect to the
American Acquisition. Estimated recoverable proved reserves have been determined
without regard to any economic benefit that may be derived from Fixed-Price
Contracts. Such calculations were prepared using standard geological and
engineering methods generally accepted by the petroleum industry and in
accordance with Commission guidelines. Future net revenue is estimated using oil
and gas prices in effect as of the end of each respective year with price
escalations permitted only for those properties that have wellhead contracts
allowing specific increases. Estimated future operating costs are based on
historical operating costs incurred. The amounts shown do not give effect to
indirect expenses such as general and administrative expenses, debt service,
future income tax expense or to depletion, depreciation and amortization.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------------------
PRO FORMA
1992 1993 1994 1995 1996 1996
---------- ------------ ------------ ------------ ------------ ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Estimated Proved Reserves (1):
Natural gas (MMcf).................... 272,691 502,018 574,025 753,919 849,199 1,016,610
Oil (MBbls)........................... 17,305 20,867 19,317 20,360 23,497 37,881
Total (MMcfe)......................... 376,521 627,222 689,924 876,076 990,179 1,243,894
Reserve Replacement Ratio............... 676% 714% 219% 430% 254% 441%
Reserve Life Index (in years)........... 13.1 14.5 12.7 14.3 13.2 11.5
Estimated Future Net Revenues including
Fixed-Price Contracts (1)(2)........... $ 757,650 $ 1,167,940 $ 1,219,760 $ 1,531,501 $ 2,417,430 $ 3,007,462
Present Value including Fixed-Price
Contracts (1)(2)....................... 395,238 588,986 616,005 737,512 1,117,734 1,488,562
Present Value excluding Fixed-Price
Contracts (1)(2)....................... 294,441 455,362 358,766 524,354 1,303,709 1,689,251
</TABLE>
- ------------------------------
(1) Includes for 1996 data relating to a non-core West Texas waterflood property
consisting of 34 Bcfe of proved reserves that was sold in January 1997 for
$27.1 million. Future net revenues and the Present Value attributable to
such property were $68.5 million and $35.9 million, respectively, at
December 31, 1996.
(2) Estimated Future Net Revenues and the Present Value give no effect to
federal or state income taxes attributable to estimated future net revenues.
17
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Agreement. In consideration for issuing the
Exchange Notes contemplated in this Prospectus, the Company will exchange
Existing Notes (in a like principal amount), the form and terms of which are the
same as the form and terms of such Existing Notes, except as otherwise described
herein. The Existing Notes surrendered in exchange for Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of the Company. As such, no effect has been given to the Exchange Offer in the
capitalization table. The Company will not receive any proceeds from the
Exchange Offer. The net proceeds to the Company from the offering of Existing
Notes on December 11, 1997 (the "Existing Notes Offering") were approximately
$197 million (after deduction of discounts to the Initial Purchasers and fees
and expenses relating to such Offering). The net proceeds of the Existing Notes
Offering were used to repay indebtedness incurred and assumed in connection with
the American Acquisition and other amounts outstanding under the Bank Credit
Facility. See "Capitalization." Bank of Montreal, an affiliate of Nesbitt Burns
Securities Inc., The Chase Manhattan Bank, an affiliate of Chase Securities
Inc., and NationsBank of Texas, N.A., an affiliate of NationsBanc Montgomery
Securities, Inc., are agent banks under the Bank Credit Facility and received
their respective proportionate shares of repayment by the Company of the
borrowings outstanding under the Bank Credit Facility from the net proceeds of
the Existing Notes Offering.
In connection with the American Acquisition, the Company entered into a new
Bank Credit Facility that initially provided for an unsecured committed line of
credit of $550 million which terminates on October 14, 2002. In connection with
the issuance of the Existing Notes, the Company reduced the Bank Credit Facility
commitment to $450 million. As of December 31, 1997, the Company had $261
million principal amount of borrowings outstanding under the Bank Credit
Facility. Availability of loans under the Bank Credit Facility is not subject to
a borrowing base requirement unless the Company's long-term senior unsecured
debt is rated less than BBB- by Standard & Poor's Ratings Services and less than
Baa3 by Moody's Investors Service and the majority in interest of the lenders
elect to implement a borrowing base requirement. The Bank Credit Facility limits
the amount of the Company's Debt (as defined therein) to $700 million of which
no more than $625 million may be Senior Debt (as defined therein), prohibits the
Company from granting any liens or mortgages on its properties (subject to
certain exceptions), requires that the Company maintain a Tangible Net Worth (as
defined therein) of at least $400 million plus 50% of the proceeds of any equity
offerings and 50% of consolidated net income (for each quarter for which net
income is greater than zero beginning with the quarter ending December 31, 1997)
and requires the Company to maintain a Funded Debt Ratio (ratio of long-term
Debt to EBITDAX as defined therein) of no more than 4.00 to 1.00. As a result of
the $700 million limitation on Company Debt, the maximum amount that the Company
will be permitted to borrow under the Bank Credit Facility is approximately $400
million for so long as the Notes and the Company's 9 1/4% Senior Subordinated
Notes due 2004 remain outstanding. As of December 31, 1997, the Bank Credit
Facility had an effective interest rate for borrowings of 6.3% per annum, after
giving effect to interest rate swaps.
18
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of the Company at September 30, 1997, (i) on an historical basis,
(ii) giving pro forma effect to the American Acquisition and (iii) pro forma as
adjusted to reflect the foregoing pro forma adjustments, the issuance of the
Notes and the application of the net proceeds therefrom (approximately $197
million).
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................................... $ 10,551 $ 12,003 $ 11,753
---------- ----------- -----------
---------- ----------- -----------
Long-term debt:
Bank credit facility...................................................... $ 257,000 $ 380,114 $ 182,830
6 7/8% Senior Notes due 2007(1)........................................... -- -- 198,784
9 1/4% Senior Subordinated Notes due 2004(2).............................. 99,017 99,017 99,017
11% Senior Subordinated Notes due 2004(3)................................. -- 42,621 42,621
---------- ----------- -----------
Total long-term debt.................................................... 356,017 521,752 523,252
---------- ----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized; issued and
outstanding in one series designated as follows: $450 Cumulative
Convertible Preferred Stock, authorized 4,000 shares; none issued and
outstanding, actual; 4,000 shares issued and outstanding pro forma
(aggregate liquidation value $20,000,000)(4)............................ -- 21,080 21,080
Common stock, $.01 par value, 100,000,000 shares authorized; 27,830,000
shares issued and outstanding, actual; 39,137,385 shares issued and
outstanding pro forma................................................... 278 391 391
Additional paid-in capital................................................ 197,780 401,226 401,226
Retained earnings......................................................... 88,756 43,534 43,534
---------- ----------- -----------
Total stockholders' equity.............................................. 286,814 466,231 466,231
---------- ----------- -----------
Total capitalization.................................................... $ 642,831 $ 987,983 $ 989,483
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------------------
(1) Recorded at face amount after deduction of discount.
(2) Recorded at face amount after deduction of unamortized discount.
(3) Recorded at face amount of $35 million plus the "make whole premium"
incurred upon prepayment of such notes by the Company on November 17, 1997.
Such prepayment was made through availability under the Bank Credit
Facility.
(4) Recorded at redemption value as of December 31, 1997, the date upon which
the $450 Cumulative Convertible Preferred Stock (the "Convertible Preferred
Stock") first became redeemable. On December 31, 1997, the Company redeemed
all outstanding shares of Convertible Preferred Stock. As an alternative to
redemption, the holders of Convertible Preferred Stock were entitled to
convert their shares into Company common stock and cash prior to the
redemption date. The Company issued 940,649 shares of Company common stock
and $3.9 million in cash upon conversion of Convertible Preferred Stock
prior to the redemption date and paid an aggregate of $.4 million to redeem
the remaining shares of Convertible Preferred Stock.
19
<PAGE>
THE COMPANY
Louis Dreyfus Natural Gas is a large independent energy company engaged in
the acquisition, development and exploration of natural gas and oil properties,
primarily in Texas, Oklahoma and New Mexico, and in the production and marketing
of natural gas and crude oil.
RECENT DEVELOPMENTS
AMERICAN ACQUISITION. On October 14, 1997, the Company completed the
acquisition of American, a publicly-held independent energy company with
exploration and development activities focused primarily in South Texas, Texas
State Waters, the Cotton Valley Reef Trend in East Texas and the Smackover Trend
in Arkansas. The acquisition consideration paid to the shareholders of American
consisted of 11.3 million shares of Company common stock and $47 million of
cash. In addition, $116 million of long-term debt and preferred stock having a
liquidation value of $20 million were assumed by the Company in the transaction.
Based on the $23.06 closing price of Company common stock on October 14, 1997,
the total consideration paid plus long-term debt and preferred stock assumed was
$444 million.
Over the past two years, the Company and American worked together closely on
certain projects. Through this association, each company gained an appreciation
for their complementary strengths. The Company's strengths include a
substantial, long-lived reserve base, a large inventory of low-risk development
drilling locations and strong oil and gas operating and product marketing
capabilities. American's strengths included a high quality, although
shorter-lived, reserve base, a substantial inventory of high potential
exploratory prospects and strong prospect generating and technical skills.
The American Acquisition combines the complementary strengths of each
organization and creates a larger and more balanced independent exploration and
production company with pro forma proved reserves as of December 31, 1996
totaling approximately 1.2 Tcfe of which 82% was natural gas and 82% was
developed. The estimated future net revenues of these reserves as of December
31, 1996 was $3.0 billion with a Present Value of $1.5 billion. Pro forma daily
production for the first nine months of 1997 was 304 MMcfe per day resulting in
a Reserve Life Index of 11.2 years. The addition of American's proved reserves,
which increased the Company's proved reserves by 26%, improves the Company's
property mix and operating cash flows available for reinvestment and debt
service.
As a result of the American Acquisition, the Company has a stronger balance
sheet, higher operating cash flows and a more diversified property base, as well
as significant growth potential through a balance of low-risk development (an
estimated 1,350 potential development locations) and higher-risk exploration
drilling.
1997 FINANCIAL RESULTS. On February 3, 1998, the Company announced its
results of operations for the fourth quarter and year ended December 31, 1997.
Excluding the effects of a fourth-quarter impairment charge, the Company
reported net income of $31.1 million, or $1.03 per share, on total revenue of
$232.9 million for the year ended December 31, 1997. This compares with net
income of $21.1 million, or $.76 per share, on total revenue of $189.5 million
for 1996. The Company reported cash flows from operating activities (before
working capital changes) for the year ended December 31, 1997 of $127.1 million,
which compares to $101.0 million for 1996, an increase of 26%. Cash flows from
operating activities after consideration of working capital changes were $129.8
million for the year ended December 31, 1997 compared to $101.8 million for
1996. The 1997 increase in revenues and operating cash flows was achieved
primarily through growth in oil and gas production and higher oil and gas
prices. The Company reported a net loss of $16.1 million, or $.53 per share,
after the effects of a $75.2 million non-cash impairment charge ($47.1 million
after tax), substantially all of which was recognized as anticipated in
connection with the American Acquisition.
Excluding the non-cash impairment charge, the Company reported net income of
$8.4 million, or $.23 per share, on total revenue of $80.1 million for the
quarter ended December 31, 1997. This compares to
20
<PAGE>
net income of $7.8 million, or $.28 per share, on total revenue of $54.9 million
for the fourth quarter of 1996. Cash flows from operating activities (before
changes in working capital) for the fourth quarter of 1997 were sharply higher,
increasing 43% to $46.8 million compared to $32.6 million for the fourth quarter
of 1996. Cash flows from operating activities after consideration of working
capital changes were $49.4 million for the fourth quarter of 1997 compared to
$32.7 million for the fourth quarter of 1996. This improvement was primarily
attributable to higher oil and gas production as a result of the American
Acquisition. The Company reported a net loss of $38.7 million, or $1.03 per
share, after the effects of the acquisition impairment charge.
GENERAL
The Company has grown its production and reserves through both acquisitions
and drilling operations. Since 1991, in addition to the American Acquisition,
the Company has completed a significant number of reserve acquisitions including
three acquisitions ranging in size from $87 million to $180 million. Through its
acquisition and leasing programs, the Company has accumulated, as of September
30, 1997 on a pro forma basis, interests in approximately 4.5 million gross (1.3
million net) acres on which to conduct future drilling operations. During the
three years ended December 31, 1996, the Company drilled 745 gross (450 net)
wells with only 34 gross (14 net) dry holes.
For the five-year period ended December 31, 1996 giving pro forma effect to
the American Acquisition, the Company's strategy of growth through acquisitions
and drilling has enabled the Company to realize compound annual growth rates in
production, proved reserves and cash flows provided by operating activities of
39%, 35% and 62% respectively.
BUSINESS STRATEGY
The Company's business strategy is to achieve consistent growth in
production, reserves and operating cash flows. The Company implements this
strategy through the following:
GROWTH THROUGH DRILLING. In 1994, 1995 and 1996, the Company replaced 116%,
120% and 153%, respectively, of its production, adding 251 Bcfe of proved
reserves through the drill bit (including revisions of previous estimates).
During this three year period, finding and development costs of reserves added
through drilling averaged $.95 per Mcfe. The drilling program is the source of
the Company's internally generated growth and is designed to provide a balance
between lower risk development drilling in areas where multiple productive oil
and gas bearing formations are likely to be encountered, thus reducing dry hole
risk, and higher risk exploration drilling which provides the potential for
greater production and reserve growth. On a pro forma basis, approximately $132
million, or 61%, of the Company's 1997 drilling budget has been allocated to
development activities and the balance of $83 million, or 39%, has been
allocated to exploration activities. Subsequent to the American Acquisition, the
Company has a combined staff of 50 geologists, geophysicists and reservoir and
operations engineers with extensive experience in the areas where its reserves
and acreage are located. The staff also has extensive experience in the use of
advanced technologies, including 3-D seismic analysis, computer aided mapping
and reservoir simulation modeling.
STRATEGIC ACQUISITIONS. Since January 1, 1990, the Company has completed
proved reserve acquisitions, including the American Acquisition, aggregating
approximately $1 billion and 1.3 Tcfe. The acquisitions have been geographically
concentrated in core areas where the Company possesses considerable expertise
and realizes economies of scale. The Company principally targets acquisitions
which have further development and exploration potential, have a high degree of
operatorship in order to better control the future exploitation of the
properties and can be integrated with minimal incremental administrative cost.
The Company currently operates 70% of its production.
21
<PAGE>
LARGE PROPERTY BASE. The Company owns interests in approximately 10,000
wells primarily located in Texas, Oklahoma and New Mexico. Due to the Company's
large property base, the loss of production due to unexpected well problems is
minimized while the opportunities to generate positive results through the
application of improved production technologies is enhanced. The Company has
five district offices located central to its principal areas and employs 174
pumpers and other field personnel to provide onsite management of its
properties.
PRICE RISK MANAGEMENT. The Company manages a portion of the risks
associated with decreases in prices of natural gas and, to a lesser extent,
crude oil through Fixed-Price Contracts. The Company's Fixed-Price Contracts
provide a base of predictable cash flows for a portion of the Company's natural
gas and oil sales. Since 1990 through September 30, 1997, the Company has
generated $40 million in additional operating profits through its price risk
management strategies. At September 30, 1997, the pre-tax present value
(discounted at 10%) of the future net revenues for the Company's Fixed-Price
Contracts, based on the differences between contract prices and forward market
prices, was approximately $153 million. Since April 1996, the Company has not
entered into Fixed-Price Contracts with a term in excess of 12 months due to a
reluctance to sell into the prevailing forward market in which prices trend down
or are essentially flat over the next several years. For the first nine months
of 1997, 56% of the Company's production was hedged by Fixed-Price Contracts.
CORE AREAS
The following table sets forth certain information regarding the five core
areas where the Company conducts its principal production, development and
exploration activities.
<TABLE>
<CAPTION>
POTENTIAL
PROVED DAILY GROSS PRODUCING GROSS DRILL
RESERVES(BCFE)(1) PRODUCTION(2) WELLS(3) ACREAGE(3) SITES(3)(4)
------------------- ----------------- ----------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Sonora............................. 505 82 1,680 342,136 575
Mid-Continent...................... 421 99 4,062 916,114 300
Permian............................ 147 38 3,205 1,530,068 500
Gulf Coast......................... 91 40 1,000 609,055 150
Offshore........................... 80 45 83 177,633 30
----- --- ------ ---------- -----
1,244 304 10,030 3,575,006 1,555
----- --- ------ ---------- -----
----- --- ------ ---------- -----
</TABLE>
- ------------------------
(1) As of December 31, 1996 on a pro forma basis giving effect to the American
Acquisition.
(2) Average net daily production for the nine months ended September 30, 1997 on
a pro forma basis giving effect to the American Acquisition.
(3) As of September 30, 1997 on a pro forma basis giving effect to the American
Acquisition.
(4) Includes identified exploration leads.
One of the Company's strategic objectives is to concentrate its activities
in core geographic areas in which it has experience and expertise. Such
geographic concentration permits the Company to achieve economies of scale in
connection with its drilling, production and marketing operations. There is
substantial synergy between the Company's oil and gas properties and the
properties acquired from American. Approximately 70% of the proved reserves
acquired in the American Acquisition are located in, or in close proximity to,
geographic locations in which the Company already owned proved reserves,
primarily in the Gulf Coast and Mid-Continent areas. In addition, the Company
will continue to pursue exploration projects in South Texas and in the Cotton
Valley Reef Trend in East Texas in which American and the Company were jointly
and independently participating before the American Acquisition.
22
<PAGE>
SONORA AREA
The Sonora area, located on the northeast side of the Val Verde Basin of
West Central Texas is comprised of five fields, Sawyer, Shurley Ranch, MMW,
Aldwell Ranch and Whitehead. Production is predominantly from the Canyon
formation at depths ranging from 2,500 to 6,500 feet and the Strawn formation at
depths ranging from 5,000 to 9,000 feet. The Company has executed an aggressive
developmental drilling program in the Sonora area since 1993 and has significant
further opportunities through infill drilling (40 acre density) and recompletion
possibilities. For 1998, the Company plans to drill approximately 128 wells in
the Sonora area. The Company has identified 575 undrilled locations of which 111
have been assigned proved undeveloped reserves.
MID-CONTINENT AREA
The Company's properties in the Mid-Continent area are primarily located in
and along the shelf of the Anadarko basin and in Southern Oklahoma. Production
is predominantly natural gas from numerous formations of Pennsylvanian and
Pre-Pennsylvanian aged rock. Productive depths range from 3,000 to 17,000 feet.
For 1998, the Company plans to drill approximately 112 wells in the
Mid-Continent area. The Company has identified 300 potential undrilled locations
of which 100 have been assigned proved undeveloped reserves.
SON OF BEVO. The Company is operator of and holds a 35% working interest in
this Texas Panhandle prospect. The target zone is the Upper Morrow at a depth at
10,000 feet. After evaluating the results of a 30 square mile 3-D seismic shoot,
the Company drilled five wells in the prospect, successfully completing four
wells with combined initial production rates of 9.5 MMcfe per day.
PERMIAN AREA
The Company is actively involved in drilling development and exploration
wells in the Delaware basin of Southeast New Mexico and the Val Verde basin and
Spraberry trend of West Texas. The primary drilling objectives in this region
are the Delaware, Spraberry, Wolfcamp and Morrow sands. For 1998, the Company
plans to drill approximately 62 wells in the Permian area. The Company has
identified 500 undrilled locations, of which 221 have been assigned proved
undeveloped reserves.
PITCHFORK RANCH. The Company has an option to shoot seismic, acquire leases
and drill on approximately 140,000 acres of the Pitchfork Ranch located in North
Texas over the next three years. The Company will be operator with at least a
77.5% working interest. Target zones are the Tannehill sand at a depth of 4,500
feet and the Strawn lime at 5,500 feet. The Company has completed a 30 square
mile 3-D seismic project in the southern portion of the Pitchfork Ranch and, in
September 1997, commenced drilling the first of seven wells planned before
year-end. As of December 31, 1997, the Company had drilled three discoveries and
one development well with combined initial production of 450 Bbls per day.
GULF COAST AREA
The Company's properties in the Gulf Coast area consist of varying interests
in the A.W.P. (Olmos) Field and the North Tatum Field in East Texas as well as
prospective Frio and Wilcox production in the Yoakum Gorge and Southwest Speaks
fields and pinnacle reef production in the Cotton Valley Reef Trend.
YOAKUM GORGE. The Yoakum Gorge prospect, in which the Company has
approximately an 87.5% working interest, is located in Lavaca County, Texas.
Earlier this year, the Company completed the acquisition of 150 square miles of
high-fold 3-D seismic data and began evaluating drilling opportunities on its
60,000 gross acres. The Company began drilling for the shallow targets in 1995
and has successfully completed 23 of 27 wells. The Company expects to drill
approximately 22 shallow wells during 1998. The first Lower Wilcox test was
recently drilled to a total depth of approximately 15,700 feet and logged
approximately 180 feet of pay in multiple Lower Wilcox sands. This well tested
at an initial production rate
23
<PAGE>
in excess of 7 MMcfe per day from two of 12 productive sands. The Company owns a
100% working interest in this discovery.
SOUTHWEST SPEAKS. The Company has a 45% working interest in this Lower
Wilcox project, which is located east of Yoakum Gorge. Over the past 18 months,
the Company has drilled and completed four wells in this project and a fifth
well is currently being drilled. Current gross production is 21 MMcf per day
with additional volumes expected as the result of well stimulation plans and a
recent production facility upgrade.
COTTON VALLEY REEF TREND. The Company has varying interests in
approximately 100,000 acres in the Cotton Valley Reef Trend of East Texas. Last
month, the Company finished drilling operations on its initial pinnacle reef
target and logged approximately 240 feet of pay in the Cotton Valley Reef. The
Company owns a 62% working interest in this discovery with initial production
anticipated in the first quarter of 1998. The Company has acquired 3-D seismic
data on approximately 130 square miles within the Cotton Valley Reef Trend and
currently plans to drill two to four wells in the Cotton Valley Reef Trend
during 1998.
OFFSHORE AREA
The Company owns varying interests in ten operated platforms in the Gulf of
Mexico in water depths ranging from 20 to 245 feet and owns varying interests in
eight nonoperated platforms. In the Gulf of Mexico, the Company's present
leasing and seismic acquisition activities are focused in Texas State Waters in
water depths ranging from 20 to 60 feet. With the advent of ocean bottom
cabling, high quality 3-D seismic data can now be acquired in the shallow
waters. The Company presently has acquired 2,100 miles of recently shot seismic
data. The Company plans to drill up to 11 prospects during 1998 and has
contracted for a drilling rig scheduled to commence drilling in February 1998.
The Oil Pollution Act, as recently amended ("OPA"), requires the lessee or
permittee of the offshore area in which a covered offshore facility is located
to establish and maintain evidence of financial responsibility in the amount of
$35 million, which may be increased to $150 million in certain circumstances, to
cover liabilities related to an oil spill for which such person is statutorily
responsible. On March 25, 1997, the Minerals Management Service ("MMS") proposed
regulations to implement these financial responsibility requirements under OPA.
The Company cannot predict the final form of any financial responsibility
regulations that will be adopted by the MMS, but the impact of any such
regulations should not be any more adverse to the Company than it will be to
other similarly situated companies. OPA also subjects responsible parties to
strict, joint and several and potentially unlimited liability for removal costs
and certain other damages caused by an oil spill covered by the statute.
NIAGARA MOHAWK MATTERS
The Company is a party to two Fixed-Price Contracts, both long-term physical
delivery contracts, with independent power producers ("IPPs") which sell
electrical power under firm, fixed-price contracts to Niagara Mohawk Corporation
("NIMO"), a New York state utility. The Company's Fixed-Price Contracts with
such IPPs covered an aggregate of 98 Bcf of natural gas as of September 30,
1997. At September 30, 1997, the net present value of the differential between
the fixed prices provided by these contracts and forward market prices, as
adjusted for basis and discounted at 10%, was $123 million, or 80% of the net
present value attributable to all of the Company's Fixed-Price Contracts. This
premium in the fixed prices in these contracts is not reflected in the Company's
financial statements until realized. Such contracts contributed $0.9 million to
1996 revenues. The ability of such IPPs to perform their obligations to the
Company is dependent on the continued performance by NIMO of its power purchase
obligations. NIMO has taken aggressive regulatory, judicial and contractual
actions in recent years seeking to curtail power purchase obligations, including
its obligations to the IPPs that are counterparties to the Company's Fixed-
24
<PAGE>
Price Contracts described above, and has further stated that its future
financial prospects are dependent on its ability to resolve these obligations,
along with a number of other matters.
On July 9, 1997, NIMO entered into a Master Restructuring Agreement (the
"MRA") with 16 IPPs, including the Company's counterparties. Pursuant to the
MRA, the power purchase agreements between NIMO and the IPPs would be
terminated, restated or amended, in exchange for an aggregate of $3.6 billion in
cash, $50 million in notes or cash, 46 million shares of NIMO common stock and
certain fixed-price swap contracts. The allocation of the consideration among
the IPPs has not been disclosed. The closing of the MRA is conditioned upon,
among other things, NIMO and the IPPs negotiating their individual restated and
amended contracts, the receipt of all regulatory approvals, the receipt of all
consents by third parties necessary for the transactions contemplated by the MRA
(including the termination of the existing power purchase contracts and the
termination or amendment of all related third party agreements), the IPPs
entering into new third party arrangements which will enable each IPP to
restructure its projects on a reasonably satisfactory economic basis, NIMO
having completed all necessary financing arrangements and NIMO and the IPPs
having received all necessary approvals from their respective boards of
directors, shareholders and partners.
Discussions between the Company and its IPP counterparties have commenced.
Any proceeds received in consideration of termination of a Fixed-Price Contract
would be used to repay indebtedness outstanding under the Bank Credit Facility
and would be reflected in the Company's balance sheet as deferred hedging gains
to be amortized into oil and gas revenues over the original life of the
underlying contracts. However, the amount of any proceeds to be received by the
Company is subject to negotiation with the Company's counterparties and
contingent upon the counterparties participating in the closing of the MRA. At
this time, the Company cannot predict whether the conditions precedent to the
closing of the MRA will ultimately be satisfied. Negotiations with the Company's
counterparties are governed by confidentiality agreements. Cancellation of the
contracts would subject a greater portion of the Company's oil and gas
production to market prices, which in a low oil and gas price environment could
adversely affect the carrying value of the Company's oil and gas properties and
could otherwise have an adverse effect on the Company.
25
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
The Existing Notes are and the Exchange Notes will be issued under an
Indenture, dated as of December 11, 1997 (the "Indenture"), between the Company
and LaSalle National Bank, as Trustee (the "Trustee"). The terms of the Exchange
Notes and the Existing Notes are identical in all material respects, except for
certain transfer restrictions relating to the Existing Notes. The Exchange Notes
will bear interest from the most recent date to which interest has been paid on
the Existing Notes or, if no interest has been paid on the Existing Notes, from
December 11, 1997. Accordingly, registered holders of Exchange Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid on the Existing Notes or, if no
interest has been paid, from December 11, 1997. Existing Notes accepted for
exchange will cease to accrue interest from and after the date of consummation
of the Exchange Offer. Holders whose Existing Notes are accepted for exchange
will not receive any payment in respect of interest on such Existing Notes
otherwise payable on any interest payment date the record date for which occurs
on or after consummation of the Exchange Offer.
TERMS OF THE EXCHANGE NOTES
The Exchange Notes will be unsecured senior obligations of the Company,
limited to $200 million aggregate principal amount, and will mature on December
1, 2007. The Exchange Notes will bear interest at the rate per annum shown on
the cover page hereof from December 11, 1997, or from the most recent date to
which interest has been paid or provided for, payable semiannually to Holders of
record at the close of business on the May 15 or November 15 immediately
preceding the interest payment date on June 1 and December 1 of each year,
commencing June 1, 1998. The Company will pay interest on overdue principal at
1% per annum in excess of such rate, and it will pay interest on overdue
installments of interest at such higher rate to the extent lawful. Interest will
be paid on a 360-day year, twelve 30-day month basis.
The interest rate on the Exchange Notes is subject to increase in certain
circumstances if the Company does not file a registration statement relating to
the Exchange Offer or if the registration statement is not declared effective on
a timely basis or if certain other conditions are not satisfied, all as further
described under "The Exchange Offer; Registration Rights."
OPTIONAL REDEMPTION
The Exchange Notes will be redeemable at any time, at the option of the
Company, in whole or from time to time in part, upon not less than 30 and not
more than 60 days' notice as provided in the Indenture, on any date prior to
maturity (the "Redemption Date") at a price equal to 100% of the principal
amount thereof plus accrued interest to the Redemption Date (subject to the
right of Holders of record on the relevant record date to receive interest due
on an interest payment date that is on or prior to the Redemption Date) plus a
Make-Whole Premium, if any (the "Redemption Price"). In no event will the
Redemption Price ever be less than 100% of the principal amount of the Exchange
Notes plus accrued interest to the Redemption Date.
The amount of the Make-Whole Premium with respect to any Exchange Note (or
portion thereof) to be redeemed will be equal to the excess, if any, of:
(i) the sum of the present values, calculated as of the Redemption Date,
of:
(A) each interest payment that, but for such redemption, would have
been payable on the Exchange Note (or portion thereof) being redeemed on
each interest payment date occurring after the Redemption Date (excluding
any accrued interest for the period prior to the Redemption Date); and
26
<PAGE>
(B) the principal amount that, but for such redemption, would have
been payable at the final maturity of the Exchange Note (or portion
thereof) being redeemed; over
(ii) the principal amount of the Exchange Note (or portion thereof)
being redeemed.
The present values of interest and principal payments referred to in clause
(i) above will be determined in accordance with generally accepted principles of
financial analysis. Such present values will be calculated by discounting the
amount of each payment of interest or principal from the date that each such
payment would have been payable, but for the redemption, to the Redemption Date
at a discount rate equal to the Treasury Yield (as defined below) plus 20 basis
points.
The Make-Whole Premium will be calculated by an independent investment
banking institution of national standing appointed by the Company; PROVIDED that
if the Company fails to make such appointment at least 45 business days prior to
the Redemption Date, or if the institution so appointed is unwilling or unable
to make such calculation, such calculation will be made by Salomon Brothers Inc
or, if such firm is unwilling or unable to make such calculation, by an
independent investment banking institution of national standing appointed by the
Trustee (in any such case, an "Independent Investment Banker").
For purposes of determining the Make-Whole Premium, "Treasury Yield" means a
rate of interest per annum equal to the weekly average yield to maturity of
United States Treasury Notes that have a constant maturity that corresponds to
the remaining term to maturity of the Exchange Notes, calculated to the nearest
1/12th of a year (the "Remaining Term"). The Treasury Yield will be determined
as of the third business day immediately preceding the applicable Redemption
Date.
The weekly average yields of United States Treasury Notes will be determined
by reference to the most recent statistical release published by the Federal
Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or
any successor release (the "H.15 Statistical Release"). If the H.15 Statistical
Release sets forth a weekly average yield for United States Treasury Notes
having a constant maturity that is the same as the Remaining Term, then the
Treasury Yield will be equal to such weekly average yield. In all other cases,
the Treasury Yield will be calculated by interpolation, on a straight-line
basis, between the weekly average yields on the United States Treasury Notes
that have a constant maturity closest to and greater than the Remaining Term and
the United States Treasury Notes that have a constant maturity closest to and
less than the Remaining Term (in each case as set forth in the H.15 Statistical
Release). Any weekly average yields so calculated by interpolation will be
rounded to the nearest 1/100th of 1%, with any figure of 1/200th of 1% or above
being rounded upward. If weekly average yields for United States Treasury Notes
are not available in the H.15 Statistical Release or otherwise, then the
Treasury Yield will be calculated by interpolation of comparable rates selected
by the Independent Investment Banker.
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in original principal amount or less shall be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
RANKING
The indebtedness evidenced by the Existing Notes is and the indebtedness
evidenced by the Exchange Notes will be senior unsecured obligations of the
Company, will rank PARI PASSU in right of payment with all existing and future
senior indebtedness of the Company and will be senior in right of payments to
all existing and future subordinated indebtedness of the Company. As of December
31, 1997, the Company
27
<PAGE>
had $261 million principal amount of borrowings outstanding under the Bank
Credit Facility, with which the Notes would rank PARI PASSU.
BOOK-ENTRY, DELIVERY AND FORM
Except as described below, the Notes will initially be issued in the form of
one or more Global Notes. The Global Notes will be deposited with, or on behalf
of, the Depository and registered in the name of the Depository or its nominee.
Except as set forth below, the Global Notes may be transferred, in whole and not
in part, only to the Depository or another nominee of the Depository. Investors
may hold their beneficial interests in the Global Notes directly through the
Depository if they have an account with the Depository or indirectly through
organizations which have accounts with the Depository.
Upon the transfer of a Note in definitive form, such Note will, unless the
Global Notes have previously been exchanged for Notes in definitive form, be
exchanged for an interest in the Global Notes representing the principal amount
of Notes being transferred, with certain exceptions for transfers pursuant to
Rule 144.
Notes originally purchased by persons outside the United States pursuant to
sales in accordance with Regulation S under the Securities Act will be
represented upon issuance by a temporary global Note certificate in fully
registered form without interest coupons (the "Temporary Certificate") which
will not be exchangeable for certificated Notes until the expiration of the
"40-day restricted period" within the meaning of Rule 903(c)(3) of Regulation S
under the Securities Act. The Temporary Note will be registered in the name of,
and held by, a temporary certificate holder until the expiration of such 40-day
period, at which time the Temporary Certificate will be delivered to the Trustee
in exchange for certificated Notes registered in the names requested by such
temporary certificate holder.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depository's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly (collectively, the "indirect participants").
Holders who are not participants may beneficially own securities held by or on
behalf of the Depository only through participants or indirect participants.
Upon the issuance of the Global Notes, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the Notes
represented by such Global Notes to the accounts of participants. The accounts
to be credited shall be designated by the Initial Purchasers of such Notes.
Ownership of beneficial interests in the Global Notes will be limited to
participants or persons that may hold interests through participants. Any person
acquiring an interest in a Global Note through an offshore transaction in
reliance on Regulation S may hold such interest through CEDEL or Euroclear.
Ownership of beneficial interests in the Global Notes will be shown on, and the
transfer of those ownership interests will be effected only through, records
maintained by the Depository (with respect to participants' interest) and such
participants (with respect to the owners of beneficial interests in the Global
Notes other than participants). The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Notes.
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So long as the Depository, or its nominee, is the registered holder and
owner of the Global Notes, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Notes for all
purposes of such Notes and the Indenture. Except as set forth below, owners of
beneficial interests in the Global Notes will not be entitled to have the Notes
represented by the Global Notes registered in their names, will not receive or
be entitled to receive physical delivery of certificated Notes in definitive
form and will not be considered to be the owners or holders of any Notes under
the Global Notes. The Company understands that under existing industry practice,
in the event an owner of a beneficial interest in the Global Notes desires to
take any action that the Depository, as the holder of the Global Notes, is
entitled to take, the Depository would authorize the participants to take such
action, and that the participants would authorize beneficial owners owning
through such participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Payment of principal and interest on Notes represented by the Global Notes
registered in the name of and held by the Depository or its nominee will be made
to the Depository or its nominee, as the case may be, as the registered owner
and holder of the Global Notes.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Notes, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Notes as
shown on the records of the Depository or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in the Global
Notes held through such participants will be governed by standing instructions
and customary practices and will be the responsibility of such participants. The
Company will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the Global Notes for any Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for any
other aspect of the relationship between the Depository and its participants or
the relationship between such participants and the owners of beneficial
interests in the Global Notes owning through such participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the Global Notes may not be transferred except as a whole by
the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
The Notes represented by the Global Notes are exchangeable for certificated
Notes in definitive form of like tenor as such Notes in denominations of U.S.
$1,000 and integral multiples thereof if (i) the Depository notifies the Company
that it is unwilling or unable to continue as Depository for the Global Notes or
if at any time the Depository ceases to be a clearing agency registered under
the Exchange Act and a successor Depository is not appointed by the Company
within 90 days, (ii) the Company in its discretion at any time determines not to
have all of the Notes represented by the Global Notes, (iii) an Event of Default
has occurred and is continuing or (iv) upon the occurrence of certain other
events. Any Note that is exchangeable pursuant to the preceding sentence is
exchangeable for certificated Notes issuable in authorized denominations and
registered in such names as the Depository shall direct. Subject to the
foregoing, the Global Notes are not exchangeable, except for a Global Note of
the same aggregate denomination to be registered in the name of the Depository
or its nominee.
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SAME-DAY PAYMENT
The Indenture requires that payments in respect of Notes (including
principal, premium and interest) be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address.
CERTAIN COVENANTS
The Indenture does not limit the amount of indebtedness or other obligations
that may be incurred by the Company and its subsidiaries and does not contain
provisions which would give holders of the Notes the right to require the
Company to repurchase their Notes in the event of a decline in the credit rating
of the Company's debt securities. The Indenture contains covenants including,
among others, the following:
LIMITATION ON LIENS. The Indenture provides that the Company will not, and
will not permit any of its Subsidiaries to, create, incur or otherwise cause or
suffer to exist or become effective any Liens of any kind upon any Principal
Property or any shares of stock or Indebtedness of any Subsidiary that owns or
leases any Principal Property (whether such Principal Property, shares of stock
or Indebtedness are now owned or hereafter acquired) unless all payments due
under the Indenture and the Notes are secured on an equal and ratable basis with
the obligations so secured until such time as such obligation is no longer
secured by a Lien, except for Permitted Liens. See also "Exempted Indebtedness"
below.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Indenture provides that
neither the Company nor any Subsidiary will enter into any Sale and Leaseback
Transaction with respect to any Principal Property unless either (a) the Company
or such Subsidiary would be entitled, pursuant to the provisions of the
Indenture, to incur Indebtedness secured by a Lien on the property to be leased
without equally and ratably securing the Notes or (b) the Company, within 180
days after the effective date of such transaction, applies to the voluntary
retirement of its funded debt an amount equal to the value of such transaction,
defined as the greater of the net proceeds of the sale of the property leased in
such transaction or the fair value, in the opinion of the Board of Directors, of
the leased property at the time such transaction was entered into. See also
"Exempted Indebtedness" below.
EXEMPTED INDEBTEDNESS. Notwithstanding the foregoing limitations on Liens
and Sale and Leaseback Transactions, the Company and its Subsidiaries may issue,
assume, or guarantee Indebtedness secured by a Lien without securing the Notes,
or may enter into Sale and Leaseback Transactions without retiring funded debt,
or enter into a combination of such transactions, if the sum of the principal
amount of all such Indebtedness and the aggregate value of all such Sale and
Leaseback Transactions does not at any time exceed 15% of the Adjusted
Consolidated Net Tangible Assets of the Company.
MERGER AND CONSOLIDATION. The Indenture provides that the Company, without
the consent of the Holders of any of the outstanding Notes, may consolidate with
or merge into any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person or may permit any Person to
consolidate with or merge into, or transfer or lease its properties
substantially as an entirety to, the Company; PROVIDED that (a) the successor,
transferee or lessee is organized under the laws of any United States
jurisdiction; (b) the successor, transferee or lessee, if other than the
Company, expressly assumes the Company's obligations under the Indenture and the
Notes by means of a supplemental indenture entered into with the Trustee; (c)
after giving effect to the transaction, no Default shall have occurred and be
continuing; and (d) certain other conditions are met.
Under any consolidation by the Company with, or merger by the Company into,
any other Person or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety as described in the preceding
paragraph, the successor resulting from such consolidation or into which the
Company is merged or the transferee or lessee to which such conveyance, transfer
or lease is made, will succeed to, and be substituted for, and may exercise
every right and power of, the Company under the
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Indenture, and thereafter, except in the case of a lease, the predecessor (if
still in existence) will be released from its obligations and covenants under
the Indenture and the Notes.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture to be a (i) default in the
payment of any interest upon any of the Notes for 30 days or more after such
payment is due, (ii) default in the payment of the principal of and premium, if
any, on any of the Notes when due, (iii) default by the Company in the
performance of any of its other covenants in the Indenture which will not have
been remedied by the end of a period of 60 days after written notice to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in principal amount of the outstanding Notes, and (iv) certain events
of bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary.
The Indenture provides that if an Event of Default (other than of a type
referred to in clause (iv) of the preceding paragraph) shall have occurred and
is continuing, either the Trustee or the Holders of at least 25% in principal
amount of the outstanding Notes may declare the principal amount of all Notes to
be immediately due and payable. Such declaration may be rescinded if certain
conditions are satisfied. If an Event of Default of the type referred to in
clause (iv) of the preceding paragraph shall have occurred, the principal amount
of the outstanding Notes shall automatically become immediately due and payable.
The Indenture also provides that the Holders of not less than a majority in
principal amount of the outstanding Notes may direct the time, method and place
of conducting any proceedings for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee; PROVIDED that such
direction is not in conflict with any rule of law or with the Indenture. The
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
The Indenture contains provisions entitling the Trustee, subject to the duty
of the Trustee during the continuance of an Event of Default to act with the
required standard of care, to be indemnified by the Holders of Notes before
proceeding to exercise any right or power under the Indenture at the request of
the Holders of Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the Holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as Trustee,
and the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted by a Holder of
a Note for enforcement of payment of the principal of and premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note.
The Indenture requires the Company to file annually with the Trustee a
certificate, executed by a designated officer of the Company, stating to the
best of his knowledge that the Company is not in default under certain covenants
under the Indenture or if he has knowledge that the Company is in such default,
specifying such default.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Notes) and any past default or compliance with any provisions may also be
waived with the consent of the Holders of a majority in principal amount of the
Notes then outstanding. However, without the consent of each Holder of an
outstanding Note affected thereby, no amendment may, among other things, (i)
reduce the amount of Notes whose Holders must consent to an
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amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the amount payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "--Optional
Redemption" above, (v) make any Note payable in money other than that stated in
the Note, (vi) impair the right of any Holder of the Notes to receive payment of
principal of and interest on such Holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such Holder's Notes or (vii) make any change in the amendment
provisions which require each Holder's consent or in the waiver provisions.
Without the consent of any Holder of the Notes, the Company and Trustee may
amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (PROVIDED that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Company for the benefit of the Holders of the
Notes or to surrender any right or power conferred upon the Company, to make any
change that does not adversely affect the rights of any Holder of the Notes or
to comply with any requirement of the SEC in connection with the qualification
of the Indenture under the Trust Indenture Act of 1939, as amended.
The consent of the Holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all Holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under "--Certain Covenants" (other than the covenant described under
"--Certain Covenants Merger and Consolidation"), and the bankruptcy provisions
with respect to Significant Subsidiaries described under "--Events of Default"
above and the limitations contained in clauses (c) and (d) under "--Certain
Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iii) or (iv) under "--Events of Default"
above or because of the failure of the Company to comply with clause (c) or (d)
under "--Certain Covenants--Merger and Consolidation" above.
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In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that Holders of the Notes will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such deposit and defeasance and
will be subject to U.S. federal income tax on the same amounts and in the same
manner and at the same times as would have been the case if such deposit and
defeasance had not occurred (and, in the case of legal defeasance only, such
Opinion of Counsel must be based on a ruling of the Internal Revenue Service or
other change in applicable U.S. federal income tax law).
CONCERNING THE TRUSTEE
LaSalle National Bank is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination, the remainder of:
(a) the sum of (i) discounted future net revenues from proved oil and
gas reserves of the Company and its Subsidiaries calculated in accordance
with SEC guidelines (including adjustment for prices payable to the Company
and its Subsidiaries under Oil and Gas Hedging Contracts) before any state,
Federal or foreign income taxes, as estimated by the Company and confirmed
by a nationally recognized firm of independent petroleum engineers in a
reserve report prepared as of the end of the Company's most recently
completed fiscal year for which audited financial statements are available,
as increased by, as of the date of determination, the estimated discounted
future net revenues from (A) estimated proved oil and gas reserves acquired
since such year-end, which reserves were not reflected in such year-end
reserve report, and (B) estimated oil and gas reserves attributable to
upward revisions of estimates of proved oil and gas reserves since such
year-end due to exploration, development or exploitation activities, in each
case calculated in accordance with SEC guidelines (utilizing the prices
utilized in such year-end reserve report), and decreased by, as of the date
of determination, the estimated discounted future net revenues from (C)
estimated proved oil and gas reserves produced or disposed of since such
year-end and (D) estimated oil and gas reserves attributable to downward
revisions of estimates of proved oil and gas reserves since such year-end
due to changes in geological conditions or other factors which would, in
accordance with standard industry practice, cause such revisions, in each
case calculated in accordance with SEC guidelines (utilizing the
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prices utilized in such year-end reserve report); PROVIDED that, in the case
of each of the determinations made pursuant to clauses (A) through (D), such
increases and decreases shall be as estimated by the Company's petroleum
engineers, unless there is a Material Change as a result of such
acquisitions, dispositions or revisions, in which event the discounted
future net revenues utilized for purposes of this clause (a)(i) shall be
confirmed in writing by a nationally recognized firm of independent
petroleum engineers, (ii) the capitalized costs that are attributable to oil
and gas properties of the Company and its Subsidiaries to which no proved
oil and gas reserves are attributable, based on the Company's books and
records as of a date no earlier than the date of the Company's latest
available annual or quarterly financial statements, (iii) the Net Working
Capital on a date no earlier than the date of the Company's latest annual or
quarterly financial statements and (iv) the greater of (A) the net book
value on a date no earlier than the date of the Company's latest annual or
quarterly financial statements and (B) the appraised value, as estimated by
independent appraisers, of other tangible assets of the Company and its
Subsidiaries, as of the date no earlier than the date of the Company's
latest audited financial statements, minus (b) the sum of (i) Minority
Interests, (ii) any net gas balancing liabilities of the Company and its
Subsidiaries reflected in the Company's latest audited financial statements,
(iii) to the extent included in (a)(i) above, the discounted future net
revenues, calculated in accordance with SEC guidelines (utilizing the prices
utilized in the Company's year-end reserve report), attributable to reserves
which are required to be delivered to third parties to fully satisfy the
obligations of the Company and its Subsidiaries with respect to Volumetric
Production Payments (determined, if applicable, using the schedules
specified with respect thereto) and (iv) the discounted future net revenues,
calculated in accordance with SEC guidelines, attributable to reserves
subject to Dollar-Denominated Production Payments which, based on the
estimates of production and price assumptions included in determining the
discounted future net revenues specified in (a)(i) above, would be necessary
to fully satisfy the payment obligations of the Company and its Subsidiaries
with respect to Dollar-Denominated Production Payments (determined, if
applicable, using the schedules specified with respect thereto). If the
Company changes its method of accounting from the successful efforts method
to the full cost or a similar method of accounting, "Adjusted Consolidated
Net Tangible Assets" will continue to be calculated as if the Company were
still using the successful efforts method of accounting.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capitalized Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with such principles; and the Stated Maturity thereof shall be the
date of the last payment of rent or any other amount due under such lease prior
to the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
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"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Indebtedness" means, with respect to any Person, at any date, any of the
following, without duplication, (i) any liability, contingent or otherwise, of
such Person (A) for borrowed money (whether or not the recourse of the lender is
to the whole of the assets of such Person or only to a portion thereof, (B)
evidenced by a note, bond, debenture or similar instrument or (C) for the
payment of money relating to a Capitalized Lease Obligation or other obligation
(whether issued or assumed) relating to the deferred purchase price of property;
(ii) all conditional sale obligations and all obligations under any title
retention agreement (even if the rights and remedies of the seller under such
agreement in the event of default are limited to repossession or sale of such
property), but excluding trade accounts payable arising in the ordinary course
of business; (iii) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction other than
entered into in the ordinary course of business; (iv) all indebtedness of others
secured by (or for which the holder of such indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on any asset or property
(including, without limitation, leasehold interests and any other tangible or
intangible property) of such Person, whether or not such indebtedness is assumed
by such Person or is not otherwise such Person's legal liability; PROVIDED that
if the obligations so secured have not been assumed in full by such Person or
are otherwise not such Person's legal liability in full, the amount of such
indebtedness for the purposes of this definition shall be limited to the lesser
of the amount of such indebtedness secured by such Lien or the fair market value
of the assets of the property securing such Lien; (v) all indebtedness of others
(including all interest and dividends on any Indebtedness or Preferred Stock of
any other Person for the payment of which is) guaranteed, directly or
indirectly, by such Person or that is otherwise its legal liability or which
such Person has agreed to purchase or repurchase or in respect of which such
Person has agreed contingently to supply or advance funds; and (vi) obligations
in respect of Currency Agreements, Oil and Gas Hedging Contracts and Interest
Rate Agreements.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien,
charge or adverse claim affecting title or resulting in an encumbrance against
real or personal property or a security interest of any kind (including, without
limitation, any conditional sale or other title retention agreement or lease in
the nature thereof or any filing or agreement to file a financing statement as
debtor under the Uniform Commercial Code or any similar statute other than to
reflect ownership by a third party or property leased
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to the Company or any of its Subsidiaries under a lease that is not in the
nature of a conditional sale or title retention agreement).
"Material Change" means an increase or decrease (except to the extent
resulting from changes in prices) of more than 30% during a fiscal quarter in
the estimated discounted future net revenues from proved oil and gas reserves of
the Company and its Subsidiaries, calculated in accordance with clause (a)(i) of
the definition of Adjusted Consolidated Net Tangible Assets; PROVIDED, HOWEVER,
that the following will be excluded from the calculation of Material Change: (a)
any acquisitions during the quarter of oil and gas reserves with respect to
which the Company's estimate of the discounted future net revenues from proved
oil and gas reserves has been confirmed by independent petroleum engineers; and
(b) any dispositions of Properties during such quarter.
"Minority Interest" means any shares of stock of any class of a Subsidiary
that are not owned by the Company or a Subsidiary.
"Net Working Capital" means (a) all current assets of the Company and its
Subsidiaries, less (b) all current liabilities of the Company and its
Subsidiaries, except current liabilities included in Indebtedness, in each case
as set forth in consolidated financial statements of the Company prepared in
accordance with GAAP.
"Oil and Gas Business" means the business of exploiting, exploring for,
developing, acquiring, operating, producing, processing, gathering, marketing,
storing, selling, hedging, treating, swapping, refining and transporting
hydrocarbons and other related energy businesses.
"Oil and Gas Hedging Contract" means, with respect to any Person, any
agreement or arrangement, or any combination thereof, relating to oil and gas or
other hydrocarbon prices, transportation or basis costs or differentials or
other similar financial factors, that is customary in the Oil and Gas Business
and is entered into by such Person in the ordinary course of its business for
the purpose of limiting or managing risks associated with fluctuations in such
prices, costs, differentials or similar factors.
"Oil and Gas Liens" means (a) Liens on any specific property or any interest
therein, construction thereon or improvement thereto to secure all or any part
of the costs incurred for surveying, exploration, drilling, extraction,
development, operation, production, construction, alteration, repair or
improvement of, in, under or on such property and the plugging and abandonment
of wells located thereon (it being understood that, in the case of oil and gas
producing properties, or any interest therein, costs incurred for "development"
shall include costs incurred for all facilities relating to such properties or
to projects, ventures or other arrangements of which such properties form a part
or which relate to such properties or interests); (b) Liens on an oil or gas
producing property to secure obligations incurred or guarantees of obligations
incurred in connection with or necessarily incidental to commitments for the
purchase or sale of, or the transportation or distribution of, the products
derived from such property; (c) Liens arising under partnership agreements, oil
and gas leases, overriding royalty agreements, net profits agreements,
production payment agreements, royalty trust agreements, incentive compensation
programs for geologists, geophysicists and other providers of technical services
to the Company or a Subsidiary of the Company, master limited partnership
agreements, farmin agreements, farmout agreements, division orders, contracts
for the sale, purchase, exchange, transportation, gathering or processing of
oil, gas or other hydrocarbons, unitizations and pooling designations,
declarations, orders and agreements, development agreements, operating
agreements, production sales contracts, area of mutual interest agreements, gas
balancing or deferred production agreements, injection, repressuring and
recycling agreements, salt water or other disposal agreements, seismic or
geophysical permits or agreements, and other agreements which are customary in
the Oil and Gas Business; PROVIDED, HOWEVER, in all instances that such Liens
are limited to the assets that are the subject of the relevant agreement,
program, order or contract; (d) Liens arising in connection with Production
Payments and Reserve Sales; and (e) Liens on pipelines or pipeline facilities
that arise by operation of law.
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"Permitted Liens" means, with respect to any Person: (i) Liens existing on
the Issue Date; (ii) Liens on property or assets of, or any shares of stock of
or secured debt of, any corporation existing at the time such corporation
becomes a Subsidiary of the Company or at the time such corporation is merged
into the Company or any of its Subsidiaries; (iii) Liens in favor of the Company
or any of its Subsidiaries; (iv) Liens in favor of governmental bodies to secure
progress or advance payments; (v) Liens securing industrial revenue or pollution
control bonds; (vi) Liens on Property to secure Indebtedness incurred for the
purpose of (A) financing all or any part of the purchase price of such Property
incurred prior to, at the time of, or within 180 days after, the acquisition of
such Property or (B) financing all or any part of the cost of construction,
improvement, development or expansion of any such Property; (vii) statutory
liens or landlords', carriers', warehouseman's, mechanics', suppliers',
materialmen's, repairmen's or other like Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provisions, if any, as shall be required in conformity with GAAP shall have been
made therefor; (viii) Liens on current assets of Subsidiaries securing
Indebtedness of such Subsidiaries; (ix) Oil and Gas Liens; (x) Liens securing
Oil and Gas Hedging Contracts; (xi) any Lien incurred in the ordinary course of
business incidental to the conduct of the business of the Company or the
ownership of its Property including rights of collecting banks having rights of
setoff, revocation, refund or chargeback with respect to money or instruments of
the Company on deposit with or in the possession of such banks; (xii) Liens
incurred to secure performance of obligations with respect to statutory or
regulatory requirements, performance or return-of-money bonds, surety bonds or
other obligations of a like nature and incurred in a manner consistent with
industry practice; (xiii) Liens for taxes, assessments and governmental charges
not yet due or the validity of which are being contested in good faith by
appropriate proceedings, promptly instituted and diligently conducted, and for
which adequate reserves have been established to the extent required by GAAP as
in effect at such time; and (xiv) any extensions, substitutions, replacements or
renewals in whole or in part of a Lien (an "existing Lien") enumerated in
clauses (i) through (xiii) above; PROVIDED that the Lien may not extend beyond
(A) the Property or Indebtedness subject to the existing Lien and (B)
improvements and construction on such Property and the Indebtedness secured by
the Lien may not exceed the Indebtedness secured at the time by the existing
Lien.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Principal Property" means any Property owned or leased by the Company or
any Subsidiary, the gross book value of which exceeds two percent of Adjusted
Consolidated Net Tangible Assets.
"Production Payments and Reserve Sales" means the grant or transfer by the
Company or a Subsidiary of the Company to any Person of a royalty, overriding
royalty, net profits interest, production payment (whether volumetric or dollar
denominated), partnership or other interest in oil and gas properties, reserves
or the right to receive all or a portion of the production or the proceeds from
the sale of production attributable to such properties where the holder of such
interest has recourse solely to such production or proceeds of production,
subject to the obligation of the grantor or transferor to operate and maintain,
or cause the subject interests to be operated and maintained, in a reasonably
prudent manner or other customary standard or subject to the obligation of the
grantor or transferor to indemnify for environmental, title or other matters
customary in the Oil and Gas Business, including any such grants or
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transfers pursuant to incentive compensation programs on terms that are
reasonably customary in the Oil and Gas Business for geologists, geophysicists
and other providers of technical services to the Company or a Subsidiary of the
Company.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Sale and Leaseback Transaction" means any arrangement with any Person
pursuant to which the Company or any Subsidiary leases any Principal Property
that has been or is to be sold or transferred by the Company or the Subsidiary
to such Person, other than (1) temporary leases for a term, including renewals
at the option of the lessee, of not more than five years, (2) leases between the
Company and a Subsidiary or between Subsidiaries, (3) leases of Principal
Property executed by the time of, or within 24 months after the latest of, the
acquisition, the completion of construction or improvement, or the commencement
of commercial operation of the Principal Property, and (4) arrangements pursuant
to any provision of law with an effect similar to the former Section 168(f)(8)
of the Internal Revenue Code of 1954.
"SEC" means the Securities and Exchange Commission.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the SEC.
"Stated Maturity", when used with respect to any security or any installment
of interest thereon, means the date specified in such security as the fixed date
on which the principal of such security or such installment of interest is due
and payable.
"Subsidiary" of any Person means (i) any Person of which more than 50% of
the total voting power of shares of Capital Stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by any Person or one or more of the Subsidiaries of that Person or a
combination thereof, and (ii) any partnership, joint venture or other Person in
which such Person or one or more of the Subsidiaries of that Person or a
combination thereof has the power to control by contract or otherwise the board
of directors or equivalent governing body or otherwise controls such entity.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Wholly-Owned Subsidiary" means a Subsidiary all the Capital Stock of which
(other than directors' qualifying shares) is owned by the Company or one or more
Wholly-Owned Subsidiaries.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Existing Notes were originally sold by the Company on December 11, 1997,
to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Existing Notes to qualified institutional
buyers pursuant to Rule 144A under the Securities Act, or outside the United
States in compliance with Regulation S under the Securities Act. Pursuant to the
Purchase Agreement the Company entered into a registration rights agreement with
the Initial Purchasers (the "Registration Agreement") pursuant to which the
Company agreed, for the benefit of the holders of the Existing Notes, at the
Company's cost, to (i) file a registration statement (the "Exchange Offer
Registration Statement") within 150 days after the date of original issuance of
such Existing Notes (the "Issue Date") with the Commission with respect to
registered offers to exchange each of such Existing Notes for debentures (the
"Exchange Notes") with terms identical in all material respects thereto (except
that the Exchange Notes will not contain terms with respect to transfer
restrictions or the special interest payments described below), and (ii) use its
best efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act within 180 days after the Issue Date.
Promptly after the Exchange Offer Registration Statement is declared effective,
the Company will offer the Exchange Notes in exchange for surrender of the
Existing Notes (the "Exchange Offer"). The Company will keep the Exchange Offer
open for not less than 30 days (or longer if required by applicable law) after
the date notice of the Exchange Offer is mailed to the holders of the Existing
Notes.
For each Existing Note properly tendered and accepted pursuant to the
Exchange Offer and not withdrawn by the holder thereof, the holder of such
Existing Note will receive an Exchange Note having a principal amount equal to
that of the Existing Note tendered. Interest on each Exchange Note will accrue
from the last respective interest date on which interest was paid on the
Existing Note tendered in exchange therefor or, if no interest has been paid on
such Existing Note, from the Issue Date.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties with respect
to similar transactions, including "Exxon Capital Holdings Corporation"
(available May 13, 1988) and "Morgan Stanley & Co. Incorporated" (available June
5, 1991) and similar no-action letters, and subject to the immediately following
sentence, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
the holders thereof (other than holders who are broker-dealers) without further
compliance with the registration and prospectus delivery provisions of the
Securities Act. As the Company has not sought a no-action letter with respect to
the Exchange Offer, there can be no assurance that the Staff of the Commission
would make a similar determination with respect to the Exchange Offer. However,
any holder of Existing Notes who is an "affiliate" of the Company or who intends
to participate in the Exchange Offer for the purpose of distributing the
Exchange Notes, or any Initial Purchasers (i) will not be able to rely on the
interpretation by the staff of the Commission set forth in the above-mentioned
no-action letters, (ii) will not be able to tender its Existing Notes in the
Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Exchange Notes unless such sale or transfer is made pursuant to
an exemption from such requirements.
Each holder of the Existing Notes (other than certain specified holders) who
wishes to exchange Existing Notes for Exchange Notes in the Exchange Offer will
be required to represent in the Letter of Transmittal that among other things
(i) it is not an affiliate of the Company, (ii) any Exchange Notes to be
received by it were acquired in the ordinary course of its business and (iii) at
the time of commencement of the Exchange Offer, it has no arrangement with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Notes. In addition, in connection with any resales of
Exchange Notes, any broker-dealer (an "Exchanging Dealer") who acquired the
Existing Notes for its own account as a result of market-making activities or
other trading activities must deliver a prospectus meeting
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the requirements of the Securities Act. The Commission has taken the position
that Exchanging Dealers may fulfill their prospectus delivery requirements with
respect to the Exchange Notes (other than a resale of an unsold allotment from
the original sale of the Notes) with the prospectus contained in the Exchange
Offer Registration Statement. Under the Registration Agreement, the Company is
required to allow Exchanging Dealers and other persons, if any, subject to
similar prospectus delivery requirements to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the resale of such
Exchange Notes for a period of 180 days (exclusive of any period during which a
stop order shall be in effect suspending the effectiveness of the Registration
Statement) after the consummation of the Exchange Offer.
In the event that any changes in law or applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange Offer
with respect to the Notes, or if for any reason the Exchange Offer Registration
Statement is not declared effective within 180 days following the Issue Date, or
upon the request of the Initial Purchasers under certain circumstances, the
Company will, in lieu of effecting the registration of the applicable Exchange
Notes pursuant to the Exchange Offer Registration Statement and at its cost, (i)
as promptly as practicable, file with the Commission a Shelf Registration
Statement (the "Shelf Registration Statement") covering resales of the Existing
Notes, (ii) use its best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act by the 210th day after the Issue
Date (or promptly in the event of a request by the Initial Purchasers) and (iii)
keep effective the Shelf Registration Statement until the earliest of (x) the
second anniversary of the Issue Date (or the first anniversary of the effective
date if such Shelf Registration Statement is filed at the request of the Initial
Purchasers), (y) the time when the Existing Notes registered thereunder can be
sold by non-affiliates pursuant to Rule 144 under the Securities Act without
limitation under clauses (c), (e), (f) and (h) of Rule 144, or (z) such time as
all the Existing Notes registered thereunder have been sold. See "--Resale of
the Exchange Notes." During any consecutive 365-day period, the Company will
have the ability to suspend the availability of the Shelf Registration Statement
for up to two periods of up to 45 consecutive days, but no more than an
aggregate of 60 days during any 365-day period. The Company will, in the event
of the filing of a Shelf Registration Statement, provide to each holder of such
Existing Notes copies of the prospectus which is part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement for
such Existing Notes has become effective and take certain other actions as are
required to permit unrestricted resales of such Existing Notes. A holder of such
Notes that sells such Existing Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling security holder in
the related prospectus and to deliver a prospectus to the purchaser, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Agreement which are applicable to such a holder (including certain
indemnification obligations). In addition, each holder of such Existing Notes
will be required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Agreement in
order to have their Existing Notes included in the Shelf Registration Statement
and to benefit from the provisions regarding Special Interest set forth in the
following paragraph. If the Company has consummated the Exchange Offer, then,
subject to certain limited exceptions, the Company will have no obligation to
file or to maintain the effectiveness of a Shelf Registration Statement with
respect to any Existing Notes that are not tendered in the Exchange Offer.
In the event that (i) by the 150th day following the Issue Date, the
Exchange Offer Registration Statement is not filed with the Commission, (ii) by
the 180th day following the Issue Date, neither the Exchange Offer Registration
Statement is declared effective nor (if the Exchange Offer is not permitted as
described above) the Shelf Registration Statement is filed with the Commission,
or (iii) by the 210th day following the Issue Date, the Exchange Offer is not
consummated or the Shelf Registration Statement is not declared effective with
respect thereto (each such event referred to in clauses (i) through (iii), a
"Registration Default"), interest will accrue on the applicable Existing Notes
(in addition to stated interest on such Notes) which, except as provided below,
shall be the sole and exclusive remedy for such
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Registration Default from and including the next day following each such
Registration Default. In each case such additional interest (the "Special
Interest") will be payable in cash semiannually in arrears each June1 and
December 1, at a rate per annum equal to 0.25% of the principal amount of such
Existing Notes for each such Registration Default. The aggregate amount of
Special Interest payable pursuant to the above provisions will in no event
exceed 0.25% per annum of the principal amount of such Existing Notes which,
except as provided below, shall be the sole and exclusive remedy for such
Registration Default. Upon (a) the filing of the Exchange Offer Registration
Statement after the 150-day period described in clause (i) above, (b) the
effectiveness of the Exchange Offer Registration Statement or the filing of the
Shelf Registration Statement after the 180-day period described in clause (ii)
above or (c) the consummation of the Exchange Offer for such Notes or the
effectiveness of a Shelf Registration Statement, as the case may be, after the
210-day period described in clause (iii) above, the Special Interest payable on
such Notes as a result of the applicable Registration Default will cease to
accrue. For purposes of the preceding sentence, the curing of a Registration
Default by the means described in clause (b) above shall constitute a cure of
the Registration Defaults described in clauses (i) and (ii) above, and the
curing of a Registration Default by the means described in clause (c) above
shall constitute a cure of the Registration Defaults described in clauses (i),
(ii) and (iii) above. The Company will have no other liabilities for monetary
damages with respect to the above; PROVIDED, HOWEVER, that in the event the
Company breaches, fails to comply with or violates certain provisions of the
Registration Agreement, the holders of Existing Notes shall be entitled to, and
the Company shall not oppose the granting of, equitable relief, including
injunction and specific performance.
In the event that a Shelf Registration Statement is declared effective
pursuant to the paragraph preceding the immediately preceding paragraph, if the
Company fails to keep such Registration Statement continuously effective for the
period required by the Registration Agreement (except as specifically permitted
therein), then from such time as the Shelf Registration Statement is no longer
effective until the earlier of (i) the date that the Shelf Registration
Statement is again deemed effective and (ii) the date that is the earliest of
(x) the second anniversary of the Issue Date (or until the first anniversary of
the effective date if the Shelf Registration Statement is filed at the request
of the Initial Purchasers), (y) the time when the Existing Notes registered
thereunder can be sold by non-affiliates pursuant to Rule 144 under the
Securities Act without any limitation under clauses (c), (e), (f) and (h) of
Rule 144, or (z) the date as of which all such Existing Notes are sold pursuant
to the Shelf Registration Statement, Special Interest shall accrue at a rate per
annum equal to 0.25% of the principal amount of the Existing Notes which, except
as provided below, shall be the sole and exclusive remedy for such Registration
Default and shall be payable in cash semiannually in arrears each June 1 and
December 1. The Company will have no other liabilities for monetary damages with
respect to the above; PROVIDED, HOWEVER, that in the event the Company breaches,
fails to comply with or violates certain provisions of the Registration
Agreement, the holders of Existing Notes shall be entitled to, and the Company
shall not oppose the granting of, equitable relief, including injunction and
specific performance.
The summary herein of certain provisions of the Registration Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Registration Agreement, a copy of
which is available upon request to the Company.
Following the consummation of the Exchange Offer, holders of the Existing
Notes who were eligible to participate in the Exchange Offer but who did not
tender their Existing Notes will not have any further exchange or registration
rights and such Existing Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for such
Existing Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Existing
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the Expiration Date. The Company will issue $1,000 principal amount
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of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Existing Notes accepted in the Exchange Offer. Holders may tender some or all of
their Existing Notes pursuant to the Exchange Offer. However, Existing Notes may
be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Existing Notes except (i) the Exchange Notes bear a different CUSIP
Number from the Existing Notes and (ii) the Exchange Notes have been registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof. The Exchange Notes will evidence the same debt as the Existing
Notes and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $200,000,000 aggregate principal amount
of Existing Notes are outstanding. The Company has fixed the close of business
on February 12, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of the Existing Notes do not have any appraisal or dissenters'
rights under the General Corporation Act of Oklahoma or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Existing Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Existing Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Existing Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Existing Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions of the
Letter of Transmittal, transfer taxes with respect to the exchange of Existing
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than the transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
March 23, 1998 unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right (i) to delay accepting any Existing Notes, to
extend the Exchange Offer or to terminate the Exchange Offer if any of the
conditions set forth below under "--Conditions" shall not have been satisfied,
by giving oral or written notice of such delay, extension or termination to the
Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders.
PROCEDURES FOR TENDERING
The tender of Existing Notes pursuant to any of the procedures set forth in
this Prospectus and in the Letter of Transmittal will constitute a binding
agreement between the Tendering Holder and the Company
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in accordance with the terms and subject to the conditions set forth herein and
in the Letter of Transmittal. The tender of Existing Notes will constitute an
agreement to deliver good and marketable title to all tendered Existing Notes
prior to the Expiration Date free and clear of all liens, charges, claims,
encumbrances, interests and restrictions of any kind.
EXCEPT AS PROVIDED IN "--GUARANTEED DELIVERY PROCEDURES," UNLESS THE
EXISTING NOTES BEING TENDERED ARE DEPOSITED BY THE HOLDER WITH THE EXCHANGE
AGENT PRIOR TO THE EXPIRATION DATE (ACCOMPANIED BY A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL), THE COMPANY MAY, AT ITS OPTION, REJECT SUCH
TENDER. ISSUANCE OF EXCHANGE NOTES WILL BE MADE ONLY AGAINST DEPOSIT OF TENDERED
EXISTING NOTES AND DELIVERY OF ALL OTHER REQUIRED DOCUMENTS. NOTWITHSTANDING THE
FOREGOING, DTC PARTICIPANTS TENDERING THROUGH ATOP WILL BE DEEMED TO HAVE MADE
VALID DELIVERY WHERE THE EXCHANGE AGENT RECEIVES AN AGENT'S MESSAGE (DEFINED
BELOW) PRIOR TO THE EXPIRATION DATE.
Accordingly, to properly tender Existing Notes, the following procedures
must be followed:
EXISTING NOTES HELD THROUGH DTC. Each Beneficial Owner holding Existing
Notes through a DTC Participant must instruct such DTC Participant to cause its
Existing Notes to be tendered in accordance with the procedures set forth in
this Prospectus.
Pursuant to an authorization given by DTC to the DTC Participants, each DTC
Participant holding Existing Notes through DTC must (i) electronically transmit
its acceptance through ATOP, and DTC will then edit and verify the acceptance,
execute a book-entry delivery to the Exchange Agent's account at DTC and send an
Agent's Message to the Exchange Agent for its acceptance, or (ii) comply with
the guaranteed delivery procedures set forth below and in the Notice of
Guaranteed Delivery. See "--Guaranteed Delivery Procedures."
The Exchange Agent will (promptly after the date of this Prospectus)
establish accounts at DTC for purposes of the Exchange Offer with respect to
Existing Notes held through DTC, and any financial institution that is a DTC
Participant may make book-entry delivery of interests in Existing Notes into the
Exchange Agent's account through ATOP. However, although delivery of interests
in the Existing Notes may be effected through book-entry transfer into the
Exchange Agent's account through ATOP, an Agent's Message in connection with
such book-entry transfer, and any other required documents, must be, in any
case, transmitted to and received by the Exchange Agent at its address set forth
under "--Exchange Agent," or the guaranteed delivery procedures set forth below
must be complied with, in each case, prior to the Expiration Date. Delivery of
documents to DTC does not constitute delivery to the Exchange Agent. The
confirmation of a book-entry transfer into the Exchange Agent's account at DTC
as described above is referred to herein as a "Book-Entry Confirmation."
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
each DTC Participant tendering through ATOP that such DTC Participants have
received a Letter of Transmittal and agree to be bound by the terms of the
Letter of Transmittal and that the Company may enforce such agreement against
such DTC Participants.
Cede & Co., as the Holder of the global certificates representing the
Existing Notes (each a "Global Security," or together, the "Global Securities"),
will tender a portion of each of the Global Securities equal to the aggregate
principal amount due at the stated maturity for which instructions to tender are
given by DTC Participants.
EXISTING NOTES HELD BY HOLDERS. Each Holder must (i) complete and sign and
mail or deliver the accompanying Letter of Transmittal, and any other documents
required by the Letter of Transmittal, together with certificate(s) representing
all tendered Existing Notes, to the Exchange Agent at its address set forth
under "--Exchange Agent," or (ii) comply with the guaranteed delivery procedures
set forth below and in the Notice of Guaranteed Delivery. See "--Guaranteed
Delivery Procedures."
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All signatures on a Letter of Transmittal must be guaranteed by any member
firm of a registered national securities exchange or of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor" institution
within the meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible
Institution"); PROVIDED, HOWEVER, that signatures on a Letter of Transmittal
need not be guaranteed if such Existing Notes are tendered for the account of an
Eligible Institution, including (as such terms are defined in Rule 17Ad-15): (i)
a bank; (ii) a broker, dealer, municipal securities dealer, municipal securities
broker, government securities dealer or government securities broker; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings institution that is a
participant in a Securities Transfer Association recognized program.
If a Letter of Transmittal or any Existing Note is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, agent, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person must so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
Holders should indicate in the applicable box in the Letter of Transmittal
the name and address to which substitute certificates evidencing Existing Notes
for amounts not tendered are to be issued or sent, if different from the name
and address of the person signing the Letter of Transmittal. In the case of
issuance in a different name, the employer identification or social security
number of the person named must also be indicated. If no instructions are given,
such Existing Notes not tendered, as the case may be, will be returned to the
person signing the Letter of Transmittal.
By tendering, each Holder and each DTC Participant will make to the Company
the representations set forth in the fourth paragraph under the heading
"--Purpose and Effect of the Exchange Offer."
No alternative, conditional, irregular or contingent tenders will be
accepted (unless waived). By executing a Letter of Transmittal or transmitting
an acceptance through ATOP, as the case may be, each Tendering Holder waives any
right to receive any notice of the acceptance for purchase of its Existing
Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Existing Notes will be resolved by the
Company, whose determination will be final and binding. The Company reserves the
absolute right to reject any or all tenders that are not in proper form or the
acceptance of which may, in the opinion of counsel for the Company, be unlawful.
The Company also reserves the absolute right to waive any condition to the
Exchange Offer and any irregularities or conditions of tender as to particular
Existing Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will be
final and binding. Unless waived, any irregularities in connection with tenders
must be cured within such time as the Company shall determine. The Company and
the Exchange Agent shall not be under any duty to give notification of defects
in such tenders and shall not incur liabilities for failure to give such
notification. Tenders of Existing Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Existing Notes received
by the Exchange Agent that are not properly tendered and as to which the
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holder, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
LETTERS OF TRANSMITTAL AND EXISTING NOTES MUST BE SENT ONLY TO THE EXCHANGE
AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR EXISTING NOTES TO THE COMPANY OR
DTC.
The method of delivery of Existing Notes and Letters of Transmittal, any
required signature guaranties and all other required documents, including
delivery through DTC and any acceptance through ATOP, is at the election and
risk of the persons tendering and delivering acceptances or Letters of
Transmittal and, except as otherwise provided in the applicable Letter of
Transmittal, delivery will be deemed made
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only when actually received by the Exchange Agent. If delivery is by mail, it is
suggested that the Holder use properly insured, registered mail with return
receipt requested, and that the mailing be made sufficiently in advance of the
Expiration Date to permit delivery to the Exchange Agent prior to the Expiration
Date.
GUARANTEED DELIVERY PROCEDURES
EXISTING NOTES HELD THROUGH DTC. DTC Participants holding Existing Notes
through DTC (the "Book-Entry Transfer Facility") who wish to cause their
Existing Notes to be tendered, but who cannot transmit their acceptances through
ATOP prior to the Expiration Date, may cause a tender to be effected if:
(a) guaranteed delivery is made by or through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by mail, hand delivery,
facsimile transmission or overnight courier) substantially in the form
provided by the Company herewith; and
(c) Book-Entry Confirmation and an Agent's Message in connection
therewith (as described above) are received by the Exchange Agent within
three New York Stock Exchange trading days after the date of the execution
of the Notice of Guaranteed Delivery.
EXISTING NOTES HELD BY HOLDERS. Holders who wish to tender their Existing
Notes and (i) whose Existing Notes are not immediately available, (ii) who
cannot deliver their Existing Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent or (iii) who cannot complete the
procedures for book-entry transfer, prior to the Expiration Date, may effect a
tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder, the
certificate number(s) of such Existing Notes and the principal amount of
Existing Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Existing Notes (or a
confirmation of book-entry transfer of such Existing Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility), and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Existing Notes in proper form for transfer (or a confirmation or book-entry
transfer of such Existing Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent upon three New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Existing Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Existing Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
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EXISTING NOTES HELD THROUGH DTC. DTC Participants holding Existing Notes
who have transmitted their acceptances through ATOP may, prior to 5:00 p.m., New
York City time, on the Expiration Date, withdraw the instruction given thereby
by delivering to the Exchange Agent, at its address set forth under "--Exchange
Agent," a written, telegraphic or facsimile notice of withdrawal of such
instruction. Such notice of withdrawal must contain the name and number of the
DTC Participant, the principal amount due at the stated maturity of the Existing
Notes to which such withdrawal relates and the signature of the DTC Participant.
Withdrawal of such an instruction will be effective upon receipt of such written
notice of withdrawal by the Exchange Agent.
EXISTING NOTES HELD BY HOLDERS. Holders may withdraw a tender of Existing
Notes in the Exchange Offer, by a telegram, telex, letter or facsimile
transmission notice of withdrawal received by the Exchange Agent at its address
set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Existing Notes to be withdrawn (the "Depositor"), (ii) identify
the Existing Notes to be withdrawn (including the certificate number(s) and
principal amount due at the stated maturity of such Existing Notes, or, in the
case of Existing Notes transferred by book-entry transfer, the name and number
of the account at the Book-Entry Transfer Facility to be credited), (iii) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such Existing Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Existing Notes register the
transfer of such Existing Notes into the name of the person withdrawing the
tender and (iv) specify the name in which any such Existing Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Existing Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer, and no Exchange Notes will
be issued with respect thereto unless the Existing Notes so withdrawn are
validly re-tendered. Any Existing Notes which have been tendered but which are
not accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Existing Notes may be
re-tendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
All signatures on a notice of withdrawal must be guaranteed by an Eligible
Institution; PROVIDED, HOWEVER, that signatures on the notice of withdrawal need
not be guaranteed if the Existing Notes being withdrawn are held for the account
of an Eligible Institution.
A withdrawal of an instruction or a withdrawal of a tender must be executed
by a DTC Participant or a Holder, as the case may be, in the same manner as the
person's name appears on its transmission through ATOP or Letter of Transmittal,
as the case may be, to which such withdrawal relates. If a notice of withdrawal
is signed by a trustee, partner, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person must so indicate when signing
and must submit with the revocation appropriate evidence of authority to execute
the notice of withdrawal. A DTC Participant or a Holder may withdraw an
instruction or a tender, as the case may be, only if such withdrawal complies
with the provisions of this Prospectus.
A withdrawal of a tender of Existing Notes by a DTC Participant or a Holder,
as the case may be, may be rescinded only by a new transmission of an acceptance
through ATOP or execution and delivery of a new Letter of Transmittal, as the
case may be, in accordance with the procedures described herein.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, and subject to its
obligations pursuant to the Registration Agreement, the Company shall not be
required to accept for exchange, or exchange securities
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for, any Existing Notes, and may terminate or amend the Exchange Offer as
provided herein before the acceptance of such Existing Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the judgment of the Company upon written advice of counsel, could
reasonably be expected to materially impair the ability of the Company to
proceed with the Exchange Offer or any material adverse development has
occurred in any existing action or proceeding with respect to the Company or
any of the subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the judgment of
the Company and based on written advice of counsel, could reasonably be
expected to materially impair the ability of the Company to proceed with the
Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its discretion and based on written advice of counsel,
deem necessary for the consummation of the Exchange Offer as contemplated
hereby.
If any of the conditions are not satisfied, the Company may (i) refuse to
accept any Existing Notes and return all tendered Existing Notes to the
tendering holders, (ii) extend the Exchange Offer and retain all Existing Notes
tendered prior to the expiration of the Exchange Offer, subject, however, to the
rights of holders to withdraw such Existing Notes (see "--Withdrawal of
Tenders"), or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered Existing Notes which have not
been withdrawn.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company in whole or in part at any time and from time to time
upon advice of outside counsel. The failure by the Company at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and such right shall be deemed an ongoing right which may be asserted at
any time and from time to time.
In addition, the Company will not accept for exchange any Existing Notes
tendered and no Exchange Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order is threatened by the Commission or in
effect with respect to the Registration Statement of which this Prospectus is a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended.
The Exchange Offer is not conditioned on any minimum principal amount of
Existing Notes being tendered for exchange.
EXCHANGE AGENT
LaSalle National Bank has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent, addressed as
follows:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Diane Swanson
Telephone: (312) 904-2936
Facsimile: (312) 904-2236
Delivery to an address other than as set forth above, or transmission of
instructions via a facsimile number other than the one set forth above, will not
constitute a valid delivery.
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Existing Notes, which is face value, as reflected in the Company's accounting
records on the date of exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by the Company. The expenses of the Exchange Offer
will be amortized over the term of the Exchange Notes under generally accepted
accounting principles.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Existing Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Existing
Notes may be resold only (i) to the Company, (ii) so long as such Existing Notes
are eligible for resale pursuant to Rule 144A, to a person whom the seller
reasonably believes is a "qualified institutional buyer," as defined in Rule
144A under the Securities Act (a "QIB"), that purchases for its own account or
for the account of a QIB to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A, (iii) outside the United States
in accordance with Regulation S, (iv) to an institution that is an "accredited
investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act
(an "Institutional Accredited Investor") who has certified to the Company and
the Trustee for the Existing Notes that such transferee is an Institutional
Accredited Investor and is acquiring such Notes for investment purposes and not
for distribution, (iv) pursuant to an exemption from registration under the
Securities Act provided by Rule 144 (if applicable) under the Securities Act or
(v) pursuant to an effective registration statement under the Securities Act, in
each case in accordance with any applicable securities laws of any state of the
United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes
in the ordinary course of business, whether or not such person is the holder
(other than (i) a broker-dealer who purchases such Exchange Notes from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) who receives Exchange Notes in
exchange for Existing Notes, and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires Exchange Notes in the Exchange Offer for the
purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such
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no-action letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each broker-dealer that receives Exchange Notes
for its own account in exchange for Existing Notes, where such Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Registration Agreement,
each holder accepting the Exchange Offer is required to represent to the Company
in the Letter of Transmittal that (i) the Exchange Notes are to be acquired by
the holder or the person receiving such Exchange Notes, whether or not such
person is the holder, in the ordinary course of business, (ii) the holder or any
such other person (other than a broker-dealer referred to in the next sentence)
is not engaging, and does not intend to engage, in the distribution of the
Exchange Notes, (iii) the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of the Exchange
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act, and (v) the
holder or any such other person acknowledges that if such holder or other person
participates in the Exchange Offer for the purpose of distributing the Exchange
Notes, it must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale of the Exchange Notes and
cannot rely on those no-action letters. As indicated above, each broker-dealer
that receives any Exchange Notes for its own account in exchange for Existing
Notes must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. For a description of the procedures for such
resales by broker-dealers, see "Plan of Distribution."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal U.S. federal income tax
consequences (and, to a limited extent, U.S. federal estate tax consequences)
resulting from (i) the exchange of Existing Notes for Exchange Notes and (ii)
the beneficial ownership of Notes by certain persons. This summary does not
purport to consider all the possible U.S. federal income tax consequences that
may affect a particular Tendering Holder in light of such Tendering Holder's
individual investment circumstances and is not intended to reflect the
particular tax position of any Tendering Holder. It deals only with Notes held
as capital assets. Moreover, except as expressly indicated, it does not address
Tendering Holders that may be subject to special tax rules, such as banks,
insurance companies, dealers in securities or currencies, purchasers that hold
Notes as a hedge against currency risks or as part of a straddle with other
investments or as part of "synthetic security" or other integrated investment
(including a "conversion transaction") comprised of a Note and one or more other
investments, or purchasers that have a "functional currency" other than the U.S.
dollar. Except to the extent discussed below under "Non-U.S. Holders," this
summary is not applicable to non-U.S. persons not subject to U.S. federal income
tax on their worldwide income. This summary is based upon the U.S. federal tax
laws and regulations as now in effect and as currently interpreted and does not
take into account possible changes in such tax laws or such interpretations, any
of which may be applied retroactively. It does not address any description of
gift, estate (except to a limited extent), state, local or foreign taxation that
may be applicable to the Notes or holders thereof. Tendering Holders should
consult their own tax advisors concerning the application of the U.S. federal
tax laws to their participation in the Exchange Offer and the ownership and
disposition of Notes as well as any consequences to them under the laws of any
other taxing jurisdiction.
U.S. HOLDERS
The following discussion is limited to certain material U.S. federal income
tax consequences relevant to a holder of a Note that is (i) an individual who is
a citizen or resident of the U.S., (ii) a corporation or other entity taxable as
a corporation created or organized under the laws of the U.S. or any state
thereof (including the District of Columbia), (iii) an estate, the income of
which is subject to U.S. federal income
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tax regardless of its source, (iv) a trust if the primary supervision over the
administration of such trust can be exercised by a U.S. court and one or more
U.S. persons have the authority to control all substantial decisions of such
trust or (v) a person otherwise subject to U.S. federal income taxation on its
worldwide income (a "U.S. Holder"). Certain material U.S. federal income tax
consequences relevant to a holder other than a U.S. Holder are discussed
separately below.
EXCHANGE OFFER. The exchange of Existing Notes for Exchange Notes will not
be treated as an "exchange" for U.S. federal income tax purposes to U.S. Holders
because the Exchange Notes will not be considered to differ materially in kind
or extent from the Existing Notes. As a result, there will be no U.S. federal
income tax consequences to Tendering Holders pursuant to the Exchange Offer. A
U.S. Holder should have the same adjusted basis and holding period in the
Exchange Note as it had in the Existing Note immediately before the exchange.
PAYMENTS OF INTEREST. In general, interest paid on the Notes will be
taxable to a U.S. Holder as ordinary income at the time it is received or
accrued, depending on the Holder's usual method of accounting for U.S. federal
income tax purposes.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES. Upon the disposition of a Note
by sale, exchange or redemption (including pursuant to an offer by the Company),
a U.S. Holder will generally recognize gain or loss equal to the difference
between (i) the amount of cash plus the fair market value of any property
received upon such sale, exchange or redemption (other than amounts attributable
to accrued interest not yet taken into income) and (ii) the U.S. Holder's
adjusted tax basis in the Note. Generally, a U.S. Holder's adjusted tax basis in
a Note will equal the cost of the Note to the U.S. Holder increased by any
market discount included in income and reduced by any bond premium amortized by
the U.S. Holder.
Assuming the Note is held as a capital asset, such gain or loss (except to
the extent that the market discount rules otherwise provide) will generally
constitute capital gain or loss, which will be either long-term or short-term if
the U.S. Holder is a corporation; or long-term, mid-term or short-term if the
U.S. Holder is a non-corporate entity, depending on the U.S. Holder's holding
period.
NON-U.S. HOLDERS
Under present U.S. federal income and estate tax law and subject to the
discussion of backup withholding below:
(a) payments of principal and interest on the Notes by the Company or
any agent of the Company to any Holder that is not a U.S. Holder or
partnership created or organized under the laws of the U.S. or any state
thereof including the District of Columbia (a "Non-U.S. Holder") will not be
subject to U.S. federal income and withholding tax if the following
requirements of the "portfolio interest" exception are satisfied: (i) the
Non-U.S. Holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote, (ii) the Non-U.S. Holder is not a controlled foreign corporation
that is related to the Company (directly or indirectly) through stock
ownership and (iii) either (A) the beneficial owner of the Notes certifies
to the Company or its agent, under penalties of perjury, that he is not a
"United States person" (as defined by the Code) and provides his name and
address, or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "financial institution") and holds the Notes on behalf
of its beneficial owner certifies to the Company or its agent under
penalties of perjury that such statement has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof;
(b) except as otherwise provided below, a Non-U.S. Holder will not be
subject to U.S. federal income and withholding tax on gain realized on the
sale, exchange or redemption of a Note provided
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that, in the case of any gain representing accrued interest, the conditions
described in (a) above are satisfied; and
(c) a Note held by an individual who at the time of death is not a
citizen or resident of the U.S. will not be subject to U.S. federal estate
tax as a result of such individual's death if, at the time of such death,
the individual did not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote and the income on the Notes or Exchange Notes would not have been
effectively connected with the conduct of a trade or business by the
individual in the U.S.
If a Non-U.S. Holder is engaged in a trade or business in the U.S. and
interest on the Note is effectively connected with the conduct of such trade or
business, the Non-U.S. Holder, although exempt from the withholding tax
discussed in the preceding paragraph (provided that such holder properly claims
such exemption), may be subject to U.S. federal income tax on such interest in
the same manner as if it were a U.S. Holder. In addition, if such Non-U.S.
Holder is a foreign corporation, it may be subject to a branch profits tax equal
to 30% of its effectively connected earnings and profits for the taxable year,
subject to adjustments. For this purpose, interest on the Note will be included
in such foreign corporation's effectively connected earnings and profits.
Any gain realized by the Non-U.S. Holder upon the sale, exchange or
retirement of a Note generally will not be subject to U.S. federal income tax
unless (i) such gain or income is effectively connected with a trade or business
conducted by the Non-U.S. Holder in the U.S., (ii) in the case of a Non-U.S.
Holder who is an individual, such individual is present in the U.S. for 183 days
or more in the taxable year of such sale, exchange or retirement, and certain
other conditions are met, or (iii) the Non-U.S. Holder is subject to tax
pursuant to the provisions of the Code applicable to certain U.S. expatriates.
If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described in relevant part above, payments of interest to
the Non-U.S. Holder will be subject to U.S. federal income and withholding tax
at a rate of 30% unless the beneficial owner of the Note provides the Company or
its agent with a properly executed (i) Internal Revenue Service Form 1001 (or
successor form) claiming an exemption from withholding under the benefit of a
tax treaty, or (ii) Internal Revenue Service Form 4224 (or successor form)
stating that the interest paid on the Note is not subject to U.S. federal income
and withholding tax because such interest income is effectively connected with
the beneficial owner's conduct of a trade or business in the U.S.
Recently adopted Treasury Regulations not yet in effect (the "Final
Regulations"), would alter the foregoing rules in certain respects. In general,
the Final Regulations are generally effective for payments made after December
31, 1998. Under the Final Regulations, a Non-U.S. Holder seeking an exemption
under (i) or (ii) of the preceding paragraph would generally be required to
provide a beneficial owner certificate on Form W-8, which form may include,
among other things, the Non-U.S. Holder's taxpayer identification number. The
Final Regulations also provide special rules to determine whether, for purposes
of determining the applicability of a tax treaty, interest paid to a Non-U.S.
Holder that is an entity should be treated as paid to the entity or those
holding an interest in the entity. The foregoing is not intended to be a
complete discussion of the provisions of the Final Regulations, and Non-U.S.
Holders are urged to consult their advisors with respect to the effect that the
Final Regulations will have when they become effective.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under the Code, a U.S. Holder of a Note may be subject, under certain
circumstances, to information reporting and/or backup withholding at a 31% rate
with respect to payments of interest or the gross proceeds from the sale,
exchange or redemption of a Note. This withholding applies only if a U.S. Holder
(i) fails to furnish its social security or other taxpayer identification number
("TIN") within a reasonable time after a request therefor, (ii) furnishes an
incorrect TIN, (iii) fails to report interest or dividends
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properly, or (iv) fails, under certain circumstances, to provide a certified
statement, signed under penalty or perjury, that the TIN provided is its correct
number and that it is not subject to backup withholding. Any amount withheld
from a payment to a U.S. Holder under the backup withholding rules is allowable
as a credit (and may entitle such holder to a refund) against such holder's U.S.
federal income tax liability, provided that the required information is
furnished to the IRS. Certain persons are exempt from backup withholding,
including corporations, tax-exempt organizations, qualified pension and profit
sharing trusts and individual retirement accounts. U.S. Holders of Notes should
consult their tax advisors as to their qualification for exemption from
withholding and the procedure for obtaining such exemption.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a Non-U.S. Holder of a Note if such holder has
provided the required certification that it is not a United States person as set
forth in clause (iii) in the first paragraph under "Non-U.S. Holders," or has
otherwise established an exemption (provided that neither the Company nor its
agent has actual knowledge that the holder is a United States person or that the
conditions of any exemption are not in fact satisfied).
Payment of the proceeds from the sale of a Note to or through a foreign
office of a broker generally will not be subject to information reporting or
backup withholding, except that information reporting may apply to such payments
if the broker is a (i) United States person, (ii) a controlled foreign
corporation for U.S. tax purposes or (iii) a foreign person 50% or more of whose
gross income from all sources for the three-year period ending with the close if
its taxable year preceding the payment was effectively connected with a U.S.
trade or business. Payment of the proceeds from a sale of a Note to or through
the U.S. office of a broker is subject to information reporting and backup
withholding unless the holder or beneficial owner certifies as to its taxpayer
identification number or otherwise establishes an exemption from information
reporting and backup withholding.
The Final Regulations may change the procedures for exemption from backup
withholding. These regulations are generally effective for payments made after
December 31, 1998, subject to certain transition rules. Non-U.S. Holders should
consult their own tax advisors with respect to the impact, it any, of the Final
Regulations.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Existing
Notes, where such Exchange Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days (exclusive of any period during which any stop order shall be
in effect suspending the effectiveness of the Registration Statement) after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until May 14, 1998 all dealers effecting transactions in the Exchange
Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes, or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commission or concessions from any such
broker-dealer and/ or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
52
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participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date (exclusive of any period
during which any stop order shall be in effect suspending the effectiveness of
the Registration Statement), the Company will promptly send additional copies of
this Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents pursuant to a Letter of Transmittal.
The Company has agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for certain holders of the Existing
Notes) other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Existing Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes offered hereby
will be passed upon for the Company by Crowe & Dunlevy, A Professional
Corporation, Oklahoma City, Oklahoma.
EXPERTS
The consolidated financial statements and related financial statement
schedule of the Company incorporated herein by reference from the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, as amended,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon incorporated herein by reference. Such consolidated
financial statements and financial statement schedule are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The audited consolidated financial statements of American incorporated
herein by reference from American's Annual Report on Form 10-K for the year
ended December 31, 1996, to the extent and for the periods indicated in their
report, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated herein by reference in reliance upon the authority of said firm as
experts in accounting and auditing and in giving said report. Reference is made
to said report, which includes an explanatory paragraph with respect to the
change in the method of accounting for impairments of proved oil and gas
properties in 1994 as discussed in Note 1 to the audited consolidated financial
statements.
Certain estimates of oil and gas reserves of the Company and related
information as of December 31, 1996 included in this Prospectus or incorporated
by reference herein have been reviewed by Ryder Scott Company, independent
petroleum engineers, as set forth in their report with respect thereto and all
such information has been so included and incorporated in reliance upon the
authority of such firm as experts regarding the matters addressed in their
report.
Certain estimates of oil and gas reserves of American and related
information as of December 31, 1996 incorporated by reference herein have been
prepared by Netherland, Sewell & Associates, Inc. and William M. Cobb &
Associates, Inc., each independent petroleum engineers, as set forth in their
respective reports with respect thereto, and all such information has been so
incorporated in reliance upon the authority of such firms as experts regarding
the matters addressed in their respective reports.
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GLOSSARY OF CERTAIN OIL AND GAS INDUSTRY TERMS
The definitions set forth below shall apply to the indicated terms as used
in this Offering Memorandum. All volumes of natural gas referred to herein are
stated at the legal pressure base of the state or area where the reserves exist
and at 60 degrees Fahrenheit and in most instances are rounded to the nearest
major multiple.
BBL. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
BCF. One billion cubic feet of natural gas.
BCFE. One billion cubic feet of natural gas equivalent, determined using
the ratio of one Bbl of crude oil or condensate to six Mcf of natural gas.
BTU. British thermal unit, which is the heat required to raise the
temperature of a one pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
BBTU. One billion Btus.
DEVELOPED ACREAGE. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
DEVELOPMENT WELL. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive in an
attempt to recover proved undeveloped reserves.
DRY HOLE OR WELL. A well found to be incapable of producing hydrocarbons in
sufficient quantities to justify completion as an oil or gas well.
ESTIMATED FUTURE NET REVENUES. Revenues from production of oil and gas, net
of all production-related taxes, lease operating expenses and capital costs.
EXPLORATORY WELL. A well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
FINDING COST. Total costs incurred to acquire, explore and develop oil and
gas properties divided by the increase in proved reserves through acquisition of
proved properties, extensions and discoveries, improved recoveries and revisions
of previous estimates.
GROSS ACRE. An acre in which a working interest is owned.
GROSS WELL. A well in which a working interest is owned.
LEASE OPERATING EXPENSE. All direct costs associated with and necessary to
operate a producing property.
MBBL. One thousand barrels of crude oil or other liquid hydrocarbons.
MBTU. One thousand Btus.
MCF. One thousand cubic feet of natural gas.
MCFE. One thousand cubic feet of natural gas equivalent, determined using
the ratio of one Bbl of oil or condensate to six Mcf of natural gas.
MMBBL. One million barrels of crude oil or other liquid hydrocarbons.
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MMBTU. One million Btus.
MMCF. One million cubic feet of natural gas.
MMCFE. One million cubic feet of natural gas equivalent, determined using
the ratio of one Bbl of oil or condensate to six Mcf of natural gas.
NET ACRES OR NET WELLS. The sum of the fractional working interests owned
in gross acres or gross wells, as the case may be.
PRESENT VALUE. When used with respect to oil and gas reserves, the
estimated future gross revenue to be generated from the production of proved
reserves, net of estimated production and future development costs, using prices
and costs in effect as of the date of the report or estimate, without giving
effect to non-property related expenses such as general and administrative
expenses, debt service and future income tax expense or to depreciation,
depletion and amortization, discounted using an annual discount rate of 10%. The
prices used to estimate future revenues of the Company include the effects of
Fixed-Price Contracts except where otherwise specifically noted. Estimated
quantities of proved reserves are determined without regard to such contracts.
PRODUCTIVE WELL. A well that is producing or that is capable of producing
oil or gas.
PROVED DEVELOPED RESERVES. Proved reserves that are expected to be
recovered through existing wells with existing equipment and operating methods.
PROVED RESERVES. The estimated quantities of oil, natural gas and natural
gas liquids that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions.
PROVED UNDEVELOPED RESERVES. Proved reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion.
RESERVE LIFE INDEX. A measure of how long it will take to produce a
quantity of reserves, calculated by dividing estimated reserves by production
for the twelve months immediately preceding the date of determination (in
natural gas equivalents).
RESERVE REPLACEMENT RATIO. A percentage determined by dividing the
estimated proved reserves added during a year from exploration and development
activities, acquisitions of proved reserves and revisions of previous estimates
by the oil and gas volumes produced during that year.
TBTU. One trillion Btus.
TCFE. One trillion cubic feet of gas equivalent, determined using the ratio
of one Bbl of oil or condensate to six Mcf of natural gas.
UNDEVELOPED ACREAGE. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved
reserves.
WORKING INTEREST. The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
Important Information Concerning Exchange Notes........................... 4
Forward-Looking Statements................................................ 5
Summary................................................................... 6
Selected Historical and Pro Forma Financial Data.......................... 14
Selected Historical and Pro Forma Operating Data.......................... 16
Selected Historical and Pro Forma Reserves Data........................... 17
Use of Proceeds........................................................... 18
Capitalization............................................................ 19
The Company............................................................... 20
Description of Exchange Notes............................................. 26
The Exchange Offer........................................................ 39
Certain Federal Income Tax Consequences................................... 49
Plan of Distribution...................................................... 52
Legal Matters............................................................. 53
Experts................................................................... 53
Glossary of Certain Oil and Gas Industry Terms............................ 54
</TABLE>
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UNTIL MAY 14, 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$200,000,000
LOUIS DREYFUS NATURAL
GAS CORP.
OFFER TO EXCHANGE
6 7/8% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
FOR
6 7/8% SENIOR NOTES DUE 2007
WHICH HAVE NOT BEEN SO
REGISTERED
---------------------
PROSPECTUS
---------------------
FEBRUARY 13, 1998
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